Comrev Case Digest 2015-2016

CORPORATION CODE
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CA, 495 SCRA 591, G.R. No. 155650 July 20, 2006
Facts:
MIAA, having been assessed by the City Government of Paraaque for the payment of Real Estate Taxes,
sought refuge with the SC maintaining that it was exempt from payment of real estate taxes being a
government-owned corporation or controlled corporation.
Issue:
Whether MIAA is a Government-Owned or Controlled Corporation
Held:
MIAA is not a government-owned or controlled corporation but a government instrumentality vested with
corporate powers to perform efficiently its governmental functions and thus exempt from local taxation. When
the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains
a government instrumentality exercising not only governmental but also corporate powers.
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided
into shares and authorized to distribute to the holders of such shares dividends." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members,
trustees or officers."
1. MAGSAYSAY LABRADOR vs CA 180 SCRA 266, G.R. No. 58168 December 19, 1989
Facts:
In an annulment proceeding of the Deed of Assignment executed by the late Senator Magsaysay in
favor of SUBIC, the sisters of the late senator, filed a motion for intervention on the ground that their brother
conveyed to them 1/2 of his shareholdings in SUBIC and as assignees of SUBIC, they have a substantial legal
interest in the success of the suit with respect to SUBIC.
Issue:
Whether the assignment of shareholding put the sisters in a legal position to litigate.
Held:
The interest of the sisters is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the corp, it does
not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate
property being equitable and beneficial in nature. Shareholders are in no legal sense the owners of corporate
property, which is owned by the corp as a distinct legal person.
2. SULO NG BAYAN VS. ARANETA, 72 SCRA 247, GR L-31061, 17 August 1976

Facts:
An action to recover the ownership and possession of a large tract of land filed by Sulo ng Bayan, Inc
against Gregorio Araneta Inc.et al was dismissed for lack of cause of action. Sulo ng Bayan filed a motion to
reconsider the Order of dismissal, arguing among others that the complaint states a sufficient cause of action
because the subject matter of the controversy in one of common interest to the members of the corporation
who are so numerous that the present complaint should be treated as a class suit.
Issue:
Whether the corporation may institute an action in behalf of its individual members for the recovery of
certain parcels of land allegedly owned by said members.
Held:
It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct
legal entity to be considered as separate and apart from the individual stockholders or members who
compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or
members. A corporation ordinarily has no interest in the individual property of its stockholders unless transferred
to the corporation, "even in the case of a one-man corporation."
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3. Bataan Shipyard & Engineering Co., Inc vs Presidential Commission on Good Government (PCGG)
150 SCRA 181, G.R. No. 75885, May 27, 1987
Facts:
A sequestration and a takeover order were issued against Bataan Shipyard & engineering Co., Inc.
(BASECO) by Presidential Commission on Good Government (PCGG). The sequestration order required, among
others, that BASECO produce corporate records under pain of contempt of the PCGG if it fails to do so.
BASECO assails this order as it avers, among others, that it is against BASECOs right against self-incrimination
and unreasonable searches and seizures.
ISSUE:
Whether or not BASECO has a right against self-incrimination.
HELD:
Right against self-incrimination has no application to juridical persons. There is a reserve right in the
legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of
certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed,
and whether they had been abused, and demand the production of the corporate books and papers for that
purpose.
Neither is the right against unreasonable searches and seizures applicable here. There were no searches
made and no seizure pursuant to any search was ever made. BASECO was merely ordered to produce the
corporate records.
4. Luxuria Homes, Inc. vs Court of Appeals, 302 SCRA 315, G.R. No. 125986, January 28, 1999
Facts:
Posadas and Bravo entered into an agreement for the development and architectural design of Luxuria
Homes. Bravo finished the architectural design but Posadas refused to make payment. Bravo then filed a
complaint for specific performance against Posadas but he included Luxuria Homes as a co-defendant as he
alleged that Luxuria Homes was a mere conduit of Posadas.
ISSUE:
Whether Luxuria Homes should be impleaded.
HELD:
The agreement between Posadas and Bravo was entered into even before Luxuria existed hence
Luxuria was never a party thereto. Whatever liability Posadas incurred arising from said agreement must be
borne by her solely and not in solidum with Luxuria. To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
5. Concept Builders vs NLRC, 257 SCRA 149, G.R. No. 108734, 29 May 1996,
FACTS:
Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to
be levied upon by the sheriff, for the satisfaction of the judgment of an illegal dismissal case against petitioner
Concept Builders, were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. He contended
that HPPI is a corporation that is separate and distinct from petitioner. The private respondents (the illegally
dismissed employees of Concept builders) claimed that Hydro (Phils.), Inc. (HPPI) and Concept Builders were
owned by the same incorporator/stockholders and that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them. They also claimed that the General Informations
Sheet, of HPPI and Concept Builders, submitted to the Securities Exchange Commission (SEC) were filed by the
same Virgilio O. Casio as the corporate secretary of both corporations, and shared the same address and/or
premises.
ISSUE:
Whether or not the doctrine of piercing the corporate veil should be applied
HELD:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact,
a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of instances, policies and practices that the controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control
must be shown to have been exercised at the time the acts complained of took place. Moreover, the control
and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

In this case, the petitioner ceased its business operations on the same day, when HPPI submitted its General
Information Sheet to SEC. Both corporations had the same president, the same board of directors, the same
corporate officers, and substantially the same subscribers. Concept Builders and HPPI shared the same address
and/or premises. Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business
conduit of Concept Builders and its emergence was skillfully orchestrated to avoid the financial liability that
already attached to Concept Builders.
6. Francisco Motors vs CA, 309 SCRA 72, G.R. No. 100812, June 25, 1999
FACTS:
Francisco Motors filed a complaint against Manuel, who was the counsel of the Francisco Family and
the corporation, for the non-payment of the original balance on the price of Jeep he bought from the
corporation. Manuel interposed a counterclaim for unpaid legal services rendered for incorporators, directors
and officers, to which the petitioner argued that being a corporation, it should not be held liable therefor
because these fees were owed by the incorporators, directors and officers of the corporation in their personal
capacity.
ISSUE:
Whether the doctrine of piercing the veil of corporate entity has application in the case at bar.
HELD:
Under the doctrine of piercing the veil of corporate entity, the corporation's separate juridical personality may be disregarded, for
example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the
corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may
be ignored.
The doctrine of piercing the corporate veil has no relevant application here. The rationale behind piercing
a corporation's identity in a given case is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a
shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the
petitioner as a corporation, which is being ordered to answer for the personal liability of certain individual
directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned
upside down because of its erroneous invocation.
7. Times Transportation Company vs Santos Sotelo, et. al., 451 SCRA 587, G.R. No. 163786, February 16, 2005
FACTS:
While a labor dispute between Times and Times Employee Union was pending with the NLRC, Mencorp
Transport System Inc had acquired ownership over Times. Mencorp is controlled and operated by Mrs.
Mendoza, daughter of the majority stockholder of Times. After the closure of Times, the dismissed employees
filed a new set of cases before the Labor Arbiter. This time, they impleaded Mencorp and the Spouses
Mendoza.
ISSUE:
Whether or not piercing of the corporate veil is proper.
HELD:
Piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations,
the law will regard the corporations as merged into one. It may be allowed only if the following elements
concur: (1) controlnot mere stock control, but complete dominationnot only of finances, but of policy and
business practice in respect to the transaction attacked; (2) such control must have been used to commit a
fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of a legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of.
The sale of Times franchise as well as most of its bus units to a company owned by its major
stockholders daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is
evident that the transaction was made in order to remove Times remaining assets from the reach of any
judgment that may be rendered in the unfair labor practice cases filed against it. Piercing of the corporate veil
is proper.

8. Yao Sr. vs People, et. al., 525 SCRA 108, G.R. No. 168306, June 19, 2007
FACTS:
The case arose from 2 search warrants issued to the officers and directors, herein petitioners, of
Masagana Corp in connection with the violations of IP code in refilling and selling branded LPG tanks bearing
the mark Shellane and Gasul without authorization from the mark owners. MASAGANA, as third party
claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG Refilling Machine claiming
that it is the owner of the said motor compressor and LPG refilling machine.
ISSUE:
Whether or not it is proper to maintain the separate personality of Masagana and its stockholders.
HELD:
It is an elementary and fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is used
to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation
as an association of persons, or in the case of two corporations merge them into one. Here, the petitioners, as
directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights of Petron and
Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person
for liability purposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners.
9. Seventh Day Adventist vs Northeastern Mindanao Mission, 496 SCRA 215, G.R. No. 150416, July 21, 2006
FACTS:
Sps. Cosio donated the land in question to the petitioners South Philippine Union Mission of Seventh Day
Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan). Twenty-one years later, however, the
same parcel of land was sold by the spouses Cosio to the respondents Seventh Day Adventist Church of
Northeastern Mindanao Mission (SDA-NEMM). Petitioners asserted ownership over the property. This was
opposed by SDA-NEMM who argued that at the time of the donation, petitioners could not legally be a donee
because, not having been incorporated yet, it had no juridical personality. Petitioners arguments anchored on
their supposed de facto status.
ISSUE:
Whether SPUM-SDA Bayugan meets the essential for the existence of a de facto corporation.
HELD:
There are stringent requirements before one can qualify as a de facto corporation:
(a) The existence of a valid law under which it may be incorporated;
(b) An attempt in good faith to incorporate; and
(c) Assumption of corporate powers.
The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the
existence of a de facto corporation. An organization not registered with the Securities and Exchange
Commission (SEC) cannot be considered a corporation in any concept, not even as a corporation de facto.
While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDA Bayugan could have
been organized, there is no proof that there was an attempt to incorporate at that time. Petitioners themselves
admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to
organize to comply with legal requirements. Thus, the donation could not have been made in favor of an
entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to
accept it.
10. Lim Tong Lim vs CA, 317 SCRA 728, G.R. No. 136448, November 3, 1999
FACTS:
Lim and Yao agreed to engage in commercial fishing with Chua. Afterwards, Yao and Chua
represented themselves as acting in behalf of Ocean Quest Fishing Corporation (OQFC); they contracted with
Philippine Fishing Gear Industries, Inc. (PFGII) for the purchase of fishing nets. They were however unable to pay
PGFII and so they were sued in their own names because apparently OQFC is a non-existent corporation. Lim
contests his liability, insisting that only those who dealt in the name of the ostensible corporation should be held
liable. Since his name does not appear on any of the contracts and since he never directly transacted with
PFGII, ergo, he cannot be held liable.
ISSUE:
Whether Lim should be held jointly liable with Chua and Yao.
HELD:
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit
against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party
who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred
from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly
assented to or took advantage of.
Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing
it to be without valid existence, are held liable as general partners. It is true that Lim did not directly act on
behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with
whom he previously had an existing relationship, he is deemed to be part of said association and is covered by
the scope of the doctrine of corporation by estoppel.
11. International Express Travels and Tour Services vs CA, 343 SCRA 674, G.R. No. 119002, October 19, 2000
FACTS:
Philippine Football Federation (Federation) was organized to constitute the Philippine Amateur Athletic
Federation but there was no proof that it had been recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of Youth and Sports Development. Through its President Khan,
it entered into travel services with petitioner International Express Travel and Tour Services, Inc. Express Travel
sued Federation impleading Khan as a co-defendant when despite repeated demands, the Federation
defaulted payment. The appellate court in its decision stated that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence.
ISSUE:
Whether Travel Express, a third party who, knowing the Federation to be unincorporated, nonetheless
contracted with it, may be barred from denying its corporate existence, in claiming for the performance of
obligations of the other contracting party.
HELD:
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form
of a special law or a general enabling act. Before an entity may be considered as a national sports association, such entity must be
recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and
Sports Development under P.D. 604. The Philippine Football Federation cannot come into existence just upon the passage of these laws.
Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized
the existence of national sports associations and provided the manner by which these entities may acquire juridical personality.
Accordingly, the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does
not have corporate existence of its own.
Being an unincorporated entity, it follows that private respondent Henry Kahn should be held liable for the
unpaid obligations of Philippine Football Federation. It is a settled principal in corporation law that any person
acting or purporting to act on behalf of a corporation, which has no valid existence, assumes such privileges
and becomes personally liable for contract entered into or for other acts performed as such agent. The
doctrine of corporation by estoppel is not applicable in this particular case. The application of the doctrine
applies to a third party only when he tries to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability
from the contract but rather is the one claiming from the contract.
12. Filipinas Broadcasting Network, Inc vs Ago Medical and Educational Center-Bicol Christian College of
Medicine, 448 SCRA 64, GR. No. 141994, January 17, 2005
FACTS:
Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago
Medical and Educational Center (AMEC) Bicol Christian College of Medicine (BCCM) and its administrators.
Claiming that the broadcast were defamatory, AMEC and Ago, as dean of AMECs College of Medicine, filed
a complaint against Filipinas Broadcasting Network, Inc. (FBNI), Rima and Alegre.
ISSUE:
Can a private corporation bring a suit for libel and claim moral damages?
HELD:
YES. Item 7 of Article 2219 of the Civil Code does not qualify whether the plaintiff is a natural or juridical
person. 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, AMECs claim for moral damages falls under Article 2219(7). This provision expressly
authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. 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. Thus, AMEC is entitled to moral damages.
13. Coastal Pacific Trading Inc vs Southern Rolling Mills Co., Inc, 497 SCRA 11, G.R. No. 118692, July 28, 2006
FACTS:
In a complaint for Recovery of Property and Damages filed by petitioner Coastal Pacific Trading, Inc.
(Coastal) against Southern Rolling Mills Co., moral damages was prayed for.
ISSUE:
Whether a corporation such as Coastal is entitled to moral damages
HELD:
As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral
shock. The only exception to this rule is when the corporation has a good reputation that is debased, resulting in
its humiliation in the business realm. In the present case, the records do not show any evidence that the name
or reputation of petitioner has been sullied as a result of the Consortium's fraudulent acts. Accordingly, moral
damages are not warranted.
FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION
14. Lyceum of the Philippines vs CA, 219 SCRA 612, G.R. No. 101897, March 5, 1993
FACTS:
Petitioner instituted proceedings before the SEC to compel the private respondents, which are also
educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin
them from using "Lyceum" as part of their respective names. The SEC En Banc did not consider the word
"Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as
productive of confusion about the identity of the schools concerned in the mind of the general public.
ISSUE:
Whether the inclusion of the word LYCEUM by the private respondents constitutes a violation of the
provision of Section 18 of the Corporation Code.
HELD:
The policy underlying the prohibition in Section 18 against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public
which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and
the reduction of difficulties of administration and supervision over corporations.
The corporate names of private respondent entities all carry the word "Lyceum" but confusion and
deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, the
"Lyceum of Aparri" cannot be mistaken by the general public for the Lyceum of the Philippines, or that the
"Lyceum of Camalaniugan" would not be confused with the Lyceum of the Philippines.
15. Ang mga Kaanib sa Iglesia ng Dios vs Iglesia ng Dios Kay kristo Jesus, G.R. No. 137592, December 12, 2001
FACTS:
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan filed before the SEC a
petition, praying that petitioner Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas
be compelled to change its corporate name and be barred from using the same or similar name on the
ground that the same causes confusion among their members as well as the public. The acronym "H.S.K."
stands for Haligi at Saligan ng Katotohanan. Petitioner claims that it complied with the SEC guideline on
Corporate Names, which states that If the proposed name contains a word similar to a word already used as
part of the firm name or style of a registered company, the proposed name must contain two other words
different from the name of the company already registered, by adding not only two but eight words to their
registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which, petitioner argues, effectively
distinguished it from respondent corporation.
ISSUE:
Whether the name of the petitioner and the respondent causes confusion among their members as well
as the public.

HELD:
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are merely
descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the
Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion
or difficulty in distinguishing petitioner from respondent. Significantly, the only difference between the corporate
names of petitioner and respondent are the words SALIGAN and SUHAY. These words are synonymous both
mean ground, foundation or support. Hence, their names are undisputably so similar that even under the test of
"reasonable care and observation" confusion may arise.
16. Young Auto Supply vs CA, 223 SCRA 670, G.R. No. 104175, June 25, 1993
FACTS:
In RTC Cebu, Young Auto Supply Co. Inc (YASCO) filed a complaint against Roxas, who in turn, filed a
motion to dismiss on the ground that the venue was improperly laid. YASCOs principal place of business is in
Cebu City having a branch office in Pasay City. The address of YASCO that appeared in the Deed of Sale of
YASCOs shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas is in Pasay
City.
ISSUE:
Whether or not the venue was improperly laid
HELD:
The Corporation Code precisely requires each corporation to specify in its articles of incorporation the
"place where the principal office of the corporation is to be located". The purpose of this requirement is to fix
the residence of a corporation in a definite place, instead of allowing it to be ambulatory. Actions cannot be
filed against a corporation in any place where the corporation maintains its branch offices. To allow an action
to be instituted in any place where the corporation has branch offices, would create confusion and work
untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal
actions in a place other than its principal place of business unless such a place is also the residence of a co-
plaintiff or a defendant. With the finding that the residence of YASCO for purposes of venue is in Cebu City,
where its principal place of business is located, the venue therefore was properly laid.
17. Republic Planters Bank vs Agana, 269 SCRA 1, G.R. No. 51765, March 3, 1997
FACTS:
Private respondents Robes-Francisco Realty and Development Corporation secured a loan from
petitioner Republic Planters Bank. As a part of the proceeds of the loan, preferred shares of stocks were issued
to private respondents. Such certificate of stocks bears the terms and conditions the right to receive quarterly
dividend and it may be redeemed.
ISSUE:
Whether the private respondents can compel petitioner to redeem the preferred shares.
HELD:
Redeemable shares, are shares usually preferred, which by their terms are redeemable at a fixed date,
or at the option of either issuing corporation, or the stockholder, or both at a certain redemption price. A
redemption by the corporation of its stock is, in a sense, a repurchase of it for cancellation. The present Code allows redemption of shares
even if there are no unrestricted retained earnings on the books of the corporation. This is a new provision, which in effect qualifies the
However, while
general rule that the corporation cannot purchase its own shares except out of current retained earnings.
redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings, this is
subject to the condition that the corporation has, after such redemption, assets in its books to cover debts and
liabilities inclusive of capital stock. Redemption, therefore, may not be made where the corporation is insolvent
or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature.
In this case, the redemption of said shares cannot be allowed. The Central Bank made a finding that
said petitioner has been suffering from chronic reserve deficiency, and that such finding resulted in a directive,
prohibiting the petitioner from redeeming any preferred share, on the ground that said redemption would
reduce the assets of the Bank to the prejudice of its depositors and creditors.
18. Castillo et al vs Balinghasay, 440 SCRA 442, G.R. No. 150976, October 18, 2004
FACTS:
Petitioners and the respondents are stockholders of Medical Center Paraaque, Inc. (MCPI), with the
former holding Class B shares and the latter Class A shares. MCPIs Article of Incorporation provides that Only
holders of Class A shares have the right to vote and the right to be elected as directors or as a corporate
officers.

ISSUE:
Whether or not holders of Class "B" shares of the MCPI may be deprived of the right to vote and be
voted for as directors in MCPI.
HELD:
Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly provided
for, such that "no share may be deprived of voting rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code" and that "there shall always be a class or series of
shares which have complete voting rights." Section 6 of the Corporation Code being deemed written into the
Articles of Incorporation of MCPI, it necessarily follows that unless Class "B" shares of MCPI stocks are clearly
categorized to be "preferred" or "redeemable" shares, the holders of said Class "B" shares may not be deprived
of their voting rights. There is nothing in the Articles of Incorporation nor an iota of evidence on record to show
that Class "B" shares were categorized as either "preferred" or "redeemable" shares. The only possible conclusion
is that Class "B" shares fall under neither category and thus, under the law, are allowed to exercise voting rights.
19. Wilson Gamboa vs Secretary Margarito Teves, 652 SCRA 690, G.R. No. 176579, June 28, 2011
FACTS:
Philippine Telecommunications Investment Corporation (PTIC) is a common shareholder of the Philippine
Long Distance Telephone Company (PLDT). Its 111,415 shares, or 46.125 percent of the outstanding capital
stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines. When these
shares, which represent 6.4 percent of the outstanding common shares of stock of PLDT, was sold to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), petitioner
Gamboa, a nominal shareholder of PLDT, questioned the sale. He claimed that it would result in an increase in
First Pacifics common shareholdings in PLDT to 37%, and this, if combined with Japanese NTT DoCoMos
common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56% which is
over the 40% constitutional limit. Margarito Teves, as Secretary of Finance argued that this is okay because in
totality, most of the capital stocks of PLDT is Filipino owned (PLDT has 86.29% Filipino Equity, most of which are preferred
shares). Gamboa argued that the term capital should only pertain to the common shares because that is the
share which is entitled to vote and thus have effective control over the corporation.
ISSUE:
Does the term "capital" in Section 11, Article XII of the Constitution refer to common shares or to the total
outstanding capital stock (combined total of common and non-voting preferred shares)?
HELD:
One of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised
through his vote in the election of directors because it is the board of directors that controls or manages the corporation. In the absence of
provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common
shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same
manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote.
Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation
restricting the right of common shareholders to vote is invalid.
Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers
only to common shares. However, if the preferred shares also have the right to vote in the election of directors,
then the term "capital" shall include such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in the election of directors. In short, the
term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.
20. Wilson Gamboa vs Secretary Margarito Teves, RESOLUTION, 652 SCRA 690, G.R. No. 176579, October 9, 2012
FACTS:
This is a resolution on motions for reconsideration of the Court's June 28, 2011 Decision, which partially
granted the petition for prohibition, injunction and declaratory relief interposed by nominal stockholder of PLDT,
Wilson P. Gamboa. In the assailed decision, the Court held that the term "capital" appearing in Section 11,
Article XII of the 1987 Constitution refers only to common shares or shares of stock entitled to vote in the election
of the members of the board of directors of a public utility, and not to the total outstanding capital stock.
Respondents Manuel V. Pangilinan and Napoleon L.Nazareno separately moved for reconsideration on
procedural and substantive grounds, but reserved their main arguments against the meaning of "capital."

ISSUE:
In considering the Courts definition of the term "capital" in Section 11, Article XII of the Constitution, how
does the the 60-40 rule apply in a situation where a public utility issues a mixture of common and preferred
shares, and what is the definition of a Philippine National for purposes of investment?
HELD:
Since a specific class of shares may have rights and privileges or restrictions different from the rest of the
shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of
the Constitution must apply not only to shares with voting rights but also to shares without voting rights. Preferred
shares, denied the right to vote in the election of directors, are anyway still entitled to vote on the eight specific
corporate matters mentioned in Section 6 of the Corporation Code or BP 68. Thus, if a corporation, engaged in
a partially nationalized industry, issues a mixture of common and preferred non-voting shares, at least 60
percent of the common shares and at least 60 percent of the preferred non-voting shares must be owned by
Filipinos. Of course, if a corporation issues only a single class of shares, at least 60 percent of such shares must
necessarily be owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens must
apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other
class of shares. This uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly
breathes life to the constitutional command that the ownership and operation of public utilities shall be
reserved exclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly
the 60-40 ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences in
voting rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by
the Constitution.
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted
Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), which defined a "Philippine national" . The
FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or a domestic
corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to vote" is owned by
Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock is owned
by Filipino citizens. This definition of a "Philippine national" is crucial in the present case because the FIA
reiterates and clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation
of public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.
CONTROL AND MANAGEMENT OF A CORPORATION
21. Grace Christian Highschool vs CA, 281 SCRA 133, G.R. No. 108905, October 23, 1997
FACTS:
Petitioner Grace Christian High School, an educational institution located at the Grace Village, was
given a permanent seat in the board of directors of private respondent Grace Village Association, Inc. by virtue
of the provisions of the associations by-laws.
ISSUE:
Is permanent representation allowed in the Board Of Directors?
HELD:
No, the board of directors of corporations must be elected from among the stockholders or members every
year. Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years,
cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if
it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. Estoppel
does not set in to legitimize what is wrongful.
22. Gokongwei vs SEC, 89 SCRA 336, G.R. No. L-45911, April 11, 1979
FACTS:
Gokongwei, as a stockholder of San Miguel Corp., filed with the SEC a petition for declaration of nullity
of amended by-laws against the majority members of the Board of Directors of SMC. He claimed that prior to
the questioned amendment, he had all the qualifications to be a director of SMC, and that in amending the
by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right.
Gokongwei principally owned and controlled CFC and Robina companies, which are in substantial
competition to San Miguel.
ISSUE:
Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election
to the Board of Directors of SMC are valid and reasonable

HELD:
The corporation has the power to provide for the qualifications of its directors, however the
disqualification of a competitor from being elected to the Board of Directors must be a reasonable exercise of
corporate authority. An officer of a corporation cannot engage in a business in direct competition with that of
the corporation where he is a director by utilizing information he has received as such officer, under "the
established law that a director or officer of a corporation may not enter into a competing enterprise which
cripples or injures the business of the corporation of which he is an officer or director. It is also well established
that corporate officers "are not permitted to use their position of trust and confidence to further their private
interests. "The doctrine of "corporate opportunity is precisely recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities with competing interests. This
doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for
protection.
In the case at bar, access by a competitor to confidential information regarding marketing strategies and
pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly
enrich the competitor, for advance knowledge by the competitor of the strategies for the development of
existing or new markets of existing or new products could enable said competitor to utilize such knowledge to
his advantage. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or corporate interests to the prejudice of
San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Thus,
the amended by-laws is valid, but it does not follow as a necessary consequence that petitioner is ipso facto
disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner
must be given the fullest opportunity to show that he is not covered by the disqualification.
23. Peoples Air Cargo vs CA, 297 SCRA 170, G.R. No. 117847, October 7, 1998
FACTS:
Sao and Punsalan, president of People's Aircargo and Warehousing Co., Inc. entered into another
consultancy service after they both fulfilled their own obligations in their first contract. This time, Sao was not
paid so he filed a collection case against the corporation to which the corporation answered that the second
contract entered into between Sao and Punsalan was without authority.
ISSUE:
Whether Punsalan has apparent authority to bind People's Aircargo to the second contract.
HELD:
The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a
corporation. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom
or acquiescence in the general course of business.
The authority to act for and to bind a corporation may be presumed from acts of recognition in other
instances, wherein the power was in fact exercised without any objection from its board or shareholders.
Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in other
words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of
a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his
ordinary powers. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation.
Hence, private respondent Sao should not be faulted for believing that Punsalan's conformity to the
contract in dispute was also binding on People's Aircargo. It is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out
to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who
has in good faith dealt with it through such agent, be estopped from denying the agent's authority.
24. Marc II Marketing, Inc. and Lucila Joson v. Alfredo M. Joson, 662 SCRA 235, G.R. No. 171993, December 12,
2011
Facts:
Before Marc II Marketing, Inc. was officially incorporated, Alfredo M. Joson has already been engaged
by Lucila, in her capacity as President, to work as General Manager of the corporaton and it was formalized
through the execution of a Management Contract Marc Marketing, Inc., as Marc II Marketing, Inc. was yet to

be incorporated. When Marc II was officially incorporated and registered with the SEC, Alfredo continued to
discharge his duties as General Manager but this time under petitioner corporation. Article IV of the approved
by-laws provides that its corporate officers are as follows: Chairman, President, one or more Vice-President(s),
Treasurer and Secretary. Its Board of Directors, however, may, from time to time, appoint such other officers as it
may determine to be necessary or proper.
Issue:
Whether or not Marc II Marketing Inc.s Board of Directors could create a position for corporate officers
through an enabling clause found in its corporate by-laws?
Held:
Pursuant to the provision Section 25 of the Corporation Code, whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create
other Offices without amending first the corporate by-laws. However, the Board may create appointive
positions other than the positions of corporate Officers, but the persons occupying such positions are not
considered as corporate officers within the meaning of Section 25 of the Corporation Code and are not
empowered to exercise the functions of the corporate Officers, except those functions lawfully delegated to
them. In the case at bar, unless and until petitioner corporations by-laws is amended for the inclusion of
General Manager in the list of its corporate officers, such position cannot be considered as a corporate office
within the realm of Section 25 of the Corporation Code.
25. Sps. David et al vs CIAC, 435 SCRA 654, G.R. No. 159795, July 30, 2004
FACTS:
Respondent-spouses Quiambao engaged the services of petitioner COORDINATED GROUP, INC. (CGI)
to design and construct a five-storey concrete office/residential building. Petitioner-spouses Roberto and
Evelyn David as its President and Treasurer, respectively, revised and deviated from the structural plan of the
building without notice to or approval by the clients.
ISSUE:
Whether Sps. David as corporate officers is solidary liable with CGI in the payment of the arbitral award.
HELD:
Yes. As a general rule, the officers of a corporation are not personally liable for their official acts unless it
is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee
or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the
corporation or for bad faith or gross negligence in directing its affairs.
26. Inter-Asia Investments Industries vs CA, 403 SCRA 452, G.R. No. 125778, June 10, 2003
FACTS:
Inter-Asia Industries, Inc., by a stock purchase agreement, sold to Asia Industries its rights, title and
interest in and to all its outstanding share of stock in FARMACOR, Inc., through the president of both companies.
It appeared after the audit that FARMACOR had a net worth deficiency, so the contract price had been
adjusted. Asia Industries having already paid petitioner the guaranteed net worth of FARMACOR, it was entitled
to a refund of the difference of the guaranteed net worth and the adjusted contract price. Inter-Asia
thereafter proposed, by letter, signed by its president, that Asia Industries claim for refund be reduced and
promising Asia Industries to pay the cost. Inter-Asia, now, argues that the letter-proposal has no legal force and
effect against it, as its board of directors did not authorize it.
ISSUE:
Whether the letter of the president of the Inter-Asia is not binding on the petitioner being ultra vires.
HELD:
It is valid and binding. An officer of a corporation who is authorized to purchase the stock of another
corporation has the implied power to perform all other obligations arising therefrom, such as payment of the
shares of stock. By allowing its president to sign the Agreement on its behalf, petitioner Inter-Asia clothed him
with apparent capacity to perform all acts, which are expressly, impliedly and inherently stated therein.
ANTONIO C. CARAG vs NLRC, 520 SCRA 28, G.R. No. 147590, April 2, 2007
FACTS:
National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU),
on behalf of all of Mariveles Apparel Corporations (MAC) rank and file employees, filed a complaint against
MAC for illegal dismissal brought about by its illegal closure of business. Complainants contend that the officers
must be jointly and personally liable with the corporation to assure the satisfaction of the judgment. They argue
that a corporate officer can be held liable for acting on behalf of the corporation when the latter is no longer

in existence and there are valid claims of workers that must be satisfied. NLRC and CA found the corporate
officers as jointly and personally liable for the debts of MAC for the money claims of the employees.
ISSUE:
When is a director personally liable for the debts of the corporation and what would constitute a
patently unlawful act which makes a director personally liable for the obligations of the corporation?
HELD:
A corporate officer is not liable for corporate debts except when he willfully and knowingly votes for or
assents to patently unlawful acts of the organization or if he is guilty of gross negligence or bad faith in directing
the affairs of the corporation. In this case, the respondent officers did not do any of said enumerated acts, thus
he is not liable with the corporation, which has a separate and distinct personality of its own.
For a wrongdoing to make a director personally liable for debts of the corporation, the wrongdoing
approved or assented to by the director must be a patently unlawful act. Mere failure to comply with the
notice requirement of labor laws on company closure or dismissal of employees does not amount to a patently
unlawful act. Patently unlawful acts are those declared unlawful by law which imposes penalties for
commission of such unlawful acts. There must be a law declaring the act unlawful and penalizing the act. In
this case, Article 283 of the Labor Code, requiring a one-month prior notice to employees and the Department
of Labor and Employment before any permanent closure of a company, does not state that non-compliance
with the notice is an unlawful act punishable under the Code. There is no provision in any other Article of the
Labor Code declaring failure to give such notice an unlawful act and providing for its penalty.
27. Megan Sugar Corp. V RTC, 650 SCRA 100, G.R. No. 170352, June 1, 2011
Facts:
In a case filed by New Frontier Sugar Corporation (NFSC) against Central Iloilo Milling Corporation
(CIMICO), Atty. Sabig, accompanied by Megan Sugar Corporations and general manager, appeared before
the RTC and entered his appearance as counsel for MEGAN. When RTC ruled in favor of NFSC, MEGAN
challenged Atty. Sabigs authority and the RTCs jurisdiction. MEGAN points out that its board of directors did
not issue a resolution authorizing Atty. Sabig to represent the corporation before the RTC. It contends that Atty.
Sabig was an unauthorized agent and as such his actions should not bind the corporation.
Issue:
Whether MEGAN is bound by the representation of Atty. Sabig.
Held:
A corporation may be held in estoppel from denying as against innocent third persons the authority of
its officers or agents who have been clothed by it with ostensible or apparent authority. Atty. Sabig may not
have been armed with a board resolution, but the appearance of Concha made the parties assume that
MEGAN had knowledge of Atty. Sabigs actions and, thus, clothed Atty. Sabig with apparent authority such
that the parties were made to believe that the proper person and entity to address was Atty. Sabig. Apparent
authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency, imposes
liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a
principal or an employer in somehow misleading the public into believing that the relationship or the authority
exists. MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with apparent
authority to act in their behalf. Certainly, it would be unjust and inequitable to the other parties if this Court
were to grant such a belated jurisdictional challenge.
CORPORATE POWERS
28. Dee vs SEC, 199 SCRA 238, G.R. No. L-60502, July 16, 1991
FACTS:
Naga Telephone Co., Inc. (Natelco) through its board, entered into a contract with Communication
Services, Inc. (CSI), issuing its shares of stock as payment for the supply and installation of additional equipment
needed by Natelco. Petitioner Dee said that the board, in issuing said shares without notifying Natelco
stockholders, violated their right of pre-emption to the unissued shares.
ISSUE:
Whether or not Natelco stockholders have a right of preemption to the 113,800 shares in question;
HELD:
The general rule is that pre-emptive right is recognized only with respect to new issues of shares, and not with respect to additional
issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have
offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a

definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot
therefore claim a dilution of interest
The questioned issuance of stocks is not invalid even assuming that it was made without notice to the
stockholders as claimed by Dee. The power to issue shares of stocks in a corporation is lodged in the board of
directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks
does not need approval of the stockholders. Consequently, no pre-emptive right of Natelco stockholders was
violated by the issuance of the 113,800 shares to CSI.
29. Ma. Corina C. Jiao, et. al. vs. NLRC, et. al., 670 SCRA 184, G.R. No. 182331, April 18, 2012
Facts:
THE petitioners were regular employees of the Philippine Banking Corp. (Philbank). Philbank merged with Global
Business Bank, Inc. (Global Bank) then Metropolitan Bank and Trust Company (Metrobank) acquired the assets
and liabilities of Globalbank through a Deed of Assignment and Assumption of Liabilities. In a complaint for
non-payment of separation pay, the petitioners insist that Metrobank is liable because it is the parent
company of Globalbank and that majority of the latters board of directors are also members of the formers
board of directors.
Issue:
Whether or not the absorbing company be made liable for the debts of the absorbed company.
Held:
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets, except
when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3)
where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the selling
corporation fraudulently enters into the transaction to escape liability for those debts.
Under the Deed of Assignments of Assets and Assumption of Liabilities between Globalbank and
Metrobank, the latter accepted the formers assets in exchange for assuming its liabilities. They do not include
Globalbanks liabilities to pay separation pay to its former employees. Hence, this obligation could not have
been passed on to Metrobank. While the petitioners allegations are true, one fact cannot be ignored that
Globalbank has a separate and distinct juridical personality.
30. Loyola Grand Villas Homeowners Association vs CA, 276 SCRA 681, G.R. No. 117188, August 7, 1997
FACTS:
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was issued a certificate of incorporation
under its official seal. For unknown reasons, however, LGVHAI did not file its corporate by-laws. Five years later,
the officers of the LGVHAI tried to register its by-laws but they failed to do so on the ground, unknown to them,
that it had been automatically dissolved for not submitting its by-laws within the period required by the
Corporation Code.
ISSUE:
May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as
mandated by Section 46 of the Corporation Code, result in its automatic dissolution?
HELD:
No. The adoption and filing of by-laws is a condition subsequent which does not affect the corporate
personality of a corporation. Although the Corporation Code requires the filing of by-laws, there can be no
automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-
laws. There is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components
of due process in any democratic institution, agency or society. In other words, the incorporators must be given
the chance to explain their neglect or omission and remedy the same. Thus, the failure to file by-laws within the
required period is only a ground for suspension or revocation of the certificate of registration of corporations, it
will not result in automatic dissolution of the corporation.
31. China Banking Corporation vs CA, 270 SCRA 503, G.R. No. 117604, March 26, 1997
FACTS:
Calapatia, a stockholder of Valley Golf & Country Club, Inc., pledged his Stock Certificate to China
Banking Corporation. Due to Calapatia's failure to pay his obligation, the pledged stock certificate was
foreclosed and sold in public auction. Chinabank advised Valley Golf that it is the new owner of Calapatia's
Stock Certificate by virtue of being the highest bidder in the auction and requested that a new certificate of
stock be issued in its name. Valley Golf replied that "for reason of delinquency" Calapatia's stock was sold at

the public auction so Chinabank filed a case for the nullification of the auction. Valley Golf claimed that due
to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share in question in
accordance with the express provision found in its by-laws. In defending its actions, Valley Golf maintains that
Chinabank is bound by its by-laws.
ISSUE:
Whether a third party to a subscription agreement like Chinabank is bound by the by-laws of a
corporation.
HELD:
No. In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the
time the transaction or agreement between said third party and the shareholder was entered into, in this case,
at the time the pledge agreement was executed. Valley Golf could have easily informed Chinabank of its by-
laws when it sent notice formally recognizing Chinabank as pledgee of one of its shares registered in
Calapatia's name. Valley Golfs belated notice of said by-laws at the time of foreclosure will not suffice.
32. Associated Bank vs CA, 291 SCRA 511, G.R. No. 123793, June 29, 1998
FACTS:
Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC), merged to form
just one banking corporation known as Associated Citizens Bank, the surviving bank. The merger agreement
provided that all references to CBTC shall be deemed for all intents and purposes references to the surviving
bank ABC. After the merger, private respondent Sarmiento executed in favor of CBTC a promissory note
whereby Sarmiento undertook to pay the bank a sum certain in money. When he failed to pay the remaining
balance, ABC sued for collection. Sarmiento alleged that the complaint states no cause of action because
the promissory note was executed in favor of CBTC, not ABC.
ISSUE:
In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed company
subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange
Commission?
Whether Associated Bank, the surviving corporation, may enforce the promissory note made by private
respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.
HELD:
Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the
combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. The
merger, however, does not become effective upon the mere agreement of the constituent corporations. It requires the approval by the
Securities and Exchange Commission (SEC) and shall be effective only upon the issuance by the SEC of a certificate of merger.
The records do not show when the SEC approved the merger but the fact that the promissory note was
executed after the effectivity date of the merger does not militate against ABC where the agreement clearly
provides that all contracts irrespective of the date of execution entered into in the name of CBTC shall be
understood as pertaining to the surviving bank. The merger provision being clear, plain and free from
ambiguity, the same must be given its literal meaning. To let Sarmiento enjoy the fruits of his loan without
liability is unfair and unconscionable, amounting to unjust enrichment.
33. Mindanao savings vs Willkom, 634 SCRA 291, G.R. No. 178618, October 11, 2010
FACTS:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association,
Inc. (DSLAI) entered into a merger, with DSLAI as the surviving corporation later named as Mindanao Savings
and Loan Association, Inc. (MSLAI). The articles of merger were not registered with the SEC due to incomplete
documentation. The business of MSLAI, however, failed and was placed under receivership. Prior to the closure
of MSLAI, Uy filed an action for collection of sum of money against FISLAI. Properties of FISLAI were levied to
satisfy the judgment, was sold in public auction where Willkom was the highest bidder. MSLAI, represented by
PDIC, filed a complaint for Annulment of Sheriffs Sale. In answer, respondents Willkom et al averred that MSLAI
had no cause of action against them or the right to recover the subject properties because MSLAI is a separate
and distinct entity from FISLAI for the reason being that the "unofficial merger" between FISLAI and DSLAI (now
MSLAI) did not take effect.
ISSUE:
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?
HELD:
The merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its
prior determination that the merger is not inconsistent with the Corporation Code or existing laws. The issuance
of the certificate of merger is crucial because not only does it bear out SECs approval but it also marks the

moment when the consequences of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights and properties, as well as liabilities, shall be taken
and deemed transferred to and vested in the surviving corporation.
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered
with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required certificate of
merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized such merger,
the fact remains that no certificate was issued by the SEC. Such merger is still incomplete without the
certification. There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as
respondents, the two corporations shall not be considered as one but two separate corporations. Thus, the
assets that FISLAI transferred to MSLAI remained subject to execution and to satisfy the judgment claim of Uy
against FISLAI.
RIGHTS OF SHAREHOLDERS
34. Lee vs CA, 205 SCRA 752, G.R. No. 93695, February 4, 1992
FACTS:
The petitioners Lee and Lacdao, by virtue of the voting trust agreement disposed of all their shares in
Alfa Integrated Textile Mills (ALFA) through assignment and delivery in favor of the Development Bank of the
Philippines (DBP), as trustee. A complaint for a sum of money was filed by the International Corporate Bank,
Inc. against the private respondents SACOBA MANUFACTURING CORP and Gonzales who, in turn, filed a third
party complaint against ALFA and the petitioners. An alias summons was issued upon ALFA through the DBP as
a consequence of the petitioner's letter informing the court that by virtue of the voting trust agreement they
ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court
processes for or on behalf of ALFA.
ISSUE:
Did a director of the corporation cease to be such upon the creation of the voting trust agreement?
HELD:
YES. The most immediate effect of a voting trust agreement on the status of a stockholder who is a
party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, he
becomes the equitable or beneficial owner. There is also a clear indication, in section 23 of the present
Corporation Code, that in order to be eligible as a director, what is material is the legal title to, not beneficial
ownership of, the stock as appearing on the books of the corporation.
Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the
stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with
respect to the said shares of stocks. Thus, the petitioners can no longer be deemed to have retained their
status as officers of ALFA.
A voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their
shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the
fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five-year period may be extended in
cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the
loan. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as
the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the
corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish
a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting
rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for
a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation.
35. Republic vs Sandiganbayan, 402 SCRA 84, G.R. Nos. 107789 & 147214, April 30, 2003
FACTS:
These consolidated cases stemmed from the resolutions of the Sandiganbayan ordering the calling and
holding of the Eastern Telecommunications, Philippines, Inc. (ETPI) annual stockholders meeting for the fiscal
year 1992 under its supervision, and authorizing the PCGG to cause the holding of a special stockholders
meeting to increase ETPIs authorized capital stock and to vote therein the sequestered class A shares of
stock.
ISSUE:
Whether the PCGG should be allowed to vote sequestered shares.
HELD:
The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It
may not vote the shares in a corporation and elect members of the board of directors. The only conceivable

exception is in a case of a takeover of a business belonging to the government or whose capitalization comes
from public funds, but which landed in private hands. When sequestered shares registered in the names of
private individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test
is applied. However, when the sequestered shares in the name of private individuals or entities are shown,
prima facie, to have been (1) originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply. Rather, the public character exception
prevails; that is, the government shall vote the shares.
The two-tiered test are: (1) whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to
the state; and (2) whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the
PCGG while the main issue pends with the Sandiganbayan.
36. Republic vs COCOFED, 372 SCRA 462, G.R. No. 147062-64, December 14, 2001
FACTS:
In 1986 and 1987, numerous business enterprises, entities, and pieces of property, real and personal,
were sequestered or taken over by the PCGG on the ground that these were ill-gotten property of former
President Marcos, his family, and close associates. Among these sequestered properties were shares of stock in
the United Coconut Planters Bank (UCPB) registered in the name of more than 1 million coconut farmers and of
the so-called Coconut Industry Investment Fund (CIIF) companies. In connection with the sequestration and
take-over of said UCPB shares of stock, the PCGG, instituted an action for reconveyance, reversion,
accounting, restitution, and damages against Eduardo Cojuangco, Jr. and sixty others with the
Sandiganbayan. During the pendency of the case, the UCPB Board of Directors passed and approved a
resolution calling for a stockholders' meeting of UCPB, which had not held any stockholders' meeting since
1986. In anticipation of the announced stockholders' meeting, COCOFED, et al. filed a class action omnibus
motion seeking to enjoin the PCGG from voting in the announced stockholders' meeting the UCPB shares of
stock registered in the names of the more than one million coconut farmers. The Sandiganbayan, in its order
enjoined the PCGG from voting the sequestered shares of stock of UCPB and authorized COCOFED, et al. to
vote the UCPB shares registered in their names and themselves be voted upon at the stockholders' meeting of
the of the bank.
ISSUE:
Who may vote the sequestered UCPB shares while the main case for their reversion to the State is
pending in the Sandiganbayan?
HELD:
The right to vote sequestered shares of stock registered in the names of private individuals or entitles
and alleged to have been acquired with ill-gotten wealth shall, as a general rule, be exercised by the
registered owner. The PCGG may, however, be granted such voting right provided it can (1) show prima facie
evidence that the wealth and/or the shares are indeed ill-gotten; and (2) demonstrate imminent danger of
dissipation of the assets, thus necessitating their continued sequestration and voting by the government until a
decision, ruling with finality on their ownership, is promulgated by the proper court. However, the foregoing
"two-tiered" test does not apply when the sequestered stocks are acquired with funds that are prima facie
public in character or, at least, are affected with public interest. Inasmuch as the subject UCPB shares in the
present case were undisputably acquired with coco levy funds, which are public in character, then the right to
vote them shall be exercised by the PCGG. In sum, the "public character" test, not the "two-tiered" one, applies
in the instant controversy.
37. Chua vs CA, 443 SCRA 259, G.R. No. 150793, November 19, 2004
FACTS:
Private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint charging Francis
Chua and his wife for committing acts of falsification by falsifying the minutes of the annual stockholders
meeting. Chua argued that Hao had no authority whatsoever to bring a suit in behalf of the Corporation since
there was no Board Resolution authorizing her to file the suit. For her part, r Hao claimed that the suit was
brought under the concept of a derivative suit.
ISSUE:
Is the criminal complaint in the nature of a derivative suit?
HELD:
Under Section 36 of the Corporation Code, read in relation to Section 23, where a corporation is an injured party, its power to sue
is lodged with its board of directors or trustees. An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal
party, with the corporation as the real party in interest. A derivative action is a suit by a shareholder to enforce a corporate cause of
action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment against a third person in favor of the

corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend
on behalf of the corporation.
Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint
that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly
situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded
as a party because not only is the corporation an indispensable party, but it is also the present rule that it must
be served with process. The judgment must be made binding upon the corporation in order that the
corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for
the same cause of action. In other words, the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res adjudicata against it.
In the criminal complaint filed by Hao, nowhere is it stated that she is filing the same in behalf and for
the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be
deemed in the nature of a derivative suit.
38. Expert Travel and Tours Inc vs CA and Korean Airlines, 459 SCRA 147, G.R. No. 152392, May 26, 2005
FACTS:
Korean Airlines (KAL) through Atty. Aguinaldo filed a complaint against Expertravel and Tours, Inc. (ETI)
for the collection of sum of money. Atty. Aguinaldo claimed that he had been authorized to file the complaint
through a resolution of KALs Board Of Directors approved during a special meeting through teleconferencing.
ISSUE:
Whether or not teleconferencing is a valid form of corporate meeting.
HELD:
Yes. In this age of modern technology, the courts may take judicial notice that business transactions
may be made by individuals through teleconferencing. Teleconferencing and videoconferencing of members
of board of directors of private corporations maybe allowed provided that the guidelines, related to such
conferences, set forth by the SEC shall be complied with. However, Corporation Code requires board
resolution of corporations to be submitted to the SEC. In the case at bar, no record was submitted. The Court is,
thus, more inclined to believe that the alleged teleconference never took place, and that the resolution
allegedly approved by KALs Board of Directors during the said teleconference was a mere concoction
purposefully foisted to avert the dismissal of its complaint against Expert Travel.
39. Gonzales vs PNB, 122 SCRA 489, G.R. No. L-33320, May 30, 1983
FACTS:
Gonzales bought 1 share of stock from the PNB, thereafter, sought to look over the books and records of
the PNB. It was admitted that his purpose in doing so was to verify the truth on certain transactions, which the
bank entered into, as well as to inquire the validity of said transactions.
ISSUE:
Whether the alleged improper motive in asking for an examination of the books and records of the
respondent bank disqualifies him to exercise the right of a stockholder to such inspection.
HELD:
The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer holds
true under the provisions of the present law. If there is any doubt that the right of inspection granted under Section 51 of the old
Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now
dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68.
The new Corporation Code has prescribed limitations to the right of inspection granted to a
stockholder. It is now expressly required as a condition for such examination that the one requesting it must not
have been guilty of using improperly any information through a prior examination, and that the person asking
for such examination must be "acting in good faith and for a legitimate purpose in making his demand." The
circumstances under which Gonzales acquired one share of stock in the respondent bank purposely to
exercise the right of inspection do not argue in favor of his good faith and proper motivation. Admittedly he
sought to be a stockholder in order to pry into transactions entered into by the respondent bank even before
he became a stockholder. His obvious purpose was to arm himself with materials which he can use against PNB
for acts done by the latter when he was a total stranger to PNB. He could have been impelled by a laudable
sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder.

SUBSCRIPTION CONTRACT
40. Ong Yong et al vs Tiu, RESOLUTION, 375 SCRA 614, GR 144476 & 144629, April 8, 2003
FACTS:
First Landlink Asia Devt Corp (FLADC) was originally incorporated with authorized capital stock of
500,000 shares with the Tius owning 450,000 shares representing the paid up capital. When the Tius invited the
Ongs to invest, an increase of the authorized capital stock became necessary to give each group equal
shareholding as agreed upon the pre-subscription contract. The Tius thereafter, wanted to rescind the pre-
subscription agreement.
ISSUE:
Whether or not the Tius could legally rescind the pre-subscription contract.
HELD:
A subscription contract necessarily involves the corporation, as one of the contracting parties since the
subject matter of the transaction is property owned by the corporation its shares of stock. Thus, the Tius did not
contract in their personal capacities with the Ongs since they were not selling any of their own shares to them.
It was FLADC that did. Considering therefore that the real contracting parties to the subscription agreement
were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius
in their personal capacities will not prosper.
NON-STOCK CORPORATIONS
41. Sta. Clara Homeowners Association vs Sps. Gaston, 374 SCRA 396, G.R. No. 141961, January 23, 2002
FACTS:
Sps. Gaston purchased their lots in Sta. Clara Subd. At the time of the purchase, there was no mention
or requirement of membership in any homeowners association. They filed complaint for damages because
they were prevented from entering the subdivision by virtue of board resolution decreeing that only its
members in good standing were to be issued stickers for use in their vehicles. Petitioners argued that in its by-
laws contains a provision that all real estate owners automatically become members of the association.
ISSUE:
Whether or not homeowner may be compelled to be a member of the association by provision of its
by-laws.
HELD:
Membership in homeowners association must be voluntary and cannot be unilaterally forced by a
provision in the associations AOI or by-laws.
The Sps. Gaston cnnot be compelled to become members of SCHA by the simple expedient of
including them in its AOI and by-laws with out their express or implied consent.
42. PADCOM vs Ortigas Center, 382 SCRA 222, G.R. No. 146807, May 9, 2002
FACTS:
The land on which the building of PADCOM was originally from the Ortigas & Company by Tiera Devt
Corp (TDC) under a Dead of Sale with condition that the transferee and its successor-in-interest must become
members of association for realty owners and long term lessees in the area later known as Ortigas Center. Said
lot was conveyed by TDC in favor of PADCOM. Thereafter, respondent Ortigas Center was organized to
advance the interests and promote the general welfare of the real estate owners and sought the collection of
membership dues from PADCOM.
ISSUE:
Whether PADCOM can be compelled to join the association pursuant to provision on automatic
membership appearing as a condition in the deed of sale and the annotation thereof on TCT.
HELD:
Automatic membership in the landowners association is not violation of the freedom of association.
PADCOM was never forced to join the association. It could have avoided such membership by not buying the
land from TDC.

43. Tan vs Sycip, 499 SCRA 216, G.R. No. 153468, August 17, 2006
FACTS:
One of the petitioners Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of trustees. During the annual
members meeting, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the
eleven, seven (7) attended the meeting through their respective proxies. The meeting was convened and
chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum.
ISSUE:
Whether dead members should still be counted in the determination of the quorum, for purposes of
conducting the annual members meeting.
HELD:
For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the
number of outstanding voting stocks. For non-stock corporations, only those who are actual, living members
with voting rights shall be counted in determining the existence of a quorum during members meetings. Dead
members shall not be counted.
CLOSE CORPORATIONS
44. San Juan Structural Steel Fabricators vs CA, 296 SCRA 631, G.R. No. 129459, September 29, 1998
FACTS:
San Juan Structures filed a complaint against Motorich Sales Corp (MSC) as a result of the latters bad
faith in refusing to execute a formal transfer of rights /Deed of Assignment which is necessary to transfer the
certificate of title. MSC and its treasurer Mrs. Gruenberg, wife of the chairman and president of MCS,
interposed that Mrs. Gruenbergs signature is inadequate to bind MSC. San Juan argues that being solely
owned by the Sps. Gruenberg, the company can be treated as a close corporation thus can be bound by the
acts of its principal stockholder who needs no specific authority.
ISSUE:
Whether MSC is a close corporation
HELD:
The AOI of MSC does not contain any provision stating that (1) the number of stockholders shall not
exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3)
listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it
is clear that Respondent MSC is not a close corporation. MSC does not become one either, just because
Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The mere ownership
by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personalities. So, too, a narrow distribution of ownership does
not, by itself, make a close corporation.
RELIGIOUSLEDUCATIONAL CORPORATIONS
45. Iglesia Evangelista vs Bishop Lazaro, 624 SCRA 224, G.R. No. 184088, July 6 2010
FACTS:
Iglesia Evangelica Metodista En Las Islas Filipinas, Inc. (IEMELIF) was established as a corporation sole. It
remained a corporation sole on paper (with all corporate powers theoretically lodged in the hands of one
member, the General Superintendent), but it had always acted like a corporation aggregate.
Acting on the advice of SEC, the Consistory, IEMELIFs decision-making body resolved to convert the IEMELIF to
a corporation aggregate. The SEC said that the IEMELIF needed to amend its articles of incorporation for the
purpose of converting IEMELIF to corporation aggregate. Petitioners Reverend Nestor Pineda, et al., which
belonged to a faction that did not support the conversion, filed a civil case for the Declaration of Nullity of
Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate against respondent
members of its Consistory. Petitioners claim that a complete shift from IEMELIFs status as a corporation sole to a
corporation aggregate required, not just an amendment of the IEMELIFs articles of incorporation, but a
complete dissolution of the existing corporation sole followed by a re-incorporation.

ISSUE:
Whether or not a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.
HELD:
There is no point to dissolving the corporation sole of one member to enable the corporation aggregate
to emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being remains
distinct from its members, whatever be their number. The increase in the number of its corporate membership
does not change the complexion of its corporate responsibility to third parties. The one member, with the
concurrence of two-thirds of the membership of the organization for whom he acts as trustee, can self-will the
amendment. He can, with membership concurrence, increase the technical number of the members of the
corporation from "sole" or one to the greater number authorized by its amended articles.
Here, the evidence shows that the IEMELIFs General Superintendent, respondent Bishop Lazaro, who
embodied the corporation sole, had obtained, not only the approval of the Consistory that drew up corporate
policies, but also that of the required two-thirds vote of its membership.
CORPORATE DISSOLUTION/LIQUIDATION
46. Gelano vs CA, 103 SCRA 90, G.R. No. L-39050, February 24, 1981
FACTS:
During the pendency of a complaint filed by Insular Sawmills (IS) against the Sps. Gelano, Sps. Gelano
after having known that IS was dissolved by shortening its shortening the corporate existence, filed a motion to
dismiss on the ground that the case was prosecuted after the dissolution of IS and a corporation as such
cannot maintain a suit for or against it without first complying the requirments of the winding up of the affairs of
the corp.
ISSUE:
Whether a corporation, whose corporate life had ceased by the expiration of its term of existence,
could still continue prosecuting and defending suits after its dissolution and beyond the period of three years
provided for under Act No. 1459, otherwise known as the Corporation law, to wind up its affairs, without having
undertaken any step to transfer its assets to a trustee or assignee.
HELD:
A corporation that has a pending action and which cannot be terminated within the three-year period
after its dissolution is authorized under Section 78 to convey all its property to trustees to enable it to prosecute
and defend suits by or against the corporation beyond the Three-year period. Although private respondent IS
did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in
the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation only. Thus, there was a substantial compliance with
Section 78 of the Corporation Law and as such, private respondent Insular Sawmill, Inc. could still continue
prosecuting the present case even beyond the period of three (3) years from the time of its dissolution.
47. Clarion Printing House vs NLRC, 461 SCRA 272, G.R. No. 148372, June 27, 2005
FACTS:
While Petitioner Company Clarion was placed under receivership, Miclat, a former employee of Clarion
filed a case for illegal dismissal. There was a full-blown trial with the Labor arbiter, and even reached the SC for
the sole question on the legality of dismissal.
ISSUE:
Should the employees claim for illegal dismissal be suspended?
HELD:
With the appointment of a management receiver, all claims and proceedings against CLARION,
including labor claims, were deemed suspended during the existence of the receivership. The labor arbiter, the
NLRC, as well as the CA should not have proceeded to resolve respondents complaint for illegal dismissal and
should instead have directed respondent to lodge her claim before the then duly-appointed receiver of
CLARION. To still require respondent, however, at this time to refile her labor claim against CLARION under the
peculiar circumstances of the case that 8 years have lapsed since her termination and that all the arguments
and defenses of both parties were already ventilated before the labor arbiter, NLRC and the CA; and that
CLARION is already in the course of liquidation this Court deems it most expedient and advantageous for both
parties that CLARIONs liability be determined with finality, instead of still requiring respondent to lodge her claim

at this time before the liquidators of CLARION which would just entail a mere reiteration of what has been
already argued and pleaded.
48. Lingkod Manggagawa sa Rubberworld vs Rubberworld Phils Inc, 513 SCRA 208, G.R. No. L-153882, January
29, 2007
FACTS:
While a complaint for unfair labor practice (ULP)filed by Lingkod Manggagawa Sa Rubberworld,
Adidas-Anglo (Lingkod) against Rubberworld was pending with Labor Arbiter Dinopol, Rubberworld filed with
the SEC a Petition for Declaration of a State of Suspension of Payments with Proposed Rehabilitation Plan. The
petition was granted by the SEC and ordered for the creation of the Management Committee and suspension
of all actions for claims against Rubberworld Philippines, Inc. pending before any court, tribunal, office, board,
body, Commission or sheriff. Notwithstanding the SEC's aforementioned suspension order and despite
Rubberworld's submission of a Motion to Suspend Proceedings, Labor Arbiter Dinopol went ahead with the ULP
case and rendered his decision.
ISSUE:
Whether Labor claims are likewise suspended upon the creation of a management committee or
appointment of a receiver.
HELD:
The law is clear: upon the creation of a management committee or the appointment of a rehabilitation
receiver, all claims for actions "shall be suspended accordingly." No exception in favor of labor claims is
mentioned in the law. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex non
distinguit nec nos distinguere debemos. Allowing labor cases to proceed clearly defeats the purpose of the
automatic stay and severely encumbers the management committee's time and resources. The said
committee would need to defend against these suits, to the detriment of its primary and urgent duty to work
towards rehabilitating the corporation and making it viable again. Thus, when NLRC proceeded to decide the
case despite the SEC suspension order, the NLRC acted without or in excess of its jurisdiction to hear and
decide cases. As a consequence, any resolution, decision or order that it rendered or issued without jurisdiction
is a nullity.
49. Garcia et al vs PAL, 576 SCRA 479, G.R. No. 164856 August 29, 2007
FACTS:
Prior to the promulgation of the Labor Arbiters decision in an illegal dismissal case against PAL filed by
Garcia, the SEC placed PAL, which suffering from financial losses, under Interim Rehabilitation Receiver.
ISSUE:
Whether the appointment of Management Committee or receivers affects the proceedings.
HELD:
Upon appointment by the SEC of a rehabilitation receiver, all actions for claims against the corporation
pending before any court, tribunal or board shall ipso jure be suspended. The purpose of the automatic stay of
all pending actions for claims is to enable the rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the
corporation. The suspension of all actions for claims against the corporation embraces all phases of the suit, be
it before the trial court or any tribunal or before this Court. No other action may be taken, including the
rendition of judgment during the state of suspension. It must be stressed that what are automatically stayed or
suspended are the proceedings of a suit and not just the payment of claims during the execution stage after
the case had become final and executory. The actions that are suspended cover all claims against the
corporation whether for damages founded on a breach of contract of carriage, labor cases, collection suits or
any other claims of a pecuniary nature. No exception in favor of labor claims is mentioned in the law.
50. Sobrejuanite vs ASB, 471 SCRA 763, G.R. No. 165675, September 30, 2005
FACTS:
Sps. Sobrejuanite filed a complaint for rescission of contract to sell against ASB Development
Corporation (ASBDC) before the Housing and Land Use Regulatory Board (HLURB). ASBDC filed a motion to
dismiss or suspend proceedings in view of the approval by the Securities and Exchange Commission (SEC) of
the rehabilitation plan of ASB Group of Companies, which includes ASBDC, and the appointment of a
rehabilitation receiver.
ISSUE:
Whether the complaint for rescission of contract is a claim within the contemplation of PD No. 902-A
that will suspend the proceedings before the HLURB.

HELD:
The Interim Rules of Procedure on Corporate Rehabilitation define a claim as referring to all claims or
demands, of whatever nature or character 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. Clearly then, the complaint for rescission with damages would fall under the
category of claim considering that it is for pecuniary considerations.
The HLURB arbiter should have suspended the proceedings upon the approval by the SEC of the ASB Group
of Companies rehabilitation plan and the appointment of its rehabilitation receiver. It is well to note that even
the execution of final judgments may be held in abeyance when a corporation is under rehabilitation. Hence,
there is more reason in the instant case for the HLURB arbiter to order the suspension of the proceedings as the
motion to suspend was filed soon after the institution of the complaint. By allowing the proceedings to proceed,
the HLURB arbiter unwittingly gave undue preference to Sobrejuanite over the other creditors and claimants of
ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD 902-A.
51. PANLILIO, ET AL. VS. RTC, PEOPLE OF THE PHILIPPINES AND SSS, 641 SCRA 438, G.R. NO. 173846, FEBRUARY 2,
2011
FACTS:
The petitioners are corporate officers of Silahis International Hotel,Inc. (SIHI) who have filed a petition for
Suspension of Payments and Rehabilitation before a commercial court. However, at the time of the filing of the
petition for rehabilitation by the Silahis Hotel, there were a number of criminal charges pending against the
corporate officers for violation of the SSS law. Subsequently, the officers filed with the criminal court a motion to
suspend proceedings arguing that the stay order issued by the commercial court should also apply to the
criminal cases then pending.
ISSUE:
Does the suspension of all claims as an incident to a corporate rehabilitation also contemplate the
suspension of criminal charges filed against the corporate officers of the distressed corporation?
HELD:
The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the
corporation, especially since they are charged in their individual capacities. Such being the case, the purpose
of the law for the issuance of the stay order is not compromised, since the appointed rehabilitation receiver
can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not
charged to defend the officers of the corporation. If there is anything that the rehabilitation receiver might be
remotely interested in is whether the court also rules that petitioners are civilly liable.
52. Villamor Jr. vs Umale, GR. 172843, Sept 24, 2014

FACTS:
Due to the alleged inaction of the directors, Balmores filed with the Regional Trial Court an intra-
corporate controversy complaint against petitioner Villamayor et al. He alleged in his complaint that because
of petitioner Villamayors actions, Pasig Printing Corporations (PPC) assets were not only in imminent danger,
but have actually been dissipated,lost, wasted and destroyed and thus a receiver be appointed. The Regional
Trial Court denied respondent Balmores prayer for the appointment of a receiver or the creation of a
management committee. He assailed this decision with the Court of Appeals which reversed the trial courts
decision, and issued a new order placing PPC under receivership and creating an interim management
committee.
ISSUE:
Whether the Appointment of a management committee was proper and whether the Court of Appeals
has jurisdiction to appoint the receiver or management.
HELD:
A corporation may be placed under receivership, or management committees may be created to
preserve properties involved in a suit and to protect the rights of the parties under the control and supervision of
the court. Management committees and receivers are appointed when the corporation is in imminent danger
of "(1) dissipation, loss, wastage or destruction of assets or other properties; and (2) paralysation of its business
operations that may be prejudicial to the interest of the minority stockholders, parties-litigants, or the general
public." Respondent Balmores, however, failed to show that there was an imminent danger of paralysis of
PPCs business operations. Apparently, PPC was earning substantial amounts from its other sub-lessees.
Respondent Balmores did not prove otherwise. He, therefore, failed to show at least one of the requisites for
appointment of a receiver or management committee.

The Court of Appeals has no power to appoint a receiver or management committee. The Regional
Trial Court has original and exclusive jurisdiction to hear and decide intra-corporate controversies, including
incidents of such controversies. These incidents include applications for the appointment of receivers or
management committees.
FOREIGN CORPORATIONS
53. Facilities Management vs Dela Osa, 89 SCRA 131, G.R. No. L-38649, March 26, 1979
FACTS:
Petitioner Facilities Management Corporation, a non-resident foreign corp recruited Filipinos to work in
Wake Island. Private respondent Dela Osa sought to recover overtime compensation, in his petition to Court of
Industrial Relations (CIR) which rendered favorably for the respondent. Petitioner claims that CIR cannot affirm
a judgment against persons domiciled outside and not doing business in the Phils.
ISSUE:
Can the CIR validly affirm a judgment against persons domiciled outside and not doing business in the
Philippines, and over whom it did not acquire jurisdiction?
HELD:
The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation
from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without
taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the
Legislature to exclude a foreign corporation, which happens to obtain an isolated order for business from the
Philippines, from securing redress in the Philippine courts. Indeed, if a foreign corporation, not engaged in
business in the Philippines, is not banned from seeking redress from courts in the Philippines, a fortiori, that same
corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or
persons in the Philippines.
54. Home insurance vs Eastern Shipping Lines, 123 SCRA 424, G.R. No. L-34382, July 20, 1983
FACTS:
Home Insurance entered into an insurance contract with Phelps Dodge an d International Harvester for
the Cargoes shipped by Eastern Shipping and N. V. Nedlloyd Lijnen without necessary licenses to coduct
business in the Phils. But when the complaints in these two consolidated cases were filed, Home Insurance had
already secured their license to conduct its insurance business in the Phils.
ISSUE:
Whether or not Home Insurance has the capacity to sue for claims as subrogee.
HELD:
A contract entered into by a foreign corporation not licensed to do business in the Phils is not necessarily
void and the lack of capacity to sue at the time of the contract is cured by its subsequent registration.
55. Eriks vs CA, 267 SCRA 567, G.R. No. 118843, 6 February 1997
FACTS:
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation which sold its products sixteen times over a
five-month period to the same Filipino buyer without first obtaining a license to do business in the Philippines. It
filed with the Regional Trial Court for the recovery of sum of money against the respondent Delfin Enriquez, Jr.
who filed a Motion to Dismiss, contending that petitioner corporation had no legal capacity to sue.
ISSUE:
Whether petitioner-corporation may maintain an action in Philippine courts considering that it has no
license to do business in the country and whether petitioners business with private respondent may be treated
as isolated transactions.
HELD:
The series of transactions in question could not have been isolated or casual transactions. The transactions
entered into by Eriks with the Enriquez are a series of commercial dealings which would signify an intent on the
part of Eriks to do business in the Philippines and could not by any stretch of the imagination be considered an
isolated one, thus would fall under the category of doing business.
There is no definitive rule on what constitutes doing, engaging in, or transacting business. The Corporation
Code itself does not define such terms. The accepted rule in jurisprudence is that each case must be judged in
the light of its own environmental circumstances. It should be kept in mind that the purpose of the law is to
subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to

prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile
for the purpose of business without first taking the steps necessary to render it amenable to suits in the local
courts. Here it can be clearly gleaned from the four-month period of transactions between appellant and
appellee that it was a continuing business relationship, which would, without doubt, constitute doing business
without a license. For all intents and purposes, petitioner corporation is doing or transacting business in the
Philippines without a license and that, therefore, in accordance with the specific mandate of Section 144 of
the Corporation Code, it has no capacity to sue.
56. Mentholatum vs Mangaliman, 72 Phil 524, G.R. No. 47701, June 27, 1941
FACTS:
Mentholatum Co., Inc., a Kansas corporation, instituted an action against the Mangaliman Brothers or
Infringement of Trademark and Unfair Competition. Its product is being distributed exclusively by Phil. American
Drug Company.
ISSUE:
Whether Mentholatum is doing business in the Phils.
HELD:
No general rule or governing principle can be laid down as to what constitutes 'doing' or 'engaging in' or
'transacting' business. Indeed, each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized or whether it has substantially retired from it
and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and object of its organization.
The activities of the Mentholatum were business transactions in the Phils, and that by Section 69 of The
Corpo Law, it may not maintain the present suit.
This case discoursed on the two general tests to determine whether or not a foreign corporation can be considered as "doing business"
in the Philippines. The first of these is the substance test, thus: The true test [for doing business], however, seems to be whether the foreign
corporation is continuing the body of the business or enterprise for which it was organized or whether it has substantially retired from it and
turned it over to another. The second test is the continuity test, expressed thus: The term [doing business] implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of
the functions normally incident to, and in the progressive prosecution of, the purpose and object of its organization.
57. Merrill Lynch Futures Inc vs CA, 211 SCRA 824, G.R. No. 97816, 24 July 1992
FACTS:
Merrill Lynch Futures, Inc. (ML FUTURES), operating in the United States, had done business with the Lara
Spouses in the Philippines over several years, had done so at all times through Merrill Lynch Philippines, Inc.
(MLPI), a corporation organized in this country, and had executed all these transactions without ML FUTURES
being licensed to transact business here, and without MLPI being authorized to operate as a commodity futures
trading advisor. ML FUTURES filed a complaint against the Sps Lara for the recovery of debt owing to their
Futures Customer Agreement. The Sps. Lara refused to pay and moved to dismiss the case alleging that ML
FUTURES had no legal capacity to sue because ML FUTURES is doing business in the country without a license.
ISSUE:
Whether or not ML FUTURES may sue in Philippine Courts to establish and enforce its rights against Lara
spouses, in light of the undeniable fact that it had transacted business in this country without being licensed to
do so.
HELD:
An unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine courts
against a Philippine citizen or entity who had contracted with and benefited from said corporation. Such a suit
is premised on the doctrine of estoppel. A party is estopped from challenging the personality of a corporation
after having acknowledged the same by entering into a contract with it. The application of this principle
prevents a person contracting with a foreign corporation from later taking advantage of its noncompliance
with the statutes chiefly in cases where such person has received the benefits of the contract.
58. Agilent Technolgies Singapore vs Integrated Silicon Technology Phils Corp., 427 SCRA 593, G.R. No. 154618,
April 14, 2004
FACTS:
Agilent Technolgies Singapore, a foreign corp not licensed to do business in the Phils, filed a complaint
against Integrated Silicon Technology Phils Corp. The latter filed a motion to dismiss on the ground of lack of
Agilents legal capacity to sue. Agilents activities in the Philippines were confined to (1) maintaining a stock of

goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2)
consignment of equipment with Integrated Silicon to be used in the processing of products for export.
ISSUE:
Whether or not Agilent lacks capacity to file suit.
HELD:
No. A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is "transacting" or "doing business" in the
country. By and large, to constitute "doing business", the activity to be undertaken in the Philippines is one that
is for profit making. In conjunction with Section 1 of the Implementing Rules and Regulations of the FIA, it can
be said that the activities of Agilent do not constitute doing business.
This case mentions the principles regarding the right of a foreign corporation to bring suit in Philippine courts may be condensed in
four statements: (1) if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts; (2) if
a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or
on a cause of action entirely independent of any business transaction; (3) if a foreign corporation does business in the Philippines without a
license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign
corporations corporate personality in a suit brought before Philippine courts; and (4) if a foreign corporation does business in the Philippines
with the required license, it can sue before Philippine courts on any transaction.
59. Narra Nickel Mining vs Redmont, 722 SCRA 382, GR 195580, April 21, 2014
FACTS:
Redmont Consolidated Mines Corp. (Redmont) filed before the Panel of Arbitrators of the DENR three
separate petitions for the denial of the applications for Mineral Production Sharing Agreement (MPSA) of
petitioners Narra Nickel and Mining Development Corp., Tesoro Mining and Development, Inc., and McArthur
Mining Inc. Redmont alleged that at least 60% of the capital stock of the petitioners are owned and controlled
by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont argued that given that petitioners
capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens. Petitioners claimed that the issue on nationality
should not be raised since they are in fact Philippine Nationals as 60% of their capital is owned by citizens of the
Philippines.
ISSUE:
Whether the petitioners be disqualified for being considered as Foreign Corporations.
HELD:
The "control test" is the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. However, when in the mind of the Court
there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, it may then apply the "grandfather rule." This case calls for the application of the
grandfather rule since, doubt prevails and persists in the corporate ownership of petitioners, the reason being,
their common investor, the 100% Canadian corporationMBMI, funded them. In effect, whether looking at the
capital structure or the underlying relationships between and among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are
owned by MBMI. Thus, they are not qualified applicants to engage in mining activities
There are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule. The first
case is the liberal rule, later coined as the Control Test, which states, Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality. Under the liberal Control Test, there is no need
to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation, which is at least
60%, Filipino-owned is considered as Filipino. The second case is the Strict Rule or the Grandfather Rule Proper, which states, "but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the
Investing Corporation and the Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.
60. Steelcase, Inc vs Design Condo, 670 SCRA 64, GR 171995, April 18, 2012
FACTS:
Steelcase, Inc. (Steelcase), a foreign corporation engaged in the manufacture of office furniture with
dealers worldwide, and Design International Selections, Inc. (DISI), a domestic corporation which was founded
and independently owned and managed by the spouses Bantug, orally entered into a dealership agreement
whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user
customers within the Philippines. The arrangement was to ask quotation from Steelcase, which would, in turn,
give special quotations or discounts after considering the value of the entire package then DISI would then
add out profit margin over Steelcases prices. In addition to Steelcase products, DISI also distributed products of

other companies. When their business relationship turned sour, Steelcase filed a complaint for sum of money
against DISI. DISI posited that the complaint should be dismissed because Steelcase was doing business in the
Philippines without the required license to do so, thus lacks of legal capacity to sue in Philippine courts.
ISSUE:
Whether or not Steelcase is doing business in the Philippines without a license
HELD:
The appointment of a distributor in the Philippines is not sufficient to constitute "doing business" unless it is
under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity,
which buys and distributes products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines.
In the case at bench, the only reasonable conclusion that can be reached is that DISI was an
independent contractor, distributing various products of Steelcase and of other companies, acting in its own
name and for its own account. As a result, Steelcase cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.
SEC JURISDICTION
61. Yujuico vs Quiambao, 513 SCRA 243, GR No. 168639, January 29, 2006
FACTS:
Quiambao et al filed with the RTC a Complaint against Strategic Alliance Development Corporation or
STRADEC (represented by herein petitioners as members of its Board of Directors), for the nullification of the
election of its officers on the ground of improper venue and for the issuance of a temporary restraining order
(TRO) and/or writ of preliminary injunction to enjoin petitioners from discharging their functions as directors and
officers of STRADEC. The court granted Quiambaos application for the writs of preliminary prohibitory
injunction. Recognizing that the effect of the issuance of this Order would create a hiatus in the action of the
board of directors of STRADEC, pending the determination of the merits of the case and after trial on the merits,
the court also ordered that an election be undertaken of the members of the board and officers.
ISSUE:
Whether the RTC has the power to call a special stockholders meeting involving an intra-corporate
controversy.
HELD:
Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation Code", the
jurisdiction of the SEC over intra-corporate controversies has been transferred to the courts of general
jurisdiction, or the appropriate RTC. Clearly, the RTC has the power to hear and decide the intra-corporate
controversy of the parties herein. Concomitant to said power is the authority to issue orders necessary or
incidental to the carrying out of the powers expressly granted to it. Thus, the RTC may, in appropriate cases,
order the holding of a special meeting of stockholders or members of a corporation involving an intra-
corporate dispute under its supervision.
62. Baviera v. Paglinawan, et al., 515 SCRA 170, G.R. No. 168380, February 8, 2007
Facts:
Manuel Baviera purchased securities called Global Third Party Mutual Funds (GTPMF) under an
Investment Trust Agreement from the Standard Chartered Bank-Philippines (SCB). Baviera demanded
compensation from SCB because SCB allegedly guaranteed the investment against loss, but the latter rejected
the demand. Baviera then filed with the DOJ two criminal cases against the members of the board of directors
and officials of the SCB.
Issue:
Can a victim of securities fraud directly file a criminal case for violation of the Securities Regulation
Code (SRC) with the Department of Justice (D0J)?
Held:
The case must first be filtered by the SECthe administrative agency that has the specialized
knowledge and expertise to deal with the matterbefore a criminal complaint can be filed with the
Prosecutors Office. 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

63. SEC vs Performance Foreign Exchange Corporation, 495 SCRA 579, GR No 154131 July 20, 2006
FACTS:
After two years of operation, Performance Foreign Exchange Corporation (PFEC) received a letter from
SEC requiring it to appear before the Compliance and Enforcement Department (CED) for a clarificatory
conference regarding its business operations. PFECs officers complied and explained before the CED the
nature of their business. The Director of CED issued a Cease and Desist Order for possible violation of R.A.No.
8799 (otherwise known as The Securities Regulation Code) and that the outcome of the inquiry shows that
respondent is engaged in the trading of foreign currency futures contracts in behalf of its clients without the
necessary license; that such transaction can be deemed as a direct violation of Section 11 of R.A. No. 8799.
Thereafter, SEC issued an order making the Cease and Desist Order permanent.
ISSUE:
Whether or not SEC acted with grave abuse of discretion in issuing the Cease and Desist Order and its
subsequent Order making it permanent.
HELD:
Before a cease and desist order may be issued by the SEC, there must be a showing that the act or
practice sought to be restrained will operate as a fraud on investors or is likely to cause grave, irreparable injury
or prejudice to the investing public. Such requirement implies that the act to be restrained has been
determined after conducting the proper investigation/verification. In this case, the nature of the act to be
restrained can only be determined after the BSP shall have submitted its findings to SEC. However, there is
nothing in the questioned Orders that shows how the public is greatly prejudiced or damaged by PFECs
business operation.
64. Securities And Exchange Commission vs CA, G.R. No. 187702, October 22, 2014
FACTS:
Astra Securities Corporation (Astra) filed a Complaint before the Securities and Exchange Commission
(SEC) praying for the invalidation of the proxies issued in favor of Tommy Kin Hing Tia (Tia). Astra also prayed for
the issuance of a cease and desist order (CDO) enjoining the holding of Omico Corporation (Omico)s annual
stockholders meeting until the SEC had resolved the issues pertaining to the validation of proxies. SEC issued
the CDO enjoining Omico from accepting and including the questioned proxies in determining a quorum and
in electing the members of the board of directors during the annual stockholders meeting. Omico filed before
the CA a Petition for Certiorari and Prohibition imputing grave abuse of discretion on the part of the SEC for
issuing the CDO. CA declared the CDO null and void, thus the SEC (take note, SEC hahaha) filed this Petition for
Certiorari.
ISSUE:
Whether the SEC has jurisdiction over controversies arising from the validation of proxies for the election
of the directors of a corporation.
HELD:
While the regular courts now had the power to hear and decide cases involving controversies in the
election of directors, it was not clear whether the SRC also transferred to these courts the incidental and
ancillary powers of the SEC as enumerated in Section 6 of P.D. 902-A. Thus, in GSIS v. CA, the court explained
that the power of the SEC to regulate proxies remains in place in instances when stockholders vote on matters
other than the election of directors. The test is whether the controversy relates to such election. All matters
affecting the manner and conduct of the election of directors are properly cognizable by the regular courts.
Otherwise, these matters may be brought before the SEC for resolution based on the regulatory powers it
exercises over corporations, partnerships and associations.
Indeed, the validation of proxies in this case at bar relates to the determination of the existence of a
quorum. Nonetheless, it is a quorum for the election of the directors, and, as such, which requires the presence
in person or by proxy of the owners of the majority of the outstanding capital stock of Omico. Therefore, SEC
committed grave abuse of discretion in taking cognizance of Astras complaint.
Note that Quasi-judicial agencies do not have the right to seek the review of an appellate court decision reversing any of their rulings.
This is because they are not real parties-in-interest. Thus, the Court expunged the petition filed by the SEC for the latter's lack of capacity to
file the suit.
65. Medical Plaza vs Cullen, 709 SCRA 110, GR. 181416, November 11, 2013
FACTS:
Medical Plaza Makati Condominium Corporation (MPMCC) is a condominium corporation duly
organized and existing under Philippine laws, charged with the management of the Medical Plaza Makati.
Respondent Robert H. Cullen, on the other hand, is the registered owner of Unit No. 1201 and is thus a
stockholder/member of the condominium corporation. Cullen filed a Complaint for Damages against MPMCC
because according to him MPMCC considered him a delinquent payer while in fact he religiously paid all the
corresponding monthly contributions/association dues and other assessments imposed on the same. That the
branding as delinquent member was willfully and deceitfully employed so as to prevent him from exercising his
right to vote or be voted as director of the condominium corporation.
ISSUE:
Does the controversy involve intra-corporate issues as would fall within the jurisdiction of the RTC sitting
as a special commercial court or an ordinary action for damages within the jurisdiction of regular courts?
HELD:
Applying the the relationship test and the nature of the controversy test, the case at bar involves intra-
corporate controversy. It obviously arose from the intra-corporate relations between the parties, and the
questions involved pertain to their rights and obligations under the Corporation Code and matters relating to
the regulation of the corporation. Admittedly, petitioner is a condominium corporation. Respondent, on the
other hand, is a stockholder/member of the condominium corporation being a registered owner of one of the
units. Clearly, there is an intra-corporate relationship between the corporation and a stockholder/member. The
nature of the action is determined by the body rather than the title of the complaint. Though denominated as
an action for damages, an examination of the allegations made by respondent in his complaint shows that the
case principally dwells on the propriety of the assessment made by petitioner against respondent as well as the
validity of petitioners act in preventing respondent from participating in the election of the corporations Board
of Directors.
An intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation, partnership
or association and the public; (2) between the corporation, partnership or association and the State insofar as its franchise, permit or
license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers;
and (4) among the stockholders, partners or associates themselves. Thus, under the relationship test, the existence of any of the above
intra-corporate relations makes the case intra-corporate. Under the nature of the controversy test, "the controversy must not only be rooted
in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties correlative rights and
obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation." In other words, jurisdiction
should be determined by considering both the relationship of the parties as well as the nature of the question involved.
NEGOTIABLE DOCUMENT
PRELIMINARY CONSIDERATIONS
66. Phil. Educ. Co., Inc. vs. Soriano, 39 SCRA 587, G.R. No. L-22405, June 30, 1971
FACTS:
Montinola sought to purchase from Manila Post Office money orders without having paid for it. After
the discovery of the unpaid money orders, a message was sent to all postmasters instructing them not to pay
anyone that holds the orders. The Philippine Education Co., Inc. (PECI) presented one of the missing postal
money orders before the Bank of America. The money order was initially credited and deposited in PECIs
account with the bank. But then later the post office, through Mauricio Soriano, advised the bank that the
money order was irregularly issued hence its equivalent amount was debited back from PECIs account. PECI is
now invoking that the money order was duly negotiated to them and thus they are entitled to the amount it
represents.
ISSUE:
Whether or not postal money orders are negotiable instruments.
HELD:
No. Postal money orders are not negotiable instruments. The reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit. In fact, postal money orders are
subject to a lot of restrictions limiting their negotiability. Particularly in this case, as far back as 1948, there was
already an agreement between Bank of America and the Manila Post Office, that in case the post office
would have an adverse claim against any Bank of America depositor involving postal money orders issued by
the post office, all amounts cleared in relation thereto shall be refunded back to the post offices account with
the bank this in itself is already a limitation in the negotiability and nature of the postal money orders issued by
the post office because of the special conditions attached.

67. Philippine Airlines vs. CA, 181 SCRA 557, G.R. No. L-49188, January 30, 1990
FACTS:
In a complaint for damages filed by Amelia Tan against Pal, the court ruled in her favor. The
corresponding Writ of Execution was duly referred to Deputy Sheriff Reyes for enforcement. Checks were in the
name of Reyes. 4 months later, Tan moved for the issuance of an alias Writ of Execution because the judgment
remained unsatisfied. PAL answered that it has already satisfied its obligation as evidenced by check vouchers
signed and received by Sheriff Reyes.
ISSUE:
Whether or not payment by check to the absconding sheriff extinguished the judgment debt.
HELD:
NO. The payment made by PAL to the absconding sheriff was not in cash or legal tender but in checks.
The checks were not payable to Amelia Tan but to the absconding sheriff. In the absence of an agreement,
either express or implied, payment means the discharge of a debt or obligation in money and unless the parties
so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of
payment of his debt. Strictly speaking, the acceptance by the sheriff of the petitioners checks, in the case at
bar, does not, per se, operate as a discharge of the judgment debt. The check as a negotiable instrument is
only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as
payment. A check, whether a managers check or ordinary cheek, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.
Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished
and remains suspended until the payment by commercial document is actually realized.
FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS
68. Metropolitan Bank & Trust Company vs. CA, 194 SCRA 169, G.R. No. 88866, Feb. 18, 1991
FACTS:
Gomez opened an account with Golden Savings bank and deposited treasury warrants. All these
warrants were indorsed by the cashier of Golden Savings, and deposited it to the savings account in a
Metrobank. They were sent later on for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing. On persistent inquiries on whether the
warrants have been cleared, the branch manager allowed withdrawal of the warrants, only to find out later on
that the treasury warrants have been dishonored. Metrobank then demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the deficit in its account but the demand was rejected
so Metrobank sued Golden Savings. Trial court dismissed the complaint holding that the treasury warrants
involved in this case are not negotiable instruments.
ISSUE:
Whether the treasury warrants in question are negotiable instruments.
HELD:
The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was non-negotiable
and of equal significance is the indication that they are payable from a particular fund. This indication as the
source of payment to be made on the treasury warrant makes the promise to pay conditional and the warrants
themselves non-negotiable. Metrobank then cannot contend that by indorsing the warrants in general,
Golden Savings assumed that they were genuine and in all respects what they purport it to be, in accordance
to Section 66 of the NIL. The simple reason is that the law isnt applicable to the non-negotiable treasury
warrants. The indorsement was made for the purpose of merely depositing them with Metrobank for clearing.
69. Caltex Phils. vs. CA, 212 SCRA 448, G.R. No. 97753, August 10, 1992
FACTS:
On various dates, Security Bank And Trust Company, issued certificates of time deposit (CTDs) in favor of
one Angel dela Cruz, who in turn delivered those CTDs to Caltex Philippines in connection with his purchase of
fuel products. Thereafter, he reported to the issuing bank that he lost the CTDs and managed to get a
replacement for those declared lost CTDS. He obtained a loan from defendant bank, surrendered the full
control of the time deposits and authorized the bank to pre-terminate, set-off and apply the said time deposits
to the payment of whatever amount may be due on the loan upon its maturity. Then here comes the Credit
Manager of petitioner Caltex claiming for payment of the value of the CTDs declared lost by Angel dela Cruz.
The bank rejected the claim because Caltex failed to furnish the bank a copy of the document evidencing the

guarantee agreement with Mr. Angel dela Cruz. Caltex sued the bank but case was dismissed rationalizing
that CTDs are non-negotiable instruments.
ISSUE:
Whether or not Certificate of Time Deposit is a negotiable instrument.
RULING
YES. The CTDs in question undoubtedly meet the requirements of the law for negotiability under Section
1 of the Negotiable Instruments Law. The accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a
bill or note, the intention of the parties is to control, if it can be legally ascertained. Here, if it was really the
intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the word BEARER
stamped on the space provided for the name of the depositor in each CTD.
However, Caltex cannot rightfully recover the CTDs. Under the Negotiable Instruments Law, an instrument is negotiated when it is
transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the
payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation
in the sense of a transfer of the legal title to the CTDs in favor of Caltex in which situation, for obvious reasons, mere delivery of the bearer
CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz could at the most constitute
Caltex only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of
the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.
70. Ang Tek Lian vs. CA, 87 Phil. 383, G.R. No. L-2516, September 25, 1950
FACTS:
Ang Tek Lian, knowing he had no funds in his account, drew a check upon the China Banking
Corporation payable to the order of "cash". He delivered it to Lee Hua Hong in exchange for money which the
latter on the next business day, presented it to the drawee bank for payment, but it was dishonored for
insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he did
not indorse the check to Lee Hua and that when the latter accepted the check without his indorsement, Lee
had done so fully aware of the risk he was running thereby.
ISSUE:
Whether or not indorsement is necessary to validly negotiate the check.
HELD:
No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to the order of cash is a
check payable to bearer hence a bearer instrument, and the bank may pay it to the person presenting it for
payment without the drawers indorsement. Where a check is made payable to the order of cash, the word
cash does not purport to be the name of any person, and hence the instrument is payable to bearer. The
drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without
any indorsement.
71. PNB vs Sps Rodriguez, 566 SCRA 513, GR 170325, Sept 26, 2008
FACTS:
Respondents-Spouses Rodriguez were clients of petitioner Philippine National Bank (PNB). The spouses
were engaged in the informal lending business. In line with their business, they had a discounting arrangement
with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. It
was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this
policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the
latter. The PEMSLA checks issued for these loans were then given to the spouses Rodriguez for rediscounting.
The officers carried this out by forging the indorsement of the named payees in the checks. In return, the
spouses issued their personal checks (Rodriguez checks) in the name of the members and the PEMSLA checks
were deposited by the spouses to their account. When the bank found out this scheme, it closed the account
of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason "Account Closed." The corresponding Rodriguez checks, however, were deposited as usual to the
PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the
PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions. Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for
damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They
sought to recover the value of their checks that were deposited to the PEMSLA savings account. The spouses
contended that because PNB credited the checks to the PEMSLA account even without indorsements, PNB
violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the
loss. PNB argues that when the spouses Rodriguez issued the disputed checks, they did not intend for the
named payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by
mere delivery.
ISSUE:
Whether the subject checks are payable to order or to bearer and who bears the loss?
HELD:
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a
specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person,
and such fact is known to the person making it so payable. The fictitious-payee rule states that when the person making the check so
payable did not intend for the specified payee to have any part in the transactions, the payee is considered as a fictitious payee. The
check is then considered as a bearer instrument to be validly negotiated by mere delivery.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend
for the named payees to be part of the transaction involving the checks. PNB failed to present sufficient
evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of
the checks proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation that the
maker of the check intended for the payee to have no interest in the transaction. Because of a failure to show
that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks
are to be deemed payable to order. Consequently, the drawee bank bears the loss.
72. Republic Planters Bank vs. CA, 216 SCRA 738, G.R. No. 93073, December 21, 1992
FACTS:
Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.), through its board
authorized Yamaguchi and Canlas to obtain credit facilities from petitioner Republic Planters Bank. For this, 9
promissory notes were executed. Each promissory note was uniformly began with I/we jointly and severally
promise to pay
ISSUE:
Whether private respondent Canlas is solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.
HELD:
Liable. Under the Negotiable lnstruments Law, persons who write their names on the face of promissory
notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the
payee or any holder according to the tenor thereof. Based on the above provisions of law, there is no denying
that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot
escape liability arising therefrom. Where an instrument containing the words "I promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable thereon. An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when
signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is used indicates that the promise is
individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the
notes in full.
73. Sps. Evangelista vs. Mercator Finance Corp., et al, 409 SCRA 410, G.R. No. 148864, August 21, 2003
FACTS:
Sps. Evangelista assailed the sale between Mercator Financing Corporation and Salazar over a parcel
of land that is a subject of Real Estate Mortgage between Mercator Financing Corporation as mortgagee and
Embassy Farms as mortgagor. Petitioners do not deny that they obtained a loan from Mercator. They merely
claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or
their property. Mercator on the other hand, contended that since petitioners and Embassy Farms signed the
promissory note as co-makers, then petitioners are jointly and severally liable with Embassy Farms. The
promissory not in question is worded as follows: For value received, I/we jointly and severally promise to pay to
the order of Mercator Financing Company
ISSUE:
Are the spouses jointly and severally liable?
HELD:
Section 17 (g) of the NIL and Article 1216 of the Civil Code provide that, where the promissory note was
executed jointly and severally by two or more persons, the payee of the promissory note had the right to hold
any one of the two (2) signers of the promissory note responsible for the payment of the whole amount of the
note.
A reading of the promissory notes show that the liability of the signatories thereto is solidary in view of the
phrase "jointly and severally." On the promissory note appears the signatures of Eduardo B. Evangelista, Epifania
C. Evangelista and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal
clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc. but in
their personal capacity as well by affixing their signatures thereon in a dual capacity have bound themselves
as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of
indebtedness.
74. Ilano vs. Hon. Espaol, 478 SCRA 365, G.R. No. 161756, December 16, 2005
FACTS:
Victoriano Ilano, while outside the country and recuperating from illness, entrusted her signed checks to
her employee who issued the same to several persons. All except one check were dishonored because Ilano
was able to close the account where the checks were drawn against. The said one check was drawn against
another account of petitioner, bears only the year 1999.
ISSUE:
Whether or not a check bearing only the year is valid and negotiable.
HELD:
Although the date of issue bears only the year 1999, its validity and negotiable character was not
affected. For Section 6 of the Negotiable Instruments Law provides that the validity and negotiable character
of an instrument are not affected by the fact that it is not dated.
NEGOTIATION
75. De la Victoria vs. Hon. Burgos, 245 SCRA 374, G.R. No. 111190, June 27, 1995
FACTS:
When judgment debtor Assistant City Fiscals Mabanto was ordered to pay private respondent Sesbreo,
a notice of garnishment was served on petitioner de la Victoria as City Fiscal where defendant Mabanto, was
then detailed. Petitioner moved to quash the notice of garnishment claiming that he was not in possession of
any money, funds, credit, property or anything of value belonging to Mabanto, except his salary and RATA
checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed
that, as such, they were still public funds, which could not be subject to garnishment.
ISSUE:
Whether the payee before physical delivery to the latter owns a check that still in the hands of the
maker or its duly authorized representative.
HELD:
Sec. 16 of the Negotiable Instruments Law provides that, every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Delivery
means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the
payee and recognize him as the holder thereof.
In the case at bar, inasmuch as said checks had not yet been delivered to Mabanto, they did not
belong to him and still had the character of public funds. The salary check of a government officer or
employee does not belong to him before it is physically delivered to him. Until that time the check belongs to
the government. Accordingly, before there is actual delivery of the check, the payee has no power over it. As
a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment.
76. Development Bank of Rizal vs. Sima Wei, 219 SCRA 736, G.R. No. 85419, March 9, 1993
FACTS:
Sima Wei executed a promissory note in consideration of a loan secured from petitioner Development
Bank of Rizal. She was only able to pay partially for the loan so she then issued two crossed checks payable to
petitioner, and drawn against the China Banking Corporation, to pay the balance due on the promissory note.
However, for some unexplainable reason, the checks were not received by the bank but ended up in the
hands of Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the account
of respondent Plastic Corporation with Producers Bank. DBP then filed an action to enforce payment of the
said two checks.
ISSUE:
Whether DBP acquires any right or interest therein and thus, assert any cause of action, founded on said
checks, whether against the drawer Sima Wei or against the collecting Producers Bank.
HELD:
No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the NIL provides that every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of a

negotiable instrument acquires no interest with respect thereto until its delivery to him. Without the initial
delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover,
such delivery must be intended to give effect to the instrument.
77. Metropol (Bacolod) Financing vs. Sambok Motors Co., et al., 120 SCRA 864, G.R. No. L-39641, February 28,
1983
FACTS:
Dr. Villareal issued a promissory note in favor of Sambok, which was payable in monthly installments. The
promissory note was then indorsed to Metropol. Villareal defaulted payment and this prompted Metropol to
run after Sambok. Sambok alleged that it is not liable since it was a qualified indorser through the wordings it
inserted in its indorsement - with recourse.
ISSUE:
Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of payment
of the maker.
HELD:
No. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such
an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from
However,
warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein.
appellant Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest
and presentment.
"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. Appellant, by
indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such
The effect of such
indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant.
indorsement is that the note was indorsed without qualification. A person who indorses without qualification
engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if
it be dishonored, he will pay the amount thereof to the holder. Appellant Sambok's intention of indorsing the
note without qualification is made even more apparent by the fact that the notice of demand, dishonor,
protest and presentment were waived. The words added by said appellant do not limit his liability, but rather
confirm his obligation as a general indorser.
HOLDERS
78. De Ocampo vs. Gatchalian, 3 SCRA 596, G.R. No. L-15126, November 30, 1961
FACTS:
Defendants-appellant Gatchalian was interested in buying a car when she was offered by Gonzales to
a car owned by De Ocampo Clinic. Gatchalian accepted the offer and insisted to deliver the car with the
certificate of registration but Gonzales advised her that the owner would only comply upon showing of interest
on the part of the buyer. Gonzales recommended issuing a check as evidence of the buyers good faith.
Gonzales never appeared and it was later found out that he used the check as payment for his wifes
hospitalization at De Ocampo Clinic. Plaintiff-appellee Vicente R. De Ocampo & Co. now demands payment
for the check, which Gatchalian refused, arguing that De Ocampo is not a holder in due course and that there
is no negotiation of check.
ISSUE:
Whether De Ocampo is a holder in due course.
HELD:
There can be no doubt that a proper interpretation of NIL as a whole leads to the conclusion that a payee
may be a holder in due course under the circumstances in which he meets the requirements of Sec. 52 of NIL.
However, when the case has taken such shape that the plaintiff is called upon to prove himself a holder in due
course to be entitled to recover, he is required to establish the conditions entitling him to standing as such,
including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances
attending the transfer, from which good or bad faith in the transaction may be inferred. As the payee de
Ocampo acquired the check under circumstances which should have put it to inquiry, why the holder had the
check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that
it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith,
hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good
faith and may not be deemed a holder in due course thereof.

79. Yang vs. CA, 409 SCRA 159, G.R. No. 138074, August 15, 2003
FACTS:
Petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement whereby
the latter was to give Yang a PCIB managers check in exchange for two of Yangs managers checks, both
payable to the order of private respondent Fernando David. Yang and Chandiramani agreed that the
difference in the exchange would be their profit to be divided equally between them. They also further agreed
that Yang would secure from FEBTC a dollar draft payable to PCIB FCDU, which Chandiramani would
exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong. At
the time of the exchange, the messenger lost the cashiers checks and the dollar draft procured by Yang. It
transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold
of said instruments, without delivering the agreed exchange consideration. He then delivered the instruments
to respondent Fernando David who in turn paid him in cash denominated in dollars.
ISSUE:
Whether David is a holder in due course.
HELD:
Every holder of a negotiable instrument is presumed to be a holder in due course. However, this
presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable
Instruments Law, meaning a "payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof."
In the case at bar, it is evident that David was the payee of the checks. The prima facie presumption of him
being a holder in due course is in his favor. Nonetheless, this presumption is disputable. On whether he took the
check under the conditions set forth in Section 52 must be proven. Petitioner relies on two arguments on why
David isnt a holder in due course - first, because he took the checks without valuable consideration; and
second, he failed to inquire on Chandimaris title to the checks given to him. The law gives rise to the
presumption of valuable consideration. Petitioner has the burden of debunking such presumption, which it
failed to do so. Her allegation that David received the checks without consideration is unsupported and
devoid of any evidence. Furthermore, petitioner wasn't able to show any circumstance, which should have
placed David in inquiry as to why and wherefore of the possession of the checks by Chandimari. David cannot
be guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was
something amiss about Chandiramanis acquisition or possession of the checks. David did not close his eyes
deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the
petitioner, absent any knowledge on his part that the action in taking the instruments amounted to bad faith.
Since all the requisites provided for in Section 52 concurred in Davids case, he is therefore a holder in due
course.
80. Mesina vs. IAC, 145 SCRA 497, G.R. No. 70145, November 13, 1986
FACTS:
Jose Go purchased Cashier's Check from respondent Associated Bank for purposes of transferring his
funds from respondent bank to another bank near his establishment realizing that carrying money in this form is
safer than if it were in cash. Unfortunately, Jose Go left said check on the top of the desk of the bank manager
when he left the bank (nyahahay, lalong nadisgrasya). The bank manager then had it entrusted for safekeeping to a
bank official but a certain Alex Lim somehow managed to take the cashiers check. Go heeds the advise of
the bank official to accomplish a "STOP PAYMENT" order, and further executed an affidavit of loss. When
Associated Bank received the lost check for clearing; the bank immediately dishonored the check, but the
same was again returned to Associated Bank and for the second time it was dishonored. The respondent bank
then received a letter coming from the counsel of the holder (Mesina) of check demanding payment on the
cashier's check in question and threatening to sue the bank if payment is not made. Respondent bank taking
the necessary precaution not to make a mistake as to whom to pay because petitioner Mesina and Jose Go
were both laying their claims on the check filed an interpleader case to which the court ordered Associate
Bank to replace the Cashier's Check in favor of Jose Go.
ISSUE:
Whether a cashier's check can be countermanded in the hands of a holder in due course.
HELD:
Mesina cannot raise as arguments that a cashiers check cannot be countermanded from the hands
of a holder in due course and that a cashiers check is a check drawn by the bank against itself. Mesina failed
to substantiate that he was a holder in due course. Upon questioning, he admitted that he got the check from
Lim who stole the check. He 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 cashier's check who is not a holder in due
course cannot enforce such check against the issuing bank, which dishonors the same. Jose Go owns the

money it represents and he is therefore the drawer and the drawee in the same manner as if he has a current
account and he issued a check against it; and from the moment said cashier's check was lost and/or stolen no
one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due
course. The check in question suffers from the infirmity of not having been properly negotiated and for value by
respondent Jose Go who as already been said is the real owner of said instrument.
LIABILITY OF PARTIES
81. Crisologo-Jose vs. CA, 177 SCRA 594, G.R. No. 80599, Sept. 15, 1989;
FACTS:
In a complaint for consignation filed by private respondent Ricardo S. Santos, Jr. against the petitioner
Ernestina Crisologo-Jose, petitioner avers that the accommodation party is Mover Enterprises, Inc. and not
private respondent who merely signed the check in question in a representative capacity, as vice-president of
said corporation, hence he is not liable thereon under the Negotiable Instruments Law. The reason that requires
Santos for the consignation arose when Atty. Benares, in accommodation of his clients, issued a check payable to the petitioner. Since the
check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Benares, and the treasurer of the
said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, it was private respondent Santos who
signed the aforesaid check. The petitioner filed a criminal complaint for violation of Batas Pambansa Blg. 22 against Atty. Benares and
private respondent Santos when the check was dishonored for insufficiency of funds.
ISSUE:
Can a corporation be an accommodation party, if so, does the liability of an accommodation party
attach to a corporation?
HELD:
No. The issue or indorsement of negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only an accommodation
party.
To be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer, acceptor, or
indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person. Based on the
foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable consideration when he executed
the instrument. From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not
received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a holder for value as if the contract was not for
accommodation in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has
been held that in lending his name to the accommodated party, the accommodation party is in effect a surety for the latter.
82. Sadaya vs. Sevilla, 19 SCRA 924, G.R. No. L-17845, April 27, 1967;
FACTS:
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the
only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers only to
accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse.
Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a
creditors claim on his estate for the payment he made on the note. The administrator resisted the claim on the
ground that Sevilla didn't receive any proceeds of the loan.
ISSUE:
Wheteher or not Sadaya proceed against Sevilla for reimbursement.
HELD:
A joint and several accommodation maker of a negotiable promissory note may demand from the
principal debtor reimbursement for the amount that he paid to the payee; and a joint and several
accommodation maker who pays on the said promissory note may directly demand reimbursement from his
co-accommodation maker without first directing his action against the principal debtor provided that (a) he
made the payment by virtue of a judicial demand, or (b) a principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was
never proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.
83. Travel-On vs. CA, 210 SCRA 352, G.R. No. L-56169, June 26, 1992;
FACTS:
Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf of
airline passengers and derived commissions therefrom. Miranda was sued by petitioner to collect on the six
postdated checks he issued which were all dishonored by the drawee banks. He argued that he had issued the

postdated checks not for the purpose of encashment to pay his indebtedness but for purposes of
accommodation, as he had in the past accorded similar favors to petitioner.
ISSUE:
Whether Travel-On is an accommodated party.
RULING:
In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating
party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or
indorsee as a holder in due course, who gave full value therefor to the accommodated party. In the case at
bar, Travel-On was the payee of all six (6) checks, it presented these checks for payment at the drawee bank
but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the
checks which bounced.
84. Ang vs. Associated Bank, 532 SCRA 244, G.R. No. 146511, September 5, 2007
FACTS:
Associated Bank filed a collection suit against Antonio Ang Eng Liong, the principal debtor and
petitioner Tomas Ang, co-maker for the 2 promissory notes. Ang set up as a defense that the bank knew that he
did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as
an accommodation party.
ISSUE:
Whether Ang is liable as accomodation party even without consideration and his co-accomodation
party was granted accomodation without his knowledge
HELD:
Accommodation party is a person "who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Thus,
petitioner signed the promissory note as a solidary co-maker and not as a guarantor. Since the liability of an
accommodation party remains not only primary but also unconditional to a holder for value, even if the
accommodated party receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such extension does not release him
because as far as a holder for value is concerned, he is a solidary co-debtor. It is immaterial so far as the bank is
concerned whether one of the signers, particularly Ang, has or has not received anything in payment of the
use of his name.
85. Patrimonio vs Gutierrez, GR 187769, June 4, 2014

FACTS:
The petitioner PBA player Alvin Patrimonio and the respondent Napoleon Gutierrez (Gutierrez) entered
into a business venture under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that
produced mini-concerts and shows related to basketball. In the course of their business, the petitioner pre-
signed several checks to answer for the expenses of Slam Dunk. Although signed, these checks had no payees
name, date or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill them
out without previous notification to and approval by the petitioner. Gutierrez secured a loan from petitioners
former teammate Marasigan and simultaneously delivered to Marasigan one of the blank checks the petitioner
pre-signed. The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He also contends that absent such authority in writing, he should not be held liable for the
face value of the check because he was not a party or privy to the agreement.
ISSUE:
Whether the contract of loan may be nullified and whether the petitioner can be made liable under the check he
signed.
HELD:
No contract of loan was perfected between marasigan and petitioner, as the latters consent was not obtained. True, the
petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of Marasigan. This act, however, does not
constitute sufficient authority to borrow money in his behalf and neither should it be construed as petitioners grant of consent to the
parties loan agreement. Without any evidence to prove Gutierrez authority, the petitioners signature in the check cannot be taken, even
remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent given by one party in a purported
contract, such contract could not have been perfected; there simply was no contract to speak of.
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. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks. In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instruments 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 been
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. However, if the holder is a holder in due course, there is a conclusive presumption that authority to fill it up had been given
and that the same was not in excess of authority.
The check was not completed strictly under the authority given by the petitioner. Gutierrez was only
authorized to use the check for business expenses; thus, he exceeded the authority when he used the check to
pay the loan he supposedly contracted for the construction of petitioner's house. This is a clear violation of the
petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the authority given by the petitioner.
Considering that Marasigan, is not a holder in due course - having knowledge that the petitioner is not a party
or a privy to the contract of loan, the petitioner can validly set up the personal defense that the blanks were
not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to enforce payment against
the petitioner and the latter cannot be obliged to pay the face value of the check. It does not follow that simply because he is not a
holder in due course, Marasigan is already totally barred from recovery. The NIL does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. Among such defenses is the filling up blank not within the authority.
DEFENSES
86. Philippine National Bank vs. CA, 256 SCRA 491, G.R. No. 107508, April 25, 1996
FACTS:
DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn against
PNB. The check was deposited by Abante in its account with Capitol Bank and the latter consequently
deposited the same with its account with PBCOM which later deposited it with petitioner for clearing. However,
petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check,
the reason being that there was a "material alteration" of the check number. It maintains that under Section
125(f) of NIL, any change that alters the effect of the instrument is a material alteration.
ISSUE:
Whether or not an alteration of the serial number of a check is a material alteration under the
Negotiable Instruments Law.
HELD:
Section 125 of the Negotiable Instruments Law provides that material alteration constitutes any alteration, which changes:
a) The date;
b) The sum payable, either for principal or interest;
c) The time or place of payment;
d) The number or the relations of the parties;
e) The medium or currency in which payment is to be made;
f) Or which adds a place of payment where no place of payment is specified, or any other change or addition, which alters the
effect of the instrument in any respect, is a material alteration.
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change
in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other
words, a material alteration is one, which changes the items, which are required to be stated under Section 1
of the Negotiable Instruments Law.
What was altered here is the serial number of the check in question, an item that can readily be observed,
is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of the drawer and the
drawee were not altered. The intended payee was the same. The sum of money due to the payee remained
the same. The check's serial number is not the sole indication of its origin. The name of the government
agency that issued the subject check was prominently printed therein. The check's issuer was therefore
sufficiently identified, rendering the referral to the serial number redundant and inconsequential.
87. Associated Bank vs CA, 252 SCRA 620, G.R. Nos. 107382 and 107612, January 31, 1996
FACTS:
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn
against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of
Concepcion Emergency Hospital. The retired hospital cashier Fausto Pangilinan, by forging the signature of the
chief payee of the hospital, was able to deposit some of these checks to his account with the Associated Bank.
When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in
turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to

reimburse because of its endorsement borne on the face of the checks: All prior endorsements guaranteed
ASSOCIATED BANK.
ISSUE:
Where checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank
or the collecting bank?
HELD:
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument
through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly
gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not
operate as the payee's indorsement. In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a
holder in due course. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its
rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all
parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. An indorser of an order instrument
warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." He cannot interpose the defense that
signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the
drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks's client is forged, the collecting bank is
bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The
drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's
order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to
charge its customer's (the drawer) account only for properly payable items.
By reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments
Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee
bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is
genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery,
the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. The
drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the
genuineness of any indorsement. The drawee bank's duty is but to verify the genuineness of the drawer's
signature and not of the indorsement because the drawer is its client. Hence, the drawee bank can recover
the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee
bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in
informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger,
the former is deemed negligent and can no longer recover from the presentor.
Applying these rules to the case at bench, the collecting bank, Associated Bank, shall be liable to PNB.
It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having
guaranteed the genuineness of all prior indorsements. Associated Bank was also remiss in its duty to ascertain
the genuineness of the payee's indorsement. The Province of Tarlac due to the negligence in releasing the
checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the
checks for the payee hospital should share the burden of loss from the checks bearing a forged indorsement.
88. Republic Bank vs. Ebrada, 65 SCRA 680, G.R. No. L-40796, July 31, 1975
FACTS:
Defendant-appellant Mauricia T. Ebrada, encashed Back Pay Check at plaintiff-petitioner Republic
Bank. The check was issued by the Bureau of Treasury. Republic Bank was later advised by the said bureau that
the alleged indorsement of the check by the payee, Martin Lazaro, was a forgery since the latter had already
died. Republic Bank was then requested by the Bureau of Treasury to refund the amount. To recover what it
had refunded to the Bureau of Treasury, Republic Bank made verbal and formal demands upon Ebrada who
refused to do. She alleged that she was a holder in due course of the check in question, or at the very least,
has acquired her rights from a holder in due course and therefore entitled to the proceeds thereof.
ISSUE:
Whether the existence of one forged signature therein will render void all the other negotiations of the
check with respect to the other parties whose signature are genuine.
HELD:
Where a check has several indorsements on it, it is only the negotiation based on the forged or
unauthorized signature which is inoperative. In the instant case, it is only the negotiation predicated on the
forged indorsement that should be declared inoperative. This means that the negotiation of the check in
question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should be
declared of no affect, but the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida

Dominguez, the third indorser, and from Adelaida Dominguez to the defendant-appellant who did not know of
the forgery, should be considered valid and enforceable, barring any claim of forgery.
89. Gempesaw vs. CA, 218 SCRA 682, G.R. No. 92244, February 9, 1993
Facts:
Natividad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang, the
preparation of checks about to be issued in the course of her business transactions. From 1984 to 1986, 82
checks amounting to P1,208,606.89, were prepared and were supposed to be delivered to Gempesaws clients
as payees named thereon. However, through Galang, these checks were never delivered to the supposed
payees. Instead, the checks were fraudulently indorsed to Alfredo Romero and Benito Lam.
ISSUE:
Whether or not the bank should refund the money lost by reason of the forged indorsements.
HELD:
No. Gempesaw cannot set up the defense of forgery by reason of her negligence. As a rule, a drawee
bank (in this case the Philippine Bank of Communications) who has paid a check on which an indorsement has
been forged cannot charge the drawers (Gempesaws) account for the amount of said check. An exception
to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or
checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the
forged indorsement by mere examination of his cancelled check. A different situation arises where the
indorsement was forged by an employee or agent of the drawer, or done with the active participation of the
latter.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on
failure of the depositor to act as a prudent businessman would under the circumstances. In the case at bar,
Gempesaw relied implicitly upon the honesty and loyalty of Galang, and did not even verify the accuracy of
amounts of the checks she signed against the invoices attached thereto.
90. Ilusorio vs. CA, 393 SCRA 89, G.R. No. 139130, November 27, 2002
FACTS:
Petitioner Ramon Ilusorio was a prominent businessman who, because of different business
commitments, entrusted to his then secretary the handling of his credit cards and checkbooks. For a
material period of time, the secretary was able to encash and deposit in her personal account money
from the account of petitioner. Upon knowledge of her acts, she was fired immediately and criminal
actions were filed against her. Thereafter, petitioner requested the bank to restore its money but the bank
refused to do so.
ISSUE:
Can a drawer-depositor who entrusted his check books, credit cards, passbooks, bank statements and
cancelled checks to his secretary and who had introduced the secretary to the bank for purposes of
reconciliation of his accounts hold the drawee bank liable for the amounts withdrawn by the secretary by
forging his signature on the checks?
HELD:
It is a rule that when a signature is forged or made without the authority of the person whose signature it
purports to be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge therefor,
or to enforce payment thereof against any party, can be acquired through or under such signature. However,
the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies.
Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the verification of his statements of
account.
91. Samsung Construction vs. Far East Bank, 436 SCRA 402, G.R. No. 129015, August 13, 2004
FACTS:
Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to
cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified
to be true by Jose Sempio, the assistant accountant of Samsung, who was also present during the time the
check was cashed. Later however it was discovered that no such check was ever approved by the Samsungs
head accountant, the president of the company also never signed any such check.

ISSUE:
Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which
was drawn from the account of Samsung
HELD:
Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged
signature makes the instrument wholly inoperative. If payment is made the drawee (Far East) cannot charge
it to the drawers account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may
so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the
check, it is paying out with its own money and not of the depositors. This rule of liability can be stated briefly in
these words: A bank is bound to know its depositors signature. The accusation of negligence on the part of
Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course
of business was followed.
92. Metrobank vs. Cabilzo, 510 SCRA 259, G.R. No. 154469, December 6, 2006
FACTS:
Renato Cabilzo is a Metrobanks client who issued a postdated check payable to cash. The check was
presented to Westmont Bank for payment and the latter indorsed it to Metrobank. Metrobank cleared the
check and debited Cabilzos account. It was found out later by Cabilzo that the checks amount was altered
and the date was changed. Cabilzo demanded that Metrobank re-credit the excess to his account.
ISSUE:
Whether drawee bank is liable for the alterations on the subject check bearing the authentic signature
of the drawer thereof.
HELD:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of the party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the NIL.
The check in issue was materially altered when its amount was increased from P1000 to P91000. Cablizo
was not the one who authorized or made such increase. There is no showing that he was negligent in
exercising what was due in a prudent man which could have otherwise prevented the loss. Cablizo was
never remiss in the preparation and issuance of the check. The doctrine of equitable estoppel is inapplicable
against Cablizo. This doctrine states that when one of the two innocent person, each guiltiness of an intentional or moral wrong, must
suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of the injury.
Negligence is never presumed. Metrobank was actually the one remiss in its duties. The alterations were
actually visible in the eye and yet the bank allowed someone not acquainted with the examination of checks
to do the same. Furthermore, it cannot rely on the indorsement of Westmont Bank of the check. The
corollary liability of such indorsement, if any, is separate and independent from the liability of Metrobank to
Cabilzo.
Westmont Bank vs. Myrna Dela Rosa-Ramos, G.R. No. 160260, October 24, 2012
FACTS:
Respondent Myrna Dela Rosa-Ramos maintained a checking/current account with the
United Overseas Bank Philippines. Due to a "special arrangement she made with the banks officer Tan, there
were checks that were deposited by Tan without her consent. One of the checks was originally dated August
28, 1987 but was altered to make it appear that it was dated May 8, 1988.
ISSUE:
Whether Westmont Bank be made to answer the value of the altered check.
HELD:
A careful scrutiny of the evidence shows that indeed the date of the check had been materially altered
from August 1987 to May 8, 1988 in accordance with Section 125 of the Negotiable Instruments Law. It is worthy
to take note of the fact that such alteration was not countersigned by the drawer to make it a valid correction
of its date as consented by its drawer as the standard operating procedure of the appellant bank
Withal, the Bank should only be made to answer 50% of the value of the check plus the legal rate of
interest. This must be further tempered down for there is no denying that it was Dela Rosa-Ramos who exposed
herself to risk when she entered into that "special arrangement" with Tan. While the Bank reneged on its
responsibility to Dela Rosa-Ramos, she is nevertheless equally guilty of contributory negligence. Where the bank

and a depositor are equally negligent, they should equally suffer the loss. The two must both bear the
consequences of their mistakes.
Metrobank vs. BA Finance Corporation, 607 SCRA 620, G.R. No. 179952, December 4, 2009
FACTS:
Lamberto Bitanga obtained a loan from BA Finance Corporation, to secure which, he mortgaged his
car to respondent BA Finance. The car was stolen. On Bitangas claim, Malayan Insurance issued a check
payable to the order of B.A. Finance Corporation and Lamberto Bitanga. Without the indorsement or
authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank
Corporation (Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company
(Metrobank). Bitanga was able to withdrew the entire proceeds of the check.
ISSUE:
Whether Metrobank be liable in conversion to the non-indorsing payee for the entire amount of the
check.
HELD:
Section 41 of the Negotiable Instruments Law provides that 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. 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.
A collecting bank, Asianbank in this case, where a check is deposited and which indorses the check
upon presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee
bank, a collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of
endorsement guaranteed and, for all intents and purposes, treats the check as a negotiable instrument,
hence, assumes the warranty of an indorser. Without Asianbanks warranty, the drawee bank (China Bank in
this case) would not have paid the value of the subject check. Petitioner, as the collecting bank or last
indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of prior indorsements.
Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in
conversion to the non-indorsing payee for the entire amount of the check.
ENFORCEMENT OF LIABILITY
93. Wong vs. CA, 351 SCRA 100, G.R. No. 117857, February 2, 2001
FACTS:
Petitioner Wong, an agent of a manufacturer of calendars Limtong Press. Inc. (LPI), issued postdated
checks and drawn payable to the order of LPI. He was charged with violation of B.P. Blg. 224 when the checks
were dishonored and he failed to make arrangements for payment within five (5) banking days. Wong avers
that since the complainant deposited the checks 157 days after maturity date, the presumption of knowledge
of lack of funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be
expected to keep his bank account active and funded beyond the ninety-day period.
ISSUE:
Whether a drawer be discharged from liability after the lapse of 90 days from the maturity.
HELD:
That the check must be deposited within ninety (90) days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it
discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof.
Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within a
reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss
caused by the delay." By current banking practice, a check becomes stale after more than six (6) months, or
180 days.
94. International Corporate Bank vs. Sps. Gueco, 351 SCRA 516, G.R. No. 141968, February 12, 2001
FACTS:
Gueco spouses obtained a loan from ICB to purchase a car. In consideration thereof, the debtors
executed promissory notes, and a chattel mortgage was made over the car. The spouses defaulted in
payment of their obligations and despite the lowering of the amount to be paid, they still failed to

pay. Thereafter, they tendered a managers check in favor of the bank. Nonetheless, the car was
still detained for the spouses refused to sign the joint motion to dismiss. The bank averred that the joint
motion to dismiss is part of standard office procedure to preclude the filing of other claims. Because
of this, the spouses filed an action for damages against the bank. And by the time the case was instituted, the
check had become stale in the hands of the bank.
ISSUE:
Whether or not the spouses should replace the check they paid to the bank after it became stale.
HELD:
Yes. It appeared that the check has not been encashed. The delivery of the managers check did
not constitute payment. The original obligation to pay still exists. Indeed, the circumstances that caused the
non-presentment of the check should be considered to determine who should bear the loss. In this case,
ICB held on the check and refused to encash the same because of the controversy surrounding the signing of
the joint motion to dismiss. There is no bad faith or negligence on the part of ICB. Here, what is involved is a
managers check, which is essentially a banks own check and may be treated as a PN with the bank as a
maker. Even assuming that presentment is needed, failure to present for payment within a reasonable time
will result to the discharge of the drawer only to the extent of the loss caused by the delaybut here there is
no loss sustained. Still, such failure to present on time does not wipe out liability.
95. State Investment House vs. CA, 217 SCRA 32, G.R. No. 101163, January 11, 1993
FACTS:
Moulic issued two post-dated checks to Victoriano as a security for the two jewelry then the payee
negotiated the check to State Investment House. However, Moulic failed to sell the jewelry so she returned
them before the maturity of the checks but the checks cannot be retrieved because it is already negotiated.
Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee bank. Upon
presentment for payment, the checks were dishonored for insufficiency of funds. SIH allegedly notified MOULIC
of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no
such notice was given her.
ISSUE:
Is the drawer liable even if no notice of dishonor was given to the drawer?
HELD:
Failure of SIH to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not
absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law, to wit, (a) Where the drawer
and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having
capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment: (d)
Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e)
Where the drawer had countermanded payment. After Moulic withdrew her funds, she could not have
expected her checks to be honored. It would only be futile for State Investment to be sending her notices of
dishonor for the two checks.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course,
SIH, without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party
Defendants who had already been declared as in default.
96. Arceo, Jr. vs. People of the Philippines, 495 SCRA 204, G.R. No. 142641, July 17, 2006
FACTS:
Pacifico Arceo obtained a loan from Josefino Cenizal. He then issued a check in favor of Cenizal, in
which he promised verbally seven times that he would replace it with cash. After not replacing the check, he
encashed the check but was dishonored due to insufficient funds. Cenizal went to Arceo's house to inform him
of the dishonor but he was not around anymore so he went to Arceo's lawyer and gave him a letter giving him
three days to pay the check. When Arceo failed, Cenizal charged him in violation of BP 22 leading to his
conviction. Pacifico, in his appeal to the Supreme Court contented that he should not be held liable for
violation of BP 22 because the check was presented for payment more than 90-days after issue, which the law
requires.
ISSUE:
May a check be presented for deposit beyond the 90-day period required in BP 22?
RULING:
The life of a check is six months. The 90-day period in the law is not an element of the offense. Cenizals
presentment of the check to the drawee bank 120 days (four months) after its issue was still within the allowable

period. Petitioner was freed neither from the obligation to keep sufficient funds in his account nor from liability
resulting from the dishonor of the check.
97. Allied Banking vs. CA, GG Sportswear, 494 SCRA 467, G.R. No. 125851, July 11, 2006
FACTS:
Allied Bank (Allied) purchased Export Bill from G.G. Sportswear Mfg. Corporation (GGS). Nari Gidwani
and Alcron International Ltd. (Alcron) executed their respective Letters of Guaranty, holding themselves liable
on the export bill if it should be dishonored or retired by the drawee for any reason. Spouses Leon and Leticia
de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety), guaranteeing
payment of any and all such credit accommodations which ALLIED may extend to GGS. When ALLIED
negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the
documents submitted by GGS relative to the exportation covered by the letter of credit.
ISSUE:
Whether Gidwani, Alcron and Spouses Villa can be held jointly and severally liable becuase of their
capacity as guarantors and surety in the absence of protest on the bill in accordance with Section 152 of the
Negotiable Instruments Law?
HELD:
Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not
pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a
guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is
primarily that of transfer, while the contract of guaranty is that of personal security. Unless the bill is promptly
presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time,
he will be discharged from liability thereon. On the other hand, except where required by the provisions of the
contract of suretyship, a demand or notice of default is not required to fix the surety's liability. Therefore, no
protest on the export bill is necessary to charge all the respondents jointly and severally liable.
98. Areza vs Express Savings Bank, GR 176697, Sept 10, 2014

FACTS:
Petitioners Areza were engaged in the business of "buy and sell" of brand new and second-hand motor
vehicles. They sold two cars to Gerry Mambuay who paid petitioners with Philippine Veterans Affairs Office
(PVAO) checks payable to different payees and drawn against the drawee Philippine Veterans Bank. The
petitioners deposited the said checks in their savings account with respondent Express Savings Bank. It was
later found out that the checks were materially altared which then caused the eventual dishonor of the
checks. However, before the alteration was discovered, the checks were already cleared by the drawee bank.
Three months had lapsed before the drawee dishonored the checks and returned them to Equitable-PCI Bank,
the respondents depositary bank.
ISSUE:
What are the liabilities of the drawee, the intermediary banks, and the petitioners for the altered
checks?
HELD:
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its clients
account only for bona fide disbursements he had made. If the drawee did not pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment
it made from the drawers account which it was expected to treat with utmost fidelity. A depositary/collecting bank where a check is
deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. It has been repeatedly held that in
check transactions, the depositary/collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.
The drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior to
alteration. Since Philippine Veterans Bank paid the altered amount of the check, it may pass the liability back
as it did, to Equitable-PCI Bank, the depositary/collecting bank. The collecting banks, Equitable-PCI Bank and
the Bank, are ultimately liable for the amount of the materially altered check. It cannot further pass the liability
back to the petitioners absent any showing in the negligence on the part of the petitioners which substantially
contributed to the loss from alteration.

CHECKS
99. Bataan Cigar vs. CA, 230 SCRA 643, G.R. No. 93048, March 3, 1994
FACTS:
Petitioner Bataan Cigar And Cigarette Factory, Inc. (BCCFI) issued crossed checks to George King in
consideration of tobacco bales, which the latter sold to respondent State Investment House, Inc. (SIHI) in a
discounted price. George King failed to deliver the consideration. BCCFI ordered to stop payment. SIHI failed to
encash the crossed checks.
ISSUE:
Whether SIHI is a holder in due course.
RULING:
SIHI is not a holder in due course. The purpose of cross checks is to avoid those bouncing or encashing
of forged checks. Cross checks have the following effects: it cannot be encashed but only deposited in a
bank; it can only be negotiated on its respective bank once; it serves as a warning to the holder that it has
been issued for a definite purpose thus making SIHI not a holder in due course. Still, SIHI can collect from the
immediate indorser, in this case, George King.
100. State Investment House vs. CA, 175 SCRA 310, G.R. No. 72764, 13 July 1989,
New Sikatuna requested for a loan from private respondent Spouses Chua. The latter issued post-dated
crossed checks in favor of former. Thereafter, Sikatuna sold the checks to petitioner State Investment House
Inc. (SIHI), which upon deposit, checks were dishonored.
ISSUE:
Whether or not petitioner is a holder in due course as to entitle it to proceed against private
respondents for the amount stated in the dishonored checks.
HELD:
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only once - to one who has an account with a bank
3. The act of crossing the check serves the warning to the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.
The checks in issue were crossed generally and issued payable to New Sikatuna Wood which could only
mean that the drawer has intended the same for deposit only by the rightful person. Apparently, it was not the
payee who presented the same for payment and therefore, there was no proper presentment and the liability
didn't attach to the drawer. Thus, in the absence of due presentment, the drawer didnt become liable.
Consequently, no right of recourse is available to petitioner against the drawer of the subject checks
considering that the petitioner is the proper party authorized to make presentment of the checks in question.
Nonetheless, the holder could still collect from New Sikatuna if the latter doesn't have a valid excuse from
refusing payment.
101. Villanueva vs. Nite, 496 SCRA 459, G.R. No. 148211, 25 July 2006
FACTS:
Nite loaned from Villanueva. As a sceurity he issued an Asian Bank Corporation (ABC) check was
dishonored when presented due to a material alteration. Creditor Villanueva filed an action against drawee
bank for the amount.
ISSUE:
Is the creditor entitled?
HELD:
No. If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder
cannot, as provided under Sections 185 and 189 of the NIL, sue the bank. The payee should instead sue the
drawer who might in turn sue the bank. This is so because no privity of contract exists between the drawee-
bank and the payee.
102. Equitable PCI vs. Ong, 502 SCRA 119, G.R. No. 156207, September 15, 2006
FACTS:
Sarande deposited in her account at Philippine Commercial International (PCI) a The Consolidated
Bank and Trust Corporation (TCBTC) check. Relying on PCIs assurance that the TCBTC Check has been
cleared, she issued two checks drawn against the proceeds. One of these was issued to respondent Rowena
Ong, who then presented to PCI Bank the said Check but instead of encashing it, requested PCI Bank to

convert the proceeds thereof into a manager's check, which the PCI Bank obliged. The PCI Bank Manager's
Check was never encashed nor credited to Ongs account on the ground, according to PCI, that the account
from which it was drawn had already been closed resulted in a failure or want of consideration for the issuance
and thus she is not a holder in due course.
ISSUE:
Whether due course holding and failure or want of consideration for PCI Bank's issuance of the
manager's check is relevant in the claim of Ong.
HELD:
A manager's check is an order of the bank to pay, drawn upon itself, committing in effect its total
resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a
manager's check is regarded substantially to be as good as the money it represents. A manager's check
stands on the same footing as a certified check. The effect of certification is found in Section 187 of Negotiable
Instruments Law, which provides that where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance. In the case at bar, by accepting PCI Bank Check issued by
Sarande to Ong and issuing in turn a manager's check in exchange thereof, PCI Bank assumed the liabilities of
an acceptor. Therefore, the issues on Ong being not a holder in due course and failure or want of
consideration for PCI Bank's issuance of the manager's check is out of sync.
LETTERS OF CREDIT
103. Bank of the Philippine Islands v. De Reny Fabric Industries, Inc., 35 SCRA 253, G.R. No. L-24821
October 16, 1970
FACTS :
De Reny Fabric Industries, Inc. applied to the Bank for four irrevocable commercial letters of credit to
cover the purchase by the corporation of goods from its American supplier, the J.B. Distributing Company.
As each shipment arrived in the Philippines, the De Reny Fabric Industries, Inc. made partial payments to the
Bank. Further payments were, however, subsequently discontinued by the corporation when it became
established, as a result of a chemical test conducted by the National Science Development Board, that the
goods that arrived in Manila were colored chalks instead of dyestuffs.
ISSUE :
Whether or not De Reny fabrics is liable under the letter of Credit?
HLED:
Banks, in providing financing in international business transactions such as those entered into by the
appellants, do not deal with the property to be exported or shipped to the importer, but deal only with
documents.
The existence of a custom in international banking and financing circles negating any duty on the part of a
bank to verify whether what has been described in letters of credits or drafts or shipping documents actually
tallies with what was loaded aboard ship, having been positively proven as a fact, the appellants are bound by
this established usage. They were, after all, the ones who tapped the facilities afforded by the Bank in order to
engage in international business.
104. Bank of America, NT & SA v. Court of Appeals, 228 SCRA 357, G.R. No. 105395, December 10, 1993
FACTS:
Bank of America received an Irrevocable Letter of Credit issued by Bank of Ayudhya for the Account of
General Chemicals Ltd., Inc. for the sale of plastic ropes and agricultural files with Bank of America as advising
bank and Inter-Resin Industrial Corp. as beneficiary.
Upon receipt of the letter advice with letter of credit by Inter- Resin told Bank of America to confirm said letter
of credit, but the bank did not confirm such. Bank of America explained that there was no need for
confirmation.
Inter-Resin made a partial availment of the Letter of Credit after presentment of the required documents to
Bank of America. After confirmation of all the documents BA issued a check in favor of IR. BA advice Bank of
Ayudhya of IRs availment under the letter of credit and asked for the corresponding reimbursement.
IR presented documents for the second availment under the same LC but BA stopped the processing of such
after they received a telex from Bank of Ayudhya delaring that the LC fraudulent. BA sued IR for the recovery of
the first LC payment.
ISSUE :
Whether or not Bank of America may recover what it has paid under the letter of credit to Inter-Resin?

HELD :
As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-
Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. The bare statement of the
bank employees in responding to the inquiry made by Inter-Resin's representative, on the authenticity of the
letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of
advise, nor can it justify the conclusion that the bank must now assume total liability on the letter of credit.
Indeed, Inter-Resin itself cannot claim to have been all that free from fault. As the seller, the issuance of the
letter of credit should have obviously been a great concern to it. It would have, in fact, been strange if it did
not, prior to the letter of credit, enter into a contract, or negotiated at the very least, with General Chemicals.
In the ordinary course of business, the perfection of contract precedes the issuance of a letter of credit.
105. Feati Bank & Trust Company vs. Court of Appeals, 196 SCRA 576, G.R. No. 94209, April 30, 1991
FACTS:
Bernardo Villaluz (BV) agreed to sell lauan logs to Axel Christiansen (AC), a ship and merchandise
broker. After inspecting the logs, AC issued a purchase order for the said logs.
On the arrangements made and upon the instructions of the consignee, Hanmi Trade Development,
Ltd. (HTDL), Security Pacific National Bank (SPNB) issued an Irrevocable Letter of Credit (LOC) available at sight
in favor of BV for the total purchase price of the logs. The LOC was mailed to FEATI Bank and Trust Company
(FBTC) with instruction that the draft to be drawn is on SPNB and that it be accompanied by the following
documents, among others: a Certification from AC stating that the logs have been approved prior to shipment
in accordance with terms and conditions of corresponding purchase order. AC refused to issue the certification
as required in the LOC despite several requests made by BV. Because of the absence of the certification by
AC, FBTC refused to advance the payment on the LOC. It eventually lapsed without BV receiving any
certification from AC.
Since BVs demands for AC to execute the certification proved futile, he instituted an action for
mandamus and specific performance against AC and FBTC.
ISSUE:
Whether or not a correspondent bank is to be held liable under the letter of credit despite non-
compliance by the applicant (buyer) with the terms thereon.
HELD:
No. It is a settled rule in commercial transactions involving letter of credits are governed by the rule on strict
compliance-- It is a settled rule in commercial transactions involving letters of credit that the documents
tendered must strictly conform to the terms of the letter of credit. The tender of documents by the beneficiary
(seller) must include all documents required by the letter. A correspondent bank which departs from what has
been stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may
not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid
to the beneficiary. Thus the rule of strict compliance.
106. Transfield Philippines, Inc. v. Luzon Hydro Corp., 443 SCRA 307, G.R. No. 146717, November 22, 2004
FACTS:
Transfield entered into a turn-key contract with Luzon Hydro Corp. (LHC). Under the contract, Transfield
were to construct a hydro-electric plants. In order to guarantee performance by Transfield, stand-by letters of
credit were required to be opened. Because of the delay in the construction of the plant, LHC called on the
stand-by letters of credit because of default. However, the demand was objected by Transfield on the ground
that there is still pending arbitration on their request for extension of time. It asserts that the independence
principle does not apply and assuming it is so, it is a defense available only to issuing banks.
Issue:
Whether or not it is only the issuing bank that may invoke the independence principle
HELD:
No. The independence doctrine works to the benefit of both the issuing bank and the beneficiary.
Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the
benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. As beneficiary of
the letter of credit, LHC is entitled to invoke the principle.
The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the
main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. The
independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the
principle's nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In
brief, the letter of credit is separate and distinct from the underlying transaction. The Fraud exception rule - exception to the
independence principle - provides that the untruthfulness of a certificate accompanying a demand for payment under a standby letter

of credit may qualify as fraud sufficient to support an injunction against payment. However, under the fraud exception principle, this must
constitute fraud in relation to the independent purpose or character of the letter of credit and not only fraud under the main agreement;
moreover, irreparable injury will be suffered if injunction will not be granted.
Letters of credit are also used in non-sale settings where they serve to reduce the risk of non-performance. Letters of credit in non-sale
settings are known as standby letters of credit. 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 nonperformance of the agreement. The documents that accompany the beneficiary's
draft tend to show that the applicant has not performed. 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.
107. MWSS v. Hon. Daway, 432 SCRA 559, G.R. No. 160732, June 21, 2004
FACTS:
In compliance with the requirement of a Concession Agreement between MWSS and Maynilad, the
latter arranged for a 3 year facility with a number of foreign banks, led by Citicorp International Limited for the
issuance of an irrevocable Standby Letter of Credit for the full and prompt performance of Maynilads
obligations under MWSS. As a result, of the depreciation of the Philippine Peso against US dollar, Maynilad
incurred losses and filed a petition for rehabilitation. RTC issued an order staying the enforcement of the claims
and stopping payment of liabilities, because it is under rehabilitation. When MWSS demanded payment and
commenced drawing on the irrevocable standby letter of credit, another order was issued by the RTC
declaring such act of MWSS as violative of stay order earlier issued.
ISSUE:
Whether or not Court has the authority to issue order enjoining the demand for payment under the
Stand-by Letter of Credit.
HELD:
Letters of credit are in effect absolute undertakings to pay the money advanced or the amount for
which credit is given on the faith of the instrument; they are primary obligations and not accessory contracts
and while they are security arrangements, they are not converted into contracts of guaranty. What
distinguishes letters of credit from other accessory contracts is the engagement of the issuing bank to pay the
seller once draft and other required shipping documents are presented to it. They are definite undertakings to
pay at sight once the documents stipulated therein are presented.
Being a solidary obligation, the letter of credit is excluded from the jurisdiction of the rehabilitation and
therefore in enjoining MWSS from proceeding against the Standby Letters of Credit to which it had a clear right
under the law and the terms of said Standby Letter of credit, Hon. Daway acted in excess of his jurisdiction
TRUST RECEIPTS
108. People v. Hon. Judge Nitafan and Betty Sia Ang, 207 SCRA 706, G.R. No. 81559-60 April 6, 1992
FACTS:
Allied banking Corporation (ABC) charged Betty Sia Ang, for estafa as she willfully, unlawfully and
feloniously defrauds ABC. Ang received in trust from ABC Gordon plastics, plastic sheeting and hook chromed,
in a certain amount, specified in a trust receipt and covered by a domestic letter of credit, under the express
obligation to sell the same and account for the proceeds of the sale, if sold, or to return the merchandise , if not
sold. Ang contended that the violation merely gives rise to a civil obligation because a trust receipt is an
evidence of loan being secured, so that there is, between the parties to it, a creditor-debtor relationship.
ISSUE:
Whether the violation of a trust receipt agreement should result only in a civil action for collection.
HELD:
NO. A trust receipt arrangement does not involve a simple loan transaction between a creditor and
debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered
by the trust receipt itself. That second feature is what provides the much needed financial assistance to our
traders in the importation or purchase of goods or merchandise through the use of those goods or merchandise
as collateral for the advancements made by a bank. The title of the bank to the security is the one sought to
be protected and not the loan which is a separate and distinct agreement. The Trust Receipts Law punishes
the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner or not. The law does not seek to enforce payment of the loan. Thus,
there can be no violation of a right against imprisonment for non-payment of a debt.

109. Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, 462 SCRA 88, G.R. No. 137232,
June 29, 2005
FACTS:
In a complaint for sum of money filed by Home Bankers Savings & Trust Co. against Rosario Textile Mills
Corporation (RTMC) and Yujuico, the latter contend that they should be absolved from liability arising from a
contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In
order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust
receipts were executed by the parties to evidence this security arrangement. When RTMC offered to make
such turn-over since the imported materials did not conform to the required specifications, the bank refused to
accept the same, until the materials were destroyed by a fire which gutted down RTMCs premises.
ISSUE:
Whether the petitioners are not relieved of their obligation to pay their loan after they tried to tender the
goods to the bank which refused to accept the same, and which goods were subsequently lost in a fire
HELD:
It is clear that the principal transaction between petitioner RTMC and the bank is a contract of loan,
and that the trust receipts were mere securities. If under the trust receipt, the bank is made to appear as the
owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of
the goods in any manner it wants, which it cannot do, just to give consistency with purpose of the trust receipt
of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from
the inception of the transaction would be to disregard the loan feature thereof. Thus, petitioners cannot be
relieved of their obligation to pay their loan in favor of the bank.
110. Landl & Company v. Metropolitan Bank, 435 SCRA 639, G.R. No. 159622, July 30, 2004
FACTS:
Landl and Company opened a commercial letter of credit with MBTC for the purchase of various
welding rods and electrons from PERMA ALLOYS Inc. Trust Receipt was executed to secure indebtedness of
Landl. Upon Maturity, Landl defaulted payment of its obligation or to return the goods to MBTC. The goods were
sold at public auction to MBTC as the highest bidder. However, the proceeds of the auction sale were
insufficient to completely satisfy the outstanding obligation of Landl. MBTC filed a complaint for sum of money
against Landl and its directors for the amount of the deficiency.
ISSUE:
Whether or not in a trust receipt transaction, an entruster which had taken actual and juridical
possession of the goods covered by trust receipt may subsequently avail of the right to demand from the
entrustee the deficiency of the amount covered by the trust receipt.
HELD
A trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a
loan. In the event of default or failure of the entrustee to comply with the terms of the trust receipt agreement,
the entruster may cancel the trust and take possession of the goods subject of the trust receipt and while in
possession cause the sale of the goods after at least five (5) day notice to the entrustee, in a private or public
sale. The entruster may at public sale become a purchaser. If the proceeds of the sale were insufficient to
satisfy entirely entrustees indebtedness, the entruster is well within its rights to file an action to collect the
deficiency. The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the entruster for any deficiency
after the proceeds of the sale have been applied to the payment of the expenses of the sale, the payment of the expenses of re-taking,
keeping and storing the goods, documents or instruments, and the satisfaction of the entrustee's indebtedness to the entruster.
111. Vintola v. Insular Bank of Asia and America, 150 SCRA 140, G.R. No. 73271, May 29, 1987
FACTS:
Spouses Vintola applied for and were granted a domestic letter of credit by the Insular Bank of Asia and
America (IBAA). The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their
supplier Stalin Tan for the purchase of puka and olive seashells. This was secured by a Trust Receipt agreements.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS. The VINTOLAS, who were
unable to dispose of the shells, responded by offering to return the goods. IBAA refused to accept the
merchandise, and due to the continued refusal of the VINTOLAS to make good their undertaking, IBAA
charged them with Estafa. During the trial of the criminal case the VINTOLAS turned over the seashells to the
custody of the Trial Court.
ISSUE:
Whether Vintolas obligation to IBAA has been extinguished, inasmuch as they have relinguished
possession of the goods to the IBAA, as owner of the goods, by depositing them with the Court.

HELD:
A trust receipt is a security agreement, pursuant to which a bank acquires a "security interest" in the
goods. "It secures an indebtedness and there can be no such thing as security interest that secures no
obligation." IBAA did not become the real owner of the goods. It was merely the holder of a security title for the
advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing
remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the
IBAA into an investor; the latter remained a lender and creditor. Since the IBAA is not the factual owner of the
goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and
subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay
their loan because of their inability to dispose of the goods.
112. Pilipinas Bank v. Ong, 387 SCRA 37, G.R. No. 133176, August 8, 2002
FACTS:
Baliwag Mahogany Corporation (BMC), through its president, Alfredo T. Ong, applied for a domestic
commercial letter of credit with Pilipinas Bank. To secure payment of the amount, BMC, through Ong,
executed trust receipts providing that it shall turn over the proceeds of the goods to the bank, if sold, or return
the goods, if unsold, upon maturity. BMC failed to comply with its obligations upon maturity of the trust receipts
due to serious liquidity problems, prompting it to file a Petition for Rehabilitation and Declaration in a State of
Suspension of Payments. The SEC issued an order creating a Management Committee, afterwards, BMC and a
consortium of its creditor banks entered into a Memorandum of Agreement (MOA) rescheduling the payment
of BMCs existing debts. BMC defaulted in the payment of their obligations under the rescheduled payment
scheme provided in the MOA
ISSUE:
Whether BMC can be held liable for violation of the Trust Receipts Law.
HELD:
Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No.
115. However, what is being punished by the law is the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of another regardless of whether the latter is the owner. In this case, no
dishonesty nor abuse of confidence can be attributed to respondents. When petitioner bank made a demand
upon BMC to comply with its obligations under the trust receipts, the latter was already under the control of the
Management Committee created by the SEC which took custody of all BMCs assets and liabilities, including
the red lauan lumber subject of the trust receipts. The MOA did not only reschedule BMCs debts, but more
importantly, it provided principal conditions which are incompatible with the trust agreement. Hence, the MOA
novated and effectively extinguished BMC's obligations under the trust receipt agreement.
113. Land Bank of the Philippines v. Lamberto C. Perez, et al., 672 SCRA 117, G.R. No. 166884, June 13, 2012
Facts:
The respondents were officers of Asian Construction and Development Corporation (ACDC), a
corporation engaged in the construction business. On several occasions, respondents executed in favor of
Land Bank of the Philippines (LBP) trust receipts to secure the purchase of construction materials that they will
need in their construction projects. When the trust receipts matured, ACDC failed to return to LBP the proceeds
of the construction projects or the construction materials subject of the trust receipts. After several demands
went unheeded, LBP filed a complaint for Estafa in relation to PD 115, against the respondent officers of ACDC.
Issue:
Whether the agreement involves trust receipt or loan.
Held:
When both parties enter into an agreement knowing 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 transaction; 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. Here, LBP knew that ACDC was in the construction business and
that the materials that it sought to buy under the letters of credit were to be used for government-owned
projects. They were aware of the fact that there was no way they could recover the buildings or constructions
for which the materials subject of the alleged trust receipts had been used. Thus, the transaction was a loan
and not a trust receipt.

INSURANCE LAW
Introduction
114. White Gold Marine Services vs. Pioneer Insurance, et al. 464 SCRA 448, G.R. No. 154514. July 28, 2005
FACTS:
White Gold filed a complaint before the Insurance Commission claiming that Steamship Mutual violated
the Insurance Code license requirements as an Insurance company and as insurance agent. Pioneer contends
that although Steamship Mutual is a Protection & Indemnity (P & I) Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to ship owning.
ISSUE:
Whether or not Steamship Mutual is a Protection and Indemnity Club engaged in the insurance business
in the Philippines
HELD:
Insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. A mutual insurance
company is a cooperative enterprise where the members are both the insurer and insured. In it, the members
all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among themselves, in proportion to their interest.
A P & I Club is a form of insurance against third party liability, where the third party is anyone other than
the P & I Club and the members. By definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business. Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, to continue doing business here, Steamship Mutual or through its
agent Pioneer, must secure a license from the Insurance Commission.
115. Philamcare Health Systems Inc. vs. CA, 379 SCRA 356, G.R. No. 125678, March 18, 2002
FACTS:
Ernani Trinos applied for a health care coverage with Philam Health Care Sysems. Ernani suffered a
heart attack and was confined in the hospital, so his wife tried to claim the benefits under the health care
agreement. Philam denied her claim thus she instituted an action for damages against Philam. Philam
contended that there was no indemnification unlike in insurance contracts. It further argues that it is not an
insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization
under the authority of the Department of Health.
ISSUE:
Whether a health care agreement is an insurance contract.
HELD:
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following elements concur:
i) The insured has an insurable interest;
ii) The insured is subject to a risk of loss by the happening of the designated peril;
iii) The insurer assumes the risk;
iv) Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
v) In consideration of the insurers promise, the insured pays a premium.
In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement
was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon
under the contract.
116. Gulf Resorts Inc. vs. Philippine Charter Insurance Corp. 458 SCRA 550, G.R. No. 156167, May 16, 2005
FACTS:
Gulf Resorts obtained an indemnity coverage on its properties and the insurance policy contains an
earthquake shock clause extending only to the resorts two swimming pool. During the period of its effectivity
an earthquake struck the Luzon area and among those damaged were the properties of Gulf Resorts, among
which are two swimming pools and other properties of Gulf. Gulf claims indemnification for the swimming pools
and other properties relying upon the earthquake shock loss contained in the policy.
ISSUE:
Does the clause extend to properties of the petitioner other that the two swimming pools in question?
HELD:
Each of the provisions of the insurance policy must be interpreted in consonance with each other. All its
parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. A reading of
the policy including riders and clauses taken all together show that the intention of the parties is to extend the
earthquake shock clause only to the two swimming pools. The evidence presented to the trial court readily
showed that only the swimming pools are intended to be covered by the earthquake shock clause. Aside from
this, no premiums were paid for other properties in consideration for the earthquake shock clause other than for
the two swimming pools in violation of Sec 77 of the ICP.
117. Eternal Gardens Memorial Park Corp vs. Phil. American Life Insurance Co., 551 SCRA 1, G.R. No. 166245,
April 9, 2008
FACTS:
Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner Eternal
Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots
from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon
the existing balance of the purchased burial lots. The relevant provisions of the policy The insurance of any
eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall
be no insurance if the application of the Lot Purchaser is not approved by the Company.
One of the insured lot purchasers was John Chuang. Eternal sent a letter to Philamlife, which served as
an insurance claim for Chuangs death.
ISSUE:
Whether Philamlife should pay the insurance proceeds.
HELD:
Yes. An examination of the provision of the POLICY under effective date of benefit, would show
ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the
clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence
appears to require Philamlife to approve the insurance contract before the same can become effective.
An insurance contract is a contract of adhesion which must be construed liberally in favor of the insured
and strictly against the insurer in order to safeguard the latters interest.
Contract of Insurance
118. Enriquez vs. Sun Life Insurance of Canada, 41 PHIL 269, G.R. No. L-15895, November 29, 1920
FACTS:
Joaquin Herrer applied for a life insurance policy with Sun Life Assurance Company of Canada through
its office in Manila. Herrer submitted the application to the branch manager of Sun Life and paid the required
premium. The manager then forwarded the application to the head office for approval. Sun Lifes head office
sent a notice of acceptance to Herrer, however, he died before receiving the notice of acceptance. Herrers
heirs, through the estate administrator Enriquez, now want to recover the premium that was paid.
ISSUE:
Can they recover the premium?
HELD:
Yes, the heirs may recover the premium because no contract of insurance was perfected in this case.
Article 1319 of the Civil Code provides that acceptance of an offer by letter does not bind the offeror except
from the time it came to his knowledge. In this case, Herrer did not receive the letter of acceptance, hence
the contract was never perfected and the obligation of the insurer which was supposed to be covered by the
premium did not materialize. Consequently, the insurer is bound to return the consideration that it received
from the insured.
119. Great Pacific Life Assurance Co. vs. CA, 89 SCRA 543, G.R. No. L-31845, April 30, 1979
FACTS:
Private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company on the
life of his one-year old daughter Helen Go. Upon the payment of the insurance premium to Lapulapu D.
Mondragon, Branch Manager of the Pacific Life, the binding deposit receipt was issued to Ngo Hing.
Mondragon received a letter from Pacific Life disapproving the insurance application. The non-acceptance of
the insurance plan by Pacific Life was not communicated by petitioner Mondragon to Ngo Hing. Helen Go

died of influenza with complication of bronchopneumonia. Thereupon, Ngo Hing sought the payment of the
proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same.
ISSUE:
Whether the binding deposit receipt constituted a temporary contract of the life insurance?
HELD:
The binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that
the latter's branch office had received from the applicant the insurance premium and had accepted the
application subject for processing by the insurance company; and that the latter will either approve or reject
the same on the basis of whether or not the applicant is insurable on standard rates." Since petitioner Pacific
Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question
had never become in force at any time. In life insurance, a "binding slip" or "binding receipt" does not insure by
itself.
Insurable Interest
120. Spouses Cha vs. CA, 277 SCRA 690, G.R. No. 124520, August 18, 1997
FACTS:
Spouses Cha and CKS Development Corporation entered a 1 year lease contract with a stipulation not
to insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space
in the leased premises without first obtaining the written consent and approval of the lessor. The spouses
insured against loss by fire their merchandise inside the leased premises with the United Insurance Co., Inc.
without the written consent of CKS. On the day the lease contract was to expire, fire broke out inside the
leased premises. CKS upon learning that the spouses procured an insurance wrote to United to have the
proceeds be paid directly to them.
ISSUE:
Whether CKS has insurable interest in the goods and merchandise inside the leased premises because
the spouses Cha violated the stipulation in the lease contract.
HELD:
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time
the insurance takes effect and at the time the loss occurs. CKS cannot, under the Insurance Code, be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable
interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law
and/or public policy.
121. Geagonia vs. CA, 241 SCRA 152, G.R. No. 114427, February 6, 1995
FACTS:
Geagonia, owner of a store, obtained fire insurance policy from Country Bankers covering the stock
trading of dry goods. The policy contains an "other insurance" clause (condition that the insured shall give
notice to the Company of any insurance or insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured). When petitioners stocks were destroyed by fire, he filed a claim that was
subsequently denied because Geagonias stocks were covered by two other fire insurance policies issued by
PFIC which were not disclosed by Geagonia. The fire insurance policies issued by the PFIC name Geagonia as
the assured and contain a mortgage clause which reads: Loss, if any, shall be payable to MESSRS. TESING
TEXTILES, Cebu City as their interest may appear subject to the terms of this policy.
ISSUES:
Whether Geagonia is prohibited from recovering the insurance proceeds because of his violation of the
insurance policy.
HELD:
No. Section 75 of the Insurance Code provides that "[a] policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to constitute
a violation, the other insurance must be upon same subject matter, the same interest therein, and the same
risk. Thus, double insurance exists where the same person is insured by several insurers separately in respect of
the same subject and interest.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both
interests may be one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. A
mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may be made
the beneficial payee in several ways. He may become the assignee of the policy with the consent of the insurer; or the mere pledgee
without such consent; or the original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his
interest may appear" may be attached; or a "standard mortgage clause," containing a collateral independent contract between the
mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely to the mortgagor, may have been
procured by a mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable
lien upon the proceeds.
In the case at bar, the fire insurance policies issued by the PFIC contain a simple loss payable clause,
not a standard mortgage clause. Consequently, the insurable interests of the mortgagor Geagonia and the
mortgagee Tesing Textiles on the mortgaged property (stock trading of dry goods )are distinct and separate.
Since the two policies of the PFIC do not cover the same interest as that covered by the policy of Country
Bankers Insurance Corporation, no double insurance exists. The non-disclosure then of the former policies was
not fatal to the petitioner's right to recover on the private respondent's policy.
122. Gaisano Cagayan, Inc. vs. Insurance Company of North America, 490 SCRA 286, G.R. No. 147839, June
8, 2006
FACTS:
Intercapitol Marketing Corporation (IMC) and Levi Strauss Phils. Inc. (LSPI) separately obtained from respondent
Insurance Company of North America (ICNA) fire insurance policies for their book debt endorsements related
to their ready-made clothing materials which have been sold or delivered to various customers and dealers of
the Insured anywhere in the Philippines which are unpaid4 5 days after the time of the loss. Gaisano Cagayan,
Inc. is a customer and dealer of IMC and LSPI products. It owns the Gaisano Superstore Complex, which was
consumed by fire in 1991. Included in the items destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.
ISSUE:
Who bears the risk of loss?
HELD:
IMC and LSPI. 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, ones interest is not determined by concept of
title, but whether insured has substantial economic interest in the property.
Devices For Ascertaining And Controlling Risk And Loss
123. Great Pacific Life Assurance vs. CA, 316 SCRA 678, G.R. No. 113899, October 13, 1999
FACTS:
There was an existing group life insurance executed between Great Pacific Life Assurance (Grepalife)
and the Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP. One of whom is Dr. Wilfredo Leuterio. He answered in his insurance application that he was
in good health and that he had not consulted a doctor or any of the enumerated ailments, including
hypertension. When he died the attending physician had certified in the death certificate that the former died
of cerebral hemorrhage, probably secondary to hypertension. From this report, petitioner Grepalife refused to
pay the insurance claim. It alleged that the insured had concealed the fact that he had hypertension
ISSUE:
Whether or not Grepalife is liable to pay the insurance claim.
HELD:
Yes. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at
bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance.
124. Sun Life Assurance Co. of Canada vs. CA and Bacani, 245 SCRA 268, CA, G.R. No. 105135, June 22, 1995
FACTS:
Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating
his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy with double
indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance
company rejected the claim on the ground that the insured did not disclose material facts relevant to the
issuance of the policy, thus rendering the contract of insurance voidable. Petitioner discovered that two weeks
prior to his application for insurance, the insured was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure.
ISSUE:
Whether or not the concealment of such material fact, despite it not being the cause of death of the
insured, is sufficient to render the insurance contract voidable
HELD:
YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has no means of ascertaining. Anent the finding that
the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured need
not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the
insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.
125. Philamcare Health Systems Inc. vs. CA, 379 SCRA 356, G.R. No. 125678, March 18, 2002
FACTS:
Same Case #114 (#2 in Insurance)
Ernani Trinos applied for a health care coverage with Philam Health Care Sysems. He answered no to a
question asking if he or his family members were treated to heart trouble, asthma, diabetes, etc. The wife tried
to claim the benefits but the petitioner denied it saying that he concealed his medical history by answering no
to the aforementioned question.
ISSUE:
Whether there was concealment on the part of the insured.
HELD:
Failure of the insured to disclose information largely depends on opinion rather than fact, especially
coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will not avoid a policy even though they
are untrue. Thus the fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense rests upon the provider or insurer.
126. Vda de Canilang vs. CA, 223 SCRA 443, G.R. No. 92492, June 17, 1993
FACTS:
Jaime Canilang applied for a non-medical insurance policy with respondent Great Pacific Life
Assurance Company naming his wife, Thelma Canilang as his beneficiary. But he did not disclose the fact that
he was diagnosed as suffering from sinus tachycardia and that he has consulted a doctor twice. Jaime died of
congestive heart failure, anemia, and chronic anemia. Petitioner widow and beneficiary of the insured,
filed a claim with Great Pacific which the insurer denied upon the ground that the insured had concealed
material information from it. Hence, Thelma filed a complaint against Great Pacific with the Insurance
Commission for recovery of the insurance proceeds.
ISSUE:
Whether or not the non-disclosure of certain facts about the insureds previous health conditions is
material to warrant the denial of the claims of Thelma Canilang
HELD:
YES. The information which Jaime Canilang failed to disclose was material to the ability of Great Pacific to
estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his
doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and would have probably refused to
issue a non-medical insurance policy or, at the very least, required a higher premium for the same coverage.
The materiality of the information withheld by Great Pacific did not depend upon the state of mind of Jaime
Canilang. A mans state of mind or subjective belief is not capable of proof in our judicial process, except
through proof of external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which ensure.
Materiality relates rather to the probable and reasonable influence of the facts upon the party to whom the
communication should have been made, in assessing the risk involved in making or omitting to make further

inquiries and in accepting the application for insurance; that probable and reasonable influence of the facts
concealed must, of course, be determined objectively, by the judge ultimately.
127. Tan vs. CA, 174 SCRA 403, G.R. No. 48049, June 29, 1989
FACTS:
Tan applied for life insurance with PhilAm Life. He died a year after the issuance of the policy. The claim
of the heirs of Tan was denied and the policy was rescinded on the ground of misrepresentation.
ISSUE:
Whether Philam Life may still rescind the contract.
HELD:
Yes. The policy was in forced for a period of less than 2 years. The insurer therefore, is not yet barred
from proving that the policy is void ab initio by reason of misrepresentation. Incontestability clause is not
applicable.
128. Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc., 491 SCRA 411, G.R. No. 151890, June 20, 2006
FACTS:
In consideration of payment of premiums, PRUDENTIAL insured Trans-Asias M/V Asia Korea for
loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion. While the policy was
in force, a fire broke out while M/V Asia Korea was undergoing repairs. TRANS-ASIA filed its notice of claim for
damage sustained by the vessel. Prudential denied the claim alleging that Trans-Asia is in breach of policy
conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED"
ISSUE:
Whether TRANS-ASIA must be allowed to recover its rightful claims on the policy.
HELD:
It is generally accepted that warranty is a statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether
the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.
However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly
shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently,
PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS
MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.
129. Florendo v. Philam Plans, 666 SCRA 618, G.R. No. 186983, February 22, 2012
FACTS:
Philam Plans, Inc. (Philam Plans) issued a comprehensive pension plan with life insurance coverage,
containing a one-year incontestability period to Manuel Florendo. Eleven months later after the issuance
Florendo died of blood poisoning. Lourdes filed a claim for the payment of the benefits under her husbands
plan but Philam Plans declined her claim on the ground of concealment. Lourdes points out that, seeing the
unfilled spaces in Manuels pension plan application relating to his medical history, Philam Plans should have
returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot
cry concealment on Manuels part. She claims that any defect or insufficiency in the information provided by
his pension plan application should be deemed waived after the same has been approved, the policy has
been issued, and the premiums have been collected.
ISSUE:
Whether Florendo is guilty of concealing his illness when he kept blank and did not answer questions in
his pension plan application and whether Philam Plans approval of Florendos pension plan application and
acceptance of his premium payments precluded it from denying Lourdes claim.
HELD:
In signing the application without filling in the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five
years preceding his application. Since Philam Plans waived medical examination for Florendo, it had to rely
largely on his stating the truth regarding his health in his application. It is clear from these representations that
there was concealment.
The insurance plan contains an incontestability clause, which precludes the insurer from disowning
liability under the policy it issued on the ground of concealment or misrepresentation regarding the health of
the insured after a year of its issuance. Since Florendo died on the eleventh month following the issuance of his
plan, the one-year incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husbands pension plan.

The Policy of Insurance
130. Pacific Timber Export Corporation vs. CA, 112 SCRA 199, G.R. No. L-38613, February 25, 1982
FACTS:
Pacific Timber Export Corporation (PTEC) secured temporary insurance from Workmen's Insurance
Company, Inc. (WICI). WICI issued a cover note insuring logs to be shipped from, Quezon Province to Japan
without additional charge. Some logs were lost before it was delivered to the consignee.
ISSUE:
Whether the cover note was void for lack of consideration.
HELD:
No. The fact that no separate premium was paid for the cover notes does not militate against the
validity of PTECs contract. No separate premium is required for cover notes.
131. ATI vs First Lepanto-Taisho Insurance Corp, 726 SCRA 415, G.R. No. 185964, June 16, 2014
FACTS:
A shipment was insured against all risks by Grand Asian Sales, Inc. (GASI) with FIRST LEPANTO. It arrived in
Manila and was discharged into the possession and custody of Asian Terminals, Inc. (ATI). Upon receipt of the
shipment, GASI subjected the same to inspection and found that the delivered goods incurred shortages and
spillage. FIRST LEPANTO paid GASI the insurance indemnity, as subrogee, it demanded from COSCO, its
shipping agency in the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI.
On appeal, ATI argued that there was no valid subrogation because FIRST LEPANTO failed to present a valid,
existing and enforceable Marine Open Policy or insurance contract.
ISSUE:
Whether the presentation of insurance policy is indispensable in proving the right of FIRST LEPANTO to be
subrogated to the right of the consignee.
HELD:
The non-presentation of the insurance contract is not fatal to FIRST LEPANTOs right to collect
reimbursement as the subrogee of GASI. As a general rule, the marine insurance policy needs to be presented
in evidence before the insurer may recover the insured value of the lost/damaged cargo in the exercise of its
subrogatory right. Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions
by declaring that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the
insurer because the loss of the cargo undoubtedly occurred while on board the petitioners vessel.
With ATIs liability having been positively established, to strictly require the presentation of the insurance
contract will run counter to the principle of equity upon which the doctrine of subrogation is premised.
Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.
Premium
132. Makati Tuscany Condominium Corp. vs. CA, 215 SCRA 462, GR. No. 95546, November 6, 1992
FACTS:
American Home Assurance Co. (AHAC) issued in favor of Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy on the latter's building and premises for 2 consecutive years. The premium was paid
on installments, all of which were accepted by AHAC. The policy was again renewed. On this renewed policy,
Tuscany made two installment payments, both accepted by AHAC. Thereafter, Tuscany refused to pay the
balance of the premium. AHAC filed an action to recover the unpaid balance. Tuscany argues that there
cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec.
77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has been
paid, notwithstanding any agreement to the contrary. As a consequence, Tuscany seeks a refund of all
premium payments made on the alleged invalid insurance policies.
ISSUE:
Whether payment by installment of the premiums due on an insurance policy invalidates the contract
of insurance, in view of Sec. 77 of the Insurance Code and entitles the insured for the refund of premium.
HELD:
The subject policies are valid even if the premiums were paid on installments. While the import of
Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, the
request to make installment payments duly approved by the insurer, would NOT prevent the entire contract of

insurance from going into effect despite payment and acceptance of the initial premium or first installment.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by
making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment
so far as to make the policy binding despite the fact that premium is actually unpaid. It appearing from the
peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective
and binding, Tuscany may not be allowed to renege on its obligation to pay the balance of the premium after
the expiration of the whole term of the third policy. Where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any
period, however brief or momentary.
133. UCPB General Insurance vs. Masagana Telamart, 356 SCRA 307, G.R. No. 137172, June 15, 1999
Facts:
For years, UCPB General Insurance Co., Inc., had been issuing fire policies to the Masagana Telamart,
Inc., and these policies were annually renewed. UCPB had been granting Masagana a 60- to 90-day credit
term within which to pay the premiums on the renewed policies. On June 13, 1992, Masaganas properties
were razed by fire. On July 13, 1992, Masagana tendered, and UCPB accepted, managers checks as renewal
premium payments for which official receipt was issued by UCPB. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. On the same day, defendant returned the
manager's checks stating in its letter that it was rejecting Masagana's claim because the policies expired on
May 22, 1992 and were not renewed for another term.
Issue:
Whether the fire insurance policies issued by UCPB to Masagana had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on a later date and after the
occurrence of the risk insured against.
Held:
No. An insurance policy, other than life, issued originally or on renewal, is not valid and binding until
actual payment of the premium. Any agreement to the contrary is void. The parties may not agree expressly
or impliedly on the extension of credit or time to pay the premium and consider the policy binding before
actual payment
134. UCPB General Insurance vs. Masagana Telemart, R E S O L U T I O N, 356 SCRA 307, G.R. No. 137172,
April 4, 2001
Facts:
In a decision settled on June 15 1999, Masagana Telamart, Inc. seasonably filed a motion for the
reconsideration of the adverse verdict. It asserts that the principle of estoppel applies to UCPB General
Insurance Co., Inc. That by extending credit and habitually accepting payments 60 to 90 days from the
effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect
waived the provision therein that it would pay only for the loss or damage in case the same occurred after
payment of the premium.
Issue:
Whether Section 77 of the Insurance Code must be strictly applied to UCPB's advantage despite its
practice of granting a 60- to 90-day credit term for the payment of premiums.
Held:
It would be unjust and inequitable if recovery on the policy would not be permitted against UCPB which
had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since Masagana relied in good faith on such
practice.
Note that the SC reversed its earlier decision dated June 15 1999 in the same case which sustained the insurers position. In a way,
this case laid down the 5 exceptions to the rule that the policy is not valid and binding unless the premiums have been paid(Sec. 77). These
exceptions are as follows:
i. When the grace period provision applies in case of a life or industrial life policy (Sec. 77)
ii. When there is an acknowledgment in the policy or receipt that the premium has been made (Sec 78)
iii. When there is an agreement that the premium shall be payable on installment (Makati Tuscany Condominium
Corporation vs. CA - G.R. No. 95546, November 6, 1992)
iv. When there is a credit extension (Makati Tuscany Condominium Corporation vs. CA - G.R. No. 95546, November 6, 1992)
v. When the equitable doctrine of estoppel applies. (Settled for the first time in this case)

Persons entitled to recover on the policy and conditions to recovery
135. Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261, G.R. No. L-20853, May 29, 1967
FACTS:
Enrique Mora, owner of a vehicle, mortgaged it to H.S. Reyes, Inc., with the condition that they would
be the beneficiary of its insurance.The sedan was insured with State Bonding & Insurance Co., Inc. During the
period of effectivity, the sedan met an accident and it was appraised by Bayne Adjustment Co. and repaired it
with Bonifacio Bros. and the parts were supplied by Ayala Auto Parts Co. This was all done without the
knowledge of H.S. Reyes. Enrique was billed P2,102.73 through Bayne. The insurance company drew a check
and entrusted it to Bayne payable to Enrique or H.S. Reyes. Bonifacio Bros and Ayala Auto filed in the MTC on
the theory that the insurance proceeds should be paid directly to them.
ISSUE:
Whether there is privity between Bonifacio Bro and Ayala Auto against the insurance company.
HELD:
None. Contracts take effect only between the parties thereto, except in some specific instances
provided by law where the contract contains some stipulation in favor of a third person which is known as a
stipulation pour autrui or a provision in favor of a third person not a party to the contract. Under this doctrine, a
third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that
the contracting parties have clearly and deliberately conferred a favor upon such person. Consequently, a
third person, not a party to the contract, has no action against the parties thereto, and cannot generally
demand the enforcement of the same.
136. The Insular Life Assurance vs. Ebrado, 80 SCRA 181, G.R. No. L-44059, October 28, 1977
FACTS:
Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., a life insurance with a rider for
Accidental Death. He designated Carponia T. Ebrado, his common-law wife as the revocable beneficiary in his
policy. He died as a result of an accident when he was hit by a failing branch of a tree. Carponia T. Ebrado
filed a claim for the proceeds of the Policy as the designated beneficiary therein.
ISSUE:
Whether or not a common-law wife named as beneficiary in the life insurance policy of a legally
married man claim the proceeds thereof in case of death of the latter.
HELD:
A common-law wife named as a beneficiary in the life insurance policy of a legally married man
cannot claim the proceeds thereof in case the death of the latter. When not otherwise specifically provided for
by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating
contracts. And under Article 2012 of the same Code, any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot
make a donation to him. Common-law spouses are, definitely, barred from receiving donations from each
other. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because
the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance.
137. Vda. de Consuegra vs. GSIS, 37 SCRA 315, G.R. No. L-28093, January 30, 1971
FACTS:
Jose Consuegra, at the time of his death, was a government employee. In his lifetime, Consuegra
contracted two marriages, the first with herein respondent Rosario Diaz and the second, which was contracted
in good faith while the first marriage was subsisting, with herein petitioner Basilia Berdin. The proceeds of his life
insurance were paid by the GSIS to Basilia Berdin and her children who were the beneficiaries named in the
policy. Consuegra was also entitled to retirement insurance benefits but Consuegra did not designate any
beneficiary who would receive the retirement insurance benefits due to him.
ISSUE:
Whether the beneficiaries named in the life insurance should automatically be considered the
beneficiaries to receive the retirement insurance benefits when the insured failed to designate the beneficiaries
in his retirement insurance.
HELD:
The insured in a life insurance may designate any person as beneficiary unless disqualified to be so
under the provisions of the Civil Code.And in the absence of any beneficiary named in the life insurance policy,

the proceeds of the insurance will go to the estate of the insured. Retirement insurance on the other hand, is
primarily intended for the benefit of the employee. The beneficiary of the retirement insurance can only claim
the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or
overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate
and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is
named in the insurance policy.
The proceeds of the retirement insurance of the late Jose Consuegra should be divided equally between his first living wife Rosario
Diaz, on the one hand, and his second wife Basilia Berdin and his children by her, on the other. Although the second marriage can be
presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such
nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "the
only just and equitable solution in this case would be to recognize the right of the second wife to her share of one-half in the property
acquired by her and her husband and consider the other half as pertaining to the conjugal partnership of the first marriage."
Asian Terminals, Inc. v. Malayan Insurance, Co., Inc., 647 SCRA 111, G.R. No. 171406, April 4, 2011
FACTS:
Shandong Weifang Soda Ash Plant shipped on board the vessel MV Jinlian I plastic bags of soda ash
dense from China to Manila. The shipment was insured with respondent Malayan Insurance Company, Inc.
under Marine Risk. Upon arrival of the vessel, the stevedores of petitioner Asian Terminals, Inc., unloaded the
60,000 bags of soda ash dense from the vessel and brought them to the open storage area of petitioner for
temporary storage and safekeeping, pending clearance from the Bureau of Customs and delivery to the
consignee. A total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the
contents. Malayan, as insurer, paid the value of the lost/ damaged cargoes to the consignee. Insures
Malayan, as subrogee of the consignee, filed a Complaint for damages against petitioner, the shipper
Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage. Petitioner ATI contends that
Malayan has no cause of action because it failed to present the insurance contract or policy covering the
subject shipment.
ISSUE:
Whether the non-presentation of the insurance contract or policy is fatal to respondents cause of
action.
HELD:
Non-presentation of the insurance contract or policy is not fatal in the instant case. The presentation in
evidence of the marine insurance policy is not indispensable before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right when the coverage of the
insurance contract or policy was not disputed. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
Although ATI objected to the admission of the Subrogation Receipt in its Comment to respondents
formal offer of evidence on the ground that respondent failed to present the insurance contract or policy, a
perusal of petitioners Answer and Pre-Trial Brief shows that petitioner never questioned respondents right to
subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue
regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no reason
to present the insurance contract or policy as evidence during the trial.
Double Insurance
-None-
Marine Insurance
138. Roque vs. IAC, 139 SCRA 596, G.R. No. L-66935, November 11, 1985
FACTS:
In a contract of carriage of logs from Palawan to Manila, Pioneer Insurance insured the subject goods.
The goods sank with the barge. During the pendency of the case, the common carrier Manila Bay Lighterage
Corporation (Manila Bay) has ceased operating as a firm and nothing may be recovered from it. The cargo
owner Isabela Roque is now trying to recover their losses from the insurer.
ISSUE:
Is Pioneer Insurance liable?

HELD:
The term "cargo" can be the subject of marine insurance and that once it is so made, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner
or not. In marine cases, the risks insured against are "perils of the sea". The term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not embrace all losses happening
at sea. In the present case the entrance of the sea water into the ship's hold through the defective pipe was
not due to any accident, which happened during the voyage, but to the failure of the ship's owner properly to
repair a defect of the existence of which he was apprised. The loss was therefore more analogous to that
which directly results from simple unseaworthiness than to that which results from the perils of the sea.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its
vessels in seaworthy condition. By parity of reasoning the insurer is not liable.
139. Oriental Assurance Corporation vs. CA, 200 SCRA 459, G.R. No. 94052, August 9, 1991
FACTS:
Panama Sawmill Co., Inc. (Panama) hired Transpacific Towage, Inc., to transport the logs by sea to
Manila and insured it against loss with Oriental Assurance Corporation (Oriental Assurance). The logs were
loaded on two (2) barges. During the voyage, rough seas and strong winds caused damage to 1 of the 2
barges resulting in the loss of some pieces of logs thereon. Panama demanded payment for the loss but
Oriental Assurance refuse on the ground that its contracted liability was for "TOTAL LOSS ONLY."
ISSUE:
Whether or not Oriental Assurance can be held liable under its marine insurance policy based on the
theory of a divisible contract of insurance and, consequently, a constructive total loss.
HELD:
The terms of the contract constitute the measure of the insurer liability and compliance therewith is a
condition precedent to the insured's right to recovery from the insurer. The fact that the logs were loaded on
two different barges did not make the contract several and divisible as to the items insured. The logs on the two
barges were not separately valued or separately insured. Only one premium was paid for the entire shipment,
making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible.
The insurer's liability was for "total loss only." A total loss may be either actual or constructive. Section 130, Insurance Code provides
that an actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or
(d) Any other event, which effectively deprives the owner of the possession, at the port of destination, of the thing insured.
While a constructive total loss is one, which gives to a person insured a right to abandon, under Section 139 of the Insurance Code to wit:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
Since the cost of the lost logs does not exceed 75% of the value of all the loaded logs, the shipment can
not be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code. In the
absence of either actual or constructive total loss, there can be no recovery by the insured Panama against
the insurer, Oriental Assurance.
Casualty Insurance
140. Finman General Assurance Co. vs. CA, 213 SCRA 493, G.R. No. 100970, September 2, 1992
FACTS:
Carlie Surposa was insured with petitioner Finman General Assurance Corporation. While said insurance
policy was in full force and effect, the insured, Carlie died as a result of a stab wound inflicted by one of the
three (3) unidentified men. The beneficiaries of said insurance policy filed a written notice of claim with the
petitioner insurance company which denied said claim contending that murder and assault are not within the
scope of the coverage of the insurance policy. Finman argued that the principle of "expresso unius exclusio
alterius" in a personal accident insurance policy should not be applied, since death resulting from murder
and/or assault are impliedly excluded in said insurance policy considering that the cause of death of the
insured was not accidental but rather a deliberate and intentional act of the assailant. Therefore, said death
was committed with deliberate intent which, by the very nature of a personal accident insurance policy,
cannot be indemnified.
ISSUE:
Whether or not the insurer is liable for the payment of the insurance premiums
HELD:
Yes, the insurer is still liable. Contracts of insurance are to be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of
its beneficiary. The terms "accident" and "accidental" as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the
terms have been taken to mean that which happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. Where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces
the injury, the resulting death is within the protection of the policies insuring against death or injury from
accident. In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or
murder as a result of his voluntary act considering the very nature of these crimes. Neither can it be said that where
was a capricious desire on the part of the accused to expose his life to danger considering that he was just going home after attending a
festival. Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10) circumstances wherein
no liability attaches to petitioner insurance company for any injury, disability or loss suffered by the insured as a result of any of the
stimulated causes. The principle of " expresso unius exclusio alterius" the mention of one thing implies the exclusion of another thing is
therefore applicable in the instant case since murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be considered by implication to discharge the petitioner
Thus, the failure of the petitioner
insurance company from liability for, any injury, disability or loss suffered by the insured.
insurance company to include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.
141. Sun Insurance Office Ltd. vs. CA, 211 SCRA 554, G.R. No. 92383 July 17, 1992
FACTS:
Felix Lim, Jr, died with a bullet wound in his head while cleaning his gun. According to her secretary, Felix
remove the magazine, showed off, pointed the gun at her, and at his own temple. As beneficiary of Personal
Accident Policy of Felix, his wife Nerissa Lim sought payment on the policy but her claim was rejected by Sun
Insurance Office Ltd. Sun insurance agreed that there was no suicide. It argued, however that there was no
accident either.
ISSUE:
Whether or not Felix died of accidental death, which entitles the beneficiary to recover from the
Personal Accident Policy.
HELD:
The words "accident" and "accidental" have never acquired any technical signification in law, and when
used in an insurance contract are to be construed and considered according to the ordinary understanding
and common usage and speech of people generally. In-substance, the courts have practically agreed that
the words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention or
design, and which is unexpected, unusual, and unforeseen. Lim was unquestionably negligent and that
negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy
he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident.
Indeed, most accidents are caused by negligence. It bears noting that insurance contracts are as a rule
supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as above analyzed.
142. Biagtan vs. The Insular Life Assurance Co., Ltd., 44 SCRA 58, G.R. No. L-25579, March 29, 1972
FACTS:
Juan S. Biagtan was insured with Insular Life Assurance Company for a Life Insurance with a
supplementary contract denominated "Accidental Death Benefit Clause if "the death of the Insured resulted
directly from bodily injury effected solely through external and violent means sustained in an accident. The
clause, however,expressly provided that it would not apply where death resulted from an injury "intentionally
inflicted by another party. He was robbed by a band of robbers who stabbed him with sharp-pointed
instruments, causing wounds on his body resulting in his death. Insular Life paid the basic amount but refused to
pay the additional sum under the accidental death benefit clause, on the ground that the insured's death
resulted from injuries intentionally inflicted by third parties and therefore was not covered.
ISSUE:
Whether the wounds received by the insured at the hands of the robbers were inflicted intentionally.
HELD:
It cannot be denied that the act itself of inflicting the injuries was intentional, whether the robbers had
the intent to kill or merely to scare the victim or to ward off any defense he might offer. It should be noted that

the exception in the accidental benefit clause invoked by the appellant does not speak of the purpose
whether homicidal or not of a third party in causing the injuries, but only of the fact that such injuries have
been "intentionally" inflicted this obviously to distinguish them from injuries which, although received at the
hands of a third party, are purely accidental. Intentional" as used in an accident policy excepting intentional
injuries inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness and volition. Where a provision of the policy excludes intentional injury, it is the intention of the
person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the
intentional act of a third person the insurer is relieved from liability as stipulated.
Compulsory Motor Vehicle Liability Insurance
143. Vda. de Maglana vs. Hon. Consolacion, 212 SCRA 218, G.R. No. 60506, August 6, 1992
FACTS:
Lope Maglana met an accident that resulted to his death. The jeep that bumped Maglana was operated
by Destrajo. He was sued together with the insurer of the jeep, Afisco Insurance Corporation (AFISCO).
ISSUE:
Whether AFISCO was solidarily liable with Destrajo.
HELD:
No. While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.
144. Tiu vs. Arriesgado, 437 SCRA 426, GR No. 138060, September 1, 2004
FACTS:
Spouses Arriesgado were passengers of a bus owned by Tiu. They sustained injuries when the bus
collided with a cargo truck. When Arriesgado then filed a complaint for breach of contract of carriage against
the D Rough Riders bus operator William Tiu and his driver Laspias, Tiu filed a Third-Party Complaint against Tius
insurer Philippine Phoenix Surety and Insurance, Inc. (PPSII), the registered owner of the cargo truck Candor and
the driver of the truck Sergio. PPSII admitted that it had an existing contract with petitioner Tiu, but averred that
it could not accede to the claim of respondent Arriesgado, as such claim was way beyond the scheduled
indemnity as contained in the contract of insurance.
ISSUE:
In third party liability insurance, would it be possible for a third party to sue the insurer and could the
insurer be made solidarily liable with the insured?
HELD:
The victim may proceed directly against the insurer for indemnity, the third party liability is only up to the
extent of the insurance policy and those required by law. The nature of Compulsory Motor Vehicle Liability
Insurance is such that it is primarily intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of the negligent operation and use of motor vehicles. The victims
and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners.
While it is true that where the insurance contract provides for indemnity against liability to third persons,
and such persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts against
third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other
parties found at fault. For the liability of the insurer is based on contract; that of the insured carrier or vehicle
owner is based on tort.
Claims Settlement
145. Tio Khe Chio vs. CA, 202 SCRA 119, G.R. No. 76101-02, September 30, 1991
FACTS:
In an insurance claim filed by Tio Khe Chio against Eastern Assurance and Surety Corporation (EASCO) Far
Eastern Shipping (FES), the trial court rendered judgment ordering EASCO and FES to pay Tio Khe solidarily with
an interest at the legal rate from the filing of the complaint. The sheriff enforcing the writ reportedly fixed the

legal rate of interest at twelve (12%). EASCO moved to quash the writ alleging that the legal interest to be
computed should be six (6%) percent per annum in accordance with Article 2209 of the Civil Code.
ISSUE:
What is the legal rate of interest to be imposed in actions for damages arising from unpaid insurance
claims?
HELD:
Sections 243 and 244 of the Insurance Code apply only when the court finds an unreasonable delay or
refusal in the payment of the claims. In the case at bar, the Court made no finding that there was an
unjustified refusal or withholding of payment on petitioner's claim. If there is no unreasonable or unjustified
delay or refusal of settling the claim of the insured, the interest is 6% per annum from the time of the demand.
The legal rate of 12% does not apply because an insurance claim is not a loan or forbearance of money.
146. Finman General Assurance Corporation v. CA, 361 SCRA 514, G.R. No. 138737, July 12, 2001
FACTS:
Usiphil Incorporated, after the occurrence of the fire, immediately notified Finman General Assurance
Corporation thereof. It submitted the following documents: (1) Sworn Statement of Loss and Formal Claim and;
(2) Proof of Loss. Despite repeated demands, Finman refused to pay the insurance claim. Thus, Usiphil was
constrained to file a complaint against Finman for the unpaid insurance claim. In its Answer, Finman maintained
that the claim of private respondent could not be allowed because it failed to comply with Policy Condition
regarding the submission of certain documents to prove the loss. When this case was elevated to SC, Finman
assails the award of an interest rate of 24% per annum since there was allegedly no express finding that
petitioner unreasonably denied or withheld the payment of the subject insurance claim.
ISSUE:
Whether there was an unreasonable delay to warrant the award.
HELD:
Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created
by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and 244. Furthermore, the
policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and ascertainment
of the loss made in an agreement between private respondent and petitioner. For its failure to do so, the CA
and the trial court rightfully directed petitioner to pay, inter alia, 24% interest per annum in accordance with the
above quoted provisions.
As regards to the submission of documents to prove loss, substantial, not strict as urged by petitioner,
compliance with the requirements will always be deemed sufficient.
147. Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc., 491 SCRA 411, G.R. No. 151890, June 20, 2006
FACTS:
Same case no. 127 (#15 in Insurance)
A day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim.
PRUDENTIAL denied TRANS-ASIAs claim and then sent a second letter to TRANS-ASIA seeking a return of the
advance payment it made. TRANS-ASIA was constrained to file a complaint for sum of money against
PRUDENTIAL. The CA held that attorneys fees cannot be awarded absent a showing of bad faith on the part of
PRUDENTIAL in rejecting TRANS-ASIAs claim.
ISSUE:
Whether delay must be accompanied with bad faith for it to be called unreasonable.
HELD:
Section 244 does not require a showing of bad faith in order that attorneys fees be granted. A prima
facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the
claim within the time fixed in both Sections 242 and 243 of the Insurance Code. This will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board (MB). The double interest referred to in Sec 243 can only be interpreted to
mean 24% or double the legal interest of 12% prescribed by the MB.
In the case at bar, as established in Section 244, by reason of the delay and the consequent filing of the
suit by the insured, the insurers shall be adjudged to pay damages, which shall consist of attorneys fees and
other expenses incurred by the insured.

TRANSPORTATION LAW
PRELIMINARY CONSIDERATIONS
148. National Development Company vs. CA, 164 SCRA 593, G.R. No. L-49407, August 19, 1988
FACTS:
En route from California to Manila, vessel Doa Nati figured in a collision at Ise Bay, Japan with a
Japanese vessel as a result of which, cargo of American Raw Cotton as well as the cargo of KyokutoBoekui,
Kaisa, Ltd were lost and/or destroyed. Development Insurance & Surety Corp. paid the insurance and filed an
action for recovery of money against National Development Company (NDC), being the first preferred
mortgagee of Doa Nati, and Maritime Company of the Philippines (MCP) being the general managing agent
of NDC.
ISSUE:
Which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters?
HELD:
Art. 1753 of the Civil Code provides that the law of the country to which the goods are to be
transported governs the liability of the common carrier in case of their loss, destruction or deterioration Since
the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and
that they were lost due to a collision which was found to have been caused by the negligence or fault of both
captains of the colliding vessels the laws of the Philippines will apply.
149. Tatad vs. Sec. Garcia, 243 SCRA 436, G.R. No. 114222, April 6, 1995
FACTS:
EDSA LRT Corporation, Ltd., a foreign corporation was awarded the contract to build, lease and transfer
a light railway transit line along EDSA. The said award was questioned by the petitioners on the basis that a
foreign corporation cannot own a public utility as it violates the Constitution.
ISSUE:
Whether or not an owner and lessor of the facilities used by a public utility constitute a public utility?
HELD:
What private respondent owns are the rail tracks, rolling stocks, rail stations, terminals and the power
plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do not
themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve
the public.
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However,
it does not require a franchise before one can own the facilities needed to operate a public utility so long as it
does not operate them to serve the public. In law, there is a clear distinction between the operation of a
public utility and the ownership of the facilities and the equipment used to serve the public.
150. Radio Communication of the Phils, Inc. vs NTC, 150 SCRA 450, G.R. No. L-68729, May 29, 1987
Facts:
Kayumanggi Radio Network Inc filed a complaint with the National Telecommunications Commission
alleging that Radio Communications of the Philippines, Inc was operating without a certificate of public
convenience and necessity. RCPI counter-alleged that its telephone services in the places subject of the
complaint are covered by the legislative franchise recognized by both the public respondent NTC and its
predecessor, the Public Service Commission.
Issue:
Whether or not a grantee of a legislative franchise to operate a radio company, is required to secure a
certificate of public convenience and necessity before it can validly operate.
Held:
RCPI cannot install and operate radio telephone services on the basis of its legislative franchise alone. In
the words of R.A. No. 2036 itself, an act granting RCPIs franchise, approval of the then Secretary of Public
Works and Communications was a precondition before RCPI could put up radio stations in areas where it
desires to operate. No certificate of public convenience and necessity appears to have been secured by RCPI
from NTC when such certificate, was required by the applicable public utility regulations.

GENERAL CONCEPTS
151. Crisostomo vs. CA, 409 SCRA 528, G.R. No. 138334, August 25, 2003
FACTS:
Estela Crisostomo filed a complaint against Caravan Travel and Tours International, Inc for breach of
contract of carriage and damages. In her complaint, Crisostomo alleged that her failure to join Jewels of
Europe, a tour arranged by Caravan Travel, was due to Caravan Travels fault since it did not clearly indicate
the departure date on the plane ticket.
ISSUE:
Whether a travel agency is a common carrier which required by law to exercise extraordinary diligence
in the fulfillment of its obligation.
HELD:
A contract of carriage or transportation is one whereby a certain person or association of persons
obligate themselves to transport persons, things, or news from one place to another for a fixed price. It is
obvious from the definition that respondent is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier. Caravan Travel did not
undertake to transport Crisostomo from one place to another since its covenant with its customers is simply to
make travel arrangements in their behalf. Its services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.
152. De Guzman vs. CA, 168 SCRA 612, G.R. No. L-47822, December 22, 1988
Facts:
Ernesto Cendana owns trucks used for hauling collected junks to Manila. On the return trip to
Pangasinan, he would load his vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. Pedro de Guzman contracted with Cendana for the delivery of Liberty Milk but
was not able to deliver them all because the truck carrying the boxes was hijacked along the way. De Guzman
commenced an action claiming the value of the lost merchandise. He argues that Cendana, being a
common carrier, is bound to exercise extraordinary diligence, which it failed to do. Cendana denied that he
was a common carrier, and so he could not be held liable for force majeure.
Issues:
Whether or not private respondent is a common carrier.
Held:
Article 1732 makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity. It also carefully avoids
making any distinction between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," and one who offers services or solicits
business only from a narrow segment of the general population. Thus, Cendana is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such backhauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent Cendana charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions governing common carriers.
153. First Phil. Industrial Corp. vs. CA, 300 SCRA 661, G.R. No. 125948, December 29, 1998
Facts:
Batangas City Treasurer required FPIC to pay a local tax to which FPIC paid under protest in order not to
hamper its operations. When the Treasurer denied the protest, FPIC filed a complaint for tax refund.
Respondents assert that pipelines are not included in the term common carrier which refers solely to ordinary
carriers or motor vehicles.

Issue:
Whether a pipeline business is included in the term common carrier so as to entitle FPIC to the
exemption
Held:
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
(1) He must be engaged in the business of carrying goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of goods for person generally as a business and not as a
casual occupation;
(2) He must undertake to carry goods of the kind to which his business is confined;
(3) He must undertake to carry by the method by which his business is conducted and over his established
roads; and
(4) The transportation must be for hire.
Based on the above definitions and requirements, there is no doubt that FPIC is a common carrier. It is
engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that petitioner has a limited
clientele does not exclude it from the definition of a common carrier.
154. Erezo vs. Jepte, 102 Phil. 103, G.R. No. L-9605, September 30, 1957
FACTS:
Aguedo Jepte is the registered owner of a six by six truck. While the same was being driven by Garcia, it
collided with a taxicab and then hit Ernesto Erezo, as a result of which he died. Garcia was prosecuted and
found guilty for the crime of homicide through reckless negligence. As the amount of the judgment could not
be enforced against Garcia, heirs of Erezo brought this action against the registered owner of the truck. Jepte
claims that the vehicle does not belong to him and that the trucks of the corporation were registered in his
name as a convenient arrangement for Port Brokerage.
ISSUE:
WoN Jepte should be liable to Erezo for the injuries occasioned to the latter because of the negligence
of the driver even if he was no longer the owner of the vehicle at the time of the accident.
HELD:
The registered owner of a certificate of public convenience is liable to the public for the injuries or
damages suffered by passengers or third persons caused by the operation of said vehicle, even though the
same had been transferred to a third person. The principle upon which this doctrine is based is that in dealing
with vehicles registered under the Public Service Law, the public has the right to assume or presume that the
registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that
they may have for injuries caused to them by the vehicles being negligently operated if the public should be
required to prove who the actual owner is. Under the same principle the registered owner of any vehicle, even
if not used for a public service, should primarily be responsible to the public or to third persons for injuries
caused the latter while the vehicle is being driven on the highways or streets.
155. Lim vs. CA, G.R. No. 125817, January 16, 2002
FACTS:
A passenger jeepney covered by a certificate of public convenience was sold by Vallarta to Donato
Gonzales, who continued to operate it under the same certificate of public convenience under the so-called
kabit system, and in the course thereof the vehicle met an accident through the fault of another vehicle.
ISSUE:
May the new owner sue for damages against the erring vehicle?
HELD:
The thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify
the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the
riding public. The policy therefore loses its force if the public at large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit
system does not exist. On the contrary, it was private respondent Gonzales himself who had been wronged
and was seeking compensation for the damage done to him. Thus, the private respondent has the right to
proceed against petitioners for the damage caused on his passenger jeepney as well as on his business.
156. Lita Enterprises vs. IAC, 129 SCRA 79, G.R. No. 64693, April 27, 1984
FACTS:
Ocampo and Garcia purchased cars to be used as taxicabs but they had no franchise to operate
taxicabs, so they contracted with Lita Enterprises for the use of the latters certificate of public convenience. 7
years later, Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita
Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he filed a
complaint against Lita Enterprises, Inc.
ISSUE:
WON suit can be maintained arising from a violation of illegal contract.
HELD:
Kabit system, whereby a person who has been granted a certificate of convenience allows another
person who owns motors vehicles to operate under such franchise for a fee, is contrary to public policy and,
therefore, void and inexistent under Article 1409 of the Civil Code. Having entered into an illegal contract,
neither can seek relief from the courts, and each must bear the consequences of his acts.
157. Teja Marketing vs. IAC, 148 SCRA 347, G.R. No. L-65510, March 9, 1987
FACTS:
The records of the Land Transportation Commission show that the motorcycle sold to Nale was first
mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Jaucian are one and the
same, because it was made to appear that way only as Nale had no franchise of his own and that he
attached the unit to Jaucian's MCH Line. Teja Marketing made demands for the payment of the motorcycle
but Nale failed to comply, thus forcing Teja Marketing to filed an action against Nale.
ISSUE:
Whether Teja Marketing can recover damages against Nale?
HELD:
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
system". Although not out rightly penalized as a criminal offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a
fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both
where it finds then. Upon this premise it would be error to accord the parties relief from their predicament.
The defect of inexistence of a contract is permanent and cannot be cured by ratification or by
prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.
158. Nostradamus Villanueva vs. Domingo, 438 SCRA 485, G.R. No. 144274, September 20, 2004
FACTS:
A car driven by Renato Ocfemia hit a car driven by Leandro Domingo. The registered owner of
Ocfemias vehicle was Nostradamus Villanueva, although Villanueva has traded the vehicle for a Pajero
owned by Albert Jaucian/Auto Palace Car Exchange.
ISSUE:
Whether a registered owner of a vehicle may be held liable for damages arising from an accident
involving the said vehicle.
HELD:
The registered owner of any vehicle, even if not used for a public service, should be primarily responsible
to the public or third persons while the vehicle is being driven on the streets.
Registered owner is primarily and solidarily liable with driver under the KABIT SYSTEM. Kabit system is
contrary to public policy; therefore, void and inexistent.

159. Spouses Hernandez et al vs. Spouses Dolor et al, 435 SCRA 668, G.R. No. 160286, July 30, 2004
FACTS:
A vehicle owned by the petitioners figured in an accident as a result of which the petitioners were sued
for damages. Petitioners main defense at the time the incident happened is that the vehicle is being leased to
the driver. The latter paying the rental by way of boundary at P150 per day. Since they are merely lessors, they
should not be held liable for the injury sustained by the respondents.
ISSUE:
W/N the owner of the vehicle is solidarily liable with the driver.
HELD:
For the purpose of imputing liability, employer-employee relationship exist between the owner and the
driver although the latter may pay rental by way of boundary. To sustain the petitioners contention that they
should be excused from liability because they are merely lessors will be a flagrant disregard of our public
service law which imputes liability upon registered owner of the subject vehicle. To sustain the contention of the
petitioner will put the public at the mercy of irresponsible and reckless drivers.
OBLIGATIONS OF THE COMMON CARRIER IN A CONTRACT OF CARRIAGE OF GOODS
160. Macam vs. CA, 313 SCRA 77, G.R. No. 125524, August 25, 1999
Facts:
Macam exported watermelons and mangoes to Hong Kong. The bill of lading stated that one of the
bills must be presented by the Pakistan Bank as consignee and Great Prospect Company as the notify party.
Upon arrival in Hong Kong, the shipment was delivered by the carrier directly to GPC and not to Pakistan Bank
and without the bill of lading being surrendered.
Issue:
Whether or not there was a valid delivery.
Held:
The extraordinary responsibility of common carriers last until actual or constructive delivery of the cargo
to the consignee or his agent. Pakistan was indicated as consignee and GPC was the notify party. However, in
the export invoice, GPC was clearly named as buyer or importer. Petitioner referred to GPC as such in his
demand letter to respondent and his complaint before the court. This premise brings into conclusion that the
deliveries of the cargo to GPC as buyer or importer is in conformity with Art. 1736 of the Civil Code. Therefore,
there was a valid delivery.
161. Servando vs. Phil. Steam Navigation, 117 SCRA 832, G.R. No. L-36481-2, October 23, 1982
Facts:
Servando and Bico loaded on board PSNs vessel certain cargoes to be transported from Manila to
Negros Occidental. Upon arrival of the vessel at the destination, the cargoes were discharged, complete and
in good order, unto the warehouse of the Bureau of Customs. Said warehouse, however, was burned by a fire
with unknown origin destroying the cargoes. Before the fire, Bico was able to discharge some of her cargoes.
Issue:
WON the common carrier should be held responsible for the damage.
Held:
The burning of the customs warehouse was an extraordinary event which happened independently of
the will of PSN. PSN could not have foreseen the event. Where fortuitous event or force majeure is the
immediate and proximate cause of the loss, the obligor is exempt from liability for non-performance. This is true
only because there is nothing in the record to show that PSN, incurred in delay in the performance of its
obligation nor can PSN or its employees be charged with negligence.
162. Edgar Cokaliong Shipping Lines vs. UCPB General Insurance Company, 404 SCRA 706, G.R. No. 146018,
June 25, 2003
FACTS:
M/V Tandag sank due to a fire which resulted from a crack in the auxiliary engine fuel oil service tank.
Fuel spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into

flames. The crack was located on the side of the fuel oil tank, which had a mere two-inch gap from the engine
room walling, thus precluding constant inspection and care by the crew. The vessel sank as a consequence.
ISSUE:
Was the sinking of the vessel due to fortuitous event?
HELD:
No. Having originated from an unchecked crack in the fuel oil service tank, the fire could not have
been caused by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such
as that caused by a lightning, an earthquake, a tempest or a public enemy. Hence, fire is not considered a
natural disaster or calamity.
163. Eastern Shipping Lines vs. IAC, 150 SCRA 463, G.R. Nos. L-69044 and L-71478, May 29, 1987
Facts:
On the way to Manila, M/S Asiatica caught fire and sank. This resulted to the loss of the ship and its
cargoes. The Insurers of the cargoes paid the corresponding marine insurance values and were thus
subrogated to the rights of the insured. When the insurers filed a suit against the petitioner carrier for recovery of
the amounts paid to the insured, petitioner contends that it is not liable on the ground that the loss was due to
an extraordinary fortuitous event.
ISSUE:
Is fire considered a natural disaster?
HELD:
No. This must be so as it arises almost invariably from some act of man or by human means. It does not
fall within the category of an act of God unless caused by lightning or by other natural disaster or calamity. It
may even be caused by the actual fault or privity of the carrier
164. Ganzon vs. CA, 161 SCRA 646, G.R. No. L-48757, May 30, 1988
FACTS:
The private respondent Tumambing instituted an action against the petitioner Ganzon for damages
based on culpa contractual of a service contract between Tumambing and Ganzon to haul scrap iron from
Mariveles, Bataan, to the port of Manila. Ganzon in his defense claims that he is exempt from any liability
because the loss of the scraps was due mainly to the intervention of the municipal officials of Mariveles which
constitutes a caso fortuito as defined in Article 1174 of the Civil Code
ISSUE:
Whether the loss of the scraps was due mainly to the intervention of the municipal officials of Mariveles
which constitutes a caso fortuito.
HELD:
The intervention of the municipal officials was not In any case, of a character that would render
impossible the fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey the illegal
order to dump into the sea the scrap iron. Moreover, there is absence of sufficient proof that the issuance of
the same order was attended with such force or intimidation as to completely overpower the will of the
petitioner's employees. The mere difficulty in the fullfilment of the obligation is not considered force majeure.
We agree with the private respondent that the scraps could have been properly unloaded at the shore, so that
after the dispute with the local officials concerned was settled, the scraps could then be delivered in
accordance with the contract of carriage.
OBLIGATIONS OF THE COMMON CARRIER IN A CONTRACT OF CARRIAGE OF PASSENGERS
165. Aboitiz Shipping Corporation vs. CA, 179 SCRA 95, G.R. No. 84458, November 6, 1989
Facts:
Anacleto Viana boarded M/V Antonio from Occidental Mindoro bound for Manila. Upon arrival, the passengers
therein disembarked through a gangplank connecting the vessel to the pier. Viana, instead of disembarking through the gangplank,
disembarked through the third deck, which was at the same level with the pier. An
hour after the passengers disembarked,
Pioneer stevedoring started to operate in unloading the cargo from the ship. Viana then went back,
remembering some of his cargoes left at the vessel. At that time, while he was pointing at the crew of the vessel

to where his cargoes were loaded, the crane hit him, pinning him between the crane and the side of the
vessel.
Issue:
Whether or not Viana is still considered a passenger at the time of the incident?
HELD:
Yes. The La Mallorca case is applicable in the case at bar. The rule is that the relation of carrier and passenger
continues until the passenger has been landed at the port of destination and has left the vessel owners dock
or premises. Once created, the relationship will not ordinarily terminate until the passenger has, after reaching
his destination, safely alighted from the carriers conveyance or had a reasonable opportunity to leave the
carriers premises. All persons who remain on the premises reasonable time after leaving the conveyance are
to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be
determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare
for his departure. The carrier-passenger relationship is not terminated merely by the fact that the person
transported has been carried to his destination if, for example, such person remains in the carriers premises to
claim his baggage. The reasonableness of the time should be made to depend on the attending
circumstances of the case, such as the kind of common carrier, the nature of its business, the customs of the
place, and so forth, and therefore precludes a consideration of the time element per se without taking into
account such other factors. Where a passenger dies or is injured, the common carrier is presumed to have been at fault or to have
acted negligently. This gives rise to an action for breach of contract where all that is required of plaintiff is to prove the existence of the
contract of carriage and its non-performance by the carrier, that is, the failure of the carrier to carry the passenger safely to his destination,
which, in the instant case, necessarily includes its failure to safeguard its passenger with extraordinary diligence while such relation subsists.
166. Dangwa Transportation vs. CA, 202 SCRA 574, G.R. No. 95582, October 7, 1991
Facts:
Pedrito Cudiamat fell from the platform of the bus when it suddenly accelerated forward and was run
over by the rear right tires of the vehicle causing his death. In a complaint filed against them, petitioners raised
that the driver and the conductor had no knowledge that the Cudiamat would ride on the bus, since the latter
had supposedly not manifested his intention to board the same.
ISSUE:
Whether the victim is considered a passenger by stepping and standing on the platform of the bus.
HELD:
The victim was considered a passenger by stepping and standing on the platform of the bus. The duty
which the carrier owes to its patrons extends to persons boarding the carrier as well as those alighting
therefrom. While the carrier is not in motion there is no necessity for a person who wants to ride the same to
signal his intention to board. A public utility bus, once it stops, is in effect making a continuous offer to bus riders.
167. LRT vs. Navidad, 397 SCRA 75, G.R. No. 145804, February 6, 2003
FACTS:
Nicanor Navidad died after he fell on the LRT tracks and was struck by a moving train which was
coming in at the exact moment that Navidad fell from the platform.
ISSUE:
Whether the victim is considered a passenger by being on the platform.
HELD:
Navidad is a passenger because he entered the LRT station after having purchased a token and he fell
while he was on the platform waiting for a train. Thus, he was where he was supposed to be with the intention
of boarding a train.
168. La Mallorca vs CA, 17 SCRA 739, G.R. No. L-20761, July 27, 1966
FACTS:
Plaintiffs, husband and wife, together with their three minor daughters were the first to go down the bus
that they were riding when it reached their destination. The husband led his wife and children to a shaded spot
on the left pedestrian side of the road about 4 or 5 meters away from the vehicle. The husband returned to the
bus to get his other baggage and he did not notice that his 4 yr old daughter followed him. While he was on

the running board of the bus waiting for the conductor to hand him his baggage, the bus moved although the
conductor had not yet signaled the driver to start off. The bus hit the 4 year old child as a consequence.
ISSUE:
Whether the carrier is liable for the death of the 4 year old child?
HELD:
There is a breach of duty to exercise extra ordinary diligence with respect to the 4 year old child and
the carrier is liable as a consequence. The presence of passengers near the bus was not unreasonable and
they were, therefore, to be considered still as passengers of the carrier, entitled to the protection under their
contract.
169. Japan Airlines vs. CA, G.R. No. 118664, August 7, 1998
FACTS:
Private respondents (Enrique Agana, Maria Angela Nina Agana, Adelia Francisco and Jose Miranda)
boarded Japan Airlines, Inc. (JAL) in San Francisco, California bound for Manila. On the final leg of the journey,
Japan to Manila, private respondents trip was cancelled due to the Mt. Pinatubo eruption. To accommodate
the needs of its stranded passengers, JAL rebooked all the Manila-bound passengers and also paid for the
hotel expenses for their unexpected overnight stay. On the following day, the flight was again cancelled due
to NAIAs indefinite closure. At this point, JAL informed the private respondents that it would no longer defray
their hotel and accommodation expense during their stay in Narita.
ISSUE:
Whether JAL, as a common carrier has the obligation to shoulder the hotel and meal expenses of its
stranded passengers until they have reached their final destination, even if the delay were caused by force
majeure.
HELD:
When JAL was prevented from resuming its flight to Manila due to the effects of Mt. Pinatubo eruption,
whatever losses or damages in the form of hotel and meal expenses the stranded passengers incurred, cannot
be charged to JAL. To hold JAL, in the absence of bad faith or negligence, liable for the amenities of its
stranded passengers by reason of a fortuitous event is too much of a burden to assume. Furthermore, it has
been held that airline passengers must take such risks incident to the mode of travel. In this regard, adverse
weather conditions or extreme climatic changes are some of the perils involved in air travel, the consequences
of which the passenger must assume or expect. After all, common carriers are not the insurer of all risks.
170. Pilapil vs. CA, 180 SCRA 546, G.R. No. 52159, December 22, 1989
FACTS:
Jose Pilapil on board Alatco Transportation Cos bus was injured because a bystander outside the bus
hurled a stone.
ISSUE:
Is the bus company liable?
HELD:
No. There is no showing that any such incident previously happened so as to impose an obligation on
the part of the personnel of the bus company to warn the passengers and to take the necessary precaution.
Such hurling of a stone constitutes fortuitous event in this case. The bus company is not an insurer of the
absolute safety of its passengers.
171. Maranan vs. Perez, 20 SCRA 412, G.R. No. L-22272, June 26, 1967
FACTS:
Corachea, a passenger in a taxicab owned and operated by Perez, was stabbed and killed by the
driver.The carrier was charged for damages.
ISSUE:
Whether the death was caso foruito which means Perez, the carrier is not liable for the damages done.
HELD:
The basis of the carrier's liability for assaults on passengers committed by its drivers rests on the principle
that it is the carrier's implied duty to transport the passenger safely. As between the carrier and the passenger,

the former must bear the risk of wrongful acts or negligence of the carrier's employees against passengers,
since it, and not the passengers, has power to select and remove them.
172. Singapore Airlines vs. Andion Fernandez, 417 SCRA 474, G.R. No. 142305, December 10, 2003
FACTS:
Respondent Andion Fernandez took an airline ticket from Singapore Airlines (SAL) for the Frankfurt-
Manila-Malaysia route. Andion had to pass by Manila in order to gather her wardrobe and rehearse with the
pianist for she was invited to sing before the King and Queen of Malaysia. The airline left Frankfurt but arrived in
Singapore two hours late. By then, the aircraft bound for Manila had already left. Andion never made it to
Manila because there were no more flights to Manila for that day, and was forced to take a direct flight to
Malaysia. Her mother had to travel to Malaysia with the wardrobe which caused them to incur expenses.
ISSUE:
Did SAL break the contract of carriage?
RULING:
Yes, when an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a
contract of carriage arises. The passenger has every right to expect that he be transported on that flight and
on that date. If he does not, then the carrier opens itself to a suit for a breach of contract of carriage. In an
action for breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was
negligent. All that is necessary to prove is the existence of the contract and the fact of its non-performance by the carrier.
173. Bachelor Express vs. CA, 188 SCRA 216, G.R. No. 85691, July 31, 1990
FACTS:
A bus owned by Bachelor Express, Inc. was the situs of a stampede which resulted in the death of 2
passengers. The commotion started when a passenger at the rear portion suddenly stabbed a PC soldier
which caused panic among the passengers.
ISSUE:
Whether Bachelor Express be made liable for damages arising from acts of third persons over whom
they have no control or supervision.
Held:
While the sudden stabbing by a passenger of another passenger inside the bus may be considered as
force majeure as to absolved the carrier from liability, the carrier must prove that it was not at fault or negligent
causing the injuries.
It was shown that the buss door is not properly kept in that the mere push makes it opens easily causing
some of the passengers fell during the commotion and despite of the panic inside the bus caused by the
stabbing, the conductor failed to blow his whistle to signal the driver to stop and the driver continued driving
unminding the commotion going on. Clearly the carriers employees failed to exercise the extra ordinary
diligence in preventing or minimizing the injuries during and after the incident. The carrier failed to rebut the
presumption of being at fault or acted negligently.
174. De Gillaco vs. Manila Railroad Company, G.R. No. L-8034, November 18, 1955
FACTS:
Lt. Tomas Gillaco, was a passenger of the Manila Railroad Company from Calamba, Laguna to Manila.
Emilio Devesa, a train guard of the Manila Railroad Company, shot Gillaco with the carbine furnished to him by
the Manila Railroad Company for his use as such train guard, upon seeing him inside the train coach because
of a personal grudge nurtured against the latter since the Japanese occupation. Gillaco died as a result.
ISSUE:
Whether Manila Railroad Company shall be liable for the death of Gillaco.
HELD:
A passenger is entitled to protection from personal violence by the carrier or its agents or employees,
since the contract of transportation obligates the carrier to transport a passenger safely to his destination. But
under the law of the case, this responsibility extends only to those that the carrier could foresee or avoid
through the exercise of the degree of care and diligence required of it.
The act of guard Devesa in shooting passenger Gillaco was entirely unforeseeable by the Manila
Railroad Co. The latter had no means to ascertain or anticipate that the two would meet, nor could it

reasonably foresee every personal rancor that might exist between each one of its many employees and any
one of the thousands of eventual passengers riding in its trains. The shooting in question was therefore caso
fortuito within the definition of article 1105 of the old Civil Code, being both unforeseeable and inevitable
under the given circumstances; and pursuant to established doctrine, the resulting breach of Manila Railroads
contract of safe carriage with the late Tomas Gillaco was excused thereby.
175. Mapa vs. CA, 275 SCRA 286, G.R. No. 122308 , July 8, 1997
FACTS:
Purita Mapa and her daughter Carmina purchased in Bangkok, Thailand Trans World Airline tickets for
Los Angeles-New York-Boston-St. Louis-Chicago. 4 of their 7 baggage were lost which prompted the Mapas to
file an action against TWA when they could not come to an agreement as to the indemnification of the lost
baggage. TWA set up an affirmative defense of lack of jurisdiction of Philippine courts over the action for
damages in that pursuant to Article 28(1) of the Warsaw Convention, the action could only be brought either in
Bangkok where the contract was entered into, or in Boston which was the place of destination, or in Kansas
City which is the carrier's domicile and principal place of business.
ISSUE:
Whether the contracts of transportation between Purita and Carmina Mapa and TWA were contracts of
international transportation under the Warsaw Convention.
HELD:
Article I (2) of the Warsaw Convention provides that a contract is one of international transportation
only if according to the contract made by the parties, the place of departure and the place of destination,
whether or not there be a break in the transportation or a transshipment, are situated either within the territories
of two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an agreed
stopping place within a territory subject to the sovereignty, mandate or authority of another power, even
though that power is not a party to this convention.
On the basis alone of the provisions therein, it is obvious that the place of departure and the place of
destination are all in the territory of the United States, or of a single High Contracting Party. The contracts,
therefore, cannot come within the purview of the first category of international transportation. Neither can it
be under the second category since there was NO agreed stopping place within a territory subject to the
sovereignty, mandate, or authority of another power.
OBLIGATIONS OF THE SHIPPER, CONSIGNEE AND PASSENGER
176. Isaac vs. A.L. Ammen Transportation, 101 Phil 1046, G.R. No. L-9671, August 23, 1957
FACTS:
Bus of A.L. Ammen Trans. Co. immediately prior to the collision, was running at a moderate speed while
the pick-up car was running outside of its proper lane. The driver of the bus, upon seeing the manner in which
the pick-up was then running, swerved the bus to the very extreme right of the road until its front and rear
wheels have gone over the pile of stones or gravel situated on the rampart of the road. Notwithstanding all
these efforts, the rear left side of the bus was hit by the pick-up car. Passenger Isaac, the only victim of the
collision, seated himself on the left side of the bus resting his left arm on the window sill but with his left elbow
outside the window, this being his position in the bus when the collision took place. It is for this reason that the
collision resulted in the severance of said left arm from his body thus doing him a great damage.
ISSUE:
Whether the negligence of the passenger relieves the common carrier from liability.
HELD:
The driver of the bus has done what a prudent man could have done to avoid the collision and this
relieves the transport company from liability under the law. However, contributory negligence cannot relieve
the carrier of its liability but will only entitle it to a reduction of the amount of damage caused. It is the prevailing
rule that it is negligence per se for a passenger on a railroad voluntarily or inadvertently to protrude his arm,
hand, elbow, or any other part of his body through the window of a moving car beyond the outer edge of the
window or outer surface of the car, so as to come in contact with objects or obstacles near the track, and that
no recovery can be had for an injury which but for such negligence would not have been sustained.

177. Compania Maritima vs. CA, 164 SCRA 685, G.R. No. L-31379, August 29, 1988
FACTS:
Vicente E. Concepcion shipped his construction equipment, including a pay loader, to Cagayan de
Oro City through Compania Maritima. While the pay loader was about 2 meters above the pier in the course of
unloading, the swivel pin gave way, causing the pay loader to fall. Concepcion demanded replacement of
the pay loader. Compania Maritima denied the claim for damages, contending that had Concepcion
declared the actual weight of the pay loader, damage to their ship as well as to his pay loader could have
been prevented. It was found out that the pay loader weighed 7.5 tons and not 2.5 tons as declared in the Bill
of Lading.
ISSUE:
Whether misdeclaration as to weight excuses common carrier from liability
HELD:
Concepcions act of furnishing Compania Maritima with an inaccurate weight of the pay loader
cannot successfully be used as an excuse by the latter to avoid liability to the damage thus caused, said act
constitutes a contributory circumstance to the damage caused on the pay loader, which mitigates the liability
for damages of the latter, as the same could have been avoided had the latter utilized the jumbo lifting
apparatus which has a capacity of lifting 20 to 25tons of heavy cargoes. It is a fact known to the Chief Officer
of MV Cebu that the pay loader was loaded aboard the MV Cebu at the Manila North Harbor by means of a
terminal crane. Even if Compania Maritima chose not to take the necessary precaution to avoid damage by
checking the correct weight of the payl oader, extraordinary care and diligence compel the use of the
jumbo lifting apparatus as the most prudent course for Compania Maritima.
178. PNR vs. CA, 139 SCRA 87, G.R. No. L-55347, October 4, 1985
Facts:
Invoking the principle of state immunity from suit, the Philippine National Railways (PNR) instituted
petition for review on certiorari to set aside the decision of the respondent Appellate Court which held
petitioner PNR liable for damages for the death of Winifredo Tupang, a paying passenger who fell off a train
operated by the petitioner because he opted to sit on the open platform between the coaches of the train.
Issue:
Whether there was contributory negligence on the part of Tupang.
Held:
PNR has all the powers, the characteristics and attributes of a corporation under the Corporation Law.
There can be no question then that the PNR may sue and be sued and may be subjected to court processes
just like any other corporation.
PNR has the obligation to transport its passengers to their destinations and to observe extraordinary
diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the presumption that it
was negligent in the performance of its obligation under the contract of carriage. Thus, the petitioner failed to
overthrow such presumption of negligence with clear and convincing evidence. While PNR failed to exercise
extraordinary diligence as required by law, it appears that the deceased was chargeable with contributory
negligence.
EXTRAORDINARY DILIGENCE
179. Standard Vacuum Oil vs. Luzon Stevedoring, 98 Phil 817, G.R. No. L-5203, April 1, 1956
FACTS:
Standard Vacuum Oil Co. entered into a contract with Luzon Stevedoring Co. Inc. to transport barrels of
bulk gasoline belonging to the former, but LSCI failed to transport it to its place of destination. The tugboat sunk,
and the barge was so badly damaged that the gasoline leaked out. It appears that the tugboat "Snapper"
was a surplus property and was put into operation without first submitting it to an overhaul in a dry-dock. It was
also found out that there were no spare parts to use except a worn out spare driving chain when the engineer
of the tugboat examined the idler for the first time when it was broken prior to the sinking. When the trip was
undertaken, it was only manned by one master, who was merely licensed as a bay, river and lake patron, one
second mate, who was licensed as a third mate, oner chief engineer who was licensed as third motor

engineer, one assistant engineer, who was licensed as a bay, river, and lake motor engineer, and one second
assistant engineer, who was unlicensed.
ISSUE:
Whether the failure to deliver the gasoline to its place of destination is due to accident or force majeure
or to a cause beyond its control.
HELD:
The fact that the tugboat was a surplus property, has not been dry-docked, and was not provided with the requisite equipment to
make it seaworthy, shows that defendant did not use reasonable diligence in putting the tugboat in such a condition as would make its use
safe for operation. It being a surplus property, a dry-dock inspection was a must to put the tugboat in a sea going condition. It may also be
true , as contended, that the deficiency in the equipment was due to the fact that no such equipment was available at the time, but this
did not justify defendant in putting such tugboat in business even if unequipped merely to make a profit. The employment of its crew to
perform functions beyond its competence and qualifications is not only risky but against the law and if a mishap is caused, as in this case,
one cannot but surmise that such incompetence has something to do with the mishap. The fact that the tugboat had undertaken several
trips before with practically the same crew without any untoward consequence, cannot furnish any justification for continuing in its employ
a deficient or incompetent personnel contrary to law and the regulations of the Bureau of Customs.
Generally, seaworthiness is that strength, durability and engineering skill made a part of a ship's
construction and continued maintenance, together with a competent and sufficient crew, which would
withstand the vicissitudes and dangers of the elements which might reasonably be expected or encountered
during her voyage without loss or damage to her particular cargo. While the breaking of the idler may be due
to an accident, or to something unexpected, the cause of the disaster which resulted in the loss of the gasoline
can only be attributed to the negligence or lack of precaution to avert it on the part of defendant by
undertaking a trip that is not well equipped and properly manned by a competent personnel. The loss of the
gasoline certainly cannot be said to be due to force majeure or unforeseen event but to the failure of
defendant to extend adequate and proper help.
180. Planters Products, Inc. vs. CA, 226 SCRA 476, G.R. No. 101503, Sept. 15, 1993
Same # 207 on Maritime Law, Charter Parties
FACTS:
Prior to the voyage of M/V Sun Plum, a timecharter-party on the vessel was entered into between
Mitsubishi International Corporation (Mitsubishi) as shipper/charterer and Kyosei Kisen Kabushiki Kaisha (KKKK) as
shipowner for the transport of Urea fertilizers purchased in bulk by Planters Products, Inc. (PPI). It has been
agreed upon by the parties that the loading, stowing, trimming and discharge of the cargo was to be done by
the charterer, free from all risk and expense to the carrier. After the Urea fertilizer was loaded in bulk by
stevedores hired by and under the supervision of the shipper, the steel hatches were closed with heavy iron lids,
covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly
sealed throughout the entire voyage. The hull was also in good condition. When M/V "Sun Plum" docked at its
berthing place, representatives of the consignee boarded, and in the presence of a representative of the
shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes
of the shipmates who were overseeing the whole operation on rotation basis. After the determination of the
"outturn" of the cargo shipped, PPI sent sent a claim letter to KKKK, for the cost of the alleged shortage in the
goods shipped and the diminution in value of that portion said to have been contaminated with dirt.
ISSUE:
Whether the shipowner was able to prove that he had exercised that degree of diligence required of
him under the law.
HELD:
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same was in the
possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove
that he has exercised extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its liability. the presumption of
negligence on the part of the respondent carrier has been efficaciously overcome by the showing of
extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. Respondent carrier has
sufficiently proved the inherent character of the goods which makes it highly vulnerable to deterioration; as
well as the inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was

adduced by the petitioner showing that the carrier was remise in the exercise of due diligence in order to
minimize the loss or damage to the goods it carried.
181. Brinas vs. People of the Phils., 125 SCRA 68, G.R. No. L-30309, November 25, 1983
FACTS:
The mother and the daughter of Juanito Gesmundo boarded the train of Manila Railroad Company.
They were on board the second coach where Brinas was assigned as conductor and that when the train
slackened its speed and the conductor shouted "Lusacan, Lusacan", they stood up and proceeded to the
nearest exit. The train unexpectedly resumed its regular speed and as a result "the old woman and the child
stumbled and they were seen no more.
Issue:
Whether it was negligence per se for the victim to go to the door of the coach while the train was still in
motion and that it was this negligence that was the proximate cause of their deaths.
Held:
The premature announcement prompted the two victims to stand and proceed to the nearest exit.
Without said announcement, the victims would have been safely seated in their respective seats when the train
jerked and picked up speed. The proximate cause of the death of the victims was the premature and
erroneous announcement of Brinas. Any negligence of the victims was at most contributory and does not
exculpate the accused from criminal liability.
182. BLTB vs. IAC, 167 SCRA 379, G.R. Nos. 74387-90, November 14, 1988
FACTS:
A bus owned by petitioner BLTB collided with a bus owned by Superlines, when the former tried to
overtake a car just as the Superlines' Bus was coming from the opposite direction. The collision resulted in the
death of the passengers of the petitioner's bus.
ISSUE:
Whether BLTB be held liable for the death to its passengers.
HELD:
The common carrier's liability for the death of or injuries to its passengers is based on its contractual
obligation to carry its passengers safely to their destination. They are presumed to have acted negligently
unless they prove that they have observed extaordinary diligence. In the case at bar, the appellants acted
negligently.
183. Nocum vs. Laguna Tayabas Bus Company, 30 SCRA 69, G.R. No. L-23733, Oct. 31, 1969
FACTS:
In a jeepney, Angela, a passenger, was injured because of the flammable material brought by
Antonette, another passenger. Antonette denied her baggage to be inspected invoking her right to privacy.
ISSUE:
Should the jeepney operator be held liable for damages?
HELD:
No. The operator is not liable for damages. In overland transportation, the common carrier is not bound
nor empowered to make an examination on the contents of packages or bags, particularly those hand carried
by passengers.
184. Vda. De Abeto vs. PAL, 115 SCRA 489, G.R. No. L-28692, July 30, 1982
FACTS:
Judge Quirico Abeto boarded the Philippine Airline. The plane crashed, all the passengers have been
killed including Judge Quirico Abeto. Condrada Vda. de Abeto filed a complaint for damages against
Philippine Airlines for the death of Judge Abeto. Philippine Airlines contends that the plane crash was das due
to a fortuitous event.
ISSUE:
Whether PAL is liable for the death of Judge Abeto.

HELD:
The weather during that time was clear and the pilot was supposed to cross airway "Amber I", the
designated route which was Iloilo-Romblon-Manila, instead he made a straight flight to Manila in violation of air
traffic rules. Since theres no satisfactory explanation by PAL with regard to the accident, then the presumption
is it is at fault.
185. Japan Airlines vs. Michael Asuncion et al, 449 SCRA 544, G.R. No. 161730, January 28, 2005
FACTS:
The respondent left Manila on board an aircraft being operated by the petitioner. Part of the itinerary of
the respondent is a stop-over in Narita where they will have an overnight stay in Narita Hotel. However, the laws
of Japan require them to apply for a shore pass wherein they have to be interviewed by immigration officials of
Japan. During the interview, the immigration officials denied their application for shore pass because there
appears to be errors in the travel documents. His height recorded in the documents appears to be taller than
his actual height. Therefore, the petitioners were not allowed to stay in Narita Hotel but rather spent their nights
uncomfortably at the airport. As a result, petitioners sued the airlines claiming that they did not exercise extra-
ordinary diligence required in the contract of carriage. They contend that JAL should have appraised them of
the requirement needed to obtain a shore pass.
ISSUE:
Is JAL liable?
HELD:
JAL is not liable and did not breach its contract of carriage with the petitioners. While it may be true that
JAL are required to appraise their clients with all the necessary travel documents to obtain a shore pass, this
duty does not extend to verification as to whether or not the information/entries in these travel documents are
correct.
BILL OF LADING AND OTHER FORMALITIES
186. HE Heacock Company vs. Macondray, 42 Phil 205, G.R. No. L-16598 October 3, 1921
FACTS:
HE Heacock and steamship Bolton Castle entered into a contract of transportation of goods. HE
Heacock commenced an action to recover the sum of the market value of the goods at the time when they
should have been delivered to them. Macondray, agent of the steamship, contends that, in accordance with
the bill of lading, HEH is entitled to recover only the proportionate freight ton value of the said clocks. The claim
of HEH is based upon the argument that two clauses in the bill of lading, limiting the liability of the carrier, are
contrary to public order and, therefore, null and void.
ISSUE:
May a common carrier, by stipulations inserted in the bill of lading, limit its liability for the loss of or
damage to the cargo to an agreed valuation of the latter?
HELD:
A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any
sound principle of public policy; and it is not conformable to plain principles of justice that a shipper may
understate value in order to reduce the rate and then recover a larger value in case of loss. The clauses of the
bill of lading here in question are not contrary to public order. Article 1255 of the Civil Code provides that "the
contracting parties may establish any agreements, terms and conditions they may deem advisable, provided
they are not contrary to law, morals or public order." Said clauses of the bill of lading are, therefore, valid and
binding upon the parties thereto.
187. Ong Yiu vs. CA, 91 SCRA 223, G.R. No. L-40597, June 29, 1979
FACTS:
Lawyer Ong Yiu filed a complaint against Philippine Airlines for damages for breach of contract of
transportation due to the loss of the content of his luggage. In the decision promulgated by the court of
appeals, he contends that respondent Court committed grave error when it limited PAL's carriage liability to
the amount of P100.00 as stipulated at the back of the ticket. He argues that there is nothing in the evidence

to show that he had actually entered into a contract with PAL limiting the latter's liability for loss or delay of the
baggage of its passengers.
ISSUE:
Whether the stipulation at the back of the ticket may operate so as to limit the liability of the common
carrier.
HELD:
While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound by the
provisions thereof. Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation. It is what is
known as a contract of "adhesion", in regards which it has been said that contracts of adhesion wherein one
party imposes a readymade form of contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres,
he gives his consent. Considering, therefore, that petitioner had failed to declare a higher value for his
baggage, he cannot be permitted a recovery in excess of P100.00.
188. Sea-Land Service vs. IAC, 153 SCRA 552, G.R. No. 75118, August 31 1987
FACTS:
Sea-Land, a foreign shipping and forwarding company licensed to do business in the Philippines,
received from Sea-borne Trading Company in California, a shipment consigned to Sen Hiap Hing, the business
name used by Cue. The shipper not having declared the value of the shipment, no value was indicated in the
bill of lading. The shipment was discharged in Manila, and while awaiting transshipment to Cebu, the cargo
was stolen and never recovered.
Issue:
Whether or not the consignee of seaborne freight is bound by stipulations in the covering bill of lading
limiting to a fixed amount the liability of the carrier for loss or damage to the cargo where its value is not
declared in the bill.
HELD:
The validity and binding effect of the liability limitation clause in the bill of lading are fully sustainable on
the basis alone of Civil Code provisions. That said stipulation is just and reasonable is arguable from the fact that
it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in
the bill of lading. The reasonable character of such stipulation is implicit in it giving the shipper or owner the
option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring
the nature and value of the shipment in the bill of lading. And since the shipper here has not been heard to
complaint of having been "rushed," imposed upon or deceived in any significant way into agreeing to ship the
cargo under a bill of lading carrying such a stipulation, there is simply no ground for assuming that its
agreement thereto was not as the law would require, freely and fairly sought and given.
189. Northwest Airlines vs. Cuenca, 14 SCRA 1063, G.R. No. L-22425, 31 August 1965
FACTS:
Commissioner of Public Highways of the Republic of the Philippines Cuenca filed an action for damages
against Northwest Airlines for alleged breach of contract. Having boarded petitioner's plane in Manila with a
first class ticket to Tokyo, he was, upon arrival at Okinawa, transferred to the tourist class compartment because
his plane ticket bears a W/L mark.
ISSUE:
Whether there was really a breach of contract.
HELD:
It is true that said ticket was marked "W/L," but respondent Cuenca's attention was not called thereto.
Much less was he advised that "W/L" meant "wait listed." Upon the other hand, having paid the first class fare in
full and having been given first class accommodation as he took petitioner's plane in Manila, respondent was
entitled to believe that this was a confirmation of his first class reservation and that he would keep the same
until his ultimate destination, Tokyo.

190. Alitalia vs. IAC, 192 SCRA 9, G.R. No. 71929, December 4, 1990
FACTS:
Dr. Pablo booked a flight to Italy with Alitalia airlines, petitioner herein. She had arrived in Milan the day
before the meeting however her luggage did not arrive with her. The airline informed her that her luggage was
delayed because it was placed in one of the succeeding flights to Italy. She never got her luggage.
ISSUE:
Whether or not Alitalia is liable for damages incurred by Dr. Pablo.
Held:
The Warsaw Convention provides that an air carrier is made liable for damages when: (1) the death,
wounding or other bodily injury of a passenger if the accident causing it took place on board the aircraft or in
the course of its operations of embarking or disembarking; (2) the destruction or loss of, or damage to, any
registered luggage or goods, if the occurrence causing it took place during the carriage by air"; and (3) delay
in the transportation by air of passengers, luggage or goods. However, the claim for damages may be brought
subject to limitations provided in the said convention. Thus, Alitalia is liable to pay Dr. Pablo for damages.
191. China Airlines vs. Daniel Chiok, 407 SCRA 432, G.R. No. 152122, July 30, 2003
FACTS:
Chiok purchased from China Airlines, Ltd. airline passenger ticket for air transportation covering Manila-
Taipei-Hongkong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. Chiok filed a
complaint against PAL and CAL. He alleged therein that despite several confirmations of his flight, defendant
PAL refused to accommodate him in his supposed flight.
ISSUE:
Whether CAL is liable for damages
HELD:
The contract of air transportation was between petitioner and respondent, with the former endorsing to
PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage has always been treated in
this jurisdiction as a single operation. For reasons of public interest and policy, the ticket-issuing airline acts as
principal in a contract of carriage and is thus liable for the acts and the omissions of any errant carrier to which
it may have endorsed any sector of the entire, continuous trip.
192. Santos III vs. Northwest Airlines, 210 SCRA 256, G.R. No. 101538, June 23, 1992
FACTS:
Minor Santos III bought a round trip ticket from Northwest Orient Airlines in San Francisco. His flight would be
from San Francisco to Manila via Tokyo and back to San Francisco. A day before his departure he checked
with NOA and NOA said he made no reservation and that he bought no ticket. Due to the incident, he sued
NOA for damages in Manila. NOA argued that Philippine courts have no jurisdiction over the matter pursuant to
Article 28(1) of the Warsaw Convention, which provides that complaints against international carriers can only
be instituted in:
1. the court of the domicile of the carrier
2. the court of its principal place of business
3. the court where it has a place of business through which the contract had been made
4. the court of the place of destination
ISSUE:
Whether or not Manila is the place of destination and thus giving the Philippine courts jurisdiction over
the matter.
HELD:
The contract is a single undivided operation, beginning with the place of departure and ending with
the ultimate destination. An intermediate place where the carriage may be broken is not regarded as a "place
of destination." The place of destination, within the meaning of the Warsaw Convention, is determined by the
terms of the contract of carriage or, specifically in this case, the ticket between the passenger and the carrier.
Examination of the petitioner's ticket shows that his ultimate destination is San Francisco. Although the date of
the return flight was left open, the contract of carriage between the parties indicates that NOA was bound to
transport the petitioner to San Francisco from Manila. Manila should therefore be considered merely an agreed
stopping place and not the destination.
The Supreme Court cannot rule over the matter for the SC is bound by the provisions of the Warsaw
Convention which was ratified by the Senate. Until & unless there would be amendment to the Warsaw
Convention, the only remedy for Santos III is to sue in any of the place indicated in the Convention such as in
San Francisco, USA.
ACTIONS IN CASE OF BREACH OF CONTRACT OF CARRIAGE
193. Fabre vs. CA, 259 SCRA 426, G.R. No. 111127, July 26, 1996
FACTS:
A school bus owned by spouses Fabre was hired by the private respondent Word for the World Christian
Fellowship Inc. (WWCF). The minibus figured in a mishap resulting injury to several passengers. Antonio, who
was seriously injured, filed an action for damages against the driver and spouses Fabre.
ISSUE:
Whether owners and driver of the bus, may be made to respond jointly and severally to private
respondent.
HELD:
An award for damages can be sustained either on the theory of quasi delict or culpa aquiliana or on
the theory of breach of contract of carriage or culpa contractual, for although the relation of passenger and
carrier is contractual both in origin and nature, nevertheless the act that breaks the contract may be also a
tort. Private respondents in this case and her co-plaintiffs did not stake out their claim against the carrier and
the driver exclusively on one theory, much less on that of breach of contract alone. Thus, the carrier and the
driver are jointly and severally liable because their separate and distinct acts concurred to produce the same
injury.
194. Mitsui vs. CA, 287 SCRA 366, G.R. No. 119571, March 11, 1998
FACTS:
Mitsui Lines entered into a contract of carriage with Lavine Longewear Manufacturing to transport
goods of the latter from Manila to France. The consignee allegedly paid only half the value of the said goods
on the ground that they did not arrive in France until the "off season" in that country because the goods were
not transshipped immediately in Taiwan and the remaining half was allegedly charged to the account of
Lavine which in turn demanded payment from Mitsui. As Mitsui denied LAvines claim, the latter filed a case.
Mitsui filed a motion to dismiss alleging that the claim against it had prescribed under the Carriage of Goods by
Sea Act.
ISSUE:
Whether the action is one for damage to the goods, and must be filed within the period of one year
from delivery or receipt, under Section 3(6), of the Carriage of Goods by Sea Act
HELD:
Deterioration of goods due to delay in their transportation constitutes "loss" or "damage" within the
meaning of Sec. 3(6) of COGSA. However, the question before the trial court is not the particular sense of
damages as it refers to the physical loss or damage of a shippers goods as specifically covered by 3(6) of
COGSA but petitioners potential liability for the damages it has caused in the general sense and, as such, the
matter is governed by the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of
carriage with private respondent. Thus, the question of prescription of action is governed not by the COGSA
but by Art. 1144 of the Civil Code which provides for a prescriptive period of ten years.
195. Fil Merchants vs. Alejandro, 145 SCRA 42, G.R. No. L-54140, October 14, 1986
FACTS:
In a suit filed by Choa Tiek Seng, Filipino Merchants filed a third party complaint against the carrier Frota
Oceanica Brasiliera as it alleged that it is the carrier that is liable to pay damages to Choa Tiek Seng. The lower
courts ruled that Filipino Merchants is already barred from filing a claim because under the Carriage of Goods
by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or the date
when the goods should have been delivered.

ISSUE:
Does the one-year prescriptive period within which to file a case against the carrier also apply to a
claim filed by an insurer who stands as a subrogee to the insured?
HELD:
Yes, it includes the insurer of goods. Also, whether the insurer files a third party complaint or maintains an
independent action is of no moment.
196. Mayer Steel Pipe Corp. vs. CA, 274 SCRA 432, G.R. No. 124050, June 19, 1997
Facts:
Mayer Steel Pipe Corporation contracted insurance policies covering all risks which include all causes
of conceivable loss or damage with South Sea Surety and Insurance Co., Inc. and Charter Insurance
Corporation. When the pipes were discovered to have been damaged, Mayer Steel sued the insurance
companies. It was however dismissed on the ground that the action is barred under Section 3(6) of the
Carriage of Goods by Sea Act since it was filed, more than two years from the time the goods were unloaded
from the vessel.
ISSUE:
Whether the action has already prescribed
HELD:
No. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be
discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the
goods or the date when they should have been delivered. Under this provision, only the carriers liability is
extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the
insurers liability is based not on the contract of carriage but on the contract of insurance. The Carriage of
Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is
governed by the Insurance Code.
197. Dole Phils. vs. Maritime Company of the Phils. 148 SCRA 118, G.R. No. L-61352, February 27, 1987
FACTS:
In a claim for loss and/or damage to a shipment of machine parts sought to be enforced by Dole
Philippines, Inc. against the carrier, Maritime Company of the Philippines, the latter filed a formal motion to
dismiss invoking the ground of prescription. Dole avers that its claim for loss or damage made before this action
was filed amounted to a written extrajudicial demand which would toll or interrupt prescription under Article
1155, would operate also to toll prescription in actions under the Carriage of Goods by Sea Act.
ISSUE:
Whether or not Article 1155 of the Civil Code providing that the prescription of actions is interrupted by
the making of an extrajudicial written demand by the creditor is applicable to actions brought under the
Carriage of Goods by Sea Act.
HELD:
In a case governed by the Carriage of Goods by Sea Act, the general provisions of the Code of Civil
Procedure on prescription should not be made to apply. Similarly, we now hold that in such a case the general
provisions of the new Civil Code cannot be made to apply, as such application would have the effect of
extending the one-year period of prescription fixed in the law. It is desirable that matters affecting
transportation of goods by sea be decided in as short a time as possible; the application of the provisions of
Article 1155 of the new Civil Code would unnecessarily extend the period and permit delays in the settlement
of questions affecting transportation, contrary to the clear intent and purpose of the law.

MARITIME LAW
198. Aboitiz Shipping Corporation vs. General Accident Fire and Life Assurance, 217 SCRA 359, G.R. No.
100446, 21 January 1993
Facts:
Petitioner Aboitiz Shipping Corporation is a corporation engaged in the business of maritime trade as a
carrier. As such, it owned and operated the M/V P. ABOITIZ, a common carrier that sank on voyage from Hong
Kong to Manila. The cause of the sinking of the vessel was because of unseaworthiness due to the failure of the
crew and the master to exercise extraordinary diligence. The sinking of vessel gave rise to filing of suit to recover
the lost cargo either by shippers, their successors-in-interest, or the cargo insurers like private respondent
GAFLAC as subrogees.
Issue:
Whether or not the doctrine of limited liability is applicable to the case?
Held:
The real and hypothecary nature of maritime law simply means that the liability of the carrier in
connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such
obligations or which stands as the guaranty for their settlement. The liability of the vessel owner and agent
arising from the operation of such vessel were confined to the vessel itself, its equipment, freight and insurance,
if any, which limitation served to induce capitalist into effectively wagering their resources against
consideration of the large attainable in the trade. Its application has been well-nigh constricted to cover only
liability for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837). The only time
the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the
vessel owner or agent. In the case at bar, since the cause of the sinking of the vessel was because of
unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence, and that
there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner
itself was negligent, therefore the Limited Liability Rule applies.
199. Chua Yek Hong vs. IAC, 166 SCRA 183, G.R. No. L-74811, December 14, 1988
Facts:
Petitioner Chua loaded sacks of copra on board a vessel owned by private respondents Guno and Olit,
for shipment from Puerto Galera to Manila. Along its way, the vessel capsized and sank. A Motion for
Reconsideration was filed arguing that this Court failed to consider the Trial Court's finding that the loss of the
vessel with its cargo was due to the fault of the shipowner or to the concurring negligence of the shipowner
and the captain.
Issue:
Whether the limited liability rule applies.
Held:
The Appellate Court Decision mentions only the ship captain as having been negligent in the performance
of his duties and there is nothing in the records showing negligence upon the shipagent. Since the exception
to the limited liability rule (Article 587, Code of Commerce) to apply, the loss must be due to the fault of the
shipowner, or to the concurring negligence of the shipowner and the captain, the liability of the private
respondents for the loss of the cargo must be deemed to have been extinguished.
200. Monarch Insurance vs. CA, 333 SCRA 71, G.R. No. 92735, 95, June 8, 2000
FACTS:
3 cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a common carrier
owned and operated by Aboitiz, sank on her voyage from Hong Kong to Manila. Seeking indemnification for
the loss of their cargoes, the shippers and the cargo insurers filed separate suits against Aboitiz. The court of
appeals modified the judgment of the lower court by applying the hypothecary rule on limited liability.
ISSUE:
Whether the application of limited liability rule in maritime law stays the execution of the judgments for
full indemnification of the losses suffered by the petitioners as a result of the sinking of the M/V P. Aboitiz.

HELD:
In the rule on limited liability, that claimants be treated as "creditors in an insolvent corporation whose
assets are not enough to satisfy the totality of claims against it. There is, therefore, a need to collate all claims
preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending
freightage at the time of its loss. No claimant can be given precedence over the others by the simple
expedience of having completed its action earlier than the rest. Thus, execution of judgment in earlier
completed cases, even those already final and executory must be stayed pending completion of all cases
occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.
201. Abueg vs. San Diego, 77 Phil. 730, G.R. No. L-773-75, December 17, 1946
FACTS:
The widows of machinists working in the motor ships/fishing boats, who perished when the boats sank
filed a case against the fishing boat owner. As a defenses, the owner invokes Article 587 of the Code of
Commerce which states that - if the vessel together with all her tackle and freight money earned during the
voyage are abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the
goods which the ship carried is extinguished.
ISSUE:
Whether the liability of the ship owner is extinguished by the total loss of the ship?
HELD:
The provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a
passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the
ship as result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to
compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in
the performance of their work or employment. Such compensation has nothing to do with the provisions of the
Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be
included in the budget of any well managed industry.
202. Luzon Stevedoring vs. CA, 156 SCRA 169, G.R. No. L-58897, December 3, 1987
FACTS:
A decision, was rendered finding that LSCO "Cavite" was solely to blame for the collision between the
tanker LSCO "Cavite" owned by Luzon Stevedoring Corporation and MV "Fernando Escano" a passenger ship
owned by Hijos de F. Escano, Inc. and that the LSCO's claim that its liability should be limited under Article 837
of the Code of Commerce has not been established. The same was affirmed by the appellate court, thus this
petition alleging that the lower court erred in not ruling that the civil liability of the petitioner, if any there be,
should be limited to the value of the LSCO "Cavite" with all its appurtenances and freightage when the collision
took place.
ISSUE:
Whether or not the petitioner can avail the limited liability under Article 837 of the Code of Commerce.
HELD:
In case of collision, abandonment of the vessel is necessary in order to limit the liability of the shipowner
or the agent to the value of the vessel, its appurtenances and freightage earned in the voyage in accordance
with Art.837 of the Code of Commerce. The only instance where such abandonment is dispensed with is when
the vessel was entirely lost. However, if the injury or damage is caused by the shipowner's fault as where he
engages the services of an inexperienced and unlicensed captain or engineer, he cannot avail of the
provisions of Article 837 of the Code by abandoning the vessel. He is personally liable for the damages arising
thereby.
There is no question that the action arose from a collision and the fault is laid at the doorstep of LSCO
"Cavite" of petitioner. Undeniably petitioner has not abandoned the vessel. Hence petitioner cannot invoke the
benefit of the provisions of Article 837 of the Code of Commerce to limit its liability to the value of the vessel, all
the appurtenances and freightage earned during the voyage.

203. Yangco vs. Laserna, 73 Phil. 330, G.R. No. L-47447-47449, October 29, 1941
FACTS:
The steamer S.S. Negros, owned by Yangco set sail even when the captain was aware that typhoon
signal No. 2 was then up. As the sea became increasingly violent, the captain ordered the vessel to return to
port, but the vessel was caught sidewise by a big wave which caused it to capsize and sink. Many of the
passengers died in the mishap.
ISSUE:
May the ship owner or agent, notwithstanding the total loss of the vessel as a result of the negligence of
its captain, be properly held liable in damages for the consequent death of its passengers?
HELD:
Article 587 of the Code of Commerce apears to deal only with the limited liability of shipowners or
agents for damages arising from the misconduct of the captain in the care of the goods which the vessel
carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability.
Notwithstanding the language of the afore-quoted provision, the benefit of limited liability therein provided for,
applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of
the captain.
If the ship owner or agent may in any way be held civilly liable at all for injury to or death of passengers
arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive
with his interest in the vessel such that a total loss thereof results in its extinction. He may exempt himself
therefrom by abandoning the vessel with all her equipment and the freight he may have earned during the
voyage.
204. Yu Con vs. Ipil, 41 Phil. 770, G.R. No. 10195, December 29, 1916
FACTS:
Yu Con chartered the banca Maria owned by Narciso Lauron with Gilcerio Ipil as its master and Juto
Solamo as it supercargo to transport certain merchandise and money from the port of Cebu to Catmon.
Before the ship could sail, the trunk and the money placed therein disappeared. It is beyond all doubt that the
loss of the money occurred through the manifest fault and negligence of Ipil and Solamo.
ISSUE:
Whether the ship owner be also made liable for the loss of the money?
HELD:
In maritime commerce, the shippers and passengers in making contracts with the captain do so
through the confidence they have in the shipowner who appointed him; they presume that the owner made a
most careful investigation before appointing him, and, above all, they themselves are unable to make such an
investigation, and even though they should do so, they could not obtain complete security, inasmuch as the
shipowner can, whenever he sees fit, appoint another captain instead. Thus, it is only proper that the
shipowner should be made liable.
205. Inter-Orient Maritime Enterprises vs. NLRC, 125 SCRA 268, G.R. No. 115286, August 11, 1994
FACTS:
This is a case of illegal dismissal filed by Capt. Tayong against Inter-Orient Maritime Enterprises, Inc. Capt.
Tayong is the master of the vessel M/V Oceanic Mindoro owned by the petitioner, to sail forthwith to South
Africa. When the vessel arrived in Singapore, Captain Tayong discovered that the supplies earlier requisitioned
cannot be delivered because the store was already closed at the time of their arrival. He then called the
Technical director, Mr. Clark, informing him that the vessel cannot sail without the oxygen and acetylene for
safety reasons due to the problems with the turbo charger and economizer. Mr. Clark responded that by
shutting off the water to the turbo chargers and using the auxiliary boiler, there should be no further problems.
Captain Tayong, in consultation with the vessel's Chief Engineer, decided to wait for the delivery of the
requisitioned supplies that would permit shipboard repair of the malfunctioning machinery and equipment.
Upon arrival at the port of Richard Bay, South Africa, Captain Tayong was instructed to turn-over his post to the
new captain and was repatriated to the Philippines.
ISSUE:
Whether the captain arbitrarily and maliciously delay the voyage to South Africa.

HELD:
A ships captain must be accorded a reasonable measure of discretionary authority to decide what the
safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage. Captain
Tayong's decision to wait 7 hours in Singapore for the delivery on board the Oceanic Mindoro of the
requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and the
economizer equipment of the vessel, did not constitute a legal basis for the summary dismissal of Captain
Tayong.
206. Far Eastern Shipping vs. CA, 297 SCRA 30, G.R. No. 130068, October 01, 1998
FACTS:
USSR ship M/V PAVLODAR, owned and operated by the Far Eastern Shipping Company (FESC), arrived
at the Port of Manila from Vancouver. Captain Senen Gavino was assigned by the Manila Pilots' Association
(MPA) to conduct docking maneuvers for the safe berthing of the vessel. Gavino boarded the vessel and
stationed himself in the bridge, with the master of the vessel, Victor Kavankov, beside him. During the process,
the bow of the vessel rammed into the apron of the pier causing considerable damage to the pier. The vessel
sustained damage too.
ISSUE:
Whether the master of the vessel be held liable in compulsory pilotage?
HELD:
While in exercising his functions, a pilot is in sole command of the ship and supersedes the master for the
time being in the command and navigation of the ship, the master does not surrender his vessel to the pilot and
the pilot is not the master. There are occasions when the master may and should interfere and even displace
the pilot, as when the pilot is obviously incompetent or intoxicated.
Based on Capt. Kavankovs testimony, he never sensed any danger even when the anchor didnt hold
and they were approaching the dock too fast. He blindly trusted the pilot. This is negligence on his part. He was
right beside the pilot during the docking, so he could see and hear everything that the pilot was seeing and
hearing. The masters negligence translates to unseaworthiness of the vessel, and in turn means negligence on
the part of FESC.
207. Planters Products vs. CA, 226 SCRA 476, G.R. No. 101503, Sept. 15, 1993
Same # 180 on Extra Ordinary Diligence
FACTS:
A timecharter-party on the vessel M/V Sun Plum, was entered into between Mitsubishi International
Corporation (Mitsubishi) as shipper/charterer and Kyosei Kisen Kabushiki Kaisha (KKKK) as shipowner for the
transport of Urea fertilizers purchased in bulk by Planters Products, Inc. (PPI). KKKK is now being demanded for
the cost of the alleged shortage in the goods shipped and the diminution in value of that portion said to have
been contaminated with dirt. KKKK argued that the strict public policy governing common carriers does not
apply to them because they have become private carriers by reason of the provisions of the charter-party.
ISSUE:
Whether a common carrier becomes a private carrier by reason of a charter-party.
HELD:
By the terms of which the whole vessel is let to the charterer which transfers to him its entire command
and possession and consequential control over navigation, including the master and the crew who are his
servants. The charterer is treated as owner pro hac vice of the vessel. In such a case, a common carrier
becomes a private carrier. In case of loss, destruction or deterioration of the goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on
them. On the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the carrier.
208. Macondray vs. Provident Insurance Corporation, 445 SCRA 644, G.R. No. 154305, December 9, 2004
FACTS:
CANPOTEX Shipping Services Limited Inc., shipped on board the vessel M/V Trade Carrier certain goods
in favor of ATLAS Fertilizer Corporation. Subject shipments were insured with Provident Insurance Corp. against
all risks. When the shipment arrived, consignee discovered that the shipment sustained losses. Provident paid for

said losses. Formal claims were then filed with Trade & Transport but Macondray denies liability over the losses,
it, having no absolute relation with Trade & Transport, the alleged operator of the vessel who transported the
shipment; that Macondray is the local representative of the shipper, the charterer of M/V Trade Carrier and not
party to this case and that it has no control over the acts of the captain and crew of the carrier thus cannot be
held responsible for any damage arising from the fault or negligence of said captain and crew.
Issue:
Whether or not MACONDRAY & CO. INC., as an agent, is responsible for any loss sustained by any party
from the vessel owned by Trade & Transport.
Held:
Although petitioner is not an agent of Trade & Transport, it can still be the ship agent of the vessel M/V
Trade Carrier. A ship agent is the person entrusted with provisioning or representing the vessel in the port in
which it may be found. Hence, whether acting as agent of the owner of the vessel or as agent of the charterer,
petitioner will be considered as the ship agent and may be held liable as such, as long as the latter is the one
that provisions or represents the vessel.
Macondray was appointed as local agent of the vessel, which duty includes arrangement for the
entrance and clearance of the vessel. Petitioners employees were present at the port of destination one day
before the arrival of the vessel, where they stayed until it departed. They were also present during the actual
discharging of the cargo. These acts all point to the conclusion that it was the entity that represented the vessel
at the port of destination and was the ship agent within the meaning and context of Article 586 of the Code of
Commerce.
BANKING LAWS
DEPOSIT FUNCTION
209. BPI vs FIRST METRO INVESTMENT CORP, 429 SCRA 30, G.R. No. 132390, December 8, 2004
FACTS:
First Metro Investment Corporation (FMIC) assured BPI Family Bank (BPI FB) that it will maintain its deposit
of P100 million for a period of one year on condition that the interest of 17% per annum is paid in advance.
Barely one month and seven days from the date of deposit, FMIC demanded the withdrawal of P86,057,646.72
through the issuance of a check payable to itself, the same was made as a result of the fraudulent and
unauthorized transfer by BPI FB of its P80 million deposit to Tevestecos savings account. Upon presentation for
payment, BPI FB dishonored the check as it was drawn against insufficient funds. Consequently, FMIC filed a
Civil Case against BPI FB. On appeal, CA adjudges BPI FB liable to FMIC for the principal amount plus interest at
17% per annum from the date of unauthorized transfer until fully restored. BPI FB contends FMICs deposit is not
a special savings account similar to a time deposit, but actually a demand deposit, withdrawable upon
demand, proscribed from earning interest under Central Bank Circular 777.
ISSUE:
Whether the withdrawal of deposit before maturity date changes the nature of time deposit to one of
demand deposit.
HELD:
Time deposit is defined as one the payment of which cannot legally be required within such a specified
number of days while demand deposits are all those liabilities of the Bangko Sentral and of other banks which
are denominated in Philippine currency and are subject to payment in legal tender upon demand by the
presentation of (depositors) checks. While it may be true that barely one month and seven days from the date
of deposit, FMIC demanded the withdrawal of the whole amount in its account through the issuance of a
check payable to itself, the same was made as a result of the fraudulent and unauthorized transfer by BPI FB of
its P80 million deposit to Tevestecos savings account. Certainly, such was a normal reaction of respondent as a
depositor to BPI FBs failure in its fiduciary duty to treat its account with the highest degree of care. Under this
circumstance, the withdrawal of deposit by respondent FMIC before the one-year maturity date did not
change the nature of its time deposit to one of demand deposit.

210. Vitug vs. Court of Appeals, G.R. No. 82027, March 29, 1990
FACTS:
Executrix Rowena Corona sought for the ouster of widower Romarico G. Vitug, as co-special administrator
of Mrs. Dolores Vitug's estate, for failure to include the amounts in savings account of the Bank of America for
inventory and for "concealment of funds belonging to the estate. Vitug insists that the said funds are his
exclusive property having acquired the same through a survivorship agreement executed with his late wife and
the bank.
ISSUE:
Whether a bank deposit with survivorship agreement consisting of conjugal funds changes its nature to
exclusive property when one of the contracting parties dies.
HELD:
Survivorship agreement is a contract that impose a mere obligation with a term, the term being death.
Such agreements are permitted under Art 2012 of the Civil Code, an aleatory contract. But although the
survivorship agreement is per se not contrary to law, its operation or effect may be violative of the law. For
instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, to
transfer property in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled
upon such grounds.
In the case at bar, there is no demonstration that the survivorship agreement had been executed for
such unlawful purposes, or in order to frustrate our laws on wills, donations, and conjugal partnership. Mrs. Vitug
having predeceased her husband, the latter has acquired upon her death a vested right over the amounts
under savings account of the Bank of America. Being the separate property of petitioner, it forms no more part
of the estate of the deceased.
211. Intengan vs. Court of Appeals, 377 SCRA 63, G.R. No. 128996, February 15, 2002
FACTS:
Citibank filed a complaint for violation of the Corporation Code against two (2) of its officers, Dante L.
Santos and Marilou Genuino. As evidence, Citibanks vice-president Lim annexed bank records purporting to
establish the deception practiced by Santos and Genuino. Some of the documents pertained to the dollar
deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner. An information was filed
against private respondents for alleged violation of Republic Act No. 1405, otherwise known as the Bank
Secrecy Law.
ISSUE:
Whether the disclosure of the bank deposit in a case filed by a bank against its officers falls under the
last exception of R.A. No. 1405.
HELD:
The finest legal minds in the country - from the parties respective counsel, the Provincial Prosecutor, the
Department of Justice, the Solicitor General, and the Court of Appeals - all appear to have overlooked a single
fact which dictates the outcome of the entire controversy. A circumspect review of the record shows us the
reason. (Dollar account ang pinag-uusapan, tapos lahat sila naka-focus sa RA 1405. Tuwang tuwa lang kasi
ako kung pano nireprimand ng SC yung mga legal minds)
The accounts in question are U.S. dollar deposits; consequently, the applicable law is not Republic Act No.
1405 but Republic Act (RA) No. 6426, known as the "Foreign Currency Deposit Act of the Philippines." Under R.A.
No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed
only upon the written permission of the depositor. A case for violation of Republic Act No. 6426 should have
been the proper case brought against private respondents. Lims act of disclosing details of petitioners bank
records regarding their foreign currency deposits would appear to belong to that species of criminal acts
punishable by special laws, called malum prohibitum. However, prescription has already set in because the
filing of the information in the case at bar for alleged violation of Republic Act No. 1405 did not have the effect
of tolling the prescriptive period. For it is the filing of the complaint or information corresponding to the correct
offense which produces that effect.
212. China Bank vs. Ortega, 49 SCRA 355, G.R. No. L-34964, January 31, 1973
FACTS:
To satisfy the judgment of a competent court, Acaban sought the garnishment of the bank deposit of
judgment debtor B & B Forest Development Corporation with the China Banking Corporation, Accordingly, a
notice of garnishment was issued. China Bank argues that the disclosure of the information required by the
court does not fall within any of the four (4) exceptions enumerated in Section 2 of RA 1405, and that if the

questioned orders are complied with the cashier of China Bank may be criminally liable under Section 5 and
the bank exposed to a possible damage suit by B & B Forest Development Corporation.
ISSUE:
Whether or not a banking institution may validly refuse to comply with a court process garnishing the
bank deposit of a judgment debtor, by invoking the provisions of the Bank Secrecy Law.
HELD:
The prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not
preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case,
and if the existence of the deposit is disclosed the disclosure is purely incidental to the execution process.
213. Salvacion vs. Central Bank, 278 SCRA 27, G.R. No. 94723, August 21, 1997
FACTS:
Karen Salvacion, 12-year old girl was raped 10 times in the span of 4 days by an American tourist Greg
Bartelli. Bartelli was able to escape from the jail and avoid punishment. Salvacion, having received a favorable
judgment in the Civil Case for damages, tried to execute judgment on Bartelli's dollar deposit with China
Banking Corporation. The bank invoked Section 113 of Central Bank Circular No. 960 to the effect that the
dollar deposits or defendant Greg Bartelli are exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body, whatsoever.
ISSUE:
Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as amended by P.D.
1246, otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign transient?
HELD:
The provisions of Section 113 of CB Circular No. 960 and PD No. 1246, insofar as it amends Section 8 of
R.A. No. 6426 are held to be INAPPLICABLE to this case because of its peculiar circumstances.
In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body
intended right and justice to prevail. When the statute is silent or ambiguous, this is one of those fundamental
solutions that would respond to the vehement urge of conscience. It would be unthinkable, that the
questioned Section 113 of Central Bank No. 960 would be used as a device by accused Greg Bartelli for
wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent. This situation calls for
fairness against legal tyranny. We definitely cannot have both ways and rest in the belief that we have served
the ends of justice.
214. Ejercito vs. Sandiganbayan, 509 SCRA 190, G.R. Nos. 157294-95, November 30, 2006
FACTS:
When ousted president Estrada was charged with Plunder, Sandiganbayan granted the request of the
special prosecution panel for the issuance of Subpoena duces tecum/ad testificandum directed to Equitable-
PCI Bank to produce documents relating to the trust accounts and savings account of Jose Velarde. Estrada
filed for the quashal of the motion, claiming that his bank accounts are covered by secrecy of Bank Deposits
Law and do not fall under any of the exceptions stated therein.
ISSUE:
Whether petitioners Trust Account No. 858 is covered by the term "deposit" as used in R.A. 1405 and
whether the case of Plunder be excepted from the rule making bank deposits confidential.
HELD:
The term "deposits" used on 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.
The crime of bribery and the overt acts constitutive of plunder are crimes committed by public officers, and
in either case the noble idea that "a public office is a public trust and any person who enters upon its discharge
does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny" applies with
equal force. Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of bribery
must also apply to cases of plunder.

215. People vs. Ejercito Estrada, G.R. Nos. 164368-69, April 2, 2009
FACTS:
When an Information for Plunder was filed against Estrada, a separate information was filed against him
for Illegal Use of Alias. The Sandiganbayan ruled that the use of an alias within the context of a bank
transaction, specifically, the opening of a numbered account made before bank officers, is protected by the
secrecy provisions of R.A. No. 1405. The People posits, on appeal, that R.A. No. 1405 does not apply to trust
transactions, as it applies only to traditional deposits. A trust account, according to the People, may not be
considered a deposit because it does not create the juridical relation of creditor and debtor.
ISSUE:
Whether or not trust account is covered by the term deposit as used in RA 1405.
HELD:
The nature of the transaction on which the indictment rests, affords Estrada a reasonable expectation
of privacy, as the alleged criminal act related to the opening of a trust account a transaction that R.A. No.
1405 considers absolutely confidential in nature. We previously stated, in Ejercito v. Sandiganbayan, that An
examination of the law shows that the term "deposits" used therein 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 bank 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.
R.A. 1405 is broad enough to cover Trust Account. We have consistently ruled that bank deposits under
R.A. No. 1405 (the Secrecy of Bank Deposits Law) are statutorily protected or recognized zones of privacy.
Given the private nature of Estradas act of signing the documents as "Jose Velarde" related to the opening of
the trust account, the People cannot claim that there was already a public use of alias when the bank officers,
his Chief of Staff with whom he shared matters of the highest and strictest confidence, and his lawyer-friend
witnessed the signing.
216. Marquez vs Desierto, 359 SCRA 772, G.R. No. 135882, June 27, 2001
FACTS:
Agapito B. Rosales, Director of Fact Finding and Intelligence Bureau (FFIB) filed with the Office of the
Ombudsman motion to cite Lourdes T. Marquez for contempt due to her refusal to produce several bank
documents for purposes of inspection in camera relative to various accounts maintained at Union Bank of the
Philippines, Julia Vargas Branch, where Marquez is the branch manager. The accounts to be inspected are
involved in a case pending with the Ombudsman.
ISSUE:
Whether the order of the Ombudsman to have an in camera inspection of the questioned account is
allowed as an exception to the law on secrecy of bank deposits (R.A. No.1405)
HELD:
Before an in camera inspection may be allowed, there must be a pending case before a court of
competent jurisdiction. In the case at bar, there is yet no pending litigation before any court of competent
authority. What is existing is an investigation by the Office of the Ombudsman. In short, what the office of the
ombudsman would wish to do is to fish for additional evidence to formally charge Amado Lagdameo, et. al.,
with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the
bank account for inspection.
LOAN FUNCTION OF BANKS
217. Soriano vs. People of the Phils., 591 SCRA 244, G.R. No. 159517-18, June 30, 2009
FACTS:
Soriano, President of the Rural Bank of San Miguel (Bulacan), Inc. (RBSM) falsified the loan applications
and other bank records, and made it appear that Malang and Maaol obtained loans when in fact they did
not. Soriano was charged with violation of DOSRI Rules and with estafa thru falsification of commercial
document for allegedly obtaining loans from RBSM. Soriano contends that he should be charged with one
offense only, because all the charges filed against him proceed from and are based on a single act of
obtaining fictitious loans.
ISSUE:
Whether the filing of Estafa bars the filing of violation of DOSRI rules or vice versa.

HELD:
Jurisprudence teems with pronouncements that a single act or incident might offend two or more
entirely distinct and unrelated provisions of law. A DOSRI violation consists in the failure to observe and comply
with procedural, reportorial or ceiling requirements prescribed by law in the grant of a loan to a director,
officer, stockholder and other related interests in the bank. The elements of abuse of confidence, deceit, fraud
or false pretenses, and damage, which are essential to the prosecution for estafa, are not elements of a DOSRI
violation. The filing of several charges against Soriano was, therefore, proper.
218. BPI vs. Sps. Yu, 610 SCRA 412, G.R. No. 184122, January 20, 2010
FACTS:
Spouses Yu, unable to pay their loans from Far East Bank requested a loan restructuring, which the bank,
now merged with BPI, granted. BPI failed to state the penalty charges in the disclosure statement, but on the
promissory note that the Yus signed, it contained a penalty clause that said to an effect to pay a late payment
charge on any overdue amount at the rate of 3% per month.
ISSUE:
Whether or not the reference to the penalty charges in the promissory note constitutes substantial
compliance with the disclosure requirement of the Truth in Lending Act.
HELD:
The lender may provide for a penalty clause so long as the amount or rate of the charge and the
conditions under which it is to be paid are disclosed to the borrower before he enters into the credit
agreement. The case of Consolidated Bank and Trust Corporation v. Court of Appeals declared valid the
penalty charges that were stipulated in the promissory notes. In this case, the promissory notes signed by the
Yus contained data, including penalty charges, required by the Truth in Lending Act. They cannot avoid liability
based on a rigid interpretation of the Truth in Lending Act that contravenes its goal. Nonetheless, the courts
have authority to reduce penalty charges when these are unreasonable and iniquitous.
219. DBP vs. Arcilla, 462 SCRA 599, G.R. No. 161397, June 30, 2005
FACTS:
Atty. Arcilla was employed by DBP and availed a loan inder individual housing project. Upon
resignation, he failed to pay his loan account, advances, penalty charges and interests which resulted the
property to be advertised for sale at public bidding. He then filed a complaint against DBP alleging that DBP
failed to furnish him with the disclosure statement required by Republic Act (R.A.) No. 3765 and Central Bank
(CB) Circular No. 158 prior to the execution of the deed of conditional sale and the conversion of his loan
account with the bank into a regular housing loan account. DBP answered that it substantially complied with
R.A. No. 3765 and CB Circular No. 158 because the details required in said statements were particularly
disclosed in the promissory notes, deed of conditional sale and the required notices sent to Arcilla. In any
event, its failure to comply strictly with R.A. No. 3765 did not affect the validity and enforceability of the subject
contracts or transactions.
ISSUE:
Whether the contract of loan between Arcilla and the bank be rendered invalid due to non-
compliance with the disclosure requirement of the Truth in Lending Act.
HELD:
Under Circular 158 of the Central Bank, the lender is required to include the information required by R.A.
3765 in the contract covering the credit transaction or any other document to be acknowledged and signed
by the borrower. In addition, the contract or document shall specify additional charges, if any, which will be
collected in case certain stipulations in the contract are not met by the debtor. If the borrower is not duly
informed of the data required by the law prior to the consummation of the availment or drawdown, the lender
will have no right to collect such charge or increases thereof, even if stipulated in the promissory note.
However, such failure shall not affect the validity or enforceability of any contract or transaction.
In the present case, DBP failed to disclose the requisite information in the disclosure statement form
authorized by the Central Bank, but did so in the loan transaction documents between it and Arcilla. There is no
evidence on record that DBP sought to collect or collected any interest, penalty or other charges, from Arcilla
other than those disclosed in the said deeds/documents. Thus, there was a substantial compliance with the
disclosure requirement and even if there was none, the contract of loan remain valid.

BANK REGULATIONS
220. Tala Realty Corp. vs. Banco Filipino, 584 SCRA 64, G.R. Nos. 130088, 131469, 155171, 155201, 166608, April
7, 2009
FACTS:
Tala Realty was incorporated to hold and purchase real properties in trust for Banco Filipino. This was
conceived by Banco Filipino in view of the limitation on a banks allowable investments in real estate to 50% of
its capital assets. Eventually, Tala repudiated the trust, claimed the titles for itself and demanded payment of
rentals, deposits and goodwill, with a threat to eject Banco Filipino. Thus Banco Filipino filed complaints for
reconveyance against Tala Realty.
ISSUE:
Whether an implied trust was created between the Bank and Tala giving them the right to enforce their
agreement.
HELD:
Where the purchase is made in violation of an existing statute and in evasion of its express provision, no
trust can result in favor of the party who is guilty of the fraud. The Bank was well aware of the limitations on its
real estate holdings under the General Banking Act and that its "warehousing agreement" with Tala was a
scheme to circumvent the limitation. This agreement which the Bank claims to be an implied trust is contrary to
law. While the sale and lease of the subject property genuine and binding upon the parties, we cannot
enforce the implied trust even assuming the parties intended to create it. The Bank and Tala are in pari delicto,
thus, no affirmative relief should be given to one against the other. The Bank should not be allowed to dispute
the sale of its lands to Tala nor should Tala be allowed to further collect rent from the Bank. The clean hands
doctrine will not allow the creation nor the use of a juridical relation such as a trust to subvert, directly or
indirectly, the law.
BANKS IN DISTRESS
221. Central Bank vs. Court of Appeals, 220 SCRA 536, G.R. No. 76118, March 30, 1993
FACTS:
Acting on the examination reports submitted by the Supervision and Examination Sector (SES) of the
Central Bank (CB) that the financial condition of Triumph Savings Bank (TSB) is one of insolvency and its
continuance in business would involve probable loss to its depositors and creditors, the Monetary Board (MB)
issued a resolution ordering the closure of TSB, placing it under receivership. Since MB Resolution was adopted
without TSB being previously notified and heard, TSB alleged that the resolution is void for want of due process.
ISSUE:
May a Monetary Board resolution placing a private bank under receivership be annulled on the ground
of lack of prior notice and hearing?
HELD:
An appeal to a procedural process cannot just outweight the evil sought to be prevented. The
absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank
under receivership. It cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing a
bank under receivership, or conservatorship for that matter, may only be annulled after a determination has
been made by the trial court that its issuance was tainted with arbitrariness and bad faith. This "close now and
hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the
bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the
general public.
222. Cudiamat vs. Batangas Savings, G.R. No. 182403 March 9, 2010
FACTS:
In a decision rendered by Balayan RTC in an action for Quieting of Title filed by Cudiamat, Batangas
Savings and Loan Bank, Inc. (the bank) contended in its appeal that Balayan RTC had no jurisdiction over the
case as the bank had been placed under receivership and under liquidation by the Philippine Deposit
Insurance Corporation (PDIC).
ISSUE:
Whether Cudiamat must refile and relitigate his action to the liquidation court.

HELD:
As a general rule, if there is a judicial liquidation of an insolvent bank, all claims against the bank should
be filed in the liquidation proceeding. However, general rule should not be applied if to order the aggrieved
party to refile or relitigate its case before the litigation court would be "an exercise in futility."
In the present case, Cudiamat was 78 years old at the time the petition was filed and is a resident of
Ozamis City. To compel him to appear and relitigate the case in the liquidation court-Nasugbu RTC when the
issues to be raised before it are the same as those already exhaustively passed upon and decided by the
Balayan RTC would be superfluous.
223. Lipana vs. Development Bank of Rizal, 154 SCRA 257, G.R. No. 73884, September 24, 1987
FACTS:
In an ation for collection of sum of money filed by Lipana against Development Bank of Rizal (the bank),
judgment favorable to Lipana was rendered and became final and executory. Upon the Motion by the bank
to Stay Writ of Execution, respondent judge stayed the execution for the reason being that the bank is under
receivership.
ISSUE:
Whether receivership may stay execution of judgment that has already become final and executory.
HELD:
Yes. The rule that once a decision becomes final and executory, it is the ministerial duty of the court to
order its execution, admits of certain exceptions as in cases of special and exceptional nature where it
becomes imperative in the higher interest of justice to direct the suspension of its execution, whenever it is
necessary to accomplish the aims of justice, or when certain facts and circumstances transpired after the
judgment became final which could render the execution of the judgment unjust.
In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank
was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank
to the obvious prejudice of other depositors and creditors, since, after the Monetary Board has declared that a
bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the
equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in
trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a
preference over another by an attachment, execution or otherwise.
224. Sps. Larrobis, Jr. vs. Philippine Veterans Bank, G.R. No. 135706. October 1, 2004
FACTS:
Sps. Larrobis contracted a monetary loan with Phil. Veterans Bank (the bank), secured by a real estate
mortgage. The bank went bankrupt and was placed under receivership. 14 years from the time the loan
became due and demandable, the bank executed an extrajudicial foreclosure of the mortgaged property.
SPS. Larrobis filed an action for the declaration of the said foreclosure and the subsequent sale null and void ab
initio since they are already barred by prescription. The bank claims that because of a fortuitous event, it was
not able to exercise its right to foreclose the mortgage on petitioners property; and that since it was banned
from pursuing its business and was placed under receivership, it could not foreclose the mortgage on
petitioners property within such period since foreclosure is embraced in the phrase "doing business,"
ISSUE:
Whether foreclosure of real estate mortgage is interrupted if the mortgagee bank is placed under
receivership and liquidation because of the Monetary boards probition from doing business during receivership
and liquidation proceedings
HELD:
While it is true that foreclosure falls within the broad definition of "doing business," it should not be
considered included, however, in the acts prohibited whenever banks are "prohibited from doing business"
during receivership and liquidation proceedings. The purpose of receivership proceedings is to receive
collectibles and preserve the assets of the bank in substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the bank. When a bank is prohibited from continuing
to do business by the Central Bank and a receiver is appointed for such bank, that bank would not be able to
do new business. However, the receiver of the bank is in fact obliged to collect debts owing to the bank,
which debts form part of the assets of the bank. The receiver must assemble the assets and pay the obligation
of the bank under receivership, and take steps to prevent dissipation of such assets. Accordingly, the receiver
of the bank is obliged to collect pre-existing debts due to the bank, and in connection therewith, to foreclose
mortgages securing such debts. Thus, the period within which respondent bank was placed under receivership

and liquidation proceedings does not constitute a fortuitous event which interrupted the prescriptive period of
10 years in bringing the action to foreclose.
225. Fidelity Savings Bank vs. Cenzon, 184 SCRA 141, G.R. No. L-46208, April 5, 1990
FACTS:
When Fidelity Savings Bank (the bank) was placed under receievership due to its insolveny, one of its
depositors Sps. Santiago instituted an action for a sum of money against the bank. The lower court ordered for
the payment of the aggregate amount of the Sps. Santiagos deposit and the accrued interest.
ISSUE:
Whether or not an insolvent bank may be adjudged to pay interest on unpaid deposits even after its
closure by the Central Bank by reason of insolvency.
HELD:
A banking institution which has been declared insolvent and subsequently ordered closed by the
Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued during
the period when the bank is actually closed and non-operational. What enables a bank to pay stipulated
interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to
cover the payment of such interest. Unless a bank can lend money, engage in international transactions,
acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and
financing activities from which it can derive income, it is inconceivable how it can carry on as a depository
obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion.
226. In Re: Petition for Assistance in the Liquidation of Rural Bank of Bokod, 511 SCRA 123, G.R. No. 158261,
December 18, 2006
FACTS:
The Monetary Board, after determining and confirming the financial situation of Rural Bank of Bokod
(the bank), ordered the liquidation of the bank and designated the Philippine Deposit Insurance Corporation
(PDIC) as liquidator. PDIC then filed a Motion for Approval of Project of Distribution of the assets of the bank but
the Bureau of Internal Revenue (BIR), manifested that PDIC should secure a tax clearance certificate before it
could proceed with the dissolution of the bank.
ISSUE:
Whether a bank ordered closed and placed under receivership by the Monetary Board of the BSP still
needs to secure a tax clearance certificate from the BIR before the liquidation court approves the project of
distribution of the assets of the bank.
HELD:
Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a
bank. The said provision is silent as regards the securing of a tax clearance from the BIR. The omission,
nonetheless, cannot compel this Court to apply by analogy the tax clearance requirement of the SEC, as
stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the dissolution of a
corporation by the SEC is a totally different proceeding from the receivership and liquidation of a bank by the
BSP. It should be noted that there are substantial differences in the procedure for involuntary dissolution and
liquidation of a corporation under the Corporation Code, and that of a banking corporation under the New
Central Bank Act, so that the requirements in one cannot simply be imposed in the other.
227. First Philippine International Bank vs CA, 252 SCRA 259, G.R. No. 115849, January 24, 1996
FACTS:
First Philippine International Bank, formerly known as Producers Bank of the Philippines (the bank) was
under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and
perfection of the contract of sale took place between the buyers Demetria and Janolo and the seller bank
through its Property Management Department Manager Rivera . A suit for specific performance with damages
was filed against the bank by Demetria and Janolo. When the case was elevated to the SC through Petition for
review on certiorari, the bank alleged for the first time, that the conservator has the power to revoke or overrule
actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265,
otherwise known as the Central Bank Act.
ISSUE:
May the conservator have unilateral power to repudiate the authority of the bank officers and/or to
revoke the said contract?

HELD:
While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a
bank, it must be pointed out that such powers must be related to the preservation of the assets of the bank, the
reorganization of the management thereof and the restoration of its viability. Such powers, enormous and
extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they
would infringe against the non-impairment clause of the Constitution. Therefore, Section 28-A merely gives the
conservator power to revoke contracts that are, under existing law, deemed to be defective i.e., void,
voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of
directors. What the said board cannot do such as repudiating a contract validly entered into under the
doctrine of implied authority the conservator cannot do either. Ineluctably, his power is not unilateral and he
cannot simply repudiate valid obligations of the Bank.
228. Vivas vs The Monetary Board, G.R. No. 191424, August 7, 2013
FACTS:
The Monetary Board (MB) issued a resolution placing EuroCredit Community Bank, Incorporated (ECBI)
ECBI under receivership in accordance with the recommendation of the Integrated Supervision Department
(ISD). Assailing MB Resolution, Vivas, the Chairman and President of ECBI, filed this petition for prohibition
before this Court, ascribing grave abuse of discretion to the MB for prohibiting ECBI from continuing its banking
business and for placing it under receivership. He argues that implementation of the questioned resolution was
tainted with arbitrariness and bad faith, stressing that ECBI was placed under receivership without due and prior
hearing, invoking Section 11 of R.A. No. 7353 which states that the BSP may take over the management of a
rural bank after due hearing.
ISSUE:
Whether prior notice and hearing is required before a bank be placed under receivership.
HELD:
The MB, if circumstances warrant it, may forbid a bank from doing business and place it under
receivership without prior notice and hearing. Accordingly, the MB can immediately implement its resolution
prohibiting a banking institution to do business in the Philippines and, thereafter, appoint the PDIC as receiver.
The procedure for the involuntary closure of a bank is summary and expeditious in nature. Such action of the
MB shall be final and executory, but may be later subjected to a judicial scrutiny via a petition for certiorari to
be filed by the stockholders of record of the bank representing a majority of the capital stock. Obviously, this
procedure is designed to protect the interest of all concerned, that is, the depositors, creditors and
stockholders, the bank itself and the general public. The protection afforded public interest warrants the
exercise of a summary closure. This doctrine of "close now, hear later," was justified as a measure for the
protection of the public interest.
It is worthyof note that Vivas availed of the wrong remedy - prohibition. Under Section 30 of R.A. No. 7653, any act of the MB
placing a bank under conservatorship, receivership or liquidation may not be restrained or set aside except on a petition for certiorari.

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CORPORATION CODE

2. SULO NG BAYAN VS. ARANETA, 72 SCRA 247, GR L-31061, 17 August 1976

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FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION

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CONTROL AND MANAGEMENT OF A CORPORATION

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52. Villamor Jr. vs Umale, GR. 172843, Sept 24, 2014

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FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

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85. Patrimonio vs Gutierrez, GR 187769, June 4, 2014

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98. Areza vs Express Savings Bank, GR 176697, Sept 10, 2014

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Devices For Ascertaining And Controlling Risk And Loss

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