BANKING LAWS

CASES:
BPI v. First Metro, G.R. No. 132390, December 8, 2004, 429 SCRA 30;
Vitug vs. Court of Appeals, 29 March 1990;
Intengan vs. Court of Appeals, 15 February 2002;
China Bank vs. Ortega, 49 SCRA 356;
Salvacion vs. Central Bank, 21 August 1997;
Ejercito vs. Sandiganbayan, 30 November 2006;
Marquez v. Desierto, G.R. No. 135882, June 27, 2001)

BPI FAMILY SAVINGS BANK, INC., petitioner,

vs.
FIRST METRO INVESTMENT CORPORATION, respondent.

G.R. No. 132390

May 21, 2004

FACTS:
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened
current account and deposited METROBANK check no. 898679 of P100 million with
BPI Family Bank (BPI FB) . Ong made the deposit upon request of his friend, Ador de
Asis, a close acquaintance of Jaime Sebastian, then Branch Manager of BPI FB San
Francisco del Monte Branch. Sebastian’s aim was to increase the deposit level in his
Branch.

BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing

17% per annum interest of P100 million deposited by FMIC. The latter, in turn,
assured 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.
This agreement between the parties was reached through their communications in
writing.

Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the
latter’s check deposit.
However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong
and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from
FMIC’s current account to the savings account of Tevesteco Arrastre – Stevedoring,
Inc.
FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that
the signatures of Ong and David were falsified. Thereupon, to recover immediately its
deposit, FMIC, on September 12, 1989, issued BPI FB check no. 129077 for
P86,057,646.72 payable to itself and drawn on its deposit with BPI FB SFDM branch.
But upon presentation for payment on September 13, 1989, BPI FB dishonored the
check as it was "drawn against insufficient funds
Consequently, FMIC filed A COMPLAINT against BPI FB. FMIC FILED an
Information for
estafa against Ong, de Asis, Sebastian and four others. However, the Information was
dismissed on the basis of a demurrer to evidence filed by the accused.
Issue:
1. Whether or not the TRANSACTION BETWEEN FMIC AND BPI FB A TIME
DEPOSIT oran INTEREST-BEARING CURRENT ACCOUNT WHICH, UNDER THE
EXISTING BANK REGULATIONS, WAS AN ILLEGAL TRANSACTION?
2.Is the bank liable for the unauthorized transfer of respondent’s funds to
Tevesteco?
Held:
1.We hold that the parties did not intend the deposit to be treated as a demand
deposit but rather as an interest-earning time deposit not withdrawable any
time.

When respondent FMIC invested its money with petitioner BPI FB, they intended the
P100 million as a time deposit, to earn 17% per annum interest and to remain intact
until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as "one the payment of which cannot legally be
required within such a specified number of days.

In contrast, 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 (depositor’s) checks.
While it may be true that barely one month and seven days from the date of deposit,
respondent 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 petitioner BPI FB of its P80 million deposit to Tevesteco’s
savings account. Certainly, such was a normal reaction of respondent as a depositor
to petitioner’s 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.

We have held that if a corporation knowingly permits its officer, or any other agent, to
perform acts within the scope of an apparent authority, holding him out to the public
as possessing power to do those acts, the corporation will, as against any person who
has dealt in good faith with the corporation through such agent, be estopped from
denying such authority.

Significantly, the transaction was actually acknowledged and ratified by petitioner

when it paid respondent in advance the interest for one year. Thus, petitioner is
estopped from denying that it authorized its Branch Manager to enter into an
agreement with respondent’s Executive Vice President concerning the deposit with
the corresponding 17% interest per annum.

2.Yes. We uphold the finding of both lower courts that petitioner failed to
exercise that degree of diligence required by the nature of its obligations to its
depositors. A bank is under obligation to treat the accounts of its depositors
with meticulous care, whether such account consists only of a few hundred
pesos or of million of pesos.10 Here, petitioner cannot claim it exercised such a
degree of care required of it and must, therefore, bear the consequence

Vitug v. Court of Appeals

Facts:
1. The case is a chapter in an earlier suit involving the issue on two (2) wills of the late
Dolores Vitug who died in New York, USA in Nov 1980. She named therein private
respondent Rowena Corona (Executrix) while Nenita Alonte was co-special administrator
together with petitioner Romarico pending probate.

2. In January 1985, Romarico filed a motion asking for authorization of the probate court
to sell shares of stocks and real property of the estate as reimbursements for advances he
made to the estate. The said amount was spent for payment of estate tax from a savings
account in the Bank of America.

3. Rowena Corona opposed the motion to sell contending that from the said account are
conjugal funds, hence part of the estate. Vitug insisted saying that the said funds are his
exclusive property acquired by virtue of a survivorship agreement executed with his late
wife and the bank previously. In the said agreement, they agreed that in the event of death
of either, the funds will become the sole property of the survivor.

4. The lower court upheld the validity of the survivorship agreement and granted
Romarico's motion to sell. The Court of Appeals however held that said agreement
constituted a conveyance mortis causa which did not comply with the formalities of a
valid will. Further, assuming that it is donation inter vivos, it is a prohibited donation.
Vitug petitioned to the Court contending that the said agreement is an aleatory contract.

Issue: Whether or not the conveyance is one of mortis causa hence should conform to the
form required of wills

NO. The survivorship agreement is a contract which imposed a mere obligation with a
term--being death. Such contracts are permitted under Article 2012 on aleatory contracts.
When Dolores predeceased her husbandm the latter acquired upon her death a vested
right over the funds in the account. The conveyance is therefore not mortis causa.

Intengan vs. Court of Appeals

G.R. No. 128996. February 15, 2002
Facts:
On September 21, 1993, Citibank filed a complaint for violation of section 31 in
relation to section 144 of the Corporation Code against two (2) of its officers,
Dante L. Santos and Marilou Genuino. Attached to the complaint was an affidavit
executed by private respondent Vic Lim, a vice-president of Citibank

As evidence, 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.

In turn, private respondent Joven Reyes, vice-president/business manager of the

Global Consumer Banking Group of Citibank, admits to having authorized Lim to
state the names of the clients involved and to attach the pertinent bank records,
including those of petitioners’

Petitioners aver that respondents violated RA 1405.

Issue:
Whether or not Respondents are liable for violation of Secrecy of Bank Deposits
Act, RA 1405.

Held:
No. 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,” However,
applying Act No. 3326, the offense prescribes in eight years, therefore, per
available records, private respondents may no longer be haled before the courts
for violation of Republic Act No. 6426.

CHINA BANKING CORP vs. Ortega

G.R. No. L-34964 January 31, 1973

Facts:
Petitioner refuses to comply with a court process garnishing the bank deposit of a
judgment debtor by invoking the provisions of Republic Act No. 1405 (Secrecy of
Bank Deposits Act) which allegedly prohibits the disclosure of any information
relative to bank deposits.

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 Republic Act No. 1405.
Held:
No. It is sufficiently clear from the foregoing discussion of the conference
committee report of the two houses of Congress that 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. It is hard to conceive that
it was ever within the intention of Congress to enable debtors to evade payment
of their just debts, even if ordered by the Court, through the expedient of
converting their assets into cash and depositing the same in a bank

SALVACION VS. CENTRAL BANK

FACTS: Greg Bartelli, an American tourist, was arrested for committing four counts of
rape and serious illegal detention against Karen Salvacion. Police recovered from him
several dollar checks and a dollar account in the China Banking Corp. He was, however,
able to escape from prison. In a civil case filed against him, the trial court awarded
Salvacion moral, exemplary and attorney’s fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China
Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular No.
960 exempts foreign currency deposits from attachment, garnishment, or any other order
or process of any court, legislative body, government agency or any administrative body
whatsoever. Salvacion therefore filed this action for declaratory relief in the Supreme
Court.
ISSUE: Should Section 113 of Central Bank Circular No. 960 and Section 8 of Republic
Act No. 6426, as amended by PD 1246, otherwise known as the Foreign Currency
Deposit Act be made applicable to a foreign transient?
HELD: NO.
The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246,
insofar as it amends Section 8 of Republic Act No. 6426, are hereby held to be
INAPPLICABLE to this case because of its peculiar circumstances. Respondents are
hereby required to comply with the writ of execution issued in the civil case and to
release to petitioners the dollar deposit of Bartelli in such amount as would satisfy the
judgment.
Supreme Court ruled that the questioned law makes futile the favorable judgment and
award of damages that Salvacion and her parents fully deserve. It then proceeded to show
that the economic basis for the enactment of RA No. 6426 is not anymore present; and
even if it still exists, the questioned law still denies those entitled to due process of law
for being unreasonable and oppressive. The intention of the law may be good when
enacted. The law failed to anticipate the iniquitous effects producing outright injustice
and inequality such as the case before us.
The SC adopted the comment of the Solicitor General who argued that the Offshore
Banking System and the Foreign Currency Deposit System were designed to draw
deposits from foreign lenders and investors and, subsequently, to give the latter
protection. However, the foreign currency deposit made by a transient or a tourist is not
the kind of deposit encouraged by PD Nos. 1034 and 1035 and given incentives and
protection by said laws because such depositor stays only for a few days in the country
and, therefore, will maintain his deposit in the bank only for a short time. Considering
that Bartelli is just a tourist or a transient, he is not entitled to the protection of Section
113 of Central Bank Circular No. 960 and PD No. 1246 against attachment, garnishment
or other court processes.
Further, the SC said: “In fine, the application of the law depends on the extent of its
justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular
No. 960 which exempts from attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any administrative body whatsoever, is
applicable to a foreign transient, injustice would result especially to a citizen aggrieved
by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New
Civil Code which provides that “in case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and justice to prevail.”

Estrada vs. Sandiganbayan

Facts: Joseph Victor G. Ejercito is the owner of Trust Account No. 858 which was
originally opened at Urban Bank but which is now maintained at Export and Industry
Bank, which is the purchaser and owner now of the former Urban Bank and Urbancorp
Investment, Inc. He is also the owner of Savings Account No. 0116-17345-9 which was
originally opened at Urban Bank but which is now maintained at Export and Industry
Bank, the purchaser and owner of the former Urban Bank and Urbancorp Investment, Inc.
Estrada was subsequently charged with Plunder. The Sandiganbayan a Request for
Issuance of Subpoena Duces Tecum for the issuance of a subpoena directing the
President of Export and Industry Bank (EIB, formerly Urban Bank) or his/her authorized
representative to produce various document related to the investigation.
The Special Prosecution Panel also filed a Request for Issuance of Subpoena Duces
Tecum/Ad Testificandum directed to the authorized representative of Equitable-PCI
Bank to produce statements of account pertaining to certain accounts in the name of “Jose
Velarde” and to testify thereon.

The Sandiganbayan granted both requests by Resolution and subpoenas were accordingly
issued. The Special Prosecution Panel filed still another Request for Issuance of
Subpoena Duces Tecum/Ad Testificandum for the President of EIB or his/her authorized
representative to produce the same documents subject of the first Subpoena Duces Tecum
and to testify thereon on the hearings scheduled and subsequent dates until completion of
the testimony. The request was likewise granted by the Sandiganbayan. A
Subpoena Duces Tecum/Ad Testificandum was accordingly issued. Ejercito filed various
motions to quash the various Subpoenas Duces Tecum/Ad Testificandum previously
issued. In his Motion to Quash, he claimed that his bank accounts are covered by R.A.
No. 1405 (The Secrecy of Bank Deposits Law) and do not fall under any of the
exceptions stated therein. He further claimed that the specific identification of
documents in the questioned subpoenas, including details on dates and amounts, could
only have been made possible by an earlier illegal disclosure thereof by the EIB and the
Philippine Deposit Insurance Corporation (PDIC) in its capacity as receiver of the then
Urban Bank. The disclosure being illegal, he concluded, the prosecution in the case may
not be allowed to make use of the information. Before the motion was resolved by the
Sandiganbayan, the prosecution filed another

Issue: Whether or not a Trust Account is covered by the term “deposit” as used in R.A.
1405;

Held: R.A. 1405 is broad enough to cover Trust Account No. 858. However, the
protection afforded by the law is not absolute. There being recognized exceptions
thereto, as above-quoted Section 2 provides. In the present case, two exceptions apply, to
wit: (1) the examination of bank accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials, and (2) the money deposited or invested
is the subject matter of the litigation. Ejercito contends that since plunder is neither
bribery nor dereliction of duty, his accounts are not excepted from the protection of R.A.
1405.

Also, the plunder case now pending with the Sandiganbayan necessarily involves an
inquiry into the whereabouts of the amount purportedly acquired illegally by former
President Joseph Estrada. Republic Act No. 1405 allows the disclosure of bank deposits
in cases where the money deposited is the subject matter of the litigation. Hence, these
accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two
exceptions to the said law applicable in this case, namely: (1)the examination of bank
accounts is upon order of a competent court in cases of bribery or dereliction of duty of
public officials, and (2)the money deposited or invested is the subject matter of the
litigation. Exception (1) applies since the plunder case pending against former President
Estrada is analogous to bribery or dereliction of duty, while exception (2) applies because
the money deposited in Ejercito’s bank accounts is said to form part of the subject matter
of the same plunder case. The “fruit of the poisonous tree” doctrine or the exclusionary
rule is inapplicable in cases of unlawful examination of bank accounts.

MARQUEZ V. DESIERTO (G.R. NO. 135882)

.entry-header
Facts:
Petitioner Lourdes Marquez received an Order from respondent Ombudsman Aniano
Desierto to produce several bank documents for purposes of inspection in camera relative
to various accounts maintained at the bank where petitioner is the branch manager. The
accounts to be inspected are involved in a case pending with the Ombudsman entitled,
Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo. It appears that a
certain George Trivinio purchased trail managers check and deposited some of it to an
account maintained at petitioner’s branch. Petitioner after meeting with the FFIB Panel to
ensure the veracity of the checks agreed to the in camera inspection. Petitioner being
unable to readily identify the accounts in question, the Ombudsman issued an order
directing petitioner to produce the bank documents. Thus, petitioner sought a declaration
of her rights from the court due to the clear conflict between RA 6770 and RA 1405.
Meanwhile, FFIB moved to cite petitioner in contempt before the Ombudsman.
Issue:
Whether or not the order of Ombudsman to have an in camera inspection of the accounts
is an allowable exception of R.A. No. 1405.
Ruling: NO.
The order of the Ombudsman to produce for in camera inspection the subject accounts
with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending
investigation at the Office of the Ombudsman against Amado Lagdameo, et. al. for
violation of R.A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement
between the Public Estates Authority and AMARI.
We rule that before an in camera inspection may be allowed, there must be a pending
case before a court of competent jurisdiction. Further, the account must be clearly
identified, the inspection limited to the subject matter of the pending case before the court
of competent jurisdiction. The bank personnel and the account holder must be notified to
be present during the inspection, and such inspection may cover only the account
identified in the pending case.
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.
*In contrast to Ejercito v. Sandiganbayan. Interestingly, time is of the essence. A
different ruling in Ejercito was enunciated because there was already a pending
investigation months before the ruling made in this case as to the exemption in the power
of the Ombudsman.
NATIONAL DEVELOPMENT COMPANY vs. THE COURT OF APPEALS
and DEVELOPMENT INSURANCE AND SURETY CORPORATION
G.R. No. L-49407 19 August 1988

Facts:

National Development Company (NDC) appointed Maritime Company of the

Philippines (MCP) as its agent to manage and operate its vessel, ‘Dona Nati’, for
and in behalf of its account. In 1964, while en route to Japan from San Francisco,
Dona Nati collided with a Japanese vessel, ‘SS Yasushima Maru’, causing its
cargo to be damaged and lost. The private respondent, as insurer to the
consigners, paid almost Php400,000.00 for said lost and damaged cargo. Hence,
the private respondent instituted an action to recover from NDC.

Issue:

Which laws govern the loss and destruction of goods due to collision of vessels
outside Philippine waters?

Ruling:

In a previously decided case, it was held 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 pursuant to Article 1753 of the Civil
Code. It is immaterial that the collision actually occurred in foreign waters, such
as Ise Bay, Japan.

It appears, however, that collision falls among matters not specifically regulated
by the Civil Code, hence, we apply Articles 826 to 839, Book Three of the Code of
Commerce, which deal exclusively with collision of vessels.

Francisco Tatad vs Jesus Garcia, Jr.

In 1989, the government planned to build a railway transit line along EDSA. No bidding
was made but certain corporations were invited to prequalify. The only corporation to
qualify was the EDSA LRT Consortium which was obviously formed for this particular
undertaking. An agreement was then made between the government, through the
Department of Transportation and Communication (DOTC), and EDSA LRT
Consortium. The agreement was based on the Build-Operate-Transfer scheme
provided for by law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT
Consortium shall build the facilities, i.e., railways, and shall supply the train cabs. Every
phase that is completed shall be turned over to the DOTC and the latter shall pay rent
for the same for 25 years. By the end of 25 years, it was projected that the government
shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell
the facilities to the government for $1.00.
However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon opposed the
implementation of said agreement as they averred that EDSA LRT Consortium is a
foreign corporation as it was organized under Hongkong laws; that as such, it cannot
own a public utility such as the EDSA railway transit because this falls under the
nationalized areas of activities. The petition was filed against Jesus Garcia, Jr. in his
capacity as DOTC Secretary.
ISSUE: Whether or not the petition shall prosper.
HELD: No. The Supreme Court made a clarification. The SC ruled that EDSA LRT
Consortium, under the agreement, does not and will not become the owner of a public
utility hence, the question of its nationality is misplaced. It is true that a foreign
corporation cannot own a public utility but in this case what EDSA LRT Consortium will
be owning are the facilities that it will be building for the EDSA railway project. There is
no prohibition against a foreign corporation to own facilities used for a public utility.
Further, it cannot be said that EDSA LRT Consortium will be the one operating the
public utility for it will be DOTC that will operate the railway transit. DOTC will be the
one exacting fees from the people for the use of the railway and from the proceeds, it
shall be paying the rent due to EDSA LRT Consortium. All that EDSA LRT Consortium
has to do is to build the facilities and receive rent from the use thereof by the
government for 25 years – it will not operate the railway transit. Although EDSA LRT
Consortium is a corporation formed for the purpose of building a public utility it does
not automatically mean that it is operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise,
certificate or any other form of authorization for that purpose.

Radio Communications v NTC G.R. No. L-68729 May 29, 1987

J. Gutierrez Jr.

Facts:
RCPI operated a radio communications system since 1957 under legislative
franchise granted by Republic Act No. 2036 (1957). The petitioner established a
radio telegraph service in Sorsogon, Sorsogon (1968). in San Jose, Mindoro
(1971), and Catarman, Samar (1983).
Kayumanggi Radio, on the other hand, was given the rights by the NTC to
operate radio networks in the same areas.
RCPI filed a complaint in the NTC and sought to prohibit Kayumanggi Radio to
operate in the same areas. The NTC ruled against the RTC’s favor and
commanded RCPI to desist in the operation of radio telegraphs in the three
areas.
RTC filed a MFR in 1984. This was denied.
In the SC, Petitioner alleged that the Public Service Law had sections that was
still in effect even if the Public Service Commission was abolished and the NTC
was established.
These were S13- the Commission shall have jurisdiction, supervision, and control
over all public services and their franchises
S 14- Radio companies are exempt from the commission’s authority except with
respect to the fixing of rates
And S 15-no public service shall operate in the Philippines without possessing a
valid and subsisting certificate from the Public Service Commission, known as
"certificate of public convenience,"

Issue: Whether or not petitioner RCPI, 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 its radio stations including radio
telephone services in the aforementioned areas

Held: Yes. Petition dismissed.

Ratio:
Presidential Decree No. 1- the Public Service Commission was abolished and its
functions were transferred to three specialized regulatory boards, as follows: the
Board of Transportation, the Board of Communications and the Board of Power
and Waterworks. The functions so transferred were still subject to the limitations
provided in sections 14 and 15 of the Public Service Law, as amended.
The succeeding Executive Order No. 546- the Board of Communications and the
Telecommunications Control Bureau were abolished and their functions were
transferred to the National Telecommunications Commission
Section 15- b. Establish, prescribe and regulate areas of operation of particular
operators of public service communications; and determine and prescribe
charges or rates pertinent to the operation of such public utility facilities and
services except in cases where charges or rates are established by international
bodies or associations of which the Philippines is a participating member or by
bodies recognized by the Philippine Government as the proper arbiter of such
charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and
telegraph systems and radio communication systems including amateur radio
stations and radio and television broadcasting systems;
The exemption enjoyed by radio companies from the jurisdiction of the Public
Service Commission and the Board of Communications no longer exists because
of the changes effected by the Reorganization Law and implementing executive
orders.
The petitioner's claim that its franchise cannot be affected by Executive Order
No. 546 on the ground that it has long been in operation since 1957 cannot be
sustained.
Today, a franchise, being merely a privilege emanating from the sovereign power
of the state and owing its existence to a grant, is subject to regulation by the
state itself by virtue of its police power through its administrative agencies.
Pangasinan transportation Co.- statutes enacted for the regulation of public
utilities, being a proper exercise by the State of its police power, are applicable
not only to those public utilities coming into existence after its passage, but
likewise to those already established and in operation .
Executive Order No. 546, being an implementing measure of P.D. No. I insofar
as it amends the Public Service Law (CA No. 146, as amended) is applicable to
the petitioner who must be bound by its provisions.
The position of the petitioner that by the mere grant of its franchise under RA No.
2036 it can operate a radio communications system anywhere within the
Philippines is erroneous.
Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be
exercised by the grantee until the Secretary of Public works and Communications
shall have allotted to the grantee the frequencies and wave lengths to be used,
and issued to the grantee a license for such case.
Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of
Public Works and Communications was a precondition before the petitioner could
put up radio stations in areas where it desires to operate.
The records of the case do not show any grant of authority from the then
Secretary of Public Works and Communications before the petitioner installed the
questioned radio telephone services in San Jose, Mindoro in 1971. The same is
true as regards the radio telephone services opened in Sorsogon, Sorsogon and
Catarman, Samar in 1983. No certificate of public convenience and necessity
appears to have been secured by the petitioner from the public respondent when
such certificate,was required by the applicable public utility regulations.
The Constitution mandates that a franchise cannot be exclusive in nature nor can
a franchise be granted except that it must be subject to amendment, alteration, or
even repeal by the legislature when the common good so requires.

Transportation Case Digest: British Airways V. Ca (1993)

FACTS:

February 15, 1981: First International Trading and General

Services Co. (First Int'l), a duly licensed domestic recruitment
and placement agency, received a telex message from its
principal ROLACO Engineering and Contracting Services
(ROLACO) in Jeddah, Saudi Arabia to recruit Filipino contract
workers in its behalf
Early March 1981: ROLACO paid British Airways, Inc. (BA)
Jeddah branch the airfare tickets for 93 contract workers with
specific instruction to transport the workers to Jeddah on or
before March 30, 1981
As soon as BA received a prepaid ticket advice from
its Jeddah branch informed First Int'l.
Thereafter, First Int'l instructed ADB Travel
and Tours. Inc. (its travel agent) to book the 93
workers with BA but it failed
So First Int'l had to borrow P304,416.00
 for the purchase of airline tickets from the
other airlines for the 93 workers who must
leave immediately since the visas are valid
only for 45 days and the Bureau of
Employment Services mandates that contract
workers must be sent to the job site within a
period of 30 days
First week of June, 1981: First Int'l was again informed
by BA that it had received a prepaid ticket advice from its Jeddah
branch for the transportation of 27 contract workers.
Immediately, First Int'l instructed its ADB to book
the 27 contract workers with the BA but only 16 seats
were confirmed and booked on its June 9, 1981 flight.
June 9, 1981: only 9 workers were able to board said flight
while the remaining 7 workers were rebooked to:
June 30, 1981 - again cancelled by British without any
prior notice to either First Int'l or the workers
July 4,1981 - (6 + 7 workers) 13 workers were again
cancelled and rebooked to July 7, 1981.
July 6, 1981: First Int'l paid the travel tax of the workers
as required by BA but when the receipt of the tax payments was
submitted, only 12 seats were confirmed for July 7, 1981 flight
July 7, 1981: Flight was again cancelled without any prior
notice
12 workers were finally able to leave for Jeddah after First
Int'l had bought tickets from the other airlines
As a result of these incidents, First Int'l sent a letter
to BA demanding compensation for the damages it had incurred
by the repeated failure to transport its contract workers despite
confirmed bookings and payment of the corresponding travel
taxes.
July 23, 1981: the counsel of First Int'l sent another letter
to BA demanding P350,000.00 damages and unrealized profit or
income - denied
August 8, 1981: First Int'l received a telex message
from ROLACO cancelling the hiring of the remaining recruited
workers due to the delay in transporting the workers to Jeddah.
January 27, 1982: First Int'l filed a complaint for damages
against First Int'l
CA Affirmed RTC: BA to pay First Int'l damages, attorneys
fees and costs
ISSUE: W/N BA is not liable because there was no contract of carriage
as no ticket was ever issued
HELD: Affirmed. MODIFICATION that the award of actual damages be
deleted (reimbursed by ROLACO)
In dealing with the contract of common carriage of
passengers for purpose of accuracy, there are two (2) aspects of
the same, namely:
(a) the contract "to carry (at some future time),"
which contract is consensual and is necessarily perfected
by mere consent - applicable in this case
(b) the contract "of carriage" or "of common
carriage" itself which should be considered as a real
contract for not until the carrier is actually used can the
carrier be said to have already assumed the obligation of a
carrier
Even if a prepaid ticket advice (PTA) is merely an
advice from the sponsors that an airline is authorized to
issue a ticket and thus no ticket was yet issued, the fact
remains that the passage had already been paid for by the
principal of the appellee, and the appellant had accepted
such payment
Besides, appellant knew very well that time was of
the essence as the prepaid ticket advice had specified the
period of compliance therewith, and with emphasis that it
could only be used if the passengers fly on BA
involvement of the BA in the contract "to carry" was
well demonstrated when the it immediately advised First
Int'l
Acts of BA indeed constitute malice and evident bad faith
which had caused damage and besmirched the reputation and
business image fo First Int'l
CRISOSTOMO VS. CA

FACTS:
1.
Petitioner Estela L. Crisostomo (Crisostomo) contracted the services of respondent
Caravan Travel and Tours International, Inc. (Caravan) to arrange and facilitate her
booking, ticketing and accommodation in a tour dubbed “Jewels of Europe”.
Pursuant to said contract, Meriam Menor (MENOR) who is also the niece of Crisostomo,
went to the latter’s residence to deliver the travel documents and plane tickets.
Crisostomo, in turn, gave Menor the full payment for the package tour.

Without checking her travel documents, Crisostomo went to NAIA. However, she
discovered that the flight she was supposed to take had already departed the previous day.
She thus called up Menor to complain. Subsequently, Menor prevailed upon Crisostomo
to take another tour the “British Pageant” to which
Crisostomo was asked to pay once again. Upon Crisostomo’s return from Europe, she
demanded from Caravan the reimbursement of P61,421.70,
representing the difference between the sum she paid for “Jewels of Europe” and the
amount she owed Caravan for the “British Pageant” tour. Despite several demands,
Caravan refused to reimburse the amount, contending that the same was non-refundable.
Crisostomo thus filed a case.

Crisostomo alleged that her failure to join “Jewels of Europe” was due to Caravan’s fa
ult since it did not clearly indicate the departure date on the plane ticket. Caravan was
also negligent in informing her of the wrong flight schedule through its employee Menor.
Caravan insisted that Crisostomo was informed of the correct departure date, which was
clearly and legibly printed on the plane ticket. The travel documents were given two
days ahead of the scheduled trip. Crisostomo had only herself to blame for missing the
flight, as she did not bother to read or confirm her flight schedule as
printed on the ticket RTC: Caravan was negligent in erroneously advising Crisostomo of
the wrong date. Crisostomo incurred contributory negligence for not checking her travel
documents. Caravan should reimburse Crisostomo but with deductions due to her
contributory negligence.

CA: Both parties were at fault. However, Crisostomo is more negligent because as a
lawyer and well-travele person, she should have known better than to simply rely on what
was told to her. This being so, she is not entitled to any form of damages.
Crisostomo appealed to SC. She contended that Caravan did not observe the standard
of care required of a common carrier when it informed her wrongly of the flight schedule.
She could not be deemed more negligent than Caravan since the latter is required by law
to exercise extraordinary diligence in the fulfillment of its obligation. If she were
negligent at all, the same is merely contributory and not the proximate
cause of the damage she suffered.

ISSUE
: Whether or not a travel agency is a common carrier and is therefore required to exercise
extraordinary diligence.

HELD
: No, a travel agency is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier

By definition, 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. Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. A
common carrier is defined under Article 1732 of the Civil Code as persons, corporations,
firms or associations 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.

De Guzman v. CA

Facts:
Respondent Ernesto Cendana was a junk dealer. He buys scrap materials and
brings those that he gathered to Manila for resale using 2 six-wheeler trucks. On
the return trip to Pangasinan, respondent would load his vehicle with cargo
which various merchants wanted delivered, charging fee lower than the
commercial rates. Sometime in November 1970, petitioner Pedro de Guzman
contracted with respondent for the delivery of 750 cartons of Liberty Milk. On
December 1, 1970, respondent loaded the cargo. Only 150 boxes were delivered to
petitioner because the truck carrying the boxes was hijacked along the way.
Petitioner commenced an action claiming the value of the lost merchandise.
Petitioner argues that respondent, being a common carrier, is bound to exercise
extraordinary diligence, which it failed to do. Private respondent denied that he
was a common carrier, and so he could not be held liable for force majeure. The
trial court ruled against the respondent, but such was reversed by the Court of
Appeals.
Issues:
(1) Whether or not private respondent is a common carrier
(2) Whether private respondent is liable for the loss of the goods
Held:
(1) 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. Article 1732 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," i.e., the general community or
population, and one who offers services or solicits business only from a narrow
segment of the general population. It appears to the Court that private
respondent 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 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.

The hijacking of the carrier's truck - does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. Private respondent as
common carrier is presumed to have been at fault or to have acted negligently.
This presumption, however, may be overthrown by proof of extraordinary
diligence on the part of private respondent. We believe and so hold that the limits
of the duty of extraordinary diligence in the vigilance over the goods carried are
reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force." we hold that the occurrence of the
loss must reasonably be regarded as quite beyond the control of the common
carrier and properly regarded as a fortuitous event. It is necessary to recall that
even common carriers are not made absolute insurers against all risks of travel
and of transport of goods, and are not held liable for acts or events which cannot
be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence.

First Philippine Industrial Corp. vs. CA

Facts:
Petitioner is a grantee of a pipeline concession under Republic Act No. 387.
Sometime in January 1995, petitioner applied for mayor’s permit in Batangas.
However, the Treasurer required petitioner to pay a local tax based on gross
receipts amounting to P956,076.04. In order not to hamper its operations,
petitioner paid the taxes for the first quarter of 1993 amounting to P239,019.01
under protest. On January 20, 1994, petitioner filed a letter-protest to the City
Treasurer, claiming that it is exempt from local tax since it is engaged in
transportation business. The respondent City Treasurer denied the protest, thus,
petitioner filed a complaint before the Regional Trial Court of Batangas for tax
refund. Respondents assert that pipelines are not included in the term “common
carrier” which refers solely to ordinary carriers or motor vehicles. The trial court
dismissed the complaint, and such was affirmed by the Court of Appeals.
Issue:
Whether a pipeline business is included in the term “common carrier” so as to
entitle the petitioner 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
petitioner 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
 TRANSPORTATION LAW
National Development Company vs. CA, August 19, 1998;
Tatad vs. Sec. Garcia, April 16, 1995;
Radio Communication of the Phils, Inc. NTC, 150 SCRA 450
British Airways vs. CA, 218 SCRA 699;
Crisostomo vs. CA, August 25, 2003, GR No. 138334;
De Guzman vs. CA, Dec. 12, 1988;
First Phil. Industrial Corp. vs. CA, Dec. 29, 1998;
Lim vs. CA, Jan. 16, 2002;
Lita Enterprises vs. IAC, April 27, 1984;

LITA ENTERPRISES, INC., vs.INTERMEDIATE APPELLATE COURT, NICASIO M.

OCAMPO and FRANCISCA P. GARCIA.
[G.R. No. L-64693 April 27, 1984]
FACTS:
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein
private respondents, purchased in installment from the Delta Motor Sales
Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since
they had no franchise to operate taxicabs, they contracted with petitioner Lita
Enterprises, Inc., through its representative, Manuel Concordia, for the use of
the latter’s certificate of public convenience in consideration of an initial payment
of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id
agreement, the aforesaid cars were registered in the name of petitioner Lita
Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who
operated and maintained the same under the name Acme Taxi, petitioner’s trade
name.
About a year later one of said taxicabs driven by their employee, Emeterio
Martin, collided with a motorcycle whose driver, one Florante Galvez, died from
the head injuries sustained therefrom. A criminal case was eventually filed
against the driver Emeterio Martin, while a civil case for damages was instituted
by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises,
Inc., as registered owner of the taxicab in the latter case. Petitioner Lita
Enterprises, Inc. was adjudged liable for damages by the CFI.
This decision having become final, a writ of execution was issued. Two of the
vehicles of respondent spouses were levied upon and sold at public auction.
Thereafter, Nicasio 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 and his
wife filed a complaint against Lita Enterprises, Inc., Mrs. de Galvez and the
Sheriff of Manila for reconveyance of motor vehicles with damages.

ISSUE: Whether or not petitioner has a cause of action against defendants.

HELD:
No.
Unquestionably, the parties herein operated under an arrangement, commonly
known as the “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. A certificate of public convenience is a
special privilege conferred by the government . Abuse of this privilege by the
grantees thereof cannot be countenanced. The “kabit system” has been
Identified as one of the root causes of the prevalence of graft and corruption in
the government transportation offices. In the words of Chief Justice Makalintal,
“this is a pernicious system that cannot be too severely condemned. It
constitutes an imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the “kabit system” is
invariably recognized as being contrary to public policy and, therefore, void and
inexistent 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
them both where it finds them. Upon this premise, it was flagrant error on the
part of both the trial and appellate courts to have accorded the parties relief
from their predicament. Article 1412 of the Civil Code denies them such aid. It
provides:
ART. 1412. if the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) when the fault, is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other’s undertaking.
Having entered into an illegal contract, neither can seek relief from the courts,
and each must bear the consequences of his acts.
The defect of inexistence of a contract is permanent and incurable, and cannot
be cured by ratification or by prescription. As this Court said in Eugenio v.
Perdido, “the mere lapse of time cannot give efficacy to contracts that are null
void.”
The principle of in pari delicto is well known not only in this jurisdiction but also
in the United States where common law prevails. Under American jurisdiction,
the doctrine is stated thus: “The proposition is universal that no action arises, in
equity or at law, from an illegal contract; no suit can be maintained for its
specific performance, or to recover the property agreed to be sold or delivered,
or damages for its property agreed to be sold or delivered, or damages for its
violation. The rule has sometimes been laid down as though it was equally
universal, that where the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other.” Although certain exceptions to the
rule are provided by law, We see no cogent reason why the full force of the rule
should not be applied in the instant case.