Merca Ntile LAW: 2019 Cases

ERCA
NTILE
LAW
2019
Cases
DEAN’S CIRCLE 2019 – UST FCL
MERCANTILE LAW
(Case Digests January 1, 2019 – June 30, 2019)
BY:
DEAN’S CIRCLE 2019
CHERIE ANNE R. BUZON

Officer-In-Charge
ATTY. LEAN JEFF M. MAGSOMBOL

Adviser
ATTY. NILO T. DIVINA

Dean
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DEAN’S CIRCLE 2019
Abelende, Arra Jean S. De Dios, Cathlyn Audrey M. Pasigan, Lovely Joy E.

Amosin, Airon Jeunne B. De Villa, Karen A. Rabino, Christian Jade R.
Arzadon, Izzel Jarviz M. Dela Cruz, Ma. Clarissa M. Ramirez, Edrea Jean V.
Aumentado, Reymundo Jr. P. Delos Santos, Ma. Alyanna DC. Ramos, Yurii C.
Basbas, Lorane Angeli L. Depano, Machgielis Aaron R. Reyes, Alarice V.
Bernabe, Sherissa Marisse Dioneda, Cianel Paulyn M. Reyes, Joanna Marie
Bool, Leanne Claire M. Dumelod, Ricka Abigael R. Salvador, Kharina Mar V
Buzon, Cherie Anne R. Fernandez, Ma. Czarina A. Samson, Kristel L.
Buzon, Janice Belle T. Flores, April Anne T. Santos, Nikki Tricia R.
Caburao, Caitlin P. Fronda, John Edward F. Sanvictores, Ruth Mae G.
Camilon, Paola E. Gomez, Rose Anne Joy D. Sarmiento, Arianna Laine T.
Caparas, Aya Dominique S. Guanga, Airei Kim P. Sarmiento, Ian Timothy R.
Castillo, Arleigh Shayne A. Lacap, Hannah Camille N. Sim, Lance Lester Angelo
Cruz, Karizza Kamille M. Magallon, Andrea D. Soriano, Manuel Joshua O.
Cruz, Regina Annel S. Manalastas, Claudette Irene Sugay, Alexandra Nicole D.
Cuevas, Juliane Erika C. Manguiat, Julie Ann C. Teves, Jan Matthew V.
Curiba, Rochelle Nieva D. Opina, Louis- Mari R.
Dabu, Annabelle O. Pacumio, Daverick Angelito E.
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TABLE OF CONTENTS
I. Letters Of Credit and Trust Receipts............................................................................................................... 4
II. Negotiable Instruments Law (Act No. 2031) ............................................................................................ 4
III. Insurance (PD 612, As Amended By RA 10607).....................................................................................4
IV. Transportation...................................................................................................................................................... 13
V. Corporation Law (Provisions Of BP 68, Not Affected By RA 11232)................................................21
VI. Securities Regulation Code (RA 8799)........................................................................................................ 26
VII. Banking................................................................................................................................................................... 32
VIII. Intellectual Property Code (RA 8293)...................................................................................................... 33
IX. Anti-Money Laundering Act (RA 9160, As Amended)..........................................................................33
X. Electronic Commerce Act (RA 8792)............................................................................................................ 33
XI. Data Privacy Act (RA 10173) ........................................................................................................................ 33
XII. Financial Rehabilitation, Insolvency, Liquidation And Suspension Of Payments (RA
10142, FR Rules [A.M. No. 12-12-11-SC], And FLSP Rules [A.M. No.15-04-06-SC])........................33
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MERCANTILE LAW
I. LETTERS OF CREDIT AND TRUST RECEIPTS

A. Basic concepts
1. Doctrine of independence
2. Fraud exception principle
3. Doctrine of strict compliance
4. Warehouseman’s lien
B. Rights and obligations of parties
1. Entruster/entrustee
2. Applicant/banks/beneficiary
C. Remedies available
II. NEGOTIABLE INSTRUMENTS LAW ( Act No. 2031)

A. Requisites of negotiability
B. Forgery and material alteration
C. Negotiation
D. Rights of the holder
1. Holder in due course
2. Defenses against the holder E. Checks
III. INSURANCE (PD 612, as amended by RA 10607)

A. Basic concepts
1. What may be insured
2. Insurable interest
3. Double insurance and overinsurance
4. Reinsurance
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5. No fault, suicide, and incontestability clauses

B. Perfection of the insurance contract
PHILAM INSURANCE CO., INC., NOW CHARTIS PHILIPPINES INSURANCE, INC., Petitioners,
-versus – PARC CHATEAU CONDOMINIUM UNIT OWNERS ASSOCIATION, INC., AND/OR
EDUARDO B. COLET, Respondents.
G.R. No. 201116, SECOND DIVISION, March 4,2019, REYES, JR., J.
Section 77 of Presidential Decree 612 or the Insurance Code of the Philippines provides the general
rule that no insurance contract issued by an insurance company is valid and binding unless and until
the premium has been paid.
The Makati Tuscany case provides that if the insurer has granted the insured a credit term for the
payment of the premium, it is an exception to the general rule that premium must first be paid before
the effectivity of an insurance contract.
In this case, Philam argued that the 90-day payment term is a credit extension. However, the CA
correctly held that the Jumbo Risk Provision is clear that failure to pay each installment on the due
date automatically voided the insurance policy. Here, Parc Association did not pay any premium,
which resulted in a void insurance policy.
FACTS:
On October 7, 2003, petitioner Philam Insurance Co., Inc. (Philam) [now Chartis Philippines
Insurance, Inc.] submitted a proposal to respondent Parc Chateau Condominium Unit Owners
Association, Inc. (Parc Association) to cover fire and comprehensive general liability insurance of
its condominium building, Parc Chateau Condominium.
Philam appraised issued Fire and Lightning Insurance Policy No. 0601502995 for P900 million and
Comprehensive General Liability Insurance Policy No. 0301003155 for P1 Million, both covering
the period from November 30, 2003 to November 30, 2004. The parties negotiated for a 90-day
payment term of the insurance premium, worth P791,427.50 including taxes. This payment term
was embodied in a Jumbo Risk Provision, which further provided that the premium installment
payments were due on November 30, 2003, December 30, 2003, and January 30, 2004. The Jumbo
Risk Provision also stated that if any of the scheduled payments are not received in full on or before
said dates, the insurance shall be deemed to have ceased at 4 p.m. of such date, and the policy shall
automatically become void and ineffective.
Parc Association's board of directors found the terms unacceptable and did not pursue the
transaction. Parc Association verbally informed Philam, through its insurance agent, of the board's
decision. Since no premiums were paid, Philam made oral and written demands upon Parc
Association, who refused to do so alleging that the insurance agent had been informed of its
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decision not to take up the insurance coverage. Philam sent demand letters with statement of
account claiming P363,215.21 unpaid premium based on Short Scale Rate Period. Philam also
cancelled the policies.
On June 3, 2005, Philam filed a complaint against Parc Association and Colet for recovery of
P363,215.21 unpaid premium, plus attorney's fees and costs of suit in the Metropolitan Trial Court.
The MeTC dismissed the case. The MeTC determined that since Philam admitted that Parc
Association did not pay its premium, one of the elements of an insurance contract was lacking, that
is, the insured must pay a premium. Upon appeal, the Regional Trial Court (RTC) partly affirmed the
MeTC decision, except as to attorney's fees. The RTC elucidated that the Jumbo Risk Provision
specifically requires full payment of premium within the given period, and in case of default, the
policy automatically becomes void and ineffective.
Philam elevated the case before the Court of Appeals (CA). The CA denied Philam's petition and
affirmed the RTC Decision and Resolution.
ISSUE:
Whether or not the verbal agreement between Philam and Parc Association is a valid and
binding insurance contract. (NO)
RULING:
Section 77 of Presidential Decree 612 or the Insurance Code of the Philippines provides the general
rule that no insurance contract issued by an insurance company is valid and binding unless and
until the premium has been paid. Although there are exceptions laid down in UCPB General
Insurance Co., Inc. v. Masagana Telamart, Inc., none of these exceptions were applicable to the case
at hand.
The first exception is in Section 77 of the Insurance Code, that is, "in the case of a life or an
industrial life policy whenever the grace period provision applies." This exception does not apply to
this case because the policies involved here are fire and comprehensive general liability insurance.
The second exception is in Section 78 of the Insurance Code, which states that "an acknowledgment
in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment,
so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid."
The exception in Section 78 is inapplicable in this case, because there was no acknowledgment of
receipt of premium in the policy or insurance contract, and in fact, no premium was ever paid.
The third exception is taken from the case of Makati Tuscany Condominium Corporation v. Court of
Appeals, wherein the Court ruled that the general rule in Section 77 may not apply if the parties
agreed to the payment of premium in installment and partial payment has been made at the time of
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loss. Here, the parties agreed to a payment by installment, but no actual payment was made. Thus,
the third exception has no application in this case.
The Makati Tuscany case also provided the fourth exception, that is, if the insurer has granted the
insured a credit term for the payment of the premium, then the general rule may not apply. Philam
argued that the 90-day payment term is a credit extension. However, the CA emphasized that the
Jumbo Risk Provision is clear that failure to pay each installment on the due date automatically
voided the insurance policy. Here, Parc Association did not pay any premium, which resulted in a
void insurance policy. Hence, the fourth exception finds no application.
The fifth and last exception, taken from the UCPB case, is estoppel in instances when the insurer
had consistently granted a credit term for the payment of premium despite full awareness of
Section 77. The insurer cannot deny recovery by the insured by citing the general rule in Section 77,
because the insured had relied in good faith on the credit term granted.
The CA held that the factual circumstances of the UCPB case differed from the case. In the UCPB
case, the insurer granted a credit extension for several years and the insured relied in good faith on
such practice. Here, the fire and lightning insurance policy and comprehensive general insurance
policy were the only policies issued by Philam, and there were no other policy/ies issued to Parc
Association in the past granting credit extension. Thus, the last exception is inapplicable.
After establishing that none of the exceptions are applicable, the Supreme Court opined that the CA
correctly concluded that the general rule applies, that is, no insurance contract or policy is valid and
binding unless and until the premium has been paid. Since Parc Association did not pay any
premium, then there was no insurance contract to speak of.
Furthermore, according to the Court, the CA correctly determined that the Jumbo Risk Provision
clearly indicated that failure to pay in full any of the scheduled installments on or before the due
date shall render the insurance policy void and ineffective as of 4 p.m. of such date. Parc
Association's failure to pay on the first due date (November 30, 2003), resulted in a void and
ineffective policy as of 4 p.m. of November 30, 2003. Hence, there is no credit extension to consider
as the Jumbo Risk Provision itself expressly cuts off the inception of the insurance policy in case of
default.
Furthermore, both trial courts and the appellate court were consistent in their findings of fact that
there was no perfected insurance contract, because of the absence of one of the elements, that is,
payment of premium. As a consequence, Philam cannot collect P363,215.21 unpaid premiums of
void insurance policies.
C. Rights and obligations of parties

1. Insurer
KEIHIN-EVERETT FORWARDING CO., INC., Petitioner – versus- TOKIO MARINE MALAYAN
INSURANCE CO., INC. and SUNFREIGHT FORWARDERS & CUSTOMS BROKERAGE, INC.,
Respondents.
G.R. No. 212107, SECOND DIVISION, October 28, 2019, REYES, J. JR., J.
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Insurance Law
Third. Since the insurance claim for the loss sustained by the insured shipment was paid by Tokio
Marine as proven by the Subrogation Receipt — showing the amount paid and the acceptance made
by Honda Trading, it is inevitable that it is entitled, as a matter of course, to exercise its legal right to
subrogation as provided under Article 2207 of the Civil Code as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
The payment by the insurer to the insured operates as an equitable assignment to the insurer
of all the remedies which the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of any privity of contract or upon payment by the insurance company of the insurance
claim. It accrues simply upon payment by the insurance company of the insurance claim.
Indeed, the right of subrogation has its roots in equity. It 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 and good conscience, ought to pay. Consequently, the payment made by Tokio Marine to
Honda Trading operates as an equitable assignment to the former of all the remedies which the latter
may have against Keihin-Everett.
Transportation Law
In this light, Keihin-Everett, as a common carrier, is mandated to observe, under Article 1733 of the
Civil Code, extraordinary diligence in the vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence. To be sure, under Article 1736 of the Civil Code, a common carrier's
extraordinary responsibility over the shipper's goods lasts from the time these goods are
unconditionally placed in the possession of, and received by, the carrier for transportation,
until they are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them. Hence, at the time KeihinEverett turned over the custody of
the cargoes to Sunfreight Forwarders for inland transportation, it is still required to observe
extraordinary diligence in the vigilance of the goods. Failure to successfully establish this, carries with
it the presumption of fault or negligence, thus, rendering Keihin-Everett liable to Honda Trading for
breach of contract.
It bears to stress that the hijacking of the goods is not considered a fortuitous event or a force
majeure. Nevertheless, a common carrier may absolve itself of liability for a resulting loss caused by
robbery or hijacked if it is proven that the robbery or hijacking was attended by grave or irresistible
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threat, violence or force. In this case, Keihin-Everett failed to prove the existence of the
aforementioned instances.
FACTS:
In 2005, Honda Trading Phils. Ecozone Corporation (Honda Trading) ordered 80 bundles of
Aluminum Alloy Ingots. The goods were loaded in two container vans which were, in turn, received
in Jakarta, Indonesia by Nippon Express Co., Ltd. for shipment to Manila.
Aside from insuring the entire shipment with Tokio Marine & Nichido Fire Insurance Co., Inc.
(TMNFIC), Honda Trading also engaged the services of petitioner Keihin-Everett to clear and
withdraw the cargo from the pier and to transport and deliver the same to its warehouse at Laguna
Meanwhile, petitioner Keihin-Everett had an Accreditation Agreement with respondent Sunfreight
Forwarders whereby the latter undertook to render common carrier services for the former and to
transport inland goods within the Philippines.
The shipment arrived in Manila on November 3, 2005. On November 8, 2005, the shipment was
caused to be released from the pier by petitioner Keihin-Everett and turned over to respondent
Sunfreight Forwarders for delivery to Honda Trading. En route to the latter's warehouse, the truck
carrying the containers was hijacked and the container van with Serial No. TEXU 389360-5 was
reportedly taken away. As a consequence, Honda Trading suffered losses in the total amount of
representing the value of the lost 40 bundles of Aluminum Alloy Ingots.
Claiming to have paid Honda Trading's insurance claim for the loss it suffered, respondent Tokio
Marine commenced the instant suit on October 10, 2006 with the filing of its complaint for damages
against petitioner Keihin-Everett. Respondent Tokio Marine maintained that it had been
subrogated to all the rights and causes of action pertaining to Honda Trading.
Served with summons, petitioner Keihin-Everett denied liability for the lost shipment on the
ground that the loss thereof occurred while the same was in the possession of respondent
Sunfreight Forwarders. Hence, petitioner Keihin-Everett filed a third-party complaint against the
latter, who, in turn, denied liability on the ground that it was not privy to the contract between
Keihin-Everett and Honda Trading.
On October 27, 2011, the RTC rendered a Decision finding petitioner Keihin-Everett and
respondent Sunfreight Forwarders jointly and severally liable to pay respondent Tokio Marine's
claim.
The CA modified the ruling of the RTC insofar as the solidary liability of Keihin-Everett and
Sunfreight Forwarders is concerned. The CA went to rule that solidarity is never presumed. There is
solidary liability when the obligation so states, or when the law or the nature of the obligation
requires the same. Thus, because of the lack of privity between Honda Trading and Sunfreight
Forwarders, the latter cannot simply be held jointly and severally liable with Keihin-Everett for
Tokio Marine's claim as subrogee.
ISSUES:
1. Whether Tokio Marine has the right institute the action. (YES)
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2. Whether Keihin-Everett is liable for damages. (YES)

3. Whether Keihin-Everett and Sunfreight Forwarders should be held solidarily liable.
(NO)
RULING:
1.
Keihin-Everett insisted that Tokio Marine is not the insurer but TMNFIC, hence, it argued that Tokio
Marine has no right to institute the present action. As it pointed out, the Insurance Policy shows in
its face that Honda Trading procured the insurance from TMNFIC and not from Tokio Marine.
While this assertion is true, Insurance Policy No. 83-00143689 itself expressly made Tokio Marine
as the party liable to pay the insurance claim of Honda Trading pursuant to the Agency Agreement
entered into by and between Tokio Marine and TMNFIC. As properly appreciated by both the RTC
and the CA, the Agency Agreement shows that TMNFIC had subsequently changed its name to that
of Tokio Marine. By agreeing to this stipulation in the Insurance Policy, Honda Trading binds itself
to file its claim from Tokio Marine and thereafter to accept payment from it.
At any rate, even if we consider Tokio Marine as a third person who voluntarily paid the insurance
claims of Honda Trading, it is still entitled to be reimbursed of what it had paid. As held by this
Court in the case of Pan Malayan Insurance Corp. v. Court of Appeals, the insurer who may have no
rights of subrogation due to "voluntary" payment may nevertheless recover from the third party
responsible for the damage to the insured property under Article 1236 of the Civil Code. Under this
circumstance, Tokio Marine's right to sue is based on the fact that it voluntarily made payment in
favor of Honda Trading and it could go after the third party responsible for the loss (Keihin-Everett)
in the exercise of its legal right of subrogation.
Setting aside this assumption, Tokio Marine nonetheless was able to prove by the following
documentary evidence, such as Insurance Policy, Agency Agreement and Subrogation Receipt, their
right to institute this action as subrogee of the insured. Keihin-Everett, on the other hand, did not
present any evidence to contradict Tokio Marine's case.
by Honda Trading, it is inevitable that it is entitled, as a matter of course, to exercise its legal right
to subrogation as provided under Article 2207 of the Civil Code as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
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It must be stressed that the Subrogation Receipt only proves the fact of payment. This fact of
payment grants Tokio Marine subrogatory right which enables it to exercise legal remedies that
would otherwise be available to Honda Trading as owner of the hijacked cargoes as against the
common carrier (Keihin-Everett). In other words, the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. As the Court held:
The payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies which the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of any privity of contract or upon payment by the insurance company
of the insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim.
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who,
in justice and good conscience, ought to pay. Consequently, the payment made by Tokio Marine to
Honda Trading operates as an equitable assignment to the former of all the remedies which the
latter may have against Keihin-Everett.
2.
Finally. Keihin-Everett maintained that at the time when the cargoes were lost, it was already in the
custody of Sunfreight Forwarders. Notwithstanding that the cargoes were in the possession of
Sunfreight Forwarders when they were hijacked, Keihin-Everett is not absolved from its liability as
a common carrier. Keihin-Everett seems to have overlooked that it was the one whose services
were engaged by Honda Trading to clear and withdraw the cargoes from the pier and to transport
and deliver the same to its warehouse. In turn, Keihin-Everett accredited Sunfreight Forwarders to
render common carrier service for it by transporting inland goods. As correctly held by the CA,
there was no privity of contract between Honda Trading (to whose rights Tokio Marine was
subrogated) and Sunfreight Forwarders. Hence, Keihin-Everett, as the common carrier, remained
responsible to Honda Trading for the lost cargoes.
unconditionally placed in the possession of, and received by, the carrier for transportation, until
they are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them. Hence, at the time KeihinEverett turned over the custody of the cargoes
to Sunfreight Forwarders for inland transportation, it is still required to observe extraordinary
diligence in the vigilance of the goods. Failure to successfully establish this, carries with it the
presumption of fault or negligence, thus, rendering Keihin-Everett liable to Honda Trading for
breach of contract.
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robbery or hijacked if it is proven that the robbery or hijacking was attended by grave or
irresistible threat, violence or force. In this case, Keihin-Everett failed to prove the existence of the
3.
We likewise agree with the CA that the liability of Keihin-Everett and Sunfreight Forwarders are not
solidary. There is solidary liability only when the obligation expressly so states, when the law so
provides, or when the nature of the obligation so requires. Thus, under Article 2194 of the Civil
Code, liability of two or more persons is solidary in quasi-delicts. But in this case, Keihin-Everett's
liability to Honda Trading (to which Tokio Marine had been subrogated as an insurer) stemmed not
from quasi-delict, but from its breach of contract of carriage. Sunfreight Forwarders was only
impleaded in the case when Keihin-Everett filed a third-party complaint against it. As mentioned
earlier, there was no direct contractual relationship between Sunfreight Forwarders and Honda
Trading. Accordingly, there was no basis to directly hold Sunfreight Forwarders liable to Honda
Trading for breach of contract. If at all, Honda Trading can hold Sunfreight Forwarders for quasi-
delict, which is not the action filed in the instant case.
It is not expected however that Keihin-Everett must shoulder the entire loss. The case of Torres-
Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc. is instructive. The said case involves
a similar set of facts as that of the instant case such that the shipper (Sony) engaged the services of
common carrier (TMBI), to facilitate the release of its shipment and deliver the goods to its
warehouse, who, in turn, subcontracted a portion of its obligation to another common carrier
(BMT). The Court ruled:
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery
to BMT, TMBI entered into its own contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT's custody based on its contract of carriage with
TMBI. Following Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that
it observed extraordinary diligence in the performance of its obligation to TMBI, it is liable
to TMBI for breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of
carriage. In turn, TMBI is entitled to reimbursement from BMT due to the latter's own
breach of its contract of carriage with TMBI. x x x
In the same manner, Keihin-Everett has a right to be reimbursed based on its Accreditation
Agreement with Sunfreight Forwarders. By accrediting Sunfreight Forwarders to render common
carrier services to it, KeihinEverett in effect entered into a contract of carriage with a fellow
common carrier, Sunfreight Forwarders.
It is undisputed that the cargoes were lost when they were in the custody of Sunfreight Forwarders.
Hence, under Article 1735 of the Civil Code, the presumption of fault on the part of Sunfreight
Forwarders (as common carrier) arose. Since Sunfreight Forwarders failed to prove that it
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observed extraordinary diligence in the performance of its obligation to Keihin-Everett, it is liable

to the latter for breach of contract. Consequently, Keihin-Everett is entitled to be reimbursed by
Sunfreight Forwarders due to the latter's own breach occasioned by the loss and damage to the
cargoes under its care and custody. As with the cited Torres-Madrid Brokerage case, Sunfreight
Forwarders, too, has the option to absorb the loss or to proceed after its missing driver, the suspect
in the hijacking incident.
2. Insured
3. Beneficiary
D. Rescission of insurance contracts
1. Concealment
2. Misrepresentation or omissions
3. Breach of warranties
E. Loss
IV. TRANSPORTATION
A. Common carriers
1. Concept
2. Common carrier vs. private carrier
3. Diligence required
KEIHIN-EVERETT FORWARDING CO., INC., Petitioner – versus- TOKIO MARINE MALAYAN
INSURANCE CO., INC. and SUNFREIGHT FORWARDERS & CUSTOMS BROKERAGE, INC.,
Respondents.
G.R. No. 212107, SECOND DIVISION, October 28, 2019, REYES, J. JR., J.
Insurance Law
by Honda Trading, it is inevitable that it is entitled, as a matter of course, to exercise its legal right to
subrogation as provided under Article 2207 of the Civil Code as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
13
against the wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the aggrieved party shall be
The payment by the insurer to the insured operates as an equitable assignment to the insurer
of all the remedies which the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of any privity of contract or upon payment by the insurance company of the insurance
claim. It accrues simply upon payment by the insurance company of the insurance claim.
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who, in
justice and good conscience, ought to pay. Consequently, the payment made by Tokio Marine to
Honda Trading operates as an equitable assignment to the former of all the remedies which the latter
may have against Keihin-Everett.
Transportation Law
unconditionally placed in the possession of, and received by, the carrier for transportation,
until they are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them. Hence, at the time KeihinEverett turned over the custody of
the cargoes to Sunfreight Forwarders for inland transportation, it is still required to observe
extraordinary diligence in the vigilance of the goods. Failure to successfully establish this, carries with
it the presumption of fault or negligence, thus, rendering Keihin-Everett liable to Honda Trading for
breach of contract.
robbery or hijacked if it is proven that the robbery or hijacking was attended by grave or irresistible
threat, violence or force. In this case, Keihin-Everett failed to prove the existence of the
FACTS:
In 2005, Honda Trading Phils. Ecozone Corporation (Honda Trading) ordered 80 bundles of
Aluminum Alloy Ingots. The goods were loaded in two container vans which were, in turn, received
in Jakarta, Indonesia by Nippon Express Co., Ltd. for shipment to Manila.
Aside from insuring the entire shipment with Tokio Marine & Nichido Fire Insurance Co., Inc.
(TMNFIC), Honda Trading also engaged the services of petitioner Keihin-Everett to clear and
14
withdraw the cargo from the pier and to transport and deliver the same to its warehouse at Laguna
Meanwhile, petitioner Keihin-Everett had an Accreditation Agreement with respondent Sunfreight
Forwarders whereby the latter undertook to render common carrier services for the former and to
transport inland goods within the Philippines.
The shipment arrived in Manila on November 3, 2005. On November 8, 2005, the shipment was
caused to be released from the pier by petitioner Keihin-Everett and turned over to respondent
Sunfreight Forwarders for delivery to Honda Trading. En route to the latter's warehouse, the truck
carrying the containers was hijacked and the container van with Serial No. TEXU 389360-5 was
reportedly taken away. As a consequence, Honda Trading suffered losses in the total amount of
representing the value of the lost 40 bundles of Aluminum Alloy Ingots.
Claiming to have paid Honda Trading's insurance claim for the loss it suffered, respondent Tokio
Marine commenced the instant suit on October 10, 2006 with the filing of its complaint for damages
against petitioner Keihin-Everett. Respondent Tokio Marine maintained that it had been
subrogated to all the rights and causes of action pertaining to Honda Trading.
Served with summons, petitioner Keihin-Everett denied liability for the lost shipment on the
ground that the loss thereof occurred while the same was in the possession of respondent
Sunfreight Forwarders. Hence, petitioner Keihin-Everett filed a third-party complaint against the
latter, who, in turn, denied liability on the ground that it was not privy to the contract between
Keihin-Everett and Honda Trading.
On October 27, 2011, the RTC rendered a Decision finding petitioner Keihin-Everett and
respondent Sunfreight Forwarders jointly and severally liable to pay respondent Tokio Marine's
claim.
The CA modified the ruling of the RTC insofar as the solidary liability of Keihin-Everett and
Sunfreight Forwarders is concerned. The CA went to rule that solidarity is never presumed. There is
solidary liability when the obligation so states, or when the law or the nature of the obligation
requires the same. Thus, because of the lack of privity between Honda Trading and Sunfreight
Forwarders, the latter cannot simply be held jointly and severally liable with Keihin-Everett for
Tokio Marine's claim as subrogee.
ISSUES:
1. Whether Tokio Marine has the right institute the action. (YES)
2. Whether Keihin-Everett is liable for damages. (YES)
3. Whether Keihin-Everett and Sunfreight Forwarders should be held solidarily liable.
(NO)
RULING:
1.
15
Keihin-Everett insisted that Tokio Marine is not the insurer but TMNFIC, hence, it argued that Tokio
Marine has no right to institute the present action. As it pointed out, the Insurance Policy shows in
its face that Honda Trading procured the insurance from TMNFIC and not from Tokio Marine.
While this assertion is true, Insurance Policy No. 83-00143689 itself expressly made Tokio Marine
as the party liable to pay the insurance claim of Honda Trading pursuant to the Agency Agreement
entered into by and between Tokio Marine and TMNFIC. As properly appreciated by both the RTC
and the CA, the Agency Agreement shows that TMNFIC had subsequently changed its name to that
of Tokio Marine. By agreeing to this stipulation in the Insurance Policy, Honda Trading binds itself
to file its claim from Tokio Marine and thereafter to accept payment from it.
At any rate, even if we consider Tokio Marine as a third person who voluntarily paid the insurance
claims of Honda Trading, it is still entitled to be reimbursed of what it had paid. As held by this
Court in the case of Pan Malayan Insurance Corp. v. Court of Appeals, the insurer who may have no
rights of subrogation due to "voluntary" payment may nevertheless recover from the third party
responsible for the damage to the insured property under Article 1236 of the Civil Code. Under this
circumstance, Tokio Marine's right to sue is based on the fact that it voluntarily made payment in
favor of Honda Trading and it could go after the third party responsible for the loss (Keihin-Everett)
in the exercise of its legal right of subrogation.
Setting aside this assumption, Tokio Marine nonetheless was able to prove by the following
documentary evidence, such as Insurance Policy, Agency Agreement and Subrogation Receipt, their
right to institute this action as subrogee of the insured. Keihin-Everett, on the other hand, did not
present any evidence to contradict Tokio Marine's case.
by Honda Trading, it is inevitable that it is entitled, as a matter of course, to exercise its legal right
to subrogation as provided under Article 2207 of the Civil Code as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
It must be stressed that the Subrogation Receipt only proves the fact of payment. This fact of
payment grants Tokio Marine subrogatory right which enables it to exercise legal remedies that
would otherwise be available to Honda Trading as owner of the hijacked cargoes as against the
common carrier (Keihin-Everett). In other words, the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. As the Court held:
The payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies which the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of any privity of contract or upon payment by the insurance company
16
of the insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim.
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who,
in justice and good conscience, ought to pay. Consequently, the payment made by Tokio Marine to
Honda Trading operates as an equitable assignment to the former of all the remedies which the
latter may have against Keihin-Everett.
2.
Finally. Keihin-Everett maintained that at the time when the cargoes were lost, it was already in the
custody of Sunfreight Forwarders. Notwithstanding that the cargoes were in the possession of
Sunfreight Forwarders when they were hijacked, Keihin-Everett is not absolved from its liability as
a common carrier. Keihin-Everett seems to have overlooked that it was the one whose services
were engaged by Honda Trading to clear and withdraw the cargoes from the pier and to transport
and deliver the same to its warehouse. In turn, Keihin-Everett accredited Sunfreight Forwarders to
render common carrier service for it by transporting inland goods. As correctly held by the CA,
there was no privity of contract between Honda Trading (to whose rights Tokio Marine was
subrogated) and Sunfreight Forwarders. Hence, Keihin-Everett, as the common carrier, remained
responsible to Honda Trading for the lost cargoes.
unconditionally placed in the possession of, and received by, the carrier for transportation, until
they are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them. Hence, at the time KeihinEverett turned over the custody of the cargoes
to Sunfreight Forwarders for inland transportation, it is still required to observe extraordinary
diligence in the vigilance of the goods. Failure to successfully establish this, carries with it the
presumption of fault or negligence, thus, rendering Keihin-Everett liable to Honda Trading for
breach of contract.
robbery or hijacked if it is proven that the robbery or hijacking was attended by grave or
irresistible threat, violence or force. In this case, Keihin-Everett failed to prove the existence of the
3.
We likewise agree with the CA that the liability of Keihin-Everett and Sunfreight Forwarders are not
solidary. There is solidary liability only when the obligation expressly so states, when the law so
provides, or when the nature of the obligation so requires. Thus, under Article 2194 of the Civil
17
Code, liability of two or more persons is solidary in quasi-delicts. But in this case, Keihin-Everett's
liability to Honda Trading (to which Tokio Marine had been subrogated as an insurer) stemmed not
from quasi-delict, but from its breach of contract of carriage. Sunfreight Forwarders was only
impleaded in the case when Keihin-Everett filed a third-party complaint against it. As mentioned
earlier, there was no direct contractual relationship between Sunfreight Forwarders and Honda
Trading. Accordingly, there was no basis to directly hold Sunfreight Forwarders liable to Honda
Trading for breach of contract. If at all, Honda Trading can hold Sunfreight Forwarders for quasi-
delict, which is not the action filed in the instant case.
It is not expected however that Keihin-Everett must shoulder the entire loss. The case of Torres-
Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc. is instructive. The said case involves
a similar set of facts as that of the instant case such that the shipper (Sony) engaged the services of
common carrier (TMBI), to facilitate the release of its shipment and deliver the goods to its
warehouse, who, in turn, subcontracted a portion of its obligation to another common carrier
(BMT). The Court ruled:
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery
to BMT, TMBI entered into its own contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT's custody based on its contract of carriage with
TMBI. Following Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that
it observed extraordinary diligence in the performance of its obligation to TMBI, it is liable
to TMBI for breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of
carriage. In turn, TMBI is entitled to reimbursement from BMT due to the latter's own
breach of its contract of carriage with TMBI. x x x
In the same manner, Keihin-Everett has a right to be reimbursed based on its Accreditation
Agreement with Sunfreight Forwarders. By accrediting Sunfreight Forwarders to render common
carrier services to it, KeihinEverett in effect entered into a contract of carriage with a fellow
common carrier, Sunfreight Forwarders.
It is undisputed that the cargoes were lost when they were in the custody of Sunfreight Forwarders.
Hence, under Article 1735 of the Civil Code, the presumption of fault on the part of Sunfreight
Forwarders (as common carrier) arose. Since Sunfreight Forwarders failed to prove that it
observed extraordinary diligence in the performance of its obligation to Keihin-Everett, it is liable
to the latter for breach of contract. Consequently, Keihin-Everett is entitled to be reimbursed by
Sunfreight Forwarders due to the latter's own breach occasioned by the loss and damage to the
cargoes under its care and custody. As with the cited Torres-Madrid Brokerage case, Sunfreight
Forwarders, too, has the option to absorb the loss or to proceed after its missing driver, the suspect
in the hijacking incident.
ANNIE TAN, Petitioner, -versus- GREAT HARVEST ENTERPRISES, INC., Respondent.

G.R. No. 220400, THIRD DIVISION, March 20, 2019, LEONEN, J.
18
Here, petitioner is a common carrier obligated to exercise extraordinary diligence over the goods
entrusted to her. Her responsibility began from the time she received the soya beans from respondent's
broker and would only cease after she has delivered them to the consignee or any person with the
right to receive them. Petitioner did not observe extra-ordinary diligence in the conduct of her
business as a common carrier. In breach of their agreement, appellant did not provide security while
the goods were in transit and she also did not pay for the insurance coverage of said goods. These
measures could have prevented the hijacking or could have ensured the payment of the damages
sustained by the appellee.
FACTS:
Great Harvest hired Tan to transport 430 bags of soya beans worth P230,000.00 from Tacoma
Integrated Port Services, Inc. (Tacoma) in Port Area, Manila to Selecta Feeds in Camarin,
Novaliches, Quezon City. That same day, the bags of soya beans were loaded into Tan's hauling
truck. Her employee, Rannie Sultan Cabugatan (Cabugatan), then delivered the goods to Selecta
Feeds.
At Selecta Feeds, however, the shipment was rejected. Upon learning of the rejection, Great Harvest
instructed Cabugatan to deliver and unload the soya beans at its warehouse in Malabon. Yet, the
truck and its shipment never reached Great Harvest's warehouse.
Tan assured Great Harvest that she would verify the whereabouts of its shipment, but after a series
of follow-ups, she eventually admitted that she could not locate both her truck and Great Harvest's
goods. The National Bureau of Investigation informed Tan that her missing truck had been found in
Cavite. However, the truck had been cannibalized and had no cargo in it.
Great Harvest, through counsel, sent Tan a letter demanding full payment for the missing bags of
soya beans. She refused to pay for the missing shipment or settle the matter with Great
Harvest. Thus, Great Harvest filed a Complaint for sum of money against Tan.
In her Answer, Tan denied that she entered into a hauling contract with Great Harvest, insisting
that she merely accommodated it. Tan also pointed out that since Great Harvest instructed her
driver to change the point of delivery without her consent, it should bear the loss brought about by
its deviation from the original unloading point.
The Regional Trial Court of Quezon City granted Great Harvest's Complaint for sum of money. It
found that Tan entered into a verbal contract of hauling with Great Harvest, and held her
responsible for her driver's failure to deliver the soya beans to Great Harvest.
Tan filed an Appeal, but the Court of Appeals dismissed it. The Court of Appeals found that the
parties' standard business practice when the recipient would reject the cargo was to deliver it to
Great Harvest's warehouse. Thus, contrary to Tan's claim, there was no deviation from the original
destination. The Court of Appeals also held that the cargo loss was due to Tan's failure to exercise
the extraordinary level of diligence required of her as a common carrier, as she did not provide
security for the cargo or take out insurance on it.
19
ISSUE:
Whether or not petitioner Annie Tan should be held liable for the value of the stolen soya beans.
(YES)
RULING:
The Civil Code provides the degree of diligence required of common carriers in Article 1733:
ARTICLE 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case.
Due to the public nature of their business, common carriers are compelled to exercise
extraordinary diligence since they will be burdened with the externalities or the cost of the
consequences of their contract of carriage if they fail to take the precautions expected of them.
Common carriers are mandated to internalize or shoulder the costs under the contracts of carriage.
This is so because a contract of carriage is structured in such a way that passengers or shippers
surrender total control over their persons or goods to common carriers, fully trusting that the latter
will safely and timely deliver them to their destination.
Here, petitioner is a common carrier obligated to exercise extraordinary diligence over the goods
entrusted to her. Her responsibility began from the time she received the soya beans from
respondent's broker and would only cease after she has delivered them to the consignee or any
person with the right to receive them.
Defendant's assertion that the diversion of the goods was done without her consent and knowledge
is self-serving and is effectively belied by the positive testimony of witness Cynthia Chua, Account
Officer of plaintiff corporation. Equally self-serving is defendant's claim that she is not liable for the
loss of the soyabeans considering that the plaintiff has no existing contract with her. Such a
sweeping submission is also belied by the testimony of plaintiff's witness Cynthia Chua who
categorically confirmed the existing business relationship of plaintiff and defendant for hauling and
delivery of goods as well as the arrangement to deliver the rejected goods to the plaintiff's nearest
warehouse in the event that goods are rejected by the consignee with prior approval of the
consignor.
Furthermore, Article 1734 of the Civil Code holds a common carrier fully responsible for the goods
entrusted to him or her, unless there is enough evidence to show that the loss, destruction, or
deterioration of the goods falls under any of the enumerated exceptions:
ARTICLE 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
20
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Nothing in the records shows that any of these exceptions caused the loss of the soya beans.
Petitioner failed to deliver the soya beans to respondent because her driver absconded with them.
She cannot shift the blame for the loss to respondent's supposed diversion of the soya beans from
the loading point to respondent's warehouse, as the evidence has conclusively shown that she had
agreed beforehand to deliver the cargo to respondent's warehouse if the consignee refused to
accept it.
Finally, petitioner's reliance on De Guzman v. Court of Appeals is misplaced. There, the common
carrier was absolved of liability because the goods were stolen by robbers who used "grave or
irresistible threat, violence, or force" to hijack the goods. De Guzman viewed the armed hijack as a
fortuitous event:
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or robbers, except
where such thieves or robbers in fact acted "with grave or irresistible threat, violence or force." 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."
In contrast to De Guzman, the loss of the soya beans here was not attended by grave or irresistible
threat, violence, or force. Instead, it was brought about by petitioner's failure to exercise
extraordinary diligence when she neglected vetting her driver or providing security for the cargo
and failing to take out insurance on the shipment's value. As the Court of Appeals held:
Besides, as the records would show, appellant did not observe extra-ordinary diligence in the
conduct of her business as a common carrier. In breach of their agreement, appellant did not
provide security while the goods were in transit and she also did not pay for the insurance coverage
of said goods. These measures could have prevented the hijacking or could have ensured the
payment of the damages sustained by the appellee.
B. Obligations and liabilities

1. Vigilance over goods
2. Safety of passengers
C. Defenses available to a common carrier
1. Proof of negligence
2. Due diligence in the selection and supervision of employees
21
3. Fortuitous event
4. Contributory negligence
5. Doctrine of last clear chance
D. Extent of liability
1. Recoverable damages
2. Stipulations limiting liability
3. Limitations under the Warsaw Convention
V. CORPORATION LAW (Provisions of BP 68, not affected by RA 11232)

A. General principles
1. Nationality of corporations
a. Place of incorporation test
b. Control test
c. Grandfather rule
2. Doctrine of separate juridical personality
3. Doctrine of piercing the corporate veil
B. Stock vs. non-stock corporations
C. De facto corporations and corporations by estoppel
D. Board of Directors and Trustees
1. Basic principles
ENGINEERING GEOSCIENCE, INC., PETITIONER, -versus- PHILIPPINE SAVINGS BANK,

RESPONDENT. G.R. No. 187262, SECOND DIVISION, January 10, 2019, CARPIO J.
A corporation, as a juridical entity, acts through its board of directors. The board exercises
almost all corporate powers, lays down all corporate business policies, and is responsible for
the efficiency of management. 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. The records of
the case show no evidence that EGI authorized Santos to file a Complaint and enter into a Compromise
Agreement on its behalf. Neither was there any showing that EGI's By-Laws authorize its President to
do such acts. EGI’s grant of authority to Santos, however, falls under the doctrine of apparent
22
authority. Under this doctrine, acts and contracts of the agent, as are within the apparent scope of
the authority conferred on him, although no actual authority to do such acts or to make such
contracts has been conferred, bind the principal.
Furthermore, having availed of benefits under the Compromise Agreement, EGI is estopped from
repudiating it. Lastly, since EGI's Board of Directors questioned Santos' authority to enter into a
Compromise Agreement only after 12 years, laches had already set in.
FACTS:
EGI obtained a loan from PSBank in the principal amount of Twenty Four Million Sixty Four
Thousand (Php24, 064,000.00) Pesos as evidenced by a Promissory Note dated February 14, 1990.
To secure the loan, EGI, through its President, Jose Rolando Santos, executed a Real Estate Mortgage
on February 13, 1990 in favor of PSBank over two parcels of land. EGI was only able to make
partial payments on its loan as it fell due based on the agreed schedule of payment, and made no
further payments to PSBank. Thus, PSBank invoked the acceleration clause under the promissory
note and sent a demand letter dated February 11, 1991 demanding full payment of its loan
obligation.
PSBank's demand letter went unheeded, prompting PSBank to file a petition for extra-judicial
foreclosure of mortgage with the Office of the Ex-Officio Sheriff, Regional Trial Court of Quezon City.
The foreclosure sale was set on June 26, 1991 but the same did not push through on account of the
Complaint with Prayer for Writ of Preliminary Injunction and Restraining Order filed by EGI before
the [trial court]. The [trial court] issued an Order dated August 26, 1991 granting EGI's prayer for
issuance of writ of preliminary injunction and effectively enjoined PSBank from proceeding with
the foreclosure sale.
Before the case materialized into a full-blown trial, [PSBank] and EGI submitted a Joint Motion for
Approval of Compromise Agreement dated December 29, 1992, which was approved by the trial
court in a Decision dated January 12, 1993.
Notwithstanding the above court-approved compromise agreement, EGI still failed to comply with
the terms and conditions thereof. Thus, petitioner PS Bank was constrained to file a Motion for
Execution of the trial court's 1993 Decision on their compromise agreement. Accordingly, a Writ of
Execution was issued in favor of PSBank.
Accordingly, a Deed of Absolute Sale was executed by the Branch Clerk, as attorney-in-fact of EGI, in
favor of PSBank over EGI's mortgaged properties in accordance with the terms set in the 1993
Decision. After the properties were registered under its name, PSBank filed an Ex-Parte Motion for
the Issuance of a Writ of Possession, which was granted by the trial court.
EGI filed an Urgent Motion for Reconsideration which was denied by the trial court. EGI challenged
the said Order before this Court by way of a Petition under Rule 45 of the Rules of Court. The Third
Division of this Court dismissed EGI's petition for being the wrong remedy and further held that the
23
issuance of the writ of possession is a ministerial duty of the trial court for purposes of
implementing the parties' compromise agreement as contained in the Decision which has long
become final and executory.
Consequently, PSBank filed a Motion for Issuance of Writ of Possession before the trial court,
alleging that with the dismissal of EGI's petition before this Court and with the properties having
been transferred under its name, PSBank is now entitled to the issuance of the writ as a matter of
right. The same was granted Notice to Vacate was subsequently served on EGI.
EGI through its collaborating counsels filed an Urgent Motion For Reconsideration, alleging that it
never received a copy of PSBank's motion for issuance of writ of possession and that it would have
contested the motion had it known about the same, and invoked its right to due process. The trial
court denied EGI's urgent motion for reconsideration, stating that the record of the case shows that
EGI's counsel of record, Atty. Ambrosio Garcia, was duly served a copy of the Order directing
counsel to file a comment/opposition to [PSBank's] motion. EGI then filed a Reply with Urgent
Motion to Recall Order, alleging that it was denied the right to contest each and every point raised
by PSBank in its opposition, and claiming that it had until May 13, 2005 within which to file its
Reply thereto. It was only at that point that EGI raised for the first time the alleged lack of
authority of its former president, Jose Rolando Santos, to enter into the compromise
agreement reduced in the Decision dated January 12, 1993.
PSBank filed its Rejoinder with Opposition, arguing that EGI is now estopped from assailing the
authority of Atty. Ambrosio Garcia and EGI's former president Jose Rolando Santos, which they
could have interposed when they filed their motion for reconsideration of the order granting the
issuance of the writ of possession. Thus, PS Bank prayed for the denial of EGI's motion for lack of
merit.
While these issues are still pending before the trial court, EGI filed a Petition for Annulment before
the Supreme Court, praying that the 1993 Decision be set aside and declared unenforceable or null
and void. The SC dismissed the said petition.
EGI returned to the trial court and filed a Motion to Set Aside Judgment Based on a Compromise
Agreement, alleging that the Compromise Agreement entered into by Mr. Santos with defendants
PSBank and Metrobank be set aside because it was entered into by Mr. Santos without the
knowledge of and the proper authority from plaintiff EGI and is not legally binding and not
enforceable against plaintiff EGI. This was denied by the trial court for lack of merit. Respondent
Pairing Judge Ma. Theresa Dela Torre-Yadao issued an Order dated February 15, 2007, denying
EGI's motion for reconsideration for lack of merit.
Respondent Pairing Judge Ma. Theresa Dela Torre-Yadao issued the now challenged Order dated
August 24, 2007 reversing the trial court's earlier Order dated February 25, 2007 and declaring the
Compromise Agreement dated December 29, 1992 as null and void.
24
The CA annuled the August 24, 2007 order of the trial court declaring the compromise agreement
as null and void ruling that the 24 August 2007 Order was issued with grave abuse of discretion
amounting to lack or excess of jurisdiction. The CA was not inclined to believe that Jose Rolando
Santos, EGI's former president, had no special power of attorney or secretary's certificate attesting
to his authority to represent EGL and neither was the CA inclined to believe that Santos filed the
complaint without any authority from EGI's Board of Directors. The CA further stated that laches
had set in against EGI as 12 years had lapsed from the date of execution of the compromise
agreement. Thus, EGI can no longer invoke the lack of knowledge of its Board of Directors.
ISSUE:
Whether or not Jose Rolando Santos (the President of EGI) was authorized to enter the compromise
agreement with PSBank? (YES)
RULING:
The Court agrees with EGI that there is nothing in the records that shows that Santos had the
express authority to represent EGI in filing a complaint before the trial court, or even enter into any
compromise agreement on behalf of EGL Aside from its bare allegations, PSBank was not able to
present any evidence which would show that Santos indeed had the authority to represent EGL
PSBank was not able to show any evidence of a board authority, a special power of attorney, or
even a secretary's certificate that EGI issued in favor of Santos. Neither was PSBank able to show
that it was not necessary for Santos to present a Board Resolution that authorizes him to file the
Complaint and enter into the Compromise Agreement because EGI's By-Laws expressly authorize
him to do so.
However, in its eagerness to repudiate Santos' acts, EGI failed to substantiate how and when Santos
lost his status as Company President, and how Santos was able to proceed with his
misrepresentations before the Board of Directors regarding the payment of the loan obligation. The
promissory notes from 1984 to 1990 were all signed by Santos as EGI’s President. EGI did not
bother to inform PSBank about the change in Santos' status despite previously holding him out as a
person with authority to transact in its name. EGI also did not address how it will comply with the
terms of the loan obligation. Moreover, in the same manner that EGI has been decrying the lack of
explicit authority from its Board of Directors, we also expect nothing less than minutes of a Board
Meeting, or even a Board Resolution, which removed Santos as Company President, or denounced
his lack of authority to act in EGI's name.
A corporation, as a juridical entity, acts through its board of directors. The board exercises
almost all corporate powers, lays down all corporate business policies, and is responsible
for the efficiency of management. 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.
25
The records of the case show no evidence that EGI authorized Santos to file a Complaint and enter
into a Compromise Agreement on its behalf. Neither was there any showing that EGI's By-Laws
authorize its President to do such acts. EGI’s grant of authority to Santos, however, falls under
the doctrine of apparent authority. Under this doctrine, acts and contracts of the agent, as are
within the apparent scope of the authority conferred on him, although no actual authority to do
such acts or to make such contracts has been conferred, bind the principal. Furthermore, the
principal's liability is limited only to third persons who have been led reasonably to believe by the
conduct of the principal that such actual authority exists, although none was actually given.
Apparent authority is determined only by the acts of the principal and not by the acts of the agent.
EGI does not repudiate the act of Santos in signing the Promissory Notes; in fact, EGI made partial
payments, offering the authority of Santos to borrow and sign the Promissory Notes. EGI, however,
repudiates the act of Santos in entering into the Compromise Agreement extending the repayment
of the loan under the Promissory Notes, which extension is actually beneficial to EGI. In fact, the
Compromise Agreement bought time for EGI to pay the loan under the Promissory Notes but
EGI still failed to pay. Having availed of benefits under the Compromise Agreement, EGI is
estopped from repudiating it. Since EGI's Board of Directors questioned Santos' authority to
enter into a Compromise Agreement only after 12 years, laches had already set in.
a. Doctrine of centralized management

b. Business judgment rule
2. Duties, liabilities, and responsibility for unlawful acts
E. Powers of corporations
1. How powers are exercised
2. Ultra vires doctrine
3. Trust fund doctrine
F. Stockholders and Members
1. Doctrine of equality of shares
2. Proprietary rights
a. Right to dividends
b. Right to inspect
c. Pre-emptive right d. Right of first refusal
3. Intra-corporate disputes
26
a. Concept
b. Individual vs. representative vs. derivative suits
G. Foreign Corporations
1. What constitutes “doing business”
2. Personality to sue and suability
H. Mergers and Consolidations
1. Concept
2. Effects and limitations
VI. SECURITIES REGULATION CODE (RA 8799)

A. Registration requirement; exemptions
B. Prohibitions on fraud, manipulation, and insider trading
C. Protection of investors
1. Tender offer rule
2. Rules on proxy solicitation
3. Disclosure rule
VII. BANKING
A. The New Central Bank Act (RA 7653, as amended by RA 11211)
1. Handling of banks in distress
a. Conservatorship
b. Closure
c. Receivership
d. Liquidation
B. Secrecy of bank deposits (RA 1405, as amended, and RA 6426, as amended)
1. Prohibited acts
2. Exceptions from coverage
3. Garnishment of deposits, including foreign deposits
27
C. General Banking Law of 2000 (RA 8791)

1. Nature of bank funds and bank deposits
2. Diligence required of banks
BANK OF THE PHILIPPINE ISLANDS and ANA C. GONZALES, petitioners, vs. SPOUSES
FERNANDO V. QUIAOIT and NORA L. QUIAOIT, respondents.
G.R. No. 199562, SECOND DIVISON, January 16, 2019, CARPIO, J.
The General Banking Act of 2000 demands of banks the highest standards of integrity and
performance. The Court ruled that banks are under obligation to treat the accounts of their depositors
with meticulous care. The Court ruled that the bank's compliance with this degree of diligence has to
be determined in accordance with the particular circumstances of each case.
In this case, BPI failed to exercise the highest degree of diligence that is not only expected but required
of a banking institution. It was established that on 15 April 1999, Fernando informed BPI to prepare
US$20,000 that he would withdraw from his account. The withdrawal, through encashment of BPI
Greenhills Check No. 003434, was done five days later, or on 20 April 1999. BPI had ample opportunity
to prepare the dollar bills. Since the dollar bills were handed to Lambayong inside an envelope and in
bundles, Lambayong did not check them. However, as pointed out by the Court of Appeals, BPI could
have listed down the serial numbers of the dollar bills and erased any doubt as to whether the
counterfeit bills came from it. While BPI Greenhills marked the dollar bills with "chapa" to identify
that they came from that branch, Lambayong was not informed of the markings and hence, she could
not have checked if all the bills were marked.
FACTS:
Fernando V. Quiaoit (Fernando) maintains peso and dollar accounts with the Bank of the Philippine
Islands (BPI) Greenhills-Crossroads Branch (BPI Greenhills). Fernando, through Merlyn Lambayong
(Lambayong), encashed BPI Greenhills Check No. 003434 for US$20,000.
In a complaint filed by Fernando and his wife Nora L. Quiaoit (Nora) against BPI, they alleged that
Lambayong did not count the US$20,000 that she received because the money was placed in a large
Manila envelope. They also alleged that BPI did not inform Lambayong that the dollar bills were
marked with its "chapa" and the bank did not issue any receipt containing the serial number of the
bills. Lambayong delivered the dollar bills to the spouses Quiaoit in US$100 denomination in
US$10,000 per bundle. Nora then purchased plane tickets worth US$13,100 for their travel abroad,
using part of the US$20,000 bills withdrawn from BPI.
On 22 April 1999, the spouses Quiaoit left the Philippines for Jerusalem and Europe. Nora
handcarried US$6,900 during the tour. The spouses Quiaoit alleged that Nora was placed in a
shameful and embarrassing situation when several banks in Madrid, Spain refused to exchange
some of the US$100 bills because they were counterfeit. Nora was also threatened that she would
be taken to the police station when she tried to purchase an item in a shop with the dollar bills. The
spouses Quiaoit were also informed by their friends, a priest and a nun, that the US dollar bills they
gave them were refused by third persons for being counterfeit. Their aunt, Elisa Galan (Galan) also
28
returned, via DHL, the five US$100 bills they gave her and advised them that they were not
accepted for deposit by foreign banks for being counterfeit.
Ana C. Gonzales (Gonzales), the branch manager of BPI Greenhills, failed to resolve their concern or
give them a return call. When the spouses Quiaoit returned, they personally complained to Gonzales
who went to Fernando's office with three bank personnel. Gonzales took from Fernando the
remaining 44 dollar bills worth US$4,400 and affixed her signature on the photocopy of the bills,
acknowledging that she received them. Gonzales informed Fernando that the absence of the
identification mark ("chapa") on the dollar bills meant they came from other sources and not from
BPI Greenhills.
The spouses Quiaoit demanded in writing for the refund of the US$4,400 from Gonzales. On 9
February 2000, BPI sent its written refusal to refund or reimburse the US$4,400.
The spouses Quiaoit alleged that BPI failed in its duty to ensure that the foreign currency bills it
furnishes its clients are genuine. According to them, they suffered public embarrassment,
humiliation, and possible imprisonment in a foreign country due to BPI's negligence and bad faith.
BPI countered that it is the bank's standing policy and part of its internal control to mark all dollar
bills with "chapa" bearing the code of the branch when a foreign currency bill is exchanged or
withdrawn. BPI alleged that the US$20,000 in US$100 bills encashed by Fernando through
Lambayong were inspected, counted, personally examined, and subjected to a counterfeit detector
machine by the bank teller under Gonzales' direct supervision. Gonzales also personally inspected
and "piece-counted" the dollar bills which bore the identifying "chapa" and examined their
genuineness and authenticity. BPI alleged that after its investigation, it was established that the 44
US$100 bills surrendered by the spouses Quiaoit were not the same as the dollar bills disbursed to
Lambayong. The dollar bills did not bear the identifying "chapa" from BPI Greenhills and as such,
they came from another source.
The Regional Trial Court of Quezon City ruled in favor of the spouses Quiaoit. The Court of Appeals
affirmed the trial court's Decision. The Court of Appeals ruled that BPI did not follow the normal
banking procedure of listing the serial numbers of the dollar bills considering the reasonable length
of time from the time Fernando advised them of the withdrawal until Lambayong's actual
encashment of the check.
ISSUE:
Whether BPI exercised due diligence in handling the withdrawal of the US dollar bills (NO)
RULING:
No. In Spouses Carbonell v. Metropolitan Bank and Trust Company, the Court emphasized that the
General Banking Act of 2000 demands of banks the highest standards of integrity and performance.
The Court ruled that banks are under obligation to treat the accounts of their depositors with
meticulous care. The Court ruled that the bank's compliance with this degree of diligence has to be
determined in accordance with the particular circumstances of each case.
29
In this case, BPI failed to exercise the highest degree of diligence that is not only expected but
required of a banking institution.
It was established that on 15 April 1999, Fernando informed BPI to prepare US$20,000 that he
would withdraw from his account. The withdrawal, through encashment of BPI Greenhills Check
No. 003434, was done five days later, or on 20 April 1999. BPI had ample opportunity to prepare
the dollar bills. Since the dollar bills were handed to Lambayong inside an envelope and in bundles,
Lambayong did not check them. However, as pointed out by the Court of Appeals, BPI could have
listed down the serial numbers of the dollar bills and erased any doubt as to whether the
counterfeit bills came from it. While BPI Greenhills marked the dollar bills with "chapa" to identify
that they came from that branch, Lambayong was not informed of the markings and hence, she
could not have checked if all the bills were marked.
BPI insists that there is no law requiring it to list down the serial numbers of the dollar bills.
However, it is well-settled that the diligence required of banks is more than that of a good father of
a family. Banks are required to exercise the highest degree of diligence in its banking
transactions. In releasing the dollar bills without listing down their serial numbers, BPI failed to
exercise the highest degree of care and diligence required of it. BPI exposed not only its client but
also itself to the situation that led to this case. Had BPI listed down the serial numbers, BPI's
presentation of a copy of such listed serial numbers would establish whether the returned 44 dollar
bills came from BPI or not.
Granting that Lambayong counted the two bundles of the US$100 bills she received from the bank,
there was no way for her, or for the spouses Quiaoit, to determine whether the dollar bills were
genuine or counterfeit. They did not have the expertise to verify the genuineness of the bills, and
they were not informed about the "chapa" on the bills so that they could have checked the same.
BPI cannot pass the burden on the spouses Quiaoit to verify the genuineness of the bills, even if
they did not check or count the dollar bills in their possession while they were abroad.
As pointed out by the Court of Appeals, BPI had the last clear chance to prove that all the dollar bills
it issued to the spouses Quiaoit were genuine and that the counterfeit bills did not come from it if
only it listed down the serial numbers of the bills. BPI's lapses in processing the transaction fall
below the extraordinary diligence required of it as a banking institution. Hence, it must bear the
consequences of its action.
Spouses Quiaoit suffered serious anxiety, embarrassment, humiliation, and even threats of being
taken to police authorities for using counterfeit bills. Hence, they are entitled to the moral damages
awarded by the trial court and the Court of Appeals. Nevertheless, we delete the award of
exemplary damages since it does not appear that BPI's negligence was attended with malice and
bad faith. We sustain the award of attorney's fees because the spouses Quiaoit were forced to
litigate to protect their rights.
3. Prohibited transactions by bank directors and officers

D. Philippine Deposit Insurance Corporation Act (RA 3591, as amended)
30
1. Maximum deposit insurance coverage

2. Meaning of insured deposit
3. Splitting of deposits
CARLITO B. LINSANGAN, Petitioner, -versus - PHILIPPINE DEPOSIT INSURANCE
CORPORATION., Respondent
G.R. No. 228807, SECOND DIVISION, February 11, 2019, REYES, JR., J.
In cases wherein the transfer into two or more accounts occurred before the 120-day period, the PDIC
does not discount the possibility that there may have been a transfer for valid consideration, but in the
absence of transfer documents found in the records of the bank at the time of closure, the presumption
arises that the source account remained with the transferor. Consequently, even if the transfer into
different accounts was not made within 120 days immediately preceding bank closure, the grant of
deposit insurance to an account found to have originated from another deposit is not automatic
because the transferee still has to prove that the transfer was for a valid consideration through
documents kept in the custody of the bank.
In this case, even assuming that Cornelio donated the amount contained in the subject savings account
to petitioner, not one document evidencing the alleged donation is in the custody or possession of the
bank upon takeover by PDIC. Thus, the PDIC properly relied on the records of the bank which showed
that Cornelio's accounts remained in his name and for his account
FACTS:
Petitioner filed a claim for payment of deposit insurance for his Special Incentive Savings Account
which had a balance of P400,000.00 at the time of CRBBI's closure.
Upon investigation, PDIC found that petitioner's account originated from the account of "Cornelio
Linsangan or Ligaya Linsangan" (source account) with an opening balance of P1,531,993.42. On
December 13, 2012, the source account was closed and its balance of P1,544,081.48 was
transferred and distributed to four accounts.
PDIC then conducted a tracing of relationship for the purpose of determining beneficial ownership
of accounts and it discovered that petitioner is not a qualified relative of Cornelio Linsangan and
Ligaya Linsangan (Cornelio and Ligaya).
Consequently, pursuant to the provisions of PDIC Regulatory Issuance No. 2009-03, par. V,
petitioner's account was consolidated with the other legitimate deposits of Cornelio and Ligaya for
purposes of computing the insurable deposit. PDIC considered the source account holders Cornelio
and Ligaya as the real owners of the four resulting accounts. Thus, they were only entitled to the
maximum deposit insurance of P500,000.00.
PDIC denied petitioner’s claim. CA affirmed.
Petitioner argues that the transfer of funds to his account is not deposit splitting because the
transfer took place more than 120 days prior to the closure of the bank; that as stated in PDIC
31
Regulatory Issuance No. 2009-03, splitting of deposits occurs whenever an account is broken down
and transferred into two or more accounts in the name/s of natural or juridical person/s or
entity/entities who have no beneficial ownership on transferred deposits in their names within 120
days immediately preceding or during bank-declared bank holiday, or immediately preceding a
closure order issued by the MB of the BSP; and that he was not informed of the requirement that
the documents proving transfer must be in the records of the bank at the time of its closure.
ISSUE:
Whether there was deposit splitting in the case at bar even if the transfer took place more than
120 days prior to the closure of the bank (YES)
RULING:
Under PDIC Regulatory Issuance No. 2009-03 do, the elements of Deposit Splitting are as follows:
1. Existence of source account/s in a bank with a balance or aggregate balance of more than the
MDIC;
2. There is a break up and transfer of said account/s into two or more existing or new accounts in
the name of another person/s or entity/entities;
3. The transferee/s have no Beneficial Ownership over the transferred funds; and
4. Transfer occurred within 120 days immediately preceding or during a bank-declared bank
holiday, or immediately preceding bank closure.
Petitioner's argument is erroneous. In deposit splitting, there is a presumption that the transferees
have no beneficial ownership considering that the source account, which exceeded the maximum
deposit insurance coverage, was split into two or more accounts within 120 days immediately
preceding bank closure. On the other hand, in cases wherein the transfer into two or more accounts
occurred before the 120-day period, the PDIC does not discount the possibility that there may have
been a transfer for valid consideration, but in the absence of transfer documents found in the
records of the bank at the time of closure, the presumption arises that the source account remained
with the transferor. Consequently, even if the transfer into different accounts was not made within
120 days immediately preceding bank closure, the grant of deposit insurance to an account found to
have originated from another deposit is not automatic because the transferee still has to prove that
the transfer was for a valid consideration through documents kept in the custody of the bank.
In this case, even assuming that Cornelio donated the amount contained in the subject savings
account to petitioner, not one document evidencing the alleged donation is in the custody or
possession of the bank upon takeover by PDIC. Thus, the PDIC properly relied on the records of the
bank which showed that Cornelio's accounts remained in his name and for his account. Moreover,
even if the Court disregards the submission of transfer documents, petitioner could not be
considered the beneficial owner of the resulting deposit account because he is not a qualified
relative of the transferor. Being the son of Cornelio's cousin, petitioner is already a fifth degree
32
relative of the transferor, far from the requirement that the transferee must be a relative within the
second degree of consanguinity or affinity.
VIII. INTELLECTUAL PROPERTY CODE (RA 8293)

A. Patents
1. Patentable vs. non-patentable inventions
2. Ownership of a patent
3. Grounds for cancellation of a patent
4. Remedy of the true and actual inventor
5. Rights conferred by a patent
6. Limitations on patent rights
7. Patent infringement
B. Trademarks
1. Marks vs. collective marks vs. trade names
2. Acquisition of ownership
a. Concept of actual use
b. Effect of registration
3. Non-registrable marks
4. Well-known marks
5. Priority right
6. Rights conferred by registration
7. Cancellation of registration
8. Trademark infringement
9. Unfair competition
C. Copyrights
1. Copyrightable works
33
2. Non-copyrightable works
3. Rights conferred by copyright
4. Ownership of a copyright
5. Limitations on copyright
6. Doctrine of fair use
7. Copyright infringement
IX. ANTI-MONEY LAUNDERING ACT (RA 9160, as amended)
A. Covered institutions and their obligations
B. Covered and suspicious transactions
C. Safe harbor provision
D. When is money laundering committed (including predicate crimes)
E. Authority to inquire into bank deposits
F. Freezing and forfeiture
X. ELECTRONIC COMMERCE ACT (RA 8792)

A. Legal recognition of electronic data messages, documents, and signatures
B. Presumption relating to electronic signatures
C. Admissibility and evidential weight of electronic data message or electronic
document
D. Obligation of confidentiality
XI. DATA PRIVACY ACT (RA 10173)

A. Personal vs. sensitive personal information
B. Scope
C. Processing of personal information
D. Rights of data subject
XII. FINANCIAL REHABILITATION, INSOLVENCY, LIQUIDATION and SUSPENSION OF
PAYMENTS (RA 10142, FR Rules [A.M. No. 12-12-11-SC], and FLSP Rules [A.M. No.15-04-06-
SC])
34
A. Basic concepts
1. Rehabilitation
2. Insolvent
3. Liquidation
4. Suspension of payments
B. Modes of rehabilitation
1. Court-supervised rehabilitation
a. Voluntary vs. involuntary
b. Commencement order (including stay order)
c. Rehabilitation receiver and management committee
d. Determination of claims
e. Rehabilitation plan
i. Concept of feasibility
ii. Material financial commitments
iii. Liquidation analysis
f. Creditor approval and confirmation
g. Failure of rehabilitation
2. Pre-negotiated rehabilitation
a. How initiated
b. Period and effect of approval
3. Out-of-Court or Informal Restructuring Agreement or Rehabilitation Plan
a. Minimum requirements
b. Standstill period
c. Cram down effect
C. Liquidation
1. Voluntary liquidation vs. involuntary liquidation vs. conversion
2. Procedure
a. Liquidation order; effects
35
3. Determination of claims
D. Suspension of Payments; Suspension of Payment Order
E. Remedies
1. Motion for reconsideration
2. Petition for certiorari
36

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ERCA

DEAN’S CIRCLE 2019

CHERIE ANNE R. BUZON

ATTY. LEAN JEFF M. MAGSOMBOL

ATTY. NILO T. DIVINA

DEAN’S CIRCLE 2019

Abelende, Arra Jean S. De Dios, Cathlyn Audrey M. Pasigan, Lovely Joy E.

I. LETTERS OF CREDIT AND TRUST RECEIPTS

II. NEGOTIABLE INSTRUMENTS LAW ( Act No. 2031)

III. INSURANCE (PD 612, as amended by RA 10607)

5. No fault, suicide, and incontestability clauses

C. Rights and obligations of parties

2. Whether Keihin-Everett is liable for damages. (YES)

observed extraordinary diligence in the performance of its obligation to Keihin-Everett, it is liable

ANNIE TAN, Petitioner, -versus- GREAT HARVEST ENTERPRISES, INC., Respondent.

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(5) Order or act of competent public authority.

B. Obligations and liabilities

V. CORPORATION LAW (Provisions of BP 68, not affected by RA 11232)

ENGINEERING GEOSCIENCE, INC., PETITIONER, -versus- PHILIPPINE SAVINGS BANK,

a. Doctrine of centralized management

VI. SECURITIES REGULATION CODE (RA 8799)

C. General Banking Law of 2000 (RA 8791)

3. Prohibited transactions by bank directors and officers

1. Maximum deposit insurance coverage

PDIC denied petitioner’s claim. CA affirmed.

VIII. INTELLECTUAL PROPERTY CODE (RA 8293)

X. ELECTRONIC COMMERCE ACT (RA 8792)

XI. DATA PRIVACY ACT (RA 10173)

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