Merc_must read.docx

8/17/2019 Merc_must read.docx

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Mercantile Law

MUST READ CASES (MERCANTILE LAW)

SPECIAL COMMERCIAL LAWS

Letters of Credit

1. Reliane Co!!odities" In. #s. Dae$oo Ind%strial Co. Ltd." &&'

SCRA (1**+)

Where there was a meeting of the minds between the buyer and theseller regarding the sale of foundry pig iron to be paid for under a letterof credit, the failure of the buyer to open the letter of credit did notprevent the perfection of the contract and neither did such failureextinguish the contract. The opening of the letter of credit was not acondition precedent for the birth of obligation of the buyer to purchase

the foundry pig iron from the seller. Where the buyer fails to open theletter of credit, as stipulated, the seller or exporter is entitled to claimdamages for such breach. Damages for failure to open the letter of credit may include the loss of prot which the seller would havereasonably made had the transaction been carried out

&. Rod,ssen S%--l Co!-an" In. /s. 0ar East an2 and Tr%st

Co!-an" +3 SCRA 41' (&551)

n issuing ban! which paid the beneciary of an expired letter of creditcan recover payment from the applicant which obtained the goods

from the beneciary to prevent un"ust enrichment.

+. Trans6eld P7ili--ines" In. /s. L%,on 8dro Cor-. + SCRA +53

(&55)

Where the applicant entered into a Turn!ey contract whereby itundertoo! to construct, on a turn!ey basis, a seventy #$%&'Megawatthydro'electric power station, the performance of which is secured by astandby letter of credit, the resort to arbitration by the applicant(contractor to arbitration to determine if the latter is guilty of delaydoes not preclude the beneciary to draw on the letter of credit upon

its issuance of a certication of default because whether or not theissuance of certication of default amounted to fraud was not raised inthe lower court and the parties did not stipulate that all disputeregarding delay should rst be settled through arbitration before thebeneciary would be allowed to call upon the letter of credit. )f thedrawing upon the letter of credit was wrongful due to the non'existence of the fact of default, the right of the applicant to see!


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indemnication for damages it su*ered would not normally beforeclosed pursuant to general principle of law.

. MWSS /s. 8on. Da$a" +& SCRA * (&55)

The stay order issued by the rehabilitation court pursuant to the

)nterim +ules of orporate +ehabilitation does not apply to thebeneciary of the letter of credit against the ban!s that issued itbecause the prohibition on the enforcement of claims against thedebtor, guarantors or sureties of the debtors does not extend to theclaims against the issuing ban! in a letter of credit. Letters of creditare primary obligations and not accessory contracts and while they aresecurity arrangements, they are not thereby converted into contractsof guaranty.

. Metro9an2 /. Le Constr%tion and De/elo-!ent

Cor-oration" :.R. No. 1'*5" Dee!9er 5+" &51 The legal rights of the -an! and the correlative legal duty of LDhave not been suciently established by the -an! in view of the failureof the -an!/s evidence to show the provisions and conditions thatgovern its legal relationship with LD, particularly the absence of theprovisions and conditions supposedly printed at the bac! of thepplication and greement for ommercial Letter of redit. 0venassuming arguendo that there was no impropriety in the negotiation of the Letter of redit and the -an!/s cause of action was simply for thecollection of what it paid under said Letter of redit, the -an! did not

discharge its burden to prove every element of its cause of actionagainst LD.

4. an2 of t7e P7ili--ine Islands /s. De Ren 0a9ri Ind%stries"

In. + SCRA &+ (1*35)

buyer who applied for a letter of credit to pay for imported dyestu*smust reimburse the issuing ban! which paid the beneciary, even if the shipment contained colored chal!s. -an!s are not re1uired toinvestigate if the contract underlying the letter of credit has beenfullled or not because in a transaction involving letter of credit, ban!s

deal only with documents and not with goods.

3. an2 of A!eria /s. Co%rt of A--eals" &&' SCRA +3 (1**+)

When the notifying ban! entered into a discounting arrangement withthe beneciary, it acts independently as a negotiating ban!. s such,the negotiating ban! has a right to recourse against the issuer ban!


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and until reimbursement is obtained, the beneciary, as the drawer of the draft, continues to assume a contingent liability thereon.

'. LP /s. Monet;s E


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11. 0eati an2 ? Tr%st Co!-an /s. Co%rt of A--eals" 1*4

SCRA 34 (1**1)

When the letter of credit re1uired the submission of a certication thatthe applicant(buyer has approved the goods prior to shipment, the

un"ust refusal of the applicant(buyer to issue said certication is notsucient to compel the ban! to pay the beneciary thereof. 2nder thedoctrine of strict compliance, the documents tendered must strictlyconform to the terms of the letter of credit, otherwise, the ban! whichaccepts a faulty tender, acts on its own ris!s and may not be able torecover from the applicant(buyer.

Tr%st Reei-ts La$

1&. Metro-olitan an2 ? Tr%st Co!-an /s. Tonda" ++' SCRA

& (&555)

ompensation shall not be proper when one of the debts consists incivil liability arising from a penal o*ense8 moreover, any compromiserelating to the civil liability does not automatically extinguish thecriminal liability of the accused. The mere failure of the entrustee todeliver the proceeds of the sale or the goods if not sold, constitutes acriminal o*ense that causes pre"udice not only to another, but more tothe public interest.

1+. Lee /s. Co%rt of A--eals" +3 SCRA 3* (&55&)

trust receipt is a security transaction intended to aid in nancing

importers and retail dealers who do not have sucient funds orresources to nance the importation or purchase of merchandise, andwho may not be able to ac1uire credit except through utili9ation, ascollateral of the merchandise imported or purchased. 2nder a letter of credit'trust receipt arrangement, a ban! extends a loan covered by aletter of credit, with the trust receipt as a security for the loan8 hence,the transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receiptwhich secures an indebtedness.

1. Colinares /s. Co%rt of A--eals" ++* SCRA 45* (&555)

The transaction is a simple loan when the goods sub"ect of theagreement had been purchased and delivered to the supposedentrustee prior to the execution of the trust receipt agreement. Theac1uisition of ownership over the goods before the execution of thetrust receipt agreement ma!es the contract a simple loan, regardlessof the denomination of the contract.


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1. Consolidated an2 ? Tr%st Cor-. /s. Co%rt of A--eals"

+4 SCRA 431 (&551)

+espondent orporation is not an importer which ac1uired the bun!erfuel oil for re'sale8 it needed the oil for its own operations. More

importantly, at no time did title over the oil pass to petitioner ban!, butdirectly to respondent orporation to which the oil was directlydelivered long before the trust receipt was executed8 thus, the contractexecuted by the parties is a simple loan and not a trust receiptagreement.

14. Pr%dential an2 /s. National La9or Relations Co!!ission"

&1 SCRA 1& (1**)

The security interest of the entruster pursuant to the written terms of atrust receipt shall be valid as against all creditors of the entrustee for

the duration of the trust receipt agreement, including among others,the laborers of the entrustee. The only exception to the rule is whenthe properties are in the hands of an innocent purchaser for value andin good faith.

13. Pili-inas an2 /s. On=" +'3 SCRA +3 (&55&)

:ailure of the entrustee to turn over the proceeds of the sale of thegoods covered by a trust receipt to the entruster or to return the goods,if they were not disposed of, shall constitute the crime of estafa.5owever, what is being punished by law is the dishonesty and abuse of condence in the handling of money or goods to the pre"udice of

another regardless of whether the latter is the owner. ;o dishonesty norabuse of condence can be attributed to the entrustee if the latter failedto comply with its obligation upon maturity of the trust receipt due toserious li1uidity problems and after it was placed under the control of the management committee created by


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1'. Ant7on L. N= /s. Peo-le of t7e P7ili--ines" :.R. No.

13+*5" A-ril &+" &515

When the goods sub"ect of the transaction, such as chemicals andmetal plates, were not intended for sale or resale but for use in the

fabrication of steel communication towers, the agreement cannot beconsidered a trust receipt transaction but a simple loan. >.D. ;o. ??@punishes the entrustee for his failure to deliver the price of the sale, orif the goods are not sold, to return them to the entruster, which, in thepresent case, is absent and could not have been complied with8therefore, the liability of the entrustee is only civil in nature.

1*. Land an2 of t7e P7ili--ines /s. Pere," :.R. No. 144''"

>%ne 1+" &51&

2nder the Trust +eceipts Law, intent to defraud is presumed when #?&

the entrustee fails to turn over the proceeds of the sale of goodscovered by the trust receipt to the entruster8 or #A& when the entrusteefails to return the goods under trust, if they are not disposed of inaccordance with the terms of the trust receipts. When both parties!now that the entrustee could not have complied with the obligationsunder the trust receipt without his fault, as when the goods sub"ect of the agreement were not intended for sale or resale, the transactioncannot be considered a trust receipt but a simple loan, where theliability is limited to the payment of the purchase price.

&5. 8%r Tin @an= /s. Peo-le of t7e P7ili--ines" :.R. No.

1*113" A%=%st 1" &51+

When both parties entered into an agreement !nowing fully well thatthe return of the goods sub"ect of the trust receipt is not possible evenwithout any fault on the part of the trustee, it is not a trust receipttransaction penali9ed under D ??@ in relation to rt. B?@,par. ?#b& of the +>, as the only obligation actually agreed upon by theparties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligatedto pay the ban! the amount spent for the purchase of the goods.

&1. #intola /s. Ins%lar an2 of Asia and A!eria" 15 SCRA15 (1*'3)

trust receipt transaction is a security agreement, pursuant to whichthe entruster ac1uires a security interest in the goods, which arereleased to the possession of the entrustee who binds himself to holdthe goods in trust for the entruster and to sell or otherwise dispose of the goods or to return them in case of non'sale. The return of the


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goods to the entruster however, does not relieve the entrustee of theobligation to pay the loan because the entruster is not the factualowner of the goods and merely holds them as owner in the articialconcept for the purpose of giving stronger security for the loan.

&&. Rosario Te


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the goods as he had never ta!en possession of such nor committingdishonesty and abuse of condence in transacting with the entrustor,is immaterial. The law specically ma!es the director, ocer,employee or any person responsible criminally liable precisely for thereason that a corporation, being a "uridical entity, cannot be the

sub"ect of the penalty of imprisonment.

&. So%t7 Cit 8o!es" In. /s. A 0inane Cor-oration" +31

SCRA 45+ (&551)

When the entrustee defaults on his obligation, the entruster has thediscretion to avail of remedies which it deems best to protect its right. The law uses the word 3may4 in granting to the entruster the right tocancel the trust and ta!e possession of the goods8 hence, the option isgiven to the entruster.

&4. Sar!iento /s. Co%rt of A--eals" +* SCRA +1 (&55&) civil case led by the entruster against the entrustees based on thefailure of the latter to comply with their obligation under the Trust+eceipt agreement is proper because this breach of obligation isseparate and distinct from any criminal liability for misuse and(ormisappropriation of goods or proceeds reali9ed from the sale of goodsreleased under the trust receipts. -eing based on an obligation ex contractu and not ex delicto, the civil action may proceedindependently of the criminal proceedings instituted against theentrustees regardless of the result of the latter.

&3. Landl ? Co!-an /s. Metro-olitan an2" + SCRA 4+*

(&55)

s provided under .D. ;o. ??@, in the event of default of theentrustee, the entruster may cancel the trust and ta!e possession of the goods sub"ect of the trust or of the proceeds reali9ed therefrom atany time8 the entruster may, not less than ve days after serving orsending of notice of intention to sell, proceed with the sale of thegoods at public or private sale where the entrustee shall receive anysurplus but shall be liable to the entruster for any deciency. This is by

reason of the fact that the initial repossession by the ban! of the goodssub"ect of the trust receipt did not result in the full satisfaction of theentrustee/s loan obligation.

an2in= La$s

&'. Teodoro aas /s. Asia Pai6 0inane Cor-oration" :.R.

No. 1&'35+" Oto9er 1'" &555


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Transactions involving purchase of receivables at a discount, wellwithin the purview of investing, reinvesting or trading in securities,which as investment company is authori9ed to perform, does notconstitute a violation of the Ceneral -an!ing ct. )n this case, thefunds supposedly lent have not been shown to have been obtained

from the public by way of deposits, hence, it cannot be said that theinvestment company was engaged in ban!ing.

&*. PN /. S-s. TaBonera" :.R. No. 1*''*" & Se-te!9er

&51

-eing a ban!ing institution, >;- owes it to the respondents to observethe high standards of integrity and performance in all its transactionsbecause its business is imbued with public interest. The high standardsare also necessary to ensure public condence in the ban!ing system,for, according to >hilippine ;ational -an! v. >i!e, 6tEhe stability of

ban!s largely depends on the condence of the people in the honestyand eciency of ban!s.6 Thus, >;- was duty bound to comply with theterms and stipulations under its credit agreements with therespondents, specically the release of the amount of the additionalloan in its entirety, lest it erodes public condence. Fet, >;- failed inthis regard.

+5. Consolidated an2 and Tr%st Cor-oration /s. Co%rt of

A--eals" :.R. No. 1+'4*" Se-te!9er 11" &55+

-an!s must exercise a high degree of diligence in insuring that they

return the passboo! only to the depositor or his authori9edrepresentative. The tellers should !now that the rules on savingsaccount provide that any person in possession of the passboo! ispresumptively its owner. -y the teller giving the passboo! to the wrongperson, thereby facilitating unauthori9ed withdrawals by that person,and for failing to return the passboo! to the authori9ed representativeof the depositor, the -an! presumptively failed to observe such highdegree of diligence in safeguarding the passboo! and in insuring itsreturn to the party authori9ed to receive the same. 5owever, the-an!/s liability is mitigated by the depositor/s contributory negligence

in allowing a withdrawal slip signed by its authori9ed signatories to fallinto the hands of an impostor.

+1. Citi9an2" N.A. /s. S-o%ses L%is ? Car!elita Ca9a!on=an"

:.R. No. 14*1'" Ma &" &554

llowing the pretermination of the account despite noticingdiscrepancies in the signature and photograph of the person claiming


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to be the depositor, accompanied by the failure to surrender theoriginal certicate of time deposit, amounted to negligence on the partof the ban!. ban! that fails to exercise the degree of diligencere1uired of it becomes liable for damages.

+&. Co!sa/in=s an2 /s. S-o%ses Danilo and EstrellaCa-istrano" :.R. No. 135*&" A%=%st &'" &51+

ban!ing institution serving as an originating ban! for the 2nied5ome Lending >rogram #25L>& of the Covernment owes a duty toobserve the highest degree of diligence and a high standard of integrity and performance in all its transactions with its clients becauseits business is imbued with public interest.

++. Land an2 of t7e P7ili--ines /s. E!!an%el Oate" :.R.

No. 1*&+31" >an%ar 1" &51

s a business a*ected with public interest and by reason of the natureof its functions, the ban! is under obligation to treat the accounts of itsdepositors with meticulous care, always having in mind the duciarynature of their relationship. ban! that mismanages the trustaccounts of its client cannot benet from the inaccuracies of thereports resulting therefrom8 it cannot impute the conse1uence of itsnegligence to the client which resulted to miscrediting of funds.

+. Ileana Maalinao /s. an2 of t7e P7ili--ine Islands" :.R.

No. 13*5" Se-te!9er 13" &55*

When the stipulation on the interest rate is void, it is as if there was noexpress contract thereon8 hence, courts may reduce the interest rateas reason and e1uity demand, which would depend on thecircumstances of each case. )n the present case, the fact thatpetitioner made partial payments ma!es the stipulated penalty chargeof BG per month or BHG per annum, in addition to regular interests,ini1uitous and unconscionable.

+. 8eirs of Estelita %r=osLi-at na!el Alan . Li-at and

Alfredo . Li-at" >r. /s. 8eirs of E%=enio D. Trinidad na!el

As%nion R. Trinidad" et. al." :.R. No. 1'4" Mar7 &" &515


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and "ust to re1uire the payment of ?AG interest per annum beyond theone'year period up to the date of consignment of the redemption pricewith the +T.

+4. Ad/oates for Tr%t7 in Lendin= /s. SP" :.R. No. 1*&*'4"

>an%ar 1" &51+ The - ircular ;o. J%@ merely suspended the e*ectivity of the 2suryLaw, thereby allowing the parties to freely stipulate on the rate of interest. ;onetheless, the lifting of the ceilings for interest rates doesnot authori9e stipulations charging excessive, unconscionable, andini1uitous interest.

+3. >ose C. :o /s. SP" :.R. No. 13'&*" Oto9er &+" &55*

The law on D=r." :.R. No.

14'++&F :.R. No. 14*5+" >%ne 1*" &55*

The Monetary -oard, is vested with exclusive authority to assess,evaluate and determine the condition of any ban!, and nding suchcondition to be one of insolvency, or that its continuance in business


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would involve a probable loss to its depositors or creditors, forbid ban!or non'ban! nancial institution to do business in the >hilippines8 andshall designate an ocial of the - or other competent person asreceiver to immediately ta!e charge of its assets and liabilities. Whenthe complaint led by a stoc!holder of the ban! pertains to the alleged

unsafe and unsound ban!ing practices, the authority to determine theexistence of such is with the Monetary -oard.

5. SP Monetar oard /s. 8on. Antonio#alen,%ela" :.R.

No. 1'33'" Oto9er &" &55*

The actions of the Monetary -oard under an%ar &" 1**4

The authority of the conservator under the entral -an! Law is limitedto acts of administration8 the conservator merely ta!es the place of theban!/s board of directors and as such, the former cannot perform acts

the latter cannot do. 5ence, the conservator cannot revo!e a contractof sale of a property ac1uired by the ban! entered into by a ban!ocer even though the price agreed upon is no longer reective of thefair mar!et value of the property by reason of its appreciation of valueover time.


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+. R%ral an2 of San Mi=%el /s. Monetar oard" :.R. No.

15''4" 0e9r%ar 14" &553

2nder +.. ;o. AH@, an examination is re1uired to be made before theMonetary -oard could issue a closure order8 however, under +.. ;o.

$H@B, prior notice and hearing are no longer re1uired and a reportmade by the head of the supervising and examining departmentsuces for a ban! to be closed and placed under receivership. Thepurpose of the law is to ma!e the closure of the ban! summary andexpeditious for the protection of the public interest

. A9a%s Real Estate De/elo-!ent Center" In. /s. Manila

an2in= Cor-." :.R. No. 14&&35" A-ril 54" &55

When a ban! is placed under receivership, the appointed receiver istas!ed to ta!e charge of the ban!/s assets and properties and the

scope of the receiver/s power is limited to acts of administration. Thereceiver/s act of approving the exclusive option to purchase granted bythe ban!/s president is beyond the authority of the former and as such,it cannot be considered a valid approval.

. Alfeo D. #i/as" /s. Monetar oard and PDIC" :.R. No.

1*1&" A%=%st 3" &51+

The Monetary -oard may forbid a ban! from doing business and placeit under receivership without prior notice and hearing it the M- ndsthat a ban!7 #a& is unable to pay its liabilities as they become due inthe ordinary course of business8 #b& has insucient reali9able assets tomeet liabilities8 #c& cannot continue in business without involvingprobable losses to its depositors and creditors8 and #d& has willfullyviolated a cease and desist order of the Monetary -oard for acts ortransactions which are considered unsafe and unsound ban!ingpractices and other acts or transactions constituting fraud ordissipation of the assets of the institution.

4. G>err On= /s. Co%rt of A--eals" :.R. No. 11&'+5"

0e9r%ar 1" 1**4

The court shall have "urisdiction in the same proceedings to ad"udicatedisputed claims against the ban! and enforce individual liabilities of the stoc!holders and do all that is necessary to preserve the assets of such institution and to implement the li1uidation plan approved by theMonetary -oard. 5ence, all claims against the insolvent ban! shouldbe led in the li1uidation proceeding and it is not necessary that aclaim be initially disputed in a court or agency before it is led with theli1uidation court.


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3. Do!in=o Manalo /s. Co%rt of A--eals" :.R. No. 11&*3"

Oto9er '" &551

The rule that all claims against a ban! must be led in the li1uidationproceedings does not apply to actions led by the ban! itself for the

preservation of its assets and protection of its property, such as apetition for the issuance of a Writ of >ossession instituted by the ban!itself. Moreover, a ban! ordered closed by the Monetary -oard retainsits personality which can sue and be sued through its li1uidator.

'. Letiia :. Miranda /s. P7ili--ine De-osit Ins%rane

Cor-oration" :.R. No. 14*++" Se-te!9er '" &554

s a rule, ban! deposits are not preferred credits. 5owever, when thedeposits covered by a cashier/s chec! were purchased from a ban! atthe time when it was already insolvent, the purchase is entitled to

preference in the assets of the ban! upon its li1uidation by reason of the fraud in the transaction.

49. Oate /s. A9ro=ar" :.R. No. 153+5+" 0e9r%ar &+" 1**

)n a case where the money paid by an insurance company for treasurybills was deposited in a ban! account, the examination of the said ban!account is prohibited under +.. ;o. ?K%@ by reason of the fact that thesub"ect matter of the action led by the insurance company againstthe seller of the treasury bills is the failure to deliver the treasury bills,not the money deposited.

50. Inten=an /s. Co%rt of A--eals" :.R. No. 1&'**4" 0e9r%ar1" &55&

When the account sub"ect of the complaint is in the foreign currency,such complaint led for violation of +.. ;o. ?K%@ did not toll therunning of the prescriptive period to le the appropriate complaint forviolation of +.. ;o. HKAH. The Law on hilippine urrency8 a separateand distinct law governs deposits under the foreign currency #+.. ;o.HKAH&.

51. EBerito /s. Sandi=an9aan" :.R. Nos. 13&**"No/e!9er +5" &554

The 3deposits4 covered by the law on secrecy of ban! deposits shouldnot be limited to those creating a creditor'debtor relationship8 the lawmust be broad enough to include 3deposits of whatever nature4 whichban!s may use for authori9ed loans to third persons. +.. ;o. ?K%@


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extends to funds invested such as those placed in a trust accountwhich the ban! may use for loans and similar transactions.

&. Mellon an2" N.A. /s. Ma=sino" :.R. No. 313*" Oto9er

1'" 1**5

=ne of the exceptions under +.. ;o. ?K%@ is when a court order isissued for the disclosure of ban! deposits in a case where the moneydeposited is the sub"ect matter of litigation. When the sub"ect matteris the money the ban! transmitted by mista!e, an in1uiry to thewhereabouts of the amount extends to whatever concealed by beingheld or recorded in the name of the persons other than the oneresponsible for the illegal ac1uisition.

+. MarH%e, /s. Desierto" :.R. No. 1+''&" >%ne &3" &551

)n a case for violation of the nti'Craft and orrupt >ractices ct, the

=mbudsman can only examine ban! accounts upon compliance withthe following re1uisites7 there is a pending case before a court of competent "urisdiction8 the account must be clearly identied, and theinspection must be limited to the sub"ect matter of the pending case8the ban! personnel and the account holder must be informed of theexamination8 and such examination must be limited to the accountidentied in the pending case. )f there is no pending case yet but onlyan investigation by the =mbudsman, any order for the examination of the ban! account is premature.

. PCI /s. Co%rt of A--eals" :.R. No. '&4" >an%ar &'"

1**1)

The law on secrecy of ban! deposits cannot be used to preclude theban! deposits from being garnished for the satisfaction of a "udgment. There is no violation of +.. ;o. ?K%@ because the disclosure is purelyincidental to the execution process and it was not the intention of thelegislature to place ban! deposits beyond the reach of the "udgmentcreditor.

. Sal/aion /s. Central an2 of t7e P7ili--ines" :.R. No.

*3&+" A%=%st &1" 1**3)

foreign transient who raped a minor, escaped and was made liablefor damages to the victim cannot invo!e the exemption from courtprocess of foreign currency deposits under +.. ;o. HKAH. Thegarnishment of his foreign currency deposit should be allowed byreason of e1uity and to prevent in"ustice8 moreover, the purpose of the


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law is to encourage foreign currency deposits and not to benet awrongdoer.

56. Re-%9li of t7e P7ili--ines /s. :las=o$ Credit and

Colletion Ser/ies" In." :.R. No. 135&'1" >an%ar 1'" &55'


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When the documents provide that the amounts deposited shall berepayable to the depositor, such instrument is negotiable because it ispayable to the 6bearer.6 The documents do not say that the depositoris ngel de la ru9 and that the amounts deposited are repayablespecically to him, but the amounts are to be repayable to the bearer

of the documents or, for that matter, whosoever may be the bearer atthe time of presentment.

45. Traders Roal an2 /s. Co%rt of A--eals" 0ilriters

:%arant Ass%rane Cor-oration and Central an2 of t7e

P7ili--ines" :.R. No. *++*3" Mar7 +" 1**3

The language of negotiability which characteri9es a negotiable paperas a credit instrument is its freedom to circulate as a substitute formoney. The freedom of negotiability is the touchstone relating to theprotection of holders in due course and is the foundation for the

protection which the law thrown around a holder in due course. Thisfreedom in negotiability is totally absent in a certicate of indebtedness which merely ac!nowledges to pay a sum of money to aspecied persons or entity.


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instrument if the payee is not the intended recipient of the proceeds of the chec!. There is, however, a commercial bad faith exception to thisrule which provides that a showing of commercial bad faith on the partof the drawee ban!, or any transferee of the chec! for that matter, willwor! to strip it of this defense.

4+. Peo-le Of T7e P7ili--ines #s. :il9ert Rees Wa=as. :.R.

No. 13*+" Se-te!9er " &51+

2nder the ;egotiable )nstruments Law, a chec! made payable to cashis payable to the bearer and could be negotiated by mere deliverywithout the need of an indorsement. 5owever, the drawer of the post'dated chec! cannot be liable for estafa to the person who did notac1uire the instrument directly from drawer but through negotiation of another by mere delivery. This is because the drawer did not use thechec! to defraud the holder(private complainant.

4. Pr%dential an2 /. Co!!issioner of Internal Re/en%e

(CIR) :.R. No. 1'5+*5" >%l &3" &511

certicate of deposit is dened as a written ac!nowledgement by aban! of the receipt of a sum of money on deposit which the ban!promise to pay to the depositor or the order of the depositor or tosome other person or his order whereby the relation of debtor andcreditor between the ban! and the depositor is created. document tobe considered a certicate of deposit need not be in a specic form. Thus, a passboo! of an interest'earning deposit account issued by a

ban! is a certicate of deposit drawing interest because it isconsidered a written ac!nowledgment by a ban! that it has accepted adeposit of a sum of money from a depositor. Thus, it is sub"ect todocumentary stamp tax.

4. Tin= Tin= P%a /s. S-o%ses enito Lo %n Tion= and

Caroline Sio2 C7in= Ten=" :.R. No. 1*'445" Oto9er &+" &51+

The ?$ original chec!s, completed and delivered to petitioner, aresucient by themselves to prove the existence of the loan obligationof the respondents to petitioner. %ne &51

While under the law, the one in possession had a primafacie authority to o!-lete t7e 7e2 , such prima facie authority


19/87

Mercantile Law

does not extend to its use #i.e., subse1uent transfer or negotiation&once the chec! is completed. )n other words, only the authority tocomplete the chec! is presumed. :urther, the law used the term6 prima facie6 to underscore the fact that the authority which the lawaccords to a holder is a presumption juris tantum only8 hence, sub"ect

to contrary proof. Thus, evidence that there was no authority or thatthe authority granted has been exceeded may be presented by thema!er in order to avoid liability under the instrument.

)n the present case, no evidence is on record that the one to whom thechec! was delivered ever secured prior approval from the petitioner toll up the blan! or to use the chec!. )n his testimony, petitionerasserted that he never authori9ed nor approved the lling up of theblan! chec!s.

43. San Mi=%el Cor-oration /s. P%,on" >r. :.R. No. 14343" &&

Se-te!9er &515

)f the post'dated chec! was given to the payee in payment of anobligation, the purpose of giving e*ect to the instrument is evident,thus title or ownership the chec! was transferred to the payee.5owever, if the >D was not given as payment, then there was nointent to give e*ect to the instrument and ownership was nottransferred. The evidence proves that the chec! was accepted, not aspayment, but in accordance with the policy of the payee to cover thetransaction #purchase of beer products& and in the meantime thedrawer was to pay for the transaction by some other means other than

the chec!. This being so, title to the chec! did not transfer to thepayee8 it remained with the drawer. The second element of the felonyof theft was therefore not established. 5ence, there is no probablecause for theft.

4'. EH%ita9le an2in= Cor-oration /s S-eial Steel Prod%ts"

>%ne 1+" &51&

The fact that a person, other than the named payee of the crossedchec!, was presenting it for deposit should have put the ban! onguard. )t should have veried if the payee authori9ed the holder to

present the same in its behalf or indorsed it to him. The ban!/s relianceon the holder/s assurance that he had good title to the three chec!sconstitutes gross negligence even though the holder was related to thema"ority stoc!holder of the payee. While the chec! was not deliveredto the payee, the suit may still prosper because the payee did notassert a right based on the undelivered chec! but on 1uasi'delict.


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Mercantile Law

4*. West!ont an2 (for!erl Assoiated an2in= Cor-.) /s.

E%=ene On=" :.R. No. 1+&45" >an%ar +5" &55&

s a general rule, a ban! or corporation who has obtained possessionof a chec! upon an unauthori9ed or forged indorsement of the payee/s

signature and who collects the amount of the chec! from the drawee,is liable for the proceeds thereof to the payee or other owner,notwithstanding that the amount has been paid to the person fromwhom the chec! was obtained. The theory of the rule is that thepossession of the chec! on the forged or unauthori9ed indorsement iswrongful and when the money had been collected on the chec!, theproceeds are held for the rightful owners who may recover them. Thepayee ought to be allowed to recover directly from the collecting ban!,regardless of whether the chec! was delivered to the payee or not.

35. Ra!on . Il%sorio /s. 8on. Co%rt of A--eals" :.R. No.

1+*1+5" No/e!9er &3" &55&

)t is a rule that when a signature is forged or made without theauthority of the person whose signature it purports to be, the chec! iswholly inoperative and no right to retain the instrument, or to give adischarge therefor, or to enforce payment thereof against any party,can be ac1uired through or under such signature. 5owever, the ruledoes provide for an exception, namely7 6unless the party against whomit is sought to enforce such right is precluded from setting up theforgery or want of authority.6 )n the instant case, it is the exceptionthat applies as the petitioner is precluded from setting up the forgery,assuming there is forgery, due to his own negligence in entrusting tohis secretary his credit cards and chec!boo! including the vericationof his statements of account.

31. P7ili--ine National an2 /s. 00 Cr%, and Co!-an" :.R.

No. 13+&*" >%l &" &511

s between a ban! and its depositor, where the ban!/s negligence isthe proximate cause of the loss and the depositor is guilty of contributory negligence, the greater proportion of the loss shall beborne by the ban!. The ban! was negligent because it did not properlyverify the genuineness of the signatures in the applications formanager/s chec!s while the depositor was negligent because it clothedits accountant(boo!!eeper with apparent authority to transact businesswith the -an! and it did not examine its monthly statement of accountand report the discrepancy to the -an!. The court allocated thedamages between the ban! and the depositor on a H%'K% ratio.


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Mercantile Law

3&. P7ili--ine Co!!erial International an2 /s.

al!aeda":.R. No. 1'1+" Se-te!9er &1" &511

While its manager forged the signature of the authori9ed signatories of clients in the application for manager/s chec!s and forged the

signatures of the payees thereof, the drawee ban! also failed toexercise the highest degree of diligence re1uired of ban!s in the caseat bar. )t allowed its manager to encash the Manager/s chec!s thatwere plainly crossed chec!s. crossed chec! is one where two parallellines are drawn across its face or across its corner. -ased on "urisprudence, the crossing of a chec! has the following e*ects7 #a& thechec! may not be encashed but only deposited in the ban!8 #b& thechec! may be negotiated only once N to the one who has an accountwith the ban!8 and #c& the act of crossing the chec! serves as awarning to the holder that the chec! has been issued for a denitepurpose and he must in1uire if he received the chec! pursuant to thispurpose8 otherwise, he is not a holder in due course. )n other words,the crossing of a chec! is a warning that the chec! should be depositedonly in the account of the payee. When a chec! is crossed, it is theduty of the collecting ban! to ascertain that the chec! is onlydeposited to the payee/s account.

3+. To$n Sa/in= and Loan an2" In. /s. Co%rt of A--eals"

&&+ SCRA *" 1**+

When a married couple signed a promissory note in favor of a ban! toenable the sister of the husband to obtain a loan, they are consideredas accommodation parties who are liable for the payment of said loan.

3. :on,ales /s P7illi--ine Co!!erial and International

an2" :R No. 1'5&3" 0e9r%ar &+" &511

While a ma!er who signed a promissory note for the benet of his co'ma!er #who received the loan proceeds& is considered anaccommodation party, he is, nevertheless, entitled to a written noticeon the default and the outstanding obligation of the partyaccommodated. There being no such written notice, the -an! is grosslynegligent in terminating the credit line of the accommodation party forthe unpaid interest dues from the loans of the party accommodatedand in dishonoring a chec! drawn against such credit line.

3. >%anita Salas /s. 8on. Co%rt of A--eals and 0irst 0inane

? Leasin= Cor-oration" :.R. No. 343'' >an%ar &&" 1**5

holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties


22/87

Mercantile Law

among themselves, and may enforce payment of the instrument forthe full amount thereof. This being so, petitioner cannot set up againstrespondent the defense of nullity of the contract of sale between herand OM


23/87

Mercantile Law

The collecting ban! which accepted a post'dated chec! for deposit andsent it for clearing and the drawee ban! which cleared and honored thechec! are both liable to the drawer for the entire face value of thechec!.

'5. an2 of t7e P7ili--ine Islands /s. Co%rt of A--eals" +&4SCRA 41 (&555)

)n depositing the chec! in his name, the depositor did not become theout'right owner of the amount stated therein. -y depositing the chec!with the ban!, the depositor was, in a way, merely designating theban! as the collecting ban!. This is in consonance with the rule that anegotiable instrument, such as a chec!, whether a manager/s chec! orordinary chec!, is not legal tender. s such, after receiving the deposit,under its own rules, the ban! shall credit the amount to the depositor/saccount or infuse value thereon only after the drawee ban! shall have

paid the amount of the chec! or the chec! has been cleared fordeposit. The depositor/s contention that after the lapse of the B@'dayperiod the amount of a deposited chec! could be withdrawn even inthe absence of a clearance thereon, otherwise it could ta!e a long timebefore a depositor could ma!e a withdrawal is untenable.


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Mercantile Law

'&. T7e International Cor-orate an2" In. /s. Co%rt of

A--eals and P7ili--ine National an2" :.R. NO. 1&**15"

Se-te!9er " &554

lterations of the serial numbers do not constitute material alterations

on the chec!s.


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Mercantile Law

underwent a procedure in the 2%ne " &55*

The only persons entitled to claim the insurance proceeds are eitherthe insured, if still alive8 or the beneciary, if the insured is alreadydeceased, upon the maturation of the policy. The exception to this ruleis a situation where the insurance contract was intended to benetthird persons who are not parties to the same in the form of favorable

stipulations or indemnity. )n such a case, third parties may directly sueand claim from the insurer. -ecause no legal proscription exists innaming as beneciaries the children of illicit relationships by theinsured, the shares of 0va in the insurance proceeds, whether forfeitedby the court in view of the prohibition on donations under rticle $BJ of the ivil ode or by the insurers themselves for reasons based on the


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Mercantile Law

insurance contracts, must be awarded to the said illegitimate children,the designated beneciaries, to the exclusion of heirs.

''. Co%ntr an2ers Ins%rane Cor-oration /s. Antonio

La=!an" :.R. No. 14'3" >%l 1+" &511

e$el #illaorta /s. T7e Ins%rane Co!!ission" et al." :.R.

No. 131. Oto9er &'" 1*'5


27/87

Mercantile Law

The main purpose of the 3authori9ed driver4 clause is that a personother than the insured owner, who drives the car on the insured/sorder, such as his regular driver, or with his permission, such as afriend or member of the family or the employees of a car service orrepair shop must be duly licensed drivers and have no dis1ualication

to drive a motor vehicle. The mere happenstance that the employee#s&of the shop owner diverts the use of the car to his own illicit orunauthori9ed purpose in violation of the trust reposed in the shop bythe insured car owner does not mean that the 3authori9ed driver4clause has been violated such as to bar recovery, provided that suchemployee is duly 1ualied to drive under a valid driver/s license. )t isthe theft clause, not the 3authori9ed driver4 clause that applies.

*&. Perla Co!-ania De Se=%ros" In." /s. 8on. Constante A.

An7eta" Presidin= >%d=e of t7e Co%rt of 0irst Instane of

Ca!arines Norte" ran7 III" et al." :.R. No. L*4**" A%=%st '"

1*''

:rom a reading


28/87

Mercantile Law

time the insurance ta!es e*ect and at the time the loss occurs. Thebasis of such re1uirement of insurable interest in property insured isbased on sound public policy7 to prevent a person from ta!ing out aninsurance policy on property upon which he has no insurable interestand collecting the proceeds of said policy in case of loss of the

property. )n such a case, the contract of insurance is a mere wagerwhich is void under


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Mercantile Law

continues to be a party to the contract. )n this type of policy insurance,mortgagee is simply an appointee of the insurance fund, such loss'payable clause does not ma!e mortgagee a party to the contract

*'. Malaan Ins%rane Co." In." /s. P7ili--ine 0irst

Ins%rane Co." In. and Re-%ta9le 0or$arder Ser/ies" In.":.R. No. 1'+55" >%l 11" &51&

-y the express provision of acicto lose what is due it as if there had been payment of premium, fornon'payment by it was not chargeable against its fault. 5ad all the logsbeen lost during the loading operations, but after the issuance of the


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Mercantile Law

cover note, liability on the note would have already arisen even beforepayment of premium. This is how the cover note as a 6binder6 shouldlegally operate otherwise, it would serve no practical purpose in therealm of commerce, and is supported by the doctrine that where apolicy is delivered without re1uiring payment of the premium, the

presumption is that a credit was intended and policy is valid.

151. A!erian 8o!es Ass%rane /s. Antonio C7%a" :.R.

1+5&1" >%ne &'" 1***


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Mercantile Law

15+. >ose MarH%es and Ma


32/87

Mercantile Law

construed as an expression made in good faith of his belief as to thenature of his ailment and operation.

153. S%nlife Ass%rane Co!-an of Canada /s. T7e Co%rt of

A--eals" et al." :.R. No. 151+" >%ne &&" 1**

Where the insured is specically re1uired to disclose to the insurermatters relating to his health, the insuredPs failure to disclose the factthat he was hospitali9ed for two wee!s prior to ling his application forinsurance, raises grave doubts about his bona des. Materiality is to bedetermined not by the event, but solely by the probable andreasonable inuence of the facts upon the party to whomcommunication is due, in forming his estimate of the disadvantages of the proposed contract or in ma!ing his in1uiries.

15'. E!ilio Tan /s. T7e Co%rt of A--eals" :.R. No. '5*. >%ne

&*" 1*'*-y virtue of the 3incontestability clause,4 the insurer has two yearsfrom the date of issuance of the insurance contract or of its lastreinstatement within which to contest the policy, whether or not, theinsured still lives within such period. fter two years, the defenses of concealment or misrepresentation, no matter how patent or wellfounded, no longer lie. onsidering that the insured died before thetwo'year period had lapsed, >hil'm )nsurance is not, therefore, barredfrom proving that the policy is void ab initio by reason of the insured/sfraudulent concealment or misrepresentation.

15*. Manila an2ers Life Ins%rane Cor-oration /s. Cresenia

-. A9an" :.R. No. 13444" >%l &*" &51+

The 6)ncontestability lause6 under


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Mercantile Law

misrepresentation regarding the health of the insured after a year of its issuance. %d=e of ran7

III" C0I of Tarla" et al." :.R. No. L 5**3" >%ne +5" 1*'3

There is absolutely nothing in the law which mandates that the twoperiods prescribed in


34/87

Mercantile Law

11. Loadstar S7i--in= Co!-an /. Malaan Ins%rane

Co!-an" :.R. No. 1'4" No/e!9er &4" &51

2nder the ode of ommerce, if the goods are delivered but arrived atthe destination in damaged condition, the remedies to be pursued by

the consignee depend on the extent of damage on the goods. )f thee*ect of damage on the goods consisted merely of diminution in value,the carrier is bound to pay only the di*erence between its price on thatday and its depreciated value as provided under rticle BHK. Malayan,as the insurer of >%ne &51

The shipment received by the T) from the vessel of =


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Mercantile Law

two wee!s. Witnesses also testied that the shipment was left in anopen area exposed to the elements, thieves and vandals.

Trans-ortation La$s

113. Pedro De :%,!an /s. Co%rt of A--eals" :. R. No. L3'&&"

&& Dee!9er 1*''

rticle ?$BA ma!es no distinction between onewhose principal business activity is the carrying of persons or goods orboth, and one who does such carrying only as an ancillary activity #inlocal idiom as 6a sideline6&. )t also carefully avoids ma!ing anydistinction between a person or enterprise o*ering transportationservice on a regular or scheduled basis and one o*ering such serviceon an occasional, episodic or unscheduled basis. ;either does itdistinguish between a carrier o*ering its services to the 6general

public,6 i.e., the general community or population, and one who o*ersservices or solicits business only from a narrow segment of the generalpopulation.

11'. P7ili--ine A!erian :eneral Ins%rane Co!-an /s. P2s

S7i--in= Co!-an" :.R. No. 1*5+'" * A-ril &55+

Much of the distinction between a 3common or public carrier4 and a3private or special carrier4 lies in the character of the business, suchthat if the underta!ing is an isolated transaction, not a part of thebusiness or occupation, and the carrier does not hold itself out to carrythe goods for the general public or to a limited clientele, althoughinvolving the carriage of goods for a fee, the person or corporationproviding such service could very well be "ust a private carrier.

11*. S-o%ses Perena /s S-o%ses Niolas" :R No. 13*13"

A%=%st &*" &51&

>ersons engaged in the business of transporting students from theirrespective residences to their school and bac! are considered commoncarrier. Despite catering to a limited clientele, they operated as acommon carrier because they held themselves out as a readytransportation indiscriminately to the students of a particular schoolliving within or near where they operated the service and for a fee.

1&5. Uns$ort7 Trans-ort International (P7ils.) /s. Co%rt of

A--eals ":.R. No. 144&5" &4 >%l &515

freight forwarder/s liability is limited to damages arising from its ownnegligence, including negligence in choosing the carrier8 however,where the forwarder contracts to deliver goods to their destination


36/87

Mercantile Law

instead of merely arranging for their transportation, it becomes liableas a common carrier for loss or damage to goods. freight forwarderassumes the responsibility of a carrier, which actually executes thetransport, even though the forwarder does not carry the merchandiseitself.

1&1. Load!asters C%sto!s Ser/ies" In. /s. :lodel ro2era=e

Cor-oration" :R No. 13*4" >an%ar 15" &511

customs bro!er whose services were engaged for the release andwithdrawal of the cargoes from the pier and their subse1uent deliveryto the consignee/s warehouse and the owner of the delivery truc!whom the customs bro!er contracted to transport the cargoes to thewarehouse are both common carriers. The latter is considered acommon carrier in the absence of indication that it solely andexclusively rendered services to the customs bro!er. Thus, when the

truc! failed to deliver one of the cargoes, both the bro!er and owner of the truc! are liable. -eing both common carriers, they are mandatedfrom the nature of their business and for reasons of public policy, toobserve the extraordinary diligence in the vigilance over the goodstransported by them according to all the circumstances of such case. Thus, in case of loss of the goods, the common carrier is presumed tohave been at fault or to have acted negligently.

1&&. West$ind S7i--in= Cor-oration /s. UCP :eneral

Ins%rane Co." :R no. &55&&'*" No/e!9er &" &51+

The arrastre operator is li!ewise liable. The functions of an arrastreoperator involve the handling of cargo deposited on the wharf orbetween the establishment of the consignee or shipper and the ship/stac!le. -eing the custodian of the goods discharged from a vessel, anarrastre operator/s duty is to ta!e good care of the goods and to turnthem over to the party entitled to their possession. While it is true thatan arrastre operator and a carrier may not be held solidarily liable at alltimes, the facts of these cases show that apart from the stevedores of the arrastre operator being directly in charge of the physical unloadingof the cargo, its foreman pic!ed the cable sling that was used to hoist

the pac!ages for transfer to the doc!. Moreover, the fact that thepac!ages were unloaded with the same sling unharmed is telling of theinade1uate care with which the stevedore handled and discharged thecargo.

1&+. Un2no$n O$ner Of T7e #essel MF# C7ina >o /s. Asian

Ter!inals In. :.R. No. 1*441" 11 Mar7 &51


37/87

Mercantile Law

The functions of an arrastre operator involve the handling of cargodeposited on the wharf or between the establishment of the consigneeor shipper and the ship/s tac!le. -eing the custodian of the goods

discharged from a vessel, an arrastre operator/s duty is to ta!e goodcare of the goods and to turn them over to the party entitled to theirpossession. The legal relationship between an arrastre operator and aconsignee is a!in to that between a warehouseman and a depositor. sto both the nature of the functions and the place of their performance,an arrastre operator/s services are clearly not maritime in character.

)n )nsurance ompany of ;orth merica v. sian Terminals, )nc., theourt explained that the liabilities of the arrastre operator for lossesand damages are set forth in the contract for cargo handling services ithad executed with the >>. orollarily then, the rights of an arrastre

operator to be paid for damages it sustains from handling cargoes donot li!ewise spring from contracts of carriage. 5owever, in the instantpetition, the contending parties ma!e no references at all to anyprovisions in the contract for cargo handling services T) had executedwith the >>. ;otwithstanding the above, the petitioners cannot evadeliability for the damage caused to T)/s unloader in view of rticle A?$Hof the ;ew ivil ode.

1&. R Trans-ort Cor-oration /s. Pante" :R No. 14&15"

Se-te!9er 1" &55*

When a bus hit a tree and house due to the fast and rec!less driving of the bus driver resulting in in"ury to one of its passengers, the busowner is liable and such liability does not cease even upon proof thathe exercised all the diligence of a good father of family in the selectionand supervision of its employees.

1&. Asian Ter!inals" In /s. Si!on Enter-rises" In. :R No.

133114" 0e9r%ar &3" &51+

Though it is true that common carriers are presumed to have been atfault or to have acted negligently if the goods transported by them are

lost, destroyed, or deteriorated, and that the common carrier mustprove that it exercised extraordinary diligence in order to overcome thepresumption, the plainti* must still, before the burden is shifted to thedefendant, prove that the sub"ect shipment su*ered actual shortage. This can only be done if the weight of the shipment at the port of originand its subse1uent weight at the port of arrival have been proven by apreponderance of evidence, and it can be seen that the former weight


38/87

Mercantile Law

is considerably greater than the latter weight, ta!ing into considerationthe exceptions provided in rticle ?$BK of the ivil ode.

1&4. EH%ita9le Leasin= Cor-oration /s. L%ita S%o! et al."

:.R. No. 1++45" Se-te!9er &55&

)n an action based on 1uasi delict, the registered owner of a motorvehicle is solidarily liable for the in"uries and damages caused by thenegligence of the driver, in spite of the fact that the vehicle may havealready been the sub"ect of an unregistered Deed of


39/87

Mercantile Law

or preference when they as!ed that other passengers be given theupgrade. )t should not have been imposed on them over theirvehement ob"ection. -y insisting on the upgrade, athay breached itscontract of carriage with ose!aria O7oa /s. :?S Trans-ort Cor-oration"Mar7 1*"&511 as ar!ed in t7e >%l 14" &51& deision

)n a contract of carriage, it is presumed that the common carrier is atfault or is negligent when a passenger dies or is in"ured. )n fact, thereis even no need for the court to ma!e an express nding of fault ornegligence on the part of the common carrier. This statutorypresumption may only be overcome by evidence that the carrierexercised extraordinary diligence. 2nfortunately, the common carriermiserably failed to overcome this presumption as the accident whichled to the passenger/s death was due to the rec!less driving and gross

negligence of its driver.

1+1. #itor Liner" In. /s. Rosalito :a!!ad" :.R. No. 1*4+4"

No/e!9er &" &55

common carrier is bound to carry its passengers safely as far ashuman care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. )n acontract of carriage, it is presumed that the common carrier was atfault or was negligent when a passenger dies or is in"ured. 2nless thepresumption is rebutted, the court need not even ma!e an express

nding of fault or negligence on the part of the common carrier. Thisstatutory presumption may only be overcome by evidence that thecarrier exercised extraordinary diligence.

1+&. Antonia Maranan /s. Pas%al Pere," et al" :.R. No. L

&&&3&" >%ne &4" 1*43

The basis of the carrierPs liability for assaults on passengers committedby its drivers rests either on #?& the doctrine of respondeat superior or#A& the principle that it is the carrierPs implied duty to transport thepassenger safely. 2nder the rst, which is the minority view, the carrier

is liable only when the act of the employee is within the scope of hisauthority and duty. )t is not sucient that the act be within the courseof employment only. 2nder the second view, upheld by the ma"orityand also by the later cases, it is enough that the assault happenswithin the course of the employeePs duty. )t is no defense for the carrierthat the act was done in excess of authority or in disobedience of thecarrierPs orders.The carrierPs liability here is absolute in the sense that


40/87

Mercantile Law

it practically secures the passengers from assaults committed by itsown employees. s can be gleaned from rt. ?$@J, the ivil ode of the >hilippines evidently follows the rule based on the second view. tleast three very cogent reasons underlie this rule7 #?& the specialunderta!ing of the carrier re1uires that it furnish its passenger that full

measure of protection a*orded by the exercise of the high degree of care prescribed by the law, inter alia from violence and insults at thehands of strangers and other passengers, but above all, from the actsof the carrierPs own servants charged with the passengerPs safety8 #A&said liability of the carrier for the servantPs violation of duty topassengers, is the result of the former/s conding in the servantPshands the performance of his contract to safely transport thepassenger, delegating therewith the duty of protecting the passengerwith the utmost care prescribed by law8 and #B& as between the carrierand the passenger, the former must bear the ris! of wrongful acts or

negligence of the carrierPs employees against passengers, since it, andnot the passengers, has power to select and remove them.

1++. >ose Pila-il /s. 8on. Co%rt of A--eals" :.R. No. &1*" &&

Dee!9er 1*'*

tort committed by a stranger which causes in"ury to a passengerdoes not accord the latter a cause of action against the carrier. Thenegligence for which a common carrier is held responsible is thenegligent omission by the carrierPs employees to prevent the tort frombeing committed when the same could have been foreseen and

prevented by them.

1+. Al9erta @o9ido /s. Co%rt of A--eals" :.R. No. 11+55+" 13

Oto9er 1**3

fortuitous event is possessed of the following characteristics7 #a& thecause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will8 #b& it must be impossible to foresee the event whichconstitutes the caso fortuito, or if it can be foreseen, it must beimpossible to avoid8 #c& the occurrence must be such as to render it

impossible for the debtor to fulll his obligation in a normal manner8and #d& the obligor must be free from any participation in theaggravation of the in"ury resulting to the creditor. 2nder thecircumstances of this case, the explosion of the new tire may not beconsidered a fortuitous event. There are human factors involved in thesituation. The fact that the tire was new did not imply that it wasentirely free from manufacturing defects or that it was properly


41/87

Mercantile Law

mounted on the vehicle. ;either may the fact that the tire bought andused in the vehicle is of a brand name noted for 1uality, resulting inthe conclusion that it could not explode within ve days/ use.

1+. 0ort%ne E%ne 15" &55&

;egligence is conduct that creates undue ris! of harm to another. )t isthe failure to observe that degree of care, precaution and vigilancethat the circumstances "ustly demand, whereby that other personsu*ers in"ury. >etitioner/s vessel was carrying chemical cargoNal!ylben9ene and methyl methacrylate monomer. While !nowing that theirvessel was carrying dangerous inammable chemicals, its ocers andcrew failed to ta!e all the necessary precautions to prevent anaccident. >etitioner was, therefore, negligent.

1+'. Anieto Sal%do" >r. /s. 8on. Co%rt of A--eals" :.R. No.

*+4" Mar7 &+" 1**&

The oft'repeated rule regarding a carrierPs liability for delay is that inthe absence of a special contract, a carrier is not an insurer againstdelay in transportation of goods. When a common carrier underta!es toconvey goods, the law implies a contract that they shall be delivered atdestination within a reasonable time, in the absence, of any agreementas to the time of delivery. -ut where a carrier has made an express


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contract to transport and deliver property within a specied time, it isbound to fulll its contract and is liable for any delay, no matter fromwhat cause it may have arisen. This result logically follows from thewell'settled rule that where the law creates a duty or charge, and theparty is disabled from performing it without any default in himself, and

has no remedy over, then the law will excuse him, but where the partyby his own contract creates a duty or charge upon himself, he is boundto ma!e it good notwithstanding any accident or delay by inevitablenecessity because he might have provided against it by contract.Whether or not there has been such an underta!ing on the part of thecarrier to be determined from the circumstances surrounding the caseand by application of the ordinary rules for the interpretation of contracts.

1+*. #ir=ines Cal/o doin= 9%siness %nder t7e na!e and stle

Transorient Container Ter!inal Ser/ies" In. /s. U-9 :eneral

Ins%rane Co." In." :.R. No. 1'*4" 1* Mar7 &55&

The rule is that if the improper pac!ing or, in this case, the defect(s inthe container, is(are !nown to the carrier or his employees or apparentupon ordinary observation, but he nevertheless accepts the samewithout protest or exception notwithstanding such condition, he is notrelieved of liability for damage resulting therefrom. )n this case, alvoaccepted the cargo without exception despite the apparent defects insome of the container vans. 5ence, for failure of alvo to prove thatshe exercised extraordinary diligence in the carriage of goods in thiscase or that she is exempt from liability, the presumption of negligenceas provided under rt. ?$B@ holds.

15. Pro/ident Ins%rane Cor-." /s. Co%rt of A--eals" :.R. No.

11'5+5" >an%ar 1" &55

The bill of lading denes the rights and liabilities of the parties inreference to the contract of carriage.


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11. en= 8%a Pa-er Prod%ts Co." In. /s. Co%rt of A--eals"

&'4 SCRA &3" 1**'

bill of lading serves two functions7 :irst, it is a receipt for the goodsshipped.


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arei=7t!ent may be either ti!e 7arter" wherein the leasedvessel is leased to the charterer for a xed period of time, or /oa=e7arter, wherein the ship is leased for a single voyage. )n both cases,the charter'party provides for the hire of the vessel only, either for adeterminate period of time or for a single or consecutive voyage, the

ship owner to supply the ship/s store, pay for the wages of the masterof the crew, and defray the expenses for the maintenance of the ship.2nder a de!ise or 9are9oat 7arter on the other hand, thecharterer mans the vessel with his own people and becomes, in e*ect,the owner for the voyage or service stipulated, sub"ect to liability fordamages caused by negligence. )f the charter is a ontrat of arei=7t!ent, which leaves the general owner in possession of theship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to thirdpersons in respect of the ship. )t is only when the charter includes both

the vessel and its crew, as in a bareboat or demise that a commoncarrier becomes private, at least insofar as the particular voyagecovering the charter'party is concerned.

13. C7%a @e2 8on= /s. Inter!ediate A--ellate Co%rt" :.R. No.

3'11" +5 Se-te!9er 1*''

The term 6ship agent6 as used in the foregoing provision is broadenough to include the ship owner. >ursuant to said provision, therefore,both the ship owner and ship agent are civilly and directly liable for theindemnities in favor of third persons, which may arise from the conduct

of the captain in the care of goods transported, as well as for thesafety of passengers transported. 5owever, under the same rticle,this direct liability is moderated and limited by the ship agentPs or shipownerPs right of abandonment of the vessel and earned freight. Themost fundamental e*ect of abandonment is the cessation of theresponsibility of the ship agent(owner. The ship ownerPs or agentPsliability is merely co'extensive with his interest in the vessel such thata total loss thereof results in its extinction. 6;o vessel, no liability6expresses in a nutshell the limited liability rule. The total destruction of the vessel extinguishes maritime liens as there is no longer any res to

which it can attach.1'. Dela Torre /s. Co%rt of A--eals" :R No. 1455''" >%l 1+"

&511

The L)M)T0D L)-)L)TF +2L0 cannot be availed of by thecharterers(sub'charterer in order to escape from their liability. Theode of ommerce is clear on which indemnities may be conned orrestricted to the value of the vessel and these are the Q 3indemnities in


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favor of third persons which may arise from the conduct of the captainin the care of the goods which he loaded on the vessel.4 Thus, what iscontemplated is the liability to third persons who may have dealt withthe =W;0+, the C0;T or even the 5+T0+0+ in case of demiseor bareboat charter.

The harterer cannot use the said +ule because it does not completelyand absolutely step into the shoes of the shipowner or even the shipagent because there remains conicting rights between the former andthe real shipowner as derived from their charter agreement. Therefore,even if the contract is for a bareboat or demise charter wherepossession, free administration and even navigation are temporarilysurrendered to the charterer, dominion over the vessel remains withthe shipowner. 0rgo, the charterer or the sub'charterer, whose rightscannot rise above that of the former, can never set up the LimitedLiability +ule against the very owner of the vessel.

1*. National De/elo-!ent Co!-an /s. T7e Co%rt of A--eals"

:.R. No. L*4*" A%=%st 1*" 1*''

The law of the country to which the goods are to be transportedgoverns the liability of the common carrier in case of their loss,destruction or deterioration #rticle ?$@B, ivil ode&. Thus, the rulewas specically laid down that for cargoes transported from Rapan tothe >hilippines, the liability of the carrier is governed primarily by theivil ode and in all matters not regulated by said ode, the rights andobligations of common carrier shall be governed by the ode of ommerce and by special laws #rticle ?$HH, ivil ode&. 5ence, thearriage of Coods by


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11. Walle! P7ili--ines S7i--in= /s SR 0ar!s" :R No. 141'*"

>%l *" &515

2nder %l &" &51+

)n any event the carrier and the ship shall be discharged from allliability in respect of loss or damage unless suit is brought within oneyear after delivery of the goods or the date when the goods shouldhave been delivered7 >rovided, That if a notice of loss or damage,either apparent or concealed, is not given as provided for in thissection, that fact shall not a*ect or pre"udice the right of the shipper tobring suit within one year after the delivery of the goods or the datewhen the goods should have been delivered.

1+. Mits%i O.S.. Lines Ltd. /s. Co%rt of A--eals" :.R. No.

11*31" Mar7 11" 1**'

The one'year period of limitation is designed to meet the exigencies of maritime ha9ards. )n a case where the goods shipped were neither lostnor damaged in transit but were, on the contrary, delivered in port tosomeone who claimed to be entitled thereto, the situation is di*erent,and the special need for the short period of limitation in cases of lossor damage caused by maritime perils does not obtain.


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1. Ne$ World International De/elo-!ent Cor-oration /s

N@0il>a-an S7i--in= Cor-oration" :R No. 1314'" A%=%st &"

&511

;otwithstanding the fact that the case was led beyond the one'year

prescriptive period provided under the =C


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rticle ?J of the Warsaw onvention provides for liability on the part of a carrier for 3damages occasioned by delay in the transportation by airof passengers, baggage or goods.4 rticle AK excludes other remediesby further providing that 3#?& in the cases covered by articles ?I and?J, any action for damages, however founded, can only be brought

sub"ect to the conditions and limits set out in thisconvention.4 Therefore, a claim covered by the Warsaw onventioncan no longer be recovered under local law, if the statute of limitationsof two years has already lapsed. ;evertheless, the ourt notes that "urisprudence in the >hilippines and the 2nited


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issued. There is no showing that such a procedure has been initiated inthis case.

141. Renaldo M. Lo,ano /s. 8on. Elie,er R. De los Santos"

Presidin= >%d=e" RTC" r. '" An=eles Cit and Antonio Anda"

:.R. No. 1&&&1" >%ne 1*" 1**3 The plan of the parties to consolidate their respective "eepney driversPand operatorsP associations into a single common association, if not yetapproved by the


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14. En=r. Ran%lfo C. 0eliiano" in 7is a-ait as :eneral

Mana=er of t7e Lete Metro-olitan Water Distrit (LMWD)"

Talo9an Cit /s. Co!!ission on A%dit" C7air!an CELSO D.

:AN:AN" Co!!issioners Ra%l C. 0lores and E!!an%el M.

Dal!an" and Re=ional Diretor of COA Re=ion #III" :.R. No.

135&" 1 >an%ar &55

ongress can not enact a law creating a private corporation with aspecial charter. rivatecorporations may exist only under a general law. )f the corporation isprivate, it must necessarily exist under a general law.

144. Dante #. Li9an" Renaldo M. ernardo and Sal/ador M.

#iari /s. Ri7ard >. :ordon" :. R. No. 13+&" >an%ar 1'" &511

lthough the >hilippine ;ational +ed ross was created by a special

charter, it can not be considered a government'owned and controlledcorporation in the absence of the essential elements of ownership andcontrol by the government. )t does not have government assets anddoes not receive any appropriation from the >hilippine ongress. )t is anon'prot, donor'funded, voluntary organi9ation, whose mission is tobring timely, e*ective and compassionate humanitarian assistance forthe most vulnerable without consideration of nationality, race, religion,gender, social status or political aliation. This does not meanhowever that the charter of >;+ is unconstitutional. >;+ has a suigeneris status. lthough it is neither a subdivision, agency, orinstrumentality of the government, nor a government'owned or'controlled corporation or a subsidiary thereof, so much so that Cordonwas correctly allowed to hold his position as hairman thereof concurrently while he served as a ;+ is a 3private corporation4within the contemplation of the provision of the onstitution, that mustbe organi9ed under the orporation ode. The >;+ en"oys a specialstatus as an important ally and auxiliary of the government in thehumanitarian eld in accordance with its commitments underinternational law. This ourt cannot all of a sudden refuse to recogni9eits existence, especially since the issue of the constitutionality of the

>;+ harter was never raised by the parties.

143. Antonio M. Carandan= /s. 8onora9le Aniano A. Desierto"

Oe of t7e O!9%ds!an" :.R. No. 1+141" >an%ar 1&" &511

governmentQowned or controlled corporation refers to any agencyorgani9ed as a stoc! or non'stoc! corporation vested with functionsrelating to public needs whether governmental or proprietary in nature


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and owned by the government through its instrumentalities eitherwholly or where applicable as in the case of stoc! corporation to theextent of at least @?G of its capital stoc!. When a stoc!holder ceded tothe government shares representing $A.K G of the voting stoc! of thecorporation but subse1uently claried that it should be reduced to

BA.KG, the corporation shall not be considered government'owned andcontrolled until the 1uantication of shares is resolved with nality.

14'. Marissa R. Un7%an /s. Antonio >.P. Lo,ada" Anita Lo,ada

and t7e Re=ister of Deeds of Ce9% Cit" :.R. No. 13&431" A-ril

14" &55*

corporation organi9ed under the laws of the >hilippines of which atleast H%G of the capital stoc! outstanding and entitled to vote isowned and held by citi9ens of the >hilippines, is considered a >hilippine;ational. s such, the corporation may ac1uire disposable lands in the

>hilippines.

14*. Narra Ni2el Minin= ? De/elo-!ent Cor-. /. Red!ont

Consolidated Mines In." :.R. No. 1*'5" &' >an%ar &51

corporation that complies with the H%'K% :ilipino to foreign e1uityre1uirement can be considered a :ilipino corporation if there is nodoubt as to who has the 3benecial ownership4 and 3control4 of thecorporation. )n this case, a further investigation as to the nationality of the personalities with the benecial ownership and control of thecorporate shareholders in both the investing and investee corporations

is necessary. 3Doubt4 refers to various indicia that the 3benecialownership4 and 3control4 of the corporation do not in fact reside in:ilipino shareholders but in foreign sta!eholders. 0ven if at rst glancethe petitioners comply with the H%'K% :ilipino to foreign e1uity ratio,doubt exists in the present case that gives rise to a reasonablesuspicion that the :ilipino shareholders do not actually have there1uisite number of control and benecial ownership in petitioners;arra, Tesoro, and Mcrthur. 5ence, the ourt is correct in using theCrandfather +ule in determining the nationality of the petitioners.

135. Rolando DS. Torres /. R%ral an2 of San >%an" In. et al."

:.R. No. 1'&5" Mar7 1+" &51+

corporation has its own legal personality separate and distinct fromthose of its stoc!holders, directors or ocers. 5ence, absent anyevidence that they have exceeded their authority, corporate ocersare not personally liable for their ocial acts. orporate directors and


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ocers may be held solidarily liable with the corporation for thetermination of employment only if done with malice or in bad faith.

131. Mer #da. de Ro


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B. The aforesaid control and breach of duty must have proximatelycaused the in"ury or un"ust loss complained of.

The rst prong is the 6instrumentality6 or 6control6 test. This testre1uires that the subsidiary be completely under the control anddomination of the parent. )t in1uires whether a subsidiary corporationis so organi9ed and controlled and its a*airs are so conducted as toma!e it a mere instrumentality or agent of the parent corporation suchthat its separate existence as a distinct corporate entity will beignored. )n addition, the control must be shown to have been exercisedat the time the acts complained of too! place.

The second prong is the 6fraud6 test. This test re1uires that the parentcorporation/s conduct in using the subsidiary corporation be un"ust,fraudulent or wrongful. )t examines the relationship of the plainti* tothe corporation. )t recogni9es that piercing is appropriate only if theparent corporation uses the subsidiary in a way that harms the plainti* creditor. s such, it re1uires a showing of 6an element of in"ustice orfundamental unfairness.6

The third prong is the 6harm6 test. This test re1uires the plainti* toshow that the defendant/s control, exerted in a fraudulent, illegal orotherwise unfair manner toward it, caused the harm su*ered. causalconnection between the fraudulent conduct committed through theinstrumentality of the subsidiary and the in"ury su*ered or the damageincurred by the plainti* should be established. The plainti* must provethat, unless the corporate veil is pierced, it will have been treatedun"ustly by the defendant/s exercise of control and improper use of thecorporate form and, thereby, su*er damages.

13+. :re=orio Sin=ian" >r. /s. t7e 8onora9le Sandi=an9aan

and t7e Presidential Co!!ission on :ood :o/ern!ent" :.R.Nos. 14533*" Dee!9er 14" &55

The powers to increase capitali9ation and to o*er or give collateral tosecure indebtedness are lodged with the corporation/s board of directors. 5owever, this does not mean that the ocers of thecorporation other than the board of directors cannot be made


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criminally liable for their criminal acts if it can be proven that theyparticipated therein.

13. 0ili-inas roadastin= Net$or2" In. /s. A:O Medial And

Ed%ational Centeriol C7ristian Colle=e of Mediine" (AMEC

CCM) and An=elita 0. A=o" :.R. No. 11**" >an%ar 13" &55 "uridical person is generally not entitled to moral damages because,unli!e a natural person, it cannot experience physical su*ering or suchsentiments as wounded feelings, serious anxiety, mental anguish ormoral shoc!. ;evertheless, M0/s claim for moral damages fallsunder item $ of rticle AA?J of the ivil ode which expresslyauthori9es the recovery of moral damages in cases of libel, slander orany other form of defamation. rticle AA?J#$& does not 1ualify whetherthe plainti* is a natural or "uridical person. Therefore, a "uridical personsuch as a corporation can validly complain for libel or any other form of

defamation and claim for moral damages.

13. Manila Eletri Co!-an /s. T.E.A.M. Eletronis

Cor-oration" Te7nolo= Eletronis Asse!9l and

Mana=e!ent Pai6 Cor-oration and Ultra Eletronis

Instr%!ents" In." :.R. No. 1+13&+" Dee!9er 1+" &553

s a rule, a corporation is not entitled to moral damages because, notbeing a natural person, it cannot experience physical su*ering orsentiments li!e wounded feelings, serious anxiety, mental anguish and

moral shoc!. The only exception to this rule is when the corporationhas a reputation that is debased, resulting in its humiliation in thebusiness realm. -ut in such a case, it is essential to prove theexistence of the factual basis of the damage and its causal relation topetitionerPs acts. Thus, where the records are bereft of evidence thatthe name or reputation of the corporation has been debased as a resultof Meralco/s act #which in this case is the disconnection without writtennotice of the disconnection of the electricity supply to the building of the corporation due to alleged meter tampering&, the corporation is notentitled to moral damages.

134. %2an International Cor-oration /s. 8on. >%d=e A!or

Rees" :.R. No. 1'&3&*" &* Se-te!9er &515

The court must rst ac1uire "urisdiction over the corporation orcorporations involved before its or their separate personalities aredisregarded8 and the doctrine of piercing the veil of corporate entitycan only be raised during a full'blown trial over a cause of action duly


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commenced involving parties duly brought under the authority of thecourt by way of service of summons or what passes as such service.

133. :old Line To%rs /s. 8eirs of Maria Cone-ion Lasa" :R

No. 1*15'" 1' >%ne &51&

5owever, in another case involving an action for breach of contract of carriage resulting to the death of one of the passengers , resident and controlling shareholder and it is generally!nown in the place where they do business that both transportationcompanies are one, the third party claim led by the other corporationwas set aside and the levy on its property held valid even though the

latter was not made a party to the case . The "udgment may beenforced against the other corporation to prevent multiplicity of suitsand save the parties unnecessary expenses and delay.

13'. Prine Trans-ort" In. /s. :aria" :R No. 143&*1" >an%ar

1&" &511

The doctrine of piercing the veil of corporate ction is applicable notonly to corporations but also to a single proprietorship as when thecorporation transferred its employees to the company owned by thecontrolling stoc!holder of the corporation and yet despite the transfer,the employees/ daily time records, reports, daily income remittancesand schedule of wor! were all made, performed, led and !ept in thecorporation. The corporation is clearly hiding behind the supposedseparate and distinct personality of the company. s such, thecorporation and the company should be solidarily liable for the claimsof the illegally dismissed employees.

13*. Pai6 Re7o%se Cor-oration /s. Co%rt of A--eals" :R. No.

1**4'3" Mar7 &" &51

Where the court rendered "udgment against a stoc! bro!erage rmdirecting the latter to return shares of stoc! which it sold withoutauthority, but the writ of execution was returned unsatised, an aliaswrit of execution could not be enforced against its parent companybecause the court has not ac1uired "urisdiction over the latter andwhile the parent company owns and controls the bro!erage rm, thereis no showing that the control was used to violate the rights of theplainti*.


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ction that two corporations are distinct entities and treat them asidentical or one and the same. While the conditions for the disregard of the "uridical entity may vary, the following are some probative factorsof identity that will "ustify the application of the doctrine of piercing thecorporate veil, as laid down in Concept Builders !nc.v "#$C7 #?& resident of a non'existent principal entered into a contractand failed to pay its obligation, he shall be the one liable to theaggrieved party. person acting as a representative of a non'existentprincipal is the real party to the contract sued upon, being the one who

reaped the benets resulting from it.

1'. Sa!a7an= O-to!etrists saPili-inas" Iloos S%r A9ra

C7a-ter" et al. /s. Ae9edo International Cor-oration and t7e

8on. Co%rt of A--eals" :.R. No. 1135*3" &1 Mar7 1**3

corporation created and organi9ed for the purpose of conducting thebusiness of selling optical lenses or eyeglasses is not engaged in thepractice of optometry because the determination of the proper lensesto sell to private respondentPs clients entails the employment of optometrists who have been precisely trained for that purpose. >rivate

respondentPs business, rather, is the buying and importing of eyeglasses and lenses and other similar or allied instruments fromsuppliers thereof and selling the same to consumers.

1'4. P.C. >a/ier ? Sons" In." et al. /s.Pai Sa/in=s ? Mort=a=e

an2" In." et al." :.R. No. 1&*&" >%ne &*" &55

change in the corporate name does not ma!e a new corporation,whether e*ected by a special act or under a general law. )t has noe*ect on the identity of the corporation, or on its property, rights, orliabilities because the corporation upon such change in its name, is in

no sense a new corporation, nor the successor of the originalcorporation.

1'3. %elli= 0rei=7t and Car=o Sste!s/s. National La9or

Relations Co!!ission" et al." :.R. No. 13*55" >%l &&" &51+

The mere change in the corporate name is not considered under thelaw as the creation of a new corporation8 hence, the renamed


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corporation remains liable for the illegal dismissal of its employeeseparated under that guise. Oerily, the amendments of the articles of incorporation of Ueta to change the corporate name to Uuellig :reightand argo r. /s. Se%rities and E


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0very corporation has the inherent power to adopt by'laws Pfor itsinternal government, and to regulate the conduct and prescribe therights and duties of its members towards itself and among themselvesin reference to the management of its a*airs. 2nder


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When an amendment to a provision in the mended -y'Laws re1uiringthe unanimous vote of the directors present at a special or regularmeeting was not printed on the application form for proprietorymembership, and what was printed thereon was the original provisionwhich was silent on the re1uired number of votes needed for admission

of an applicant as a proprietary member, the -oard of Directorscommitted fraud and evident ba

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