Final Collated Commercial Law Digests

BETTY L. CAMPOS
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
PHILIPPINE DEPOSIT INSURANCE CORPORATION VS. CITIBANK, N.A. AND BANK OF AMERICA
G.R. NO. 170290 (APRIL 11, 2012)
FACTS
PDIC conducted an examination of the books of account of Citibank and discovered that
Citibank, in the course of its banking business, received from its head office and other foreign branches
a total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates. These funds, which were lodged in the books of
Citibank under the account "Their Account-Head Office/Branches-Foreign Currency," were not reported
to PDIC as deposit liabilities that were subject to assessment for insurance. In a letter, PDIC assessed
Citibank for deficiency in the sum of P1,595,081.96. Citibank filed a petition for declaratory relief on the
ground that the money placements they received from their head office and other foreign branches
were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No.
3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by PDIC were
improper and erroneous. The trial court ruled in favor of Citibank ruling that the subject money
placements were not deposits and did not give rise to insurable deposit liabilities, and that the
deficiency assessments issued by PDIC were improper and erroneous. Therefore, Citibank and BA
were not liable to pay the same. The RTC reasoned out that the money placements subject of the
petitions were not assessable for insurance purposes under the PDIC Charter because said
placements were deposits made outside of the Philippines and, under Section 3.05(b) of the PDIC
Rules and Regulations, such deposits are excluded from the computation of deposit liabilities. Section
3(f) of the PDIC Charter likewise excludes from the definition of the term "deposit" any obligation of a
bank payable at the office of the bank located outside the Philippines. On appeal to CA, it affirmed the
ruling of the trial court.
ISSUE
Whether or not the funds placed in the Philippine branch by the head office and foreign
branches of Citibank are insurable deposits under the PDIC Charter and, as such, are subject to
assessment for insurance premium.
HELD
The Court is of the opinion that the key to the resolution of this controversy is the relationship of
the Philippine branches of Citibank and BA to their respective head offices and their other foreign
branches. The Court begins by examining the manner by which a foreign corporation can establish its
presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation,
in which case such subsidiary would have its own separate and independent legal personality to
conduct business in the country. In the alternative, it may create a branch in the Philippines, which
would not be a legally independent unit, and simply obtain a license to do business in the Philippines. In
the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic
corporation to represent its business interests in the Philippines. Their Philippine branches are, as the
name implies, merely branches, without a separate legal personality from their parent company,
Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in their
respective branches in the Philippines should not be treated as deposits made by third parties subject
to deposit insurance under the PDIC Charter. It is clear that the head office of a bank and its branches
are considered as one under the eyes of the law. While branches are treated as separate business
units for commercial and financial reporting purposes, in the end, the head office remains responsible
and answerable for the liabilities of its branches which are under its supervision and control. As such, it
is unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money placements
made by their home office and other branches. Deposit insurance is superfluous and entirely
unnecessary when, as in this case, the institution holding the funds and the one which made the
placements are one and the same legal entity.

TRYLL G. CHIU
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
STEELCASE, INC. VS. DESIGN INTERNATIONAL SELECTIONS, INC.
G.R. NO. 171995, (APRIL 18, 2012)
FACTS:
Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing under the laws of the
United States of America, and engaged in the manufacture of office furniture with dealers
worldwide. Respondent Design International Selections, Inc. (DISI) is a corporation existing under
Philippine Laws and engaged in the furniture business. Steelcase and DISI orally entered into a
dealership agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and
service its products to end-user customers within the Philippines. The business was terminated after
the agreement was breached with neither party admitting any fault. Steelcase filed a complaint for a
sum of money against DISI alleging that DISI had an unpaid account. DISI on the other hand, alleged
that the complaint failed to state a cause of action and capacity to sue in the Philippines that it was
doing business in the Philippines without the required license to do so.
Since Steelcase did not have the license to do business in the country, it was barred from
seeking redress from our courts until it obtained the requisite license to do so. Its determination was
further bolstered by the appointment by Steelcase of a representative in the Philippines. Despite a
showing that DISI transacted with the local customers in its own name and for its own account, it was of
the opinion that any doubt in the factual environment should be resolved in favour of a pronouncement
that a foreign corporation was doing business in the Philippines, considering the twelve-year period that
DISI had been distributing Steelcase products in the Philippines.
Aggrieved, Steelcase elevated the case to the CA by way of appeal, the CA rendered its
Decision affirming the RTC orders, ruling that Steelcase was a foreign corporation doing or transacting
business in the Philippines without a license. Thus, the CA ruled that Steelcase was barred from
access to our courts for being a foreign corporation doing business here without the requisite license to
do so.
ISSUES:
(1) Whether or not Steelcase is doing business in the Philippines without a license; and
(2) Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.
HELD:
(1) Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines.
Steelcase was not doing business in the Philippines when it entered into a dealership
agreement with DISI where the latter, acting as the former’s appointed local distributor, transacted
business in its own name and for its own account. DISI, as a non-exclusive dealer in the Philippines,
had the right to market, sell, distribute and service Steelcase products in its own name and for its own
account. Hence, DISI was an independent distributor of Steelcase products, and not a mere agent or
conduit of Steelcase.
The rule that an unlicensed foreign corporations doing business in the Philippine do not have
the capacity to sue before the local courts is well-established. The phrase “doing business” is clearly
defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991). The appointment of a
distributor in the Philippines is not sufficient to constitute “doing business” unless it is under the full
control of the foreign corporation. On the other hand, if the distributor is an independent entity which
buys and distributes products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines. It should be kept in
mind that the determination of whether a foreign corporation is doing business in the Philippines must
be judged in light of the attendant circumstances.
It has been sufficiently demonstrated that DISI was an independent contractor which sold
Steelcase products in its own name and for its own account. As a result, Steelcase cannot be

considered to be doing business in the Philippines by its act of appointing a distributor as it falls under
one of the exceptions under R.A. No. 7042.
(2) DISI is estopped from challenging Steelcase’s legal capacity to sue.
If indeed Steelcase had been doing business in the Philippines without a license, DISI would
nonetheless be estopped from challenging the former’s legal capacity to sue. By acknowledging the
corporate entity of Steelcase and entering into a dealership agreement with it and even benefiting from
it, DISI is estopped from questioning Steelcase’s existence and capacity to sue.
This Court has time and again upheld the principle that a foreign corporation doing business in
the Philippines without a license may still sue before the Philippine courts a Filipino or a Philippine
entity that had derived some benefit from their contractual arrangement because the latter is
considered to be estopped from challenging the personality of a corporation after it had acknowledged
the said corporation by entering into a contract with it. This court had the occasion to draw attention to
the common ploy of invoking the incapacity to sue of an unlicensed foreign corporation utilized by
defaulting domestic companies which seek to avoid the suit by the former. The Court cannot allow this
to continue by always ruling in favour of local companies, despite the injustice to the overseas
corporation which is left with no available remedy.
While it is essential to uphold the sound public policy behind the rule that denies unlicensed
foreign corporations doing business in the Philippines access to our courts, it must never be used to
frustrate the ends of justice by becoming an all-encompassing shield to protect unscrupulous domestic
enterprises from foreign entities seeking redress in our country. To do otherwise could seriously
jeopardize the desirability of the Philippines as an investment site and would possibly have the
deleterious effect of hindering trade between Philippine companies and international corporations.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
LISAM ENTERPRISES INC. VS. BANCO DEORO UNIBANK, INC.
G.R. NO. 143264
FACTS
Lisam Enterprises, Inc. (LEI) purchased a parcel of residential land with improvements situated
at Legaspi City. Lilian Soriano and the late Leandro Soriano Jr. (“Spouses Soriano”), for their own use
and benefit, obtained a loan from PCIB (now known as Banco de Oro Unibank, Inc.) in the total amount
of P20 Million. That as security for the payment of the said credit accommodation, the Spouses
Soriano, as president and treasurer of LEI, with the use of a falsified board resolution, executed a real
estate mortgage over the said property of LEI in favor of PCIB. PCIB failed to investigate and to delve
into the propriety of the issuance of or due execution of subject board resolution. The height of its
negligence was displayed when it disregarded or failed to notice that the questioned board resolution
was notarized only after the lapse of more than four (4) months from its purported date of issue.
LEI later learned that PCIB issued a notice of Auction/Foreclosure Sale of the property subject
of the mortgage in question. LEI filed a Complaint against PCIB for Annulment of Mortgage with Prayer
for Temporary Restraining Order & Preliminary Injunction with Damages with the RTC of Legaspi City.
RTC issued a Resolution dismissing LEI’s Complaint. LEI then filed a Motion for Reconsideration of
said Resolution. While awaiting resolution of the motion for reconsideration LEI also filed a Motion to
Admit Amended Complaint, adding the statement: “that plaintiff Lolita A. Soriano likewise made
demands upon the Board of Directors of LEI to make legal steps to protect the interest of the
corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was ever
taken by the Board, hence, this action for the benefit and in behalf of the corporation.” The trial court
issued the questioned Order denying both the Motion for Reconsideration and the Motion to Admit
Amended Complaint.Hence this petition.
ISSUE
Does the amended complaint now sufficiently state a cause of action?
HELD
The Court held in the affirmative, It also enumerated the requisites for filing a derivative suit, as
follows: a) the party bringing the suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material; b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has
failed or refused to heed his plea; and c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit. A reading of the amended complaint will reveal that all the foregoing
requisites had been alleged therein. Hence, the amended complaint remedied the defect in the original
complaint and now sufficiently states a cause of action. Respondent PCIB should not complain that
admitting the amended complaint after they pointed out a defect in the original complaint would be
unfair to them. They should have been well aware that due to the changes made by the 1997 Rules of
Civil Procedure, amendments may now substantially alter the cause of action or defense. It should not
have been a surprise to them that petitioners would redress the defect in the original complaint by
substantially amending the same, which course of action is now allowed under the new rules.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
DANTE LIBAN v. RICHARD GORDON
639 SCRA 709 (2011)
FACTS
Respondent Richard J. Gordon filed a Motion for Clarification and/or Reconsideration of the
Decision promulgated by the Court on July 15, 2009, the Motion for Partial Reconsideration filed by
movant-intervenor Philippine National Red Cross (PNRC) and the latter’s Manifestation and Motion to
Admit Position Paper. The case brought about by petitioners was regarding the forfeiture of Gordon’s
seat in the Senate when he accepted the chairmanship of the PNRC Board of Governors for purposes
of the prohibition in Section 13, Article VI of the 1987 Constitution.
ISSUE
Whether or not the office of the PNRC Chairman is a government office.
HELD
The office of the PNRC Chairman is not a government office. National Societies such as the
PNRC act as auxiliaries to the public authorities of their own countries in the humanitarian field and
provide a range of services including disaster relief and special programs. National societies are
therefore organizations that are directly regulated by international humanitarian law, in contrast to other
ordinary private entities, including NGOs. The auxiliary status of Red Cross Society means that it is one
and at the same time a private institution and a public service organization because the very nature of
its work implies cooperation with the authorities, a link with the State.
The structure of PNRC is sui generis, being neither strictly private nor public in nature. The court
declares that the office of the Chairman of the PNRC is not a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of
the 1987 Constitution.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
HARPOON MARINE SERVICES, INC. V. FRANCISCO
644 SCRA 394 (2011)
FACTS
FERNAN H. Francisco was hired as Yard Supervisor by Harpoon, a company engaged in shipbuilding and ship-repair. He was later dismissed by the company through its president Jose Lido T.
Rosit on the ground that the company could no longer afford his salary. Franciso claimed for his
separation pay and accrued commissions but the company refused to grant the commissions. This
prompted Francisco to file a case for illegal dismissal against the company and its president Jose Rosit.
Rosit moved to dismiss the case against him alleging that he could not be held solidarily liable with
Harpoon for lack of substantial evidence of bad faith and malice on his part in terminating Francisco.
ISSUE
Whether or not Rosit could be held solidarily liable with Harpoon.
HELD
Rosit could not be held solidarily liable with Harpoon for lack of substantial evidence of bad faith
and malice on his part in terminating respondent. The rule is that obligations incurred by corporate
officers, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation
they represent.” As such, they should not be generally held jointly and solidarily liable with the
corporation. The Court, however, cited circumstances when solidary liabilities may be imposed, as
exceptions:
1. When directors and trustees or, in appropriate cases, the officers of a corporation –
(a) vote for or assent to [patently] unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons.
2. When the director or officer has consented to the issuance of watered stock or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto.
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation.
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
The general rule is based upon the theory that a corporation has a legal personality separate
and distinct from the persons comprising it. To warrant the piercing of the veil of corporate fiction, the
officer’s bad faith or wrongdoing “must be established clearly and convincingly” as “bad faith is never
presumed.”
In the case at bar, the records are bereft of any other satisfactory evidence that Rosit acted in
bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as
company president. Indeed, Rosit informed respondent that the company wishes to terminate his
services since it could no longer afford his salary. Besides, good faith is still presumed. In addition,
liability only attaches if the officer has assented to patently unlawful acts of the corporation.

EMILDAN M. GASTARDO
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORP. VS LIM
650 SCRA 461 (2011)
FACTS
Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing.
Reeling from severe liquidity problems beginning in 1980, RUBY filed on December 13, 1983 a petition
for suspension of payments with the SEC which was granted.
On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM)
for RUBY, composed of representatives from Ruby’s creditors. One of the many task of MANCOM is
study, review and evaluate the proposed rehabilitation plan for RUBY.
Subsequently, two (2) rehabilitation plans were submitted to the SEC the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by Yu Kim Giang, and the Alternative Plan of the
minority stockholders represented by Miguel Lim (Lim). But the implementation of both majority plans
has been enjoined by the SEC and CA. Later, the SC issued a final injunction on the implementation.
Sept 18, 1991: Notwithstanding the injunction order, SEC issued an Order approving the
Revised BENHAR/RUBY Plan and creating a new management committee to oversee its
implementation. It also dissolves the MANCOM.
The Revised BENHAR/RUBY Plan had proposed the calling for subscription of unissued shares
through a Board Resolution from the P11.814 million of theP23.7 million ACS “in order to allow the long
overdue program of the REHAB Program.”
Oct 2, 1991: To implement the Revised plan, RUBY’s board of directors held a special meeting
and took up the capital infusion of P11.814 Million representing the unissued and unsubscribed portion
of the present ACS of P23.7 Million.
ISSUE
Whether or not the additional capital infusion is valid?
HELD
The court ruled in the negative. The issuance of additional shares was done in breach of trust
by the controlling stockholders. Here, the majority sought to impose their will and, through fraudulent
means, attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby itself, as well as the
minority stockholders and the unsecured creditors.
A stock corporation is expressly granted the power to issue or sell stocks. The power to issue
shares of stock in a corporation is lodged in the board of directors and no stockholders’ meeting is
required to consider it because additional issuances of shares of stock do not need approval of the
stockholders. What is only required is the board resolution approving the additional issuance of shares.
The corporation shall also file the necessary application with the SEC to exempt these from the
registration requirements under the Revised Securities Act (now the Securities Regulation Code).
But CA found, which the Court affirmed, that: the foregoing payment schedules as embodied in the said
Revised plan which gives Benhar undue advantage over the other creditors goes against the very
essence of rehabilitation, which requires that no creditor should be preferred over the other. One of the
salient features of the Revised Benhar/Ruby Plan is to Call on unissued shares forP11.814 M and if
minority will take up their pre-emptive rights and dilute minority shareholdings.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
BOY SCOUTS OF THE PHILIPPINES VS. COMMISSION ON AUDIT,
GR. NO. 177131, June 07, 2011.
FACTS:
COA issued Resolution No. 99-011 on August 19, 1999 which mandates the conduct of an
annual financial audit of the Boy Scout of the Philippines in accordance with generally accepted
auditing standards, considering that BSP is a government owned and controlled corporation pursuant to
Commonwealth Act No. 111 as amended by PD 460 and R.A. 7278 vis-à-vis the pronouncement of the
high court in the case of BSP vs. NLRC (GR No. 80767, April 22, 1991) that BSP, as constituted under
its charter, is a “government-controlled corporation within the meaning of Article IX(B)(2)(1) of the
Constitution”; and that “the BSP is appropriately regarded as a government instrumentality under the
1987 Administrative Code.
BSP for its part argued that it is not subject to the jurisdiction of COA on grounds that RA 7278
(BSP Charter as amended) has virtually eliminated the “substantial government participation” in the
BSP National Executive Body which was the basis of the Supreme Court’s ruling in the case of BSP vs,
NLRC. Also BSP is not an entity administering special funds. It is not even included in the DECS
National Budget, as such it is not an “agency” of the Government. The 1987 Administrative Code,
merely referred the BSP as an “attached agency” of the DECS as distinguished from an actual line
agency of departments that are included in the National Budget. The BSP believes that an “attached
agency” is different from an “agency.” Agency, as defined in Section 2(4) of the Administrative Code, is
defined as any of the various units of the Government including a department, bureau, office,
instrumentality, government-owned or controlled corporation or local government or distinct unit therein.
ISSUE:
The sole issue to be resolved in this case is whether the BSP falls under the COA’s audit
jurisdiction.
RULING:
BSP is a public corporation and its funds are subject to the COA’s audit jurisdiction.
Even though the amended BSP charter did away with most of the governmental presence in the BSP
Board, this was done to more strongly promote the BSP’s objectives, which were not supported under
Presidential Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with the public
purpose of the promotion of the well-being of the youth, the future leaders of the country. The
amendments were not done with the view of changing the character of the BSP into a privatized
corporation. The BSP remains an agency attached to a department of the government, the DECS, and
it was not at all stripped of its public character. BSP meets the minimum statutory requirement of an
attached government agency as the DECS Secretary sits at the BSP Board ex officio, thus facilitating
the policy and program coordination between the BSP and the DECS.

RUBY LAID
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
HACIENDA LUISITA INC. (HLI) V. PRESIDENTIAL AGRARIAN REFORM COUNCIL (PARC), ET AL.,
G.R. NO. 171101, NOVEMBER 22, 2011
FACTS
On July 5, 2011, the Supreme Court en banc voted unanimously (11-0) to DISMISS/DENY the
petition filed by HLI and AFFIRM with MODIFICATIONS the resolutions of the PARC revoking HLI’s
Stock Distribution Plan (SDP) and placing the subject lands in Hacienda Luisita under compulsory
coverage of the Comprehensive Agrarian Reform Program (CARP) of the government.
The Court however did not order outright land distribution. Voting 6-5, the Court noted that there
are operative facts that occurred in the interim and which the Court cannot validly ignore. Thus, the
Court declared that the revocation of the SDP must, by application of the operative fact principle, give
way to the right of the original 6,296 qualified farmworkers-beneficiaries (FWBs) to choose whether
they want to remain as HLI stockholders or [choose actual land distribution]. It thus ordered the
Department of Agrarian Reform (DAR) to “immediately schedule meetings with the said 6,296 FWBs
and explain to them the effects, consequences and legal or practical implications of their choice, after
which the FWBs will be asked to manifest, in secret voting, their choices in the ballot, signing their
signatures or placing their thumbmarks, as the case may be, over their printed names.”
The parties thereafter filed their respective motions for reconsideration of the Court decision.
ISSUES
(1) Is the operative fact doctrine available in this case?
(2) Is Sec. 31 of RA 6657 unconstitutional?
(3) Can’t the Court order that DAR’s compulsory acquisition of Hacienda Lusita cover the
full 6,443 hectares allegedly covered by RA 6657 and previously held by Tarlac Development
Corporation (Tadeco), and not just the 4,915.75 hectares covered by HLI’s SDP?
(4) Is the date of the “taking” (for purposes of determining the just compensation payable to
HLI) November 21, 1989, when PARC approved HLI’s SDP?
(5) Has the 10-year period prohibition on the transfer of awarded lands under RA 6657 lapsed
on May 10, 1999 (since Hacienda Luisita were placed under CARP coverage through the SDOA
scheme on May 11, 1989), and thus the qualified FWBs should now be allowed to sell their land
interests in Hacienda Luisita to third parties, whether they have fully paid for the lands or not?
(6) THE CRUCIAL ISSUE: Should the ruling in the July 5, 2011 Decision that the qualified
FWBs be given an option to remain as stockholders of HLI be reconsidered?
THE RULING
[The Court PARTIALLY GRANTED the motions for reconsideration of respondents PARC, et
al. with respect to the option granted to the original farmworkers-beneficiaries (FWBs) of Hacienda
Luisita to remain with petitioner HLI, which option the Court thereby RECALLED and SET ASIDE.
It reconsidered its earlier decision that the qualified FWBs should be given an option to remain as
stockholders of HLI, and UNANIMOUSLY directed immediate land distribution to the qualified FWBs.]
1.

YES, the operative fact doctrine is applicable in this case.

[The Court maintained its stance that the operative fact doctrine is applicable in this case since,
contrary to the suggestion of the minority, the doctrine is not limited only to invalid or unconstitutional
laws but also applies to decisions made by the President or the administrative agencies that have the
force and effect of laws. Prior to the nullification or recall of said decisions, they may have produced
acts and consequences that must be respected. It is on this score that the operative fact doctrine
should be applied to acts and consequences that resulted from the implementation of the PARC
Resolution approving the SDP of HLI. The majority stressed that the application of the operative fact
doctrine by the Court in its July 5, 2011 decision was in fact favorable to the FWBs because not only
were they allowed to retain the benefits and homelots they received under the stock distribution
scheme, they were also given the option to choose for themselves whether they want to remain as
stockholders of HLI or not.]
2.

NO, Sec. 31 of RA 6657 NOT unconstitutional.

[The Court maintained that the Court is NOT compelled to rule on the constitutionality of Sec. 31
of RA 6657, reiterating that it was not raised at the earliest opportunity and that the resolution thereof
is not the lis mota of the case. Moreover, the issue has been rendered moot and academic since SDO
is no longer one of the modes of acquisition under RA 9700. The majority clarified that in its July 5,
2011 decision, it made no ruling in favor of the constitutionality of Sec. 31 of RA 6657, but found
nonetheless that there was no apparent grave violation of the Constitution that may justify the
resolution of the issue of constitutionality.]
3. NO, the Court CANNOT order that DAR’s compulsory acquisition of Hacienda Lusita cover
the full 6,443 hectares and not just the 4,915.75 hectares covered by HLI’s SDP.
[Since what is put in issue before the Court is the propriety of the revocation of the SDP, which
only involves 4,915.75 has. of agricultural land and not 6,443 has., then the Court is constrained to rule
only as regards the 4,915.75 has. of agricultural land.Nonetheless, this should not prevent the DAR,
under its mandate under the agrarian reform law, from subsequently subjecting to agrarian reform other
agricultural lands originally held by Tadeco that were allegedly not transferred to HLI but were
supposedly covered by RA 6657.
However since the area to be awarded to each FWB in the July 5, 2011 Decision appears too
restrictive – considering that there are roads, irrigation canals, and other portions of the land that are
considered commonly-owned by farmworkers, and these may necessarily result in the decrease of the
area size that may be awarded per FWB – the Court reconsiders its Decision and resolves to give the
DAR leeway in adjusting the area that may be awarded per FWB in case the number of actual qualified
FWBs decreases. In order to ensure the proper distribution of the agricultural lands of Hacienda Luisita
per qualified FWB, and considering that matters involving strictly the administrative implementation and
enforcement of agrarian reform laws are within the jurisdiction of the DAR, it is the latter which shall
determine the area with which each qualified FWB will be awarded.
On the other hand, the majority likewise reiterated its holding that the 500-hectare portion of
Hacienda Luisita that have been validly converted to industrial use and have been acquired by
intervenors Rizal Commercial Banking Corporation (RCBC) and Luisita Industrial Park Corporation
(LIPCO), as well as the separate 80.51-hectare SCTEX lot acquired by the government, should be
excluded from the coverage of the assailed PARC resolution. The Court however ordered that the
unused balance of the proceeds of the sale of the 500-hectare converted land and of the 80.51-hectare
land used for the SCTEX be distributed to the FWBs.]
4.

YES, the date of “taking” is November 21, 1989, when PARC approved HLI’s SDP.

[For the purpose of determining just compensation, the date of “taking” is November 21, 1989
(the date when PARC approved HLI’s SDP) since this is the time that the FWBs were considered to
own and possess the agricultural lands in Hacienda Luisita. To be precise, these lands became subject
of the agrarian reform coverage through the stock distribution scheme only upon the approval of the
SDP, that is, on November 21, 1989. Such approval is akin to a notice of coverage ordinarily issued
under compulsory acquisition. On the contention of the minority (Justice Sereno) that the date of the
notice of coverage [after PARC’s revocation of the SDP], that is, January 2, 2006, is determinative of
the just compensation that HLI is entitled to receive, the Court majority noted that none of the cases
cited to justify this position involved the stock distribution scheme. Thus, said cases do not squarely
apply to the instant case. The foregoing notwithstanding, it bears stressing that the DAR's land
valuation is only preliminary and is not, by any means, final and conclusive upon the landowner. The
landowner can file an original action with the RTC acting as a special agrarian court to determine just
compensation. The court has the right to review with finality the determination in the exercise of what is
admittedly a judicial function.]
5. NO, the 10-year period prohibition on the transfer of awarded lands under RA 6657 has
NOT lapsed on May 10, 1999; thus, the qualified FWBs should NOT yet be allowed to sell their land
interests in Hacienda Luisita to third parties.
[Under RA 6657 and DAO 1, the awarded lands may only be transferred or conveyed after 10
years from the issuance and registration of the emancipation patent (EP) or certificate of land
ownership award (CLOA). Considering that the EPs or CLOAs have not yet been issued to the qualified
FWBs in the instant case, the 10-year prohibitive period has not even started. Significantly, the
reckoning point is the issuance of the EP or CLOA, and not the placing of the agricultural lands under
CARP coverage. Moreover, should the FWBs be immediately allowed the option to sell or convey their
interest in the subject lands, then all efforts at agrarian reform would be rendered nugatory, since, at
the end of the day, these lands will just be transferred to persons not entitled to land distribution under
CARP.]
6. YES, the ruling in the July 5, 2011 Decision that the qualified FWBs be given an option to
remain as stockholders of HLI should be reconsidered.
[The Court reconsidered its earlier decision that the qualified FWBs should be given an option to
remain as stockholders of HLI, inasmuch as these qualified FWBs will never gain control [over the
subject lands] given the present proportion of shareholdings in HLI. The Court noted that the share of
the FWBs in the HLI capital stock is [just] 33.296%. Thus, even if all the holders of this 33.296%
unanimously vote to remain as HLI stockholders, which is unlikely, control will never be in the hands of
the FWBs. Control means the majority of [sic] 50% plus at least one share of the common shares and
other voting shares. Applying the formula to the HLI stockholdings, the number of shares that will
constitute the majority is 295,112,101 shares (590,554,220 total HLI capital shares divided by 2 plus
one [1] HLI share). The 118,391,976.85 shares subject to the SDP approved by PARC substantially fall
short of the 295,112,101 shares needed by the FWBs to acquire control over HLI.]

DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES.
DEE PING WEE VS. LEE HIONG WEE
629 SCRA 145 (2010)
FACTS:
Petitioners Dee Ping Wee, Araceli Wee and Marina U. Tan were the majority stockholders of:
(1) Marcel Trading Corporation, (2) Marine Resources Development Corporation, and (3) First Marcel
Properties, Inc., all domestic corporations. On the other hand, respondents Lee Hiong Wee and
Rosalinda Wee were minority stockholders in the said corporations.
Respondents, through their counsel, sent a letter to petitioner Dee Ping Wee, demanding the
inspection of the corporate records of the above corporations. Petitioner replied that he will only allow
the inspection if respondents will comply with certain conditions. Because of the refusal, respondents
filed an action against the corporations for violating their rights to gain access to and inspect the
corporate books, records and financial statements of the above corporations, which rights are
guaranteed by Sections 74 and 75 of the Corporation Code.
Petitioners argued that their refusal to allow respondents to inspect the corporate records is
justified because the purpose of respondents in demanding inspection of the corporate records was,
allegedly, to fish for evidence that they could use against petitioners to regain management control of
the aforementioned corporations or to find technical defects in the corporate transactions.
The exercise of these rights may be denied, however, if it is shown that the stockholders have
improperly used any information secured through a previous examination or that the demand is purely
speculative or merely to satisfy curiosity. Petitioners claim that the absence of any showing of proper
motive on the part of the respondents in seeking an inspection of the books is valid ground for refusal.
ISSUE:
Whether or not the refusal of petitioners to allow respondents to exercise their right to inspect
the corporate books was valid.
HELD:
The refusal was invalid. The burden of proof lies with the corporation who refuses to grant to the
stockholder the right to inspect corporate records. The petitioners, being the corporate officers, have
the burden of proving that the inspection sought is ill-motivated.
Being a stockholder beyond doubt, there is therefore no reason why respondents may not
exercise their statutory right of inspection in accordance with Sec. 74 of the Corporation Code.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
BANK OF THE PHILIPPINE ISLANDS VS. BPI EMPLOYEES UNION-DAVAO CHAPTERFEDERATION OF UNIONS IN BPI UNIBANK, G.R. NO. 164301
FACTS
In 2000, Far East Bank (FEB) was absorbed by the Bank of the Philippine Islands (BPI). Now
BPI has an existing Union Shop Clause agreement with the BPI Employees Union-Davao ChapterFederation of Unions in BPI Unibank (BPI Union) whereby it is a pre-condition that new employees
must join the union before they can be regularized otherwise they will not have a continued
employment. By reason of the failure of the FEB employees to join the union, BPI Union recommended
to BPI their dismissal. BPI refused. The issue went to voluntary arbitration where BPI won but the Court
of Appeals reversed the Voluntary Arbitrator. BPI appealed to the Supreme Court.
ISSUES
1. Whether or not the Union Shop agreement violated the constitutional right of security of tenure
of the FEB employees absorbed by BPI.
2. Whether or not in case of a merger the surviving corporation is compelled to absorb the
employees of the dissolved corporation
HELD:
1. No. As a general rule, the State protects the workers right to security of tenure. An
employee’s services can only be terminated upon just and authorized causes. In this case, the
presence of a Union Shop Clause in the CBA between BPI and BPI Union must be respected. Failure
of an employee to join the union pursuant to the clause is an authorized cause for BPI not to continue
employing the employee concerned – and BPI must respect that provision of the CBA. In the hierarchy
of labor rights, unionism is favored over security of tenure. A contrary interpretation of the Union Shop
Clause would dilute its efficacy and put the certified union that is supposedly being protected thereby at
the mercy of management. Nevertheless, the FEB employees are still entitled to the twin notice rule –
this is to afford them ample opportunity to whether or not join the union.
2. No. In legal parlance, however, human beings are never embraced in the term “assets and
liabilities.” Moreover, BPI’s absorption of former FEBTC employees was neither by operation of law nor
by legal consequence of contract. There was no government regulation or law that compelled the
merger of the two banks or the absorption of the employees of the dissolved corporation by the
surviving corporation. Had there been such law or regulation, the absorption of employees of the nonsurviving entities of the merger would have been mandatory on the surviving corporation. [27] In the
present case, the merger was voluntarily entered into by both banks presumably for some mutually
acceptable consideration. In fact, the Corporation Code does not also mandate the absorption of the
employees of the non-surviving corporation by the surviving corporation in the case of a
merger. Section 80 of the Corporation Code provides:
SEC. 80. Effects of merger or consolidation. – The merger or consolidation, as
provided in the preceding sections shall have the following effects:
1. The constituent corporations shall become a single corporation which, in case
of merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;

2. The separate existence of the constituent corporations shall cease, except
that of the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and every
other interest of, or belonging to, or due to each constituent corporation, shall be taken
and deemed to be transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
5. The surviving or the consolidated corporation shall be responsible and liable
for all the liabilities and obligations of each of the constituent corporations in the same
manner as if such surviving or consolidated corporation had itself incurred such liabilities
or obligations; and any claim, action or proceeding pending by or against any of such
constituent corporations may be prosecuted by or against the surviving or consolidated
corporation, as the case may be. Neither the rights of creditors nor any lien upon the
property of any of such constituent corporations shall be impaired by such merger or
consolidated.
Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not contain
any specific stipulation with respect to the employment contracts of existing personnel of the nonsurviving entity which is FEBTC. Unlike the Voluntary Arbitrator, this Court cannot uphold the
reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set
forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ
of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. Even if it is so,
it does not follow that the absorbed employees should not be subject to the terms and conditions of
employment obtaining in the surviving corporation.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
PROFESSIONAL SERVICES, INC. (PSI) vs. CA, 611 SCRA 282 (2010)
FACTS:
PSI, together with Dr. Ampil and Dr. Fuentes, was impleaded by Enrique Agana and Natividad
Agana, in a complaint for damages for the injuries suffered by Natividad when the two doctors
neglected to remove from her body two gauzes which were used in the surgery they performed on her.
PSI was impleaded as owner, operator and manager of the hospital.
ISSUE:
Whether a hospital may be held liable for the negligence of physicians-consultants allowed to
practice in its premises
HELD:
YES. PSI is liable to the Aganas, not under the principle of respondeat superior for lack of
evidence of an employment relationship with Dr. Ampil but under the principle of ostensible agency for
the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its failure
to perform its duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes
doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical and
surgical treatment. Within that reality, three legal relationships crisscross:
1. Between the hospital and the doctor practicing within its premises;
2. Between the hospital and the patient being treated or examined within its premises and
3. Between the patient and the doctor. The exact nature of each relationship determines the basis
and extent of the liability of the hospital for the negligence of the doctor.

GLEN A. PETILLA
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES.
CARGILL, INC. VS. INTRA STRATA ASSURANCE CORPORATION
FACTS
Cargill, Inc. (petitioner) is a corporation organized and existing under the laws of the United
States of America. It entered into a contract with Northern Mindanao Corporation (NMC), a domestic
corporation whereby the latter agreed to sell to petitioner molasses, to be delivered on specific dates at
a stated price.
NMC was not able to comply with the required metric tons to be delivered. Subsequently, a
complaint for sum of money was filed against NMC whereby the trial court decided in favor of petitioner
On appeal, the Court of Appeals reversed the decision and dismissed the complaint. It reasoned
that petitioner does not have the capacity to file the suit since it is a foreign corporation doing business
in the Philippines without the requisite license. Petitioner’s purchases of molasses were in pursuance
of its basic business and not just mere isolated and incidental transactions.
ISSUE
Whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before
Philippine courts.
RULING
RA 7042, otherwise known as the Foreign Investments Act of 1991, enumerated not only the
acts or activities constituting “doing business” but also those activities which are not deemed “doing
business.” Section 3(d) of RA 7042 states:
[T]he phrase “doing business” shall include “soliciting orders, service contracts, opening offices,
whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided, however, That the
phrase ‘doing business’ shall not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having a nominee director or officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the Philippines which transacts business in its
own name and for its own account.
In this case, there is no showing that the transactions between petitioner and NMC signify the
intent of petitioner to establish a continuous business or extend its operations in the Philippines.
These activities do not bring any direct receipts or profits to the foreign corporation, consistent
with the ruling of this Court in National Sugar Trading Corp. v. CA[18] that activities within Philippine
jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing
business in the Philippines.[19] In that case, the Court held that it would be inequitable for the National
Sugar Trading Corporation, a state-owned corporation, to evade payment of a legitimate indebtedness
owing to the foreign corporation on the plea that the latter should have obtained a license first before

perfecting a contract with the Philippine government. The Court emphasized that the foreign
corporation did not sell sugar and derive income from the Philippines, but merely purchased sugar from
the Philippine government and allegedly paid for it in full.
The contract between petitioner and NMC involved the purchase of molasses by petitioner from
NMC. It was NMC, the domestic corporation, which derived income from the transaction and not
petitioner. To constitute “doing business,” the activity undertaken in the Philippines should involve
profit-making
To be doing or “transacting business in the Philippines” for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the Philippines, that is,
perform specific business transactions within the Philippine territory on a continuing basis in its own
name and for its own account. Actual transaction of business within the Philippine territory is an
essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require
the foreign corporation to secure a Philippine business license. If a foreign corporation does not
transact such kind of business in the Philippines, even if it exports its products to the Philippines,
the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business
license.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES.
IEMELIF VS. LAZARO
624 SCRA 224 (JULY 6, 2010)
FACTS:
In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las
Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its General
Superintendent. In 1948, the IEMELIF enacted and registered its by-laws that established a Supreme
Consistory of Elders. The by-laws empowered the Consistory to elect a General Superintendent.
Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate
powers theoretically lodged in the hands of one member, the General Superintendent), it had always
acted like a corporation aggregate. The Consistory exercised IEMELIF’s decision-making powers
without ever being challenged. Subsequently, during its 1973 General Conference, the general
membership voted to put things right by changing IEMELIF’s organizational structure from a corporation
sole to a corporation aggregate. The Consistory resolved to convert the IEMELIF to a corporation
aggregate. Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support
the conversion, filed a civil case for “Enforcement of Property Rights of Corporation Sole, Declaration of
Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate” in
IEMELIF’s name against respondent members of its Consistory before the RTC) of Manila. Petitioners
claim that a complete shift from IEMELIF’s status as a corporation sole to a corporation aggregate
required, not just an amendment of the IEMELIF’s articles of incorporation, but a complete dissolution
of the existing corporation sole followed by a re-incorporation.
ISSUE:
Whether or not a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.
HELD:
A corporation sole may be converted into a corporation aggregate by mere amendment of its
articles of incorporation. The Corporation Code provides no specific mechanism for amending the
articles of incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the
Corporation Code allows the application to religious corporations of the general provisions governing
non-stock corporations. For non-stock corporations, the power to amend its articles of incorporation lies
in its members. Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through the action
of its board of trustees. The amendment needs the concurrence of at least two-thirds of its
membership. If such approval mechanism is made to operate in a corporation sole, its one member in
whom all the powers of the corporation technically belongs, needs to get the concurrence of two-thirds
of its membership. The one member, here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership.
The amendment of the articles of incorporation, as correctly put by the CA, requires merely that
a) the amendment is not contrary to any provision or requirement under the Corporation Code, and that
b) it is for a legitimate purpose. Section 17 of the Corporation Code provides that amendment shall be
disapproved if, among others, the prescribed form of the articles of incorporation or amendment to it is
not observed, or if the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations, or if the required percentage of ownership is
not complied with. These impediments do not appear in the case of IEMELIF.
Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of
incorporation upon the initiative and advice of the SEC. The latter’s interpretation and application of the

Corporation Code is entitled to respect and recognition, barring any divergence from applicable laws.
Considering its experience and specialized capabilities in the area of corporation law, the SEC’s prior
action on the IEMELIF issue should be accorded great weight.
BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
EXCELLENT QUALITY APPAREL, INC. vs. WIN MULTI RICH BUILDERS, INC.
G.R. No. 175048 (Feb. 10, 2009)
FACTS:
On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by
Max L.F. Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a
contract with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its President and
General Manager, for the construction of a garment factory within the Cavite Philippine Economic Zone
Authority (CPEZ). The duration of the project was for a maximum period of five (5) months or 150
consecutive calendar days. Included in the contract is an arbitration clause which states that should
there be any dispute, controversy or difference between the parties arising out of this Contract that may
not be resolved by them to their mutual satisfaction, the matter shall be submitted to an Arbitration
Committee. The construction of the factory building was completed on 27 November 1996.
Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the SEC on February 20,
1997 with Chua as its President and General Manager. On January 26, 2004, Win filed a complaint for
a sum of money against petitioner and Mr. Yin and prayed for the issuance of a writ of attachment.
Petitioner denied owing anything to Win, as it had already paid all its obligations to it. It questioned the
jurisdiction of the trial court from taking cognizance of the case. Petitioner pointed to the presence of
the Arbitration Clause and it asserted that the case should be referred to the Construction Industry
Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008.
In the Reply filed by petitioner, it moved to dismiss the case since Win was not the contractor
and neither a party to the contract, thus it cannot institute the case. Petitioner obtained a Certificate of
Non-Registration of Corporation/Partnership from the SEC which certified that the latter did not have
any records of a "Multi-Rich Builders, Inc.
ISSUES:
(1) Does Win have a legal personality to institute the present case?
(2) Does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration
clause?
HELD:
(1) NO. Win does not have a legal personality to institute this case. A suit may only be instituted by the
real party in interest. Section 2, Rule 3 of the Rules of Court defines "parties in interest" in this manner:
A real party in interest is the party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit.
Unless otherwise authorized by law or
these Rules, every action must
be prosecuted or defended in the name of the real party in
interest.
Win is not a real party in interest. Win admitted that the contract was executed between Multi-Rich and
petitioner. It further admitted that Multi-Rich was a sole proprietorship with a business permit issued by
the Office of the Mayor of Manila. A sole proprietorship is the oldest, simplest, and most prevalent form
of business enterprise. It is an unorganized business owned by one person. The sole proprietor is
personally liable for all the debts and obligations of the business.
A sole proprietorship does not possess a juridical personality separate and distinct from the personality
of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a
form of business organization conducted for profit by a single individual and requires its proprietor or
owner to secure licenses and permits, register its business name, and pay taxes to the national
government. The law does not vest a separate legal personality on the sole proprietorship or empower
it to file or defend an action in court.

A sole proprietorship is not vested with juridical personality to file or defend an action.
In order for a corporation to be able to file suit and claim the receivables of its predecessor in business,
in this case a sole proprietorship, it must show proof that the corporation had acquired the assets and
liabilities of the sole proprietorship. Win could have easily presented or attached any document e.g.,
deed of assignment which will show whether the assets, liabilities and receivables of Multi-Rich were
acquired by Win.
(2) NO. The RTC does not have jurisdiction. The CIAC acquires jurisdiction over a construction contract
by the mere fact that the parties agreed to submit to voluntary arbitration. The law does not preclude
parties from stipulating a preferred forum or arbitral body but they may not divest the CIAC of
jurisdiction as provided by law. Arbitration is an alternative method of dispute resolution which is highly
encouraged. The arbitration clause is a commitment on the part of the parties to submit to arbitration
the disputes covered since that clause is binding, and they are expected to abide by it in good
faith. Clearly, the RTC should not have taken cognizance of the collection suit. The presence of the
arbitration clause vested jurisdiction to the CIAC over all construction disputes between Petitioner and
Multi-Rich.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES.
PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA), vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC)
G.R. No. 170689 (March 17, 2009)
FACTS:
The Gonzales family owned two corporations, namely, the Pantranco North Express, Inc.
(PNEI) and Macris Realty Corporation (Macris). PNEI provided transportation services to the public,
and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal
stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name
of Macris. The Gonzales family later incurred huge financial losses despite attempts of rehabilitation
and loan infusion. Later, their creditors took over the management of PNEI and Macris. By 1978, full
ownership was transferred to one of their creditors, the National Investment Development Corporation
(NIDC), a subsidiary of the PNB. Macris was later renamed as the National Realty Development
Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco)
to form the new PNB subsidiary, the PNB-Madecor.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by
Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by
the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In
January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the
private sector through the Asset Privatization Trust (APT). APT thus took over the management of
PNEI.
In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of
payments. A management committee was thereafter created which recommended to the SEC the sale
of the company through privatization. As a cost-saving measure, the committee likewise suggested the
retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the
cessation of business came the various labor claims commenced by the former employees of PNEI
where the latter obtained favorable decisions.
On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution commanding the
National Labor Relations Commission (NLRC) sheriffs to levy on the assets of PNEI in order to satisfy
the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in
the labor cases. The sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega
Prime. In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate located
at the corner of Quezon and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood.
These properties were covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered
under the name of PNB-Madecor. Subsequently, Notice of Sale of the foregoing real properties was
published in the newspaper and the sale was set on July 31, 2002.
Having been notified of the auction sale, motions to quash the writ were separately filed by
PNB-Madecor and Mega Prime, and PNB. They likewise filed their Third-Party Claims. PNB-Madecor
anchored its motion on its right as the registered owner of the Pantranco properties, and Mega Prime
as the successor-in-interest. For its part, PNB sought the nullification of the writ on the ground that it
was not a party to the labor case. In its Third-Party Claim, PNB alleged that PNB-Madecor was
indebted to the former and that the Pantranco properties would answer for such debt.
On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were
owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets could
not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a promissory
note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said amount was
concerned was considered valid. PNB’s third-party claim – to nullify the writ on the ground that it has an

interest in the Pantranco properties being a creditor of PNB-Madecor, – on the other hand, was denied
because it only had an inchoate interest in the properties.
The NLRC affirmed the Labor Arbiter’s decision. The CA also affirmed the NLRC’s decision.
The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with
personalities separate and distinct from PNEI. As such, there being no cogent reason to pierce the veil
of corporate fiction, the separate personalities of the above corporations should be maintained. The CA
added that the Pantranco properties were never owned by PNEI; rather, their titles were registered
under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the liabilities of PNEI,
with more reason should Mega Prime not be held liable being a mere successor-in-interest of PNBMadecor.
ISSUE:
Whether the former employees of PNEI can attach the properties of new owner corporation.
HELD:
No. The former PNEI employees argued before the Supreme Court that PNB, through PNBMadecor, directly benefited from the operation of PNEI and had complete control over the funds of
PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees.
Citing A.C. Ransom Labor Union-CCLU v. NLRC, the employees insist that where the employer
corporation ceases to exist and is no longer able to satisfy the judgment awards in favor of its
employees, the owner of the employer corporation should be made jointly and severally liable. The
Supreme Court ruled that the former PNEI employees cannot attach the properties (specifically the
Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims
against PNEI. According to the Supreme Court:
“First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the
records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in
any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR v.
Uy and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings
Corporation v. PNB was that the properties were owned by Macris, the predecessor of PNB-Madecor.
Hence, they cannot be pursued against by the creditors of PNEI. We would like to stress the settled
rule that the power of the court in executing judgments extends only to properties unquestionably
belonging to the judgment debtor alone. To be sure, one man’s goods shall not be sold for another
man’s debts. A sheriff is not authorized to attach or levy on property not belonging to the judgment
debtor, and even incurs liability if he wrongfully levies upon the property of a third person.
Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and
distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at
the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for
petitioners’ labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB.
Mega Prime is also included for having acquired PNB’s shares over PNB-Madecor.
The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. This is a fiction created by law for
convenience and to prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are
corporations with their own personalities. The “separate personalities” of the first three corporations had
been recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime
Realty and Holdings Corporation v. PNB where we stated that PNB was only a stockholder of PNBMadecor which later sold its shares to Mega Prime; and that PNB-Madecor was the owner of the
Pantranco properties. Moreover, these corporations are registered as separate entities and, absent any
valid reason, we maintain their separate identities and we cannot treat them as one.
Neither can we merge the personality of PNEI with PNB simply because the latter acquired the
former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the
transferor.
Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist
to warrant the piercing of the corporate veil, none applies in the present case whether between PNB
and PNEI; or PNB and PNB-Madecor.

Under the doctrine of “piercing the veil of corporate fiction,” the court looks at the corporation as
a mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another formulation
of this doctrine is that when two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third parties, disregard the
legal fiction that two corporations are distinct entities and treat them as identical or as one and the
same.
Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote
unfair objectives. As between PNB and PNEI, petitioners want us to disregard their separate
personalities, and insist that because the company, PNEI, has already ceased operations and there is
no other way by which the judgment in favor of the employees can be satisfied, corporate officers can
be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this
Court in A.C. Ransom Labor Union-CCLU v. NLRC and subsequent cases.
This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.
For one, in the said cases, the persons made liable after the company’s cessation of operations were
the officers and agents of the corporation. The rationale is that, since the corporation is an artificial
person, it must have an officer who can be presumed to be the employer, being the person acting in the
interest of the employer. The corporation, only in the technical sense, is the employer. In the instant
case, what is being made liable is another corporation (PNB) which acquired the debtor corporation
(PNEI).
Moreover, in the recent cases Carag v. National Labor Relations Commission and McLeod v.
National Labor Relations Commission, the Court explained the doctrine laid down in AC Ransom
relative to the personal liability of the officers and agents of the employer for the debts of the latter. In
AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the definition
of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said provision,
employer includes any person acting in the interest of an employer, directly or indirectly, but does not
include any labor organization or any of its officers or agents except when acting as employer. It was
clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does not make a
corporate officer personally liable for the debts of the corporation. It added that the governing law on
personal liability of directors or officers for debts of the corporation is still Section 31 of the Corporation
Code.
More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom,
foreseeing the possibility or probability of payment of backwages to its employees, organized Rosario
to replace Ransom, with the latter to be eventually phased out if the strikers win their case. The
execution could not be implemented against Ransom because of the disposition posthaste of its
leviable assets evidently in order to evade its just and due obligations. Hence, the Court sustained the
piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the
latter. Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate
veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of malice,
bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot
be made personally liable for corporate liabilities.
The Court ruled that assuming, for the sake of argument, that PNB may be held liable for the
debts of PNEI, petitioners still cannot proceed against the Pantranco properties, the same being owned
by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general
rule remains that PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a
corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their

being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence
shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to
those arising in their respective businesses.
BETTY L. CAMPOS
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
SIAIN ENTERPRISES, INC. vs. CUPERTINO REALTY CORP. and EDWIN R. CATACUTAN
G.R. No. 170782
(June 22, 2009)
FACTS:
Petitioner Siain Enterprises, Inc. obtained a loan of P37,000,000.00 from respondent Cupertino
Realty Corporation (Cupertino) covered by a promissory note signed by both petitioner’s and
Cupertino’s respective presidents, Cua Le Leng and Wilfredo Lua. The promissory note authorizes
Cupertino, as the creditor, to place in escrow the loan proceeds of P37,000,000.00 with Metropolitan
Bank & Trust Company to pay off petitioner’s loan obligation with Development Bank of the Philippines
(DBP). To secure the loan, petitioner, on the same date, executed a real estate mortgage over two (2)
parcels of land and other immovables, such as equipment and machineries.
Two (2) days thereafter, the parties executed an amendment to promissory note which provided
for a seventeen percent (17%) interest per annum on the P37,000,000.00 loan. The amendment to
promissory note was likewise signed by Cua Le Leng and Wilfredo Lua on behalf of petitioner and
Cupertino, respectively. Cua Le Leng signed a second promissory note in favor of Cupertino
for P160,000,000.00. Cua Le Leng signed the second promissory note as maker, on behalf of
petitioner, and as co-maker, liable to Cupertino in her personal capacity. Petitioner defaulted in
payment of said loan, whereby, Cupertino made several demands. Petitioner demanded for the release
of the P160,000,000.00 loan increase covered by the amendment of real estate mortgage. Cupertino
instituted extrajudicial foreclosure proceedings which prompted the petitioner to file a complaint with
prayer for restraining order to enjoin Notary Public from proceeding with the public auction.
The RTC rendered a decision in favor of Cupertino, wherein it applied the doctrine of “piercing
the veil of corporate fiction” to preclude petitioner from disavowing receipt of the P160,000,000.00 and
paying its obligation under the amended real estate mortgage. On Appeal CA affirmed the rulings of the
trial court.
ISSUE:
Whether or not the trial court is correct in applying the doctrine of “piercing the veil of corporate
fiction”.
HELD:
As a general rule, a corporation will be deemed a separate legal entity until sufficient reason to
the contrary appears. But the rule is not absolute. A corporation’s separate and distinct legal personality
may be disregarded and the veil of corporate fiction pierced when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime. It is crystal clear that
[petitioner] corporation, Yuyek and Siain Transport are characterized by oneness of operations vested
in the person of their common president, Cua Le Leng, and unity in the keeping and maintenance of
their corporate books and records through their common accountant and bookkeeper, Rosemarie
Ragodon.
Consequently, these corporations are proven to be the mere alter-ego of their president Cua
Leleng, and considering that Cua Leleng and Alberto Lim have been living together as common law
spouses with three children, this Court believes that while Alberto Lim does not appear to be an officer
of Siain and Yuyek, nonetheless, his receipt of certain checks and debit memos from Willie Lua and
Victoria Lua was actually for the account of his common-law wife, Cua Leleng and her alter ego
corporations. While this Court agrees with Siain that a corporation has a personality separate and
distinct from its individual stockholders or members, this legal fiction cannot, however, be applied to its
benefit in this case where to do so would result to injustice and evasion of a valid obligation, for well

settled is the rule in this jurisdiction that the veil of corporate fiction may be pierced when it is used as a
shield to further an end subversive of justice, or for purposes that could not have been intended by the
law that created it; or to justify wrong, or for evasion of an existing obligation.
Resultantly, the obligation incurred and/or the transactions entered into either by Yuyek, or by
Siain Trucking, or by Cua Leleng, or by Alberto Lim with Cupertino are deemed to be that of the
[petitioner] itself. The same principle equally applies to Cupertino. Thus, while it appears that the
issuance of the checks and the debit memos as well as the pledges of the condominium units, the
jewelries, and the trucks had occurred prior to March 2, 1995, the date when Cupertino was
incorporated, the same does not affect the validity of the subject transactions because applying again
the principle of piercing the corporate veil, the transactions entered into by Cupertino Realty
Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be the latter’s personal
transactions and vice-versa.

TRYLL G. CHIU
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
UNCHUAN VS. LOZADA
585 SCRA 421 (APRIL 16, 2009)
FACTS:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered co-owners of
a lot covered by Transfer Certificates of Title (TCT) in Cebu City. The sisters, who were based in
the United States, sold the lots to their nephew Antonio J.P. Lozada (Antonio). Armed with a Special
Power of Attorney from Anita, Peregrina went to the house of their brother, Dr. Antonio Lozada (Dr.
Lozada), who agreed to advance the purchase price for Antonio, his nephew. The Deed of Sale was
later notarized and authenticated at the Philippine Consul’s Office. Dr. Lozada then forwarded the
deed, special power of attorney, and owners’ copies of the titles to Antonio in the Philippines. Upon
receipt of said documents, the latter recorded the sale with the Register of Deeds of
Cebu. Accordingly, TCT were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the annotation of an
adverse claim on the lots. Marissa claimed that Anita donated an undivided share in the lots to her
under an unregistered Deed of Donation. Antonio and Anita brought a case against Marissa for quieting
of title with application for preliminary injunction and restraining order. Marissa for her part, filed an
action to declare the Deed of Sale void and to cancel TCT. On motion, the cases were consolidated
and tried jointly.
On motion for reconsideration by petitioner, the RTC issued an order declared the Deed of Sale
void, ordered the cancellation of the new TCTs in Antonio’s name, and directed Antonio to pay
Marissa. The trial court also declared the Deed of Donation in favour of Marissa valid. Respondents
moved for reconsideration, reinstated the Decision but with the modification that the award of damages,
litigation expenses and attorney’s fees were disallowed. Petitioner appealed to the Court of Appeals
and affirmed with modification the Order of the RTC. It, however, restored the award, attorney’s fees
and litigation expenses to respondents.
ISSUES:
(1) Whether the Court of Appeals erred in upholding the Decision of the RTC which declared
Antonio J.P. Lozada the absolute owner of the questioned properties;
(2) Whether the Court of Appeals violated petitioner’s right to due process;
(3) Whether petitioner’s case is barred by laches.
HELD:
In the assailed Decision, the Court of Appeals reiterates the rule that a notarized and
authenticated deed of sale enjoys the presumption of regularity, and is admissible without further proof
of due execution. On the basis thereof, it declared Antonio a buyer in good faith and for value, despite
petitioner’s contention that the sale violates public policy. While it is a part of the right of appellant to
urge that the decision should directly meet the issues presented for resolution, mere failure by the
appellate court to specify in its decision all contentious issues raised by the appellant and the reasons
for refusing to believe appellant’s contentions is not sufficient to hold the appellate court’s decision
contrary to the requirements of the law and the Constitution. So long as the decision of the Court of
Appeals contains the necessary findings of facts to warrant its conclusions, we cannot declare said
court in error if it withheld “any specific findings of fact with respect to the evidence for the defense.” We
will abide by the legal presumption that official duty has been regularly performed, and all matters within
an issue in a case were laid down before the court and were passed upon by it.
In this case, we find nothing to show that the sale between the sisters Lozada and their nephew
Antonio violated the public policy prohibiting aliens from owning lands in the Philippines. Even as Dr.

Lozada advanced the money for the payment of Antonio’s share, at no point were the lots registered in
Dr. Lozada’s name. Nor was it contemplated that the lots be under his control for they are actually to
be included as capital of Damasa Corporation. According to their agreement, Antonio and Dr. Lozada
are to hold 60% and 40% of the shares in said corporation, respectively. Under Republic Act No.
7042, particularly Section 3, a corporation organized under the laws of the Philippines of which at least
60% of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines, is considered a Philippine National. As such, the corporation may acquire disposable
lands in the Philippines. Neither did petitioner present proof to belie Antonio’s capacity to pay for the
lots subjects of this case.
As to the validity of the donation, when the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is
absolute and indispensable. Here, the Deed of Donation does not appear to be duly notarized. The
document shall, as in this case, not be admissible in evidence.
The sum of all the circumstances in this case calls for no other conclusion than that the Deed of
Donation allegedly in favour of petitioner is void. We deem it unnecessary to rule on the issue of laches
as the execution of the deed created no right from which to reckon delay in making any claim of rights
under the instrument.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
WESTMONT BANK AND THE PROVINCIAL SHERIFF OF RIZAL
VS. INLAND CONSTRUCTION AND DEVELOPMENT CORP.
G.R. NO. 12365
FACTS
Inland Construction and Development Corp. (Inland) obtained various loans from Westmont
Bank (Westmont). To secure the payment of its obligations, Inland executed Real Estate Mortgages
over three real properties and issued promissory notes in favor of the bank. By a Deed of Assignment,
Conveyance and Release, one Felix Aranda, assigned and conveyed all his rights and interests at
Hanil-Gonzales Construction & Development Phils. Corporation (HGCDP) in favor of Horacio Abrante.
Under the same Deed, it appears that HGCDP assumed the obligations of Inland. Westmont’s Account
Officer, Lionel Calo Jr. (Calo), signed for its conformity to the deed. Inland was subsequently served
with a Notice of Sheriff’s Sale foreclosing the real estate mortgages over its real properties prompting it
to file a complaint for injunction against the Westmont. In its answer, Westmont underscored that it had
no knowledge, much less did it give its conformity to the alleged assignment of the obligation. The trial
court found that Westmont ratified the act of Calo. It accordingly rendered judgment in favor of Inland.
On appeal, the appellate court affirmed the trial court’s decision insofar as it finds Westmont to have
ratified the Deed of Assignment.
ISSUE
Whether or not Westmont Bank ratified the Deed of Assignment.
HELD
Affirmative. The general rule remains that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. If a corporation, however,
consciously lets one of its officers, or any other agent, to act within the scope of an apparent authority,
it will be estopped from denying such officer’s authority.
The records show that Calo was the one assigned to transact on petitioner’s behalf respecting
the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes.
Since it conducted business through Calo, who is an Account Officer, it is presumed that he had
authority to sign for the bank in the Deed of Assignment. Unmistakably, the Court’s directive is that a
corporation should first prove by clear evidence that its corporate officer is not in fact authorized to act
on its behalf before the burden of evidence shifts to the other party to prove, by previous specific acts,
that an officer was clothed by the corporation with apparent authority.
In the present petitions, Westmont Bank failed to discharge its primary burden of proving that
Calo was not authorized to bind it, as it did not present proof that Calo was unauthorized. It did not
present, much less cite, any Resolution from its Board of Directors or its Charter or By-laws from which
the Court could reasonably infer that he indeed had no authority to sign in its behalf or bind it in the
Deed of Assignment.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
GOSIACO v. CHING and CASTA
585 SCRA 471 (2009)
FACTS:
Petitioner Jaime Gosiaco invested P8,000,000.00 with ASB Holdings, Inc. (ASB) by way of loan.
ASB through its Business Development Operation Group manager Ching issued checks of
P8,000,000.00 and P112,000.00, representing the amount of the loan and the interest, respectively.
Upon maturity of the checks, they were dishonored. Thus, petitioner filed a criminal complaint for
violation of B.P. Blg. 22 before the MTC of San Juan. The petitioner moved to implead ASB and its
president, Luke Roxas. MTC denied the motion and acquitted Ching of criminal liability but did not
absolve her from civil liability. Both petitioner and Ching appealed to the RTC. The RTC affirmed the
MTC ruling and also exonerated Ching from civil liability. Petitioner filed a petition for review with the
Court of Appeals which affirmed the decision of the RTC. CA ruled that ASB cannot be impleaded in a
B.P. Blg 22 case since it is not a natural person and there was no need to pierce the veil of ASB since
none of the requisites were present.
ISSUE:
Whether or not ASB can be impleaded in B.P. Blg.22 case.
HELD:
ASB cannot be impleaded in B.P. Blg 22 case without prejudice to the right of petitioner Gosiaco
to pursue an independent civil action against ASB Holdings Inc. for the amount of the subject checks, in
accordance with the terms of this decision. B.P. Blg 22 imposes a distinct civil liability on the signatory
of the check which is distinct from the civil liability of the corporation for the amount of the check. The
civil liability attaching to the signatory arises from the wrongful act of signing the check despite
insufficiency of funds in the account, while the civil liability attaching to the corporation is itself the very
obligation covered by the check or the consideration for its execution. Yet these civil liabilities are
mistaken to be indistinct. The confusion is traceable to the singularity of the amount of each.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
MARANAW HOTELS & RESORT CORP. V. CA
576 SCRA 463 (2009)
FACTS
An illegal dismissal case was filed by Sheryl Oabel against her employer corporation Maranaw
Hotels and Resort Corporation. The NLRC ruled in favour of Oabel. Consequently, the corporated
appealed before the Court of Appeals. The appellate court dismissed the petition on account of the
failure of the corporation to append the board resolution authorizing its counsel to file the petition before
the Court of Appeals. The corporation contends that the filing of a motion for reconsideration with the
certificate of non-forum shopping attached constitutes substantial compliance with the requirement.
ISSUE
Whether or not the filing of a motion for reconsideration with the certificate of non-forum
shopping attached constitutes substantial compliance with the requirement of appending the board
resolution authorizing the corporation’s counsel to file any petition before the Court.
HELD
The filing of a motion for reconsideration with the certificate of non-forum shopping attached
does substantial compliance with the requirement. The lawyer acting for the corporation must
be specifically authorized to sign pleadings for the corporation. Specific authorization, the Court held,
could only come in the form of a board resolution issued by the Board of Directors that specifically
authorizes the counsel to institute the petition and execute the certification, to make his actions binding
on his principal, the corporation.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
GSIS VS CA 585 SCRA 548 (2009)
FACTS
In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco
became vacant. The board of directors of Meralco designated Jose Vitug to act as corporate secretary
for the annual meeting. However, when the proxy validation began, the proceedings were presided over
by respondent Anthony Rosete, assistant corporate secretary and in-house chief legal counsel of
Meralco. Private respondents nonetheless argue that Rosete was the acting corporate secretary of
Meralco. GSIS, a major shareholder in Meralco, was distressed over the proxy validation proceedings,
and the resulting certification of proxies in favor of the Meralco management. Thereafter, GSIS filed an
Urgent Petition with the Securities and Exchange Commission seeking to restrain Rosete from
"recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way,
form, manner or means, or otherwise honoring the shares covered by" the proxies in favor of
respondents. GSIS also prayed for the issuance of a Cease and Desist Order to restrain the use of said
proxies during the annual meeting scheduled for the following day. A CDO to that effect signed by SEC
Commissioner Jesus Martinez was issued. Later, the SEC issued a Show Cause Order against private
respondents, ordering them to appear before the Commission and explain why they should not be cited
in contempt. Therefore, respondents filed a petition for certiorari with prohibition with the Court of
Appeals, praying that the CDO and the SCO be annulled. The CA anulled the aforesaid orders and
declare the SEC to have acted beyond its jurisdiction. Hence, this appeal.
ISSUE
Whether or not the SEC has jurisdiction over the petition filed by GSIS
HELD
The court ruled in the negative. The conferment of original and exclusive jurisdiction on the
regular courts over such controversies in the election of corporate directors must be seen as intended
to confine to one body the adjudication of all related claims and controversy arising from the election of
such directors. For that reason, the afore-quoted Section 2, Rule 6 of the Interim Rules broadly defines
the term "election contest" as encompassing all plausible incidents arising from the election of
corporate directors, including: (1) any controversy or dispute involving title or claim to any elective office
in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of elections
and (4) the qualifications of candidates, including the proclamation of winners. If all matters anteceding
the holding of such election which affect its manner and conduct, such as the proxy solicitation process,
are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping
and competing jurisdictions between that body and the regular courts becomes frighteningly real. From
the language of Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to
the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the
board of directors are properly cognizable and adjudicable by the regular courts exercising original and
exclusive jurisdiction over election cases. Questions relating to the proper solicitation of proxies used in
such election are indisputably related to such issues, yet if the position of GSIS were to be upheld, they
would be resolved by the SEC and not the regular courts, even if they fall within "controversies in the
election" of directors.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
HI-YIELD REALTY, INCORPORATED VS. COURT OF APPEALS, GR. NO. 168863, June 23, 2009.
FACTS:
On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio Torres & Sons, Inc.
(HTSI), filed a Petition for Annulment of Real Estate Mortgage and Foreclosure Sale over two parcels of
land located in Marikina and Quezon City. The suit was filed against Leonora, Ma. Theresa, Glenn and
Stephanie, all surnamed Torres, the Register of Deeds of Marikina and Quezon City, and petitioner HiYield Realty, Inc. (Hi-Yield). It was docketed as Civil Case No. 03-892 with Branch 148 of the Regional
Trial Court (RTC) of Makati City.
On September 15, 2003, petitioner moved to dismiss the petition on grounds of improper venue
and payment of insufficient docket fees. The RTC denied said motion in an Order dated January 22,
2004. The trial court held that the case was, in nature, a real action in the form of a derivative suit
cognizable by a special commercial court pursuant to Administrative Matter No. 00-11-03-SC. Petitioner
sought reconsideration, but its motion was denied in an Order dated April 27, 2004.
Thereafter, petitioner filed a petition for certiorari and prohibition before the Court of Appeals. In
a Decision dated March 10, 2005, the appellate court agreed with the RTC that the case was a
derivative suit. It further ruled that the prayer for annulment of mortgage and foreclosure proceedings
was merely incidental to the main action.
ISSUE:
Whether the honorable court of appeals erred in holding that the annulment of real estate
mortgage and foreclosure sale in the complaint is merely incidental [to] the derivative suit?
RULING:
NO. In the case of Filipinas Port Services, Inc. v. Go, we enumerated the foregoing requisites
before a stockholder can file a derivative suit:
a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the
board of directors for the appropriate relief but the latter has failed or refused to heed his plea;
and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm
having been, or being caused to the corporation and not to the particular stockholder bringing
the suit.
Even then, not every suit filed on behalf of the corporation is a derivative suit. For a derivative
suit to prosper, the minority stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit. The Court finds that Roberto had
satisfied this requirement in paragraph five (5) of his petition which reads:
5. Individual petitioner, being a minority stockholder, is instituting the instant proceeding
by way of a derivative suit to redress wrongs done to petitioner corporation and vindicate
corporate rights due to the mismanagement and abuses committed against it by its
officers and controlling stockholders, especially by respondent Leonora H. Torres
(Leonora, for brevity) who, without authority from the Board of Directors, arrogated upon
herself the power to bind petitioner corporation from incurring loan obligations and later
allow company properties to be foreclosed as hereinafter set forth;

RUBY LAID
COMMERCIAL LAW REVIEW: THE CORPORATION CODE OF THE PHILIPPINES
CALATAGAN GOLF CLUB, INC vs. SIXTO CLEMENTE, JR.,
(585 SCRA 300 (2009)
FACTS
Clemente applied to purchase one share of stock of Calatagan, indicating in his application for
membership his mailing address at “Phimco Industries, Inc. – P.O. Box 240, MCC,” complete
residential address, office and residence telephone numbers, as well as the company (Phimco) with
which he was connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2 May
1990 after paying P120,000.00 for the share. Calatagan charges monthly dues on its members and its
provision on monthly dues is incorporated in Calatagan’s Articles of Incorporation and By-Laws. It is
also reproduced at the back of each certificate of stock.
When Clemente became a member the monthly charge stood at P400.00. He
paid P3,000.00 for his monthly dues on 21 March 1991 and another P5,400.00 on 9 December 1991.
Then he ceased paying the dues. At that point, his balance amounted to P400.00. Ten (10) months
later, sent a demand letter on September 21, 1992 and on October 22, 1992. It was followed by a
second letter dated . Both letters were sent to Clemente’s mailing address as indicated in his
membership application but were sent back to sender with the postal note that the address had been
closed.
Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than
sixty (60) days, specifically P5,600.00 as of 31 October 1992. On 7 December 1992, Calatagan sent a
third and final letter to Clemente, this time signed by its Corporate Secretary, Atty. Benjamin Tanedo,
Jr. Again, this letter was sent to Clemente’s mailing address that had already been closed. On 5
January 1993, a notice of auction sale was posted on the Club’s bulletin board, as well as on the club’s
premises. The auction sale took place as scheduled on 15 January 1993, and Clemente’s share sold
for P64,000 was purchased by a Nestor A. Virata. At the time of the sale, Clemente’s accrued monthly
dues amounted to P5,200.00. notice of foreclosure of Clemente’s share was published in the 26 May
1993 issue of the Business World.
Clemente learned of the sale of his share only in November of 1997. He filed a claim with the
Securities and Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan
with damages. The SEC dismissed the complaint. Citing Section 69 of the Corporation Code which
provides that the sale of shares at an auction sale can only be questioned within six (6) months from
the date of sale, the SEC concluded that Clemente’s claim, filed four (4) years after the sale, had
already prescribed. The SEC further held that Calatagan had complied with all the requirements for a
valid sale of the subject share, Clemente having failed to inform Calatagan that the address he had
earlier supplied was no longer his address. Clemente, the SEC ruled, had acted in bad faith in
assuming as he claimed that his non-payment of monthly dues would merely render his share
“inactive.”
Clemente filed a petition for review with the Court of Appeals. The Court of Appeals reversed the
decision of the SEC. The Court of Appeals rejected the SEC’s finding that the action had prescribed,
hence, this petition under Rule 45.
ISSUE:
1. Did the action of Clemente had prescribed pursuant to section 69 of the Corporation Code?

2. Did the requisite notices under both the law and the by-laws had been rendered to
Clemente?
RULING:
On the first issue-No, there are fundamental differences that defy equivalence or even analogy
between the sale of delinquent stock under Section 68 and the sale that occurred in this case. At the
root of the sale of delinquent stock is the non-payment of the subscription price for the share of stock
itself. The stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed.
In this case, Clemente had already fully paid for the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been
made if Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an
article or by-law provision designed to address that situation, decided to sell such share as a
consequence. But that is not the case here, and there is no purpose for us to apply Section 69 to the
case at bar.
Calatagan argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil
Code which establishes four (4) years as the prescriptive period for actions based upon injury to the
rights of the plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still,
Calatagan posits that Clemente’s action is governed by Article 1149 of the Civil Code which sets five
(5) years as the period of prescription for all other actions whose prescriptive periods are not fixed in
the Civil Code or in any other law. Neither article is applicable but Article 1140 of the Civil Code which
provides that an action to recover movables shall prescribe in eight (8) years.
On the second issue- No, Under Section 91 of the Corporation Code, membership in a nonstock corporation “shall be terminated in the manner and for the causes provided in the articles of
incorporation or the by-laws. Ultimately, the petition must fail because Calatagan had failed to duly
observe both the spirit and letter of its own by-laws. The by-law provisions was clearly conceived to
afford due notice to the delinquent member of the impending sale, and not just to provide an intricate
façade that would facilitate Calatagan’s sale of the share. But then, the bad faith on Calatagan’s part is
palpable. As found by the Court of Appeals, Calatagan very well knew that Clemente’s postal box
to which it sent its previous letters had already been closed, yet it persisted in sending that final letter
to the same postal box.
It is noteworthy that Clemente in his membership application had provided his residential
address along with his residence and office telephone numbers. Nothing in Section 32 of Calatagan’s
By-Laws requires that the final notice prior to the sale be made solely through the member’s mailing
address. Clemente cites our aphorism-like pronouncement in Rizal Commercial Banking Corporation v.
Court of Appeals, that “[a] simple telephone call and an ounce of good faith x x x could have prevented
this present controversy.” That memorable observation is quite apt in this case.
Calatagan’s bad faith and failure to observe its own By-Laws had resulted not merely in the loss
of Clemente’s privilege to play golf at its golf course and avail of its amenities, but also in significant
pecuniary damage to him. For that loss, the only blame that could be thrown Clemente’s way was his
failure to notify Calatagan of the closure of the P.O. Box. That lapse, if we uphold Calatagan would cost
Clemente a lot. But, in the first place, does he deserve answerability for failing to notify the club of the
closure of the postal box? Indeed, knowing as he did that Calatagan was in possession of his home
address as well as residence and office telephone numbers, he had every reason to assume that the
club would not be at a loss should it need to contact him. In addition, according to Clemente, he was
not even aware of the closure of the postal box, the maintenance of which was not his responsibility but
his employer Phimco’s.
The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the
Civil Code, under the Chapter on Human Relations. These provisions, which the Court of Appeals did
apply, enunciate a general obligation under law for every person to act fairly and in good faith towards

one another. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment
of its members. The obligation of a corporation to treat every person honestly and in good faith extends
even to its shareholders or members, even if the latter find themselves contractually bound to perform
certain obligations to the corporation. A certificate of stock cannot be a charter of dehumanization.
MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: INTRA-CORPORATE CONTROVERSIES
GO v. DISTINCTION PROPERTIES
G.R. No. 194024 (April 25, 2012)
FACTS:
Petitioners Philip Go, Pacifico Lim and Andrew Lim are registered individual owners of
condominium units in Phoenix Heights Condominium. Respondent Distinction Properties Development
and Construction, Inc. (DPDCI)
was incorporated as a real estate developer, engaged in the
development of condominium projects, among which was the Phoenix Heights Condominium. Petitioner
Pacific Lim one of the incorporators and then president of DPDCI executed a Master Deed and
Declaration of Restrictions (MDDR) of Phoenix Heights Condominium. Thereafter, Phoenix Heights
Condominium Corporation (PHCC) was formally organized and incorporated. DPDCI turned over the
PHCC the ownership and possession of the condominium units, except for the two saleable commercial
units/spaces. Petitioner Pacifico Lim as president of DPDCI filed an application for Alteration of Plan
pertaining to the construction of 22 storage units in the spaces which was granted by the Housing and
Land Use Regulatory Board (HLURB). Petitioners, as condominium unit-owners, filed a complaint
before HLURB against DPDCI for unsound business practices and violation of the MDDR. HLURB
rendered a decision in favor of petitioners. It held as invalid the agreement entered into between DPDCI
and PHCC as to the alteration of subject units into common areas. The HLURB stated that the case
was not a derivative suit but one which involved contracts of sale of units between the complainants
and DPDCI, hence, within its jurisdiction. The CA rendered the assailed decision in favor of DPDCI.
The CA ruled that HLURB had no jurisdiction over the complaint and that the jurisdiction of PHHC, an
indispensable party, was neither acquired nor waived by estoppel. Hence petitioners filed petition with
the SC contending that HLURB has jurisdiction over the subject matter because their complaint alleged
and demanded specific performance upon DPDCI of the latter’s contractual obligation under their
individual contracts. It was not a derivative suit because they were not suing for and behalf of PHHC.
They were suing in their individual capacities as condominium unit buyers. DPDCI argued that the
case does not fall within the jurisdiction of HLURB because the controversies raised therein are in the
nature of “intra-corporate disputes” because the petitioners sought to address the invalidation of the
corporate acts of PHCC.
ISSUE:
Whether or not the HLURB has jurisdiction over the complaint.
HELD:
Negative. Basic as a hornbook principle is that jurisdiction over the subject matter of a case is
conferred by law and determined by the allegations in the complaint which comprise a concise
statement of the ultimate facts constituting the plaintiffs’ cause of action.
In this case the complaint alleged causes of action that apparently are not cognizable by the
HLURB, considering the nature of the action and the reliefs sought. A perusal of the complaint
discloses that petitioners are seeking to nullify and invalidate the duly constitute acts of PHHC with
DPDCI. They are assailing, in effect, PHCC’s acts as a corporate body. This action therefore partakes
of the nature of an “intra-corporate controversy” the jurisdiction of which used to belong to the
Securities and Exchange Commission (SEC), but transferred to the courts of general jurisdiction or the
appropriate Regional Trial Court (RTC,) pursuant to Section 5b of P.D. 902-A, as amended by Section
5.2 of Republic Act No. 8799.
An intra-corporate controversy is one which pertains to any of the following relationships: (1)
between, the corporation, partnership or association and the public; (2) between the corporation,

partnership or association and the State in so far as its franchise permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among stockholders, partners or associates themselves.
ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: INTRA-CORPORATE CONTROVERSIES
GUY V. THE HON. OFELIA C. CALO
G.R. Nos. 189486/ 189699 (September 5, 2012)
FACTS
Five years following the redistribution of GoodGold Realty and Development Corporation’s
shares of stock, Gilbert Guy filed with the RTC of Manila, a Complaint for the Declaration of Nullity of
Transfers of Shares in GoodGold, against his mother and his siblings. Gilbert alleged, among others,
that no stock certificate ever existed; that his signature at the back of the spurious Stock Certificates
which purportedly endorsed the same and that of the corporate secretary, Emmanuel Paras, at the front
side of the certificates were forged, and, hence, should be nullified. Gilbert withdrew this complaint after
the NBI submitted a report to the RTC of Manila authenticating Gilbert’s signature in the endorsed
certificates. And, it was only after three years from the withdrawal of the Manila complaint, that Gilbert
again filed in 2008 a complaint also for declaration of nullity of the transfer of the shares of stock, this
time with the RTC of Mandaluyong. The caption of the complaint is "Intra-Corporate Controversy: For
the Declaration of Nullity of Fraudulent Transfers of Shares of Stock Certificates…," against his mother
and his siblings. Meanwhile, Gilbert’s siblings filed a manifestation claiming that the complaint is a
nuisance and harassment suit under Section 1(b) Rule 1 of the Interim
Rules of Procedure on Intra-corporate Controversies. The RTC and the CA dismissed Gilbert’s
complaint for being a nuisance suit.
ISSUE
Whether or not the complaint of Gilbert Guy is a nuisance and harassment suit under Section
1(b) Rule 1 of the Interim Rules of Procedure on Intra-corporate Controversies.
HELD
Failure to specifically allege the fraudulent acts in intra-corporate controversies is indicative of a
harassment or nuisance suit and may be dismissed motu proprio. In cases governed by the Interim
Rules of Procedure on Intra-Corporate Controversies a bill of particulars is a prohibited pleading. It is
essential, therefore, for the complaint to show on its face what are claimed to be the fraudulent
corporate acts if the complainant wishes to invoke the court’s special commercial jurisdiction." This is
because fraud in intra-corporate controversies must be based on "devises and schemes employed by,
or any act of, the board of directors, business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public and/or of the stockholders,
partners, or members of any corporation, partnership, or association," as stated under Rule 1, Section
1 (a)(1) of the Interim Rules. The act of fraud or misrepresentation complained of becomes a criterion in
determining whether the complaint on its face has merits, or within the jurisdiction of special
commercial court, or merely a nuisance suit.
Gilbert, instead of particularly describing the fraudulent acts that he complained of, just made a
denial of the existence of stock certificates by claiming that such were not necessary, Good Gold being
a mere family corporation. Notably, Gilbert, during the entire controversy that started with his 2004
complaint, failed to rebut the NBI Report which authenticated all the signatures appearing in the stock
certificates.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: INTRA-CORPORATE CONTROVERSIES
REAL VS. SANGU PHIL. INC 640 SCRA 35 (2011)
FACTS
Renato Real was the Manager of respondent corporation Sangu Philippines, Inc. which is engaged
in the business of providing manpower for general services. He filed a complaint for illegal dismissal
against the respondents stating that he was neither notified of the Board meeting during which his
removal was discussed nor was he formally charged with any infraction.
Respondents, on the other hand, said that Real committed gross acts of misconduct detrimental to
the company since 2000. The LA declared petitioner as having been illegally dismissed. Sangu
appealed to NLRC and established petitioner’s status as a stockholder and as a corporate officer and
hence, his action against respondent corporation is an intra-corporate controversy over which the Labor
Arbiter has no jurisdiction. NLRC modified the LA’s decision. On appeal, the CA affirmed the decision of
NLRC. Hence, this petition.
ISSUE
Whether or not petitioner’s complaint for illegal dismissal constitutes an intra-corporate
controversy.
HELD
The court ruled in the negative. To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of the RTC specifically designated by the
Court to try and decide such cases, two elements must concur: (a) the status or relationship of the
parties, and (2) the nature of the question that is the subject of their controversy. The first element
requires that the controversy must arise out of intra-corporate or partnership relations between any or
all of the parties and the corporation x x . The second element requires that the dispute among the
parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy
involves matters that are purely civil in character, necessarily, the case does not involve an intracorporate controversy. Guided by this recent jurisprudence, we thus find no merit in respondents’
contention that the fact alone that petitioner is a stockholder and director of respondent corporation
automatically classifies this case as an intra-corporate controversy. To reiterate, not all conflicts
between the stockholders and the corporation are classified as intra-corporate. There are other factors
to consider in determining whether the dispute involves corporate matters as to consider them as intracorporate controversies.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: INTRA-CORPORATE CONTROVERSIES
MARC II MARKETING, INC. VS. JOSON 662 SCRA 35.
FACTS:
Marc II Marketing, Inc. and Lucila Joson is assailing the decision of the CA for reversing and
settling aside the Resolution of the National Labor Relations Commission. Marc II Marketing, Inc. is a
corporation duly organized and existing under and by virtue of the laws of the Philippines. It is primarily
engaged in buying, marketing, selling and distributing in retail or wholesale for export or import
household appliances and products and other items. Petitioner Lucila V. Joson is the President and
majority stockholder of the corporation. Before Marc II Marketing, Inc. was officially incorporated,
Alfredo M. Joson has already been engaged by Lucila, in her capacity as President, to work as General
Manager of the corporation and it was formalized through the execution of a Management Contract
dated in 1994 under MarcMarketing, Inc., as Marc II Marketing, Inc. was yet to be incorporated. For
occupying the said position, respondent was among the corporation’s corporate officers by the express
provision of Section 1, Article IV of its by-laws.Alfredo was appointed as one of its officers with the
designation or title of General Managerto function as a managing director with other duties and
responsibilities that the Board may provide and authorized. However, in 1997, Marc II Marketing Inc.
decided to stop and cease its operation as evidenced by an Affidavit of Non-Operation due to poor
sales collection aggravated by the inefficient management of its affairs. Alfredo was informed of the
cessation of its business operations and the termination of his services as General Manager. He filed
action for reinstatement and money claim against petitioners.
ISSUE:
Whether or not Marc II Marketing Inc.’s Board of Directors could create a position for corporate
officers through an enabling clause found in its corporate by-laws?
RULING
The Court held that in the context of PD 902-A, corporate officers are those officers of a
corporation who are given that character either by the Corporation Code or by the corporation’s by
-laws.

RUBY LAID
COMMERCIAL LAW REVIEW: INTRA-CORPORATE DISPUTES
WESTMONT INVESTMENT CORPORATION, v. FARMIX FERTILIZER CORPORATION
G.R. No. 165876 : October 4, 2010
FACTS
Sometime in 1999, the Westmont Bank had to undergo rehabilitation and financial assistance.
United Overseas Bank Limited (UOBL) expressed interest in acquiring the controlling interest of
Westmont or up to 67% of its voting stock and under the Transfer Agreement, the former controlling
shareholders of Westmont shall sell to UOBL, through a leveraged buy-out and quasi-reorganization of
the bank, their interest in the amount of P1.4 billion.
Under the leveraged buy-out, UOBL and the former controlling stockholders agreed that the
mode of payment to the latter would be done by an assignment of certain receivables from the banks
portfolio, which UOBL considered as "political loans," equivalent to P1.4 billion. Their shares were
diluted. After the dilution, the paid-up capital of the bank was increased by P3.5 billion and new shares
were issued by the bank, now named United Overseas Bank of the Philippines (UOBP).To facilitate the
buy-out, however a trust agreement was executed by the former controlling stockholders in favor of the
Tan Caktiong Group.
On February 23, 2000, the BSP approved Board Resolution No. 305. As a result, UOBL did not
pay the former controlling stockholders the consideration due them under the agreement and UOBP
reinstated the P1.4 billion receivables in its books.
The Farmix and Tankiansee, one of the former controlling shareholder of Westmont, filed a
petition in-intervention and later on an amended petition-in-intervention. It was admitted. Said
amended pleading was also adopted through manifestation by the Tankiansee Group but later on filed
an omnibus motion for the withdrawal and was granted.
The pre-trial was set on July 19, 2002 after it was previously cancelled but no longer pushed
through because Espiritu and Tan Caktiong Groups and the UOB Group executed a compromise
agreement and filed a Joint Motion to Dismiss with Prejudice which was granted. The Farmix Group,
however, claimed that the settlement was not disclosed to the Farmix and Tankiansee Groups, hence
another pre-trial was scheduled.
The scheduled pre-trial on November 14, 2003 after several times of postponement was
ordered cancelled by the RTC on November 12, 2003 and it ruled that "[a]fter careful evaluation of the
pleadings, affidavits and documentary evidence presented by the parties, the Court believes that the
issues in this case may [already] be resolved as warranted by Section 4, Rule 4 of the Interim Rules of
Procedure [for] Intra-Corporate Controversies." The RTC ordered the parties to submit their respective
memoranda without prejudice to the reception of additional evidence or conduct of clarificatory hearings
as may be determined by the court.
The UOB Group (except Manta Ray Holdings, Inc.) filed a motion for reconsideration. It was
adopted by the Tan Caktiong Group through a Manifestation and Espiritu Group through a
Manifestation and Motion but also raised additional arguments and on December 3, 2003, the RTC
denied the motion for reconsideration and rendered a Decision in favor of the intervenors on February
2, 2004.
On February 13, 2004, the Espiritu Group, except petitioner WINCORP, through its attorney-infact, John B. Espiritu, filed a Notice of Appeal with the RTC alleging that the February 2, 2004 Decision
was contrary to law and evidence on record. On the same day, petitioner WINCORP, through the same
attorney-in-fact and by the same counsel, Angara Abello Concepcion Regala and Cruz (ACCRA), filed
an Ex Abundanti Ad Cautelam Notice of Appeal assailing the RTC Decision for being contrary to law
and evidence, but without waiving any of its remedies against the decision. On the same day,

WINCORP also filed a petition for certiorari and mandamus with the CA seeking to annul the February
2, 2004 Decision of the RTC.
On October 29, 2004, the CA dismissed the petition for certiorari and mandamus on the ground
of forum shopping. CA held that the RTC did not act prematurely because, there were no remaining
genuine issues of fact which needed to be resolved and holding a formal trial would merely result in
undue delay and expense for the parties, added the CA.
CA also found that it WINCORP was not deprived of due process as the records show that
WINCORP was given every opportunity to present its side. The RTC fairly assessed that the parties
arguments and its findings were supported by the evidence on record. No grave abuse of discretion in
the part of the RTC on its decision on February 2, 2004. Hence, WINCORP filed the present petition
under Rule 45 of the 1997 Rules of Civil Procedure, as amended.
ISSUES
1. Whether or not the petition before the Court of Appeals was filed on time.
2. Whether or not the petitioner violated the procedural rules on forum shopping.
RULINGS
On the first issue: The petition before the CA was filed out of time. A perusal of the allegations in
the subject petition reveals that though it sought the nullification of the February 2, 2004 Decision of the
RTC, what it questioned was the RTCs resolve to render a judgment before trial pursuant to Section 4,
Rule 4 of the Interim Rules of Procedure for Intra-Corporate Controversies. Said section provides,
Sec. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court
determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the
parties, a judgment may be rendered, the court may order the parties to file simultaneously their
respective memoranda within a non-extendible period of twenty (20) days from receipt of the order.
Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from
the expiration of the period to file the memoranda.
The November 12, 2003 Order was received by WINCORP on November 13, 2003. It then filed
a Manifestation and Motion adopting the UOB Groups motion for reconsideration of said order and
even raised additional arguments. Thereafter, the RTC issued the December 3, 2003 Order denying
UOB Groups motion for reconsideration but there was no mention of WINCORPs manifestation and
motion. Rule 1 of the Interim Rules of Procedure for Intra-Corporate Controversies specifically prohibits
the filing of motions for reconsideration.
RTC in the first place should not have issued the December 3, 2003 Order denying the UOB
Groups motion for reconsideration, which WINCORP adopted. The remedy of an aggrieved party like
WINCORP is to file a petition for certiorari within sixty (60) days from receipt of the assailed order and
not to file a motion for reconsideration, the latter being a prohibited pleading. Here, WINCORP should
have filed the petition for certiorari before the CA on or before January 12, 2004. It was, however, filed
only on February 13, 2004. With that, the CA should have dismissed the petition outright for being filed
late. Even if the sixty (60)-day period will be reckoned from WINCORPs receipt of the December 3,
2003 Order, the petition for certiorari was still filed out of time since it should have been filed on or
before February 2, 2004.awlibrary
This Court can only conclude that WINCORP filed the petition for certiorari supposedly assailing
the February 2, 2004 Decision as a subterfuge to make it appear that it was filed on time when in truth it
was assailing an earlier order, the period for which to assail the same has long elapsed.
On the second issue: The petition for certiorari and the appeal simultaneously filed by
WINCORP before the CA have the same prayer the setting aside of the February 2, 2004 RTC
Decision. Though WINCORP argues that the petition for certiorari assails the propriety and manner by
which it was rendered while the appeal goes into the merits of the decision itself, still, both remedies
have one ultimate goal. To give due course to both petitions will definitely pose an evil that the
prohibition on forum shopping was seeking to prevent the possibility of two (2) different tribunals
rendering conflicting decisions.blesvirtuallawlibrary
In Paradero v. Abragan, we stated that the simultaneous filing of the petition for certiorari and
appeal may be allowed where they deal with different matters, as when the petition for certiorari

questions an order granting execution pending appeal while the appeal deals with the merits of the
decision which is being executed. The evil sought to be avoided by the proscription on forum shopping
in such cases would not be present as any ruling on the legality of the execution pending appeal in the
certiorari case would not amount to res judicata in the main case subject of the appeal.
DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: INTRA-CORPORATE CONTROVERSIES
STRATEGIC ALLIANCE DEV’T CORP. VS. STAR INFRASTRUCTURE DEV’T CORP.
635 SCRA 380 (2010)
FACTS:
Petitioner Strategic Alliance Development Corporation (STRADEC) is a domestic corporation
primarily engaged in the business of a development company. Along with five individuals and three
other corporations, STRADEC incorporated respondent Star Infrastructure Development Corporation
(SIDC).
Respondents Yujuico and Sumbilla, in their respective capacities as then President and
Treasurer of STRADEC, executed a Promissory Note for and in consideration of a loan extended in
favor of said corporation by respondent Wong, one of the incorporators of SIDC. As security for the
payment of the principal as well as the stipulated interests thereon, a pledge constituted over
STRADEC’s entire shareholdings in SIDC was executed by respondent Yujuico. In view of STRADEC’s
repeated default on its obligations, however, the shares thus pledged were sold by way of notarial sale.
STRADEC commenced an action before the Branch 2 of the RTC of Batangas City, sitting as a
Special Commercial Court (SCC). STRADEC alleged, among other matters, that respondents Yujuico
and Sumbilla were not authorized to enter into any loan agreement with respondent Wong, much less
pledge its SIDC shareholdings as security therefor. STRADEC prayed for the (a) the nullification of the
loan and pledge respondents Yujuico and Sumbilla contracted with respondent Wong; and (b) the
avoidance of the notarial sale conducted by respondent Caraos.
The RTC dismissed the case because of lack of jurisdiction over the causes of action which it
declared as purely civil in nature; thus, should not have been filed with the RTC Special Commercial
Court. Although the parties involved are corporations, the subject matter is not an intra-corporate
controversy.
ISSUE:
Whether or not the case is an intra-corporate controversy which falls under the jurisdiction of the
RTC designated as Special Commercial Court.
HELD:
The case involves intra-corporate controversy. An intra-corporate dispute is understood as a
suit arising from intra-corporate relations or between or among stockholders or between any or all of
them and the corporation. Applying what has come to be known as the relationship test, it has been
held that the types of actions embraced by the foregoing definition include the following suits: (a)
between the corporation, partnership or association and the public; (b) between the corporation,
partnership or association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership or association and the State insofar as its franchise, permit or license to
operate is concerned; and, (d) among the stockholders, partners or associates themselves.
In determining which body has jurisdiction over a case, there is a need to consider not only the
status or relationship of the parties, but also the nature of the question that is the subject of their
controversy. Under the nature of the controversy test, the dispute must not only be rooted in the
existence of an intra-corporate relationship, but must also refer to the enforcement of the parties'

correlative rights and obligations under the Corporation Code as well as the internal and intra-corporate
regulatory rules of the corporation.
The combined application of the relationship test and the nature of the controversy test has,
consequently, become the norm in determining whether a case is an intra-corporate controversy or is
purely civil in character.
STRADEC’s first and second causes of action qualify as intra-corporate disputes since said
corporation and respondent Wong are incorporators and/or stockholders of SIDC. Besides, unlike the
SEC which is a tribunal of limited jurisdiction, SCCs like the RTC, are still competent to tackle civil law
issues incidental to intra-corporate disputes filed before them. The RTC exercising jurisdiction over an
intra-corporate dispute can be likened to an RTC exercising its probate jurisdiction or sitting as a
special agrarian court. The designation of the SCCs as such has not in any way limited their jurisdiction
to hear and decide cases of all nature, whether civil, criminal or special proceedings.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: INTRA-CORPORATE CONTROVERSIES
YU VS. YUKAYGUAN, JUNE 18, 2009
FACTS:
This is a petition of Anthony Yu et al against his younger half-brother Joseph Yukayguan et al,
who were all shareholders of Winchester Industrial Supply Inc., a company engaged in hardware and
industrial equipment business. Accusing his older brother of misappropriating funds and assets of the
company, Yukayguan filed a derivative suit. After trial, the Cebu Regional Trial Court dismissed the
case, saying Yukayguan failed to follow and observe the essentials for filing of a derivative suit or
action. The ruling was upheld but later reversed by the Court of Appeals, prompting Yu to elevate the
matter to the SC.
ISSUE:
Whether or not the derivative suit filed by Yukayguan is meritorious?
HELD:
Yes. The general rule is that where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. Nonetheless, an individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or
hold the control of the corporation. The SC said a stockholders right to institute a derivative suit is not
based on any express provision of the Corporation Code, or even the Securities Regulation Code, but
is impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a
stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special
injury to him for which he is otherwise without redress.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: SECURITIES REGULATION CODE
LEE vs. BANGKOK BANK PUBLIC COMPANY, 642 SCRA 447 (2011)
FACTS:
Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI) entered into two
separate Credit Line Agreements (CLAs) covered by guarantees, with Bangkok Bank. MDEC and MHI
are owned and controlled by the Lee family. When MDEC defaulted in payment of the loan, the two
companies and three others filed before the SEC a Consolidated Petition for the Declaration of a State
of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver.
The SEC then issued a Suspension Order enjoining the Lee corporations from disposing of their
property in any manner except in the ordinary course of business, and from making any payments
outside the legitimate expenses of their business during the pendency of the petition.
ISSUE:
Whether the properties owned by the Lees should be covered by a suspension order issued by the
SEC in an action for suspension of payments
HELD:
No, the properties are not covered under the suspension order of SEC. In cases of petitions for the
suspension of payments, the SEC has jurisdiction over corporations, partnerships and associations,
which are grantees of primary franchise or license or permit issued by the government to operate in the
Philippines, and their properties. It is indubitably clear that only corporations, partnerships and
associations—NOT private individuals—can file with the SEC, petitions for declaration in a state of
suspension of payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain
petitions for suspension of payments filed by parties other those mentioned.

GLEN PETILLA
COMMERCIAL LAW REVIEW: SECURITIES REGULATION CODE
JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC.
G.R. No. 136031. January 4, 2002
FACTS
Queensland Tokyo Commodities is a licensed broker engaged in trading of commodities
futures. Benjamin Shia, a market analyst and trader of Queensland, suggested to Petitioner to invest in
the Foreign Exchange Market. Convinced of its feasibility and to accommodate petitioner’s request to
trade right away, respondent advanced P125,000 from its own funds while waiting for petitioner’s
manager’s check to clear. Petitioner then signed the Customer’s Agreement, the pertinent provision
reads as follows:
“25. Upon signing of this Agreement, I shall deposit an initial margin either by personal check,
manager’s check or cash. In the case of the first, I shall not be permitted to trade until the check
has been cleared by my bank and credited to your account. In respect of margin calls or
additional deposits required, I shall likewise pay them either by personal check, manager’s
check or cash. In the event my personal check is dishonored, the company has the right
without call or notice to settle/close my trading account against which the deposit was made. In
such event, any loss of whatever nature shall be borne by me and I shall settle such loss upon
demand together with interest and reasonable cost of collection. However, in the event such
liquidation gives rise to a profit then such amount shall be credited to the Company. The above
notwithstanding, I am not relieved of any legal responsibility as a result of my check being
dishonored by my bank.”
On October 22, 1992, Lim made a profit. [9]During the second day of trading they lost P44,465.
Since it would take seventeen (17) days to clear the manager’s check given by petitioner, Shia returned
the check to petitioner who informed that he (petitioner) would replace the manager’s check with a
traveler’s check. After purchasing the traveler’s check, Shia noticed that it was not indorsed. Later, the
traveler’s check was deposited with Citibank.[14]
Citibank informed respondent that the traveler’s check could not be cleared unless it was duly
signed by Lim which he signed only one portion of the traveler’s check. Since the traveller’s check
could not be encashed, respondent asked petitioner to settle his account. For failing to do so, a
complaint for collection of a sum of money was filed. This was dismissed by the trial court. On appeal,
the same was reversed by the Court of Appeals and ordered Jefferson Lim to pay appellant the sum of
P125,000.00, with interest.
ISSUE
Whether or not the appellate court erred in holding that petitioner is estopped from questioning
the validity of the Customer’s Agreement that petitioner signed.
RULING
The essential elements of estoppel are: (1) conduct of a party amounting to false representation
or concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent,
or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party;
and (3) knowledge, actual or constructive, of the real facts.[23]
It is uncontested that petitioner signed the Customer’s Agreement knowing fully well the nature
of the contract he was entering into. The Customer’s Agreement was duly notarized and as a public
document it is evidence of the fact, which gave rise to its execution and of the date of the latter. [25] Next,
petitioner paid his investment deposit to respondent in the form of a manager’s check. All these are
indicia that petitioner treated the Customer’s Agreement as a valid and binding contract.

Petitioner’s reason to back out of the agreement is that he began sustaining losses from the
trade. Courts have no power to relieve parties from obligations voluntarily assumed, simply because
their contracts turned out to be disastrous or unwise investments.[33]
WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: SECURITIES REGULATION CODE
GSIS vs. CA
585 SCRA 679 (April 16, 2009)
FACTS:
The annual stockholders’ meeting of the Manila Electric Company (Meralco) was scheduled on
May 27, 2008. In connection with the annual meeting, proxies were required to be submitted on or
before May 17 2008, and the proxy validation was slated for five days later. In view of the resignation of
Camilo Quiason, the position of corporate secretary of Meralco became vacant. The board of directors
of Meralco designated Jose Vitug to act as corporate secretary for the annual meeting. However, when
the proxy validation began, the proceedings were presided over by respondent Rosete, assistant
corporate secretary and in-house chief legal counsel of Meralco. Petitioner GSIS, a major shareholder
in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of
proxies in favor of the Meralco management.
GSIS filed a complaint with the RTC of Pasay City seeking the declaration of certain proxies as
invalid. Three days later, GSIS filed a Notice with the RTC manifesting the dismissal of the complaint.
On the same day, GSIS filed an Urgent Petition with the SEC seeking to restrain Rosete from honoring
the shares covered by the proxies in favor of respondents and to annul and declare invalid said proxies.
The complaint filed by GSIS in the SEC was dismissed due to SEC’s lack of jurisdiction, due to forum
shopping by respondent GSIS, and due to splitting of causes of action by respondent GSIS.
The argument of GSIS is that since proxy solicitations following Section 20.1 of SRC have to be
made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that
has the jurisdiction to investigate alleged violations of the rules on proxy solicitations. According to
GSIS, the information statement Meralco had filed with the SEC in connection with the annual meeting
did not contain any proxy form as required under AIRR-SRC Rule 20. On the other hand, private
respondents (MERALCO, et.al.) argue that under Section 5.2 of the SRC, the SEC’s jurisdiction over all
cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the courts of
general jurisdiction or the appropriate regional trial court.
ISSUE:
Whether the SEC has jurisdiction over the petition filed by GSIS against private respondents.
HELD:
It is the RTC not the SEC which has jurisdiction of the complaint of GSIS. The SRC provisions
relied upon by GSIS do not immediately or directly establish that SEC’s jurisdiction over the petition,
since it necessitates the linkage of Section 20 to Section 53.1 of the SRC. The right of a stockholder
to vote by proxy is generally established by the Corporation Code, but it is the SRC which
specifically regulates the form and use of proxies, more particularly the procedure of proxy solicitation,
primarily through Section 20.
The cases referred to in Section 5 were transferred from the jurisdiction of the SEC to the
regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SEC’s power to pass
upon the validity of proxies in relation to election controversies has effectively been withdrawn, tied as it
is to its abrogated jurisdictional powers. The power of the SEC to investigate violations of its rules on
proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases
enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in
relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the
violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy
within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5(c) of Presidential Decree No. 902-A.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: SECURITIES REGULATION CODE
ABRERA VS. BARZA, 599 SCRA 534 (2009)
FACTS:
CAP was incorporated on February 14, 1980 for the purpose of engaging in the sale of pre-need
educational plans. Later, it engaged in the sale of fixed value plans which guaranteed the payment of a
predetermined amount to the planholder.
On April 28, 2005, six petitioners herein, together with other CAP planholders, filed an action
with the RTC of Makati City for Specific Performance and/or Annulment of Contract due to Fraud,
Return and Disgorgement of Illegal Profits, Damages with Application for Receiver and/or Management
Committee against CAP, its Directors and Officers, and the Fil-Estate Group of Companies. Petitioners
alleged that proceedings commenced in SEC Case No. 05-365, but the prayer for the appointment of a
receiver and creation of a management committee was not acted upon by the RTC.
On September 8, 2005, CAP filed a Petition for Corporate Rehabilitation, and which was raffled
to the RTC of Makati City, Branch 61, presided by respondent Judge Romeo F. Barza, who issued a
Stay Order of all claims against CAP.
On October 17, 2005, ten planholders, who are also petitioners in this case, filed an Opposition
to the Rehabilitation and Motion to Exclude Planholders from Stay Order and Terminate Proceeding on
the ground that planholders are not creditors as they have a trust relationship with the pre-need
company.
On December 16, 2005, Judge Barza issued an Order giving due course to the petition for
rehabilitation. Petitioners alleged that the Stay Order dated September 13, 2005 and the Order dated
December 16, 2005 had been cited for the non-resolution of pending matters in SEC Case. No. 05-365
for Specific Performance and/or Annulment of Contract due to Fraud, Return and Disgorgement of
Illegal Profits and Damages. They alleged that the proceedings were summary and non-adversarial in
nature, and the filing of a petition for relief or a motion to dismiss or for reconsideration was prohibited.
Having no speedy and adequate remedy in the ordinary course of law, they filed this petition for
certiorari and prohibition alleging that respondent Judge Romeo F. Barza of the Regional Trial Court
(RTC) of Makati City, Branch 61, committed grave abuse of discretion amounting to lack or excess of
jurisdiction in issuing the Orders dated September 13, 2005 and December 16, 2005 in Special
Proceedings (Sp. Proc.) No. M-6144.
ISSUE:
Whether or not respondent Judge committed grave abuse of discretion amounting to lack or
excess of jurisdiction in issuing the Order dated September 13, 2005 staying enforcement of all claims
against CAP and the Order dated December 16, 2005 giving due course to CAP’s petition for
rehabilitation.
HELD:
Absent any provision in the Interim Rules, as amended, or P.D. No. 902-A exempting claims
arising from pre-need contracts from a court order staying enforcement of all claims against the
debtor/pre-need company, the Court holds that respondent Judge did not commit grave abuse of
discretion in enforcing the Stay Order against petitioners.

.
Republic Act (R.A.) No. 8799, otherwise known as The Securities Regulation Code, defines
“pre-need plans” as “contracts which provide for the performance of future services or the payment of
future monetary considerations at the time of actual need, for which planholders pay in cash or
installment at stated prices, with or without interest or insurance coverage, and includes life, pension,
education, interment, and other plans which the Commission may from time to time approve.
On 15 December 2000, the High Court approved the Interim Rules of Procedure on Corporate
Rehabilitation. The Interim Rules apply to petitions for rehabilitation filed by corporations, partnerships,
and associations pursuant to P.D. No. 902-A, as amended. These Rules governed the proceedings of
the petition in question filed by CAP as it is “unable to service its debts as they fall due and its assets
are insufficient to cover its liabilities.” Thus,
SECTION 1. Who May Petition.— Any debtor who foresees the impossibility of
meeting its debts when they respectively fall due, or any creditor or creditors holding at
least twenty-five percent (25%) of the debtor’s total liabilities, may petition the proper
Regional Trial Court to have the debtor placed under rehabilitation.
Under the Interim Rules, “debtor” shall mean “any corporation, partnership, or
association, whether supervised or regulated by the Securities and Exchange Commission or
other government agencies, on whose behalf a petition for rehabilitation has been filed under
these Rules.”
The Interim Rules does not distinguish whether a pre-need corporation like CAP cannot
file a petition for rehabilitation before the RTC. Courts are not authorized to distinguish where
the Interim Rules makes no distinction.
Moreover, under the Interim Rules, “claim” shall include “all claims or demands of whatever
nature or character against a debtor or its property, whether for money or otherwise.” “Creditor” shall
mean “any holder of a claim.
Hence, the claim of petitioners for payment of tuition fees from CAP is included in the definition
of “claims” under the Interim Rules.
Although said rules where amended sometime in 2009, it does not exempt claims
arising from pre-need plans from Stay Order. AS ruled by the Court in Negros Navigation Co.,
Inc. v. Court of Appeals explained the reason for suspending all pending claims against a
corporation under receivership, thus:
x x x x The stay order is effective on all creditors of the corporation without distinction,
whether secured or unsecured. All assets of a corporation under rehabilitation receivership are
held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or
preference over another by the expedience of attachment, execution or otherwise. As between
the creditors, the key phrase is equality in equity. Once the corporation threatened by
bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not one
of them should be paid ahead of the others.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: SECURITIES REGULATION CODE
SEC VS. PROSPERITY.COM, INC.
(Jan. 25, 2012)
FACTS:
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing
internet service. To make a profit, PCI devised a scheme in which, for the price of US$234.00
(subsequently increased to US$294), a buyer could acquire from it an internet website of a 15-Mega
Byte (MB) capacity. At the same time, by referring to PCI his own down-line buyers, a first-time buyer
could earn commissions, interest in real estate in the Philippines and in the United States, and
insurance coverage worthP50,000.00.
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as
his own down-lines. These second tier of buyers could in turn build up their own down-lines. For each
pair of down-lines, the buyer-sponsor received a US$92.00 commission. But referrals in a day by the
buyer-sponsor should not exceed 16 since the commissions due from excess referrals inure to PCI, not
to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which
company stopped operations after the Securities and Exchange Commission (SEC) issued a cease and
desist order (CDO) against it. As it later on turned out, the same persons who ran the affairs of GVI
directed PCI’s actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that
the latter had taken over GVI’s operations. After hearing,[1] the SEC, through its Compliance and
Enforcement unit, issued a CDO against PCI. The SEC ruled that PCI’s scheme constitutes an
Investment contract and, following the Securities Regulations Code,[2] it should have first registered
such contract or securities with the SEC.
ISSUE:
Whether or not PCI’s scheme constitutes an investment contract that requires registration under
R.A. 8799.
HELD:
No.The Securities Regulation Code treats investment contracts as “securities” that have to be
registered with the SEC before they can be distributed and sold. An investment contract is a contract,
transaction, or scheme where a person invests his money in a common enterprise and is led to expect
profits primarily from the efforts of others.
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey
Co. that, for an investment contract to exist, the following elements, referred to as the Howey test must
concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a
common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of
others. Thus, to sustain the SEC position in this case, PCI’s scheme or contract with its buyers must
have all these elements.
Here, PCI’s clients do not make such investments. They buy a product of some value to them:
an Internet website of a 15-MB capacity. The client can use this website to enable people to have
internet access to what he has to offer to them, say, some skin cream. The buyers of the website do
not invest money in PCI that it could use for running some business that would generate profits for the
investors. The price of US$234.00 is what the buyer pays for the use of the website, a tangible asset
that PCI creates, using its computer facilities and technical skills.

The commissions, interest in real estate, and insurance coverage worth P50,000.00 are
incentives to down-line sellers to bring in other customers. These can hardly be regarded as profits
from investment of money under the Howey test.
CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: SECURITIES REGULATION CODE
POWER HOMES UNLIMIED CORP. VS. SEC
FEB. 26, 2008
FACTS:
Petitioner is a domestic corporation duly registered with SEC on Oct. 13 2000 to engage in the
transaction of promoting, acquiring, managing, leasing, development, and improvement of real estate
properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said
subdivision and properties through network marketing.
On Oct. 27, 2000, private respondent Noel Manero requested public respondent SEC to
investigate petitioner’s business. He claimed that he attended a seminar conducted by petitioner where
the latter claimed to sell properties that were inexistent and without any broker’s license.
On the bases of the letters of respondent Manero and Munsayac, SEC held a conference on
Dec. 13, 2000 attended by petitioner’s incorporators. Attendees were requested to submit copies of
petitioner’s marketing scheme. SEC also visited the business premises of petitioner wherein it gathered
documents such as certificates of accreditation to several real estate companies.
After finding petitioner to be engaged in the sale or offer for sale or distribution of investment
contracts, which are considered securities under Sec. 3.1 (b) of R.A. 8799 or SRC, but failed to register
them in violation of Sec. 8.1 of the same Act, public respondent SEC issued a Cease and Desist Order
against petitioner.
ISSUE:
Whether or not the business of petitioner involves an investment contract that is considered as
security, which should be registered with the SEC before its sale or offer for sale or distribution to the
public.
HELD:
The business of petitioner involves an investment contract. An investment contract is defined in
the Amended IRR of R.A. No. 8799 as a “contract, transaction or scheme whereby a person invests his
money in a common enterprise and is led to expect profits primarily from the efforts of others. To be a
security subject to regulation by the SEC, an investment contract in our jurisdiction must be proved to
be: (1) an investment of money, (2) in a common enterprise, (3) with expectation of profits, (4)
primarily from efforts of others.
The scheme of the corporation requires an investor to become a Business Center Owner
(BCO). The Terms and Conditions printed at the back of the application form indicate that the BCO
shall mean an independent representative of Power Homes, who is enrolled in the company’s referral
program and who will ultimately purchase real property from any accredited real estate developers and
as such he is entitled to a referral bonus/commission. An investor enrolls in petitioner’s program by
paying US$234. This entitles him to recruit two (2) investors who pay US$234 each and out of which
amount he receives US$92. Such business arrangement is a kind of investment contract.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
GONZALEZ vs. PCIB, 644 SCRA 180 (2011)
FACTS:
Petitioner Eusebio Gonzalez was granted by PCIB a credit line to Gonzales through the
execution of a Credit-On-Hand Loan Agreement ( COHLA), in which the aggregate amount of the
accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line.
Gonzales drew from said credit line through the issuance of check. At the institution of the instant case,
Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB. Later Spouses Gonzales
obtained a loan, subsequently spouses Panlilio and Gonzales obtained two additional loans from PCIB
these three loans were covered by three promissory notes.
To secure the loans, a real estate
mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was
executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among
others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans.
However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000. The monthly
interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their
account with the PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment
of the periodic interest dues from their PCIB account which apparently was not maintained with enough
deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the
subsequent accumulating periodic interest dues which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson
(Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13, 1998, upon
presentment for payment by Unson of said check, it was dishonored by PCIB due to the termination by
PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the
loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales, who,
through counsel, wrote PCIB insisting that the check he issued had been fully funded, and demanded
the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check.
ISSUE(S):
A. Whether petitioner is solidarily with the spouses Panlilia liable based on the promissory
notes
B. Whether there is improper dishonor of the check by the bank
HELD:
A.
Yes. The fact that the loans were undertaken by Gonzales when he signed as borrower
or co-borrower for the benefit of the spouses Panlilio—as shown by the fact that the proceeds
went to the spouses Panlilio who were servicing or paying the monthly dues—is beside the
point. For signing as borrower and co-borrower on the promissory notes with the proceeds of
the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said
spouses. As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for
the loans

B.

No. Records show that there was no proper notice given by the bank to the petitioner,
the business of banking is impressed with public interest and great reliance is made on the
bank’s sworn profession of diligence and meticulousness in giving irreproachable service. Like a

common carrier whose business is imbued with public interest, a bank should exercise
extraordinary diligence to negate its liability to the depositors. 35 In this instance, PCIB is sorely
remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise
its rights without respecting and honoring the rights of its clients.
BETTY L. CAMPOS
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
SECURITY BANK VS. RCBC
G.R. No. 170984
(January 10, 2009)
FACTS:
Security Bank and Trust Company (SBTC) issued a manager’s check for P8 million, payable to
"CASH," as proceeds of the loan granted to Guidon Construction and Development Corporation
(GCDC). On the same day, the P8-million check, along with other checks, was deposited by
Continental Manufacturing Corporation (CMC) in its Current Account with Rizal Commercial Banking
Corporation (RCBC). Immediately, RCBC honored the P8-million check and allowed CMC to withdraw
the same. On the next banking day, GCDC issued a "Stop Payment Order" to SBTC, claiming that
the P8-million check was released to a third party by mistake. Consequently, SBTC dishonored and
returned the manager’s check to RCBC. Thereafter, the check was returned back and forth between
the two banks, resulting in automatic debits and credits in each bank’s clearing balance. RCBC filed a
complaint for damages against SBTC with the CFI of Rizal.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped
returning the checks to each other. By way of a temporary arrangement pending resolution of the case,
the P8-million check was equally divided between, and credited to, RCBC and SBTC. The RTC
rendered a Decision in favor of RCBC and finds defendant SBTC justly liable to [RCBC]. The CA
affirmed the decision. Hence, this petition for review on certiorari.
ISSUE:
1. Whether or not SBTC is liable for the Manager’s Check it issued.
HELD:
SBTC is liable for the Manager’s Check it issued. It must be noted that the questioned check
issued by SBTC is not just an ordinary check but a manager’s check. A manager’s check is one drawn
by a bank’s manager upon the bank itself. It stands on the same footing as a certified check, which is
deemed to have been accepted by the bank that certified it. As the bank’s own check, a manager’s
check becomes the primary obligation of the bank and is accepted in advance by the act of its
issuance. In this instant case, RCBC, in immediately crediting the amount of P8 million to CMC’s
account, relied on the integrity and honor of the check as it is regarded in commercial transactions.
Where the questioned check, which was payable to "Cash," appeared regular on its face, and the bank
found nothing unusual in the transaction, as the drawer usually issued checks in big amounts made
payable to cash, RCBC cannot be faulted in paying the value of the questioned check.
SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated December
21, 1979, prohibiting drawings against uncollected deposits. For we must point out that the Central
Bank at that time issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board
Resolution No. 2202. Said Memorandum reads: “For the guidance of all concerned, Monetary Board
Resolution No. 2202 dated December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980,uncollected deposits representing manager’s cashier’s/
treasurer’s checks, treasury warrants, postal money orders and duly funded "on us" checks which may
be permitted at the discretion of each bank, covers drawings against demand deposits as well as
withdrawals from savings deposits." Thus, it is clear from the July 9, 1980 Memorandum that banks
were given the discretion to allow immediate drawings on uncollected deposits of manager’s checks,
among others. Consequently, RCBC, in allowing the immediate withdrawal against the subject

manager’s check, only exercised a prerogative expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the
extraordinary nature of the manager’s check and the relative rights of the parties thereto. SBTC’s
liability as drawer remains the same − by drawing the instrument, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.
TRYLL G. CHIU
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
BANK OF AMERICA VS. ASSOCIATED CITIZEN’S BANK
588 SCRA 51 (2009)
FACTS:
BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press, Inc.
(Miller), through the latter’s authorized representatives. BA-Finance granted Miller a credit line facility
through which the latter could assign or discount its trade receivables with the former. Said
representatives executed a Continuing Suretyship Agreement with BA-Finance whereby they jointly and
severally guaranteed the full and prompt payment of any and all indebtedness which Miller may incur
with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favour of the latter. In consideration of the assignment, BA-Finance issued four checks
payable to the “Order of Miller Offset Press, Inc.” with the notation “For Payee’s Account Only.” These
checks were drawn against Bank of America.
The four checks were deposited by the corporate secretary of Miller, in Associated Citizens Bank
(Associated Bank) and stamped the checks with the notation “all prior endorsements and/or lack of
endorsements guaranteed,” and sent them through clearing. Later, the drawee bank, Bank of America,
honoured the checks and paid the proceeds to Associated Bank as the collecting bank.
Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.
Consequently, BA-Finance filed a Complaint against Miller for collection, which BA-Finance allegedly
paid in consideration of the assignment, plus interest and penalty charges.
Miller denied that (1) they received the amount covered by the four Bank of America checks, and
(2) they authorized their co-defendant to transact business with BA-Finance on behalf of Miller.
In view thereof, BA-Finance filed an Amended Complaint impleading Bank of America as
additional defendant for allegedly allowing encashment and collection of the checks by person or
persons other than the payee named thereon. Bank of America filed a Third Party Complaint against
Associated Bank. Associated Bank admitted having received the four checks for deposit in the joint
account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged that Robert
Ching, being one of the corporate officers of Miller, was duly authorized to act for and on behalf of
Miller.
ISSUES:
Whether the Court of Appeals erred in rendering judgment finding:
(1) Bank of America liable to pay BA-Finance the amount of the four checks;
(2) Associated Bank liable to reimburse Bank of America the amount of the four checks;
(3) Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount of
the four checks.
HELD:
(1) The Court of Appeals did not err in finding Bank of America liable to pay BA-Finance the
amount of the four checks.
This Court has taken judicial cognizance of the practice that a check with two parallel lines in
the upper left hand corner means that it could only be deposited and could not be converted into

cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing
may be “special” wherein between the two parallel lines is written the name of a bank or a business
institution, in which case the drawee should pay only with the intervention of that bank or company, or
“general” wherein between two parallel diagonal lines are written the words “and Co.” or none at all, in
which case the drawee should not en-cash the same but merely accept the same for deposit.
We enumerated the effects of crossing a check as follows: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account
with a bank; and (c) the act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.
In this case, the four checks were drawn by BA-Finance and made payable to the “Order of Miller
Offset Press, Inc.” The checks were also crossed and issued “For Payee’s Account Only.” Clearly, the
drawer intended the check for deposit only by Miller Offset Press, Inc. in the latter’s bank
account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented
and deposited the checks in his own personal account (Ching Uy Seng’s joint account with Uy Chung
Guan Seng), and the drawee bank, Bank of America, paid the value of the checks and charged BAFinance’s account therefor, the drawee Bank of America is deemed to have violated the instructions of
the drawer, and therefore, is liable for the amount charged to the drawer’s account.
(2) The Court of Appeals did not err in finding Associated Bank liable to reimburse Bank of
America the amount of the four checks.
A collecting bank where a check is deposited, and which endorses the check upon presentment
with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an
endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting.” This Court has repeatedly held that in check transactions, the
collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements.
When Associated Bank stamped the back of the four checks with the phrase “all prior
endorsements and/or lack of endorsement guaranteed,” that bank had for all intents and purposes
treated the checks as negotiable instruments and, accordingly, assumed the warranty of an
endorser. Being so, Associated Bank cannot deny liability on the checks.
Associated Bank was also clearly negligent in disregarding established banking rules and
regulations by allowing the four checks to be presented by, and deposited in the personal bank account
of, a person who was not the payee named in the checks. The checks were issued to the “Order of
Miller Offset Press, Inc.,” but were deposited, and paid by Associated Bank, to the personal joint
account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng. It could not have escaped
Associated Bank’s attention that the payee of the checks is a corporation while the person who
deposited the checks in his own account is an individual. Verily, when the bank allowed its client to
collect on crossed checks issued in the name of another, the bank is guilty of negligence. Accordingly,
we hold that Associated Bank is liable for the amount of the four checks and should reimburse the
amount of the checks to Bank of America.
(3) The Court of Appeals did not err in finding Ching Uy Seng and/or Uy Chung Guan Seng
liable to pay Associated Bank the amount of the four checks.
It is well-settled that a person who had not given value for the money paid to him has no right to
retain the money he received. This Court, therefore, quotes with approval the ruling of the Court of
Appeals in its decision. We note that the Decision of the Court of Appeals provides for the amount
of P741,277.78 as the sum of the four checks subject of this case.
It appearing, however, from the evidence on record that since Ching Uy Seng and/or Uy Chung
Guan Seng received the proceeds of the checks as they were deposited in their personal joint account
with Associated Bank, they should, therefore, be obliged to reimburse Associated Bank for the amount

it has to pay to Bank of America, in line with the rule that no person should be allowed to unjustly enrich
himself at the expense of another.

ALBERT CONG
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
METROBANK VS. CA
A check payable to cash, and drawn against the account of Bienvenido C. Tan with petitioner
Metropolitan Bank & Trust Company (Metrobank) was deposited with respondent United Overseas
Bank (UOB). The check was then forwarded for clearing and, on the same date, Metrobank cleared the
check. However, Metrobank informed UOB that it was returning the check on account of material
alteration—the date was changed from "January 23, 1997" to "January 13, 1997," and the amount was
altered from "P1,000.00" to "P91,000.00.00. Because UOB refused to accept the return and to
reimburse Metrobank the amount it paid on the check, the latter filed a Complaint before the PCHC
Arbitration Committee, contending in the main that UOB had the duty to examine the deposited check
for any material alteration; but since UOB failed to exercise due diligence in determining that the check
had been altered, UOB should bear the loss. In its Answer with Counterclaim, UOB interposed the
defenses that it exercised due diligence, and that Metrobank failed to comply with the 24-hour clearing
house rule, and, with gross negligence, cleared the check.
The Arbitration Committee directed Metrobank to submit the check to the Philippine National
Police (PNP) Crime Laboratory for examination. After almost a year, Metrobank moved for the
postponement of the hearings and their resetting on the ground that the PNP Crime Laboratory
document examination results were not yet available. In the scheduled hearing, Metrobank’s counsel
failed to appear. UOB thus moved for the dismissal of the case, which the Arbitration Committee
granted. Metrobank filed a Motion for Reconsideration of the dismissal order, attaching thereto a copy
of the Medical Certificate declaring that its counsel had been afflicted with influenza during the hearing,
and a copy of PNP Crime Laboratory Document Examination Report stating that the subject check had
been altered. UOB opposed the motion and argued that Metrobank was not serious in prosecuting the
case considering the numerous postponements of hearings made by its counsel; and that the said
counsel was trifling with the processes of the Arbitration Committee because, upon verification with his
secretary, he was not really sick.
Hence, Metrobank filed its Petition for Review with the RTC of Makati City. The trial court
rendered its Decision dismissing the petition. It ruled that it had no jurisdiction over the petition, the
same having been filed out of time. The trial court further ruled that the Arbitration Committee correctly
dismissed the original case on account of Metrobank’s failure to prosecute, and that Metrobank’s claim
could not be sustained considering that under prevailing jurisprudence the drawee-bank should bear
the loss if it had mistakenly cleared a forged or an altered check.
ISSUE
Whether or not the trial court has jurisdiction over the petition for review filed by petitioner.
HELD
In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern
in case of controversy. However, since the PCHC Rules came about only as a result of an agreement
between and among member banks of PCHC and not by law, it cannot confer jurisdiction to the RTC.
Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral awards, only on
questions of law, cannot be given effect.

As in Insular, the trial court, in this case, properly dismissed Civil Case No. 00-595 for lack of
jurisdiction, not because the petition had been filed out of time, but because the court had no
jurisdiction over the subject matter of the petition.
We are aware that the Supreme Court has ample authority to go beyond the pleadings when, in
the interest of justice and the promotion of public policy, there is a need to make its own finding to
support its conclusion. In this case, however, we find no compelling reason to resolve the other issues
raised in the petition.
MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
ALLIED BANK v. LIM SIO WAN
549 SCRA 504 (2008)
FACTS:
Repondent Lim Sio Wan deposited with petitioner Allied a money market placement. A person
claiming to be Lim Sio Wan called up Allied to pre-terminate the money market placement and to issue
a manager’s check representing the proceeds of the placement. The bank issued manager’s check in
the name of Lim Sio Wan as payee and the same was crossed checked “For Payee’s Account only”
and given to a certain Santos. The manager’s check was deposited in the account of FCC at
respondent Metrobank, with the forged signature of Lim Sio Wan as indorser. The Allied check was
deposited with Metrobank in the account of FCC as Producers Bank’s payment of its obligation to FCC
when the latter demanded the payment of the proceeds of its placement with Producers Bank. To clear
the check, Metrobank stamped a guaranty on the check. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wan’s purported indorsement.
Thus, the amount on the face of the check was credited to the account of FCC. When Allied refused to
pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the placement and its
subsequent release to Santos, Lim So Wan filed the instant case.
ISSUE:
What are the liabilities of the parties?
HELD:
Producers Bank must be held liable to Allied and Metrobank for the amount of the check which
Allied and Metrobank are adjudged to pay based on proportion of 60:40. Lim Sio Wan was creditor of
the bank for her money market placement, is entitled to payment upon her request, or upon maturity of
the placement, or until the bank is released from its obligation as debtor. Until any such event, the
obligation of Allied to Lim Sio Wan remains unextinguished. In the instant case the trial court correctly
found Allied negligent in issuing the manager’s check and in transmitting it to Santos, even without
authorization. Allied’s negligence must be considered as the proximate cause of the resulting loss.
The liability of Allied is concurrent with Metrobank as the last indorser of the check. When
Metrobank indorsed the check in compliance with the PCHC Rules and Regulations without verifying
the authenticity of Lim Sio Wan’s indorsement and when it accepted the check despite the fact that it
was crossed check payable to payee’s account only, its negligent and cavalier indorsement contributed
to the easier release of Lim Sio Wan’s money and perpetuation of the fraud. Given the relative
participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally
liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by CA, must be upheld.
Considering that Producers Bank was unjustly enriched at the expense of Lim Sio Wan, the
Producers Bank is ordered to pay Lim Sio Wan, Producers Bank should reimburse Allied and
Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
PNB V. RODRIGUEZ
566 SCRA 513 (2008)
FACTS
Spouses Erlando and Norma Rodriguez were clients of Philippine National Bank (PNB),
Cebu City. They were engaged in the informal lending business where they had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Spouses Rodriguez would rediscount the post-dated checks issued to
members whenever the association was short of funds. As was customary, the spouses would replace
the post-dated checks with their own checks issued in the name of the members.
To cater loans from its members who have outstanding debts, PEMSLA officers took out loans
in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA
checks issued for these loans were then given to the spouses for rediscounting. The officers carried
this out by forging the indorsement of the named payees in the checks. In return, the spouses issued
their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an
officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their
account.
PNB eventually found out about these fraudulent acts, thus, PNB closed the current account of
PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for
the reason “Account Closed.” The corresponding Rodriguez checks, however, were deposited as usual
to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account.
Rodriguez filed a civil complaint for damages against PEMSLA and PNB. The spouses
contended that because PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the wrong
payees, hence, it should bear the loss. PNB claimed it is not liable for the checks and contended that
spouses Rodriguez, the makers, actually did not intend for the named payees to receive the proceeds
of the checks. Consequently, the payees were considered as “fictitious payees” as defined under the
Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer
instruments, the checks were negotiable by mere delivery.
ISSUE
Whether the subject checks are payable to order or to bearer and who bears the loss?
HELD
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument. In a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears the loss. However, there is a commercial bad faith

exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee
bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception
will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme.
In the instant case, the Rodriguez checks were payable to specified payees. Likewise, it is
uncontroverted that the payees were actual, existing, and living persons who were members of
PEMSLA that had a rediscounting arrangement with spouses Rodriguez.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did
not intend for the named payees to be part of the transaction involving the checks. At most, the bank’s
thesis shows that the payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of
respondents-spouses that the payees would not receive the checks’ proceeds. Considering that
respondents-spouses were transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of PEMSLA that the payees
would be receiving the checks.
The subject checks are presumed order instruments. This is because PNB failed to present
sufficient evidence to defeat the claim of respondents-spouses that the named payees were the
intended recipients of the checks’ proceeds. The bank failed to satisfy a requisite condition of a
fictitious-payee situation – that the maker of the check intended for the payee to have no interest in the
transaction. Because of a failure to show that the payees were “fictitious” in its broader sense, the
fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to
order. Consequently, the drawee bank bears the loss.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
DELA RAMA VS ADMIRAL UNITED SAVINGS BANK 351 SCRA 472 (2008)
FACTS
Admiral United Savings Bank extended a loan of P500,000.00 to petitioner Henry Dela Rama
Co, with Leocadio O. Isip as co-maker. The loan was evidenced by Promissory Note. Co and Isip failed
to pay the loan when it became due and demandable. Demands for payment were made by ADMIRAL,
but these were not heeded. Consequently, ADMIRAL filed a collection case against Co and Isip with
the RTC of Quezon City. Co argued that he only acted as an accomodation party and that the
obligation was already paid. In due course and after hearing, the RTC rendered a Decision, dismissing
the complaint on the ground that the obligation had already been paid or otherwise extinguished. It
primarily relied on the release of mortgage executed by the officers of ADMIRAL, and on Co’s
testimony that METRO RENT already paid the loan. ADMIRAL appealed the dismissal of the complaint
to the CA. Reversing the RTC, the CA found preponderance of evidence to hold Co liable for the
payment of his loan obligation to ADMIRAL. Hence, this appeal by Co faulting the CA for reversing the
RTC.
HELD
Whether or not Co should be held liable.
HELD
The court ruled in the affirmative.The document, bearing Co’s signature, speaks for itself. To
repeat, Co has not questioned the genuineness and due execution of the note. By signing the
promissory note, Co acknowledged receipt of the loan amounting to P500,000.00, and undertook to pay
the same, plus interest, to ADMIRAL on or before February 28, 1984. Thus, he cannot validly set up
the defense that he did not receive the value of the note or any consideration therefor. At any rate, Co’s
assertion that he merely acted as an accommodation party for METRO RENT cannot release him from
liability under the note. An accommodation party who lends his name to enable the accommodated
party to obtain credit or raise money is liable on the instrument to a holder for value even if he receives
no part of the consideration. He assumes the obligation to the other party and binds himself to pay the
note on its due date. By signing the note, Co thus became liable for the debt even if he had no direct
personal interest in the obligation or did not receive any benefit therefrom. Co is not unfamiliar with
commercial transactions. He is a certified public accountant, who obtained his bachelor’s degree in
accountancy from De La Salle University. Certainly, he fully understood the import and consequences
of what he was doing when he signed the promissory note. He even mortgaged his own properties to
secure payment of the loan. His disclaimer, therefore, does not inspire belief.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
VELASQUEZ VS. SOLID BANK CORPORATION, 550 SCRA 119
FACTS:
Petitioner is engaged in the export business operating under the name Wilderness Trading.
Respondent is a domestic banking corporation organized under Philippine laws. Wilderness Trading, as
seller, entered into a business transaction for the sale of dried sea cucumber for export to Goldwell
Trading of Pusan, South Korea, as buyer. To facilitate payment, Gold well Trading opened a letter of
credit in favor of Wilderness Trading with the Bank of Seoul, Pusan, South Korea. Petitioner then
applied for credit accommodation with respondent Solidbank for pre-shipment financing which was
granted as well as its second export transaction drawn on the letter of credit. The third, however, had a
different result. Petitioner then submitted to respondent necessary for his third shipment to have the
value of the shipment paid in advance and negotiated for a documentary sight draft to be drawn on the
letter of credit, chargeable to the account of Bank of Seoul. Petitioner promised that the draft will be
paid by the Bank of Seoul and held himself liable if the sight draft was not accepted in a letter of
undertaking executed by petitioner is a condition for the issuance of the sight draft. Respondent bank
obliged and sent all documents pertinent to the export transaction. Respondent was not able to collect
because the sight draft was dishonored by non-acceptance by the Bank of Seoul due to late shipment
and because most of the bags of dried sea cucumber exported contained soil. Respondent thereafter
filed a complaint for recovery of sum of money with RTC of Cebu which rendered a decision in favor of
respondent which was affirmed by the appellate court, thus, this present petition.
ISSUE:
Whether or not petitioner’s liability under the letter of undertaking is that of a mere guarantor.
RULING:
No. Petitioner cannot be both the primary debtor and the guarantor of his own debt. This is
inconsistent with the very purpose of a guarantee which is for the creditor to proceed against a third
person if the debtor defaults in his obligation. Petitioner bound himself liable to respondent under the
letter of undertaking if the sight draft is not accepted. He also warranted that the sight draft is genuine;
will be paid by the issuing bank in accordance with its tenor; and that he will be held liable for the full
amount of the draft upon demand, without necessity of proceeding against the drawee bank.

RUBY LAID
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
JAMES SVENDSEN VS. REPUBLIC OF THE PHILIPPINES,
G. R. NO. 175381
FACTS
In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount
of P200,000, to bear interest at 10% a month. After petitioner had partially paid his obligation, he failed
to settle the balance thereof which had reached P380,000 inclusive of interest. Cristina thus filed a
collection suit against petitioner. Petitioner paid her P200,000 and issued in her favor an International
Exchange Bank check postdated February 2, 1999 (the check) in the amount of P160,000 representing
interest. The check was co-signed by one Wilhelm Bolton. The check was dishonored when presented
on February 9, 1999 for having been Drawn Against Insufficient Funds (DAIF). Cristina, through
counsel, thus sent a letter to petitioner by registered mail informing him that the check was dishonored
by the drawee bank, and demanding that he make it good within five (5) days from receipt thereof.
No settlement having been made by petitioner, Cristina filed a complaint dated March 1,
1999 against him and his co-signatory to the check, Bolton, for violation of B.P.Blg. 22 before the City
Prosecutor’s Office of Manila. No counter-affidavit was submitted by petitioner and his corespondent. An Information dated April 13, 1999 for violation of B.P. Blg. No. 22 was thus filed on April
29, 1999 before the MeTC of Manila against the two. MeTC found petitioner guilty beyond reasonable
doubt of a violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and imposes upon him to
pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00), with subsidiary
imprisonment in case of insolvencya and is made liable to pay private complainant Cristina C.
Reyes civil indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS
(P160,000.00) representing his civil obligation covered by subject check. RTC affirmed
the MeTC judgment and the Court of Appeals denied petitioner’s appeal, hence, the present petition for
review.
ISSUE
Whether or not the petitioner is guilty beyond reasonable doubt of violation B.P. Blg. 22.
RULING
Petitioner, James Svendsen, is acquitted of the crime charged for failure of the prosecution to
prove his guilt beyond reasonable doubt.
Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads:
SECTION 1. Checks without sufficient funds. – Any person who makes or draws
and issues any check to apply on account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been dishonored for
the same reason had not the drawer, without any valid reason, ordered the bank to stop
payment, shall be punished by imprisonment of not less than thirty days but not more
than one (1) year or by fine of not less than but not more than double the amount of the

check which fine shall in no case exceed Two Hundred Thousand pesos, or both such
fine and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient
funds in or credit with the drawee bank when he makes or draws and issues a check,
shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the
check if presented within a period of ninety (90) days from the date appearing thereon,
for which reason it is dishonored by the drawee bank. Where the check is drawn by a
corporation, company or entity, the person or persons who actually signed the check in
behalf of such drawer shall be liable under this Act.
For petitioner to be validly convicted of the crime under B.P. Blg. 22, the following requisites must
thus concur: (1) the making, drawing and issuance of any check to apply for account or for value; (2)
the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds
in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the
subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for
the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.
Petitioner admits having issued the postdated check to Cristina. The check, however, was dishonored
when deposited for payment in Banco de Oro due to DAIF. Hence, the first and the third elements
obtain in the case.
As for the second element, Section 2 of B.P. Blg. 22 provides that
[t]he making, drawing and issuance of a check payment of which is refused by
the drawee because of insufficient funds in or credit with such bank, when presented
within ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or drawer pays the
holder thereof the amount due thereon, or makes arrangements for payment in full by
the drawee of such check within five (5) banking days after receiving notice that such
check has not been paid by the drawee.
In Rico v. People of the Philippines,[12] this Court held:
x x x [I]f x x x notice of non-payment by the drawee bank is not sent to the maker or
drawer of the bum check, or if there is no proof as to when such notice was received by the
drawer, then the presumption of knowledge as provided in Section 2 of B.P. 22 cannot arise,
since there would simply be no way of reckoning the crucial five-day period.
x x x In recent cases, we had the occasion to emphasize that not only must there be
a written notice of dishonor or demand letters actually received by the drawer of a dishonored
check, but there must also be proof of receipt thereof that is properly authenticated, and
not mere registered receipt and/or return receipt.
Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P. 22 indeed
does not state that the notice of dishonor be in writing, this must be taken in conjunction with
Section 3 of the law, i.e., “that where there are no sufficient funds in or credit with
such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or
refusal”. A mere oral notice or demand to pay would appear to be insufficient for conviction
under the law. In our view, both the spirit and letter of the Bouncing Checks Law require for the
act to be punished thereunder not only that the accused issued a check that is dishonored, but
also that the accused has actually been notified in writing of the fact of dishonor. This is
consistent with the rule that penal statues must be construed strictly against the state and
liberally in favor of the accused. x x x In fine, the failure of the prosecution to prove the
existence and receipt by petitioner of the requisite written notice of dishonor and that he was
given at least five banking days within which to settle his account constitutes sufficient ground
for his acquittal.[13] (Italics in the original; emphasis and underscoring supplied)
The evidence for the prosecution failed to prove the second element. While the registry receipt,
[14]
which is said to cover the letter-notice of dishonor and of demand sent to petitioner, was presented,
there is no proof that he or a duly authorized agent received the same. Receipts for registered letters
including return receipts do not themselves prove receipt; they must be properly authenticated to serve
as proof of receipt of the letters. [15] Thus in Ting v. Court of Appeals,[16] this Court observed:
x x x All that we have on record is an illegible signature on the registry receipt as evidence that

someone received the letter. As to whether this signature is that of one of the petitioners or of their
authorized agent remains a mystery. From the registry receipt alone, it is possible that petitioners or
their authorized agent did receive the demand letter. Possibilities, however, cannot replace proof
beyond reasonable doubt.[17]
Petitioner is civilly liable. He is, however, ordered to pay private complainant, Cristina C. Reyes,
the amount of SIXTEEN THOUSAND PESOS (P16,000) representing civil indemnity, plus 12%
interest per annum computed from April 29, 1999 up to the finality of this judgment. After the judgment
becomes final and executory until the obligation is satisfied, the total amount due shall earn interest at
12% per annum.
DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
ANG VS. ASSOCIATED BANK
532 SCRA 244 (2007)
FACTS:
Respondent Associated Bank filed a collection suit against Antonio Ang Eng Liong and
petitioner Tomas Ang for the 2 promissory notes that they executed as principal debtor and co-maker,
respectively. Respondent Bank alleged that the defendants obtained a loan of 50,000, and 30,000,
evidenced by promissory notes. As agreed, the loan would be payable, jointly and severally, on
January 31, 1979 and December 8, 1978, respectively.
Despite repeated demands for payment, the latest of which were on September 13, 1988 and
September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank claimed
that the defendants failed and refused to settle their obligation.
For his part, petitioner Tomas Ang
interposed that the bank knew that he did not receive any valuable consideration for affixing his
signatures on the notes but merely lent his name as an accommodation party.
The bank replied that The fact that Tomas Ang never received any moneys in consideration of
the two (2) loans and that such was known to the bank are immaterial because, as an accommodation
maker, he is considered as a solidary debtor who is primarily liable for the payment of the promissory
notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or
failure of consideration is not a matter of defense neither is the fact that the holder knew him to be only
an accommodation party.
ISSUE:
Whether or not Tomas Ang, who is merely an accommodation party in a promissory note, is
solidarily liable with Liong for the payment of the notes.
HELD:
Ang is solidarily liable. Section 29 of the NIL defines an accommodation party as a person "who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and
for the purpose of lending his name to some other person." As gleaned from the text, an
accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or credit to some other person. The
accommodation party is liable on the instrument to a holder for value even though the holder, at the
time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract
was not for accommodation.
As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety – the accommodation party being the surety. As
such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the
same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since

their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety's liability to the creditor is immediate,
primary and absolute; he is directly and equally bound with the principal.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
METRO BANK VS CABILZO G.R. NO. 154469 DECEMBER 6, 2006
FACTS:
November 12,1994: Renato D. Cabilzo (Cabilzo) issued a Metrobank Check payable to "CASH"
and postdated on November 24, 1994 in the amount of P1,000 drawn against his Metrobank account
to Mr. Marquez, as his sales commission. The check was presented to Westmont Bank for payment
who indorsed it to Metrobank for appropriate clearing. After the entries thereon were examined,
including the availability of funds and the authenticity of the signature of the drawer, Metrobank cleared
the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC)
Rules. On November 16, 1994: Cabilzo’s representative was at Metrobank when he was asked by a
bank personnel if Cabilzo had issued a check in the amount of P91K to which he replied in negative. In
that afternoon Cabilzo called Metrobank to reiterate that he did not issue the check. He later discovered
that the check of P1K was altered to P91K and date was changed from Nov 24 to Nov 14. Cabilzo
demanded that Metrobank re-credit the amount of P91,000.00 to his account. On June 30, 1995
through his counsel sent a letter-demand for the amount of P90K
ISSUE:
Whether or not Cablizo can recover from Metrobank
HELD:
YES. An alteration is said to be material if it changes the effect of the instrument. It means that
an unauthorized change in an instrument that purports to modify in any respect the obligation of a party
or an unauthorized addition of words or numbers or other change to an incomplete instrument relating
to the obligation of a party. 20 In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable Instruments Law.
In the case at bar, the check was altered so that the amount was increased from P1,000.00
to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994. Apparently,
since the entries altered were among those enumerated under Section 1 and 125, namely, the sum of
money payable and the date of the check, the instant controversy therefore squarely falls within the
purview of material alteration
The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay
to the order of the payee in accordance with the drawer’s instructions as reflected on the face and by
the terms of the check. Payment made under materially altered instrument is not payment done in
accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the check, as
well as its duty to charge its client’s account only for bona fide disbursements he had made. Since the
drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the
right to deduct the erroneous payment it made from the drawer’s account which it was expected to treat
with utmost fidelity.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
GONZALES vs. RIZAL COMMERCIAL BANKING CORPORATION (RCBC), 508 SCRA 459 (2006)
FACTS:
Gonzales was an employee of RCBC. A foreign check was drawn by one Dr. Zapanta against
the drawee Wilshire Center Bank and payable to Gonzales’ mother, defendant Eva Alviar. Alviar
indorsed the check. Since RCBC gives special accommodations to its employees to receive the check’s
value without awaiting the clearing period, Gonzales presented the foreign check and received its peso
equivalent. RCBC then tried to collect the amount of the check with the drawee bank but was just
dishonored due to irregular indorsement. Unable to collect, RCBC demanded from Gonzales the
payment of the check that she received. Gonzales settled the matter by agreeing that payment be
made thru salary deduction. However, she later resigned. RCBC filed a complaint for a sum of money
against her and her mother.
ISSUE:
Whether Gonzales is liable as general indorser.
HELD:
NO. Sec 66 of NIL provides that, every indorser who indorses without qualification, warrants to
all subsequent holders in due course that the instrument is genuine and in all respects what it purports
to be; That he has a good title to it; hat all prior parties had capacity to contract; and that the instrument
is, at the time of his indorsement, valid and subsisting. This provision, however, cannot be used by the
party which introduced a defect on the instrument, such as respondent RCBC in this case, which
qualifiedly endorsed the same, to hold prior endorsers liable on the instrument because it results in the
absurd situation whereby a subsequent party may render an instrument useless and inutile and let
innocent parties bear the loss while he himself gets away scot-free. It cannot be over-The warranties for
which Alviar and Gonzales are liable as general endorsers in favor of subsequent endorsers extend
only to the state of the instrument at the time of their endorsements.

GLEN PETILLA
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
THE INTERNATIONAL CORPORATE BANK, INC., petitioner, vs. COURT OF APPEALS and
PHILIPPINE NATIONAL BANK, respondents. G.R. No. 129910 September 5, 2006
FACTS
The Ministry of Education and Culture issued 15 checks 5 drawn against respondent which
petitioner accepted for deposit on various dates. After 24 hours from submission of the checks to
respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, respondent returned all the checks to petitioner without
clearing them on the ground that the serial numbers were materially altered. Thus, petitioner instituted
an action for collection of sums of money against respondent to recover the value of the checks.
ISSUE
Whether the checks were materially altered
RULING
Alteration of Serial Number Not Material. Sections 124 and 125 of Act No. 2031, otherwise
known as the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party
who has himself made, authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due
course, not a party to the alteration, he may enforce payment thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made
An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in an instrument that purports to modify in any respect the obligation of a party or
an unauthorized addition of words or numbers or other change to an incomplete instrument relating to
the obligation of a party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments Law.
What was altered is the serial number of the check in question, an item is not an essential
requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned
alteration did not change the relations between the parties. The name of the drawer and the drawee
were not altered. The intended payee and the sum of money were the same.
WHEREFORE, we rule that respondent Philippine National Bank is liable to petitioner
International Corporate Bank, Inc. for the value of the checks. Costs against respondent.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
DICO VS. COURT OF APPEALS
452 SCRA 441 (FEB. 28, 2005)
FACTS:
Accused Jaime Dico, now petitioner, was charged with three counts of violation of Batas
Pambansa Bilang 22 (B.P. Blg. 22) before the MTCC of Cebu. As regards the check dated June 12,
1993 which was deposited on June 14, 1993, petitioner maintains that the notice of dishonor given for
said check was not the one required by law since said notice was given before the check became due
and before it was deposited. The record of the case shows the only letter received by petitioner
involving the three checks subject of these cases was the one dated June 8, 1993. This letter sent by
the counsel of private complainant asked petitioner to make good the checks within five (5) days from
receipt thereof, otherwise, criminal charges for violation of B.P. Blg. 22 will be filed against him.
ISSUE:
Whether or not the notice of dishonor of the check was properly made to Dico as a requisite for
violation of BP 22.
HELD:
The notice of dishonor of the check was not properly made. To hold a person liable under B.P.
Blg. 22, the prosecution must not only establish that a check was issued and that the same was
subsequently dishonored, it must further be shown that accused knew at the time of the issuance of the
check that he did not have sufficient funds or credit with the drawee bank for the payment of such
check in full upon its presentment.
This knowledge of insufficiency of funds at the time of the issuance of the check is the second
element of the offense. Inasmuch as this element involves a state of mind of the person making,
drawing or issuing the check which is difficult to prove, Section 2 of B.P. Blg. 22 creates a prima facie
presumption of such knowledge. The presumption is brought into existence only after it is proved that
the issuer had received a notice of dishonor and that within five days from receipt thereof, he failed to
pay the amount of the check or to make arrangements for its payment (Sec. 2, BP 22).
A notice of dishonor received by the maker or drawer of the check is thus indispensable before
a conviction can ensue. The notice of dishonor may be sent by the offended party or the drawee bank.
The notice must be in writing. A mere oral notice to pay a dishonored check will not suffice. The lack of
a written notice is fatal for the prosecution.
Petitioner did not receive the notice of dishonor contemplated by the law. There was no valid
notice of dishonor to speak of. The term “notice of dishonor” denotes that a check has been presented
for payment and was subsequently dishonored by the drawee bank. This means that the check must
necessarily be due and demandable because only a check that has become due can be presented for
payment and subsequently be dishonored. A postdated check cannot be dishonored if presented for
payment before its due date.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
OFELIA MARIGOMEN v. PEOPLE OF THE PHILIPPINES
G.R. No. 153451, 26 May 2005, Second Division (Callejo, Sr., J.)
FACTS
The notice of dishonor must be in writing; a verbal notice is not enough. Thus, if the drawer or
maker is an officer of a corporation, the notice of dishonor to the said corporation is not notice to the
employee or officer who drew or issued the check for and in its behalf. Constructive notice to the
corporation is not enough to satisfy due process.
Caltex Philippines, Inc. (Caltex) is engaged in the sale of gasoline and oil products to its
customers, one of which was the Industrial Sugar Resources, Inc. (INSURECO), with offices at the
Bacolod Murcia Milling Corporation Compound in Bacolod City. Caltex had granted a credit line to
INSURECO, and the latter purchased gasoline and lubricants from Caltex through its sales
representative in Negros Occidental and Bacolod City. The finance officer of INSURECO was Ofelia
Marigomen, while John V. Dalao was the assistant to the general manager. They were authorized to
draw and sign checks against the account of INSURECO at the Far East Bank and Trust Company,
Bacolod City Branch. Caltex had agreed forINSURECO to pay its purchases via postdated checks,
which were delivered to Caltex upon the release of the purchased oil products. The delivery receipts
show that INSURECO bought and took delivery of oil products from Caltex. In payment thereof, several
postdated checks were drawn and signed by Marigomen and Dalao against its account with the Far
East Bank and Trust Company, Bacolod City Branch issued in favor of Caltex. When Caltex presented
the checks for payment on their due dates, three checks were dishonored by the drawee bank, for the
reason that they were “drawn against insufficient funds.” Another check was, likewise, dishonored with
the notation “account closed.” Hence, Caltex, through Dalao, made verbal demands to INSURECO for
the replacement of the dishonored checks with either manager’s checks or cash, to no avail. On May 6,
1992, Caltex sent a confirmation telegram informing INSURECO of the dishonor of the said checks,
and again demanded their replacement, but received no reply. Thereafter, Caltex filed criminal
complaints for violation of B.P 22 against Marigomen and Dalao with the Office of the City Prosecutor of
Bacolod City. They were, thereafter, charged with three counts of violation of B.P. 22 in three separate
Informations filed with the RTC of Bacolod City, and docketed as Criminal Case Nos. 13012 to 13014.
On October 21, 1996, the trial court rendered judgment convicting Marigomen and Dalao of the crimes
charged.
The CA rendered judgment affirming the decision of the RTC. Upon the denial of her motion for
reconsideration of the said decision, Marigomen filed the instant petition for review on certiorari.
ISSUE:
Whether or not the respondent adduced proof beyond reasonable doubt of the guilt of the
petitioner for violation of B.P. 22
HELD:
The petition is granted. For violation of B.P. 22 to be committed, the prosecution must prove the
following essential elements: (1) the making, drawing, and issuance of any check to apply for account
or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue there are no

sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of
funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered
the bank to stop payment.
It is difficult for the prosecution to prove the second element of the crime because the
knowledge on the part of the maker, drawer or issuer that at the time of issue he does not have
sufficient funds or credit with the drawee bank for the payment of such checks in full upon its
presentation is a state of the mind. However, Section 2 of B.P. 22 provides that if the prosecution
proves that the making, drawing and issuing of a check, payment of which is refused by the drawee
bank because of insufficiency of funds or credit with the said bank within 90 days from the date of the
check, such shall be prima facie evidence of the second element of the crime. The drawee or maker of
the check may overcome the prima facie evidence, either by paying the amount of the check, or by
making arrangements for its payment in full within five banking days after receipt of notice that such
check was not paid by the drawee bank. The ruling of the Court in Lao v. Court of Appeals is applicable
in this case. In acquitting the petitioner therein, the Court explained that this statute actually offers the
violator “a compromise by allowing him to perform some act, which operates to preempt the criminal
action, and if he opts to perform it the action is abated.” In this light, the full payment of the amount
appearing in the check within five banking days from notice of dishonor is a “complete defense.” The
absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal
prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually
served on the petitioner. The petitioner has a right to demand –and the basic postulates of fairness
require - that the notice of dishonor be actually sent to andreceived by her to afford her the opportunity
to avert prosecution under B.P. 22.
Moreover, the notice of dishonor must be in writing; a verbal notice is not enough. This is
because while Section 2 of B.P. 22 does not state that the notice of dishonor be in writing, taken in
conjunction, however, with Section 3 of the law, i.e., “that where there are no sufficient funds in or credit
with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal,” a
mere oral notice or demand to pay would appear to be insufficient for conviction under the law. The
Court is convinced that both the spirit and letter of the Bouncing Checks Law would require for the act
to be punished thereunder not only that the accused issued a check that is dishonored, but that likewise
the accused has actually been notified in writing of the fact of dishonor. The consistent rule is that penal
statutes have to be construed strictly against the State and liberally in favor of the accused. Thus, if the
drawer or maker is an officer of a corporation, the notice of dishonor to the said corporation is not notice
to the employee or officer who drew or issued the check for and in its behalf. The Court explained in
Lao v. Court of Appeals, that there was no obligation to forward the notice addressed to it to the
employee concerned, especially because the corporation itself incurs no criminal liability under BP 22
for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence,
personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the
corporation is note nough to satisfy due process. Moreover, it is the petitioner, as an officer of the
corporation, who is the latter’s agent for purposes of receiving notices and other documents, and not
the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct
and separate from the petitioner, does not constitute notice to the latter. In this case, the prosecution
failed to present any employee of the PT&T to prove that the telegrams from the offended party were in
fact transmitted to INSURECO and that the latter received the same. Furthermore, there is no evidence
on record that the petitioner ever received the said telegrams from INSURECO, or that separate copies
thereof were transmitted to and received by the petitioner. In fine, the respondent failed to prove the
second element of the crime. Hence, the petitioner should be acquitted of the crimes charged.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
WESTMONT BANK vs. INLAND CONSTRUCTION AND DEVELOPMENT CORP..
G.R. No. 123650 (March 23, 2009)
FACTS:
Inland Construction and Development Corp. (Inland) obtained various loans and other credit
accommodations from Westmont Bank in 1977. To secure the payment of its obligations, Inland
executed real estate mortgages over three real properties in Pasig City covered by Transfer Certificates
of Title Nos. 4820, 4821 and 4822. Inland likewise issued promissory notes in favor of the bank, viz:
Promissory Note No. BD-2739-77 Promissory Note No. BD-2997
Amount: P155,000.00
Amount: P60,000.00
Promissory Note No. BD-2884-77 Due Date: March 22, 19784 (Emphasis supplied)
Amount: P880,000.00
Due Date: February 23, 19783
When the first and second promissory notes fell due, Inland defaulted in its payments. It,
however, authorized the bank to debit P350,000 from its savings account to partially satisfy its
obligations.5 On May 2, 1978, Felix Aranda, President of Inland by Deed of Assignment, assigned and
conveyed all his rights and interests at Hanil-Gonzales Construction & Development Corporation in
favor of Horacio Abrantes, Executive Vice-President and General Manager of Hanil-Gonzales
Corporation. Under the same Deed of Assignment, it appears that Abrantes assumed, among other
obligations of Inland and Aranda, Promissory Note No. BD-2884-77 in the amount of P800,000.00. The
bank’s Account Officer, Lionel Calo Jr.,signed for its conformity to the deed. Subsequently Westmont
Bank Executive Committee approved the request for a restructuring of Hanil-Gonzales Construction &
Development Corp.’s obligations, which included the P880,000.00 loan (Exhibit "U" to "X", and its
submarkings. Thereafter, payments were made by the assignee to the defendant Bank.
On December 14, 1979, Inland was served a Notice of Sheriff’s Sale foreclosing the real estate
mortgages over its real properties, prompting it to file a complaint for injunction against the bank and
the Provincial Sheriff of Rizal at the Regional Trial Court (RTC) of Pasig City and was later on
amended. Answering the amended complaint, the bank underscored that it "had no knowledge, much
less did it give its conformity to the alleged assignment of the obligation covered by PN# BD-2884 [-77].
The trial court found that the bank ratified the act of its account officer Calo, The preponderance of
evidence tilts heavily in favor of the plaintiff claiming that a case of delegacion occurs. It accordingly
rendered judgment in favor of Inland by Decision of March 31, 1992, the dispositive portion of which:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants,
permanently, perpetually and forever restraining and enjoining the defendants Associated
Citizens Bank and the Sheriff of this Court from proceeding with the foreclosure of and
conducting an auction sale on the real estate covered by and embraced in Transfer Certificates
of Title Nos. 4820, 4821 and 4822 of the Register of Deeds of Rizal (now Pasig, Metro Manila)
and to refund to plaintiff the amount of P8,866.89, with legal interest thereon from the filing of
the complaint until full payment, with costs.
The bank appealed the trial court’s decision to the Court of Appeals which, by Decision of May
31, 1995, modified the same, disposing as follows:

WHEREFORE, the decision appealed from is hereby AFFIRMED only insofar as it finds
appellant Associated Bank to have ratified the Deed of Assignment (Exhibit "O"),
but REVERSED in all other respects, and judgment is accordingly rendered ordering the
plaintiff-appellee Inland Construction and Development Corporation to pay defendantappellant Associated Bank the sum of One Hundred Eighty Six Thousand Two Hundred Forty
One Pesos and Eighty Six Centavos (P186,241.86) with legal interest thereon computed from
December 21, 1979 until the same is fully paid.
The bank moved for partial reconsideration of the appellate court’s decision on the aspect of its
ratification of the Deed of Assignment but the same was denied by Resolution of January 24, 1996.
The bank, via two different counsels, filed before this Court separate petitions for review:
1.) G.R. No. 123650, Associated Citizens Bank, et al. v. Court of Appeals, et al; and
2.) G.R. No. 123822, Westmont Bank (formerly Associated Bank) v. Inland Construction &
Development Corp., assailing the same appellate court’s decision.
ISSUE:
Whether or not the petitioner bank has ratified the subject dee of assignment.
HELD:
The SC ruled in affirmative. The general rule remains that, in the absence of authority from the
board of directors, no person, not even its officers, can validly bind a corporation. If a corporation,
however, consciously lets one of its officers, or any other agent, to act within the scope of an apparent
authority, it will be estopped from denying such officer’s authority. The records show that Calo was the
one assigned to transact on petitioner’s behalf respecting the loan transactions and arrangements of
Inland as well as those of Hanil-Gonzales and Abrantes. Since it conducted business through Calo,
who is an Account Officer, it is presumed that he had authority to sign for the bank in the Deed of
Assignment. As observed by the trial court, Calo signed the subject deed of assignment on or about
May 26, 1978. The principal obligation covered by the deed involved a hefty sum of eight hundred
eighty thousand pesos (P880,000.00). Despite the enormity of the amount involved, Associated Bank
never made any attempt to repudiate the act of Calo until almost seven (7) years later, when Mitos C.
Olivares, Manager of the Cash Department of Associated Bank, issued an INTER-OFFICE
MEMORANDUM dated May 20, 1985 which pertinently reads:
"2) Conforme of Associated Bank signed by Lionel Calo Jr. has no bearing since he has no
authority to sign for the bank as he was only an account officer with no signing authority;
SC ruled that the abovequoted inter-office memorandum is addressed internally to the other
offices within Associated Bank. It is not addressed to Inland or any outsider for that matter. Worse, it
was not even offered in evidence by Associated Bank to give Inland the opportunity to object to or
comment on the said document, but was merely attached as one of the annexes to the bank’s
MEMORANDUM FOR DEFENDANTS. Obviously, no evidentiary weight may be attached to said interoffice memorandum, which is even self serving. In fact, it ought not to be considered at all.
Banking institution is expected to have exercised the highest degree of diligence and
meticulousness in the conduct of its business. Petitioner bank anchored its arguments in the case of
Yao Ka Sin Trading v Court of Appeals however, the SC was not impressed. For in this case, the
therein respondent cement company had shown by clear and convincing evidence that its president
was not authorized to undertake a particular transaction. It presented its by-laws stating that only its
board of directors has the power to enter into an agreement or contract of any kind. The company’s
board of directors even forthwith issued a resolution to repudiate the contract. Thus, it was only after
the company successfully discharged its burden that the other party, the therein petitioner Yao Ka Sin
Trading, had to prove that indeed the cement company had clothed its president with the apparent
power to execute the contract by evidence of similar acts executed in its favor or in favor of other
parties. Unmistakably, the Court’s directive in Yao Ka Sin Trading is that a corporation should first
prove by clear evidence that its corporate officer is not in fact authorized to act on its behalf before the
burden of evidence shifts to the other party to prove, by previous specific acts, that an officer was
clothed by the corporation with apparent authority.

In the present petitions, petitioner-bank failed to discharge its primary burden of proving that
Calo was not authorized to bind it, as it did not present proof that Calo was unauthorized. It did not
present, much less cite, any Resolution from its Board of Directors or its Charter or By-laws from which
the Court could reasonably infer that he indeed had no authority to sign in its behalf or bind it in the
Deed of Assignment. The May 20, 1985 inter-office memorandum stating that Calo had "no signing
authority" remains self-serving as it does not even form part of petitioner’s body of evidence.
Petitioner bank failed to show that there being no evidence on record that it had actually
repudiated such apparent authority. It should be noted that it was the herein Petitioner-Bank which
pleaded that defense in the first place. What is extant in the records is a reasonable certainty that the
bank had ratified the Deed of Assignment.
BETTY L. CAMPOS
COMMERCIAL LAW REVIEW: NEGOTIABLE INSTRUMENTS LAW
ASSOCIATED BANK VS. CA, G.R. No. 107918
FACTS:
The private respondent is engaged in the business of ready-to-wear garments under the firm
name "Melissa's RTW." She deals with, among other customers, Robinson's Department Store,
Payless Department Store, Rempson Department Store, and the Corona Bazaar. These companies
issued in payment of their respective accounts crossed checks payable to Melissa's RTW. When she
went to these companies to collect on what she thought were still unpaid accounts, she was informed of
the issuance of the above-listed crossed checks. Further inquiry revealed that the said checks had
been deposited with the Associated Bank and subsequently paid by it to one Rafael Sayson, one of its
"trusted depositors," in the words of its branch manager and co-petitioner, Conrado Cruz, Sayson had
not been authorized by the private respondent to deposit and encash the said checks. The private
respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of the total
value of the checks plus damages. After trial, judgment was rendered requiring them to pay the private
respondent the total value of the subject checks. The petitioners appealed to the respondent court,
reiterating their argument that the private respondent had no cause of action against them and should
have proceeded instead against the companies that issued the checks. The CA affirmed the decision of
the trial court pointing out that The cause of action of the appellee in the case at bar arose from the
illegal, anomalous and irregular acts of the appellants in violating common banking practices to the
damage and prejudice of the appellees, in allowing to be deposited and encashed as well as paying to
improper parties without the knowledge, consent, authority or endorsement of the appellee which
totalled P15,805.00, the 6 checks in dispute which were crossed checks, the appellee being the payee.
ISSUE:
Whether or not the private respondent has a cause of action against the petitioners for their
encashment and payment to another person of certain crossed checks issued in her favor.
HELD:
Private respondent has a cause of action against the petitioner. Under accepted banking
practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the
checks. The crossing is special where the name of a bank or a business institution is written between
the two parallel lines, which means that the drawee should pay only with the intervention of that
company or payee's account only as in the case at bar. This means that the drawee bank should not
encash the check but merely accept it for deposit. The effects therefore of crossing a check relate to
the mode of its presentment for payment. Under Sec. 72 of the Negotiable Instruments Law,
presentment for payment, to be sufficient, must be made by the holder or by some person authorized to
receive payment on his behalf. Who the holder or authorized person is depends on the instruction
stated on the face of the check. When the Bank paid the checks so endorsed notwithstanding that title
had not passed to the endorser, it did so at its peril and became liable to the payee for the value of the
checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement.

The petitioners were negligent when they permitted the encashment of the checks by Sayson. The
Bank should have first verified his right to endorse the crossed checks, of which he was not the payee,
and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of
the checks put upon notice that they were issued for deposit only to the private respondent's account.
Its failure to inquire into Sayson's authority was a breach of a duty it owed to the private respondent.
There being no evidence that the crossed checks were actually received by the private
respondent, she would have a right of action against the drawer companies, which in turn could go
against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank.
In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed
checks should be allowed to recover directly from the bank responsible for such encashment
regardless of whether or not the checks were actually delivered to the payee.
TRYLL G. CHIU
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
RCJ BUS LINES, INC. VS. STANDARD INSURANCE INC.
655 SCRA 693 (AUGUST 17, 2011)
FACTS:
Respondent/Plaintiff Standard Insurance Co., Inc. (STANDARD) filed an amended complaint
against the petitioners, Flor Bola Mangoba and RCJ Bus Lines, Inc. Defendant Flor B. Mangoba, while
driving an RCJ Hino blue ribbon passenger bus in a reckless and imprudent manner, bumped and hit a
1991 Mitsubishi Lancer GLX. The subject Mitsubishi Lancer which is owned by Rodelene Valentino was
insured for loss and damage with plaintiff for P450,000.00. Defendant RCJ Bus Lines, Inc. is the
registered owner of the Passenger Bus, while defendant Flor Mangoba was the driver of the subject
Passenger Bus when the accident took place.
As a direct and proximate cause of the vehicular accident, the Mitsubishi Lancer was
extensively damaged, the costs of repairs of which were borne by the plaintiff at a cost of P162,151.22.
By virtue of the insurance contract, plaintiff paid Rodelene Valentino the amount for the repair of the
Mitsubishi Lancer car. After plaintiff has complied with its obligation under the policy mentioned above,
plaintiff’s assured executed in plaintiff’s favour a Release of Claim thereby subrogating the latter to all
his rights of recovery on all claims, demands and rights of action on account of loss, damage or injury
as a consequence of the accident from any person liable therefore (RCJ Bus Lines, Inc. and its
driver, Flor Bola Mangoba).
RCJ Bus Lines, Inc. maintained that the complaint states no cause of action against it; that
venue was improperly laid; and, that the direct, immediate and proximate cause of the accident was the
negligence of the driver of the Mitsubishi Lancer when, for no reason at all, it made a sudden stop
along the National Highway, as if to initiate and/or create an accident.
Flor Bola Mangoba, pointed his finger at the driver of the Mitsubishi Lancer as the one who
caused the vehicular accident on the time, date and place in question. For his failure to appear at the
pre-trial despite notice, Mangoba was declared in default. Accordingly, trial proceeded sans his
participation.
The MeTC rendered its decision in favor of the Plaintiff (Standard) and ordering
defendants Mangoba and RCJ Bus Lines, Inc. to pay the principal sum P162,151.22, with legal rate of
interest at 12% per annum until full payment.
The RTC affirmed with modification the MeTC’s Decision. Appellant RCJ Bus Lines, Inc. and
defendant Mangoba are ordered to pay jointly and severally the appellee [Standard Insurance Co., Inc.]
the P162,151.22 with legal rate of interest at 6% per annum until full payment.
The appellate court found that the RTC committed no reversible error in affirming RCJ’s liability
as registered owner of the bus and employer of Mangoba, as well as Mangoba’s negligence in driving
the passenger bus. The appellate court, however, modified the legal interest imposed by the MeTC at
the rate of 6% per annum computed from the time of extra judicial demand until the finality of the
decision of the MeTC and thereafter, the legal interest shall be at the rate of 12% per annum until the
full payment of the actual damages.

ISSUES:
(1) The Court of Appeals erroneously awarded the amount of P162,151.22 representing actual
damages based merely on the proof of payment of policy/insurance claim and not on an official receipt
of payment of actual cost of repair;
(2) The Court of Appeals erroneously disregarded the point that petitioner RCJ’s defense of
extraordinary diligence in the selection and supervision of its driver was made as an alternative
defense;
(3) The Court of Appeals erroneously disregarded the legal principle that the supposed violation
of Sec. 35 of R.A. 4136 merely results in a disputable presumption; and
(4) The Court of Appeals erroneously held that petitioner RCJ is vicariously liable for the claim
of supposed actual damages incurred by respondent Standard Insurance.
HELD:
On RCJ’s Liability:
RCJ is the registered owner of the passenger bus was sufficient to state a cause of action
against RCJ. The registered owner of a vehicle should be primarily responsible to the public for injuries
caused while the vehicle is in use. The main aim of motor vehicle registration is to identify the owner so
that if any accident happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefore can be fixed on a definite individual, the registered owner.
RCJ admitted that Mangoba is its employee. Article 2180 of the Civil Code, in relation to Article
2176, makes the employer vicariously liable for the acts of its employees. When the employee causes
damage due to his own negligence while performing his own duties, there arises
the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of
the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in
the selection and supervision of employees, the employer is likewise responsible for damages, the
basis of the liability being the relationship of pater familias or on the employer’s own negligence.
Mangoba, before the collision and was driving 60 to 75 kilometres per hour when the speed limit
was 50 kilometres per hour. The presumption under Article 2185 of the Civil Code was thus proven
true: Mangoba, as driver of the bus which collided with the Mitsubishi Lancer, was negligent since he
violated a traffic regulation at the time of the mishap. We see no reason to depart from the findings of
the MeTC, RTC and appellate court that Mangoba was negligent.
On Subrogation:
In the present case, it cannot be denied that the Mitsubishi Lancer sustained damages.
Moreover, it cannot also be denied that Standard paid Rodelene Valentino P162,151.22 for the repair of
the Mitsubishi Lancer pursuant to a Release of Claim and Subrogation Receipt. Neither RCJ
nor Mangoba cross-examined Standard’s claims evaluator when he testified on his duties, the
insurance contract between Rodelene Valentino and Standard, Standard’s payment of insurance
proceeds, and RCJ and Mangoba’s refusal to pay despite demands. After being lackadaisical during
trial, RCJ cannot escape liability now. Standard’s right of subrogation accrues simply upon its payment
of the insurance claim.
Article 2207 of the Civil Code reads: If the plaintiff’s 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.
Subrogation is the substitution of one person by another with reference to a lawful claim or right,
so that he who substitutes another succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The principle covers a situation wherein an insurer who has paid a
loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against
a third party with respect to any loss covered by the policy.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
MERALCO VS WILCON BUILDERS SUPPLY, INC.
JUNE 30, 2008
FACTS
Wilcon Builders is a registered customer of MERALCO. In 1991, MERALCO’s inspectors did a
routine inspection of the electric meters of Wilcon. Allegedly, the meters were found to have been
tampered. Meralco seized the metersa nd later informed Wilcon of the tampering and was demanding s
certain sum representing the unregistered electric consumption. Wilcon, for its part, said that the reason
for the abrupt decrease in their consumption was the breaking down of their 7.5 ton air-conditioning unit
in 1986.
ISSUE
Whether or not MERALCO is negligent in applying the Ridjo Doctrine.
HELD
MERALCO is negligent. Public service companies which do not exercise prudence in the
discharge of their duties shall be made to bear the consequences of such oversight. According to the
petitioner, there was a sudden drop in respondent’s electric consumption during the last quarter of
1984. If this contention were true, the moment a sudden drop of electric consumption was reflected in
its records, petitioner should have conducted an immediate investigation to make sure that here was
nothing wrong with the meter, especially because, by its own account, the subject meter had a history
of previous tampering. We cannot sanction a situation wherein the defects in the electric meter are
allowed to continue indefinitely until suddenly the public utilities concerned demand payment for the
unrecorded electricity utilized when, in the first place, they should have remedied the situation
immediately. If we turn a blind eye on MERALCO’s omission, it may encourage negligence on the part
of public utilities, to the detriment of the consuming public.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
PAL v. CA,
566 SCRA 124 (2008)
FACTS
Sometime before 2 May 1980, private respondents spouses Manuel S. Buncio and Aurora R.
Buncio purchased from petitioner Philippine Airlines, Incorporated, two plane tickets4 for their two minor
children, Deanna R. Buncio (Deanna), then 9 years of age, and Nikolai R. Buncio (Nikolai), then 8
years old. Since Deanna and Nikolai will travel as unaccompanied minors, petitioner required private
respondents to accomplish, sign and submit to it an indemnity bond.5 Private respondents complied
with this requirement. For the purchase of the said two plane tickets, petitioner agreed to transport
Deanna and Nikolai on 2 May 1980 from Manila to San Francisco, California, United States of America
(USA), through one of its planes, Flight 106. Petitioner also agreed that upon the arrival of Deanna and
Nikolai in San Francisco Airport on 3 May 1980, it would again transport the two on that same day
through a connecting flight from San Francisco, California, USA, to Los Angeles, California, USA, via
another airline, United Airways 996. Deanna and Nikolai then will be met by their grandmother, Mrs.
Josefa Regalado (Mrs. Regalado), at the Los Angeles Airport on their scheduled arrival on 3 May 1980.
On 2 May 1980, Deanna and Nikolai boarded Flight 106 in Manila. On 3 May 1980, Deanna and
Nikolai arrived at the San Francisco Airport. However, the staff of United Airways 996 refused to take
aboard Deanna and Nikolai for their connecting flight to Los Angeles because petitioner’s personnel in
San Francisco could not produce the indemnity bond accomplished and submitted by private
respondents. The said indemnity bond was lost by petitioner’s personnel during the previous stop-over
of Flight 106 in Honolulu, Hawaii. Deanna and Nikolai were then left stranded at the San Francisco
Airport. Subsequently, Mr. Edwin Strigl (Strigl), then the Lead Traffic Agent of petitioner in San
Francisco, California, USA, took Deanna and Nikolai to his residence in San Francisco where they
stayed overnight. On the morning of 4 May 1980, Strigl took Deanna and Nikolai to San Francisco
Airport where the two boarded a Western Airlines plane bound for Los Angeles. Later that day, Deanna
and Nikolai arrived at the Los Angeles Airport where they were met by Mrs. Regalado.
Private respondents filed a complaint7 for damages against petitioner before the RTC. Private
respondents alleged that Deanna and Nikolai were not able to take their connecting flight from San
Francisco to Los Angeles as scheduled because the required indemnity bond was lost on account of
the gross negligence and malevolent conduct of petitioner’s personnel. As a consequence thereof,
Deanna and Nikolai were stranded in San Francisco overnight, thereby exposing them to grave danger.
In its answer8 to the complaint, petitioner admitted that Deanna and Nikolai were not allowed to
take their connecting flight to Los Angeles and that they were stranded in San Francisco. Petitioner,
however, denied that the loss of the indemnity bond was caused by the gross negligence and
malevolent conduct of its personnel. Petitioner averred that it always exercised the diligence of a good
father of the family in the selection, supervision and control of its employees.
The RTC rendered a Decision holding petitioner liable for damages for breach of contract of
carriage. It ruled that petitioner should pay moral damages for its inattention and lack of care for the
welfare of Deanna and Nikolai which, in effect, amounted to bad faith, and for the agony brought by the

incident to private respondents and Mrs. Regalado. Petitioner appealed to the Court of Appeals, the
appellate court promulgated its Decision affirming in toto the RTC Decision.
ISSUE:
Whether or not the award of moral and exemplary damages on defendants was proper.
HELD:
Affirmative. When an airline issues a ticket to a passenger, confirmed for a particular flight on a
certain date, a contract of carriage arises. The passenger has every right to expect that he be
transported on that flight and on that date, and it becomes the airline’s obligation to carry him and his
luggage safely to the agreed destination without delay. If the passenger is not so transported or if in the
process of transporting, he dies or is injured, the carrier may be held liable for a breach of contract of
carriage.
In breach of contract of air carriage, moral damages may be recovered where (1) the mishap
results in the death of a passenger; or (2) where the carrier is guilty of fraud or bad faith; or (3) where
the negligence of the carrier is so gross and reckless as to virtually amount to bad faith.
The foregoing circumstances reflect petitioner’s utter lack of care for and inattention to the
welfare of Deanna and Nikolai as unaccompanied minor passengers. They also indicate petitioner’s
failure to exercise even slight care and diligence in handling the indemnity bond. Clearly, the
negligence of petitioner was so gross and reckless that it amounted to bad faith.
Article 2232 of the Civil Code provides that exemplary damages may be awarded in a breach of
contract if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In
addition, Article 2234 thereof states that the plaintiff must show that he is entitled to moral damages
before he can be awarded exemplary damages.
Private respondents are entitled to moral damages because they have sufficiently established
petitioner’s gross negligence which amounted to bad faith. This being the case, the award of exemplary
damages is warranted.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
JAPAN AIRLINES V. SIMANGAN
552 SCRA 341 (2008)
FACTS
Jesus Simangan purchased a round trip plane ticket from Japan Airlines (JAL) and was issued
the corresponding boarding pass. His plane ticket, boarding pass, travel authority and personal articles
were subjected to rigid immigration and security procedure. After passing through said immigration and
security procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A.
via Narita, Japan. Nevertheless, JAL made Simangan get off the plane on his scheduled departure. JAL
justifies its action by arguing that there was "a need to verify the authenticity of Simangan's travel
document." It alleged that no one from its airport staff had encountered a parole visa
before. Consequently, Simangan filed an action for breach of contract of carriage against JAL.
ISSUE
Whether or not Japan Airlines is guilty of breach of contract of carriage.
HELD
Japan Airlines is guilty of breach of contract of carriage. As provided in Article 1755 of the New
Civil Code: "A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." It is untenable JAL's defense of "verification of respondent's documents" in its breach
of contract of carriage.
In an action for breach of contract of carriage, all that is required of plaintiff is to prove the
existence of such contract and its non-performance by the carrier through the latter's failure to carry the
passenger safely to his destination. Simangan has complied with these twin requisites.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
PAL VS SAVILLO 557 SCRA 66 (2008)
FACTS
Savillo was a judge of the RTC of Iloilo. He was invited to participate in the 1993 ASEAN
Seniors Annual Golf Tournament in Jakarta Indonesia. So, in order to take part in such event, he
purchased a ticket from PAL with the following itinerary: Manila-Singapore-Jakarta-Singapore-Manila.
PAL would take them from Manila to Singapore, while Singapore Airlines would take them from
Singapore to Jakarta. When they arrived in Singapore, Singapore Airlines rejected the tickets of Savillo
because they were not endorsed by PAL. It was explained that if Singapore Airlines honored the tickets
without PALS’ endorsement, PAL would not pay Singapore Airlines for their passage. Savillo
demanded compensation from both PAL and Singapore Airlines, but his efforts were futile. He then
sued PAL after 3 years, demanding moral damages. PAL , in its MTD, claimed that the cause of action
has already prescribed invoking the Warsaw Convention (providing for a 2 year prescriptive period).
Both RTC and CA ruled against PAL.
ISSUE
Whether or not the applicable law is the Civil Code not the Warsaw Convention
HELD
The court ruled in the affirmative. This Court notes that jurisprudence in the Philippines and the
United States also recognizes that the Warsaw Convention does not "exclusively regulate" the
relationship between passenger and carrier on an international flight. This Court finds that the present
case is substantially similar to cases in which the damages sought were considered to be outside the
coverage of the Warsaw Convention. Had the present case merely consisted of claims incidental to the
airlines’ delay in transporting their passengers, the private respondent’s Complaint would have been
time-barred under Article 29 of the Warsaw Convention. However, the present case involves a special
species of injury resulting from the failure of PAL and/or Singapore Airlines to transport private
respondent from Singapore to Jakarta – the profound distress, fear, anxiety and humiliation that private
respondent experienced when, despite PAL’s earlier assurance that Singapore Airlines confirmed his
passage, he was prevented from boarding the plane and he faced the daunting possibility that he would
be stranded in Singapore Airport because the PAL office was already closed.
These claims are covered by the Civil Code provisions on tort, and not within the purview of the
Warsaw Convention. Hence, the applicable prescription period is that provided under Article 1146 of
the Civil Code:
Art. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
ABOITIZ VS. COURT OF APPEALS,
GR. NO. 121833, OCTOBER 17, 2008
FACTS:
Before this Court are three consolidated Rule 45 petitions all involving the issue of whether the
real and hypothecary doctrine may be invoked by the shipowner in relation to the loss of cargoes
occasioned by the sinking of M/V P. Aboitiz on 31 October 1980. The petitions filed by Aboitiz Shipping
Corporation (Aboitiz) commonly seek the computation of its liability in accordance with the Court’s
pronouncement in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance
Corporation, Ltd.
The three petitions stemmed from some of the several suits filed against Aboitiz before different
regional trial courts by shippers or their successors-in-interest for the recovery of the monetary value of
the cargoes lost, or by the insurers for the reimbursement of whatever they paid. The trial courts
awarded to various claimants the amounts ofP639,862.02, P646,926.30, and P87,633.81 in G.R. Nos.
121833, 130752 and 137801, respectively.
ISSUE:
Whether or not the doctrine of real and hypothecary nature of maritime law (also known as the
“limited liability rule”) applies?
RULING:
YES. The instant petitions provide another occasion for the Court to reiterate the well-settled
doctrine of the real and hypothecary nature of maritime law. As a general rule, a ship owner’s liability is
merely co-extensive with his interest in the vessel, except where actual fault
is attributable to the shipowner. Thus, as an exception to the limited
liability doctrine,
a shipowner or ship agent may be held liable for damages when the sinking of the vessel is attributable
to the actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of the
vessel. The instant petitions cannot be spared from the application of the exception to the doctrine of
limited liability in view of the unanimous findings of the courts below that both Aboitiz and the crew
failed to ensure the seaworthiness of the M/V P. Aboitiz.

RUBY LAID
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
PHIL CHARTER vs. NEPTUNE ORIENT
FACTS
L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong 3 sets of warp yarn on
returnable beams aboard respondent Neptune Orient Lines' vessel, M/V Baltimar Orion, for transport
and delivery to Fukuyama Manufacturing Corporation (Fukuyama) in Manila. The said cargoes were
loaded in a container under a bill of lading. Fukuyama insured the shipment against all risks with
petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy. During the
course of the voyage, the container with the cargoes fell overboard and was lost.
Thus, Fukuyama wrote a letter to respondent Overseas Agency Services, Inc, the agent of
Neptune Orient, and claimed for the value of the lost cargoes. However, Overseas Agency ignored the
claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the insured value which claim was
fully satisfied by PCIC. PCIC then demanded from respondents reimbursement of the entire amount it
paid to Fukuyama, but respondents refused payment. Hence, PCIC filed a complaint for damages
against respondents.
Respondents denied liability and alleged that during the voyage, the vessel encountered strong
winds and heavy seas making the vessel pitch and roll, which caused the subject container with the
cargoes to fall overboard. They claim that the occurrence was a fortuitous event which exempted them
from any liability, and that their liability, if any, should not exceed US$500 or the limit of liability in the
bill of lading, whichever is lower.
The RTC held that respondents, as common carrier, failed to prove that they observed the
required extraordinary diligence to prevent loss of the subject cargoes and ordered them to pay the
plaintiff the amount claimed. The CA on the other hand found respondent’s liability to be only US$1,500
or US$500 per package under the limited liability provision of the Carriage of Goods by Sea Act
(COGSA). Hence, the instant appeal.
Petitioner’s Contention: The vessel committed a "quasi deviation" which is a breach of the
contract of carriage when it intentionally threw overboard the container for its own benefit. Such breach
of contract resulted in the abrogation of respondents' rights under the contract and COGSA including
the US$500 per package limitation.
ISSUE
W/N the liability of the respondents is only US$1,500 or US$500 per package as provided in the
COGSA.
RULING
Yes. The facts as found by the RTC do not support the new allegation regarding the intentional
throwing overboard of the subject cargoes and quasi deviation. The Court notes that the petitioner's
Complaint and the survey report provide that the shipment “were lost/fell overboard”. The records show
that the subject cargoes fell overboard the ship and petitioner should not vary the facts of the case on
appeal.

Since the subject cargoes were lost while being transported by respondent common carrier from
Hong Kong to the RP - Philippine law applies pursuant to the Civil Code. The rights and obligations of
respondent common carrier are thus governed by the provisions of the Civil Code, and the COGSA,
which is a special law applying suppletorily.
The pertinent provisions of the Civil Code applicable to this case are as follows:
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances,
and has been fairly and freely agreed upon.
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade, provides: Neither the carrier nor
the ship shall in any event be or become liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package lawful money of the United States,
or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading shall be
prima facie evidence, but shall be conclusive on the carrier.
In this case, Bill of Lading stipulates: Neither the Carrier nor the vessel shall in any event
become liable for any loss of or damage to or in connection with the transportation of Goods in an
amount exceeding US$500 (which is the package or shipping unit limitation under U.S. COGSA) unless
the nature and value of such Goods have been declared by the Shipper before shipment and inserted
in this Bill of Lading and the Shipper has paid additional charges on such declared value. . . .
The bill of lading submitted in evidence by petitioner did not show that the shipper in Hong Kong
declared the actual value of the goods as insured by Fukuyama before shipment and that the said
value was inserted in the Bill of Lading, and so no additional charges were paid. Hence, the stipulation
in the bill of lading that the carrier's liability shall not exceed US$500 per package applies.
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned and allowed
by law. It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist,
the validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless
fully sustainable on the basis alone of the cited Civil Code Provisions.

DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: TRANSPORTATION LAWS
PPA vs NIASSI
575 SCRA 291
FACTS:
Petitioner NIASSI is a domestic corporation duly organized and existing under Philippine laws
with office address at Talisay, Nasipit, Agusan del Norte. It has been operating in the stevedoring
business for at least 15 years.
Respondent PPA is a government agency charged with the management and control of all
Philippine ports. It is primarily tasked to carry out an integrated program for the planning, development,
financing, and operation of ports throughout the country.
In November 2000, the PPA, through its Pre-Qualification, Bids, and Awards Committee (PBAC)
accepted bids for a ten-year contract for cargo handling services at the Port of Nasipit. Per PBAC
Resolution No. 005-2000, NIASSI was declared as the winning bidder. A Notice of Award of the cargo
handling contract was sent by fax to NIASSI. It expressly stated that: (1) A ten-year cargo handling
contract is awarded to NIASSI in accordance with the terms and proposals contained in its bid; (2)
NIASSI must enter into and execute the formal contract with PPA after its compliance to the
documentary requirements.
The contract, however, was never executed. Instead, PPA issued several hold-over permits to
enable NIASSI to legally operate its cargo handling services at the Nasipit port. The last of the holdover permits was issued on October 13, 2004, which was set to expire on April 13, 2004, or six months
after its issuance. Yet, barely two months after, PPA revoked the hold-over authority entrusted to
NIASSI.
Through a letter, PPA informed the stevedoring company that it would take over the
management and operations of the cargo handling services at the port of Nasipit starting December 10,
2006.
Upon takeover, the PPA, through its Port Services-Special Take-over Unit, directly undertook
operations at the Nasipit Port. However, this composite group continued to utilize NIASSI’s manpower
and equipment.
At the onset of the PPA takeover, NIASSI filed a petition for injunction with prayer for writ of
preliminary injunction and/or temporary restraining order against PPA. It later amended its petition to
mandamus with prayer for the writ of preliminary mandatory injunction and/or temporary restraining
order. The amended petition sought to compel PPA to execute or cause the final execution of the cargo
handling contract with NIASSI. It likewise prayed for the return of the management and operations of
the cargo handling services at the Nasipit port to NIASSI.
ISSUE:
Whether or not NIASSI has been deprived of due process?
RULING:

Yes. NIASSI has been deprived due process, taken together with the circumstance that the
resulting orders were immediately executory, perforce takes this case outside the purview of the rule
requiring a previous motion for reconsideration. The deprivation of NIASSI’s right to due process taints
the proceedings against it. The court’s order which was immediately executory render the matter as
one of extreme urgency. The situation easily falls under one of the recognized exceptions to the rule
that a motion for reconsideration should first be availed of before filing a petition for certiorari.
Be that as it may, when the rules of procedure are rigid and strict in application, resulting in
technicalities that tend to frustrate rather than promote justice, the Court is empowered to suspend
them.
It would be in the interest of justice to reinstate the preliminary mandatory injunction the RTC
has earlier issued in favor of NIASSI. The stevedoring company has proven that it stands to suffer
irreparable injury with PPA’s continued use of its facilities and takeover of the port. Even though PPA is
a governmental arm, it does not stand above the law in the guise of protecting the public interest.
It should also be noted that an arrastre contract is not an ordinary agreement involving merely
parties therein, as it affects the public in general. In all contracts, the law must protect all parties in
securing fair play and equity to prevail.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
METROPOLITAN CEBU WATER DISTRICT V. MARGARITA ADALA (2007)
FACTS:
Respondent filed on October 24, 2002 an application with the National Water Resources Board
(NWRB) for the issuance of a Certificate of Public Convenience (CPC) to operate and maintain
waterworks system in sitios San Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City. At the
initial hearing of December 16, 2002 during which respondent submitted proof of compliance with
jurisdictional requirements of notice and publication, herein petitioner Metropolitan Cebu Water District,
a government-owned and controlled corporation created pursuant to P.D. 198 which took effect upon its
issuance by then President Marcos on May 25, 1973, as amended, appeared through its lawyers to
oppose the application. In its Opposition, petitioner prayed for the denial of respondent’s application on
the following grounds: (1) petitioner’s Board of Directors had not consented to the issuance of the
franchise applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed
waterworks would interfere with petitioner’s water supply which it has the right to protect, and (3) the
water needs of the residents in the subject area was already being well served b petitioner.
NWRB granted Adala’s application after hearing and an ocular inspection of the area and
denied MCWD’s MFR. RTC denied the appeal and upheld NWRB Decision. RTC denied MFR.
ISSUE:
W/N Section 47 of P.D. 198, which vests an "exclusive franchise" upon public utilitiesis
constitutional and may be relied upon by MCWD in its opposition of Adala’s application for a CPC
HELD:
No. Sec. 47. Exclusive Franchise. — No franchise shall be granted to any other person or
agency for domestic, industrial or commercial water service within the district or any portion
thereof unless and except to the extent that the board of directors of said district consents thereto by
resolution duly adopted, such resolution, however, shall be subject to review by the Administration.
There being no such consent on the part of its board of directors, petitioner concludes that
respondent’s application for CPC should be denied.
A CPC is formal written authority issued by quasi-judicial bodies for the operation and
maintenance of a public utility for which a franchise is not required by law and a CPC issued by this
Board is an authority to operate and maintain a waterworks system or water supply service. On the
other hand, a franchise is privilege or authority to operate appropriate private property for public use
vested by Congress through legislation. Clearly, therefore, a CPC is different from a franchise and
Section 47 of Presidential Decree 198 refers only to franchise. Accordingly, the possession of
franchise by a water district does not bar the issuance of a CPC for an area covered by the water
district.
Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of CPCs for
the reasons discussed above, the same provision must be deemed void ab initio for being irreconcilable
with Article XIV Section 5 of the 1973 Constitution which was ratified on January 17, 1973 – the

constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the
1973 Constitution reads:
SECTION 5. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty
per centum of the capital of which is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa
when the public interest so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share
in the capital thereof. (Emphasis and underscoring supplied)
This provision has been substantially reproduced in Article XII Section 11 of the 1987
Constitution, including the prohibition against exclusive franchises.[17]
In view of the purposes for which they are established, [18] water districts fall under the term
“public utility” as defined in the case of National Power Corporation v. Court of Appeals:[19]
A “public utility” is a business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service. x x x (Emphasis and underscoring
supplied)
It bears noting, moreover, that as early as 1933, the Court held that a particular water district –
the Metropolitan Water District – is a public utility.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
MENDOZA vs. SORIANO,
524 SCRA 260 (2007)
FACTS:
Soriano was hit by the speeding FX driven by Macasasa as he was crossing Commonwealth
Avenue which caused his death. He was thrown 5M away and the FX was only able to stop at around
25M away from the point of impact. Villasapin, one of Soriano’s companions, asked Macasasa to bring
him to a hospital but he only returned to the FX and sped away. A criminal case for reckless
imprudence resulting to homicide was filed against Macasasa while another complaint for damages
was filed against Macasasa and Mendoza, the registered owner of the FX. Mendoza maintained that
she was not liable since as owner of the vehicle, she had exercised the diligence of a good father of a
family over her employee, Macasasa.
ISSUE:
Whether Soriano can be held liable for damages for the death of Sonny
HELD:
Under Article 2180 of the Civil Code, employers are liable for the damages caused by their
employees acting within the scope of their assigned tasks. The liability arises due to the presumed
negligence of the employers in supervising their employees unless they prove that they observed all the
diligence of a good father of a family to prevent the damage. Mendoza is primarily and solidarily liable
for her failure to exercise due diligence in supervising Macasasa. She had been unable to prove that
she had exercised the diligence of a good father of a family in supervising Macasasa. The contributory
negligence of Soriano for not using the pedestrian overpass only serves as a mitigating circumstance.

GLEN A. PETILLA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
BARBA and RENATO GONZALES vs. HON. COURT OF APPEALS
G.R. NO. 169731 : March 28, 2007
FACTS:
The findings of the Labor Arbiter, the NLRC and the Court of Appeals are unanimous: Barba is
guilty of incorrectly recording 55 kilograms of baggage as 18 kilograms, while Gonzales was guilty of
soliciting US$100 from a passenger in exchange for allowing her to check-in US$200 worth of excess
baggage.
ISSUE:
Whether these offenses would merit their dismissal.
RULING:
The acts of Gonzales in offering a passenger the services of the airlines, without compensating
for the same, while at the same time exacting a fee for himself, are undoubtedly inimical to the interests
of his employer PAL. Like Gonzales' offense, Barba's act in incorrectly recording the baggage weight,
was clearly an act inimical to the interests of their employer, and of manifest dishonesty and disregard
of his duties, which deserves the supreme penalty of dismissal.
The proper recording of the weight of cargo is crucial in determining how the cargo would be distributed
in each aircraft. A resulting error could imperil valuable equipment, even the lives of the passengers
and crews. IN VIEW OF THE FOREGOING, This Court AFFIRMS the assailed Decision of Court of
Appeals, sustaining the validity of the petitioners' dismissal.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
MENDOZA VS. SORIANO
524 SCRA 260 (JUNE 28, 2007)
FACTS:
Sonny Soriano, while crossing Commonwealth Avenue in Quezon City, was hit by a speeding
Tamaraw FX driven by Lomer Macasasa. Soriano died because of the accident. His wife and daughter,
respectively, filed a complaint for damages against Macasasa and petitioner Flordeliza Mendoza, the
registered owner of the vehicle. Petitioner Mendoza maintained that she was not liable since as owner
of the vehicle, she had exercised the diligence of a good father of a family over her employee,
Macasasa. Upon respondents’ (Soriano’s) motion, the complaint for damages against Macasasa was
dismissed.
Petitioner further argues that since respondents caused the dismissal of the complaint against
Macasasa, there is no longer any basis to find her liable. She claims that “no iota of evidence” was
presented in this case to prove Macasasa’s negligence, and besides, respondents can recover
damages in the criminal case against him.
The lower court ruled that petitioner was not negligent in the selection and supervision of
Macasasa since complainants presented no evidence to support their allegation of petitioner’s
negligence. The appellate court agreed that Soriano was negligent, but it also found Macasasa
negligent for speeding, such that he was unable to avoid hitting the victim. It observed that Soriano’s
own negligence did not preclude recovery of damages from Macasasa’s negligence. It further held that
since petitioner failed to present evidence to the contrary, and conformably with Article 2180 of the Civil
Code, the presumption of negligence of the employer in the selection and supervision of employees
stood.
ISSUE:
Whether or not respondents can claim damages against Mendoza, the owner of the vehicle
despite that damages may be claimed by respondents in the criminal case against the driver of the
vehicle.
HELD:
Respondents can claim damages against Mendoza, the owner of the vehicle. While
respondents could recover damages from Macasasa in a criminal case and petitioner could become
subsidiarily liable, still petitioner, as owner and employer, is directly and separately civilly liable for her
failure to exercise due diligence in supervising Macasasa. It must be emphasized that this damage suit
is for the quasi-delict of petitioner, as owner and employer, and not for the delict of Macasasa, as driver
and employee.
Under Article 2180 of the Civil Code, employers are liable for the damages caused by their
employees acting within the scope of their assigned tasks. The liability arises due to the presumed
negligence of the employers in supervising their employees unless they prove that they observed all
diligence of a good father of a family to prevent the damage.

In this case, we hold petitioner primarily and solidarily liable for the damages caused by
Macasasa. Respondents could recover directly from petitioner since petitioner failed to prove that she
exercised the diligence of a good father of a family in supervising Macasasa.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
LADECO VS ANGALA,
G.R. NO. 153076
FACTS:
A Datsun crewcab, driven by Apolonio Deocampo (Deocampo) bumped into a 1958 Chevy pickup owned by Michael Raymond Angala (respondent) and driven by Bernulfo Borres (Borres). Lapanday
Agricultural and Development Corporation (LADECO) owned the crewcab which was assigned to its
manager Manuel Mendez (Mendez). Respondent filed an action for Quasi-Delict, Damages,
andAttorney’s Fees against LADECO, its administrative officer Henry Berenguel (Berenguel) and
Deocampo.The trial court ruled that LADECO and De Ocampoy are solidarily liable. CA affirmed trial
court’s decision.
ISSUE:
Whether or not petitioners are liable.
HELD:
Since both parties are at fault in this case, the doctrine of last clear chance applies. The doctrine
of last clear chance states that where both parties are negligent but the negligent act of one is
appreciably later than that of the other, or where it is impossible to determine whose fault or negligence
caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so is
chargeable with the loss. In this case, Deocampo had the last clear chance to avoid the collision. Since
Deocampo was driving the rear vehicle, he had full control of the situation since he was in a position to
observe the vehicle in front of him. Deocampo had the responsibility of avoiding bumping the vehicle in
front of him. A U-turn is done at a much slower speed to avoid skidding and overturning, compared to
running straight ahead. Deocampo could have avoided the vehicle if he was not driving very fast while
following the pick-up. Deocampo was not only driving fast, he also admitted that he did not step on the
brakes even upon seeing the pick-up. He only stepped on the brakes after the collision.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
CEBU SALVAGE CORPORATION (CSC) vs. PHILIPPINE HOME ASSURANCE CORP
G.R. NO. 150403
FACTS:
Petitioner Cebu Salvage Corp. (as carrier) and Maria Cristina Chemicals Industries, Inc. (MCCII)
(as charterer) entered into a voyage charter where petitioner was to load 800-1,100 metric tons of
silica quartz on board M/T Espiritu Santo for transport and discharge from Negros Occidental to
Misamis Oriental, to consignee Ferrochome Phils., Inc. However, the shipment never reached its
destination because the vessel sank resulting in the total loss of the cargo. MCCII filed a claim for the
loss of the shipment with its insurer, respondent Philippine Home Assurance Corporation.
Respondent paid the claim and was subrograted to the rights of MCCII. After which it filed a case
against petitioner for reimbursement of the amount it paid to MCCII. The lower court and CA ordered
petitioner to pay respondent.
ISSUE:
Can a carrier be held liable for the loss of cargo resulting from the sinking of the ship it doesn’t
own?
HELD:
YES. Petitioner argues the agreement was just a contract of hire where MCCII hired the vessel
from its owner, ALS Timber. Since it wasn’t the owner of the vessel, it didn’t have control and
supervision over it and its crew. Thus, it shouldn’t be held liable.
1. Petitioner and MCCII entered into a “voyage charter,” a.k.a. contract of affreightment where
the ship was leased for a single voyage for the conveyance of the goods, in consideration of
the payment of freight. Under a voyage charter, the shipowner retains possession,
command and navigation of the ship, the charterer/freighter just has the use of the space in
the vessel in return for his payment of freight. An owner who retains possession of the ship
remains liable as carrier and must answer for loss or non-delivery of the goods received for
transportation.
2. The agreement parties signed was a contract of carriage under which the petitioner was a
common carrier. From the nature of their business and reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they transport
according to the circumstances of each use. In case of loss of the goods, the common
carriers are responsible, unless they can prove the causes under Art. 1734 CC or that they
observed extraordinary diligence.
3. In this case, Petitioner was the one which contracted with MCCII for the transport of the
cargo. It had control over what vessel it would use. The fact that it did not own the vessel it
decided to use to consummate the contract of carriage didn’t negate its character and duties
as common carrier. The bill of lading issued by ALS was just a receipt to evidence the fact

that the goods have been received for transportation. It is true that a bill of lading may serve
as the contract of carriage between the parties but it cannot prevail over the express
provision of the voyage charter. The voyage charter stipulated that cargo insurance was for
the charterer’s account. This just means that the charterer would have the goods insured. It
couldn’t exculpate the carrier from liability for the breach of contract of carriage.
MCCII never dealt with ALS and yet petitioner insists that MCCII should sue ALS for
reimbursement for its loss.
To permit a common carrier to escape its responsibility for the goods it agreed to transport
would derogate from the carrier’s duty of extraordinary diligence.

BETTY L. CAMPOS
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
MMDA VS. VIRON TRANSPORTATION CO. INC.
FACTS:
President Gloria Macapagal Arroyo issued the E.O. on February 10, 2003, "Providing for the
Establishment of Greater Manila Mass Transport System," wherein the MMDA has recommended a
plan to decongest traffic by eliminating the bus terminals now located along major Metro Manila
thoroughfares and providing more convenient access to the mass transport system to the commuting
public through the provision of mass transport terminal facilities that would integrate the existing
transport modes, namely the buses, the rail-based systems of the LRT, MRT and PNR and to facilitate
and ensure efficient travel through the improved connectivity of the different transport modes. The E.O.
179 designates the MMDA as the implementing agency for the project, the Greater Manila Mass
Transport System Project (the project).
Viron Transport Co., Inc. (Viron), a domestic corporation filed a petition for declaratory relief
before the RTC of Manila alleging that the MMDA’s authority does not include the power to direct
provincial bus operators to abandon their existing bus terminals to thus deprive them of the use of their
property. Viron also asked for a ruling on whether the planned closure of provincial bus terminals would
contravene the Public Service Act and related laws which mandate public utilities to provide and
maintain their own terminals as a requisite for the privilege of operating as common carriers. The trial
court first sustained the constitutionality and legality of Executive Order and held that the E.O. was a
valid exercise of the police power of the State.
On motion for reconsideration, the trial court reversed its Decision, holding that the E.O. was “an
unreasonable exercise of police power”; that the authority of the MMDA under Section (5)(e) of R.A.
No. 7924 does not include the power to order the closure of Viron’s and Mencorp’s existing bus
terminals; and that the E.O. is inconsistent with the provisions of the Public Service Act. Petitioner’s
motion for reconsideration was denied, hence, this petition for review on certiorari.
ISSUE:
W/N the Executive Order was a valid exercise of police power delegated to the president.
HELD:
The authority of the President to order the implementation of the Project notwithstanding, the
designation of the MMDA as the implementing agency for the Project may not be sustained. It is ultra
vires, there being no legal basis therefor. It bears stressing that under the provisions of E.O. No. 125,
as amended, it is the DOTC, and not the MMDA, which is authorized to establish and implement a
project such as the one subject of the cases at bar. Thus, the President, although authorized to
establish or cause the implementation of the Project, must exercise the authority through the
instrumentality of the DOTC which, by law, is the primary implementing and administrative entity in the
promotion, development and regulation of networks of transportation, and the one so authorized to
establish and implement a project such as the Project in question.

By designating the MMDA as the implementing agency of the Project, the President clearly
overstepped the limits of the authority conferred by law, rendering E.O. No. 179 ultra vires. In another
vein, the validity of the designation of MMDA flies in the absence of a specific grant of authority to it
under R.A. No. 7924. In light of the administrative nature of its powers and functions, the MMDA is
devoid of authority to implement the Project as envisioned by the E.O; hence, it could not have been
validly designated by the President to undertake the Project. It follows that the MMDA cannot validly
order the elimination of respondents’ terminals.
Even the MMDA’s claimed authority under the police power must necessarily fail in consonance
with the above-quoted ruling in MMDA v. Bel-Air Village Association, Inc. and this Court’s subsequent
ruling in Metropolitan Manila Development Authority v. Garin43 that the MMDA is not vested with police
power. This Court can only interpret, not change, the law, however. It needs only to be reiterated that it
is the DOTC ─ as the primary policy, planning, programming, coordinating, implementing, regulating
and administrative entity to promote, develop and regulate networks of transportation and
communications ─ which has the power to establish and administer a transportation project like the
Project subject of the case at bar. No matter how noble the intentions of the MMDA may be then, any
plan, strategy or project which it is not authorized to implement cannot pass muster.

TRYLL G. TIU
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
PNR vs. CA
536 SCRA 147
FACTS:
Jose Amores (Amores) was traversing the railroad tracks in Pandacan, Manila. Before crossing,
he stopped for a while then proceeded accordingly. Unfortunately, just as Amores was at the
intersection, a Philippine National Railways’ (PNR) train turned up and collided with the car. At the time
of the mishap, there was neither a signal nor a crossing bar at the intersection to warn motorists of an
approaching train. Aside from the railroad track, the only visible warning sign at that time was the
defective standard signboard “STOP, LOOK and LISTEN” wherein the sign “Listen” was lacking while
that of “Look” was bent. No whistle blow from the train was likewise heard before it finally bumped the
car of Amores. After impact, the car was dragged about ten (10) meters beyond the centre of the
crossing. Amores died as a consequence thereof.
The heirs of Amores, consisting of his surviving wife and six children, herein respondents, filed a
Complaint for Damages against petitioners PNR and Virgilio J. Borja (Borja), PNR’s locomotive driver at
the time of the incident, before the RTC of Manila. In their complaint, respondents averred that the
train’s speedometer was defective, and that the petitioners’ negligence was the proximate cause of the
mishap for their failure to take precautions to prevent injury to persons and property despite the dense
population in the vicinity.
In their Answer, the petitioners denied the allegations, stating that the train was railroad-worthy
and without any defect. According to them, the proximate cause of the death of Amores was his own
carelessness and negligence, and Amores wantonly disregarded traffic rules and regulations in
crossing the railroad tracks and trying to beat the approaching train. They admitted that there was no
crossing bar at the site of the accident because it was merely a barangay road. PNR stressed that it
exercised the diligence of a good father of a family in the selection and supervision of the locomotive
driver and train engineer, Borja, and that the latter likewise used extraordinary diligence and caution to
avoid the accident. Petitioners further asserted that respondents had the last clear chance to avoid the
accident but recklessly failed to do so.
The RTC rendered judgment in favour of the petitioners. The costs shall be halved and paid
equally by the parties. The RTC rationalized that the proximate cause of the collision was Amores’ fatal
misjudgement and the reckless course of action he took in crossing the railroad track even after seeing
or hearing the oncoming train.
On appeal, the CA reversed the RTC decision. The defendants PNR and the estate of Virgilio J.
Borja are jointly and severally liable to pay the plaintiffs.
In reversing the trial court’s decision, the appellate court found the petitioners negligent. The
court based the petitioners’ negligence on the failure of PNR to install a Semaphore or at the very least,
to post a flagman, considering that the crossing is located in a thickly populated area. Moreover, the
signboard “Stop, Look and Listen” was found insufficient because of its defective condition as described

above. Lastly, no negligence could be attributed to Amores as he exercised reasonable diligence in
crossing the railroad track.
Aggrieved by this reversal, the petitioners filed the present petition for review on certiorari.
ISSUES:
(1) The Court of Appeals committed grave abuse of discretion in rendering its decision
reversing the decision of the regional trial court, in not taking into consideration the provision
of Section 42, R.A. 4136 of the Land Transportation and Traffic Code.
(2) The decision of the Court of Appeals is contrary to the evidence on record adduced
in the trial on the merit of the case.
HELD:
We find no cogent reason to reverse the appellate court’s decision. Negligence has been
defined as “the failure to observe for the protection of the interests of another person that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.” We hold that the petitioners were negligent when the collision took place. The train was
running at a fast speed because notwithstanding the application of the ordinary and emergency brakes,
the train still dragged the car some distance away from the point of impact. Evidence likewise unveils
the inadequate precautions taken by petitioner PNR to forewarn the public of the impending danger. It
is the responsibility of the railroad company to use reasonable care to keep the signal devices in
working order. Failure to do so would be an indication of negligence and disregard of the safety of the
public, even if there is no law or ordinance requiring it, because public safety demands that said device
or equipment be installed.
The petitioners insist that a train has a right-of-way in a railroad crossing under the existing
laws. They derive their theory from Section 42 (d), Article III of R.A. 4136, otherwise known as the Land
Transportation and Traffic Code, which states that:
The driver of a vehicle upon a highway shall bring to a full stop such vehicle
before traversing any “through highway” or railroad crossing: Provided, That when it is
apparent that no hazard exists, the vehicle may be slowed down to five miles per hour
instead of bringing it to a full stop.
They claim that motorists are enjoined by law to stop, look and listen before crossing railroad
tracks and that a heavier responsibility rests upon the motorists in avoiding accidents at level crossings.
It is true that one driving an automobile must use his faculties of seeing and hearing when
nearing a railroad crossing. However, the obligation to bring to a full stop vehicles moving in public
highways before traversing any “through street” only accrues from the time the said “through street” or
crossing is so designated and sign-posted. It can be inferred that Amores exercised all the necessary
precautions required of him as to avoid injury to himself and to others. It showed that Amores
slackened his speed, made a full stop, and then proceeded to cross the tracks when he saw that there
was no impending danger to his life. Under these circumstances, we are convinced that Amores did
everything, with absolute care and caution, to avoid the collision.
In view of the foregoing, Article 2180 of the New Civil Code discusses the liability of the
employer once negligence or fault on the part of the employee has been established. The employer is
actually liable on the assumption of juris tantum that the employer failed to exercise diligentissimi patris
families in the selection and supervision of its employees. The liability is primary and can only be
negated by showing due diligence in the selection and supervision of the employee, a factual matter
that has not been demonstrated. Even the existence of hiring procedures and supervisory employees
cannot be incidentally invoked to overturn the presumption of negligence on the part of the employer.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
CARGOLIFT SHIPPING, INC. vs. L. ACTUARIO MKTG. CORP
493 SCRA 157 (2006)
FACTS:
Respondent L. Acuario Marketing Corp., (“Acuario”) and respondent Skyland Brokerage, Inc.,
(“Skyland”) entered into a time charter agreement whereby Acuario leased to Skyland its L. Acuario II
barge for use by the latter in transporting electrical posts from Manila to Limay, Bataan. At the same
time, Skyland also entered into a separate contract1 with petitioner Cargolift, for the latter’s tugboats to
tow the aforesaid barge.
In accordance with the foregoing contracts, petitioner’s tugboat M/T Beejay left the Manila South
Harbor with Acuario’s barge in tow. It reached the port of Limay, Bataan, whereupon M/T Beejay
disengaged and once again set sail for Manila. Petitioner’s other tugboat, the M/T Count, remained in
Bataan to secure the barge for unloading.
On the same day, the barge was brought to Acuario’s shipyard where it was allegedly
discovered that the barge was listing due to a leak in its hull. The barge was consequently dry-docked
for repairs at the Western Shipyard. Acuario spent the total sum of P97,021.20 for the repairs.
Pursuant to its contract with Skyland which provided that “(a)ny damage or loss on the barge
due to the fault or negligence of charterers shall be the responsibility of the (c)harterer or his
representative”. Acuario wrote Skyland seeking reimbursement of its repair costs, failing which, it filed
a complaint for damages against Skyland before the Regional Trial Court of Caloocan City. Skyland, in
turn, filed a third-party complaint against petitioner alleging that it was responsible for the damage
sustained by the barge.
The trial court promulgated its decision ordering the defendant Skyland Brokerage to pay to the
plaintiff L. Acuario Marketing Corporation the cost of repairs of the barge L. Acuario II and to seek
reimbursement from the third-party defendant Cargolift Shipping.
The trial court further held that Skyland was liable under its time charter agreement with Acuario
pursuant to Article 1159 of the Civil Code which states that “contracts have the force of law between the
contracting parties.” Skyland must bear the consequences of the tugboat’s incapacity to respond to the
barge’s request for assistance because Acuario had no control in the selection of the tugboats used by
Skyland. But since the ultimate fault lies with petitioner, justice demands that the latter reimburse
Skyland for whatever it may be adjudged to pay Acuario.
Petitioner asserts that it could not be held liable for the damage sustained by Acuario’s barge
because the latter sought to recover upon its contract with Skyland, to which petitioner was not a party.
Since it had no contractual relation with Acuario, only Skyland should be held liable under the contract.
The Court of Appeals rendered the assailed Decision affirming the trial court. Hence, the instant
petition.
1

ISSUE:
Whether or not petitioner Cargolift Shipping is liable for the damage suffered by L.Actuario II barge.
HELD:
Affirmative. In the performance of petitioner Cargolift’s contractual obligation to Skyland, petitioner
was required to observe the due diligence of a good father of the family. This much was held in the old
but still relevant case of Baer Senior & Co.’s Successors v. La Compania Maritima where the Court
explained that a tug and its owners must observe ordinary diligence in the performance of its obligation
under a contract of towage. The negligence of the obligor in the performance of the obligation renders
him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the performance of the obligation as the
nature of the obligation so demands.
In the case at bar, the exercise of ordinary prudence by petitioner means ensuring that its
tugboat is free of mechanical problems. While adverse weather has always been a real threat to
maritime commerce, the least that petitioner could have done was to ensure that the M/T Count or any
of its other tugboats would be able to secure the barge at all times during the engagement. This is
especially true when considered with the fact that Acuario’s barge was wholly dependent upon
petitioner’s tugboat for propulsion. The barge was not equipped with any engine and needed a tugboat
for maneuvering.
Thus, the damage to the barge could have been avoided had it not been for the tugboat’s
inability to tow it away from the stone wall. Considering that a barge has no power of its own and is
totally defenseless against the ravages of the sea, it was incumbent upon petitioner to see to it that it
could secure the barge by providing a seaworthy tugboat. Petitioner’s failure to do so did not only
increase the risk that might have been reasonably anticipated during the shipside operation but was the
proximate cause of the damage. Hence, as correctly found by the courts below, it should ultimately be
held liable therefor.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
MANZANARES V. PEOPLE
504 SCRA 354 (2006)
FACTS
A vehicular collision took place along MacArthur Highway, Malolos, Bulacan involving an Isuzu
six-wheeler truck owned by Manhattan Enterprises, Inc. and was then driven by Teodorico Manzanares
and a passenger jeepney registered in the name of Teodoro Basallo, driven by Jesus Basallo. The
incident resulted in the deaths Jesus and three others. It also inflicted serious physical injuries to some
of the passengers. The incident resulted to the filing of civil suits by those harmed by collision against
Manzanares for having drove the Isuzu truck in a grossly negligent, reckless, careless, and imprudent
manner without due regard to traffic rules and ordinances. Manzanares claimed that Jesus Basallo is
presumed to be negligent for driving with an expired license, and that the jeepney has no franchise to
operate, hence he is the one to be held liable for driving with an expired license. However, during trial
of the case, evidence showed that Manzanares acts of driving at high speed and overtaking the
jeepney, such acts of recklessness and imprudence.
ISSUE
Who is to be held liable in the civil case for damages herein instituted?
HELD
Manzanares acts of driving at high speed and overtaking a jeepney which on its part, is in the
right side of the road and driving at an average speed, constitutes act of negligence and imprudence,
making him liable as charged. As to the contention Jesus Basallo should be presumed negligent
because he was driving with an expired license and the passenger jeepney did not have a franchise to
operate, the Court ruled that the same fails to convince. “The defense of contributory negligence does
not apply in criminal cases committed through reckless imprudence, since one cannot allege the
negligence of another to evade the effects of his own negligence.”

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
ABOITIZ SHIPPING CORP. VS NEW INDIA ASSURANCE COMPANY LTD.
488 SCRA 563 (2006)
FACTS:
Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France
on board a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to General
Textile, Inc., in Manila and insured by respondent New India Assurance Company, Ltd. While in Hong
Kong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila. Before departing, the
vessel was advised by the Japanese Meteorological Center that it was safe to travel to its destination.
But while at sea, the vessel received a report of a typhoon moving within its general path. To avoid the
typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon when its hull
leaked. On October 31, 1980, the vessel sank, but the captain and his crew were saved. The petitioner
invoked the limited liability doctrine. However, Both the trial and the appellate courts found that the
sinking was not due to the typhoon but to its unseaworthiness.
ISSUE:
Whether or not the limited liability doctrine, which limits respondent’s award of damages to its
pro-rata share in the insurance proceeds, applies in this case.
HELD:
The court ruled in the negative. An exception to the limited liability doctrine is when the damage
is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the captain. In
which case, the shipowner shall be liable to the full-extent of the damage.
In the present case, petitioner has the burden of showing that it exercised extraordinary
diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine.
Differently put, to limit its liability to the amount of the insurance proceeds, petitioner has the burden of
proving that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the
evidence presented and the circumstances obtaining in this case, we find that petitioner failed to
discharge this burden. It initially attributed the sinking to the typhoon and relied on the BMI findings that
it was not at fault. However, both the trial and the appellate courts, in this case, found that the sinking
was not due to the typhoon but to its unseaworthiness. Evidence on record showed that the weather
was moderate when the vessel sank. These factual findings of the Court of Appeals, affirming those of
the trial court are not to be disturbed on appeal, but must be accorded great weight. These findings are
conclusive not only on the parties but on this Court as well.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
VILLAMARIA, JR. V CA CALLEJO, SR.
APRIL 19, 2006
FACTS
Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship
engaged in assembling passenger jeepneys with a public utility franchise to operate along the
Baclaran-Sucat route. By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of
which he operated by employing drivers on a “boundary basis.” One of those drivers was respondent.
Bustamante remitted P450 a day to Villamaria as boundary and kept the residue of his daily earnings
as compensation for driving the vehicle. In August 1997, Villamaria verbally agreed to sell the jeepney
to Bustamante under the “boundary-hulog scheme,” where Bustamante would remit to Villarama P550
a day for a period of 4 years; Bustamante would then become the owner of the vehicle and continue to
drive the same under Villamaria’s franchise. It was also agreed that Bustamante would make a
downpayment of P10,000.
On August 7, 1997, Villamaria executed a contract entitled “Kasunduan ng Bilihan ng Sasakyan
sa Pamamagitan ng Boundary-Hulog” over the passenger jeepney. The parties agreed that if
Bustamante failed to pay the boundary-hulog for 3 days, Villamaria Motors would hold on to the vehicle
until Bustamante paid his arrears, including a penalty of P50 a day; in case Bustamante failed to remit
the daily boundary-hulog for a period of one week, the Kasunduan would cease to have legal effect and
Bustamante would have to return the vehicle toVillamaria Motors.
Bustamante continued driving the jeepney under the supervision and control of Villamaria. As
agreed upon, he made daily remittances of P550 in payment of the purchase price of the vehicle.
Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria allowed him to
continue driving the jeepney.- In 1999, Bustamante and other drivers who also had the same
arrangement with Villamaria Motors failed to pay their respective boundary-hulog. This prompted
Villamaria to serve a “Paalala,” reminding them that under the Kasunduan, failure to pay the daily
boundary-hulog for one week, would mean their respective jeepneys would be returned to him without
any complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced and
urged them to comply with their obligation to avoid litigation. On July 24, 2000,Villamaria took back the
jeepney driven by Bustamante and barred the latter from driving the vehicle.
Bustamante filed a Complaint for Illegal Dismissal against Villamaria and his wife Teresita. He
narrated that in July 2000, he informed the Villamaria spouses that the surplus engine of the jeepney
needed to be replaced, and was assured that it would be done. However, he was later arrested and his
driver’s license was confiscated because apparently, there placement engine that was installed was
taken from a stolen vehicle. He was no longer allowed to drive the vehicle unless he paid them
P70,000.
ISSUES
1. Whether or not, the existence of a boundary-hulog agreement negates the employeremployee relationship between the vendor and vendee?

2. As a corollary, Whether or not the Labor Arbiter has jurisdiction over a complaint for illegal
dismissal in such a case?
RULING:
1. NO. Under the boundary-hulog scheme, a dual juridical relationship is created: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-employee
relationship of the parties extant before the execution of said deed.
The boundary system is a scheme by an owner/operator engaged in transporting passengers as
a common carrier to primarily govern the compensation of the driver, that is, the latter’s daily earnings
are remitted to the owner/operator less the excess of the boundary which represents the driver’s
compensation. Under this system, the owner/operator exercises control and supervision over the driver.
It is unlike in lease of chattels where the lessor loses complete control over the chattel leased but the
lessee is still ultimately responsible for the consequences of its use. The management of the business
is still in the hands of the owner/operator, who, being the holder of the certificate of public convenience,
must see to it that the driver follows the route prescribed by the franchising and regulatory authority,
and the rules promulgated with regard to the business operations. The fact that the driver does not
receive fixed wages but only the excess of the “boundary” given to the owner/operator is not sufficient
to change the relationship between them. Indubitably, the driver performs activities which are usually
necessary or desirable in the usual business or trade of the owner/operator.
Under the Kasunduan, respondent was required to remit P550 daily to petitioner, an amount
which represented the boundary of petitioner as well as respondent’s partial payment(hulog) of the
purchase price of the jeepney. Thus, the daily remittances also had a dual purpose: that of petitioner’s
boundary and respondent’s partial payment (hulog) for the vehicle.This dual purpose was expressly
stated in the Kasunduan. The well-settled rule is that an obligation is not novated by an instrument that
expressly recognizes the old one, changes only the terms of payment, and adds other obligations not
incompatible with the old provisions or where the new contract merely supplements the previous one.
The two obligations of the respondent to remit to petitioner the boundary-hulog can stand together.The existence of an employment relation is not dependent on how the worker is paid but on the
presence or absence of control over the means and method of the work. The amount earned in excess
of the “boundary hulog” is equivalent to wages and the fact that the power of dismissal was not
mentioned in the Kasunduan did not mean that private respondent never exercised such power, or
could not exercise such power.
Neither is such juridical relationship negated by petitioner’s claim that the terms and conditions
in the Kasunduan relative to respondent’s behavior and deportment as driver was for his and
respondent’s benefit: to insure that respondent would be able to pay the requisite daily installment of
P550, and that the vehicle would still be in good condition despite the lapse of 4years. What is
primordial is that petitioner retained control over the conduct of the respondent as driver of the
jeepney.- As respondent’s employer, it was the burden of petitioner to prove that respondent’s
termination from employment was for a lawful or just cause, or, at the very least, that respondent failed
to make his daily remittances of P550 as boundary. However, petitioner failed to do so. Well-settled is
the rule that, the employer has the burden of proving that the dismissal of an employee is for a just
cause. The failure of the employer to discharge this burden means that the dismissal is not justified and
that the employee is entitled to reinstatement and back wages.
2. YES. The jurisdiction of Labor Arbiters and the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-employee relationship which can only be resolved
byreference to the Labor Code, other labor statutes or their collective bargaining agreement.

RUBY LAID
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
MARIKINA AUTO LINE TRANSPORT CORPORATION vs. PEOPLE OF THE PHILIPPINES and
ERLINDA V. VALDELLON, [G.R. No. 152040 March 31, 2006]
FACTS:
Erlinda V. Valdellon is the owner of a two-door commercial apartment located at No. 31 Kamias
Road, Quezon City. The Marikina Auto Line Transport Corporation (MALTC) is the owner-operator of a
passenger bus with Plate Number NCV-849. Suelto, its employee, was assigned as the regular driver
of the bus.
At around 2:00 p.m. on October 3, 1992, Suelto was driving the aforementioned passenger bus
along Kamias Road, Kamuning, Quezon City, going towards Epifanio de los Santos Avenue (EDSA).
The bus suddenly swerved to the right and struck the terrace of the commercial apartment owned by
Valdellon located along Kamuning Road. Valdellon demanded payment of P148,440.00 to cover the
cost of the damage to the terrace. The bus company and Suelto offered a P30,000.00 settlement which
Valdellon refused.
Valdellon filed a criminal complaint for reckless imprudence resulting in damage to property
against Suelto. Valdellon also filed a separate civil complaint against Suelto and the bus company for
damages. Suelto maintained that, in an emergency case, he was not, in law, negligent. Both the trial
court and the CA ruled in against herein petitioners.
ISSUE:
Whether or not the sudden emergency rule applies in the case at bar.
HELD:
No. It was the burden of petitioners herein to prove petitioner Suelto’s defense that he acted on
an emergency, that is, he had to swerve the bus to the right to avoid colliding with a passenger jeep
coming from EDSA that had overtaken another vehicle and intruded into the lane of the bus. The
sudden emergency rule was enunciated by this Court in Gan v. Court of Appeals,23 thus:
[O]ne who suddenly finds himself in a place of danger, and is required to act without time
to consider the best means that may be adopted to avoid the impending danger, is not guilty of
negligence if he fails to adopt what subsequently and upon reflection may appear to have been
a better method unless the emergency in which he finds himself is brought about by his own
negligence.
Under Section 37 of Republic Act No. 4136, as amended, otherwise known as the Land
Transportation and Traffic Code, motorists are mandated to drive and operate vehicles on the right side
of the road or highway:
SEC. 37. Driving on right side of highway. – Unless a different course of action is
required in the interest of the safety and the security of life, person or property, or because of
unreasonable difficulty of operation in compliance herewith, every person operating a motor
vehicle or an animal-drawn vehicle on a highway shall pass to the right when meeting persons
or vehicles coming toward him, and to the left when overtaking persons or vehicles going the

same direction, and when turning to the left in going from one highway to another, every vehicle
shall be conducted to the right of the center of the intersection of the highway.
Section 35 of the law provides, thus:
Sec. 35. Restriction as to speed.—(a) Any person driving a motor vehicle on a highway
shall drive the same at a careful and prudent speed, not greater nor less than is reasonable and
proper, having due regard for the traffic, the width of the highway, and of any other condition
then and there existing; and no person shall drive any motor vehicle upon a highway at such a
speed as to endanger the life, limb and property of any person, nor at a speed greater than will
permit him to bring the vehicle to a stop within the assured clear distance ahead.
In relation thereto, Article 2185 of the New Civil Code provides that "unless there is proof to the
contrary, it is presumed that a person driving a motor vehicle has been negligent, if at the time of
mishap, he was violating any traffic regulation." By his own admission, petitioner Suelto violated the
Land Transportation and Traffic Code when he suddenly swerved the bus to the right, thereby causing
damage to the property of private respondent.
However, the trial court correctly rejected petitioner Suelto’s defense, in light of his contradictory
testimony vis-à-vis his Counter-Affidavit submitted during the preliminary investigation:
It is clear from the photographs submitted by the prosecution (Exhs. C, D, G, H & I) that the
commercial apartment of Dr. Valdellon sustained heavy damage caused by the bus being driven by
Suelto. "It seems highly improbable that the said damages were not caused by a strong impact. And, it
is quite reasonable to conclude that, at the time of the impact, the bus was traveling at a high speed
when Suelto tried to avoid the passenger jeepney." Such a conclusion finds support in the decision of
the Supreme Court in People vs. Ison, 173 SCRA 118, where the Court stated that "physical evidence
is of the highest order. It speaks more eloquently than a hundred witnesses." The pictures submitted do
not lie, having been taken immediately after the incident. The damages could not have been caused
except by a speeding bus. Had the accused not been speeding, he could have easily reduced his
speed and come to a full stop when he noticed the jeep. Were he more prudent in driving, he could
have avoided the incident or even if he could not avoid the incident, the damages would have been less
severe.
In addition to this, the accused has made conflicting statements in his counter-affidavit and his
testimony in court. In the former, he stated that the reason why he swerved to the right was because he
wanted to avoid the passenger jeepney in front of him that made a sudden stop. But, in his testimony in
court, he said that it was to avoid a passenger jeepney coming from EDSA that was overtaking by
occupying his lane. Such glaring inconsistencies on material points render the testimony of the witness
doubtful and shatter his credibility. Furthermore, the variance between testimony and prior statements
renders the witness unreliable. Such inconsistency results in the loss in the credibility of the witness
and his testimony as to his prudence and diligence.
As already maintained and concluded, the severe damages sustained could not have resulted
had the accused acted as a reasonable and prudent man would. The accused was not diligent as he
claims to be. What is more probable is that the accused had to swerve to the right and hit the
commercial apartment of the plaintiff because he could not make a full stop as he was driving too fast in
a usually crowded street.
Moreover, if the claim of petitioners were true, they should have filed a third-party complaint
against the driver of the offending passenger jeepney and the owner/operator thereof.
Petitioner Suelto’s reliance on the sudden emergency rule to escape conviction for the crime
charged and his civil liabilities based thereon is, thus, futile.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
PHILIPPINE CHARTER INSURANCE CORPORATION VS. UNKNOWN OWNER OF THE VESSEL
M/V “NATIONAL HONOR,” NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES AND
INTERNATIONAL CONTAINER SERVICES, INC. [G.R. NO. 161833. JULY 8, 2005]
FACTS:
Petitioner Philippine Charter Insurance Corporation (PCIC) is the insurer of a shipment on board
the vessel M/V “National Honor,” represented in the Philippines by its agent, National Shipping
Corporation of the Philippines (NSCP). The M/V “National Honor” arrived at the Manila International
Container Terminal (MICT). The International Container Terminal Services, Incorporated (ICTSI) was
furnished with a copy of the crate cargo list and bill of lading, and it knew the contents of the crate. The
following day, the vessel started discharging its cargoes using its winch crane. The crane was operated
by Olegario Balsa, a winchman from the ICTSI, exclusive arrastre operator of MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of
the ICTSI, conducted an inspection of the cargo. They inspected the hatches, checked the cargo and
found it in apparent good condition. Claudio Cansino, the stevedore of the ICTSI, placed two sling
cables on each end of Crate No. 1. No sling cable was fastened on the mid-portion of the crate. In
Dauz’s experience, this was a normal procedure. As the crate was being hoisted from the vessel’s
hatch, the mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from the
vessel’s twin deck, sending all its contents crashing down hard, resulting in extensive damage to the
shipment. PCIC paid the damage, and as subrogee, filed a case against M/V National Honor, NSCP
and ICTSI. Both RTC and CA dismissed the complaint.
ISSUE:
Whether or not the presumption of negligence is applicable in the instant case.
HELD:
No. The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for
their acceptance, by the person entitled to receive them.] >When the goods shipped are either lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. To overcome the
presumption of negligence in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence.
However, under Article 1734 of the New Civil Code, the presumption of negligence does not
apply to any of the following causes:
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;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.

In the present case, the trial court declared that based on the record, the loss of the shipment
was caused by the negligence of the petitioner as the shipper: The same may be said with respect to
defendant ICTSI. The breakage and collapse of Crate No. 1 and the total destruction of its contents
were not imputable to any fault or negligence on the part of said defendant in handling the unloading of
the cargoes from the carrying vessel, but was due solely to the inherent defect and weakness of the
materials used in the fabrication of said crate. The crate should have three solid and strong wooden
batten placed side by side underneath or on the flooring of the crate to support the weight of its
contents.
CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
SCHMITZ TRANSPORT & BROKERAGE CORPORATION vs. TRANSPORT VENTURE, INC.,
456 SCRA 557 (2005)
FACTS:
SYTCO Pte Ltd. Singapore shipped steel sheets from Russia to Manila on board M/V
"Alexander Saveliev", a Russian vessel owned by Black Sea, in favor of consignee, Little Giant Steel
Pipe Corporation. Such cargoes were insured against all risks with Industrial Insurance Company.
Consignee then engaged the services of Schmitz Transport to secure the requisite clearances, to
receive the cargoes from the shipside, and to deliver them to its warehouse. Schmitz also engaged the
services of TVI to send a barge and tugboat at shipside.
The tugboat, commenced to unload 37 of the 545 coils from the vessel unto the barge. By
noon the next day, during which the weather condition had become inclement due to an approaching
storm, the unloading unto the barge of the 37 coils was accomplished. Eventually, because of the
strong waves, the barge capsized, washing the 37 coils into the sea. Earnest efforts on the part of both
the consignee Little Giant and Industrial Insurance to recover the lost cargoes proved futile. Industrial
Insurance later filed a complaint against Schmitz Transport, TVI and Black Sea for the recovery of the
amount it paid to Little Giant.
ISSUE:
Whether or not the liability for the loss may attach to Black Sea, Schmitz and TVI
HELD:
TVI‘s failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation, but was the proximate cause of the loss. A man of
ordinary prudence would not leave a heavily loaded barge floating for a considerable number of hours,
at such a precarious time, and in the open sea, knowing that the barge does not have any power of its
own and is totally defenseless from the ravages of the sea. As for Schmitz, for it to be relieved of
liability, it should, following Article 1739 of the Civil Code, prove that it exercised due diligence to
prevent or minimize the loss, before, during and after the occurrence of the storm in order that it may be
exempted from liability for the loss of the goods.
The Court holds then that Schmitz and TVI are solidarily liable for the loss of the cargoes. As for
Black Sea, its duty as a common carrier extended only from the time the goods were surrendered or
unconditionally placed in its possession and received for transportation until they were delivered
actually or constructively to consignee Little Giant.

GLEN PETILLA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
CRESCENT PETROLEUM, LTD., VS. M/V “LOK MAHESHWARI”, THE SHIPPING CORPORATION
OF INDIA and PORTSERV LIMITED and/or TRANSMAR SHIPPING, INC.,
G.R. NO. 155014
FACTS
Respondent M/V “Lok Maheshwari” (Vessel) is an oceangoing vessel of Indian registry, owned
by respondent Shipping Corporation of India (SCI), a corporation organized and existing under the laws
of India and principally owned by the Government of India. It was time-chartered by SCI to Halla
Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel
through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further sub-chartered the
Vessel to Portserv Limited (Portserv). Both Transmar and Portserv are corporations organized and
existing under the laws of Canada.
On November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a
corporation organized and existing under the laws of Canada that is engaged in the business of selling
petroleum and oil products for the use and operation of oceangoing vessels, to deliver marine fuel oils
to the Vessel. Petitioner Crescent granted and confirmed the request. As security for the payment of
the bunker fuels petitioner Crescent received two (2) checks. Thus, petitioner Crescent contracted with
its supplier, Marine Petrobulk Limited (Marine Petrobulk), another Canadian corporation, for the
physical delivery of the bunker fuels to the Vessel.
Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice to “Portserv Limited,
and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V ‘Lok Maheshwari’” in the
amount of US$103,544.00 with instruction to remit the amount on or before December 1, 1995. The
period lapsed and several demands were made but no payment was received.
On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent
instituted before the RTC of Cebu City an action “for a sum of money with prayer for temporary
restraining order and writ of preliminary attachment” against respondents Vessel and SCI, Portserv
and/or Transmar.
ISSUE
Whether or not Philippine courts have jurisdiction over a foreign vessel found inside Philippine
waters for the enforcement of a maritime lien against said vessel and/or its owners and operators;
RULING
This case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a foreign
port to a vessel of foreign registry that is owned, chartered and sub-chartered by foreign entities.
In light of the interests of the various foreign elements involved, it is clear that Canada has the
most significant interest in this dispute. The injured party is a Canadian corporation, the sub-charterer
which placed the orders for the supplies is also Canadian, the entity which physically delivered the
bunker fuels is in Canada, the place of contracting and negotiation is in Canada, and the supplies were
delivered in Canada.

It is well-settled that a party whose cause of action or defense depends upon a foreign law has
the burden of proving the foreign law. Such foreign law is treated as a question of fact to be properly
pleaded and proved.[32] Petitioner Crescent’s insistence on enforcing a maritime lien before our courts
depended on the existence of a maritime lien under the proper law. By erroneously claiming a maritime
lien under Philippine law instead of proving that a maritime lien exists under Canadian law, petitioner
Crescent failed to establish a cause of action.[33]
Under P.D. No. 1521 or the Ship Mortgage Decree of 1978, the following are the requisites for
maritime liens on necessaries to exist: (1) the “necessaries” must have been furnished to and for the
benefit of the vessel; (2) the “necessaries” must have been necessary for the continuation of the
voyage of the vessel; (3) the credit must have been extended to the vessel; (4) there must be necessity
for the extension of the credit; and (5) the necessaries must be ordered by persons authorized to
contract on behalf of the vessel.[34] These do not avail in the instant case.
In this case it was the sub-charterer Portserv which placed the orders to petitioner Crescent. [35]
Hence, the presumption does not arise and it is incumbent upon petitioner Crescent to prove that
benefit was extended to the vessel.
We also note that when copies of the charter parties were submitted by respondents in the
Court of Appeals, the time charters between respondent SCI and Halla and between Halla and
Transmar were shown to contain a clause which states that “the Charterers shall provide and pay for all
the fuel except as otherwise agreed.” This militates against petitioner Crescent’s position that Portserv
is authorized by the shipowner to contract for supplies upon the credit of the vessel.
A time charter is a contract for the use of a vessel for a specified period of time or for the
duration of one or more specified voyages wherein the owner of the time-chartered vessel retains
possession and control through the master and crew who remain his employees. [37] Not enjoying the
presumption of authority, petitioner Crescent should have proved that Portserv was authorized by the
shipowner to contract for supplies.
IN VIEW WHEREOF, the Decision of the Court of Appeals and its subsequent Resolution
dismissing petitioner’s cause of action are AFFIRMED. The instant petition for review on certiorari is
DENIED for lack of merit.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: TRANSPORTATION LAW
JAPAN AIRLINES VS. ASUNCION
449 SCRA 544 (JAN. 28, 2005)
FACTS:
On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan
Airlines’ (JAL) bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight
stay at Hotel Nikko Narita. Upon arrival at Narita, en employee of JAL endorsed their applications for
shore pass and directed them to the Japanese immigration official. A shore pass is required of a
foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not
more than 72 hours.
During their interview, the Japanese immigration official noted that Michael appeared shorter
than his height as indicated in his passport. Because of this inconsistency, respondents were denied
shore pass entries and were detained at the Narita Airport Rest House where they were billeted
overnight. A JAL employee was instructed that the respondents were to be “watched so as not to
escape.” Respondents were charged US $400.00 each for their accommodation, security, service and
meals.
Subsequently, respondents filed a complaint for damages claiming that JAL did not fully apprise
them of their travel requirements and that they were rudely and forcibly detained at the Narita Airport.
The trial court rendered a decision favor of the respondents. On appeal, the CA affirmed in toto the
decision of the trial court.
ISSUE:
Whether or not JAL is guilty of breach of contract of carriage with respondents.
HELD:
JAL did not breach its contract of carriage with respondents. It may be true that JAL has the
duty to inspect whether its passengers have the necessary travel documents, however, such duty does
not extend to checking the veracity of every entry in these documents. JAL could not vouch for the
authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien
into the country is a sovereign act which cannot be interfered with even by JAL. This is not within the
ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not
be faulted for the denial of respondents’ shore pass applications.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: INSURANCE LAW
VIRGINIA PEREZ VS. COURT OF APPEALS
January 28, 2000
FACTS
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for
P20,000.00. In October 1987, an agent of the insurance corporation, Rodolfo Lalog, convinced him to
apply for additional insurance coverage of P50,000.00, to avail of the promotional discount of
P40,000.00 if the premium were paid annually. Primitivo Perez accomplished an application form for
the additional insurance coverage of P50,000.00. On the same day, the amount of P2,075.00 was paid
to Lalog by Primitivo’s wife, petitioner Virginia Perez. The receipt issued indicated the amount received
as a “deposit”. Unfortunately, the application form was lost by Lalog wherein Primitivo was made to fill
up another application form and undergo medical examination. As per established procedure of the
company, Lalog forwarded the application for additional insurance of Perez to the Manila and other
supporting relevant documents.
On November 25, 1987, Perez died in an accident where he was riding a banca capsized during
a storm. However, it was only on November 27, 1987 that Perez’s application papers were received in
Manila. Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation
approved the application and issued the corresponding policy for the P50,000.00 on December 2, 1987.
ISSUE
Whether or not there was a consummated contract of insurance between the deceased and BF
Lifeman Insurance Corporation.
HELD
Insurance is a contract whereby, for a stipulated consideration, one party undertakes to
compensate the other for loss on a specified subject by specified perils. A contract, on the other hand,
is a meeting of the minds between two persons whereby one binds himself, with respect to the other to
give something or to render some service.
When primitive filed an application for insurance, paid P2,075.00 and submitted the results of
medical examination, his application was subject to the acceptance of private respondent BF Lifeman
Insurance Corporation. The perfection of the contract of insurance between the deceased and the
respondent corporation was further conditioned upon compliance with the following requisites stated in
the application form:
“there shall be no contract of insurance unless and until a policy is issued on this application
and that the said policy shall not take effect until the premium has been paid and the policy
delivered to and accepted by me/us in person while I/We, am/are in good health.”
The assent of the private respondent was not given when it merely received the application form
and all the requisite supporting papers of the applicant. Its assent was given when it issues a
corresponding policy to the applicant. Under the above mentioned provision, it is only when the

applicant pays the premium and receives and accepts the policy while he is in good health that the
contract of insurance is deemed to have been perfected.
In this case, when Primitivo Perez died, his application papers for additional insurance coverage
were still with the branch office of respondent corporation in Gumaca and it was only two days later or
on November 27, 1987, when Lalog personally delivered the application papers to the head office in
Manila. Consequently, there was absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept since the applicant at the time was already dead.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: INSURANCE LAW
GULF RESORTS Inc. vs. PHIL. CHARTER INSURANCE CORP.
FACTS:
Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had
its properties in said resort insured originally with the American Home Assurance Company (AHAC). In
the first 4 policies issued, the risks of loss from earthquake shock was extended only to petitioner’s
two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the
AHAC policy provided that the policy wording and rates in said policy be copied in the policy to be
issued by Phil Charter. Phil Charterissued Policy No. 31944 to Gulf Resorts covering the period of
March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. the breakdown of premiums shows that Gulf Resorts paid only P393.00 as premium against earthquake shock
(ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that “In consideration
of the payment by the insured to the company of the sum included additional premium the Company
agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that
this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned
by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7C"). In Exhibit "7-C" the word "included" above the underlined portion was deleted. On July 16, 1990
an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No.
31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.
Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944
for damages on its properties. Respondent denied petitioner’s claim on the ground that its insurance
policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial court
ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a premium
of P393.00 against the peril of earthquake shock, the same premium it had paid
against earthquake shock only on the two swimming pools in all the policies issued by AHAC.
ISSUE:
Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does
not extend to all properties damaged therein.
HELD:
YES. All the provisions and riders taken and interpreted together, indubitably show the intention
of the parties to extendearthquake shock coverage to the two swimming pools only. An insurance
premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril. In fire, casualty and marine insurance, the premium becomes a debt as soon as the risk
attaches. In the subject policy, no premium payments were made with regard to earthquake shock
coverage except on the two swimming pools. There is no mention of any premium payable for the other
resort properties with regard to earthquake shock. This is consistent with the history of petitioner’s
insurance policies with AHAC.

BETTY L. CAMPOS
COMMERCIAL LAW REVIEW: INSURANCE LAW
WHITE GOLD MARINE SERVICES, INC. VS. PIONEER INSURANCE AND SURETY CORP.
G.R. No. 154514
(July 28, 2005)
FACTS:
White Gold procured a protection and indemnity coverage for its vessels from The Steamship
Mutual through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of
Entry and Acceptance. Pioneer also issued receipts. When White Gold failed to fully pay itsaccounts,
Steamship Mutual refused to renew the coverage. Steamship Mutual thereafter filed a case
against White Gold for collection of sum of money to recover the unpaid balance. White Gold on the
other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual
and Pioneer violated provisions of the Insurance Code. The Insurance Commission dismissed the
complaint. It said that there was no need for Steamship Mutual to secure a license because it was not
engaged in the insurance business and that it was a P & I club. Pioneer was not required to obtain
another license as insurance agent because Steamship Mutual was not engaged in the
insurance business. The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court d distinguished between P & I Clubs vis-à-vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. Hence
this petition by White Gold.
ISSUE:
Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?
HELD:
A P & I Club is “a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members.” By definition then, Steamship Mutual as a P & I Club is a
mutual insurance association engaged in the marine insurance business. The records reveal
Steamship Mutual is doing business in the country albeit without the requisite certificate of authority
mandated by Section 187 of the Insurance Code. It maintains a resident agent in the Philippines to
solicit insurance and to collect payments in its behalf. Steamship Mutual even renewed its P & I Club
cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission.

TRYLL CHIU
COMMERCIAL LAW REVIEW: INSURANCE LAW
BLUE CROSS HEALTH CARE, INC. VS. NEOMI AND DANILO OLIVARES
Feb. 12, 2008
FACTS:
Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross
Health Care, Inc., a health maintenance firm. She paid the amount of P11,117 and availed of the
additional service of limitless consultations for an additional amount of P1,000. She paid these
amounts in full on October 17, 2002. The application was approved on October 22, 2002. In the health
care agreement, ailments due to “pre-existing conditions” were excluded from the coverage.
Barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke. During
her confinement, she underwent several laboratory tests and incurred hospital expenses amounting
to P34,217.20. She requested from the representative of petitioner a letter of authorization in order to
settle her medical bills. But petitioner refused to issue the letter and suspended payment pending the
submission of a certification from her attending physician that the stroke she suffered was not caused
by a pre-existing condition.
ISSUE:
Whether or not respondent has the burden of proof in showing that her stroke was caused by a
pre-existing condition and therefore was excluded from the coverage of the health care agreement.
HELD:
It was the burden of petitioner to prove that the stroke suffered by respondent Neomi was
excluded from the coverage of the health care program for being caused by a pre-existing
condition. Petitioner never presented any evidence to prove that respondent Neomi's stroke was due to
a pre-existing condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based
on her invocation of the doctor-patient privilege.
Furthermore, limitations of liability on the part of the insurer or health care provider must be
construed in such a way as to preclude it from evading its obligations. Since petitioner had the burden
of proving exception to liability, it should have made its own assessment of whether respondent Neomi
had a pre-existing condition when it failed to obtain the attending physician's report. It could not just
passively wait for Dr. Saniel's report to bail it out. The mere reliance on a disputable presumption does
not meet the strict standard required under our jurisprudence.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: INSURANCE LAW
PHIL. HEALTH CARE VS. CIR
GR No. 167330 Sept. 18, 2009
FACTS:
Petitioner is a domestic corporation whose primary purpose is to establish, maintain, conduct
and operate a prepaid group practice health care delivery system or a health maintenance organization
to take care of the sick and disabled persons enrolled in the health care plan. In 2000, the CIR sent
petitioner a formal demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total
amount of P224,702,641.18. The deficiency in documentary stamp tax (DST) was imposed on
petitioner’s health care agreement with the members of its health care program pursuant to Sec. 185 of
the 1997 Tax Code. Petitioner protested the assessment and later filed a Petition for review in the CTA
seeking the cancellation of the deficiency VAT and DST assessments. The CTA ordered the CIR to
desist from collecting the DST deficiency tax. On Appeal, the CA reversed the CTA decision. It said
the petitioner's health care agreement was in the nature of a non-life insurance contract subject to DST.
ISSUES:
1) Whether or not the health care agreement between the petitioner and its members is an
insurance contract and
2) Whether as an HMO (Health Maintenance Organization), it is engaged in the business of
insurance during the pertinent taxable years.
HELD:
On the first issue, the SC held that Section 2 (1) of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk and
5. In consideration of the insurer's promise, the insured pays a premium.
The SC said that the agreements between petitioner and its members do not possess all these
elements. First, even if a contract contains all the elements of an insurance contract, if its primary
purpose is the rendering of service, it is not a contract of insurance. Second, there is no loss, damage
or liability on the part of the member that should be indemnified by petitioner as an HMO. There is no
indemnity precisely because the member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements. Third, according to the agreement, a member
can take advantage of the bulk of the benefits anytime even in the absence of any peril, loss or damage

on his or her part. Fourth. In case of emergency, petitioner is obliged to reimburse the member who
receives care from a non-participating physician or hospital. The assumption of the expense by
petitioner is not confined to the happening of a contingency but includes incidents even in the absence
of illness or injury. Since indemnity of the insured was not the focal point of the agreement but the
extension of medical services to the member at an affordable cost, it did not partake of the nature of a
contract of insurance. Fifth. Although risk is a primary element of an insurance contract, it is not
necessarily true that risk alone is sufficient to establish it. Assuming that petitioner’s commitment to
provide medical services to its members can be construed as an acceptance of the risk that it will shell
out more than the prepaid fees, it still will not qualify as an insurance contract because petitioner’s
objective is to provide medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads us to conclude that it
is not an insurance contract within the context of our Insurance Code
On the second issue, the SC ruled that Section 2 (2) of PD 1460 (otherwise known as the
Insurance Code) enumerates what constitutes "doing an insurance business" or "transacting an
insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
One test that they have applied is whether the assumption of risk and indemnification of loss
(which are elements of an insurance business) are the principal object and purpose of the organization
or whether they are merely incidental to its business. If these are the principal objectives, the business
is that of insurance. But if they are merely incidental and service is the principal purpose, then the
business is not insurance. In adopting the "principal purpose test”, the purpose is to determine what
"doing an insurance business" means, thus the operations of the business as a whole is scrutinized
and not its mere components.
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them medical
care. Therefore, since it substantially provides health care services rather than insurance services, it
cannot be considered as being in the insurance business.
In addition, SC finds the petitioner, as an HMO, not part of the insurance industry. This is
evident from the fact that it is not supervised by the Insurance Commission but by the Department of
Health.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: INSURANCE LAW
UCPB V. MASAGANA TELAMART, INC.
356 SCRA 307
FACTS:
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance
policies on its properties in Pasay City and Manila. All five (5) policies reflect on their face the effectivity
term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiff's
properties were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5)
Equitable Bank Manager's Checks in the total amount of P225,753.45 as renewal premium payments
for which Official Receipt was issued by defendant. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. On the same day, defendant returned
the five (5) manager's checks stating in its letter that it was rejecting Masagana's claim on the following
grounds: a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and c) The
properties covered by the said policies were burned in a fire that took place last June 13, 1992, or
before tender of premium payment."
Hence Masagana filed this case. In Supreme Court decision of 15 June 1999, it defined the
main issue to be “whether the fire insurance policies issued by petitioner to the respondent covering the
period from May 22, 1991 to May 22, 1992… had been extended or renewed by an implied credit
arrangement though actual payment of premium was tendered on a later date and after the occurrence
of the (fire) risk insured against.” It resolved the issue in the negative in view of Section 77 of the
Insurance Code and their decisions in Valenzuela v. Court of Appeals; South Sea Surety and
Insurance Co., Inc. v. Court of Appeals; and Tibay v. Court of Appeals. Respondent seasonably filed a
motion for the reconsideration of the adverse verdict.
ISSUE:
Whether or not Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly
applied to Petitioner’s advantage despite its practice of granting a 60- to 90-day credit term for the
payment of premiums.
Section 77 of the Insurance Code of 1978 provides:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
This Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act
as amended by R.A. No. 3540:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the
peril insured against, unless there is clear agreement to grant the insured credit extension of the
premium due. No policy issued by an insurance company is valid and binding unless and until the
premium thereof has been paid. (Underscoring supplied)

HELD:
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there exceptions to Section
77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life
policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of 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 premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals,[5] wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time of loss.
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the
Court of Appeals in its Resolution denying the motion for reconsideration of its decision:
By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant
credit extension for the payment of the premium. This simply means that if the insurer has granted the
insured a credit term for the payment of the premium and loss occurs before the expiration of the term,
recovery on the policy should be allowed even though the premium is paid after the loss but within the
credit term.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: INSURANCE LAW
FEDERAL EXPRESS CORP. V. AMERICAN HOME ASSURANCE CO.
437 SCRA 50
FACTS
SMITHKLINE Beecham (SMITHKLINE) of Nebraska, USA delivered to Burlington Air Express
(BURLINGTON), an agent of Federal Express Corporation, a shipment of veterinary biologicals for
delivery to its consignee here in the Philippines SMITHKLINE. Burlington insured the cargoes with
American Home Assurance Company (AHAC). The following day, Burlington turned over the custody
of said cargoes to Federal Express which transported the same to Manila. When the shipment arrived
in Manila, it was immediately stored at Cargohaus Inc.’s warehouse. Prior to the arrival of the cargoes,
Federal Express informed the customs broker hired by the consignee of the impending arrival of its
client’s cargoes. It found out that the cargoes were stored only in a room with two (2) air conditioners
instead of a refrigerator. Thereafter, the custom’s broker did not proceed with the withdrawal of the
vaccines and instead, brought samples of it to the Bureau of Animal Industry of the Department of
Agriculture in the Philippines for examination wherein it was discovered that the vaccines are below the
positive reference serum.
Consequently, SMITHKLINE abandoned the shipment and, declaring ‘total loss’ for the
unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam
Insurance Co., Inc. (‘PHILAM’) which recompensed SMITHKLINE for the whole insured amount.
Thereafter, AHAC and PHILAM filed an action for damages against the Federal Express imputing
negligence on either or both of them in the handling of the cargo.
Trial ensued and ultimately concluded with Federal Express being held solidarily liable for the
loss. Aggrieved, Federal Express appealed claiming among other things that AHAC AND PHILAM had
no personality to sue because the payment was made by the latter to Smithkline when the insured
under the policy is Burlington Air Express.
ISSUE
Whether or not AHAC and PHILAM have no personality to sue.
HELD
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods,
the insurer’s entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause
of action in case of a contractual breach or negligence. “Further, the insurer’s subrogatory right to sue
for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld.”
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all
intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both the
insurer and the consignee are bound by the contractual stipulations under the bill of lading. Therefore,
AHAC and PHILAM have personality to sue.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: INSURANCE LAW
FGU INSURANCE CORP VS. CA 454 SCRA 337
FACTS
On April 21, 1987, a car owned by private respondent FILCAR Transport Inc., rented to and
driven by Dahl-Jensen, a Danish tourist, swerved into the right and hit the car owned by Lydia Soriano
and driven by Benjamin Jacildone. Dahl-Jensen did not possess a Philippine driver’s license. Petitioner,
as the insurer of Soriano’s car, paid the latter P25,382.20 and, by way of subrogation, sued FILCAR,
Dahl-Jensen, and Fortune Insurance Corporation, FILCAR’s insurer, for quasi-delict. The trial court
dismissed the petition for failure to substantiate the claim for subrogation. The Court of Appeals
affirmed the decision, but on the ground that only Dahl-Jensen’s negligence was proven, not that of
FILCAR. Hence, this instant petition.
ISSUE
Whether or not an action based on quasi-delict will prosper against a rent-a-car company and,
consequently, its insurer for fault or negligence of the car lessee in driving the rented vehicle
HELD
The court ruled in the negative. We find no reversible error committed by respondent court in
upholding the dismissal of petitioner's complaint. The pertinent provision is Art. 2176 of the Civil Code
which states: "Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict . . . . ". To sustain a claim based thereon, the
following requisites must concur: (a) damage suffered by the plaintiff; (b) fault or negligence of the
defendant; and, (c) connection of cause and effect between the fault or negligence of the defendant
and the damage incurred by the plaintiff. We agree with respondent court that petitioner failed to prove
the existence of the second requisite, i.e., fault or negligence of defendant FILCAR, because only the
fault or negligence of Dahl-Jensen was sufficiently established, not that of FILCAR. It should be noted
that the damage caused on the vehicle of Soriano was brought about by the circumstance that DahlJensen swerved to the right while the vehicle that he was driving was at the center lane. It is plain that
the negligence was solely attributable to Dahl-Jensen thus making the damage suffered by the other
vehicle his personal liability. Respondent FILCAR did not have any participation therein. Respondent
FILCAR being engaged in a rent-a-car business was only the owner of the car leased to Dahl-Jensen.
As such, there was no vinculum juris between them as employer and employee. Respondent FILCAR
cannot in any way be responsible for the negligent act of Dahl-Jensen, the former not being an
employer of the latter.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: INSURANCE LAW
GREAT PACIFIC LIFE ASSURANCE CORP. VS. COURT OF APPEALS
[GR 113899, 13 OCTOBER 1999]
FACTS
A contract of group life insurance was executed between Great Pacific Life Assurance
Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the
lives of eligible housing loan mortgagors of DBP. On 11 November 1983, Dr. Wilfredo Leuterio, a
physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions concerning his health condition as follows: "7. Have
you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes,
lung, kidney or stomach disorder or any other physical impairment? Answer: No. If so give details
___________. 8. Are you now, to the best of your knowledge, in good health? Answer: [ x ] Yes [ ] No."
On 15 November 1983, Grepalife issued Certificate B-18558, as insurance coverage of Dr. Leuterio, to
the extent of his DBP mortgage indebtedness amounting to P86,200.00. On 6 August 1984, Dr.
Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he
applied for an insurance coverage on 15 November 1983. Grepalife insisted that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his death. Allegedly, such
nondisclosure constituted concealment that justified the denial of the claim. On 20 October 1986, the
widow of the late Dr. Leuterio, Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." During the
trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia’s findings,
based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches
presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was
not autopsied, hence, other causes were not ruled out. On 22 February 1988, the trial court rendered a
decision in favor of the widow and against Grepalife. On 17 May 1993, the Court of Appeals sustained
the trial court’s decision. Grepalife filed the petition for review.
ISSUE
Whether Dr. Leuterio failed to disclose that he had hypertension, which might have caused his
death, and thus concealment can be interposed by Grepalife as a defense to annul the insurance
contract.
HELD
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same. Grepalife merely relied on the testimony of the
attending physician, Dr. Hernando Mejia, as supported by the information given by the widow of the
decedent. Grepalife asserts that Dr. Mejia’s technical diagnosis of the cause of death of Dr. Leuterio
was a duly documented hospital record, and that the widow’s declaration that her husband had
"possible hypertension several years ago" should not be considered as hearsay, but as part of res
gestae. On the contrary, the medical findings were not conclusive because Dr. Mejia did not conduct an

autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio’s any previous hospital confinement. Dr. Leuterio’s death certificate stated
that hypertension was only "the possible cause of death." The widow’s statement, as to the medical
history of her husband, was due to her unreliable recollection of events. Hence, the statement of the
physician was properly considered by the trial court as hearsay. The insured, Dr. Leuterio, had
answered in his insurance application that he was in good health and that he had not consulted a
doctor or any of the enumerated ailments, including hypertension; when he died the attending physician
had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to
hypertension. Contrary to Grepalife’s allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insured’s widow who was not even sure if
the medicines taken by Dr. Leuterio were for hypertension, Grepalife had not proven nor produced any
witness who could attest to Dr. Leuterio’s medical history. Grepalife had failed to establish that there
was concealment made by the insured, hence, it cannot refuse payment of the claim. The fraudulent
intent on the part of the insured must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the insurer. Herein,
Grepalife failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance.

RUBY LAID
COMMERCIAL LAW REVIEW: INSURANCE LAW
COUNTRY BANKERS INSURANCE CORP. VS. LIANGA BAY &
COMMUNITY MULTI-PURPOSE COOPERATIVE, INC.
G.R. NO.136914, JANUARY 25, 2002
FACTS:
Country Banker’s Insurance Corp. (CBIC) insured the building of respondent Lianga Bay and
Community Multi-Purpose Corp., Inc. against fire, loss, damage, or liability during the period starting
June 20, 1990 for the sum of Php.200,000.00. On July 1, 1989 at about 12:40 in the morning a fire
occurred. The respondent filed the insurance claim but the petition denied the same on the ground that
the building was set on fire by two NPA rebels and that such loss was an excepted risk under par.6 of
the conditions of the insurance policy that the insurance does not cover any loss or damage occasioned
by among others, mutiny, riot, military or any uprising. Respondent filed an action for recovery of loss,
damage or liability against petitioner and the Trial Court ordered the petition to pay the full value of the
insurance.
ISSUE
Whether or not the insurance corporation is exempted to pay based on the exception clause in
the insurance policy.
HELD
The Supreme Court held that the insurance corporation has the burden of proof to show that the
loss comes within the purview of the exception or limitation set-up. But the insurance corporation
cannot use a witness to prove that the fire was caused by the NPA rebels on the basis that the witness
learned this from others. Such testimony is considered hearsay and may not be received as proof of the
truth of what he has learned. The petitioner, failing to prove the exception, cannot rely upon on
exemption or exception clause in the fire insurance policy. The petition was granted.

DANIEL LONGAQUIT
COMMERCIAL LAW REVIEW: INSURANCE LAW
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA TRINOS
G.R. NO. 125678 MARCH 18, 2002
FACTS:
Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with
Philamcare Health Systems, Inc. In thestandard application form, he answered “NO” to the following
question: Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes,cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).
Coverage of the health care agreement (HCA): •approved for a period of one year, Renewed 3 times
yearly: March 1, 1988 - March 1, 1990; March 1, 1990 – June 1, 1990.The amount of coverage was
increased to a maximum sum of P75,000.00 per disability. Ernani’s entitlement under HCA:
•hospitalization benefits, whether ordinary or emergency, listed therein •out-patient benefits" such as
annual physical examinations, preventive health care and other out-patient services.
Ernaniwas was subsequently confined because: 1.Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.2. Julita tried to
claim the benefits under the health care agreement.3.Philamdenied her claim saying that the Health
Care Agreement was void. there was a concealment regarding Ernani’s medical history. Doctors at the
MMC allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form.4.Julita paid the hospitalization expenses
herself, amounting to about P76,000.005.Ernani was discharged at MMC.He was attended by a
physical therapist at home. Again he was admitted at the Chinese General Hospital. Julita brought her
husband home again due to financial difficulties. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Julita was constrained to bring him back to the Chinese General Hospital where
he died on the same day. On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against Philam andits president, Dr. Benito Reverente, She
asked for reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower
court ruled against Philam.
ISSUE
Whether health care agreements are considered insurance contracts.
HELD
YES, it is an insurance contract. Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
(1) The insured has an insurable interest;
(2) The insured is subject to a risk of loss by the happening of the designated peril;
(3) The insurer assumes the risk;
(4) Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
(5) In consideration of the insurer’s promise, the insured pays a premium.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured against.
Every person has an insurable interest in the life and health of himself. Section 10 provides: Every
person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: INSURANCE LAW
PHIL. CHARTER INSURANCE CORP. VS. CHEMOIL LIGHTERAGE CORP.
462 SCRA 77; JUNE 29, 2005
FACTS:
A shipment of 62.06 metric tons of liquid chemical Dioctyl Phthalate (or DOP) was shipped to
consignee Plastic Group Phils., Inc. (or PGP) in Manila. PGP insured the cargo with Philippine Charter
Insurance Corporation as the insurer. The cargo was unloaded to the tanker barge of Chemoil
Lighterage Corp., a common carrier, which transported the goods to Del Pan Bridge in Pasig River.
When the cargo was received by PGP, the chemical showed discoloration from yellowish to amber,
demonstrating that it was damaged. PGP sought recovery from its insurer, Phil. Charter Insurance,
which paid the amount of the loss. PGP, thereafter, issued a Subrogation Receipt to the Phil. Charter
Insurance.
An action for damages was instituted by the petitioner-insurer (Phil. Charter Insurance) against
respondent-carrier (Chemoil). Respondent carrier refused to pay the damages to the insurer,
contending that the consignee (PGP) failed to file any notice, claim or protest within the period required
by law which is a condition precedent to the accrual of a right of action against the carrier. The carrier
alleged that the telephone call made by a certain employee of PGP, to one of the Vice Presidents of
Chemoil, informing the latter of the discoloration, is not the notice required by Article 366 of the Code of
Commerce.
ISSUE:
Whether or not a notice of claim filed with the carrier within the prescribe period is indispensible
in order that the insurer-subrogee can claim damages against the carrier.
RULING:
A notice of claim to the carrier is indispensible before the insurer-subrogee can recover from
the carrier. Art. 366 of the Code of Commerce requires that a notice or claim must be made against the
carrier of the goods, in case of damage, within 24 hours following the receipt of the goods. The
telephone call made by the PGP (consignee of the goods) was not a substantial compliance to the
required notice. Aside from the telephone call, there was no other proof that a notice was relayed or
filed with the carrier immediately or within 24 hours from the time the goods were received. The
requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of
Commerce is not an empty or worthless proviso. The filing of a claim with the carrier within the time
limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a
carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of
the former.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: INSURANCE LAW
SULPICIO LINES, INC. vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION, June 29, 2005
FACTS:
Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a
contract, to transport a shipment of goods consisting of three (3) wooden crates on board the V
Singapore V20 from Cebu City to Singapore. For the carriage of said shipment from Cebu City to
Manila, Delbros, Inc. engaged the services of the vessel M/V Philippine Princess, owned and operated
by petitioner Sulpicio Lines, Inc. During the unloading of the shipment, one crate containing forty-two
(42) cartons dropped from the cargo hatch to the pier apron. Taiyo examined the dropped cargo, and
upon an alleged finding that the contents of the crate were no longer usable for their intended purpose,
they were rejected as a total loss and returned to Cebu City. Hence, it filed a claim.
ISSUE:
Whether or not Petitioner-carrier Sulpicio Lines is liable
HELD:
It cannot be denied that the shipment sustained damage while in the custody of petitionercarrier. The falling of the crate during the unloading is evidence of petitioner-carrier’s negligence in
handling the cargo. As a common carrier, it is expected to observe extraordinary diligence in the
handling of goods placed in its possession for transport. It is bound to transport its cargo and its
passengers safely "as far as human care and foresight can provide, using the utmost diligence of a
very cautious person, with due regard to all circumstances. The extraordinary diligence in the vigilance
over the goods tendered for shipment requires the common carrier to know and to follow the required
precaution for avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and
delivery. It requires common carriers to render service with the greatest skill and foresight and "to use
all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature requires.

GLEN PETILLA
COMMERCIAL LAW REVIEW: INSURANCE LAW
GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA
G.R. No. 147839 June 8, 2006
FACTS
Intercapitol Marketing Corporation (IMC), maker of Wrangler Blue Jeans and Levi Strauss
(Phils.) Inc. (LSPI), local distributor of Levi Strauss & Co. products separately obtained from respondent
fire insurance. The insurance policies provide for coverage on "book debts in connection with readymade clothing materials which have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines."2 The policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this
Policy."3
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991,
petitioner’s Superstore Complex was consumed by fire destroying the stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.
Respondent filed a complaint for damages and unpaid accounts against petitioner, alleging that
IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book
debt endorsements.
ISSUE
Whether or not respondent by way of subrogation, can claim against petitioner the proceeds of
insurance it paid in favor of IMC and LSPI.
RULING
The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.41 Respondent's action against petitioner is sanctioned by Article 2207 of the Civil
Code.
The policies provide coverage for "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered under this Policy." 24 Nowhere is it provided in the
questioned insurance policies that the subject of the insurance is the goods sold and delivered to the
customers and dealers of the insured.
The insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC
and LSPI that remained unpaid 45 days after the fire. Petitioner's obligation is for the payment of
money. Where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability.33
IMC and LSPI have an insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, in property insurance, one's interest is not determined
by concept of title, but whether insured has substantial economic interest in the property.28
Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. In this case, the insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies.

WHEREFORE, the petition is partly GRANTED. The assailed Decision and Resolution of the
Court of Appeals in are AFFIRMED with the MODIFICATION that the order to pay the amount
of P535,613.00 to LSPI is DELETED for lack of factual basis.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: INSURANCE LAW
PRUDENTIAL GUARANTEE & ASSURANCE vs. TRANS-ASIA
491 SCRA 411 (June 20, 2006)
FACTS:
TRANS-Asia is the owner of the vessel M/V Asia Korea. PRUDENTIAL insured M/V Asia Korea
for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion. This is
evidenced by Marine Policy. While the policy was in force, a fire broke out while [M/V Asia Korea was]
undergoing repairs at the port of Cebu which prompted TRANS-ASIA to file its notice of claim for
damage sustained by the vessel with a reservation of its right to subsequently notify Prudential to the
full amount of the claim upon final survey and determination by average adjuster of the damage sustain
by reason of fire. Later, TRANS-Asia executed a document denominated “Loan and Trust Receipt” a
loan without interest under the Policy availed by Trans-asia, repayable only in the event and to the
extent that any net recovery is made by the latter. After the ‘loan’ was released Prudential sent a letter
to TRANS-ASIA stating that the former’s claim under the insurance is denied for having been in breach
of policy conditions, among them “WARRANTED VESSEL CLASSED AND CLASS MAINTAINED” and
that the claim is not compensable and demanding the return of the amount released under loan.
It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a
certain class at all times during the life of the policy. According to the court a quo, TRANS-ASIA failed
to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the
insured party, to rescind the contract.
ISSUE:
Whether or not TRANS-ASIA is entitled to claim under the policy.
HELD:
TRANS-ASIA is entitled to claim under the policy. The supreme court found that the Court of
Appeals was in no error when it held that PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy
for two consecutive years after the loss covered by Policy No. MH93/1363 was considered to have
waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition
renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his
privilege and power to rescind by the mere expression of an intention so to do. In that event his liability
under the policy continues as before. There can be no clearer intention of the waiver of the alleged
breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: INSURANCE LAW
PHIL. HEALTH CARE PROVIDERS, INC. vs. COMMISSIONER OF INTERNAL REVENUE SPECIAL
FIRST DIVISION PHILIPPINE HEALTH CARE PROVIDERS, INC., vs. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 167330. September 18, 2009
FACTS
Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges
and interest, for the taxable years 1996 and the deficiency [documentary stamp tax (DST)] assessment
was imposed on petitioner's health care agreement with the members of its health care program
pursuant to Section 185 of the 1997 Tax Code.
Petitioner protested theassessment in a letter dated February 23, 2000. As respondent did not
act on the protest filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation
of the deficiency VAT and DST assessments. The CTA ruled that petitioner is liable for the VAT but not
the DST. Respondent appealed the CTA decision to the [Court of Appeals (CA)]insofar as it cancelled
the DST assessment. CA held that petitioner's health care agreement was in the nature of a non-life
insurance contract subject to DST.In a decision dated June 12, 2008, the Supreme Court denied the
petition and held that petitioner's health care agreement during the pertinent period was in the nature of
non-life insurance which is a contract of indemnity. Unable to accept the verdict filed the present motion
for reconsideration and supplemental motion for reconsideration. In its motion for reconsideration
reveals for the first time that it availed of a tax amnesty under RA 9480 7 (also known as the
"Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08 representing 5% of its net
worth as of the year ending December 31, 2005.
ISSUE
Whether or not petitioner is liable for the DST.
HELD
No. A second hard look at the relevant law and jurisprudence convinces the Court that the
arguments of petitioner are meritorious. Petitioner is admittedly an HMO or Health Maintenance
Organization. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity
that provides, offers or arranges for coverage of designated health services needed by plan members
for a fixed prepaid premium". The payments do not vary with the extent, frequency or type of services
provided.The question is: was petitioner, as an HMO, engaged in the business of insurance during the
pertinent taxable years? The Court held that it was not. Applying the "principal objects and purpose
test", there is significant American case law supporting the argument that a corporation (such as an
HMO, whether or not organized for profit), whose main object is to provide the members of a group
with health services, is not engaged in the insurance business. American courts have pointed out that
the main difference between an HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating physicians while insurance

companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed
limit.In short, even if petitioner assumes the risk of paying the cost of these services even if significantly
more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the
insurance business. Overall appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them medical
care. The "insurance-like" aspect of petitioner's business is miniscule compared to its non-insurance
activities. Therefore, since it substantially provides health care services rather than insurance services,
it cannot be considered as being in the insurance business. We are aware that, in Blue Cross and
Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance,
which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a
tax provision. Instead, they dealt with the liability of a health service provider to a member under the
terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted
in favor of the member and strictly against the HMO. Not all the necessary elements of a contract of
insurance are present in petitioner's agreements.
Although risk is a primary element of an insurance contract, it is not necessarily true that risk alo
ne is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a
certain degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts
(like those of petitioner) from the usual insurance contracts. Furthermore, it was held in a recent case
that DST is one of the taxes covered by the tax amnesty program under RA 9480. There is no other
conclusion to draw than that petitioner's liability for DST for the taxable years 1996 and 1997 was totally
extinguished by its availment of the tax amnesty under RA 9480.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: INSURANCE LAW
ONG LIM SING, JR. vs. FEB LEASING AND FINANCE CORPORATION
FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation entered into a lease of equipment
and motor vehicles with JVL Food Products. On the same date, Vicente Ong Lim Sing, Jr. executed an
Individual Guaranty Agreement with FEB to guarantee the prompt and faithful performance of the terms
and conditions of the aforesaid lease agreement. Corresponding Lease Schedules with Delivery and
Acceptance Certificates over the equipment and motor vehicles formed part of the agreement. Under
the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy
Thousand Four Hundred Ninety-Four Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears,
including the penalty charges and insurance premiums, amounted to Three Million Four Hundred
Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000,
FEB sent a letter to JVL demanding payment of the said amount. However, JVL failed to pay.
On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of Manila for sum of
money, damages, and replevin against JVL, Lim, and John Doe.
In an Amended Answer, JVL and Lim admitted the existence of the lease agreement but
asserted that it is in reality a sale of equipment on instalment basis, with FEB acting as the financier.
On November 22, 2002, the trial court ruled in favor of JVL and Lim and stressed the contradictory
terms found in the lease agreement. The trial court stated, among others, that if JVL and Lim (then
defendants) were to be regarded as only a lessee, logically the lessor who asserts ownership will be
the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he
has no insurable interest.
On December 27, 2002, FEB filed its Notice of Appeal. Accordingly, on January 17, 2003, the
court issued an Order elevating the entire records of the case to the Court of Appeals. On March 15,
2005, the Court of Appeals issued its Decision declaring the transaction between the parties as a
financial lease agreement. The said decision reversed and set aside the trial court’s decision dated
November 22, 2002. Hence, Lim filed the present Petition for Review on Certiorari.
ISSUE:
Whether or not petitioner has an insurable interest in the equipment and motor vehicles leased.
HELD:
Yes. The stipulation in Section 14 of the leased contract, that the equipment shall be insured at
the cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident, or
other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a
lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly
damnified in case of loss, damage, or destruction of any of the properties leased.

BETTY CAMPOS
COMMERCIAL LAW REVIEW: INSURANCE LAW
ETERNAL GARDENS VS. PHIL. AMERICAN LIFE
FACTS
Eternal and PhilAm Life entered into a Group Insurance Policy wherein those who purchase
burial lots from Eternal Gardens automatically becomes one of the insured in the said group insurance
policy. One purchaser of the burial lots named Jhon Chuang died. Phil Am Life filed a claim for the
proceeds. The claim was denied on the ground that the application of Jhon Chuang, sent more than a
year ago, was not yet approved by Phil Am Life. Insurer further avers that mere acceptance of the
premium paid by Eternal did not mean that said application was already approved.
ISSUE
May the inaction of the insurer on the insurance application be considered as an approval of the
application?
RULING
Yes. Mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.In order to protect the interest of
insurance applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the application as a
valid, binding, and effective insurance contract.

TRYLL CHIU
COMMERCIAL LAW REVIEW: INSURANCE LAW
LALICAN vs. THE INSULAR LIFE CO.
597 SCRA 159
FACTS
Eulogio Lalican applied for insurance with Insular Life thru the latter’s agent, Malaluan with his
wife Violeta as the beneficiary. A policy was issued in his favor. It is a 20-year endowment plan with the
total value of 1.5M. The premiums are payable on a quarterly basis until the end of the 20 year period.
He failed to pay on the due date for the third quarter and also was not able to tender payment after the
lapse of 31 days grace period. Consequently his policy has lapsed and avoided by non-payment of
premium. Eulogio went to the residence of the agent Malaluan and applied for reinstatement of the
lapsed policy. He gave all the requirements including the amount which is enough to cover all the
unpaid premiums and interests. Unfortunately, on the same day of his application for reinstatement and
few hours thereafter, Eulogio died of cardiac arrest. After a few days, Violeta filed a claim of payment of
full proceeds of the policy. Insular Life refused her claim saying that said policy has lapsed and Elugio
has failed to comply with the requirements of reinstatement one of which states “policy is reinstated
upon the approval of the company during the lifetime and Good health of Eulogio.” Violeta sued to
recover the amount with the RTC. One of her principal contention is that as stated under Section 19 of
the Insurance Code, Insurable interest in Life Insurance policies need not exist in the time of loss. RTC
ruled in favor of Insular Life holding that Violeta cannot recover from a lapsed and void policy and that
mere payment to the agent does not result into an automatic reinstatement.
ISSUE
May Violeta recover the proceeds from the policy?
HELD
No. The death of Eulogio has made it impossible for him to comply with the conditions of
reinstatement. The privilege of reinstatement does not give the insured an absolute right to
reinstatement by mere filing of application. The insurer has the right to deny reinstatement if it is not
satisfied as to the insurability of the insured. Moreover, after the death of the insured, the Insurance
Company cannot be compelled to accept application for reinstatement since condition precedent for
reinstatement can no longer be determined or satisfied.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: INSURANCE LAW
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., VS. FGU INSURANCE
CORPORATION, HAPAG-LLOYD, HAPAG-LLOYD PHILS., INC.
FACTS
In a Decision dated June 27, 2008, the Court denied the petition filed in this case and affirmed
the CA Decision dated October 22, 2003 and Resolution dated January 8, 2004, finding petitioner liable
for the full amount of the shipment which was lost while in its charge. Petitioner filed a motion for
reconsideration, which was denied by the Court with finality per Resolution dated August 27, 2008.
Undaunted, petitioner filed the present second motion for partial reconsideration where it solely assails
the award and reckoning date of the 12% interest imposed by the RTC on it adjudged liability.
Petitioner contends that the complaint filed before the RTC is not one for loan or forbearance of money,
but one for breach of contract or damages; hence, petitioner insists that the interest rate should be the
legal rate of 6%, and not 12%. Petitioner also argues that the RTC reckoned the date when interest
should accrue on the date when respondent FGU Insurance Corporation paid the amount insured, or
on January 3, 1995. Petitioner contends that this is erroneous and the date should be reckoned from
the time when respondent filed the complaint with the RTC, which is on April 10, 1995.
ISSUES
Is the 12 percent interest rate valid? When shall be the reckoning date for the interest rate to
accrue?
HELD
No. The interest rate of 6% should have been imposed and not 12%, as affirmed by the Court.
Also, it should have been reckoned from April 10, 1995, when respondent filed by the complaint for sum
of money, and not January 3, 1995, which was the date respondent paid the amount insured to the
Republic Asahi Glass Corporation (RAGC).
The claim in this case is one for reimbursement of the sum of money paid by FGU Insurance
Corporation to RAGC. This is not one for forbearance of money, goods or credit. Forbearance in the
context of the usury law is a contractual obligation of lender or creditor to refrain, during a given period
of time, from requiring the borrower or debtor to repay a loan or debt then due and payable
Thus the interest rate should be as it is hereby fixed at 6%. Moreover, the interest rate of 6%
shall be computed from the date of filing of the complaint, i.e., April 10, 1995. This is in accordance
with the ruling that where the demand cannot be established with reasonable certainty, the interest
shall begin to run only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained).

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: INSURANCE LAW
ABOITIZ SHIPPING v. INSURANCE CO. OF NORTH AMERICA
561 SCRA 262 (2008)
FACTS:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited
of London. The insurance was for a transshipment of certain wooden work tools and workbenches
purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon
Lahug, Cebu City, Philippines.[3] ICNA issued an “all-risk” open marine policy.
On July 18, 1993, the ship arrived and docked at the Manila International Container Port where
the container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz
Shipping Corporation (AboitTransport System). The bill of lading[7] issued by Aboitiz contained the
notation “grounded outside warehouse.”
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of
the Cebu International Port. On August 11, 1993, the cargo was withdrawn by the representative of
the consignee, Science Teaching Improvement Project (STIP) who informed petitioner that the cargo
sustained water damage. The consignee contacted the Philippine office of ICNA for insurance
claims. Aboitiz refused to settle the claim. ICNA paid the amount of P280,176.92 to consignee. ICNA
filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus
interest and attorney’s fees.[16] ICNA alleged that the damage sustained by the shipment was
exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was left
grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It
countered that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the
suit. The RTC rendered judgment against ICNA. ICNA appealed to the CA. The CA reversed and set
aside the RTC ruling.
ISSUES:
Is respondent ICNA the real party-in-interest that possesses the right of subrogation to claim
reimbursement from petitioner Aboitiz?
B. Was there a timely filing of the notice of claim as required under Article 366 of the Code of
Commerce?
C. If so, can petitioner be held liable on the claim for damages?
A.

HELD:
Affirmative on the triple questions.
A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or
“doing business” in the country will a license be necessary before it can institute suits. [24] It may,
however, bring suits on isolated business transactions, which is not prohibited under Philippine law.
[25]
Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the

marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a
Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in
business without the prescribed license, and not the lack of license per se, which bars a foreign
corporation from access to our courts.[26]
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be
brought against ICNA UK, the company who issued the insurance, or against any of its listed agents
worldwide.[27] MSAS accepted said provision when it signed and accepted the policy. The acceptance
operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to
the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer. The
policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on
behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the
continuance of the risk, may become the owner of the interest insured. (Emphasis
added)
Respondent’s cause of action is founded on it being subrogated to the rights of the consignee of
the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which
states:
Article 2207. If the plaintiff’s 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. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,
[28]
payment by the insurer to the assured operates as an equitable assignment of all remedies the
assured may have against the third party who caused the damage. Subrogation is not dependent upon,
nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.[29]
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA’s
entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual
breach or negligence.[30] This right of subrogation, however, has its limitations. First, both the insurer
and the consignee are bound by the contractual stipulations under the bill of lading. [31] Second, the
insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its
own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the
loss from liability, the insurer loses its claim against the latter.[32]
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the
right to enforce the carrier’s liability. Circumstances peculiar to this case lead Us to conclude that the
notice requirement was complied with. Under the Code of Commerce, the notice of claim must be made
within twenty four (24) hours from receipt of the cargo if the damage is not apparent from the outside of
the package. For damages that are visible from the outside of the package, the claim must be made
immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim
against the carrier for damages or average which may be found therein upon opening
the packages, may be made, provided that the indications of the damage or average
which give rise to the claim cannot be ascertained from the outside part of such
packages, in which case the claim shall be admitted only at the time of receipt.
The call to petitioner was made two days from delivery, a reasonable period considering that the
goods could not have corroded instantly overnight such that it could only have sustained the damage
during transit. Moreover, petitioner was able to immediately inspect the damage while the matter was
still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was
substantial compliance with the notice requirement in this case.

The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence required by law.
Petitioner is thus liable for the water damage sustained by the goods due to its failure to
satisfactorily prove that it exercised the extraordinary diligence required of common carriers.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: INSURANCE LAW
UCPB GENERAL INSURANCE V. ABOITIZ
February 10, 2009
FACTS
Three (3) units of waste water treatment plant with accessories were purchased by San Miguel
Corporation (SMC for brevity). The goods came from Charleston, U.S.A. and arrived at the port of
Manila. The same were then transported to Cebu on board MV "ABOITIZ SUPERCON II". After its
arrival at the port of Cebu, the goods were delivered to and received by SMC at its plant site. It was
then discovered that one electrical motor on one unit was damaged. Pursuant to an insurance
agreement, UCPB General Insurance paid SMC, making it the subrogee of SMC. It was established
that the claim by SMC was made three months after receipt of damage. Consequently, UCPB filed a
Complaint as subrogee of SMC seeking to recover from Aboitiz the amount it had paid SMC. The trial
court ruled in favour of UCPB. On appeal of the case, the CA reversed the decision of the trial court
and ruled that UCPB’s right of action against respondents did not accrue because UCPB failed to file a
formal notice of claim within 24 hours from (SMC’s) receipt of the damaged merchandise as required
under Art. 366 of the Code of Commerce. According to the Court of Appeals, the filing of a claim within
the time limitation in Art. 366 is a condition precedent to the accrual of a right of action against the
carrier for the damages caused to the merchandise.
ISSUE
Whether or not Aboitiz may be held liable in this case.
HELD
Aboitiz cannot be held liable in this case. Art. 366 of the Code of Commerce states:
Art. 366. Within twenty-four hours following the receipt of the merchandise, the claim against the carrier
for damage or average which may be found therein upon opening the packages, may be made,
provided that the indications of the damage or average which gives rise to the claim cannot be
ascertained from the outside part of such packages, in which case the claim shall be admitted only at
the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no
claim shall be admitted against the carrier with regard to the condition in which the goods transported
were delivered. The law clearly requires that the claim for damage or average must be made within 24
hours from receipt of the merchandise if, as in this case, damage cannot be ascertained merely from
the outside packaging of the cargo.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: INSURANCE LAW
PHIL. FIRST INSURANCE VS WALLEM PHILS. SHIPPING (2009)
FACTS
Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore Master a shipment
consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min. (shipment), complete and in
good order for transportation to and delivery at the port of Manila for consignee, L.G. Atkimson ImportExport, Inc. (consignee), covered by a Clean Bill of Lading. Both are foreign firms doing business in the
Philippines, thru its local ship agent, respondent Wallem Philippines Shipping, Inc. (Wallem). The
shipment arrived at the port of Manila on board the vessel M/S Offshore Master from which it was
subsequently discharged. It was disclosed during the discharge of the shipment from the carrier that
2,426 poly bags (bags) were in bad order and condition, having sustained various degrees of spillages
and losses.
The consignee filed a formal claim with Wallem for the value of the damaged shipment, to no
avail. Since the shipment was insured with petitioner Philippines First Insurance Co., Inc. against all
risks in the amount of P2,470,213.50, the consignee filed a formal claim with petitioner for the damage
and losses sustained by the shipment. Petitioner, in the exercise of its right of subrogation, sent a
demand letter to Wallem for the recovery of the amount paid by petitioner to the consignee. However,
despite receipt of the letter, Wallem did not settle nor even send a response to petitioner’s claim. It
argues that it is only the arrastre that should be liable due to due to its mishandling of goods during
unloading.
ISSUE
Whether or not Wallem should held responsible.
HELD
The court ruled in the affirmative. It is settled in maritime law jurisprudence that cargoes while
being unloaded generally remain under the custody of the carrier. In the instant case, the damage or
losses were incurred during the discharge of the shipment while under the supervision of the carrier.
Consequently, the carrier is liable for the damage or losses caused to the shipment. As the cost of the
actual damage to the subject shipment has long been settled, the trial court’s finding of actual damages
in the amount of P397,879.69 has to be sustained. The records are replete with evidence which show
that the damage to the bags happened before and after their discharge and it was caused by the
stevedores of the arrastre operator who were then under the supervision of Wallem.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: INSURANCE LAW
EASTERN SHIPPING LINES VS PRUDENTIAL GUARANTEE AND ASSURANCE
599 SCRA 565
FACTS:
Cargoes belonging to Nissan were shipped by Eastern Shipping Lines. Upon arrival to the
warehouse of NIssan, it was found out that four of the 56 cases were damaged. As insurer, Prudential
Guarantee paid Nissan for the loss in the total amount of P1,047,298.34. Respondent then sued
Petitioner for the collection of what it has paid. To prove his right of subrogation, Prudential presented
as evidence a MARINE CARGO RISK NOTE and a SUBROGATION RECEIPT. Eastern shipping
primarily contends that such documents are not sufficient to establish the right of subrogation. What is
necessary is the presentation of the MARINE INSURANCE POLICY ITSELF which covers the goods
which were damaged.
ISSUE
Is the presentation of a marine cargo risk note and a subrogation receipt sufficient to establish
the right of subrogation?
HELD
The Marine Risk Note relied upon by respondent as the basis for its claim for subrogation is
insufficient to prove said claim. A marine risk note is not an insurance policy. It is only an
acknowledgement confirming the specific shipment covered by the marine policy, the evaluation of the
cargo and the chargeable premium. It is the marine insurance policy which is constitutive of the insurerinsured relationship from which Prudential can draw its right of subrogation. Moreover, the contract of
marine insurance must also be presented in evidence to indicate the extent of coverage. Failure to
present the original contract of insurance is fatal to the claim of subrogation by Prudential Guarantee.
However, this rule admits of certain exceptions such as when:
a. The loss of the cargo is undoubtedly occurred on board the carrier’s vessel
b. The existence of the Marine Insurance Policy is admitted by the party to whom the claim
for subrogation is made against

RUBY LAID
COMMERCIAL LAW REVIEW: INSURANCE LAW
KEPPEL CEBU SHIPYARD, INC. vs. PIONEER INSURANCE AND SURETY CORP.
601 SCRA 96
FACTS
Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens Shipmanagement, Inc. (WG&A)
executed a Shiprepair Agreement wherein KCSI would renovate and reconstruct WG&A’s M/V
"Superferry 3" using its dry docking facilities pursuant to its restrictive safety and security rules and
regulations. Prior to the execution of the Shiprepair Agreement, "Superferry 3" was already insured by
WG&A with Pioneer Insurance and Surety Corp. (Pioneer) for US$8,472,581.78. On February 8, 2000,
in the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming that the extent of the damage
was pervasive, WG&A declared the vessel’s damage as a "total constructive loss" and, hence, filed an
insurance claim with Pioneer. Pioneer paid the insurance claim of WG&A in the amount of
US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation Receipt in favor of Pioneer. Armed
with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any responsibility
for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated demands,
Pioneer, on August 7, 2000, filed a Request for Arbitration before the Construction Industry Arbitration
Commission (CIAC). Pioneer claims that they are the real party in interest since it has been subrogated
to the claim of its assured. Also they claim that Keppel is clearly liable for the loss of M/V Superferry 3,
since the immediate cause of the fire was the hot work done by Keppel's employee. Keppel averred
that the Claimant is not a real party in interest and has no standing because it has not been subrogated
to the Vessel Owner and the insurance policies on which the Claimant bases its right of subrogation
were not validly obtained.
ISSUES
1. Whether or not constructive total loss occurred and WG&A's abandonment of the ship was
proper.
2. Whether or not subrogation is proper. If proper, to what extent can subrogation be made?
HELD
1. In marine insurance, a constructive total loss occurs under any of the conditions set forth in
Section 139 of the Insurance Code, which provides— Sec. 139. A person insured by a contract of
marine insurance may abandon the thing insured, or any particular portion hereof separately valued by
the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the
loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire that
occurred, a covered peril under the marine insurance policies obtained by WG&A from Pioneer. The
estimates given by the three disinterested and qualified shipyards show that the damage to the ship
would exceed P270,000,000.00, or ¾ of the total value of the policies – P360,000,000.00. These

estimates constituted credible and acceptable proof of the extent of the damage sustained by the
vessel. Also, the CA held that Section 139 of the Insurance Code is merely permissive on account of
the word “may” in the provision. This is incorrect. Properly considered, the word “may” in the provision
is intended to grant the insured (WG&A) the option or discretion to choose the abandonment of the
thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss when the cause of the loss is a peril insured against. This option or
discretion is expressed as a right in Section 131 of the same Code, to wit: Sec. 131. A constructive
total loss is one which gives to a person insured a right to abandon under Section one hundred thirtynine. Thus, WG&A abandonment of the ship was proper.
2. Subrogation is proper. Subrogation is the substitution of one person by another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein
an insurer has paid a loss under an insurance policy is entitled to all the rights and remedies belonging
to the insured against a third party with respect to any loss covered by the policy. It contemplates full
substitution such that it places the party subrogated in the shoes of the creditor, and he may use all
means that the creditor could employ to enforce payment. The court have held that payment by the
insurer to the insured operates as an equitable assignment to the insurer of all the remedies that 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. It accrues simply
upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its
roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity adopts
to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to
pay. To allow KCSI to limit its liability to only P50,000,000.00, notwithstanding the fact that there was a
constructive total loss in the amount of P360,000,000.00, would sanction the exercise of a degree of
diligence short of what is ordinarily required. It would not be difficult for a negligent party to escape
liability by the simple expedient of paying an amount very much lower than the actual damage or loss
sustained by the other. Nevertheless, the court concur with the position of KCSI that the salvage value
of the damaged M/V "Superferry 3" should be taken into account in the grant of any award. Not
considering this salvage value in the award would amount to unjust enrichment on the part of Pioneer.

DANIEL LONGAQUIT
COMMERCIAL LAW REVIEW: INSURANCE LAW
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA TRINOS
G.R. NO. 125678 MARCH 18, 2002
FACTS:
Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with
Philamcare Health Systems, Inc. In thestandard application form, he answered “NO” to the following
question: Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes,cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).
Coverage of the health care agreement (HCA): •approved for a period of one year, Renewed 3 times
yearly: March 1, 1988 - March 1, 1990; March 1, 1990 – June 1, 1990.The amount of coverage was
increased to a maximum sum of P75,000.00 per disability. Ernani’s entitlement under HCA:
•hospitalization benefits, whether ordinary or emergency, listed therein •out-patient benefits" such as
annual physical examinations, preventive health care and other out-patient services.
Ernaniwas was subsequently confined because: 1.Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.2. Julita tried to
claim the benefits under the health care agreement.3.Philamdenied her claim saying that the Health
Care Agreement was void. there was a concealment regarding Ernani’s medical history. Doctors at the
MMC allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form.4.Julita paid the hospitalization expenses
herself, amounting to about P76,000.005.Ernani was discharged at MMC.He was attended by a
physical therapist at home. Again he was admitted at the Chinese General Hospital. Julita brought her
husband home again due to financial difficulties. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Julita was constrained to bring him back to the Chinese General Hospital where
he died on the same day. On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against Philam andits president, Dr. Benito Reverente, She
asked for reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower
court ruled against Philam.
ISSUE
Whether health care agreements are considered insurance contracts.
HELD
YES, it is an insurance contract. Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
(1) The insured has an insurable interest;
(2) The insured is subject to a risk of loss by the happening of the designated peril;
(3) The insurer assumes the risk;

(4) Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
(5) In consideration of the insurer’s promise, the insured pays a premium.
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides: Every person has
an insurable interest in the life and health: (1) of himself, of his spouse and of his children;(2) of any
person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary
interest.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: INSURANCE LAW
BLUE CROSS VS. OLIVARES G.R. NO. 169737, FEBRUARY 12, 2008
FACTS
Neomi Olivares applied for a health care program with Blue Cross for the amount of 12000
pesos. 38 days after she applied, she suffered stroke. Ailments due to “pre-existing conditions” were
excluded from the coverage. She was confined in Medical City and discharged with a bill of P34,000.
Blue Cross refused to pay unless she had her physician’s certification that she was suffering from a
pre-existing condition. When Blue Cross still refused to pay, she filed suit in the MTC. The health care
company rebutted by saying that the physician didn’t disclose the condition due to patient’s invocation
of the doctor-client privilege. The MTC dismissed the complaint for lack of cause of action because the
physician didn’t disclose the condition. In the RTC, the spouses were awarded the amount of the
hospital bills plus 60,000 in damages. This was under the ratio that the burden torpove that Neomi had
a pre-existing condition was under the Blue Cross. The CA denied the MR of the health company.
ISSUE
Whether petitioner was able to prove that respondent Neomi’s stroke was caused by a preexisting condition and therefore was excluded from the coverage of the health care agreement.
HELD
No. In “Philamcare Health Systems, Inc. v. CA- a health care agreement is in the nature of a
non-life insurance. It is an established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.” The agreement
defined a pre-existing condition as: “a disability which existed before the commencement date of
membership whose natural history can be clinically determined, whether or not the Member was aware
of such illness or condition. Such conditions also include disabilities existing prior to reinstatement date
in the case of lapse of an Agreement. “Under this provision, disabilities which existed before the
commencement of the agreement are excluded from its coverage if they become manifest within one
year from its effectivity.”Petitioners still averred that the non-disclosure of the pre-existing condition
made a presumption in its favor. Respondents still maintained that the petitioner had the duty to prove
its accusation. Petitioner never presented evidence to prove its presumption that the Doctor’s report
would work against Neomi. They only perceived that the invocation of the privilege made the report
adverse to Neomi and such was a disreputable presumption. They should have made an independent
assessment of Neomi’s condition when it failed to obtain the report. They shouldn’t have waited for the
attending physician’s report to come out.
Section 3 (e), Rule 131 of the Rules of Court states:

Under the rules of court, Rule 131, Sec. 3.Disputable presumptions. ― The following
presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other
evidence:
(e) That evidence willfully suppressed would be adverse if produced.
The exception on presenting evidence applies when the suppression is an exercise of a
privilege. Hence, Neomi had the privilege not to present the Doctor’s report under the doctor-client
privilege.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: INSURANCE LAW
PRUDENTIAL GUARANTEE and ASSURANCE, INC. vs. EQUINOX LAND CORPORATION,
533 SCRA 257 (2007)
FACTS:
Equinox constructed 5 additional floors to its existing building which was contracted to Marc
Construction & Development Corporation. J’Marc submitted to Equinox two (2) bonds issued by
Prudential to guarantee the unliquidated portion of the advance payment payable to J’Marc and its
faithful performance of its obligations under the construction agreement. J’Marc did not adhere to the
terms of the contract. Faced with the problem of delay, Equinox formally gave J’Marc one final chance
to take remedial steps in order to finish the project on time. However, J’Marc failed to undertake any
corrective measure. Consequently, Equinox terminated its contract with J’Marc and took over the
project. Equinox then sent Prudential a letter claiming relief from J’Marc’s violations of the contract.
ISSUE:
Whether or not Prudential be ordered to pay its liability under the bonds.
HELD:
It is not disputed that Prudential entered into a suretyship contract with J’Marc. Section 175 of
the Insurance Code defines a suretyship as "a contract or agreement whereby a party, called the
suretyship, guarantees the performance by another party, called the principal or obligor, of an obligation
or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations,
bonds, or undertakings issued under Act 536, as amended." Corollarily, Article 2047 of the Civil Code
provides that suretyship arises upon the solidary binding of a person deemed the surety with the
principal debtor for the purpose of fulfilling an obligation.

GLEN PETILLA
COMMERCIAL LAW REVIEW: INSURANCE LAW
INTRA-STRATA ASSURANCE CORPORATION AND PHILIPPINE HOME ASSURANCE
CORPORATION vs. REPUBLIC OF THE PHILIPPINES
557 SCRA 363
FACTS
Grand Textile is a local manufacturing corporation which imported from different countries
various articles. Subsequent to the importation, these articles were transferred to Customs Bonded
Warehouse No. 462. As computed by the Bureau of Customs, the customs duties, internal revenue
taxes, and other charges due on the importations amounted to P2,363,147.00. To secure the payment
of these obligations pursuant to the Tariff and Customs Code (Code), Intra-Strata and PhilHome each
issued general warehousing bonds in favor of the Bureau of Customs. These bonds commonly provide
that the goods shall be withdrawn from the bonded warehouse "on payment of the legal customs
duties, internal revenue, and other charges to which they shall then be subject.” Grand Textile withdrew
the articles without payment of the taxes, customs duties, and charges due. The Bureau of Customs
demanded payment of the amounts due from Grand Textile as importer, and from Intra-Strata and
PhilHome as sureties. All three failed to pay. The government filed a collection suit against the parties
with the RTC of Manila. RTC held Grand Textile (as importer) and the petitioners (as sureties) liable for
the taxes, duties, and charges due on the imported articles, which is also affirmed by the CA.
ISSUE
Whether or not the withdrawal of the imported articles, without notice to the petitioners as
sureties, released them from any liability.
HELD
Petitioners are not released from liability. Section 175 of the Insurance Code defines a contract
of suretyship as an agreement whereby a party called the surety guarantees the performance by
another party called the principal or obligor of an obligation or undertaking in favor of another party
called the obligee, and includes among its various species bonds such as those issued pursuant to
Section 1904 of the Code. The liability of the surety is joint and several but limited to the amount of the
bond, and its terms are determined strictly by the terms of the contract of suretyship in relation to the
principal contract between the obligor and the obligee. A surety is released from its obligation when
there is a material alteration of the contract in connection with which the bond is given, such as a
change which imposes a new obligation on the promising party, or which takes away some obligation
already imposed, or one which changes the legal effect of the original contract and not merely its form.
A surety, however, is not released by a change in the contract which does not have the effect of making
its obligation more onerous. However, the court finds under the facts of this case no significant or
material alteration in the principal contract between the government and the importer, or in the

obligation that the petitioners assumed as sureties. The surety does not, by reason of the surety
agreement, earn the right to intervene in the principal creditor-debtor relationship; its role becomes alive
only upon the debtor’s default, at which time it can be directly held liable by the creditor for payment as
a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is
ensured by the solidary nature of the sureties’ undertaking. Under these terms, the surety is not entitled
as a rule to a separate notice of default, nor to the benefit of excussion, and may be sued separately or
together with the principal debtor.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: INSURANCE LAW
WHITE GOLD VS. PIONEER
464 SCRA 448 (JULY 28, 2005)
FACTS:
White Gold owns several shipping vessels. Steamship Mutual Underwriting Association (based
in Bermuda) is a protection and indemnity club which is an association composed of shipowners in
general who band together for the specific purpose of providing insurance cover on a mutual basis
against liabilities incidental to shipowning that the members incur in favor of third parties. White Gold,
through Pioneer Insurance (agent of Steamship Mutual), procured a protection and indemnity coverage
from Steamship Mutual. Steamship Mutual does not have authority from the Insurance Commission to
conduct insurance business in the Philippines but its collection agent here (Pioneer Insurance) has
been licensed to conduct insurance business.
Later, Steamship Mutual filed a case for collection of sum of money against White Gold due to
the latter’s failure to pay its balance with the former. White Gold averred that Steamship Mutual has no
license [hence it cannot collect]. Nor can it collect through Pioneer Insurance because, though Pioneer
Insurance is licensed as an insurance company, it is not licensed to be an insurance broker/agent.
Steamship Mutual insisted it is not conducting insurance business here and is merely a protection and
indemnity club. The Insurance Commission as well as the Court of Appeals ruled against White Gold.
ISSUE:
Whether or not Steamship mutual needs a license to operate in the Philippines.
HELD:
Steamship mutual needs a license to operate in the Philippines. The test to determine if a
contract is an insurance contract or not, depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by what it is called. If it is a
contract of indemnity, it must be a contract of insurance. In fact, a protection and indemnity club is a
form of insurance where the members are both the insurers and the insured. It is a mutual insurance
company. The club indemnifies the member for whatever risks it may incur against a third party where
the third party is other than the club and the members. Hence, Steamship Mutual needs to procure a
license from the Insurance Commission in order to continue operating here.
Pioneer Insurance also needs to secure another license as an insurance broker/agent of
Steamship Mutual pursuant to Section 299 of the Insurance Code.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: INSURANCE LAW
REPUBLIC VS. SUNLIFE ASSURANCE (473 SCRA 129, OCTOBER 14, 2005)
FACTS:
On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life
Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are purely cooperative
companies and are exempt from the payment of premium tax and DST. This pronouncement was later
affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd. Sun Life surmised that[,] being a
mutual life insurance company, it was likewise exempt from the payment of premium tax and DST.
Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit of its
alleged erroneously paid premium tax and DST for the aforestated tax periods.
For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year
period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the
CTA a petition for review. The CTA found in favor of Sun Life.
Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have
registered, foremost, with the Cooperative Development Authority before it could enjoy the exemptions
from premium tax and DST extended to purely cooperative companies or associations under [S]ections
121 and 199 of the Tax Code. For its failure to register, it could not avail of the exemptions prayed for.
The CTA denied the CIR’s motion for reconsideration.
ISSUE:
Whether or not respondent is exempted from payment of tax on life insurance premiums and
documentary stamp tax
HELD:
YES. The Tax Code defines a cooperative as an association “conducted by the members
thereof with the money collected from among themselves and solely for their own protection and not for
profit.” Without a doubt, respondent is a cooperative engaged in a mutual life insurance business.
First, it is managed by its members. Both the CA and the CTA found that the management and
affairs of respondent were conducted by its member-policyholders. SUNLIFE has been mutualized or
converted from a stock life insurance company to a nonstock mutual life insurance corporation pursuant
to Section 266 of the Insurance Code of 1978. On the basis of its bylaws, its ownership has been
vested in its member-policyholders who are each entitled to one vote; and who, in turn, elect from
among themselves the members of its board of trustees.
Second, it is operated with money collected from its members. Since respondent is composed
entirely of members who are also its policyholders, all premiums collected obviously come only from
them. The member-policyholders constitute “both insurer and insured” who “contribute, by a system of
premiums or assessments, to the creation of a fund from which all losses and liabilities are paid.”

Third, it is licensed for the mutual protection of its members, not for the profit of anyone. A
mutual life insurance company is conducted for the benefit of its member-policyholders, who pay into its
capital by way of premiums.
Under the Tax Code although respondent is a cooperative, registration with the Cooperative
Development Authority (CDA) is not necessary in order for it to be exempt from the payment of both
percentage taxes on insurance premiums, under Section 121; and documentary stamp taxes on
policies of insurance or annuities it grants, under Section 199.

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: INSURANCE LAW
TONGKO V. MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC.
(570 SCRA 503)
FACTS:
Tongko and Manulife’s relationship began on July 1, 1977, under a Career Agent’s Agreement,
which provided that “the Agent is an independent contractor and nothing contained herein shall be
construed or interpreted as creating an employer-employee relationship between the Company and the
Agent.” In 1983, Tongko was named Unit Manager in Manulife’s Sales Agency Organization. In 1990,
he became a Branch Manager. In 1996, Tongko became a Regional Sales Manager. Tongko’s gross
earnings consisted of commissions, persistency income, and management overrides. Since the
beginning, Tongko consistently declared himself self-employed in his income tax returns. Under oath,
he declared his gross business income and deducted his business expenses to arrive at his taxable
business income. Respondent Renato Vergel de Dios, sales manager, wrote Tongko a letter dated
November 6, 2001 on concerns that were brought up during the Metro North Sales Managers Meeting,
expressing dissatisfaction of Tongko’s performance in their agent recruiting business, which resulted in
some changes on how Tongko would conduct his duties, including that Tongko hire at his expense a
competent assistant to unload him of routine tasks, which he had been complaining to be too taxing for
him. On December 18, 2001, de Dios wrote Tongko another letter which served as notice of termination
of his Agency Agreement with the company effective fifteen days from the date of the letter. Tongko
filed an illegal dismissal complaint with the NLRC, alleging that despite the clear terms of the letter
terminating his Agency Agreement, that he was Manulife’s employee before he was illegally dismissed.
The labor arbiter decreed that no employer-employee relationship existed between the parties. The
NLRC reversed the labor arbiter’s decision on appeal; it found the existence of an employer-employee
relationship and concluded that Tongko had been illegally dismissed. The Court of Appeals found that
the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision that no
employer-employee relationship existed between Tongko and Manulife.
ISSUE:
Is there an employer-employee relationship between Tongko and Manulife?.
HELD:
NO. In the determination of whether an employer-employee relationship exists between 2
parties, this court applies the four-fold test to determine the existence of the elements of such
relationship. Jurisprudence is firmly settled that whenever the existence of an employment relationship
is in dispute, four elements constitute the reliable yardstick: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to
control the employee’s conduct. IT is the so-called “control test” which constitutes the most important

index of existence of the employer-employee relationship that is, whether the employer controls or has
reserved the right to control the employee not only as to the result of the work to be done but also as to
the means and methods by which the same is to be accomplished. Stated otherwise, an employeremployee relationship exists where the person for whom the services are performed reserves the right
to control not only the end to be achieved but also the means to be used in reaching such end. In the
case at bar, the absence of evidence showing Manulife’s control over Tongko’s contractual duties
points to the absence of any employer-employee relationship between Tongko and Manulife. In the
context of the established evidence, Tongko remained an agent all along; although his subsequent
duties made him a lead agent with leadership role, he was nevertheless only an agent whose basic
contract yields no evidence of means-and-manner control. Claimant clearly failed to substantiate his
claim of employment relationship by the quantum of evidence the Labor Code requires. Tongko’s failure
to comply with the guidelines of de Dios’ letter, as a ground for termination of Tongko’s agency, is a
matter that the labor tribunals cannot rule upon in the absence of an employer-employee relationship.
Jurisdiction over the matter belongs to the courts applying the laws of insurance, agency and contracts.
BETTY CAMPOS
COMMERCIAL LAW REVIEW: INSURANCE LAW
NEW WORLD INTERNATIONAL DEVT. VS. NYK-FILJAPAN SHIPPING
656 SCRA 129 (2011)
FACTS:
A contract of all-risk marine insurance was entered into between New World Int’l and Seaboard
Eastern Insurance. This concerns 3 generator sets to be bought all the way from the United States and
to be delivered in Manila. The same generators were transported by NYK-FilJapan Shipping. When it
arrived in Manila, it was found out that said generators were seriously damaged and it could no longer
be repaired. New World filed to claim the proceeds with Seaboard. Seaboard did not settle the claim
but instead, it required New world to present an itemize list of damage parts with corresponding values.
New world did not comply hence Seaboard refused to process the claim.
More than a year later, New World sued for specific performance plus damages against the
shipper NYK and the insurer, Seaboard. Lower Court ruled that although the shipper was at fault, the
same cause of action has been barred by prescription under section 3 (6) of COGSA which sets a
period within which to file a claim against the shipper. The same court also absolved the insurer from
any liability since its right to subrogation has been impaired by the same prescriptive period.
ISSUE:
Whether or not the refusal of Seaboard to process the claim for failure to give itemized list of
damage parts is valid.
HELD:
Seaboard’s refusal to process the claim is invalid. Section 241 of the Insurance Code provides
that no insurance company doing business in the Philippines shall refuse without just cause to pay or
settle claims arising under coverages provided by its policies. And, under Section 243, the insurer has
30 days after proof of loss is received and ascertainment of the loss or damage within which to pay the
claim. If such ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has
90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed
time, the insured shall be entitled to interest on the proceeds of the policy for the duration of delay at
the rate of twice the ceiling prescribed by the Monetary Board. In the instant case, Seaboard was not
justified in requiring the insured to present an itemized list of damage parts. What was entered into
between them was an all-risk marine insurance. Said itemized list was not even part of the insurance
policy. Furthermore, Seaboard also failed to formally reject the claim. Since Seaboard refused to settle
the claim without just cause as stated under Art. 241, It must be held liable not only for the face value of
the policy but also damages and interest.

TRYLL G. CHIU
COMMERCIAL LAW REVIEW: BANKING LAWS
PNB VS. PIKE
470 SCRA 328 (SEPTEMBER 20, 2005)
FACTS:
Complainant Pike often traveled to and from Japan as a gay entertainer in said country. He
opened U.S. Dollar Savings Account with herein petitioner PNB Buendia Branch for which he was
issued a corresponding passbook. The complaint alleged in substance that before complainant Pike left
for Japan, he kept the aforementioned passbook inside a cabinet under lock and key, in his home; that
a few hours after he arrived from Japan, he discovered that some of his valuables were missing
including the passbook; that he immediately reported the incident to the police which led to the arrest
and prosecution of a certain Mr. Joy Manuel Davasol; that complainant Pike also discovered that
Davasol made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account.
That on several occasions, complainant Pike went to defendant PNB’s Buendia branch and
verbally protested the unauthorized withdrawals and likewise demanded the return of the total
withdrawn amount on the ground that he never authorized anybody to withdraw from his account as the
signatures appearing on the subject withdrawal slips were clearly forgeries; that defendant PNB refused
to credit said amount back to complainant’s U.S. Dollar Savings Account without justifiable reason, and
instead, defendant bank wrote him that it exercised due diligence in the handling of said account; and
that complainant Pike wrote defendant PNB simply to request that the hold-account be lifted so that he
may withdraw the remaining balance left in his U.S.$ Savings Account and nothing else.
The trial court is not impressed with the defense put up by the bank that the withdrawals were
authorized by the plaintiff because there was an arrangement between the bank represented and the
depositor to the effect that pre-signed withdrawal slips. The court compared the signatures in the
questioned withdrawal slips with the known signatures of the depositor and is convinced that the
signatures in the unauthorized withdrawal slips do not correspond to the true signatures of the
depositor. The court is convinced that the bank was negligent in the performance of its duties such that
unauthorized withdrawals were made in the deposit of plaintiff. Judgment is hereby rendered in favour
of the plaintiff and against the defendant.
The Court of Appeals affirming the findings of the RTC that indeed defendant-appellant PNB
was negligent in exercising the diligence required of a business imbued with public interest such as that
of the banking industry, however, it modified the rate of interest and award for damages.
Petitioner PNB now seeks the review of the decision and resolution of the Court of Appeals.
ISSUES:
(1) Whether or not the principle of estoppel was not properly applied in this case;

(2) Whether or not respondent have substantially proven that the signatures appearing on the two
(2) questioned pre-signed withdrawal slip forms are all forgeries in accordance with Section 22,
Rule 132 of the Revised Rules of Court; and
(3) Whether or not moral and exemplary damages can be awarded against a party in good faith.
HELD:
We have oft “ruled that factual findings of the Court of Appeals are conclusive on the parties and
not reviewable by this Court – and they carry even more weight when the Court of Appeals affirms the
factual findings of the trial court,” and in the absence of any showing that the findings complained of are
totally devoid of support in the evidence on record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand. The courts a quo are in a much better
position to evaluate properly the evidence.
It bears emphasizing that negligence of banking institutions should never be countenanced. The
negligence here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their
treatment of respondent Pike’s US Dollar Savings Account that resulted in the unauthorized withdrawal.
Nevertheless, though its employees may be the ones negligent, a bank’s liability as an obligor is not
merely vicarious but primary, as banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees, and having such obligation, this Court cannot ignore the
circumstances surrounding the case at bar. It may even be said that they went out of their ways to
disregard standard operating procedures formulated to ensure the security of each and every account
that they are handling. Having admitted that pre-signed withdrawal slips do not constitute the normal
procedure with respect to withdrawals by representatives should have already put petitioner PNB’s
employees on guard. Rather than readily validating and permitting said withdrawals, they should have
proceeded more cautiously. Clearly, petitioner bank’s employee was exceedingly careless in his
treatment of respondent Pike’s savings account.
With banks, the degree of diligence required, is more than that of a good father of a family
considering that the business of banking is imbued with public interest due to the nature of their
functions. The stability of banks largely depends on the confidence of the people in the honesty and
efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary nature of banking. Section 2
of Republic Act No. 8791, makes a categorical declaration that the State recognizes the “fiduciary
nature of banking that requires high standards of integrity and performance.”
Anent the issue of the propriety of the award of damages in this case, petitioner PNB
asseverates that there was no evidence to prove that respondent Pike “suffered anguish,
embarrassment and mental sufferings” due to its acts in allowing the alleged unauthorized
withdrawals. And, having relied on the instructions of a valued depositor, petitioner PNB likewise avers
that its actions were made in good faith, for this reason, there is no factual basis for said award.
Specifically, in culpa contractual or breach of contract, moral damages are recoverable only if the
defendant has acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligations. Verily, the breach must be wanton, reckless,
malicious, or in bad faith, oppressive or abusive.
The bank’s negligence is a result of lack of due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding business, as banking, hence, the award of
moral damages, is proper. The award of exemplary damages is also proper as a warning to petitioner
PNB and all concerned not to recklessly disregard their obligation to exercise the highest and strictest
diligence in serving their depositors.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: BANKING LAWS
CITIBANK VS. SABENIANO
G.R. NO. 156132, OCTOBER 16, 2006
FACTS:
Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do
commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank and
FNCB Finance. Respondent filed a complaint against petitioners claiming to have substantial deposits,
the proceeds of which were supposedly deposited automatically and directly to respondent’s account
with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands.
Petitioner alleged that respondent obtained several loans from the former and in default, Citibank
exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC declared
the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering
Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision entirely in
favor of the respondent.
ISSUE:
Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and
money in Citibank-Geneva.
RULING:
Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and
P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared
illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000,
attorney’s fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive
off interest.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: BANKING LAWS
TOLENTINO v. CA
517 SCRA 732 (2007)
FACTS:
Petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private respondent
Citytrust Banking Corporation ("Citytrust," now Bank of the Philippine Islands) a Business Credit Line
Facility for P2,450,0005 secured by a First Real Estate Mortgage6 over her property covered by
Transfer Certificate of Title (TCT) No. 1933. Citytrust informed Tolentino that her credit line has expired
thereby making her P2,611,440.23 outstanding balance immediately due and demandable. 8 Tolentino
failed to settle her obligations thus her property was extrajudicially foreclosed and sold in a public
auction, with Citytrust as the highest bidder. The Certificate of Sale was registered and duly annotated
on TCT No. 1933.
The petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with
application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against
Citytrust and the Register of Deeds of Mandaluyong City. In its Answer with Counterclaim, 12 Citytrust
asserted that petitioner's credit line has a term of one year and that upon the expiration of the said
period, it may be cancelled and closed. The Regional Trial Court of Mandaluyong City, rendered
judgment upholding petitioner's right of redemption. The trial court held that the filing of an action for
judicial redemption by petitioner is equivalent to a formal offer to redeem. Having exercised her right of
legal redemption, petitioner should not be barred from redeeming the property, but at the redemption
price as computed by Citytrust pursuant to the provisions of their loan agreement. Both the petitioner
and the bank appealed to the Court of Appeals, which reversed and set aside the assailed Decision.
ISSUE:
Whether or not the filing of an action for redemption is equivalent to a formal offer to redeem.
HELD:
Negative. Anent the legality of petitioner's judicial redemption and the bank's computation of the
redemption price, Section 6 of Act No. 3135, 23 as amended,24 provides for the requisites for a valid
redemption, to wit:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property subsequent to the
mortgage or deed of trust under which the property is sold, may redeem the same at any time
within the term of one year from and after the date of sale; and such redemption shall be

governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent with the
provisions of this Act.
However, considering that private respondent is a banking institution, the determination of the
redemption price is governed by Section 78 of the General Banking Act, 25 as amended by Presidential
Decree No. 1828, which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate
which is security for any loan granted before the passage of this Act or under the provisions of this Act,
the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially,
for the full or partial payment of an obligation to any bank, banking or credit institution, within the
purview of this Act shall have the right, within one year after the sale of the real estate as a result of the
foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court
in the order of execution, or the amount due under the mortgage deed, as the case may be, with
interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses
incurred by the bank or institution concerned by reason of the execution and sale and as a result of the
custody of said property less the income received from the property.
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,35 we held that the
action for judicial redemption should be filed on time and in good faith, the redemption price is finally
determined and paid within a reasonable time, and the rights of the parties are respected. Stated
otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or
redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have
been for the sole purpose of determining the redemption price and not to stretch the redemptive period
indefinitely; and (3) once the redemption price is determined within a reasonable time, the redemptioner
must make prompt payment in full.
Based on the foregoing, it is clear that petitioner did not file the instant case for judicial
redemption in good faith. It was not filed for the purpose of determining the correct redemption price but
to stretch the redemption period indefinitely, which is not allowed by law.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: BANKING LAWS
EQUITABLE PCI BANK V. NG SHEUNG NGOR
541 SCRA 223 (2007)
FACTS
Ng Sheung Ngor and Ken Appliance Division file an action to annul and/or reform their contracts
entered into with Equitable Bank, alleging that Equitable Bank induced them to avail of their low interest
dollar loans which also contained escalation clauses which they were not made aware of. The trial court
upholds the validity of the documents and it orders Ng Sheung Ngor to pay the principal plus interest,
and to pay the dollar loan at the old exchange rate of 26.5%, the rate which existed at the time of the
constitution of the obligation citing Article 1250 of the Civil Code which provides that in case an
extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency
at the time of the establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary. However, it was established that there was no official declaration of
extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP).
ISSUE
Is the application of Article 1250 of the Civil Code proper?
HELD
No it is not proper. In order for Article 1250 to apply, the following requisites are to be complied
with:
1. that there was an official declaration of extraordinary inflation or deflation from the Bangko
Sentral ng Pilipinas (BSP);
2. that the obligation was contractual in nature; and
3. that the parties expressly agreed to consider the effects of the extraordinary inflation or
deflation.
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary
inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not
agree to recognize the effects of extraordinary inflation (or deflation). The RTC never mentioned that
there was such stipulation either in the promissory note or loan agreement. Therefore, Ng Sheung Ngor
should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: BANKING LAWS
BANCO DE ORO-EPCI INC V JAPRL DEVELOPMENT CORPORATION
551 SCRA 342 (2008)
FACTS:
JPRL obtained a P230M loan from Banco de Oro but soon after defaulted on its obligations. It
was later discovered that the loan was obtained by JPRL by fraudulently bloating its sales revenue.
Upon knowing of this fraud, BDO demanded immediate payment of JPRL’s outstanding
obligations.Banco de Oro tried to attach the properties of JPRL but was unsuccessful inall its attempt
since no proper officer of JPRL could be found and served with summonses.Meanwhile, JPRL filed two
applications for corporate rehabilitation. The first was denied while the second was granted. By virtue of
the granted rehabilitation, all proceedings against JPRL. Banco de Oro appealed the case alleging that
JPRL maliciously evaded the service of summonses to prevent the court from acquiring jurisdiction.
Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural
technicalities to avoid payment of their obligation.
ISSUE:
Whether or not there was malice and bad faith on the part of JPRL o delay proceedings by
cunningly exploiting procedural technicalities to avoid payment of their obligation.
HELD:
The court ruled in the affirmative. A creditor can demand payment from the surety solidarily
liable with the corporation seeking rehabilitation. Respondents abused procedural technicalities (albeit
unsuccessfully) for thes ole purpose of preventing, or at least delaying, the collection of their legitimate
obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly,
however, considering the amount involved, respondents utterly disregarded the significance of a stable
and efficient banking system to the national economy. Banks are entities engaged in the lending of
funds obtained through deposits from the public. They borrow the public's excess money (i.e., deposits)
and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings
to profitable investments. Banks operate (and earn income) by extending credit facilities financed
primarily by deposits from the public. They plough back the bulk of said deposits into the economy in
the form of loans. Since banks deal with the public's money, their viability depends largely on their
ability to return those deposits on demand. For this reason, banking is undeniably imbued with public
interest. Consequently, much importance is given to sound lending practices and good corporate
governance. Protecting the integrity of the banking system has become, by large, the responsibility of
banks.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: BANKING LAWS
PHILIPPINE SAVINGS BANK VS. CHOWKING FOOD CORPORATION,
G.R. NO. 177526, JULY 04, 2008
FACTS:
The RTC ordered petitioner PSBank and its Bustos Branch Head, Erlinda O. Santos, to
reimburse respondent Chowking the amount corresponding to five (5) illegally encashed checks. The
total amount of the subject checks reached P556,981.86. On the respective due dates of each check,
Chowking's acting accounting manager, Rino T. Manzano, endorsed and encashed said checks with
the Bustos branch of respondent PSBank. All the five checks were honored by defendant Santos, even
with only the endorsement of Manzano approving them. The signatures of the other authorized officers
of respondent corporation were absent in the five (5) checks, contrary to usual banking practice.
Unexpectedly, Manzano absconded with and misappropriated the check proceeds. When Chowking
found out Manzano's scheme, it demanded reimbursement from PSBank. When PSBank refused to
pay, Chowking filed a complaint for a sum of money with damages before the RTC. In its Answer,
petitioner did not controvert the foregoing facts, but denied liability to respondent for the encashed
checks. RTC rendered judgment in favor of respondent. On motion for reconsideration of the plaintiff,
the RTC reversed its earlier decision and dismissed Chowking's complaint. In its appeal, CA granted
the petition reinstating the first decision of the RTC.
ISSUE:
Whether or not banks’ required diligence is that of pater familias?
HELD:
CA decision affirmed. Petition Denied. It cannot be over emphasized that the banking business
is impressed with public interest. Of paramount importance is the trust and confidence of the public in
general in the banking industry. Consequently, the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of diligence is expected. In its
declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of
integrity and performance. Needless to say, a bank is "under obligation to treat the accounts of its
depositors with meticulous care. The fiduciary nature of the relationship between the bank and the
depositors must always be of paramount concern.
"Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done....Art. 2180. The obligation imposed by Art. 2176 is
demandable not only for one's own acts or omissions but also for those of persons for whom one is
responsible. x x x x Employers shall be liable for the damage caused by their employees and

household helpers acting within the scope of their assigned tasks even though the former are not
engaged in any business or activity. x x x x The responsibility treated of in this article shall cease when
the persons herein mentioned prove that they observed all the diligence of a good father of a family to
prevent damage." x x x However, with banks like PSB, the degree of diligence required is more than
that of a good father of a family considering that the business of banking is imbued with public interest
due to the nature of its functions. Highest degree of diligence is needed which PSB, in this case, failed
to observe. x x x Its argument that it should no be held responsible for the negligent acts of Santos
because those were independent acts x x x perpetrated without its knowledge and consent is without
basis in fact and in law. Assuming that PSB did not err in hiring Santos for her position, its lack of
supervision over her made it solidarily liable for the unauthorized encashment of the checks involved.
In the supervision of employees, the employer must formulate standard operating procedures, monitor
their implementation and impose disciplinary measures for the breach thereof. The appellee, in this
case, presented no evidence that it formulated rules/guidelines for the proper performance of functions
of its employees and that it strictly implemented and monitored compliance therewith. x x x
RUBY LAID
COMMERCIAL LAW REVIEW: BANKING LAWS
CENTRAL BANK OF THE PHILIPPINES v. CITYTRUST BANKING CORPORATION
578 SCRA 27 (2009)
FACTS:
The Citytrust Banking Corporation (Citytrust) gave Central Bank of the Philippines a list of
signatures of five of its officers authorized to sign checks and serve as drawers and indorsers for its
account, and also the list of the roving tellers authorized to perform other transactions on its behalf, one
of whom was Rounceval Flores (Flores). Flores presented two checks to the Central Bank’s Senior
Teller Iluminada dela Cruz (Dela Cruz) and was subsequently approved. Dela Cruz prepared the cash
transfer slip where Flores should sign but instead he sign as one Rosauro C. Cayabyab. This fact was
missed by Dela Cruz. It was given to Cash Department and the signatures were examined and later on
paid Flores for the checks. After one year and nine months, the Citytrust demanded that the checks be
cancelled and the funds taken out be returned because the check was stolen before. Central Bank did
not heed such call. Citytrust filed a complaint to collect the sum of money with damages against Central
Bank to the Regional Trial Court (RTC). RTC found both parties negligent and held them equally liable
for the loss. Court of Appeals affirmed the decision.
ISSUE:
Whether or not Citytrust can collect sum of money as damages from the Central Bank.
HELD:
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2
of Republic Act No. 8791 (R.A. 8791), which took effect on 13 June 2000, declares that the State
recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.”
This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and
performance” is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good
father of a family. Section 2 of R.A. 8791 prescribes the statutory diligence required from banks – that
banks must observe “high standards of integrity and performance” in servicing their
depositors. Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of
their alleged loss/theft should mitigate petitioner’s liability, in accordance with Article 2179 of the Civil
Code which provides that if the plaintiff’s negligence was only contributory, the immediate and

proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages,
but the courts shall mitigate the damages to be awarded.

DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: BANKING LAWS
RURAL BANK OF STA CATALINA vs. LAND BANK OF THE PHILIPPINES
435 SCRA 183
FACTS:
The respondent, Land Bank of the Philippines, filed a complaint against the petitioner, Sta.
Catalina Rural Bank, Inc., in the Regional Trial Court of Vigan, Ilocos Sur, for the collection of the sum
of P2,809,280.25, capitalized and accrued interests, penalties and surcharges, and for such other
equitable reliefs.
On motion of the respondent bank, the trial court issued an Order on January 23, 1997
declaring the petitioner bank in default for its failure to file its answer to the complaint. Despite its
receipt of the copy of the said order, the petitioner bank failed to file a motion to set aside the order of
default. The respondent bank, thereafter, adduced testimonial and documentary evidence
In the meantime, the Monetary Board of the Central Bank of the Philippines approved the
placement of the petitioner bank’s assets under receivership of PDIC. Unaware of the action of the
Central Bank of the Philippines, the trial court, rendered judgment by default against the petitioner
bank. Judgment is hereby rendered in favor of the plaintiff and the defendant is hereby ordered: To pay
the sum (P5,781,991.39) to the plaintiff plus pay interests and penalty. Petitioner failed to file a verified
motion to set aside the order of default.
The petitioner, through the PDIC, appealed the decision to the Court of Appeals. The PDIC
submitted a Report to the Monetary Board of the Central Bank of the Philippines that the petitioner bank
remained insolvent, and that its management failed to rehabilitate the said bank.
In appeal petitioner, asserted the following in its appeal that the honorable court erred in holding
that defendant-appeallant Bank is still liable to pay interest and penalty on its loan obligation after it has
been plce under receivership/liquidation.
ISSUE:
Whether or not defendant - appellant contention is correct?
RULING:
No. Where a bank, through PDIC which was designated by Central Bank as receiver, received a
copy of the decision of the trial court but did not bother filing a motion for partial reconsideration,
appending thereto the orders of monetary board or a motion to set aside the earlier order of default, it is

barred from relying on the orders of the monetary board placing its assets and affairs under
receivership and ordering its liquidation.
The records show that the petitioner was served with a copy of summons and the complaint, but
failed to file its answer thereto. It also failed to file a verified motion to set aside the Order of default
dated January 23, 1997 despite its receipt of a copy thereof. We note that the trial court rendered
judgment only on April 7, 1998 or more than a year after the issuance of the default order; yet, the
petitioner failed to file any verified motion to set aside the said order before the rendition of the
judgment of default. The PDIC was designated by the Central Bank of the Philippines as receiver
(conservator) as early as January 14, 1998, and in the course of its management of the petitioner
bank’s affairs, it should have known of the pendency of the case against the latter in the trial
court. Moreover, the petitioner, through the PDIC, received a copy of the decision of the trial court
on June 2, 1998, but did not bother filing a motion for partial reconsideration, under Rule 37 of the
Rules of Court, appending thereto the orders of the Monetary Board or a motion to set aside the order
of default. Instead, the petitioner appealed the decision, and even failed to assign as an error the
default order of the trial court. The petitioner is, thus, barred from relying on the orders of the Monetary
Board of the Central Bank of the Philippines placing its assets and affairs under receivership and
ordering its liquidation.
CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: BANKING LAWS
BACOLOR VS. BANCO FILIPINO SAVINGS AND MORTGAGE BANK
G.R. NO. 148491 (FEBRUARY 8, 2007)
FACTS:
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a
loan ofP244,000.00 from Banco Filipino Savings and Mortgage Bank, Dagupan City Branch,
respondent. They executed a promissory note providing that the amount shall be payable within a
period of ten (10) years with a monthly amortization of P5,380.00 beginning March 11, 1982 and every
11th day of the month thereafter; that the interest rate shall be twenty-four percent (24%) per annum,
with a penalty of three percent (3%) on any unpaid monthly amortization; that there shall be a service
charge of three percent (3%) per annum on the loan; and that in case respondent bank seeks the
assistance of counsel to enforce the collection of the loan, petitioners shall be liable for ten percent
(10%) of the amount due as attorney’s fees and fifteen percent (15%) of the amount due as liquidated
damages.
As security for the loan, petitioners mortgaged with respondent bank their parcel of land located
in Dagupan City, Pangasinan, registered under Transfer Certificate of Title No. 40827
Due to petitioners’ failure to settle their obligation, respondent instituted, on March 5, 1993, an
action for extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a
complaint for violation of the Usury Law against respondent, docketed as Civil Case No. D-10480. They
alleged that the provisions of the promissory note constitute a usurious transaction considering the (1)
rate of interest, (2) the rate of penalties, service charge, attorney’s fees and liquidated damages, and
(3) deductions for surcharges and insurance premium. In their amended complaint, petitioners further
alleged that, during the closure of respondent bank, it ceased to be a banking institution and, therefore,
could not charge interests and institute foreclosure proceeding.
ISSUE:
W/N during the closure of respondent bank, it ceased to be a banking institution and, therefore,
could not charge interests and institute foreclosure proceeding.
HELD:

No. In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank
of the Philippines, 13this Court ruled that the bank’s closure did not diminish the authority and powers of
the designated liquidator to effectuate and carry on the administration of the bank, thus:
x x x. We did not prohibit however acts such as receiving collectibles and receivables or paying off
creditors’ claims and other transactions pertaining to the normal operations of a bank. There is no doubt
that that the prosecution of suits for collection and the foreclosure of mortgages against debtors of the
bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of
a bank. x x x. Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybañez, 14 where one of the
issues was whether respondent bank can collect interest on its loans during its period of liquidation and
closure, this Court held:
In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and
receivership of Banco Filipino was put in issue. But the pendency of the case did not diminish the
authority of the designated liquidator to administer and continue the bank’s transactions. The Court
allowed the bank liquidator to continue receiving collectibles and receivables or paying off creditor’s
claims and other transactions pertaining to normal operations of a bank. Among these transactions
were the prosecution of suits against debtors for collection and for foreclosure of mortgages. The bank
was allowed to collect interests on its loans while under liquidation, provided that the interests were
legal.
CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: BANKING LAWS
RURAL BANK OF SAN MIGUEL, INC. vs.MONETARY BOARD, BSP,
516 SCRA 154 (2007)
FACTS:
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in
banking. The Monetary Board (MB), of Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105
prohibiting RBSM from doing business in the Philippines, placing it under receivership and designating
Philippine Deposit Insurance Corporation (PDIC) as receiver. To assist its impaired liquidity and
operations, the RBSM was granted emergency loans on different occasions. Land Bank dvised RBSM
that it will terminate the clearing of RBSM’s checks in view of the latter’s frequent clearing losses and
continuing failure to replenish its Special Clearing Demand Deposit with LBP. The BSP interceded with
LBP not to terminate the clearing arrangement of RBSM to protect the interests of RBSM’s depositors
and creditors.
ISSUE:
Whether or not Section 30 of RA 7653 (also known as the New Central Bank Act) and
applicable jurisprudence require a current and complete examination of the bank before it can be
closed and placed under receivership.
HELD:
It is well-settled that the closure of a bank may be considered as an exercise of police power.
The action of the MB on this matter is final and executory. Such exercise may nonetheless be subject
to judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse
of discretion as to amount to lack or excess of jurisdiction. The absence of an examination before the
closure of RBSM did not mean that there was no basis for the closure order. Needless to say, the
decision of the MB and BSP must have something to support itself and its findings of fact must be
supported by substantial evidence.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report
before placing a bank under receivership, the MB and BSP did not only follow the letter of the law, they
were also faithful to its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution
No. 105 was untainted with arbitrariness.

GLEN PETILLA
COMMERCIAL LAW REVIEW: BANKING LAWS
BANK OF AMERICA VS. ASSOCIATED CITIZENS BANK
FACTS
BA-Finance Corporation entered into a transaction with Miller Offset Press, Inc. (Miller), through
the latter’s authorized representatives, i.e., Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.
BA-Finance granted Miller a credit line facility which the latter could assign or discount its trade
receivables with the former.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four checks
payable to the “Order of Miller Offset Press, Inc.” with the notation “For Payee’s Account Only.”
The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then corporate
secretary of Miller, in Associated Citizens Bank which is a joint bank account under the names of Ching
Uy Seng and Uy Chung Guan Seng. Associated Bank stamped the checks with the notation “all prior
endorsements and/or lack of endorsements guaranteed,” and sent them through clearing. Bank of
America, honored the checks and paid the proceeds to Associated Bank as the collecting bank.
Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.
Consequently, BA-Finance filed a Complaint against Miller for collection.
ISSUE
Whether or not Bank of America is liable to pay BA-Finance the amount of the four checks.
RULING
The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on
the contract between the bank and its customer (drawer), to pay the check only to the payee or the
payee’s order. The drawer’s instructions are reflected on the face and by the terms of the check. When
the drawee bank pays a person other than the payee named on the check, it does not comply with the
terms of the check and violates its duty to charge the drawer’s account only for properly payable items.
[9]
Thus, a drawee should charge to the drawer’s accounts only the payables authorized by the latter;
otherwise, the drawee will be violating the instructions of the drawer and shall be liable for the amount
charged to the drawer’s account.

In this case, the four checks were drawn by BA-Finance and made payable to the “Order of Miller
Offset Press, Inc.” The checks were also crossed and issued “For Payee’s Account Only.” Clearly, the
drawer intended the check for deposit only by Miller Offset Press, Inc. in the latter’s bank
account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented
and deposited the checks in his own personal account (Ching Uy Seng’s joint account with Uy Chung
Guan Seng), and the drawee bank, Bank of America, paid the value of the checks and charged BAFinance’s account therefor, the drawee Bank of America is deemed to have violated the instructions of
the drawer, and therefore, is liable for the amount charged to the drawer’s account.
Associated Bank was also clearly negligent in disregarding established banking rules and
regulations by allowing the four checks to be presented by, and deposited in the personal bank account
of, a person who was not the payee named in the checks. It could not have escaped Associated
Bank’s attention that the payee of the checks is a corporation while the person who deposited the
checks in his own account is an individual. One who accepts and encashes a check from an individual
knowing that the payee is a corporation does so at his peril. Accordingly, we hold that Associated Bank
is liable for the amount of the four checks and should reimburse the amount of the checks to Bank of
America.
WHEREFORE, We AFFIRM with modification the Court of Appeals’ Decision dated 26 February
1999 in CA-G.R. CV No.

WILLIAM JOSEPH Z. RADAZA
COMMERCIAL LAW REVIEW: BANKING LAWS
CITY TRUST BANKING CORP. VS. CRUZ
628 SCRA 22 (AUG. 11, 2010)
FACTS:
Respondent Carlos Romulo Cruz, an architect and a businessman, maintained both current and
savings account with the petitioner bank in their Loyola Heights Branch. Due to an oversight by its bank
employee, the savings account of respondent was closed. This resulted to extreme embarrassment of
the respondent when checks he issued could not be honored despite the fact that his savings account
has sufficient funds.
Unmoved by the apologies and adjustments made by the bank, respondent filed a complaint for
damages before the RTC wherein the said court awarded exemplary damages (P100,000) and moral
damages (P20,000) plus attorneys fees. The bank appealed to the CA, but CA affirmed the lower
court's decision. The Court of Appeals said that the erroneous closure of the respondent's account
would not have occurred if the bank had not been careless in supervising its employees. Moreover, the
CA explained that the negligence of the bank's personnel was the proximate cause of the damage to
the respondent. The CA also denied the bank's motion for reconsideration. Hence, this appeal in which,
petitioner contends that there were decisive factual situations showing excusable negligence and good
faith that did not justify the award of damages.
ISSUE:
Whether or not the bank is liable for the damages caused to the respondent.
HELD:
The bank is liable for the damages caused to the respondent. Unquestionably, the petitioner,
being a banking institution, had the direct obligation to supervise very closely the employees handling
its depositors’ accounts, and should always be mindful of the fiduciary nature of its relationship with the
depositors. Such relationship required it and its employees to record accurately every single
transaction, and as promptly as possible, considering that the depositors’ accounts should always
reflect the amounts of money the depositors could dispose of as they saw fit, confident that, as a bank,
it would deliver the amounts to whomever they directed. If it fell short of that obligation, it should bear

the responsibility for the consequences to the depositors, who, like the respondent, suffered particular
embarrassment and disturbed peace of mind from the negligence in the handling of the accounts.
In several decisions of the Court, the banks, defendants therein, were made liable for
negligence, even without sufficient proof of malice or bad faith on their part, and the Court awarded
moral damages of 100,000.00 pesos each time to the suing depositors in proper consideration of their
reputation and their social standing. The respondent should be similarly awarded for the damage to his
reputation as an architect and businessman. The CA properly affirmed the RTC’s award of exemplary
damages and attorney’s fees. It is never overemphasized that the public always relies on a bank’s
profession of diligence and meticulousness in rendering irreproachable service. Its failure to exercise
diligence and meticulousness warranted its liability for exemplary damages and for reasonable
attorney’s fees.

BELLE F. SALIGUMBA
COMMERCIAL LAW REVIEW: BANKING LAWS
PRUDENTIAL BANK VS. CIR
G.R. NO. 180390
FACTS:
Petitioner Prudential Bank[16][5] is a banking corporation organized and existing under Philippine
law.[17][6] On July 23, 1999, petitioner received from the respondent Commissioner of Internal Revenue
(CIR) a Final Assessment Notice No. ST-DST-95-0042-99 and a Demand Letter for deficiency
Documentary Stamp Tax (DST) for the taxable year 1995 on its Repurchase Agreement with the
Bangko Sentral ng Pilipinas [BSP], Purchase of Treasury Bills from the BSP, and on its Savings
Account Plus [SAP] product, in the amount of P18,982,734.38.
Petitioner protested the assessment on the ground that the documents subject matter of the
assessment are not subject to DST.[19][8] However, respondent denied[20][9] the protest on December 28,
2001.
Thus, petitioner filed a Petition for Review before the CTA which was raffled to its First Division
and docketed as CTA Case No. 6396. CTA first Division Partially granted. Petitioner moved for partial
reconsideration but the same was denied by the First Division of the CTA in its Resolution dated May
22, 2006. Thus, petitioner appealed to the CTA En Banc. CTA En Banc denied the appeal for lack of
merit.
ISSUE:
Whether petitioner’s SAP with a higher interst is subject to documentary stamp tax.
HELD:
Petitioner’s Savings Account Plus is subject to Documentary Stamp Tax. DST is imposed on
certificates of deposit bearing interest pursuant to Section 180 of the old NIRC, as amended, to wit:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments
and securities issued by the government or any of its instrumentalities, certificates of deposit bearing
interest and others not payable on sight or demand. – On all loan agreements signed abroad wherein
the object of the contract is located or used in the Philippines; bills of exchange (between points within
the Philippines), drafts, instruments and securities issued by the Government or any of its

instrumentalities or certificates of deposits drawing interest, or orders for the payment of any sum of
money otherwise than at the sight or on demand, or on all promissory notes, whether negotiable or
non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there
shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos, or
fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of
deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either loan
agreement, or promissory note issued to secure such loan, whichever will yield a higher tax: provided,
however, that loan agreements or promissory notes the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000.00) executed by an individual for his purchase on installment
for his personal use or that of his family and not for business, resale, barter or hire of a house, lot,
motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax
provided under this section.
A certificate of deposit is defined as “a written acknowledgment by a bank or banker of the
receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the
order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor
between the bank and the depositor is created.”[45][34]
In this case, petitioner claims that its SAP is not a certificate of deposit bearing interest because unlike
a time deposit, its SAP is payable on demand and is evidenced by a passbook and not by a certificate
of deposit is wrong.
In China Banking Corporation v. Commissioner of Internal Revenue, [46][35] we held that the
Savings Plus Deposit Account, which has the following features:
1. Amount deposited is withdrawable anytime;
2. The same is evidenced by a passbook;
3.
The rate of interest offered is the prevailing market rate, provided the depositor would
maintain his minimum balance in thirty (30) days at the minimum, and should he withdraw
before the period, his deposit would earn the regular savings deposit rate; is subject to DST as it
is essentially the same as the Special/Super Savings Deposit Account in Philippine Banking
Corporation v. Commissioner of Internal Revenue, [47][36] and the Savings Account-Fixed Savings
Deposit in International Exchange Bank v. Commissioner of Internal Revenue,[48][37] which are
considered certificates of deposit drawing interests.[49][38]
Similarly, in this case, although the money deposited in a SAP is payable anytime, the
withdrawal of the money before the expiration of 30 days results in the reduction of the interest rate. [50]
[39]
In the same way, a time deposit withdrawn before its maturity results to a lower interest rate and
payment of bank charges or penalties.
The fact that the SAP is evidenced by a passbook likewise cannot remove its coverage from
Section 180 of the old NIRC, as amended. A document to be considered a certificate of deposit need
not be in a specific form.[52][41] Thus, a passbook issued by a bank qualifies as a certificate of deposit
drawing interest because it is considered a written acknowledgement by a bank that it has accepted a
deposit of a sum of money from a depositor.[53][42]

MARY CHRISTINE ANTHONETTE M. SALISE
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
PHILIPPINE NATIONAL BANK V. GANCAYCO
GR NO. 18343, 30 SEPTEMBER 1965
FACTS:
Emilio Gancayco and Florentino Flor, as special prosecutors of the Department of Justice,
required the Philippine National Bankto produce at a hearing the records of the bank deposits of
Ernesto Jimenez, former administrator of the Agricultural Credit and Cooperative Administration, who
was then under investigation for unexplained wealth.
PNB refused to disclose his bank deposits, invoking Section 2 of Republic Act No. 1405. On the
other hand, the prosecutors cited the Anti-Graft and Corrupt Practices Act, particularly Section 8
therewith, to wit:
“Section 8. Dismissal due to unexplained wealth. – If in accordance with the provisions
of RA 1379, a public official has been found to have acquired during his incumbency, whether in
his name or in the name of other persons, an amount of property and/or money manifestly out of
proportion to his salary and to his other lawful income, that fact shall be a ground for dismissal
or removal. Properties in the name of the spouse and unmarried children of such public official,
may be taken into consideration, when their acquisition through legitimate means cannot be
satisfactorily shown. Bank deposits shall be taken into consideration in the enforcement of this
section, notwithstanding any provision of law to the contrary.”
PNB then filed an action for declaratory judgment in the CFI of Manila which ruled that Section 8
of the Anti-Graft and Corrupt Practices Act clearly intended to provide an additional ground for the
examination of bank deposits. Hence, this appeal.
ISSUE:
Whether or not a bank can be compelled to disclose the records of accounts of a depositor who
is under investigation for unexplained wealth?
HELD:
Yes. Republic Act No. 3019 provided another exception to Section 2 of Republic Act No. 1405.
No reconciliation is possible between Republic Act No. 1405 and Republic Act No. 3019 as the two

laws are so repugnant to each other. Thus, while Section 2 of Republic Act No. 1405 provides that bank
deposits are “absolutely confidential … and, therefore, may not be examined, inquired or looked into,”
except in those cases enumerated therein, Section 8 of Republic Act No. 3019 (Anti-graft law) directs in
mandatory terms that bank deposits “shall be taken into consideration in the enforcement of this
section, notwithstanding any provision of law to the contrary.” The only conclusion possible is that
Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by providing
an additional exception to the rule against the disclosure of bank deposits.
With regard to the claim that disclosure would be contrary to the policy making bank deposits
confidential, it is enough to point out that while Section 2 of Republic Act No. 1405 declares bank
deposits to be “absolutely confidential,” it nevertheless allows such disclosure in the following
instances: (1) Upon written permission of the depositor; (2) In cases of impeachment; (3) Upon order of
a competent court in cases of bribery or dereliction of duty of public officials; (4) In cases where the
money deposited is the subject of the litigation.
Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason
is seen why these two classes of cases cannot be excepted from the rule making bank deposits
confidential. The policy as to one cannot be different from the policy as to the other. This policy
expresses the notion that a public office is a public trust and any person who enters upon its discharge
does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny.

BETTY L. CAMPOS
COMMERCIAL LAW DIGEST: LAW ON BANK SECRECY DEPOSITS
BANCO FILIPINO VS. HON. FIDEL PURISIMA
G.R. No. L-56429 (May 28, 1988)
FACTS:
An accusation was filed against the Customs special agent, Manuel Caturla, which was filed by
the Bureau of Internal Revenue. In the course of the preliminary investigation thereof,
the Tanodbayan issued a subpoena duces tecum to the Banco Filipino Savings & Mortgage Bank,
commanding its representative to appear at a specified time at the Office of the Tanodbayan and
furnish the latter with duly certified copies of the records in all its branches and extension offices, of the
loans, savings and time deposits and other banking transactions, dating back to 1969, appearing in the
names of Caturla, his wife, Purita Caturla, their children — Manuel, Jr., Marilyn and Michael — and/or
Pedro Escuyos. Caturla moved to quash the subpoena duces tecum arguing that compliance therewith
would result in a violation of Sections 2 and 3 of the Law on Secrecy of Bank Deposits. The motion was
denied instead expanded its scope through a second subpoena duces tecum, this time requiring
production by Banco Filipino of the bank records in all its branches and extension offices, of Siargao
Agro-Industrial Corporation, Pedro Escuyos or his wife, Emeterio Escuyos, Purita Caturla, Lucia
Escuyos or her husband, Romeo Escuyos, Emerson Escuyos, Fraterno Caturla, Amparo Montilla,
Cesar Caturla, Manuel Caturla or his children, Manuel Jr., Marilyn and Michael, LTD Pub/Restaurant,
and Jose Buo or his wife, Evelyn. The Banco Filipino Savings & Mortgage Bank, hereafter referred to
simply as BF Bank, took over from Caturla in the effort to nullify the subpoenae. It filed a complaint for
declaratory relief with the Court of First Instance of Manila. BF Bank prayed for a judicial declaration as
to whether its compliance with the subpoenae duces tecum would constitute an infringement of the
provisions of Sections 2 and 3 of R.A. No. 1405 in relation to Section 8 of R.A. No. 3019. It also asked
that pending final resolution of the question, the Tanodbayan be provisionally restrained from exacting
compliance with the subpoenae. Respondent Judge Purisima issued an Order denying for lack of merit
the application by BF Bank for a preliminary injunction and/or restraining order. BF Bank further argues
that subpoenae in question are in the nature of "fishing expeditions" or "general warrants" since they
authorize indiscriminate inquiry into bank records; that, assuming that such an inquiry is allowed as
regards public officials under investigation for a violation of the Anti-Graft & Corrupt Practices Act, it is

constitutionally impermissible with respect to private individuals or public officials not under
investigation on a charge of violating said Act; and that while prosecution of offenses should not, as a
rule, be enjoined, there are recognized exceptions to the principle.
ISSUE:
Whether or not the "Law on Secrecy of Bank Deposits" precludes production by
subpoena duces tecum of bank records of transactions by or in the names of the wife, children and
friends of a person in violation of the "Anti-Graft and Corrupt Practices Act."
HELD:
The Court held that the “Law on Secrecy of Bank Deposits" does not preclude production by
subpoena duces tecum of the bank records of transactions by or in the names of the wife, children and
friends of a person in violation of the "Anti-Graft and Corrupt Practices Act." In the Court’s decision
in Philippine National Bank v. Gancayco, rendered on September 30, 1966, The Court upheld the
judgment of the Trial Court "sustaining the power of the defendants (special prosecutors of the
Department of Justice) to compel the disclosure (by PNB) of bank accounts of ACCFA Administrator
Jimenez (then under investigation for unexplained wealth), .. (it being ruled) that, by enacting section 8
of the Anti-Graft and Corrupt Practices Act, Congress clearly intended to provide an additional ground
for the examination of bank deposits .. (for) without such provision, the .. prosecutors would be
hampered if not altogether frustrated in the prosection of those charged with having acquired
unexplained wealth while in public office. The inquiry into illegally acquired property — or property NOT
"legitimately acquired" — extends to cases where such property is concealed by being held by or
recorded in the name of other persons. This proposition is made clear by R.A. No. 3019 which quite
categorically states that the term, "legitimately acquired property of a public officer or employee shall
not include property unlawfully acquired by the respondent, but its ownership is concealed by its being
recorded in the name of, or held by, respondent's spouse, ascendants, descendants, relatives or any
other persons." To sustain the petitioner's theory, and restrict the inquiry only to property held by or in
the name of the government official or employee, or his spouse and unmarried children is unwarranted
in the light of the provisions of the statutes in question, and would make available to persons in
government who illegally acquire property an easy and fool-proof means of evading investigation and
prosecution; all they would have to do would be to simply place the property in the possession or name
of persons other than their spouse and unmarried children. This is an absurdity that we will not ascribe
to the lawmakers.

TRYLL G. CHIU
COMMERCIAL LAW DIGEST: LAW ON SECRECY OF BANK DEPOSIT
MELLON BANK, N.A. VS. MAGSINO
190 SCRA 633 (OCTOBER 18, 1990)
FACTS:
Dolores Ventosa requested the transfer of $1,000 from the First National Bank of Moundsville,
West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential Bank. Accordingly, the First
National Bank requested the petitioner, Mellon Bank, to effect the transfer. Unfortunately the wire sent
by Mellon Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank, indicated the
amount transferred as "US$1,000,000.00" instead of US$1,000.00. Hence Manufacturers Hanover
Bank transferred one million dollars less bank charges of $6.30 to the Prudential Bank for the account
of Victoria Javier.
Javier opened a new dollar account in the Prudential Bank and deposited $999,943.70. Immediately
their, Victoria Javier and her husband, Melchor Javier, Jr., made withdrawals from the account,
deposited them in several banks only to withdraw them later in an apparent plan to conceal, "launder"
and dissipate the erroneously sent amount. Javier withdrew from the account and converted it into eight
cashier's checks.
It appears that Melchor Javier, Jr. had requested Jose Marquez, a realtor, to look for properties for sale
in the United States. Marquez offered a 160-acre lot in the Mojave desert in California City which was
owned by Honorio Poblador, Jr. Javier, without having seen the property, agreed to buy it for
US$437,405 although it was actually appraised at around $38,500. Consequently, as Poblador's agent,
Marquez executed in Makati a deed of absolute sale in favour of the Javiers and had the document
notarized in Manila before an associate of Poblador. Marquez executed another deed of sale indicating
receipt of the purchase price and sent the deed to the Kern County Registrar in California for
registration.
Inasmuch as Poblador had requested that the purchase price should not be paid directly to him, the
payment was coursed through Elnor Investment Co., Inc., allegedly Poblador's personal holding
company; Paramount Finance, allegedly headed by Poblador's brother, and F.C. Hagedorn, allegedly a

stock brokerage with extensive dealings with Poblador. The payment was made through cashier's
checks while the balance was paid in cash by Javier who did not even ask for a receipt. The checks
were delivered by Poblador to F.C. Hagedorn with specific instructions to purchase Atlas, SMC and
Philex shares. The other checks with Elnor Investment and Paramount Finance as payees were
delivered to the latter to purchase "bearer" notes.
Meanwhile, Mellon Bank filed a complaint in the Superior Court of California, County of Kern, against
Melchor Javier, Jane Doe Javier, Honorio Poblador, JRN, and Does I through V. Mellon Bank alleged
that it had mistakenly and inadvertently cause the transfer of the sum of $999,000.00 to Jane Doe
Javier; that it believes that the defendants had withdrawn said funds; that "the defendants and each of
them have used a portion of said funds to purchase real property located in Kern County, California";
and that because of defendants' knowledge of Mellon Bank's mistake and inadvertence and their use of
the funds to purchase the property, they and "each of them are involuntary or constructive trustees of
the real property and of any profits therefrom, with a duty to convey the same to plaintiff." It prayed that
the defendants and each of them be declared as holders of the property in trust for the plaintiff; that
defendants be compelled to transfer legal title and possession of the property to the plaintiff;
Mellon Bank also filed in the Court of First Instance of Rizal, a complaint against the Javier spouses,
Honorio Poblador, Jr., Domingo L. Jhocson, Jr., Jose Marquez, Roberto Gariño, Elnor Investment Co.,
Inc., F.C. Hagedorn & Co., Inc. and Paramount Finance Corporation. After its amendment, Rafael
Caballero and Tri-Arc Investment & Management Company, Inc. were also named defendants. The
amended and supplemental complaint alleged the facts set forth above and added that Roberto Gariño,
chief accountant of Prudential Bank, and who was the reference of Mrs. Ventosa's dollar remittances to
Victoria Javier, immediately informed the Javiers of the receipt of US$1,000,000.00; that knowing the
financial circumstances of Mrs. Ventosa and the fact that a mistake had been committed, the Javiers,
with undue haste, took unlawful advantage of the mistake, withdrew the whole amount and transferred
the same that, aided and abetted by Poblador and Domingo L. Jhocson, the Javiers "compounded and
completed the conversion" of the funds by withdrawing from the account dollars or pesos equivalent to
US $975,000; that by force of law, the Javiers had been constituted trustees of an implied trust for the
benefit of Mellon Bank with a clear duty to return to said bank the moneys mistakenly paid to them; that,
upon request of Mellon Bank and Manufacturers Hanover Bank, Prudential Bank informed the Javiers
of the erroneous transmittal of one million dollars first orally and later by letter-demand; that
conferences between the representatives of the Javiers, led by Jhocson and Poblador, in the latter's
capacity as legal and financial counsel, and representatives of Mellon Bank, proved futile as the Javiers
claimed that most of the moneys had been irretrievably spent; that the Javiers could only return the
amount if the Mellon Bank should agree to make an absolute quitclaim and waiver of future rights
against them, and that in a scheme to conceal and dissipate the funds, through the active participation
of Jose Marquez, the Javiers bought the California property of Poblador.
It further alleged that trust fund moneys totalling P3,000,000.00 were made payable to Hagedorn
Paramount and Elnor; that Hagedorn on instructions of Poblador, purchased shares of stock at a stock
exchange for P1,000,000.00 but later, it hastily sold said shares at a loss of approximately P150,000.00
to the prejudice of the plaintiff; that proceeds of the sale were deposited by Hagedorn in the name of
Poblador and/or the law office of Poblador, Nazareno, Azada, Tomacruz and Paredes; that dividends
declared on the shares were delivered by Hagedorn to Caballero after the complaint had been filed and
thereafter, Caballero deposited the dividends in his personal account; that after receiving the
P1,000,000.00 trust money, Paramount issued promissory notes upon maturity of which Paramount
released the amount to unknown persons; that Elnor also invested P1,000,000.00 in Paramount for
which the latter also issued promissory notes; that after the filing of the complaint, counsel for plaintiff
requested Paramount not to release the amount after maturity; that in evident bad faith, Elnor
transferred the non-negotiable Paramount promissory notes to Tri-Arc. that when the notes matured,
Paramount delivered the proceeds of P1,000,000.00 to Tri-Arc; that Poblador knew or should have
known that the attorney's fees he received from the Javiers came from the trust funds; and that despite

formal demands even after the filing of the complaint, the defendants refused to return the trust funds
which they continued concealing and dissipating.
It prayed that: (a) the Javiers, Poblador, Elnor, Jhocson and Gariño be ordered to account for and pay
jointly and severally unto the plaintiff US$999,000.00 plus increments, additions, fruits and interests
earned by the funds from receipt thereof until fully paid; (b) the other defendants be ordered to account
for and pay unto the plaintiff jointly and severally with the Javiers to the extent of the amounts which
each of them may have received directly or indirectly from the US$999,000.00 plus increments,
additions, fruits and interests; (c) Marquez be held jointly and severally liable with Poblador for the
amount received by the latter for the sale of the 160-acre lot in California City;
In his testimony, Jose Marquez stated that Prudential Bank and Trust Company checks payable to F.
C. Hagedorn were delivered to him by Melchor Javier, Jr. as partial consideration for the sale of
Poblador's property in California. After receiving the checks, Hagedorn purchased shares of Atlas
Mining, Philex, Marcopper and San Miguel Corporation, which, according to Fred Hagedorn belonged
to the law office of Poblador. F.C. Hagedorn & Co., Inc. then sold the shares. Mellon Bank traced these
checks to the Philippine Veterans Bank in the name of Cipriano Azada, Poblador's law partner and
counsel to the Javiers.
Testimonies of witnesses were objected to by the defense on the grounds of res inter alios acta,
immateriality, irrelevancy and confidentiality. To resolve the matter, the court ordered the parties to
submit memoranda. Poblador's counsel raised the matter of "election of remedies." The lower court,
conditionally allowed the testimonies. The defendants then moved to strike off the testimonies from the
record. Defendant Paramount Finance Corporation, which is not a party to the California case,
thereafter filed its memorandum raising the matter of "election of remedies". It averred that inasmuch as
the Mellon Bank had filed in California an action to impose constructive trust on the California property
and to recover the same, Mellon Bank can no longer try to regain the purchase price of the same
property. The other defendants adopted Paramount's stand.
After Mellon Bank filed its reply to the memorandum of Paramount, a resolution ordering that the
testimonies and the documents they testified on, which were conditionally allowed, be stricken from the
records.
Mellon Bank moved for reconsideration, alleging that said order prevented the presentation of evidence
on the purchase price of the California property; that the California case cannot be considered a waiver
of the pursuit of the purchase price as even if said case was filed fifteen days prior to the filing of the
original complaint in this case, except for the Javiers, no other defendants raised in their answers the
affirmative defense of the filing of the California case; that after the amendment of the complaint, none
of the defendants raised the matter of "election of remedies" in their answers; that realizing this
procedural error, Paramount sought the amendment of its answer to reflect the "defence" of "election of
remedies"; that, disregarding its previous orders allowing evidence and testimonies, the court made a
turnabout and ruled that the testimonies on said account were irrelevant and confidential under
Republic Act No. 1405; that Philippine law and jurisprudence does not require the election of remedies
for they favour availment of all remedies; that even United States jurisprudence frowns upon election of
remedies if it will lead to an inequitable result. There can be no binding election of remedies before the
decision on the merits is had; that until Mellon Bank gets full recovery of the trust moneys, any
contention of election of remedy is premature, and that, the purchase price being the subject of
litigation, inquiring into its movement, including its deposit in banks, is allowed under Republic Act No.
1405.
Defendants filed their respective comments and oppositions to the motion for reconsideration. In its
reply, the Mellon Bank presented proof to the effect that in the California case, defendants filed motions
to stake out the cross-complaint of Mellon Bank, for summary judgment and to stay or dismiss the
action on the ground of inconvenient forum but the first two motions and the motion to dismiss were

denied "without prejudice to renew upon determination of the Philippine action." The motion to stay
proceedings was "granted until determination of the Philippine action."
The lower court denied the motion for reconsideration and ordered the continuation of the hearing. The
plaintiff filed a motion for the reconsideration of both orders. After the parties had filed comments,
opposition and reply, the court through Judge Celso L. Magsino, denied Mellon Bank's second motion
for reconsideration on the ground that it was "prescribed by the 1983 Interim Rules of Court".
The court ruled that the determination of the relevancy of the testimonies was premised directly and
principally" on whether or not Mellon Bank could still recover the purchase price of the California
property notwithstanding the filing of the case in California to recover title and possession of the said
property.
The Court ruled that it was a "final order or a definitive judgment with respect to the claim of plaintiff for
the recovery" of the purchase price of the California property.
Hence, Mellon Bank filed the instant petition for certiorari claiming that the resolution and the orders are
void for being unlawful and oppressive exercises of legal authority, subversive of the fair administration
of justice, and in excess of jurisdiction. The petition is founded on its allegations that: (a) the resolution
is interlocutory as it does not dispose of the Civil Case completely: (b) the evidence stricken from the
records is relevant on the basis of the allegations of the amended and supplemental complaint, and (c)
the doctrine of election of remedies, which has long been declared obsolete in the United States, is not
applicable in this case.
With the exception of the Javiers, all the respondents filed their respective comments on the petition.
Having failed to file said comment, the Javiers' counsel of record, was required to show cause why
disciplinary action should not be taken against it. And, having also failed to show cause, it was fined.
In his motion for reconsideration of the resolution imposing said fine, it alleged that the Javiers were
indeed represented by the law firm but he was never the lawyer of the Javiers' in his personal capacity;
that after the death of Honorio Poblador, Jr., he had withdrawn from the partnership; that he is the
counsel of the Administratrix of the Estate of Honorio Poblador, Jr. for which he had filed a comment,
and that should the Court still require him to file comment for the Javiers despite the lack of clientlawyer relationship, he would adopt the comment he had filed for the said Administratrix. In compliance
therewith, counsel for petitioner manifested that the Javiers had two known addresses in San Juan,
Metro Manila and in Sampaloc, Manila; that since their conviction in Crim. Case, the Javiers had gone
into hiding and warrants for their arrest still remain unserved;
Inasmuch as copies of the resolution requiring comment on the petition and the petition itself addressed
to Melchor Javier were returned with the notations "moved" and "deceased", the Court required that
said copies be sent to Mrs. Javier herself and that petitioner should inform the Court of the veracity of
Javier's death.
Counsel for petitioner accordingly informed the Court that he learned that the Javiers had fled the
country and that he had no way of verifying whether Melchor Javier had indeed died. In view of these
circumstances, the Javiers' comment on the petition shall be dispensed with as the Court deems the
pleadings filed by the parties sufficient bases for resolving this case. The Javiers shall be served copies
of this decision in accordance with Section 6, Rule 13 of the Rules of Court by delivering said copies to
the clerk of court of the lower court, with proof of failure of both personal service and service by mail.
ISSUE:

Whether or not, by virtue of the principle of election of remedies, an action filed in California,
U.S.A., to recover real property located therein and to constitute a constructive trust on said property
precludes the filing in our jurisdiction of an action to recover the purchase price of said real property.
HELD:
We hold that the lower court gravely abused its discretion in ruling that the resolution is a "final and
definitive disposition" of petitioner's claim for the purchase price of the Kern property. The resolution is
interlocutory and means no more than what it states in its dispositive portion-the testimonies they
testified on, should be stricken from the record. That the resolution discusses the common-law principle
of election of remedies, a subject matter is beside the point. It is interlocutory because the issue
resolved therein is merely the admissibility of the plaintiff's evidence. As such, it does not dispose of the
case completely but leaves something more to be done upon its merits. Furthermore, the lower court's
holding in its order that petitioner's second motion for reconsideration is proscribed by the 1983 Interim
Rules of Court which disallows such motion on a final order or judgment, should be rectified. As
explained above, the resolution is not a final one. It also contains conclusions on procedural matters
which, if left unchecked, would prejudice petitioner's substantive rights.
In effect, therefore, the order is a shortcut disposition of Civil Case in total disregard of petitioner's right
to a thorough ventilation of its claims. By putting a premium on procedural technicalities over the
resolution of the merits of the case, the lower court rode roughshod over the basic judicial tenet that
litigations should, as much as possible, be decided on their merits and not on technicalities. The trial
court's patent grave abuse of discretion therefore forces us to exercise supervisory authority to correct
its errors notwithstanding the fact that ordinarily, this Court would not entertain a petition for certiorari
questioning the legality and validity of an interlocutory order.
Respondents' principal objection to the testimonies is their alleged irrelevance to the issues raised in
the Civil Case. The fallacy of this objection comes to fore upon a scrutiny of the complaint. Petitioner's
theory therein is that after the Javiers had maliciously appropriated unto themselves $999,000, the
other private respondents conspired and participated in the concealment and dissipation of said
amount. The testimonies are therefore needed to establish the scheme to hide the erroneously sent
amount.
Private respondents' protestations that to allow the questioned testimonies to remain on record would
be in violation of the provisions of Republic Act No. 1405 on the secrecy of bank deposits, is
unfounded. Section 2 of said law allows the disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. Inasmuch as Civil Case is aimed at recovering the
amount converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of
the illegally acquired amount extends to whatever is concealed by being held or recorded in the name
of persons other than the one responsible for the illegal acquisition.
We view respondents' reliance on the procedural principle of election of remedies as part of their ploy
to terminate the Civil Case prematurely. With the exception of the Javiers, respondents failed to raise it
as a defense in their answers and therefore, by virtue of Section 2, Rule 9 of the Rules of Court, such
defense is deemed waived. Notwithstanding its lengthy and thorough discussion during the hearing and
in pleadings subsequent to the answers, the issue of election of remedies has not, contrary to the lower
court's assertion, been elevated to a "substantive one." Having been waived as a defense, it cannot be
treated as if it has been raised in a motion to dismiss based on the nonexistence of a cause of action.
Moreover, granting that the defense was properly raised, it is inapplicable in this case. In its broad
sense, election of remedies refers to the choice by a party to an action of one of two or more coexisting
remedial rights, where several such rights arise out of the same facts, but the term has been generally
limited to a choice by a party between inconsistent remedial rights, the assertion of one being
necessarily repugnant to, or a repudiation of, the other. In its technical and more restricted sense,

election of remedies is the adoption of one of two or more coexisting remedies, with the effect of
precluding a resort to the others.
As a technical rule of procedure, the purpose of the doctrine of election of remedies is not to prevent
recourse to any remedy, but to prevent double redress for a single wrong. It is regarded as an
application of the law of estoppel, upon the theory that a party cannot, in the assertion of his right
occupy inconsistent positions which form the basis of his respective remedies. However, when a certain
state of facts under the law entitles a party to alternative remedies, both founded upon the identical
state of facts, these remedies are not considered inconsistent remedies. In such case, the invocation of
one remedy is not an election which will bar the other, unless the suit upon the remedy first invoked
shall reach the stage of final adjudication or unless by the invocation of the remedy first sought to be
enforced, the plaintiff shall have gained an advantage thereby or caused detriment or change of
situation to the other. It must be pointed out that ordinarily, election of remedies is not made until the
judicial proceeding has gone to judgment on the merits.
Consonant with these rulings, this Court opined that while some American authorities hold that the
mere initiation of proceedings constitutes a binding choice of remedies that precludes pursuit of
alternative courses, the better rule is that no binding election occurs before a decision on the merits is
had or a detriment to the other party supervenes. This is because the principle of election of remedies
is discordant with the modern procedural concepts embodied in the Code of Civil Procedure which
Permits a party to seek inconsistent remedies in his claim for relief without being required to elect
between them at the pleading stage of the litigation.
It should be noted that the remedies pursued in the California case and in Civil Case are not exactly
repugnant or inconsistent with each other. If ever, they are merely alternative in view of the inclusion of
parties in the latter case who are not named defendants in the former. The causes of action, although
they all stem from the erroneous transmittal of dollars, are distinct as shown by the complaints lengthily
set out above. The bar of an election of remedies does not apply to the assertion of distinct causes of
action against different persons arising out of independent transactions.
As correctly pointed out by the petitioner, the doctrine of election of remedies is not favoured in the
United States for being harsh. Its application with regard to two cases filed in two different jurisdictions
is also circumscribed by jurisprudence on abatement of suits. However, in view of the fact that the
California court wherein the case for recovery of the Kern property was first filed against the Javier’s
had stayed proceedings therein until after the termination of Civil Case, the court below can do no less
than expedite the disposition of said case.
We cannot dispose of this case without condemning in the strongest terms possible the acts of
chicanery so apparent from the records. The respective liabilities of the respondents are still being
determined by the court below. We must warn, however, against the use of technicalities and
obstructive tactics to delay a just settlement of this case. The taking advantage of the petitioner's
mistake to gain sudden and undeserved wealth is marked by circumstances so brazen and shocking
that any further delay will reflect poorly on the kind of justice our courts dispense. The possible
involvement of lawyers in this sorry scheme stamps a black mark on the legal profession. The
Integrated Bar of the Philippines (IBP) must be made aware of the ostensible participation, if not
instigation, in the spiriting away of the missing funds. The IBP must take the proper action at the
appropriate time against all lawyers involved in any misdeeds arising from this case.
Wherefore, the resolution and the orders are hereby annulled. The lower court is ordered to proceed
with dispatch in the disposition of civil case, considering that thirteen (13) years have gone by since the
original erroneous remittance. Service of this decision on the Javier spouses shall be in accordance
with Section 6, Rule 13 of the Rules of Court. A copy of this decision shall be served on the Integrated
Bar of the Philippines.

ALBERT G. CONG
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
UNION BANK OF THE PHILIPPINES V. CA
321 SCRA 563 (1999)
FACTS:
A check in the amount of One Million Pesos (P1,000,000.00) was drawn against Account No.
0111-01854-8 with Allied Bank payable to the order of one Jose Ch. Alvarez. The payee deposited the
check with Union Bank who credited the P1,000,000.00 to the account of Mr. Alvarez. Union Bank sent
the check for clearing through the Philippine Clearing House Corporation (PCHC). When the check was
presented for payment, a clearing discrepancy was committed by Union Bank’s clearing staff when the
amount of One Million Pesos (P1,000,000.00) was erroneously “under-encoded” to One Thousand
Pesos(P1,000.00) only. Union Bank only discovered the under-encoding almost a year later. Thus,
Union Bank Notified Allied Bank of the discrepancy by way of a charge slip for Nine Hundred NinetyNine Thousand Pesos (P999,000.00) for automatic debiting against the account of Allied Bank. The
latter, however, refused to accept the charge slip “since [the] transaction was completed per your
[Union Bank’s] original instruction and client’s account is now insufficiently funded.” Subsequently,
Union Bank filed a complaint against Allied Bank before the PCHC Arbitration Committee (Arbicom),
alleging that Allied Bank should have informed it of the under coding pursuant to the Section 25 of
PCHC handbook which states that: “The receiving bank should inform the erring bank about the under
coding of the amount not later than 10 am of the following clearing day.” The judgment on the
arbitration case was held in abeyance pending the resolution of the petition filed by UnionBank. RTC,
affirmed by CA dismissed the petition holding that case of Union Bank does not fall under any of the
exceptions to warrant a disclosure of or inquiry into the ledger/books of account in dispute. CA held that
the case was not one where the money deposited is the subject matter of the litigation, particularly
nowhere in Union Bank’s complaint does it mention of the amount it seeks to recover from the Account
itself, but seeks of P999,000 only as an incident of its alleged opportunity losses and interest as a result
of its own employee’s admitted error in encoding the check. Hence, this petition.
ISSUE:

Whether or not the case at bar falls under the last exeption.
HELD:
A collecting bank which sued the drawee bank to recover the deficiency between the amount
credited to the account of the depositor and the amount obtained from the drawee bank because the
latter had erroneously undercoded the amount of the check it presented for clearing from P1M to
P1,000 is not entitled to examine the account of the drawer of the check, because the money in the
account of the drawer is not the subject matter of the litigation. The collecting bank was only fishing for
information so it could determine the culpability of the drawee bank and the amounts of damages it
could recover from the latter. It does not seek the recovery of the very money contained in the deposit.
The subject matter of the dispute may be the amount of P999,000 that the collecting bank seeks from
the drawee bank as a result of the latter’s alleged failure to inform the former of the discrepancy ; but it
is not the P999,000 deposited in the drawer’s account. By the terms of RA 1405, the “money deposited”
itself should be the subject matter of the litigation.

MA. JONELLE S. FAUNE
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
MARQUEZ v. DESIERTO
359 SCRA 772
FACTS:
Petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto to produce
several bank documents for purposes of inspection in camera relative to various accounts maintained
at Union Bank of the Philippines, Julia Vargas Branch, where petitioner is the branch manager. The
accounts are involved in a case pending with the Ombudsman entitled, Fact-Finding and Intelligence
Bureau (FFIB) v. Amado Lagdameo, et. al. for violation of RA 3019. Republic Act No. 6770, otherwise
known as Ombudsman Act of 1989, Section 15 thereof provides its power to examine and have access
to bank accounts and records. This specific provision of R.A. 6770, a later legislation, modifies the law
on Secrecy of bank Deposits (R.A. 1405).
Petitioner together with Union Bank of the Philippines filed a petition for declaratory relief,
prohibition and injunction with the Regional Trial Court, Makati City, against the Ombudsman. Petitioner
sought a declaration of her rights from the court due to the clear conflict between R. A. No. 6770,
Section 15 and R. A. No. 1405, Sections 2 and 3. She wanted to be clarified as to how she would
comply with the orders without her breaking any law, particularly R.A. No. 1405.
ISSUE:
Whether or not the order of the Ombudsman to have an in camera inspection of the questioned
account as an exception to the law on secrecy of bank deposits (R.A. No. 1405)
HELD:
Negative. The court ruled that before an in camera inspection may be allowed, there must be a
pending case before a court of competent jurisdiction. The order of the Ombudsman to produce for in
camera is based on a pending investigation at the Office of the Ombudsman against Amado
Lagdameo, et. al. for violation of R.A. No. 3019.
An examination of the secrecy of bank deposits law (R.A. No.1405) would reveal the following
exceptions:

1.
2.
3.
4.
5.

Where the depositor consent in writing
Impeachment case;
By court order in bribery or dereliction of duty cases against public officials;
Deposit is subject of litigation;
Sec. 8, R.A. No.3019, in cases of unexplained wealth as held in the case of PNB vs.
Gancayco.
In the case at bar, there is yet no pending litigation before any court of competent authority.
What is existing is an investigation by the Office of the Ombudsman. Clearly, there was no pending
case in court which would warrant the opening of the bank account for inspection.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
OFFICE OF THE OMBUDSMAN V. IBAY
364 SCRA 281
FACTS
The Office of the Ombudsman conducted an investigation on the alleged "scam" on the Public
Estates Authority-Amari Coastal Bay Development Corporation. Initial result of the investigation
revealed that the alleged anomaly was committed through the issuance of checks which were
subsequently deposited in several financial institutions. The Ombudsman then issued an Order
directing the branch manager of Union Bank of the Philippines to produce several bank documents for
inspection relative to subject bank accounts reportedly maintained in the said branch. The inspection
would be done "in camera" wherein the bank records would be examined without bringing the
documents outside the bank premises.
The branch manager of Union Bank did not comply to the said order arguing that under R.A.
1405 (Law on Secrecy of Bank Deposits), the bank had the legal obligation not to divulge any
information relative to all deposits of whatever nature with banks in the Philippines. On the other hand,
the Ombudsman claimed that under R.A. 6770, the Ombudsman had the power to examine and have
access to bank accounts and records.
ISSUE
Whether or not the Office of the Ombudsman may validly inspect and examine the subject bank
accounts and records in the instant case.
HELD
The Office of the Ombudsman may not validly inspect and examine the subject bank accounts
and records in the instant case. Before an in camera inspection of bank accounts may be allowed,
there must be a pending case before a court of competent jurisdiction. Further, the account must be
clearly identified, and the inspection limited to the subject matter of the pending case before the court of
competent jurisdiction. The bank personnel and the account holder must be notified to be present

during the inspection, and such inspection may cover only the account identified in the pending case. In
the present case, since there is no pending litigation yet before a court of competent authority, but only
an investigation by the Ombudsman on the so-called "scam", any order for the opening of the bank
account for inspection is clearly premature and legally unjustified.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
INTENGAN VS COURT OF APPEALS
377 SCRA 63
FACTS:
On September 21, 1993, Citibank filed a complaint for violation of section 31 in relation to
section 144 of the Corporation Code against two (2) of its officers, Dante L. Santos and Marilou
Genuino. Attached to the complaint was an affidavit executed by private respondent Vic Lim, a vicepresident of Citibank As evidence, Lim annexed bank records purporting to establish the deception
practiced by Santos and Genuino. Some of the documents pertained to the dollar deposits of
petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner. In turn, private respondent
Joven Reyes, vice-president/business manager of the Global Consumer Banking Group of Citibank,
admits to having authorized Lim to state the names of the clients involved and to attach the pertinent
bank records, including those of petitioners’. Petitioners aver that respondents violated RA 1405.
ISSUE:
Whether or not Respondents are liable for violation of Secrecy of Bank Deposits Act, RA 1405
HELD:
The court ruled in the negative. The accounts in question are U.S. dollar deposits;
consequently, the applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known
as the “Foreign Currency Deposit Act of the Philippines,” However, applying Act No. 3326, the offense
prescribes in eight years, therefore, per available records, private respondents may no longer be haled
before the courts for violation of Republic Act No. 6426.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
EJERCITO VS. SANDIGANBAYAN,
509 SCRA 190 (2005)
FACTS:
In the case of People vs. Estrada, Special Prosecution Panel (composed of the Ombudsman,
the Special Prosecutor, Deputy Special Prosecutor, Asst. Ombudsman, Special Prosecution III and SP
II), filed before the Sandiganbayan a request for the issuance of subpoena duces tecum directing the
President of Export and Industry Bank (EIB) or his/her representative to produce documents relating to
the acts therein specified.
The Special Prosecution Panel likewise requested for issuance of Subpoena Duces Tecum/Ad
testificandum directed to the authorized representative of Equitable-PCI Bank to produce statement of
accounts in the name of Jose Velarde and testify thereon.
Estrada claiming to have learned from the media that the Special Prosecution Panel had
requested for the issuance of subpoenas the examination of bank accounts belonging to him, attended
the hearing of the case and filed before the Sandiganbayan a letter of opposition and requested that he
be given time to retain the services of a lawyer and prayed the issuance of the subpoena be held in
abeyance for at least 10 days to enable him to take appropriate legal steps.
In open court, Associate Justice Sandoval of Sandiganbayan advised Estrada that his remedy
was to file a motion to quash, for which was given up to 12 noon the following day.
Estrada unassisted by counsel filed a motion to quash claiming that his bank accounts are covered by
RA 1405 and do not fall under any of the exceptions stated therein.
Other requests for issuance of subpoena’s were filed, and thus issued, hence, motion to quash
was filed by Estrada but was denied by Sandiganbayan, Sandiganbayan further denied Motion for
Reconsideration.
ISSUES:
1. Whether or not Estrada’s Account is covered by the term “deposit” as used in RA 1405?

2. Whether or not Estrada’s Trust and Savings accounts are excepted from the protection of RA
1405.
RULING:
An examination of RA 1405 shows that the term “deposits” used therein is to be understood
broadly and not limited to accounts which give rise to a creditor-debtor relationship between the
depositor and the bank. If the money deposited under an account may be used by banks for authorized
loans to third persons, then such account, regardless of whether it creates a creditor-debtor relationship
between the depositor and the bank falls under the category of accounts which the law precisely seeks
to protect. RA 1405 applies not only to money which are invested, such as those placed in a trust
account.
These accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two
exceptions applicable in this case namely 1) the examination of bank accounts is upon order of a
competent in case of bribery or dereliction of duty of public officials, and 2) the money deposited or
invested is the subject matter of the litigation. Exception one applies since the plunder case pending
against former President Estrada is analogous to bribery or dereliction of duty, while exception number
2 applies the money deposited in Estrada’s bank accounts is said to form part of the subject matter of
the same plunder case.

RUBY LAID
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
REPUBLIC OF THE PHILIPPINES VS. HON. ANTONIO M. EUGENIO, JR
G.R. NO. 174629, FEBRUARY 14, 2008
FACTS
Lilia Cheng argues that the AMLA, being a substantive penal statute, has no retroactive effect
and the bank inquiry order could not apply to deposits or investments opened prior to the effectivity of
Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes, her subject bank accounts, opened
between 1989 to 1990, could not be the subject of the bank inquiry order lest there be a violation of the
constitutional prohibition against ex post facto laws.
ISSUE
Does the proscription against ex post facto laws apply to the interpretation of Section 11, a
provision which does not provide for a penal sanction but which merely authorizes the inspection of
suspect accounts and deposits?
HELD
Yes. This is because no person may be prosecuted under the penal provisions of the AMLA for
the acts committed prior to the enactment of the law (October 17, 2001). Regarding the authority to
inspect, it should be noted that an ex post facto is also one that deprives a person accused of a crime
of some lawful protection to which he has become entitled, such as the protection of a former conviction
of acquittal, or proclamation or amnesty.

DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSIT
REPUBLIC vs. EUGENIO
545 SCRA 384 (2008)
FACTS:
AMLC issued Resolution No. 75, Series of 2005, whereby the Council resolved to authorize the
Executive Director of the AMLC “to sign and verify an application to inquire into and/or examine the
[deposits] or investments of Pantaleon Alvarez, Wilfredo Trinidad, Alfredo Liongson, and Cheng Yong,
and their related web of accounts wherever these may be found,
Under the authority granted by the Resolution, the AMLC filed an application to inquire into or
examine the deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC of
Makati.
Makati RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC the
authority to inquire and examine the subject bank accounts the trial court being satisfied that there
existed “probable cause to believe that the deposits in various bank accounts, details of which appear
in paragraph 1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt
Practices Act.
Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio,
requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other entities
involved in the nullified contract. The letter adverted to probable cause to believe that the bank
accounts “were used in the commission of unlawful activities that were committed” in relation to the
criminal cases then pending before the Sandiganbayan.
In response to the letter of the Special Prosecutor, the AMLC promulgated Resolution No. 121
which authorized the executive director of the AMLC to inquire into and examine the accounts named in
the letter, including one maintained by Alvarez with DBS Bank and two other accounts in the name of

Cheng Yong with Metrobank. Which was granted by the Manila RTC expressing therein “that the
allegations in said application to be impressed with merit,
Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for Certiorari,
Prohibition and Mandamus with Application for TRO and/or Writ of Preliminary Injunction directed
against the Republic of the Philippines through the AMLC, Manila RTC Judge Eugenio, Jr. and Makati
RTC Judge Marella, Jr.
She identified herself as the wife of Cheng Yong with whom she jointly owns a conjugal bank
account with Citibank that is covered by the Makati RTC bank inquiry order, and two conjugal bank
accounts with Metrobank that are covered by the Manila RTC bank inquiry order.
Lilia Cheng imputed grave abuse of discretion on the part of the Makati and Manila RTCs in
granting AMLC’s ex parte applications for a bank inquiry order, arguing among others that the ex parte
applications violated her constitutional right to due process, that the bank inquiry order under the
AMLA.
ISSUE:
Whether or not bank inquiry order issued ex parte violates the Bank Secrecy Law.
HELD:
Yes. Bank Secrecy Law is hereby violated because there is a right to privacy governing bank
accounts in the Philippines, and that such right finds application to the case at bar. The source of such
right is statutory, expressed as it is in R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955.
The right to privacy is enshrined in Section 2 of that law, to wit:
SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy
in the Philippines. Subsequent laws, including the AMLA, may have added exceptions to the Bank
Secrecy Act, yet the secrecy of bank deposits still lies as the general rule. It falls within the zones of
privacy recognized by our laws. The framers of the 1987 Constitution likewise recognized that bank
accounts are not covered by either the right to information under Section 7, Article III or under the
requirement of full public disclosure under Section 28, Article II. Unless the Bank Secrecy Act is
repealed or amended, the legal order is obliged to conserve the absolutely confidential nature of
Philippine bank deposits.
Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2 of the
Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined by "any
person, government official, bureau or office"; namely when: (1) upon written permission of the
depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials; and (4) the money deposited
or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and
Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to the
rule of absolute confidentiality, and there have been other similar recognitions as well.

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
BSB GROUP INC. VS. SALLY GO
G.R. NO. 168644 FEBRUARY 16, 2010,
FACTS:
Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein
representative, Ricardo Bangayan (Bangayan). Respondent Sally Go,alternatively referred to as
Sally Sia Go and Sally Go-Bangayan, is Bangayan's wife, who wasemployed in the company as a
cashier, and was engaged, among others, to receive andaccount for the payments made by the various
customers of the company. In 2002, Bangayan filed with the Manila Prosecutor's Office a complaint for
estafa and/or qualified theft against respondent, alleging that several checks representing the
aggregate amount of P1,534,135.50 issued by the company's customers in payment of their obligation
were, instead of being turned over to the company's coffers, indorsed by respondent who deposited
the same to her personal banking account maintained at Security Bank and Trust Company (Security
Bank) in Divisoria, Manila Branch. Upon a finding that the evidence adduced was uncontroverted, the
assistant city prosecutor recommended the filing of the Information for qualified theft against
respondent .Accordingly, respondent was charged before the Regional Trial Court of Manila. She was
found guilty; that in the commission of the said offense, said accused acted with grave abuse of
confidence, being then employed as cashier by said complainant at the time of the commission of the
said offense and as such she was entrusted with the said amount of money. Respondent entered a
negative plea when arraigned. The trial ensued. On the premise that respondent had allegedly
encashed the subject checks and deposited the corresponding amounts thereof to her personal
banking account. Petitioner, opposing respondent's move, argued for the relevancy of the
Metrobank account on the ground that the complaint-affidavit showed that there were two checks which
respondent allegedly deposited in an account with the said bank. To this, respondent filed a
supplemental motion to quash, invoking the absolutely confidential nature of the Metrobank account
under the provisions of Republic Act (R.A.) No. 1405. The trial court did not sustain respondent; hence,
it denied the motion to quash for lack of merit. Meanwhile, the prosecution was able to present in court
the testimony of Elenita Marasigan (Marasigan), the representative of Security Bank. In a nutshell

,Marasigan's testimony sought to prove that between 1988 and 1989, respondent ,while engaged as
cashier at the BSB Group, Inc., was able to run away with the checks issued to the company by its
customers, endorse the same, and credit the corresponding amounts to her persona ldeposit account
with Security Bank. In the course of the testimony, the subject checks were presented to Marasigan for
identification and marking as the same checks received by respondent, endorsed, and then deposited
in her personal account with Security Bank. CA affirmed RTC’s decision.
ISSUES:
1. Whether or not there is no difference between cash and check for purposes of prosecuting
respondent for theft of cash
2. W/N the said account can be used as evidence against the respondent.
HELD:
1. NO. In theft, the act of unlawful taking connotes deprivation of personal property of one by
another with intent to gain, and it is immaterial that the offender is able or unable to freely dispose of
the property stolen because the deprivation relative to the offended party has already ensued from such
act of execution. The allegation of theft of money, hence, necessitates that evidence presented must
have a tendency to prove that the offender has unlawfully taken money belonging to another.
Interestingly, petitioner has taken pains in attempting to draw a connection between the evidence
subject of the instant review, and the allegation of theft in the Information by claiming that respondent
had fraudulently deposited the checks in her own name. But this line of argument works more prejudice
than favor, because it in effect, seeks to establish the commission, not of theft, but rather of some other
crime probably estafa. Moreover, that there is no difference between cash and check is true in other
instances. In estafa by conversion, for instance, whether the thing converted is cash or check, is
immaterial in relation to the formal allegation in an information for that offense; a check, after all, while
not regarded as legal tender, is normally accepted under commercial usage as a substitute for cash,
and the credit it represents instated monetary value is properly capable of appropriation. And it is in this
respect that what the offender does with the check subsequent to the act of unlawfully taking it
becomes material inasmuch as this offense is a continuing one. In other words, in pursuing a case
for this offense, the prosecution may establish its cause by the presentation of the checks involved.
These checks would then constitute the best evidence to establish their contents and to prove
the elemental act of conversion in support of the proposition that the offender has indeed indorsed the
same in his own name.
2. NO. R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at
the same time encourage the people to deposit their money in banking institutions, so that it may be
utilized by way of authorized loans and thereby assist in economic development. [41] Owing to this piece
of legislation, the confidentiality of bank deposits remains to be a basic state policy in the Philippines.
[42]
Section 2 of the law institutionalized this policy by characterizing as absolutely confidential in
general all deposits of whatever nature with banks and other financial institutions in the country. It
declares:
Section 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the Philippines,
its political subdivisions and its instrumentalities, are hereby considered as of an
absolutely confidential nature and may not be examined, inquired or looked into by any
person, government official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent court in cases of
bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405
has been pointedly and amply addressed in Union Bank of the Philippines v. Court of Appeals,[50] in
which the Court noted that the inquiry into bank deposits allowable under R.A. No. 1405 must be
premised on the fact that the money deposited in the account is itself the subject of the action.[51] Given
this perspective, we deduce that the subject matter of the action in the case at bar is to be determined

from the indictment that charges respondent with the offense, and not from the evidence sought by the
prosecution to be admitted into the records. In the criminal Information filed with the trial court,
respondent, unqualifiedly and in plain language, is charged with qualified theft by abusing petitioner’s
trust and confidence and stealing cash in the amount of P1,534,135.50. The said Information makes
no factual allegation that in some material way involves the checks subject of the testimonial and
documentary evidence sought to be suppressed. Neither do the allegations in said Information make
mention of the supposed bank account in which the funds represented by the checks have allegedly
been kept.
In other words, it can hardly be inferred from the indictment itself that the Security Bank account
is the ostensible subject of the prosecution’s inquiry. Without needlessly expanding the scope of what
is plainly alleged in the Information, the subject matter of the action in this case is the money amounting
to P1,534,135.50 alleged to have been stolen by respondent, and not the money equivalent of the
checks which are sought to be admitted in evidence. Thus, it is that, which the prosecution is bound to
prove with its evidence, and no other.

CHRISTINE MAE NAVARRA
COMMERCIAL LAW REVIEW: LAW ON SECRECY OF BANK DEPOSITS
GSIS vs. THE HONORABLE 15TH DIVISION OF THE COURT OF APPEALS
651 SCRA 661 (2011)
FACTS:
A surety bond was agreed with DOMSAT HOLDINGS, INC. as the principal and the GSIS as
administrator and the obligees are LBP, Tong Yang Merchant Bank, Industrial Bank of Korea and First
Merchant Banking Corporation collectively known as “The Banks” Domsat failed to pay the loan and
GSIS refused to comply with its obligation reasoning that Domsat did not use the loan proceeds for the
payment of rental for the satellite. GSIS alleged that Domsat, with WestmontBank as the conduit,
transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York
account of Westmont Bank and from there to the Binondo Branch of Westmont Bank. The Banks filed a
complaint before the RTC of Makati against Domsat and GSIS.
GSIS assailed its case to the CA and CA partially granted it’s petition allowing it to look into
documents but not the bank ledger because the US $ 11,000,000.00 deposited by Domsat to
Westmont Bank is covered by R.A. 6426 or the Bank Secrecy Law. GSIS now filed a petition for
certiorari in the Supreme Court for the decision of CA allowing the quashal by the RTC of a subpoena
for the production of bank ledger.
ISSUE
Whether or not the deposited US $ 11,000,000.00 by Domsat, Inc. to Westmont Bank is
covered by R.A. 6426.
HELD:
The Supreme Court ruled in favor of R.A. 6426. R.A. 1405 was enacted on 1955 while R.A.
6426 was enacted on 1974. These two laws both support the confidentiality of bank deposits. RA No.
1405 was enacted for the purpose of giving encouragement to the people to deposit their money in
banking institutions and to discourage private hoarding so that the same may be properly utilized by
banks in authorized loans to assist in the economic development of the country. Therefore, it is beyond

cavil that Republic Act No. 6426 applies in this case. Intengan v. Court of Appeals affirmed the abovecited principle and categorically declared that for foreign currency deposits, such as U.S. dollar
deposits, the applicable law is Republic Act No. 6426.

ELYNUR H. GAMBET
COMMERCIAL LAW REVIEW: ANTI-MONEY LAUNDERING ACT
REPUBLIC V. GLASGOW CREDIT AND COLLECTION SERVICES, INC
542 SCRA 95
FACTS
The Republic filed a complaint in the RTC Manila for civil forfeiture of assets against the bank
deposits maintained by Glasgow in CSBI pursuant to RA 9160 (the Anti-Money Laundering Act of
2001). Glasgow filed a Motion to Dismiss alleging that the complaint was premature and stated no
cause of action as there was still no conviction for estafa or other criminal violations implicating
Glasgow. The Republic opposed Glasgow’s motion to dismiss. It contended that prior conviction for
unlawful activity was not a precondition to the filing of a civil forfeiture case and that its complaint
alleged ultimate facts sufficient to establish a cause of action.
ISSUE
Whether or not the complaint by the Republic was premature and stated no cause of action.
HELD
The complaint by the Republic was not premature and it stated its cause of action. RA 9160, as
amended, provides that when there is a covered transaction report made, and the court has, in a
petition filed for the purpose ordered seizure of any monetary instrument or property, in whole or in part,
directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply.
Under the Revised Rules of Court and under the Implementing Rules of RA 9160, a criminal
conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture proceeding.
Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil forfeiture.
Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful
activity or for money laundering, an action for civil forfeiture may be separately and independently
prosecuted and resolved.

EMILDAN GASTARDO
COMMERCIAL LAW REVIEW: ANTI-MONEY LAUNDERING ACT
REPUBLIC VS EUGENIO JR.
545 SCRA 384
FACTS:
Following the promulgation of Agan, a series of investigations concerning the award of the NAIA
3 contracts to PIATCO were undertaken by the Ombudsman and the Compliance and Investigation
Staff (CIS) of petitioner Anti-Money Laundering Council. On 24 May 2005, the Office of the Solicitor
General wrote the AMLC requesting the latter’s assistance "in obtaining more evidence to completely
reveal the financial trail of corruption surrounding the [NAIA 3] Project," and also noting that petitioner
Republic of the Philippines was presently defending itself in two international arbitration cases filed in
relation to the NAIA 3 Project. Following the AMLC Resolution, the Republic, through the AMLC, filed
an application before the Manila RTC to inquire into and/or examine thirteen (13) accounts and two (2)
related web of accounts alleged as having been used to facilitate corruption in the NAIA 3 Project. On
12 January 2006, the Manila RTC issued an Order (Manila RTC bank inquiry order) granting the Ex
Parte Application expressing therein "[that] the allegations in said application to be impressed with
merit, and in conformity with Section 11 of R.A. No. 9160, as amended, otherwise known as the AntiMoney Laundering Act (AMLA) of 2001 and Rules 11.1 and 11.2 of the Revised Implementing Rules
and Regulations." Authority was thus granted to the AMLC to inquire into the bank accounts listed
therein. On 25 January 2006, Alvarez, through counsel, entered his appearance before the Manila RTC
in SP Case No. 06-114200 and filed an Urgent Motion to Stay Enforcement of Order of January 12,
2006. Alvarez alleged that he fortuitously learned of the bank inquiry order, which was issued following
an ex parte application, and he argued that nothing in R.A. No. 9160 authorized the AMLC to seek the
authority to inquire into bank accounts ex parte. The day after Alvarez filed his motion, 26 January
2006, the Manila RTC issued an Order staying the enforcement of its bank inquiry order and giving the
Republic five (5) days to respond to Alvarez’s motion.
ISSUE:
Whether or not the bank inquiry orders were validly issued

HELD:
The court ruled in the negative. Although oriented towards different purposes, the freeze order
under Section 10 and the bank inquiry order under Section 11 are similar in that they are extraordinary
provisional reliefs which the AMLC may avail of to effectively combat and prosecute money laundering
offenses. Crucially, Section 10 uses specific language to authorize an ex parte application for the
provisional relief therein, a circumstance absent in Section 11. If indeed the legislature had intended to
authorize ex parte proceedings for the issuance of the bank inquiry order, then it could have easily
expressed such intent in the law, as it did with the freeze order under Section 10.
Even more tellingly, the current language of Sections 10 and 11 of the AMLA was crafted at the
same time, through the passage of R.A. No. 9194. Prior to the amendatory law, it was the AMLC, not
the Court of Appeals, which had authority to issue a freeze order, whereas a bank inquiry order always
then required, without exception, an order from a competent court. It was through the same enactment
that ex parte proceedings were introduced for the first time into the AMLA, in the case of the freeze
order which now can only be issued by the Court of Appeals. It certainly would have been convenient,
through the same amendatory law, to allow a similar ex parte procedure in the case of a bank inquiry
order had Congress been so minded. Yet nothing in the provision itself, or even the available legislative
record, explicitly points to an ex parte judicial procedure in the application for a bank inquiry order,
unlike in the case of the freeze order.

CLAIRE JAMERO
COMMERCIAL LAW REVIEW: FOREIGN INVESTMENT ACT
MERRIL LYNCH FUTURES, INC. VS. CA
GR. NO. 97816, JULY 24, 1992
FACTS:
Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES), operating in the United States, is
doing business with the Lara Spouses in the Philippines for over several years, had done so at all times
through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had
executed all these transactions without ML FUTURES being licensed to so transact business here, and
without MLPI being authorized to operate as a commodity futures trading advisor. On November 23,
1987, ML FUTURES filed a complaint with the Regional Trial Court at Quezon City against the Spouses
Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and
attorney's fees.
Defendant spouses Lara filed a motion to dismiss dated December 18, 1987 on the grounds
that: (1) plaintiff ML FUTURES had "no legal capacity to sue" and (2) its "complaint states no cause of
action since . . (it) is not the real party in interest." Because ML Future is doing business in the
Philippines without a license and that the transactions subject of the complainant were had by them,
not with the plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc. and
ISSUE:
Whether or not ML FUTURES is prohibited from suing in Philippine Courts because doing
business in the country without a license, and that (b) it is not a real party in interest since the Lara
Spouses had not been doing business with it, but with another corporation, Merrill Lynch, Pierce,
Fenner & Smith, Inc.
RULING:
The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. 16 And the "doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations;" 17 "one who has dealt with a

corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and
capacity." 18 The principle "will be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person
has received the benefits of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and
distinguished in Dudley v. Collier, 87 Ala 431, 6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317),
where such person has acted as agent for the corporation and has violated his fiduciary obligations as
such, and where the statute does not provide that the contract shall be void, but merely fixes a special
penalty for violation of the statute. . . ."
Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth
liable to ML FUTURES and if so in what amount, and whether they were so far aware of the absence of
the requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI, as to be
estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated on the
merits by the proper trial court.

RUBY LAID
COMMERCIAL LAW REVIEW: FOREIGN INVESTMENT ACT
COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC.,
VS. THE COURT OF APPEALS
FACTS:
Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity) and
ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while petitioner
Francisco S. Aguirre is their President and majority stockholder. Private Respondents ITEC, INC.
and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized and existing
under the laws of the State of Alabama, United States of America. There is no dispute that ITEC is a
foreign corporation not licensed to do business in the Philippines.
On August 14, 1987, ITEC entered into a contract with petitioner ASPAC referred to as
“Representative Agreement”.[1] Pursuant to the contract, ITEC engaged ASPAC as its “exclusive
representative” in the Philippines for the sale of ITEC’s products, in consideration of which, ASPAC was
paid a stipulated commission. Through a “License Agreement”[3] entered into by the same parties on
November 10, 1988, ASPAC was able to incorporate and use the name “ITEC” in its own name. Thus,
ASPAC Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines).
One year into the second term of the parties’ Representative Agreement, ITEC decided to
terminate the same, because petitioner ASPAC allegedly violated its contractual commitment as
stipulated in their agreements.[5]
ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise petitioner Aguirre,
of using knowledge and information of ITEC’s products specifications to develop their own line of
equipment and product support, which are similar, if not identical to ITEC’s own, and offering them to
ITEC’s former customer.
On January 31, 1991, the complaint was filed with the Regional Trial Court of Makati, Branch
134 by ITEC, INC. In due time, defendants filed a Motion to Dismiss [7] the complaint on the following
grounds: (1) That plaintiff has no legal capacity to sue as it is a foreign corporation doing business in
the Philippines without the required BOI authority and SEC license, and (2) that plaintiff is simply

engaged in forum shopping which justifies the application against it of the principle of “forum non
conveniens”. The motion to dismiss was denied.
Petitioners elevated the case to the respondent Court of Appeals on a Petition for Certiorari and
Prohibition[11] under Rule 65 of the Revised Rules of Court. It was dismissed. Petitioners filed a motion
for reconsideration and the same was denied, hence, this Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court.
ISSUES:
1. Did the Philippine Court acquire jurisdiction over the person of the petitioner corp. despite
allegations of lack of capacity to sue by reason of non-registration?
2. Can the Philippine Court give due course to the suit or dismiss it, on the principle of forum
non-convenience?
RULING:
The petition is dismissed.
On the first issue, yes, we are persuaded to conclude that private respondent had been
“engaged in” or “doing business” in the Philippines for some time now. This is the inevitable result after
a scrutiny of the different contracts and agreements entered into by ITEC with its various business
contacts in the country, particularly ASPAC and Telephone Equipment Sales and Services, Inc.
(TESSI, for brevity). Its arrangements, with these entities indicate convincingly ITEC’s purpose to bring
about the situation among its customers and the general public that they are dealing directly with ITEC,
and that ITEC is actively engaging in business in the country.
A foreign corporation doing business in the Philippines may sue in Philippine Courts although
not authorized to do business here against a Philippine citizen or entity who had contracted with and
benefited by said corporation. To put it in another way, a party is estopped to challenge the personality
of a corporation after having acknowledged the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to
deny its corporate existence and capacity
In Antam Consolidated Inc. vs. Court of Appeals, et al. we expressed our chagrin over this
commonly used scheme of defaulting local companies which are being sued by unlicensed foreign
companies not engaged in business in the Philippines to invoke the lack of capacity to sue of such
foreign companies. Obviously, the same ploy is resorted to by ASPAC to prevent the injunctive action
filed by ITEC to enjoin petitioner from using knowledge possibly acquired in violation of fiduciary
arrangements between the parties.
On the second issue, yes, Petitioner’s insistence on the dismissal of this action due to the
application, or non application, of the private international law rule of forum non conveniens defies wellsettled rules of fair play. According to petitioner, the Philippine Court has no venue to apply its
discretion whether to give cognizance or not to the present action, because it has not acquired
jurisdiction over the person of the plaintiff in the case, the latter allegedly having no personality to sue
before Philippine Courts. This argument is misplaced because the court has already acquired
jurisdiction over the plaintiff in the suit, by virtue of his filing the original complaint. And as we have
already observed, petitioner are not at liberty to question plaintiff’s standing to sue, having already
acceded to the same by virtue of its entry into the Representative Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the facts of the
case, whether to give due course to the suit or dismiss it, on the principle of forum non
conveniens. Hence, the Philippine Court may refuse to assume jurisdiction in spite of its having
acquired jurisdiction. Conversely, the court may assume jurisdiction over the case if it chooses to do
so; provided, that the following requisites are met: 1) That the Philippine Court is one to which the
parties may conveniently resort to; 2) That the Philippine Court is in a position to make an intelligent
decision as to the law and the facts; and, 3) That the Philippine Court has or is likely to have power to
enforce its decision.

The aforesaid requirements having been met, and in view of the court’s disposition to give due
course to the questioned action, the matter of the present forum not being the “most convenient” as a
ground for the suit’s dismissal, deserves scant consideration.

DANIEL P. LONGAQUIT
COMMERCIAL LAW REVIEW: FOREIGN INVESTMENT ACT
ERIKS PTE. LTD vs. CA, and DELFIN F. ENRIQUEZ, JR.
GR. 118843 Feb. 6, 1997
FACTS:
Petitioner herein is a non resident foreign corporation duly organized under the laws of the
Republic of Singapore. It engaged in the manufacture and sale of elements sealing pumps, valves and
pipes for industrial purposes. It is not licensed to do business in the Philippines. On various dates
covering the period January 17 to August 16, 1989, Private Respondent Delfin Enriquez, Jr. doing
business under the name of Delrene EB Controls Center and/or EB Karmine Commercial , ordered and
received from Petitioner various elements used in sealing pumps, valves, pipes and control equipment,
PVC pipes and fittings.
The transfers of these goods were perfected in Singapore. Subsequently, demands were made
by Petitioner upon private respondents to settle his account, but the latter failed/refused to do so. That
prompted the Petitioner-Foreign Corporation upon Private Respondent Enriquez to filed a collection suit
before the RTC of Makati for recovery of S$41,939.63 or its equivalent in the Philippine currency, plus
interest and damages thereon. Private Respondent responded with a Motion to Dismiss, contending
that Petitioner had no legal capacity to sue.
The Trial Court dismissed the action on the ground that the Petitioner-Foreign Corporation doing
business in thePhilippines without a license. On appeal to CA, it affirmed the decision of the RTC on
the same ground and therefore, the Petitioner-foreign corporation elevated the case to the Honorable
Supreme Court. The aforementioned provision prohibits, not merely absence of the prescribed license,
but it also bars a foreign corporation "doing business" in the Philippines without such license access to
our courts. According to the Supreme Court , there is no definitive rule on what constitutes doing ,
engaging in, or transacting business, because the corporation code does not define such terms.

Hence it adopted the concept in R.A. 7042 to wit: Section 3 of the said law defines the phase
doing business and shall include:
1. Soliciting orders;
2. Service Contracts;
3. Opening offices whether called “liason” offices or branches;
4. Appointing representatives or distributors domiciled in the
Philippines; or
5. Who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more;
6. Participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and
7. any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts
or works,or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization
ISSUE:
Whether Petitioner Corporation may maintain an action in Philippine courts considering that it
has no license to do business in the country.
HELD:
Petition has no merit. The Corporation Provides that: Sec. 133. Doing business without a
license. - No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action suit or proceeding in
any court or administrative agency of the Philippines;, but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
The resolution of the issue depends on whether Petitioner’s business with Private Respondent
may be treated as isolated transactions.
Trial Court held that: the invoices and delivery receipts covering the period of from January 17,
1989 to August 16, 1989 cannot be treated to a mean singular and isolated business transaction that is
temporary in character. It indicates that plaintiff has the intention and desire to repeat the said
transaction in the future in pursuit of its ordinary business.
What is determinative of "doing business" is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its business in the
country. Purpose of the law for requiring/obtaining a license to do business here in the Philippines is to
subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts.
Therefore, Petitioner must be held to be incapacitated to maintain the action a quo against private
respondent. The requirement of a license is not meant to put foreign corporations at a disadvantage.
Rather, the doctrine of lack of capacity to sue is based on considerations of sound public policy. 18
Thus, it has been ruled in Home Insurance that:
. . . The primary purpose of our statute is to compel a foreign corporation desiring to do business within
the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to
exclude foreign corporations from the state. . . . The better reason, the wiser and fairer policy, and the
greater weight lie with those decisions which hold that where, as here, there is a prohibition with a
penalty, with no express or implied declarations respecting the validity of enforceability of contracts
made by qualified foreign corporations, the contracts . . . are enforceable . . . upon compliance with the
law. (Peter &, Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)

CERIL JOHNSON A. MILANA
COMMERCIAL LAW REVIEW: FOREIGN INVESTMENT ACT
PIONEER INTERNATIONAL, LTD. VS. HON. TEOFILO GUADIZ, JR.
FACTS:
On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of money and
damages with preliminary attachment against PIL, Pioneer Concrete Philippines, Inc. (PCPI), Pioneer
Philippines Holdings, Inc. (PPHI), John G. McDonald (McDonald), and Philip J. Klepzig (Klepzig). PIL
and its co-defendants were served copies of the summons and of the complaint at PPHI and PCPI’s
office in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who was Klepzig’s Executive
Assistant.
Todaro alleged that PIL is a corporation duly organized under Australian laws, while PCPI and
PPHI are corporations duly organized under Philippine laws. PIL is engaged in the ready-mix and
concrete aggregates business and has established a presence worldwide. PIL established PPHI as the
holding company of the stocks of its operating company in the Philippines, PCPI. McDonald is the Chief
Executive Officer of PIL’s Hong Kong office while Klepzig is the President and Managing Director of
PPHI and PCPI. For his part, Todaro further alleged that he was the managing director of Betonval
Readyconcrete, Inc. (Betonval) from June 1975 up to his resignation in February 1996.
Before Todaro filed his complaint, there were several meetings and exchanges of letters
between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited, Pioneer Concrete Group
HK, PPHI, and PIL. According to Todaro, PIL contacted him in May 1996 and asked if he could join it in
establishing a pre-mixed concrete plant and in overseeing its operations in the Philippines. Todaro
confirmed his availability and expressed interest in joining PIL. They agreed that Todaro will be given
permanent position but PIL did don’t comply with their agreement as a result Todaro filed the aforesaid
complaint.
PIL filed, by special appearance, a motion to dismiss Todaro’s complaint. PIL’s co-defendants,
PCPI, PPHI, and Klepzig, filed a separate motion to dismiss. 17 PIL asserted among others that the trial
court has no jurisdiction over PIL because PIL is a foreign corporation not doing business in the

Philippines and also they questioned the service of summons on it. Assuming arguendo that Klepzig is
PIL’s agent in the Philippines, it was not Klepzig but De Leon who received the summons for PIL.
ISSUES:
1. W/N [PIL] is a foreign corporation "not doing business" in the Philippines.
2. Assuming arguendo that jurisdiction may be acquired over the person of [PIL], [the trial court]
still failed to acquire jurisdiction since summons was improperly served on [PIL].
HELD:
1. Under Philippine law, PIL’s mere investment in PPHI does not constitute "doing business."
However, we affirm the lower courts’ ruling and declare that, based on the allegations in Todaro’s
complaint, PIL was doing business in the Philippines when it negotiated Todaro’s employment with
PPHI. Section 3(d) of Republic Act No. 7042, Foreign Investments Act of 1991, states:The phrase
"doing business" shall include soliciting orders, service contracts, opening offices, whether called
"liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods totaling one hundred eighty [180]
days or more; participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of commercial
gain or of the purpose and object of the business organization:Provided, however, That the phrase
"doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity
in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;
nor having a nominee director or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts business in its own name and
for its own account; (Emphases added)
PIL’s alleged acts in actively negotiating to employ Todaro to run its pre-mixed concrete
operations in the Philippines, which acts are hypothetically admitted in PIL’s motion to dismiss, are not
mere acts of a passive investor in a domestic corporation. Such are managerial and operational acts in
directing and establishing commercial operations in the Philippines. The annexes that Todaro attached
to his complaint give us an idea on the extent of PIL’s involvement in the negotiations regarding
Todaro’s employment.
2. When summons is served on a foreign juridical entity, there are three prescribed ways: (1)
service on its resident agent designated in accordance with law for that purpose, (2) service on the
government official designated by law to receive summons if the corporation does not have a resident
agent, and (3) service on any of the corporation’s officers or agents within the Philippines.
In the present case, service of summons on PIL failed to follow any of the prescribed processes. PIL
had no resident agent in the Philippines. Summons was not served on the Securities and Exchange
Commission (SEC), the designated government agency, 31 since PIL is not registered with the SEC.
Summons for PIL was served on De Leon, Klepzig’s Executive Assistant. Klepzig is PIL’s "agent within
the Philippines" because PIL authorized Klepzig to notify Todaro of the cessation of his consultancy
(Annexes "H" and "I").32 The authority given by PIL to Klepzig to notify Todaro implies that Klepzig was
likewise authorized to receive Todaro’s response to PIL’s notice. Todaro responded to PIL’s notice by
filing a complaint before the trial court.
However, summons was not served personally on Klepzig as agent of PIL. Instead, summons
was served on De Leon, Klepzig’s Executive Assistant. In this instance, De Leon was not PIL’s agent
but a mere employee of Klepzig. In effect, the sheriff resorted to substituted service. For symmetry, we
apply the rule on substituted service of summons on a natural person and we find that no reason was
given to justify the service of PIL’s summons on De Leon.
Thus, we rule that PIL transacted business in the Philippines and Klepzig was its agent within
the Philippines. However, there was improper service of summons on PIL since summons was not
served personally on Klepzig.