Commercial Law Pre-Week Discussions by Atty.

Ella Escalante
Take note of the following intellectual property cases:
Republic Gas Corporation vs. Petron Corporation, et. al.
GR No. 194062 June 17, 2013
Facts
Petron is the registered owner of the trademark GASUL and GASUL cylinders used
for its LPG products.
Shell is the authorized user of the tradename, trademarks, symbols or designs of its
principal, Shell. International Petroleum Company Limited, including the marks
SHELLANE and SHELL device in connection with the production, sale and distribution
of SHELLANE LPGs.
The LPG Dealers Association received reports that certain entities were engaged in
the unauthorized refilling, sale and distribution of LPG cylinders bearing registered
trade names and trademarks of Petron and Shell.
The National Bureau of Investigation acted upon the letter-complaint of Petron and
Shell and conducted an undercover operation wherein several NBI agents posed as
customers of these LPG refillers, including Republic Gas Corporation (REGASCO).
After the agents had their empty LPG containers refilled by REGASCO, they were
able to obtain a warrant to search REGASCOs premises and confiscate several
empty and filled SHELLANE and GASUL cylinders. After searching the premises of
REGASCO, they were able to seize several empty and filled Shellane and Gasul
cylinders as well as other allied paraphernalia.
The NBI lodged a complaint in the Department of Justice against the private
respondents for alleged violations of Sections 155 and 168 of Republic Act (RA) No.
8293, otherwise known as the Intellectual Property Code of the Philippines.
The Department of Justice dismissed the complaint contending that refilling of the
marked cylinders does not constitute an offense in itself and the consumers knew
that cylinders did not come from Petron nor Shell after being re-filled by REGASCO.
On appeal, the Secretary of the Department of Justice affirmed the prosecutors
dismissal of the complaint.
In this case, the end-users know fully well that the contents of their cylinders are
not those produced by complainants. And the reason is quite simple it is an
independent refilling station.
Dispensing with the filing of a motion for reconsideration, Petron and Shell sought
recourse to the CA through a petition for certiorari. As GRANTED, the DOJ Resolution
was reversed and set aside.
REGASCO filed a Motion for Reconsideration but it was denied. Hence, the Instant
Petition for Review on Certiorari was filed with the Supreme Court.

Issue
Whether probable cause exists to hold petitioners liable for the crimes of
trademark infringement and unfair competition as defined and penalized
under Sections 155 and 168, in relation to Section 170 of Republic Act (R.A.) No.
8293.
Held
Yes. The Court found REGASCO liable not only for trademark infringement as
defined under Section 155.1 but also unfair competition under Section 168.3 of R.A.
No. 8293.
Section 155. Remedies; Infringement. Any person who shall, without
the consent of the owner of the registered mark:
(155.1) Use in commerce any reproduction, counterfeit, copy or
colorable imitation of a registered mark of the same container or a
dominant feature thereof in connection with the sale, offering for sale,
distribution, advertising of any goods or services including other
preparatory steps necessary to carry out the sale of any goods or
services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive;
Trademark infringement, which consists of the unauthorized use of a container
bearing a registered trademark in connection with the sale, distribution or
advertising of goods and services which is likely to cause confusion, mistake or
deception among the buyers or consumers, was present in this case as REGASCO
refilled the marked containers without Petron and Shells consent.
Unfair Competition
Section 168.3. In particular, and without in any way limiting the scope of protection
against unfair competition, the following shall be deemed guilty of unfair
competition:
(a) Any person, who is selling his goods and gives them the general
appearance of goods of another manufacturer or dealer, either as to
the goods themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or
The deceit exists when REGASCO refilled and sold its LPG containers bearing the
registered marks of Petron and Shell. The Court observed that the consumers may
be misled into believing that the LPGs contained in the cylinders bearing the marks
GASUL and SHELLANE are those goods or products of REGASCO when, in fact, they
are not.
Well-Known Mark and the Theory of Dilution
YKK Corporation vs. Ernesto Yu Keping
The theory of dilution of mark is not a new concept, in fact, this theory has been
recognized by no less than the Supreme Court in this jurisdiction. In the case of LEVI
STRAUSS & CO., V5. CLINTON APPARELLE, INC. , the Supreme Court explained:

"Trademark dilution is the lessening of the capacity of a famous mark

to identify and distinguish goods or services, regardless of the
presence or absence of: (1) competition between the owner of the
famous mark and other parties; or (2) likelihood of confusion, mistake
or deception. Subject to the principles of equity, the owner of a famous
mark is entitled to an injunction "against another person's commercial
use in commerce of a mark or trade name, if such use begins after the
mark has become famous and causes dilution of the distinctive quality
of the mark."
This is intended to protect famous marks from subsequent uses that
blur distinctiveness of the mark or tarnish or disparage it
INSURANCE
POP Test to determine whether there is an insurance contract:
1. Principal
2. Object
3. Purpose
Are HMOs engaged in the insurance business?
Look into the purpose so youll be able to determine if it is engaged in the insurance
business or not.
They are not. The do not insure risks. They are only obliged to pay their clients in
health matters, even if such person is healthy.
Characteristics of an insurance contract:
1. Personal generally, insured and insurer are the ones privy to the contract
2. Indemnity contract only concerning property insurance, as insured claims
the actual value of the loss incurred; exception is when the creditor can
insure the life of the debtor but only to the extent of the debt.
3. Voluntary (except CMVLI)
4. Risk-distributing device
Parties
1. Insurer
2. Insured except public enemies (only in times of war)
3. Beneficiary
2 Rules concerning beneficiaries:
1. Insurance over ones own life the beneficiary can be any one the insured
can designate, except those prohibited under Article 739 NCC.
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
(2) Those made between persons found guilty of the same
criminal offense, in consideration thereof;

(3) Those made to a public officer or his wife, descedants and

ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action.
2. Insurance over another persons life the designation of the said person as
insured should be coupled with insurable interest.
Designation of Illegitimate child is allowed to claim proceeds if he is designated as
the beneficiary of the insured.
Cognition Theory as to the perfection of insurance contracts when the insurer had
knowledge of the approval of the policy by the applicant insured, the policy
becomes effective.
Revocable vs. Irrevocable designation of beneficiary (Effects)
Irrevocable designation of the beneficiary revocation needs consent of the insured;
insured cannot take out a loan and cannot take the cash surrender value nor add
beneficiaries without concurrence of the insured.
Insurable Interest In Property
Inchoate interest or expectancy of acquisition is not a ground for insurable interest
to exist. There must be existing interest at the time of the application of a policy, as
well as during the time of loss.
Mortgage in Relation to Insurable Interest
Does the mortgagor have insurable interest over the property of the insured? How
about the mortgagee?
Both yes.
Will there be double insurance at that instance?
No. For double insurance to happen, there must be the same insured, same
property is the source of the same insurable interest, although there are different
insurers. Here, there are two different persons being insured, the mortgagor and the
mortgagee.
Problem: SMART insured the life of its CEO. The CEO subsequently retired. After a
few months from retirement, the CEO died. At this point, can SMART claim the
proceeds of the life insurance on the life of the CEO?
Yes. SMART has insurable interest on the life of the CEO at the time the policy was
taken. It need not exist at the time of the loss.
Property Insurance
Interest must exist at the time the policy was taken as well as at the time of the
loss.
There must be a basis for insurable interest.

Beneficiary must always have insurable interest over the property so as to secure a
policy.
Cash-and-Carry Provision
No premium payment, no policy becomes effective.
The payment of premium is a must before a contract of insurance becomes
effective.
Exceptions (ALICE)
1. Acknowledgement of receipt of payment of premiums
2. Life/Accident policy whenever the grace period applies
3. Installment payments on premium was agreed upon
4. Credit extension was agreed upon by the parties; now should not exceed 90
days
5. Estoppel
Problems:
Payment using a post-dated check with the check being dated prior to the loss : The
policy is deemed to be effective and the insured is covered at the time of the loss.
Payment using a post-dated check with the check being dated after the loss : The
Policy is not effective yet, hence, the insured cannot claim indemnity for the loss.
If the Check bounced : The insured promised to replenish the money, but the loss
occurred prior to the deposit of such money, the policy is not in effect.
When can there be return of premiums? (possible MCQ)
Sec. 79. A person insured is entitled to a return of premium, as follows:
(a) To the whole premium if no part of his interest in the thing insured be
exposed to any of the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured
surrenders his policy, to such portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short period rate has been agreed
upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously
accrued; Provided, That no holder of a life insurance policy may avail himself
of the privileges of this paragraph without sufficient cause as otherwise
provided by law.
Sec. 80. If a peril insured against has existed, and the insurer has been liable for
any period, however short, the insured is not entitled to return of premiums, so far
as that particular risk is concerned.
Sec. 81. A person insured is entitled to return of the premium when the contract is
voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or
on account of facts, the existence of which the insured was ignorant without his
fault; or when by any default of the insured other than actual fraud, the insurer
never incurred any liability under the policy.

Sec. 82. In case of an over-insurance by several insurers, the insured is entitled to a

ratable return of the premium, proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of the thing at risk.
Risk Control Devices
1. Concealment
2. Representation
3. Warranties
4. Exceptions
5. Conditions
Concealment good faith is never a defense; cause of death need not be the fact
concealed in life insurance; test to determine materiality is determined by the
probable influence the fact concealed may have to the insurer as to deciding
whether or not to agree to issue a policy to the insured for the premium agreed
upon.
Incontestability Clause
When the policy had been in force for two years since the date of effectivity or from
the date of reinstatement, the insurer can no longer say that the policy is voidable
due to concealment.
Defenses not barred by the Incontestability Clause: MVP - PPIE
1. Military service prohibition
2. Vicious fraud
3. Prescription has set in
4. Proof of death
5. Payment of premium has not been done
6. Insurable interest is lacking at the time of loss
7. Excepted risk is the cause of death/injur/loss
Reinsurance the insurer seeks to be insured in the process of insuring a policy.
(Insurer is being insured by another insurer, thus there cannot be double insurance
since the insurers interest is different from the insured.)
For what losses will the insurer be liable?
1. When the proximate cause of the loss is the risk insured against
2. When the immediate cause is a risk insured against, except when the
proximate cause of he loss is an excepted risk
3. Loss is caused by negligence of the insured, except if the negligence is willful
or gross.
4. Losses are those for which the insured shall not be liable as per stipulation
5. Connivance between the insurer/agent and the insured
Marine insurance
Perils of the sea hazards of navigation in the sea
Perils of the ship hazards incurred by the ordinary wear and tear of the vessel
All-risk Policy both perils of the sea and perils of the ship are covered.

Seaworthiness - For a vessel to be seaworthy, it must be adequately

equipped for the voyage and manned with a sufficient number of
competent officers and crew.
The failure of a common carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code.
Art. 1755. 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.
Constructive Loss the threshold is that more than (76% at least) of the value
shall be lost or damaged beyond salvage.
CMVLI No-Fault Clause is no PhP15,000.00. (No need to prove injury, the person
injured can make the claim immediately, and need not sign a quitclaim.)
Authorized Drivers Clause if the person driving is other than the owner of the
vehicle, the driver must be licensed to drive and authorized by the owner.
What is the authorized driver clause?
It indemnifies the insured owner against loss or damage to the car but limits the use
of the insured vehicle to:
1. The insured himself; or
2. Any person who drives on his order or with his permission.
(Villacorta v. Insurance Commissioner, G.R. No. 54171, Oct. 28, 1980)
What is the main purpose of an authorized driver clause
Its main purpose is to require a person other than the insured, who drives the car on
the insureds order, such as, his regular driver, or with his permission, such as a
friend or member of the family or the employees of a car service or repair shop to
be duly licensed drivers and have no disqualification to drive a motor vehicle.
(Villacorta v. Insurance Commission, G.R. No. L-54171, Oct. 28, 1980)
Can a person who committed suicide be covered by his/her life insurance?
Yes, if the insurance is already more than 2 years old (incontestability clause).
However, in the instance when the incontestability clause has not yet taken effect,
the suicide victim can still be covered if the suicide was done under a state of
insanity.
Sec. 180-A. The insurer in a life insurance contract shall be liable in case of suicides
only when it is committed after the policy has been in force for a period of two years
from the date of its issue or of its last reinstatement, unless the policy provides a
shorter period: Provided, however, That suicide committed in the state of insanity
shall be compensable regardless of the date of commission.
NIL

Parties in general to a negotiable instrument

Maker
Payee
Drawer
Indorse
General Rule: Persons who sign in the NI are liable thereon based on the nature of
the signature them make.
How is a NI indorsed? (ABC)
1. Allonge a separate instrument whereby the person signing thereon agrees
to indorse.
2. Bearer instrument is delivered with intent to negotiate
3. Constructive acceptance
Grounds which preclude those signing the instrument from denying liability thereon
(FAT)
1. Forgery precluded by being raised as a defense by the signatory
2. Agent is signing on behalf of his principal
3. Trade/Assumed name is used in signing, and such person is generally known
by that name.
Rescue Doctrines/Sections of the NIL
MEMORIZE AND MASTER SECTION 1 NIL
Section 1. Form of negotiable instruments. - An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie authority
to complete it by filling up the blanks therein. And a signature on a blank
paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior
to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any such instrument, after
completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.
Incomplete and Undelivered

Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument

has not been delivered, it will not, if completed and negotiated without authority, be
a valid contract in the hands of any holder, as against any person whose signature
was placed thereon before delivery.
Complete and Delivered/Complete but Undelivered
Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be
effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special purpose only, and
not for the purpose of transferring the property in the instrument. But where the
instrument is in the hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is conclusively presumed. And
where the instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
Sec. 23. Forged signature; effect of. - When a signature is forged or made without
the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or
to enforce payment thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority.
Holder in Due Course
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder
who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
Sec. 53. When person not deemed holder in due course. - Where an instrument
payable on demand is negotiated on an unreasonable length of time after its issue,
the holder is not deemed a holder in due course.
Shelter Rule
Sec. 58. When subject to original defense. - In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if
it were non-negotiable. But a holder who derives his title through a holder in due
course, and who is not himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in respect of all parties prior to
the latter.

Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie
to be a holder in due course; but when it is shown that the title of any person who
has negotiated the instrument was defective, the burden is on the holder to prove
that he or some person under whom he claims acquired the title as holder in due
course. But the last-mentioned rule does not apply in favor of a party who became
bound on the instrument prior to the acquisition of such defective title.
What Constitutes Material Alteration?
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;
(f) Or which adds a place of payment where no place of payment is specified,
or any other change or addition which alters the effect of the instrument in
any respect, is a material alteration.

Requisites of Negotiability Section 1

An instrument is negotiable if it complies with the requisites of Section 1 NI (for
brevity).
Promissory Note unconditional promise to pay in writing made by one person to
anther, signed by the maker, engaging to pay on demand or a fixed determinable
future time a sum certain in money to order or bearer. When the note is drawn to
makers own order, it is not complete until indorse by him. (Sec. 184 NIL)
Parties:
1. maker
2. payee
Bill of Exchange unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a sum certain
in money to order or to bearer. (Sec. 126 NIL)
Parties:
1. drawer

2. payee
3. drawee/ acceptor
Negotiable Instruments

Non-negotiable Instruments

Contains all the requisites of Sec. 1

of the NIL

does not contain all the requisites of

Sec. 1 of the NIL

Transferred by negotiation

transferred by assignment

Holder in due course may have

better rights than transferor

transferee acquires rights only of

his transferor

Prior parties warrant payment

prior parties merely warrant legality

of title

Transferee has right of recourse

against intermediate parties

transferee has no right of recourse

Requisites of a Negotiable Note (PN): (SUDO)

It must:
a.
be in writing signed by the drawer
b.
contains an unconditional promise or order to pay a sum certain in money
c.
be payable on demand or at a fixed determinable future time
d.
be payable to order or to bearer (Sec. 1 NIL)
Requisites of a Negotiable Bill (BOE): (SUDOC)
It must:
a. be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum certain in money
c. be payable on demand or at a fixed determinable future time
d. be payable to order or to bearer
e. the drawee must be named or otherwise indicated with reasonable certainty
(Sec. 1 NIL)
In order to be negotiable, there must be a writing of some kind, else there would be
nothing to be negotiated or passed from hand to hand. The writing may be in ink,
print or pencil. It may be upon parchment, cloth, leather or any other substitute of
paper.
It must be signed by the maker or drawer. It may consist of mere initials or
even numbers, but the holder must prove that what is written is intended as a
signature of the person sought to be charged.
The Bill must contain an order, something more than the mere asking of a
favor.
Sum payable must be in money only. It cannot be made payable in goods,
wares, or merchandise or in property.

A drawees name may be filled in under Section 14 of the NIL

Determination of negotiability
-

by the provisions of the Negotiable Instrument Law, particularly Section 1

thereof
by considering the whole instrument
by what appears on the face of the instrument and not elsewhere

*In determining is the instrument is negotiable, only the instrument itself and no
other, must be examined and compared with the requirements stated in Sec. 1. If it
appears on the instrument that it lacks one of the requirements, it is not negotiable
and the provisions of the NIL do not govern the instrument. The requirement lacking
cannot be supplied by using a separate instrument in which that requirement which
is lacking appears.
CHECK

BOE

- always drawn upon a bank or

banker

- may or may not be drawn against

a bank

- always payable on demand

- may be payable on demand or at a

fixed or determinable future time

- not necessary that it be presented

for acceptance

- necessary that it be presented for

acceptance

- drawn on a deposit

- not drawn on a deposit

- the death of a drawer of a check,

with knowledge by the banks,
revokes the authority of the banker
pay

- the death of the drawer of the

ordinary bill of exchange does not

- must be presented for payment

within a reasonable time after its
issue (6 months)

- may be presented for payment

within a reasonable time after its
last negotiation.

Fictitious Payee Rule

A non-living or non-existing person is named as payee. Jurisprudence held that
EVEN IF THE PAYEE INDICATED THEREIN IS A PERSON KNOWN, but such fact was
unknown to him and his being named as payee was without his authority, the
designation of the payee is still considered as a fictitious payee.
Periods or events that are certain to happen:
1. Death
2. Season
Holder in Due Course

EVERYONE IS PRESUMED to be a holder in due course. (General Rule yan!)

Sec. 59: Every holder is presumed prima facie to be a holder in due course
Exception: but when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some
person under whom he claims acquired the title as holder in due course.
Exception to the exception: But the last-mentioned rule does not apply in favor of a
party who became bound on the instrument prior to the acquisition of such
defective title.
Crossed Check
Effects:
1. check may not be encashed but only deposited in bank
2. may be negotiated only once, to one who has an acct. with a bank
3. warning to holder that check has been issued for a definite purpose so that
he must inquire if he received check pursuant to such purpose, otherwise not
HDC
Kinds:
1. general (no word between lines, or co between lines)
2. special (name of bank appearing between parallel lines)

Subsequent Holder in Due Course not affected by the following deficiencies:

a.
incomplete but delivered instrument (Sec. 14 NIL)
b.
complete but undelivered (Sec. 16 NIL)
c.
complete and delivered issued without consideration or a consideration
consisting of a promise which was not fulfilled (Sec 28 NIL)
Holder in Due Course Affected by Abnormality/Deficiency:
a.
incomplete and undelivered instrument (Sec. 15 NIL)
b.
maker/drawers signature forged (Sec. 23 NIL)
Incomplete but Delivered Instrument:
1. Where an instrument is wanting in any material particular:
a.
Holder has prima facie authority to fill up the blanks therein.
b.
It must be filled up strictly in accordance with the authority given and
within a reasonable time.
c.
If negotiated to a holder in due course, it is valid and effectual for all
purpose as though it was filled up strictly in accordance with the authority
given and within reasonable time. (Sec. 14 NIL)
2. Where only a signature on a blank paper was delivered:
It was delivered by the person making it in order that it may be converted into a
negotiable instrument
The holder has prima facie authority to fill it up as such for any amount. (Sec. 14
NIL)

Notes on Section 14
if the instrument is wanting in material particular, mere possession of the
instrument is enough to presume prima facie authority to fill it up.
material particular may be an omission which will render the instrument nonnegotiable (e.g. name of payee), an omission which will not render the instrument
non-negotiable (e.g. date)
in the case of the signature in blank, delivery with intent to convert it into a
negotiable instrument is required. Mere possession is not enough.
Incomplete and Undelivered Instrument:
General Rule: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any
holder against any person who signed before delivery. (Sec. 15 NIL)
Notes
-

on Section 15
it is a real defense. It can be interposed against a holder in due course.
delivery is not conclusively presumed where the instrument is incomplete
defense of the maker is to prove non-delivery of the incomplete instrument.

Complete but Undelivered:

General Rule: Every contract on a negotiable instrument is incomplete and
revocable until delivery for the purpose of giving effect thereto.
a.
If between immediate parties and remote parties not holder in due course, to
be effectual there must be authorized delivery by the party making, drawing,
accepting or indorsing. Delivery may be shown to be conditional or for a special
purpose only
b.
If the holder is a holder in due course, all prior deliveries conclusively
presumed valid
c.
If instrument not in hands of drawer/maker, valid and intentional delivery is
presumed until the contrary is proven (Sec. 16 NIL)

General rule: a signature which is forged or made without authority is wholly

inoperative.
Effects:
1. no right to retain
2. no right to give a discharge
3. no right to enforce payment can be acquired.
(Sec. 23 NIL)
Exception:
the party against whom it is sought to be enforced is precluded from setting
up the forgery or want of authority.
Notes on Section 23
Section 23 applies only to forged signatures or signatures made without
authority
Alterations such as to amounts or like fall under section 124

Forms of forgery are a) fraud in factum b) duress amounting to fraud c)

fraudulent impersonation
Only the signature forged or made without authority is inoperative, the
instrument or other signatures which are genuine are affected
The instrument can be enforced by holders to whose title the forged
signature is not necessary
Persons who are precluded from setting up the forgery are a) those who
warrant or admit the genuineness of the signature b) those who are estopped.
Persons who are precluded by warranting are a) indorsers b) persons
negotiating by delivery c) acceptors.
drawee bank is conclusively presumed to know the signature of its drawer
if endorsers signature is forged, loss will be borne by the forger and parties
subsequent thereto
drawee bank is not conclusively presumed to know the signature of the
indorser. The responsibility falls on the bank which last guaranteed the indorsement
and not the drawee bank.
Where the payees signature is forged, payments made by the drawee bank
to collecting bank is ineffective. No debtor/creditor relationship is created. An
agency to collect is created between the person depositing and the collecting bank.
Drawee bank may recover from collecting bank who may in turn recover from the
person depositing.
Rules on liabilities of parties on a forged instrument
In a PN
a party whose indorsement is forged on a note payable to order and all
parties prior to him including the maker cannot be held liable by any holder
a party whose indorsement is forged on a note originally payable to bearer
and all parties prior to him including the maker may be held liable by a holder in
due course provided that it was mechanically complete before the forgery
a maker whose signature was forged cannot be held liable by any holder
In a BOE
the drawers account cannot be charged by the drawee where the drawee
paid
the drawer has no right to recover from the collecting bank
the drawee bank can recover from the collecting bank
the payee can recover from the drawer
the payee can recover from the recipient of the payment, such as the
collecting bank
the payee cannot collect from the drawee bank
the collecting bank bears the loss but can recover from the person to whom
it paid
if payable to bearer, the rules are the same as in PN.
if the drawee has accepted the bill, the drawee bears the loss and his
remedy is to go after the forger
if the drawee has not accepted the bill but has paid it, the drawee cannot
recover from the drawer or the recipient of the proceeds, absence any act of
negligence on their part.

Warranties of a general indorser:

1. the instrument is genuine and in all respect what it purports to be
2. the he has good title to it
3. all prior parties had the capacity to contract
4. that the instrument at the time of his indorsement was valid and subsisting
(Sec. 66 NIL)
In addition:
engages that the instrument will be accepted or paid or both according to its
tenor on due presentment
engages to pay the amount thereof if it be dishonored and the necessary
proceedings on dishonor are taken
Notes on Section 66
the indorser under Section 66 warrants the solvency of a prior party
the indorser warrants that the instrument is valid and subsisting regardless
of whether he is ignorant of that fact or not.
warranties extend in favor of a) a HDC b) persons who derive their title from
HDC c) immediate transferees even if not HDC
the indorser does not warrant the genuineness of the drawers signature
general indorser is only secondarily liable
CUT OFF RULE : the transaction is effectively interrupted upon the happening of the
forgery. Parties affixing their signature prior to the forgery cannot be liable to parties
who get hold of that instrument after the forgery.
FORGERY: real (lack of consent):
1. forged
2. made without authority of person whose signature it purports to be.
General Rule:
1. wholly inoperative
2. no right to retain instrument, or give discharge, or enforce payment vs. any
party, can be acquired through or under such signature (unless forged
signature unnecessary to holders title)
Exception: unless the party against whom it is sought to enforce such right is
precluded from setting up forgery/want of authority precluded:
1. parties who make certain warranties, like a general indorser or acceptor
2. estopped/negligent parties

Personal Defenses

Real Defenses

1. absence or failure of consideration

Alteration

2. want of delivery of complete

instrument

Want of delivery of incomplete

instrument

3. insertion of wrong date where

Duress amounting to forgery

payable at a fixed period after date

and issued undated; or at a fixed
period after sight and acceptance is
undated
4. filling up the blanks contrary to
authority given or not within
reasonable time

Fraud in factum or in esse contractus

5. fraud in inducement

Minority

6. acquisition of the instrument by

force, duress or fear

Marriage in case of a wife

7. acquisition of the instrument by

unlawful means

Insanity where the insane person has

a guardian appointed by the court

8. acquisition of the instrument for an

illegal consideration

Ultra vires acts of a corporation where

its charter or by statue, it is prohibited
from issuing commercial paper

9. negotiation in breach of faith

Want of authority of agent

10. negotiation under circumstances

amounting to fraud

Execution of instrument between

public enemies

1.

Mistake

12. intoxication

Illegality of contract made by statue

Forgery

13. ultra vires acts of corporations

14. want of authority of the agent
where he has apparent authority
15. illegality of contract where form or
consideration is illegal
16. insanity where there is no notice
of insanity
INDORSEMENT OF BEARER INSTRUMENT
- Where an instrument payable to bearer is indorsed specially, it may
nevertheless be further negotiated by delivery
- Person indorsing specially liable as indorser to only such holders as make title
through his indorsement
An instrument is negotiated when:
1. it is transferred from one person to another
2. that the transfer must be in a manner as to constitute the transferee a holder
For a bearer instrument by delivery
For payable to order by indorsement and delivery (Sec. 30 NIL)

Indorsement to be must be:

1. written
2. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)
Notes on Section 31
the paper attached with the indorsement is an allonge
an allonge must be attached so that it becomes a part of the instrument, it
cannot be simply pinned or clipped to it.
Kinds
1.
2.
3.
4.
5.

of Indorsements:
Special (Sec. 34)
Blank (Sec. 35)
Restrictive (Sec. 36)
Qualified (Sec. 38)
Conditional (Sec. 39 NIL)

Effects of indorsing an instrument originally payable to bearer:

it may further be negotiated by delivery
the person indorsing is liable as indorser to such persons as to make title
through his indorsement (Sec. 40 NIL)
Notes on Section 40
Section 40 applies only to instruments originally payable to bearer
It cannot apply where the instrument is payable to bearer because the only
or last indorsement is in blank.
A holder may strike out any indorsement which is not necessary to his title.
Effects:
An indorser whose indorsement is struck out is discharged
All indorsers subsequent to such indorser who has been discharged are
likewise relieved. (Sec. 48 NIL)
Effects of a transfer without endorsement:
the transferee acquires such title as the transferor had
the transferee acquires the right to have the indorsement of the transferor
negotiation takes effect as of the time the indorsement is actually made
(Sec. 49 NIL)
Restrictive indorsement
- prohibits further negotiation of instrument,
- constitutes indorsee as agent of indorser, or
- vests title in indorsee in trust for another
Rights of indorsee in restrictive ind.:
1. receive payment of inst.
2. Bring any action thereon that indorser could bring
3. Transfer his rights as such indorsee, but all subsequent indorsees acquire
only title of first indorsee under restrictive indorsement

Acceptance is the signification by the drawee of his assent to the order of the
drawer. It is an act by which a person on whom the BOE is drawn assents to the
request of the drawer to pay it. (Sec. 132 NIL)
Acceptance may be:
1. actual
2. constructive
3. general (Sec. 140)
4. qualified (Sec. 141)
Requisites of actual acceptance:
in writing
signed by the drawee
must not express the drawee will perform his promise by any other means
than payment of money
communicated or delivered to the holder
A holder has the right:
1. require that acceptance be written on the bill and if refused, treat it as if
dishonored (Sec. 133)
2. refuse to accept a qualified acceptance and may treat it as dishonored (Sec.
142)
Constructive Acceptance:
1. where the drawee to whom the bill has been delivered destroys it
2. the drawee refuses within 24 hrs after such delivery or within such time as is
given, to return the bill accepted or not.
(Sec. 137 NIL)
Notes on Section 137
drawee becomes primarily liable as an acceptor.
mere retention is equivalent to acceptance
When presentment for acceptance is necessary:
1. if necessary to fix the maturity of the bill
2. if it is expressly stipulated that it shall be presented for acceptance
3. if the bill is drawn payable elsewhere than the residence or place of business
of the drawee (Sec. 143 NIL)
Notes on Section 143
Presentment is the production of a BOE to the drawee for his acceptance
in on order case is presentment necessary to make parties liable.
ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC
and PHiLIPPINE NATIONAL BANK
G.R. No. 107382. January 31,
1996
A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never aparty and never consented to the

contract which allegedly gave rise to such instrument. Section 23 does not avoid
the instrument but only the forged signature. Thus, a forged indorsement does not
operate as the payees indorsement.
***
The exception to the general rule in Section 23 is where a party against whom it is
sought to enforce a right is precluded from setting up the forgery or want of
authority. Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are estopped from
setting up the defense of forgery, are precluded from using this defense. Indorsers,
persons negotiating by delivery and acceptors are warrantors of the genuineness of
the signatures on the instrument.
***
The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee. The drawers instructions are
reflected on the face and by the terms of the check. Payment under a forged
indorsement is not to the drawers order. When the drawee bank pays a person
other than the payee, it does not comply with the terms of the check and violates
its duty to charge its customers (the drawer) account only for properly payable
items. Since the drawee bank did not pay a holder or other person entitled to
receive payment, it has no right to reimbursement from the drawer. The general
rule then is that the drawee bank may not debit the drawers account and is not
entitled to indemnification from the drawer. The risk of loss must perforce fall on the
drawee bank.
***
If the drawee bank can prove a failure by the customer/drawer to exercise ordinary
care that substantially contributed to the making of the forged signature, the
drawer is precluded from asserting the forgery. If at the same time the drawee bank
was also negligent to the point of substantially contributing to the loss, then such
loss from the forgery can be apportioned between the negligent drawer and the
negligent bank.
***
In cases involving a forged check, where the drawers signature is forged, the
drawer can recover from the drawee bank. No drawee bank has a right to pay a
forged check. If it does, it shall have to recredit the amount of the check to the
account of the drawer. The liability chain ends with the drawee bank whose
responsibility it is to know the drawers signature since the latter is its customer.
***
In cases involving checks with forged indorsements, such as the present petition,
the chain of liability does not end with the drawee bank. The drawee bank may not
debit the account of the drawer but may generally pass liability back through the
collection chain to the party who took from the forger and, of course, to the forger
himself, if available. In other words, the drawee bank can seek reimbursement or a
return of the amount it paid from the presentor bank or person. Theoretically, the
latter can demand reimbursement from the person who indorsed the check to it and
so on. The loss falls on the party who took the check from the forger, or on the
forger himself. Since a forged indorsement is inoperative, the collecting bank had no
right to be paid by the drawee bank. The former must necessarily return the money
paid by the latter because it was paid wrongfully.
***

A delay in informing the collecting bank (Associated Bank) of the forgery, which
deprives it of the opportunity to go after the forger, signifies negligence on the part
of the drawee bank (PNB) and will preclude it from claiming reimbursement.
***
The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a
legal action. The rationale of the rule is to give the collecting bank (which indorsed
the check) adequate opportunity to proceed against the forger. If prompt notice is
not given, the collecting bank maybe prejudiced and lose the opportunity to go after
its depositor.
Material Alteration
Material Alteration an alternation is said to be material if it alters the effect of the
instrument.
Under Section 125 the following changes are considered material alterations:
1. dates
2. the sum payable
3. time and place of payment
4. number or relations of the parties
5. medium or currency for payment
6. adding a place of payment where no place is specified
7. any other which alters the affect of the instrument
Instances where a BOE may be treated as a PN:
1. where the drawer and the drawee are one and the same
2. where the drawee is a fictitious person
3. where the drawee has no capacity to contract (Sec. 130 NIL)
The holder has the option to treat it as a BOE or a PN
Accommodation Party
An accommodation party is one who signs the instrument as maker, drawer,
acceptor, or indorser without receiving value therefor and for the purpose of lending
his name to some other person.
Effects:
an accommodation party is liable to the holder for value notwithstanding
that such holder knew that of the accommodation. (Sec. 28 NIL)
Notes on Section 28
the accommodated party cannot recover from the accommodation party
want of consideration cannot be interposed by the accommodation party
an accommodation maker may seek reimbursement from a co-maker even in
the absence of any provision in the NIL; the deficiency is supplied by the New Civil
Code.
he may do this even without first proceeding against the debtor provided:
a.
he paid by virtue of judicial demand
b.
principal debtor is insolvent

May a NI be discharged when there is payment by an accommodated party? (NOTE:

ACCOMMODATED party)
No. The NIL states that payment must be made by an accommodating party.
Can a payee be a holder in due course?
Yes, so long as Section 52 NIL is complied with.
How about a drawee?
A Drawee cannot be a holder in due course since he receives it through
ACCEPTANCE or PRESENTMENT, not through NEGOTIATION.

TRANSPORTATION LAWS
Common Carrier vs. Private carrier
Art. 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
The distinction between a common or public carrier and a private or special
carrier lies in the character of the business, such that if the undertaking is a single
transaction, not a part of a general business or occupation, although involving the
carriage of goods for a fee, the person or corporation offering such service is a
private carrier.

Charter Party may be a private or common carrier depending upon what kind of
charter it undertakes.
Bare-bottom private carrier or owner pro hac vice
Affreightment common carrier
Diligence Extraordinary diligence passenger carriage
- Ordinary Diligence carriage of goods
It is an ordinary presumption that a carrier is negligent when the cargo is damaged
or lost, or when a passenger is injured or killed.
Art. 1735
. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, if 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 as required in Article 1733.
Reason:
As to when and how goods were damaged in transit is a matter peculiarly within
the knowledge of the carrier and its employees.

When does carriage start and end?

PERFECTION

1. Contract of carriage of passengers

Contract to carry
an agreement to carry a passenger at a future date. This contract is
consensual and is therefore perfected by mere consent.
2. Contract of carriage or of common carriage itself
a. real contract
b. for not until the facilities of the carrier are actually used can the carrier be
said to have already assumed the obligation of the carrier.
Carriage of goods
Where the carrier agrees to accept and transport the goods at a future date, such is
consensual. However, by the act of delivery of the goods, that is, when the goods
are unconditionally placed in the possession and control of the carrier, and upon
their receipt by the carrier for transportation, the contract of carriage is perfected.
Art. 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them,
without prejudice to the provisions of Article 1738.
Art. 1737.
The common carrier's duty to observe extraordinary diligence over the goods
remains in full force and effect even when they are temporarily unloaded or stored
in transit, unless the shipper or owner has made use of the right of stoppage in
transitu.
Art. 1738.
The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has
had reasonable opportunity thereafter to remove them or otherwise dispose of
them.
Can a lesser degree of diligence be agreed upon?
For carriage of passengers, no.
For carriage of goods, allowed.
Concurrent causes of action that may arise in case of a contract of transportation.
Concurrent cause is an intervening cause which merely cooperated with the primary
cause and which did not break the chain of causation.
The joint tortfeasors are solidarily liable.

Defenses raised by common carriers:

a. Natural disaster/calamity
b. Act of public enemy in war
c. Act or omission of shipper or owner of the goods
d. Character of the goods or defects in the packing or in the containers
e. Order or act of a competent authority
f. Exercise of extraordinary diligence

DOCTRINE OF LIMITED LIABILITY

(HYPOTHECARY RULE)
Cases where applicable:
1. Art. 587 civil liability for indemnities to third persons
2. Art. 590 indemnities from negligent acts of the captain (not the shipowner
or ship agent)
3. Art. 837 collision
4. Art. 643 liability for wages of the captain and the crew and for advances
made by the ship agent if the vessel is lost by shipwreck or capture
GENERAL RULE: The liability of shipowner and ship agent is limited to the amount of
interest in said vessel such that where vessel is entirely lost, the obligation is
extinguished. (Luzon Stevedoring v. Escano, 156 SCRA 169) The interest extends to:
1) the vessel itself; 2) equipments; 3) freightage; and 4) insurance proceeds. (Chua
v. IAC, 166 SCRA 183)
EXCEPTIONS:
1.
Claims under Workmens Compensation (Abueg vs. San Diego 77 Phil 730);
2.
Injury or damage due to shipowner or to the concurring negligence of the
shipowner and the captain;
3.
The vessel is insured (Vasquez vs. CA 138 SCRA 553).
4.
Expenses for repair on vessel completed before loss;
5.
In case there is no total loss and the vessel is not abandoned;
6.
Collision between two negligent vessels
Abandonment of the vessel is necessary to limit the liability of the shipowner. The
only instance were abandonment is dispensed with is when the vessel is entirely
lost (Luzon Stevedoring vs. CA 156 SCRA 169).
RIGHT OF SHIPOWNER OR SHIP AGENT TO ABANDON VESSEL
Instances:
1. In case of civil liability from indemnities to third persons (Art. 587);

2.

In case of leakage of at least of the contents of a cargo containing liquids (Art.

687); and
3. In case of constructive loss of the vessel (Sec. 138, Insurance Code).

SHIPOWNER OR SHIP AGENT

CONSIGNEE

What may be abandoned

Vessel

Goods shipped

Instances
1. In case of civil liability from 1. Partial non-delivery, where the
indemnities to third persons (Art. 587);
goods are useless without the others
(Art. 363);
2. Sec. 138, Insurance Code;
2. Goods are rendered useless for sale
3. In case of leakage of at least of the or consumption for the purposes for
contents of a cargo containing liquids which they are properly destined (Art.
(Art. 687)
365); and
3. In case of delay through the fault of
the carrier (Art. 371).
Effects
Transfer of ownership of the vessel from Transfer of ownership on the goods
the shipowner to the shippers or insurer.
from the shipper to the carrier.
2. In case of (2), the insurer must pay the Carrier should pay the shipper the
insured as if there was actual total loss market value of the goods at the point
of the vessel.
of destination.
1.

COLLISION
Impact of two vessels both of which are moving.

Allision
Impact between a moving vessel and a stationary one.

Nautical Rules to Determine Negligence

1. When two vessels are about to enter a port, the farther one must allow the
nearer to enter first; if they collide, the fault is presumed to be imputable to the
one who arrived later, unless it can be proved that there was no fault on its part.
2. When two vessels meet, the smaller should give the right of way to the larger

one.
3. A vessel leaving port should leave the way clear for another which may be
entering the same port.
4. The vessel which leaves later is presumed to have collided against one which
has left earlier.
5. There is a presumption against the vessel which sets sail in the night.
6. There is a presumption against the vessel with spread sails which collides with
another which is at anchor and cannot move, even when the crew of the latter
has received word to lift anchor, when there was not sufficient time to do so or
there was fear of a greater damage or other legitimate reason.
7. There is a presumption against an improperly moored vessel.
8. There is a presumption against a vessel which has no buoys to indicate the
location of its anchors to prevent damage to vessels which may approach it.
9. Vessels must have proper look-outs or persons trained as such and who have
no other duty aside therefrom. (Smith Bell v. CA)
Nautical Rules as to Sailing Vessel and Steamship
1. Where a steamship and a sailing vessel are approaching each other from
opposite directions, or on intersecting lines, the steamship from the moment the
sailing vessel is seen, shall watch with the highest diligence her course and
movements so as to be able to adopt such timely means of precaution as will
necessarily prevent the two boats from coming in contact.
2. The sailing vessel is required to keep her course unless the circumstances
require otherwise.

Zones of Time in the Collision of Vessels

1.

First zone all time up to the moment when risk of collision begins.
No rule is as yet applicable for none is necessary.

2.

Second zone time between moment when risk of collision begins and moment it
becomes a practical certainty.
It is in this period where conduct of the vessels is primordial. It is in this zone that
vessels must strictly observe nautical rules, unless a departure therefrom becomes
necessary to avoid imminent danger.

3.

Third zone time when collision is certain and time of impact.

An error in this zone would no longer be legally consequential.
Error in Extremis - sudden movement made by a faultless vessel during the third
zone of collision with another vessel which is at fault during the 2nd zone. Even if
such sudden movement is wrong, no responsibility will fall on said faultless vessel.
(Urrutia and Co. v. Baco River Plantation Co., 26 PHIL 632)

Cases Covered By Collision and Allision

1. One vessel at fault
Vessel at fault is liable for damage caused to innocent vessel as well as
damages suffered by the owners of cargo of both vessels. (Art. 826)
2. Both vessels at fault
Each vessel must bear its own loss, but the shippers of both vessels may go
against the shipowners who will be solidarily liable. (Art. 827)
3. Vessel at fault not known
Each vessel must bear its own loss, but the shippers of both vessels may go
against the shipowners who will be solidarily liable. (Art. 828)
Doctrine of Inscrutable Fault In case of collision where it cannot be
determined which between the two vessels was at fault, both vessels bear
their respective damage, but both should be solidarily liable for damage to
the cargo of both vessels.
4. Third vessel at fault
The third vessel will be liable for losses and damages. (Art. 831)
5. Fortuitous event/force majeure
No liability. Each bears its own loss. (Art. 830)
o The doctrine of res ipsa loquitur applies in case a moving vessel strikes
a stationary object, such as a bridge post, dock, or navigational aid.
(Far Eastern Shipping v. CA, Luzon Stevedoring vs. CA)
o Even if the cause of action against the common carrier is based on
quasi-delict, the defense of due diligence in the selection and
supervision of employees is unavailing in case of a maritime tort
resulting in collision. It is not a civil tort governed by the Civil Code but
a maritime one governed by Arts. 826-839 of the Code of Commerce.
(Manila Steamship vs. Insa Abdulhaman)
Doctrine of Last Clear Chance and Rule on Contributory Negligence cannot be
applied in collision cases because of Art.827 of the Code of Commerce.
(Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T.
& Hernando, R.P. 2004 ed.)
Registered Owner Rule:
The registered owner of a certificate of public convenience is liable to the public for
the injuries or damages suffered by third persons caused by the operation of said
vehicle, even though the same had been transferred to a third person.
Reason:
It would be easy for him, by collusion with others or otherwise, to transfer the
responsibility by proving that a third person is the actual and real owner.

Corporation Law (Singit lang)

2/3 Vote vs. Majority Vote in Corporation Code
The following are the matters to be voted upon by the stockholders wherein only
MAJORITY VOTE is required: (CAMFEN)
1. Compensation of Directors
2. Amend/Adopt by-laws
3. Management contract will be entered into
4. Fill up vacancies
5. Election of members of the Board of Directors
6. No-par Value Stock is going to be issued.