College of Law LAW

San Beda COMMERCIAL

CODE OF COMMERCE
LETTERS OF CREDIT

COMPILATION OF DOCTRINES IN COMMERCIAL LAW

 In commercial transactions involving letters of credit, the functions assumed by a correspondent bank are classified according to the obligations taken up by it. The correspondent bank may be called a notifying bank, a negotiating bank, or a confirming bank. In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit to the beneficiary the existence of the letter of credit. The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not imply that the notifying bank promises to accept the draft drawn under the documentary credit. A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. It follows therefore that when the petitioner refused to negotiate with the private respondent, the latter has no cause of action against the petitioner for the enforcement of his rights under the letter. A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has no liability with respect to the seller but after negotiation, a contractual relationship will then prevail between the negotiating bank and the seller. In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and its liability is a primary one as if the correspondent bank itself had issued the letter of credit. (FEATI BANK VS. CA)  What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. (BANK OF AMERICA VS. CA)

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NEGOTIABLE INSTRUMENTS LAW
NEGOTIABILITY  The weight of authority in the United States is that postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances. (PHIL. EDUC. CO. VS. SORIANO)  On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. (CALTEX PHIL. VS. CA)  The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. (METROBANK VS. CA)

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San Beda COMMERCIAL

 A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A nonnegotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: The words 'not negotiable,' stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties. (SESBREÑO VS. CA)  The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. (FIRESTONE TIRE & RUBBER VS. CA) PAYABLE TO BEARER  Where a check is made payable to the order of 'cash', the word cash 'does not purport to be the name of any person', and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement. (ANG TEK LIAN VS. CA) COMPLETE BUT UNDELIVERED INSTRUMENT  A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. (DEVELOPMENT BANK VS. SIMA WEI) FORGERY

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 A forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery, it stands to reason, upon the facts of record, that the respondent, as a collecting bank which endorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the endorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the said checks were ineffective; and, such being the case, the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected, the checks not having been properly and legitimately converted into cash. (JAI-ALAI VS. BPI)  Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the Bank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money. (REPUBLIC BANK VS. EBRADA)  The records show that at the time the twenty-three (23) checks were prepared, negotiated, and encashed, the petitioner was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege, however, the petitioner failed to provide the needed security measures. Hence, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law because it was guilty of negligence

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COMMERCIAL LAW

not only before the questioned checks were negotiated but even after the same had already been negotiated. (MWSS vs. CA)  While the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. (BANCO DE ORO VS. EQUITABLE BANK)  The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. (GEMPESAW VS. CA)  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 drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's 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 customer's (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 drawer's account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. However, 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. (ASSOCIATED BANK VS. CA)  The mere fact that the forgery was committed by the drawer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor in the absence of some circumstances raising estoppel against the drawer. (PCIB vs. CA)  The petitioner is precluded from setting up the forgery, assuming there is a forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of accounts.” (ILUSORIO VS. CA) MATERIAL ALTERATION  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 Instrument Law. A serial number is an item which is not an essential requisite for negotiability under Section 1 of the NIL. (PNB vs. CA)  The insertion of the words "Agent, Phil. National Bank," which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument. (MONTINOLA VS. PNB) ACCOMMODATION PARTY  On principle, a solidary accommodation maker who made payment-has the right to contribution, from his co-accommodation maker, in the absence of agreement to the contrary between them,

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an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so (CRISOLOGO-JOSE VS. The burden was. it acquired the check in actual good faith. Hence. And having presented no evidence that it acquired the check in good faith. SEVILLA)  The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value. does not include nor apply to corporations which are accommodation parties. by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course. in other words. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires." (STELCO vs. an accommodating party lends his credit to the accommodated party. By way of exception. This right springs from an implied promise between the accommodation makers to share equally the burdens that may ensue from their having consented to stamp their signatures on the promissory note. therefore. But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. or if there is some other 116 Law San Beda College of . (DE OCAMPO VS.. one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. For having lent their signatures to the principal debtor. under the circumstances of the case. He refused to say how and why it was passed to him. the fourth condition. GATCHALIAN)  Admittedly. receives or realizes full value which the accommodated party then must repay to the accommodating party. has no application. In other words. as regards an accommodation party (such as STEELWELD). CA)  To be sure. (TRAVEL-ON VS. unless of course the accommodating party intended to make a donation to the accommodated party. knew him to be only an accommodation party. He had therefore notice of the defect of his title over the check from the start. it (payee) cannot be considered as a holder in due course. If the form of the instrument. placed upon it to show that notwithstanding the suspicious circumstances. CA)  In accommodation transactions recognized by the Negotiable Instruments Law. he cannot recover against the corporation thereon. This is because Section 29 of the law above quoted preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder. the fact is that it acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another. who gave full value therefor to the accommodated party. CA) HOLDER IN DUE COURSE  As the holder's title was defective or suspicious.College of Law LAW San Beda COMMERCIAL and subject to conditions imposed by law. the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. or the nature of the transaction. instead of the presumption that payee was a holder in good faith. petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check.e. If a payee of a cashier's check obtained it from the issuing bank by fraud. at the time of taking the instrument. it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title. (SADAYA VS. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. The latter. Having issued or indorsed the check. although such holder at the time of taking the instrument knew him to be only an accommodation party. i. lack of notice of any infirmity in the instrument or defect in title of the persons negotiating it. they clearly placed themselves-in so far as payment made by one may create liability on the other in the category of mere joint guarantors of the former.

CA AND NAPIZA) PRESENTMENT FOR PAYMENT/ACCEPTANCE  A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. SAMBOK)  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. The effect of such indorsement is that the note was indorsed Without qualification. the drawee was necessarily the herein petitioner." The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager's check. It is valueless and therefore should not be paid. In the instant case then.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW reason why the payee is not entitled to collect the check. protest and presentment were all waived. of course. confirm his obligation as a general indorser. In fact. a check becomes stale after more than 6 months or 180 days. the note shall be accepted or paid. Consequently. the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Villaruel fails to pay the note. SPOUSES GUECO) CHECKS  The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. IAC)  Under Section 186 of the NIL. have the right to refuse payment of the check when presented by the payee. he will pay the amount thereof to the holder. IAC) LIABILITY OF GENERAL INDORSER  "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. (BPI VS. dishonor. and that if it be dishonored. This is because the nature and theory behind the use of a check points to its immediate use and payability. but rather. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). “ a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay”. or both as the case may be. there was no need for acceptance as the issued drafts are sight drafts. (PRUDENTIAL BANK VS. (STATE INVESTMENT HOUSE VS. Through a letter of credit. since respondent bank was aware of the facts surrounding the loss of the check in question. jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank. It was to the latter that the drafts were presented for payment. (c) 117 Red Notes in Commercial Law . the withdrawal of the money from the bank to avoid liability on the checks cannot prejudice the rights of a holder in due course. BANK VS. the respondent bank would. The words added by said appellant do not limit his liability. because by such indorsement. A stale check is one which has not been presented for payment within a reasonable time after its issue. (MESINA VS. plaintiff-appellee can go after said appellant. Appellant. but a general indorser who is secondarily liable. A person who indorses without qualification engages that on due presentment. by indorsing the note "with recourse" does not make itself a qualified indorser. (b) the check may be negotiated only once-to one who has an account with a bank. it agreed that if Dr. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. (INT’L CORP. Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand. (METROPOL VS. CA)  In order to preserve the credit worthiness of chocks. By current banking practice.

(MANILA MAHOGANY MANUFACTURING CORP. LTD 1CAR 2)  The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. A.) INSURANCE LAW INSURABLE INTEREST  A person who is interested in the safety and preservation of materials in his possession belonging to third parties because he stands either to benefit from their continued existence or to be prejudiced by their destruction. likewise. In a similar vein. it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract. It has. has an insurable interest thereon which is not necessarily limited to the extent of his liability to the owners thereof. CA. 277 SCRA 690)  The rationale of a group insurance policy of mortgagors. he is not a holder in due course. 1249 of the Civil Code. However if the insured. the insurer loses his rights against the latter. (GREPALIFE VS. the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused.. (ANG KA YU vs. (BATAAN CIGAR & CIGARETTE FACTORY VS. (PAPA VS. The acceptance of a cheek implies an undertaking of due diligence in presenting it for payment. INC. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein copetitioners). even when he is not responsible for its safekeeping. CA)  While it is true that the delivery of a check produces the effect of payment only when it is cashed.College of Law LAW San Beda COMMERCIAL and the act of crossing the check serves as 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 known as the "mortgage redemption insurance. thereby relieving the heirs of the mortgagor from paying the obligation. CA & LEUTERIO) SUBROGATION  The insurer can only be subrogated to only such rights as the insured may have. the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. (SPOUSES CHA vs.U. ample protection is given to the mortgagor under such a concept so that in the event of death. pursuant to Art. The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. CA. it will be held to operate as actual payment of the debt or obligation for which it was given. A person having mere right of possession of property may insure it to its full value and in his own name. and if he from whom it is received sustains loss by want of such diligence. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed." is a device for the protection of both the mortgagee and the mortgagor. payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. except when through the fault of the creditor. otherwise. vs. unless the release was made with the consent of the insurer. been held that if no presentment is made at all. the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. VALENCIA & CO. the instrument is impaired. releases the wrongdoer who caused the loss. the insurer will be entitled to recover from the insured whatever it has paid to the latter. On the part of the mortgagee. the proceeds from such insurance will be applied to the payment of the mortgage debt. PHOENIX ASSURANCE CO. 154 SCRA 650) 116 Law San Beda College of . In such a case. after receiving payment from the insurer.

CA.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  Subrogation is a normal incident of indemnity insurance Upon payment of the loss. any privity of contract. (MALAYAN INSURANCE VS. thereby effecting "voluntary payment". 74PHIL 468) MARINE INSURANCE  The fact that the subject matter insured was loaded on two different barges did not make the contract several and divisible as to the items insured. The cargo owner is required to look for a common carrier that keeps its vessels seaworthy. CA 200 SCRA459)  The fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not be used as a defense to recover on the policy. CA)  There are a few recognized exceptions to this rule on subrogation. vs. The key phrase in section 48 is for a period of 2 years. (TAN vs. (PAN MALAYAN INSURANCE CORP. the settlement is binding on both the assured and the insurer. he could not evade the responsibility for the application being falsified. An all-risks coverage extends all damages/ losses suffered by the insured cargo except a. or upon written assignment of claim. vs. The insurer has 2 years from the date of the issuance of the contract or its last reinstatement within which to contest the policy whether or not the insured still lives within such period. CA) INCONTESTABILITY CLAUSE  Section 48 of the Insurance Code precludes the insurer from raising the defense of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least 2 years during the insured’s lifetime. When the insurance company pays for the loss. (INSURANCE LIFE ASSURANCE CORP. CA 174 SCRA 403) MISCONDUCT OF INSURANCE AGENT  Where the applicant signs the application in blank and authorizes the agent of the insurance company to fill up the blank spaces for him. and there is no necessity to point to any particular cause. VS. it is sufficient to show that there was damage occasioned by some accidental cause of any kind. The phrase “during the lifetime” in section 48 means that the policy is no longer considered in force after the insured has died. 139SCRA 597)  Under an all-risks policy. The right of subrogation is of the highest equity. he made them his own agent for that purpose and he is responsible for their acts in that connection. That right is not dependent upon. nor does it grow out of. 179 SCRA 638) 117 Red Notes in Commercial Law . insurance cannot be recovered on losses from perils of the ship. If they falsified the answers for him. (ORIENTAL ASSURANCE CORP. (FILIPINO MERCHANTS INSURANCE CO. FELICIANO. vs. IAC. The loss in the first instance is that of the insured but after reimbursement or compensation. such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. (ROQUE vs. For instance. b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. And where the insurer pays the assured for a loss which is not a risk covered by the policy. In the absence of stipulation that the insurer answers for perils of the ship. where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured's claim for loss. and the latter cannot bring an action against the carrier on his right of subrogation. where it was shown that the items insured were not separately valued or separately insured and only one premium was paid for the entire shipment. the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss. the insurer's right of subrogation is defeated. it becomes the loss of the insurer. from liability.) loss or damage or expense proximately caused by delay. and payment to the insured makes the insurer an assignee in equity. Similarly. Also it covers all losses except such as arising from the fraud of the insured. if the assured by his own act releases the wrongdoer or third party liable for the loss or damage. the former has no right of subrogation against the third party liable for the loss.

and the other half to the wife. vs. and such warranty can be excluded only by clear provisions of the policy. there is an implied warranty that the vessel is in all respect seaworthy.. PHILIPPINE GURANTY CO. as a general rule. (BPI vs. INSURANCE COMMISSION. DEL VAL. REVILLA. Where a car is admittedly unlawfully and wrongfully taken without the owner’s consent. 92 SCRA 219) IMPLIED WARRANTY OF SEAWORTHINESS  In every voyage policy of marine insurance. on which the premiums were paid by the conjugal partnership.. 161 SCRA 677) San Beda College of LIFE INSURANCE  Where a life insurance policy is made payable to one of the heirs of the person whose life is insured. 29 PHIL 534)  The proceeds of a life insurance policy payable to the insured person’s estate. vs. INC. (DEL VAL vs. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him. INC. POSADAS. EBRADO 80 SCRA 181) CASUALTY INSURANCE 116 Law . such taking constitutes or partakes the nature of theft for purposes of recovery under the insurance policy. the reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured. the proceeds of the policy on the death of the insured belong exclusively to the beneficiary and not to the estate of the person whose life was insured and such proceeds are his individual property and not the property of the heirs of the person whose life was insured. (PALERMO vs. constitute community property and belong onehalf to the husband exclusively. It does not apply when the person driving is the insured himself. (UNION MANUFACTURING CO. Both are founded upon the same consideration which is liberality. the proceeds are in like proportion. INC. 47 SCRA 271) REINSURANCE  In an action on a contract of reinsurance. (PHILIPPINE AMERICAN GENERAL INSURANCE CO. 100 SCRA 467)  The requirement in an “authorized driver clause” that the driver be permitted in accordance with the licensing or other law or regulations to drive the motor vehicle and is not disqualified from driving such motor vehicle by order of a court of law or by reason of an enactment or regulation in that behalf applies only when the driver is driving under the insured’s order or with his permission. PYRAMID INSURANCE CO. 56 PHIL 215)  According to the Article 2012 of the New Civil Code that any person who is forbidden from receiving any donation under Art. (GIBSON vs. (VILLACORTA vs. If the premiums were paid partly with paraphernal and partly conjugal funds. paraphernal in part and conjugal in part. (INSULAR LIFE vs.College of Law LAW San Beda COMMERCIAL DOUBLE INSURANCE  The insurer may not recover under an insurance policy if he has violated the conditions of the policy to the effect that he did not reveal the existence of other insurance policies over the same properties as required by the warranty appearing on the face of the policy. CA 273 SCRA 262) AUTHORIZED DRIVER CLAUSE  The main purpose of the authorized driver clause is that a person other than the insured owner who drives the car with his person must be duly licensed and not disqualified to drive a car.

the claim shall lie against the insurer of the motor vehicle in which he is riding. mounting. 4) in all cases.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  Where the contract provides for indemnity against liability to third persons. VS. maintains no terminals. It also avoids a distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional. dismounting from. 2) if the victim is an occupant of a vehicle.) a claim maybe made against one motor vehicle only. 3) in any other case [i. the right of the party paying the claim to recover the owner of the vehicle responsible for the accident shall be maintained. CA)  One is a common carrier even if he has no fixed and publicly known route.e. water or air. CA)  The true test of a common carrier is the carriage of goods or passengers provided it has space for all who opt to avail themselves of its transportation for a fee. The test for determining whether a party is a common carrier is: 1. 1732 of the New Civil Code avoids any distinction between one whose principal business activity is the carrying of persons or goods or both and one who does such carrying only as an ancillary activity (sideline). RTC. The transportation must be for hire. ANCHETA 164 SCRA 144) TRANSPORTATION LAWS GENERAL CONCEPTS  There are two aspects of a contract of common carriage. (SHAFER vs. which contract is consensual and is necessarily perfected by mere consent and b.] if the victim was not an occupant of the vehicle. 1732 makes no distinction as to the means of transporting. (BRITISH AIRWAYS. (NATIONAL STEEL CORP VS. It must undertake to carry by the method by which his business is conducted and over its established roads. 117 . vs. at some future time.) the contract to carry. INC. 167 SCRA 386) COMPULSORY MOTOR VEHICLE LAW INSURANCE  Section 378 of the Insurance Code has established the following rules under the “no fault indemnity provision” 1. The purpose is to protect the injured person against the insolvency of the insured who causes such injury and to give him a certain beneficial interest in the proceeds of the policy. 2. JUDGE. It does not provide that the transportation should be by motor vehicle. (DE GUZMAN VS. as long as it is by land. (PERLA COMPANIA DE SEGURO INC. can sue directly the insurer upon the occurrence of the injury or event upon which the liability depends. and 4. then third persons to whom the insured is liable. It must be engaged in the business of carrying goods for others as a public employment and must hold itself out as ready to engage in the transportation of goods generally as a business and not as a casual occupation. Neither does the law distinguish between a carrier offering its services to the general public that is the general community or population and one who offers services or solicits business only from a narrow segment of the general population. (ASIA LIGHTERAGE SHIPPING. It is as if such injured person were especially named in person. INC. A person or entity is a common carrier even if he did not secure a Certificate of Public Convenience. CA)  Art. CA) . VS. namely: a.) the contract of carriage itself which should be considered as a real contract for not until the carrier is actually used can the carrier be said to have already assumed the obligation of a carrier. and issues no tickets. (FIRST PHILIPPINE INDUSTRIAL CORPORATION VS. the claim shall lie against the insurer of the directly offending vehicle. episodic or unscheduled basis. 3. It must undertake to carry goods of the kind to which its business in confined. CA) Red Notes in Commercial Law  Art.

(MACAM VS.College of Law LAW San Beda COMMERCIAL  The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss. It is a fundamental principle that the court will not aid either party to enforce an illegal contract. even thought the same had been transferred to a third person. INC. (FISHER VS. and this liability lasts from the time the goods are unconditionally placed in the possession of. INC. NORTH FRONT SHIPPING SERVICES. 1409 of the Civil Code. destruction. (TABACALERA INSURANCE CO. CA)  When goods placed in its care are lost or damaged. VS. the carrier is presumed to have been at fault or to have acted negligently. INV. (LITA ENTERPRISES. (SANTOS VS. sometimes for a fee or percentage of the earnings. JEPTE)  The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate term under his license. VS. It cannot be considered a “stranger’s property”. CA)  After a common carrier’s status has passed from that of carrier to that of agent of consignee. VS. the kabit system is invariably recognized as being contrary to public policy and. The carrier therefore has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo. are bound to observe extraordinary diligence in the vigilance over the goods transported by them. loss of goods in its hands for cause beyond its control and without its negligence being proved relieves the carrier of civil liability for such loss or damage. CA)  Although not outrightly penalized as a criminal offense. (LIM VS. from the nature of their business and for reasons of public policy. such a jeepney can be sold at a public auction to satisfy the court’s award. Mere prejudice or whim will not suffice. (NDC vs. VS. by the carrier to the person who has a right to receive them. therefore. CA) REGISTERED OWNER AND KABIT SYSTEM  The registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers or third persons caused by the operation of said vehicle. (SAMAR MINING CO. SIBUG) CARRIAGE OF GOODS Duty to Accept goods  Common carriers cannot lawfully decline to accept a particular class of goods for carriage to the prejudice of the traffic in those goods unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary.)  The extraordinary responsibility of the common carrier lasts until the actual or constructive delivery of the cargoes to the consignee or to the person who has a right to receive them. NORDEUTSHER LLOYD) 116 Law . but will leave them both where it finds them. or deterioration and it is immaterial that the collision actually occurred in foreign waters. INC. IAC)  Where a jeepney is registered in the name of an authorized public operator but is actually owned by another and the same bumped somebody thru the negligence of its driver.) San Beda College of Duty to exercise extraordinary diligence  Common carriers. YANGCO STEAMSHIP CO. (SARKIES TOURS PHILIPPINES. and received by the carrier for transportation until the same are delivered actually or constructively. void and inexistent under Art. (EREZO VS.

V. or that which is accepted as an equivalent thereof. (BELGIAN OVERSEAS CHARTERING AND SHIPPING N. it must further be shown that such natural disaster or calamity was the proximate and only cause of the loss and that the common carrier exercised due diligence to prevent or minimize the loss before.)  Mere proof of delivery of goods to a carrier in good order and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. he must prove that the robbers or the hijackers acted with grave or irresistible threat. MANILA RAILROAD COMPANY) 117 Red Notes in Commercial Law . (LU DO V. during. that loss cannot be attributed to force majeure. (COASTWISE LIGHTERAGE CORP. CA)  Delivery of goods to the custom authorities is not delivery to the consignee. INC. BINAMIRA) DEFENSES  Where fortuitous event or force majeure is the immediate and proximate cause of the loss. he is not relieved of liability for damage resulting therefrom. as where he makes a contract for transportation and presents himself at the proper place and in a proper manner to be transported. or force in accordance with Art. ET AL. No extraordinary diligence by the carrier could have prevented the loss of the goods after they had been deposited in the warehouse of the Bureau of Customs. with the carrier as to the payment of fare.)  Fire may not be considered as a natural disaster or calamity as it arises almost invariably from some act of man or by human means. (EASTERN SHIPPING LINES INC. PHILIPPINE FIRST INSURANCE CO.) CARRIAGE OF PASSENGERS  A passenger is defined as one who travels in a public conveyance by virtue of a contract. IAC)  To exculpate the carrier from liability arising from hijacking. PHILIPPINE STEAM NAVIGATION CO. or that it was issued under legal process of authority..)  To absolve the common carrier from liability the public authority must be shown to have the power to issue the order or that it was lawful. VS. (SERVANDO VS. The relation of carrier and passenger commences when one puts himself in the care of carrier. (JESUSA VDA DE NUECA.)  Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently. the obligor is exempt from liability for non-performance. VS. INC.V. and after the occurrence of the natural disaster. INC. destruction or deterioration of the goods is due to a natural disaster or calamity. but to the negligence of the officials. (CALVO VS. UCPB GENERAL INSURANCE COMPANY INC. but he nevertheless accepts the same without protest or exception notwithstanding such condition. INC. (PHILIPPINE AMERICAN GENERAL INSURANCE CO. violence.1745 of the Civil Code. (EDGAR COKALIONG SHIPPING LINES. VS. UCPB GENERAL INSURANCE CO. (GANZON VS. CA)  In order that a common carrier may be absolved from liability where the loss. VS. VS. (BASCOS VS. with the bona fide intention of becoming a passenger and is accepted by the carrier. express or implied. CA)  If the improper packing or the defects in the container are known to the carrier or his employees or apparent upon ordinary observation. or directly under its control. MGG MARINE SERVICES. Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. common carriers as a general rule are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed.. INC.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  Owing to the high degree of diligence required of them..

by stepping and standing on the platform of the bus. ET AL. (DANGWA TRANSPORTATION CO. NAVIDAD)  The relation of carrier and passenger does not cease at the moment the passenger alights from the carrier’s vehicle at a place selected by the carrier at the point of destination. since the contract of transportation obligates the carrier to transport a passenger safely to his destination. (PNR vs. Hence. illusory and ineffective. (JAPAN AIRLINES VS. 1741 of the Civil Code. CA) 116 Law San Beda College of . VS.) OBLIGATIONS OF THE SHIPPER. is already considered a passenger and is entitled to all the rights and protection pertaining to such a contractual relation. (PILAPIL VS. CONSIGNEE AND PASSENGER  The act of the shipper in furnishing the carrier with an inaccurate weight of the payloader constitutes a contributory circumstance to the damage caused on the payloader. and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. is in effect making a continuous offer to bus riders. safely alighted from the carrier’s conveyance or had a reasonable opportunity to leave the carrier’s premises. this is not to say that common carriers are absolutely responsible for all injuries even if the same were caused by a fortuitous event. However. Once created. CA)  A contract to transport passengers is a relationship imbued with public interest. The victim herein. MRR CO. To rule otherwise would render the defense of force majeure. to do no act that would have the effect of increasing the peril to a passenger while he is attempting to board the same. Failure on the part of the common carrier to live up to the exacting standards of care and diligence renders it liable for any damages that may be sustained by its passengers. All persons who remain on the premises a reasonable time after leaving the conveyance are to be deemed passengers. every time the bus stops. as an exception from any liability. INC. and holds itself liable for any breach thereof. VS. CA)  While a passenger is entitled to protection from personal violence by the carrier or its agents or employees.( COMPANIA MARITIMA VS. which mitigates the liability for damages of petitioner in accordance with Art. the relationship will not ordinarily terminate until the passenger has.College of Law LAW San Beda COMMERCIAL  The relation of carrier and passenger continues until the passenger has been landed at the port of destination and has left the vessel owner’s dock or premises. once it stops. It merely undertakes to perform certain duties to the public as the law imposes. the responsibility of the carrier extends only to those acts that the carrier could foresee or avoid through the exercise of the degree of care and diligence required of it. CA)  The duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip but for as long as the passengers are within its premises and where they ought to be in pursuance of the contract of carriage. CA)  A passenger is guilty of contributory negligence where he chose to ride on the open platform of the train and failed to hold tightly on the vertical grab bar. and includes a reasonable time to see after his baggage and prepare for his departure. CA)  A public utility bus. (GILLACO. (ABOITIZ SHIPPING CORPORATION VS. but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier’s premises. (LA MALLORCA VS. it becomes the duty of the driver and the conductor. (LIGHT RAIL TRANSIT AUTHORITY VS. after reaching his destination. CA)  A common carrier does not give its consent to become an insurer of any and all risks to passengers and goods.

(VDA. he is nevertheless bound by the provisions thereof.” (MECENAS VS. and valid and binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation. LAGUNA TAYABAS BUS CO. By the contract of carriage. IAC)  In an action based on a contract of carriage.constitutes behavior that is simply unacceptable on the part of the master of the vessel upon whom the law imposes the duty of extraordinary diligence. but the third is valid and enforceable.)  While it may be true that petitioner had not singed the plane ticket. the cause of the disaster which resulted in the loss of the gasoline can only be attributed to the negligence and lack of precaution to avert it on the part of defendant. INC. CA)  Fairness demands that in measuring a common carrier’s duty towards its passengers. It is what is known as a contract of adhesion. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. They are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence. the carrier assumes the express obligation to transport the passenger to his destination safely and to observe extraordinary diligence with due regard for all the circumstances.“the duty to carry the passengers safely as far as human care and foresight can provide. LUZON STEVEDORING CO. using the utmost diligence of very cautious persons. or to something unexpected. AIR LINES. The ship was not seaworthy and defendant did not have a competent tug to effectuate the rescue. not to speak of his own.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW EXTRAORDINARY DILIGENCE  While the breaking of the idler may be due to an accident. Not to be considered lightly is the right to privacy of each passenger. The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. DE ABETO VS. HEACOCK CO. CAGUIMBAL)  The rule is settled that a driver abandoning his proper lane for the purpose of overtaking another vehicle in an ordinary situation has the duty to see to it that the road is clear and not to proceed if he cannot do so in safety. (BATANGAS LAGUNA TAYABAS BUS CO.) Red Notes in Commercial Law BILL OF LADING AND OTHER FORMALITIES  Three kinds of stipulation have often been made in a bill of lading. when he protests the innocuousness of his baggage and nothing appears to indicate the contrary.E. VS. and any injury that might be suffered by the passenger is right away attributable to the fault or negligence of the carrier. INC. He cannot be subjected to any unusual search. allowance must be given to the reliance that should be reposed on the sense of responsibility of all the passengers in regard to their common safety. Such provisions have been held to be part of the contract of carriage. (MALLARI. CA)  The common carrier’s liability for the death or injuries to its passengers is based on its contractual obligation to carry its passengers safely to their destination. (H. PHIL. with due regard for all the circumstances.)  The behavior of the captain of the “Don Juan”.. (NOCUM VS. (STANDARD VACUUM OIL COMPANY VS. VS.playing mahjong before and up to the time of the collision. The first and second kinds of stipulations are invalid as being contrary to public policy. (BATANGAS TRANSPORTATION COMPANY VS.)  A common carrier is presumed at fault in he absence of a satisfactory explanation on how the airplane crash occurred. VS. It is to be presumed that a passenger will not take with him anything dangerous to the lives and limbs of his co-passengers. the court need not make an express finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages sought for by the passenger. in regards which it has been said that 117 . SR. MACONDRAY & CO.

and to give it an opportunity to examine the nature and extent of the injury. CA) ACTIONS IN CASE OF BREACH OF CONTRACT OF CARRIAGE  The owners and driver of the bus may be made jointly and severally liable to the victims where their separate and distinct acts concurred to produce the same injury. The just and reasonable character of a stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple expedient and far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. and has been fairly and freely agreed upon. VS. unless the shipper or owner declares a greater value. VS CA)  Where the contract of shipment contains a reasonable requirement of giving notice of loss or injury to the goods. (FILIPINO MERCHANTS INSURANCE CO. Otherwise.)  “Loss” refers to the deterioration or disappearance of goods. CA )  The consignee by making claim for loss on the basis of the bill of lading. (SEA-LAND SERVICE. (ONG YIU VS. However as between the shipper and the carrier.College of Law LAW San Beda COMMERCIAL contracts of adhesion wherein one party imposes a ready made form of contract on the other are contracts not entirely prohibited. the applicable rule on prescription is that found in the New Civil Code.K. INC.S. (CITADEL LINES. (PHILIPPINE AMERICAN GENERAL INSURANCE CO. (FABRE. Damages arising from delay or late delivery are not the damage or loss contemplated under the COGSA. is binding. if he adheres. a contract fixing the sum that may be recovered by the owner or shipper for the loss. LINES LTD. (MITSUI O. SWEET LINES. CA)  The coverage of the one-year prescriptive period under the COGSA includes the insurer of the goods. INC. Further. CA)  The issuance of a bill of lading carries the presumption that the goods were delivered to the carrier issuing the bill and it is prima facie evidence of the receipt of the goods by the carrier.. (SALUDO. VS. Having done so. JR. CA)  A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to a certain sum. (EVERETT STEAMSHIP CORPORATION VS.)  For suits not predicated upon loss or damage but on alleged misdelivery or conversion of the goods. IAC)  Basic is the rule that a stipulation limiting the liability of the carrier to the value of the goods appearing in the bill of lading. he becomes bound by all stipulations contained therein whether on the front or at the back thereof. he gives his consent. to all intents and purposes accepted said bill. INC. The one who adheres to the contract is in reality free to reject it entirely. and not the rule on prescription in the COGSA. INC. when no goods have been delivered for shipment no recitals in the bill of lading can estop the carrier from showing the true facts. ALEJANDRO) 116 Law San Beda College of . what the Act intends to prohibit after the lapse of the one-year prescriptive period can be done indirectly by the shipper or owner of the goods by simply filing a claim against the insurer even after the lapse of one year. VS. VS. VS. JR. but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore. AMERICAN STEAMSHIP AGENCIES INC. if it is reasonable and just under the circumstances. VS.. destruction or deterioration of the goods is valid. the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. The fundamental purpose is not to relieve the carrier from just liability. unless the shipper or owner declares a greater value. is sanctioned by Articles 1749 and 1750 of the Civil Code. either ten years for breach of a written contract or four years for quasi-delict. (ANG VS. INC.

abandonment of the vessel is necessary in order to limit the liability of the shipowner or the agent to the value of the vessel. CA)  The liability of a shipowner is limited to the value of the vessel or to the insurance thereon. VS. (ABOITIZ SHIPPING CORP. (YANGCO VS. VS. (VASQUEZ VS.)  “No vessel. CA)  A written extrajudicial demand by the creditor does not toll the running of the one-year prescriptive period under the Act. INC. Art. SAN DIEGO)  While the total destruction of the vessel extinguishes a maritime lien. INC.. its insurance answers for the damages that a shipowner or agent may be held liable for by reason of the death of its passenger. CA)  The provisions of the Code of Commerce regarding maritime commerce have no room in the application of the Workmen’s Compensation Act. VS. OF THE PHILS. Where the shipowner is likewise to be blamed. (ABUEG VS. Despite the total loss of the vessel therefore.. INC. but the total destruction of the vessel does not affect the liability of the owner for repairs of the vessel completed before its loss. (PHILIPPINE AMERICAN GENERAL INSURANCE CO. 587 will not apply. as there is no longer any risk to which it can attach. his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORP. VS. VS.837 of the Code of Commerce. (GOVERNMENT OF THE PHILIPPINES VS. and such situation will be covered by the provision of the Civil Code on common carriers. expresses in a nutshell the limited liability rule. CA  If the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising form the negligence of the captain in cases of collisions or shipwrecks. which is hypothecated for such obligations or which stands as the guaranty for their settlement. VS MARITIME CO.) MARITIME LAW  The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel. (MONARCH INSURANCE CO.(PHILIPPINE SHIPPING CO. while engaged in the performance of their work or employment. The only instance where such abandonment is dispensed with is when the vessel was entirely lost. The shipowner’s or agent’s liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. no liability”. CA)  Art. LTD.. MARITIME)  The owners and agents of a vessel causing the loss of another vessel by collision are not liable beyond the vessel itself causing the collision and other things appertaining thereto. Said Act creates a liability to compensate employees or laborers in cases of injury received by or inflicted upon them. 3 (6) of the COGSA. 587 of the Code of Commerce speaks only of situations where the fault or negligence is committed solely by the captain. The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach. (MAYER STEEL PIPE CORP. LUZON STEVEDORING CORP. or the heirs and dependents of such laborers and employees in the event of death caused by their employment. LASERNA) 117 Red Notes in Commercial Law .2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  Under Sec. (DOLE PHILIPPINES. VS. its appurtenances and freightage earned in the voyage in accordance with Art. But the liability of the insurer is not extinguished because the insurer’s liability is based not on the contract of carriage but on the contract of insurance. only the carrier’s liability is extinguished if no suit is brought within one year. GARCIA)  In case of collision.

INC. or of procuring assistance. CA)  While in exercising his functions a pilot is in sole command of the ship and supersedes the master for the time being in the command and navigation of the ship. It is only when the charter includes both the vessel and crew. There are occasions when the master may and should interfere and even displace the pilot. (A. at least insofar as the particular voyage covering the charter-party is concerned. Otherwise stated. It is the safety of the property. of the purchase of a vessel. CA)  It is imperative that a public carrier shall remain as such. CA)  If the charter is a contract of affreightment which leaves the general owner in possession of the ship as owner for the voyage. INC. (FAR EASTERN SHIPPING COMPANY VS. CA)  A derelict is defined as a ship or her cargo which is abandoned and deserted at sea by those who are in charge of it. or without any intention of returning to it. (PLANTERS PRODUCTS. which accidentally ran aground. as when the pilot is obviously incompetent or intoxicated. CA) 116 Law . common safety factor. Not only is there absence of a marine peril. the property is not derelict. VS.)  Expenses incurred to refloat a vessel. as in demise or bareboat that a common carrier becomes private. it is derelict and a change of their intention and an attempt to return will not change its nature. VS. and not the voyage. It must not be construed to preclude the operation of the Civil Code and other pertinent laws. The charterer is free from liability to third persons in respect of the ship. (RUBISO AND GELITO VS. in order to continue its voyage. INC. the rights and the responsibilities of ownership rest on the owner. SULPICIO LINES. VS. notwithstanding the charter of the whole or portion of a vessel by one or more persons. (CALTEX (PHILIPPINES). VS. but if they quitted the property with the intention of finally leaving it. MAGSAYSAY. (INTER-ORIENT MARITIME ENTERPRISES INC. LTD. do not constitute general average. as in the case of a time-charter or voyage-charter. (ERLANGER & GALINGER VS. provided the charter is limited to the ship only. without any hope of recovering it. If those in charge left with the intention of returning. AGAN) San Beda College of  Common carriers cannot limit their liability for injury or loss of goods where such injury or loss was caused by its own negligence. the law on averages under the Code of Commerce cannot be applied in determining liability where there is negligence. (AMERICAN HOME ASSURANCE. and deliberateness. the master does not surrender his vessel to the pilot and the pilot is not the master. LTD) WARSAW CONVENTION  The Warsaw convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. COMPANY VS. (CATHAY PACIFIC AIRWAYS. VS. SWEDISH EAST ASIATIC CO. RIVERA)  A ship’s captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage. is necessary and indispensable in order that the purchaser’s rights may be maintained against a claim filed by a third person. which constitutes the true foundation of general average.College of Law LAW San Beda COMMERCIAL  The requisite of registration on the registry. INC.

CA)  Under a general pool partnership agreement. (COGEO-CUBAO OPERATORS & DRIVERS ASSOC. the conveyance of passengers. or of some particular or exceptional type of damage. Appropriate actions may be maintained in courts by the holder of the certificate against those who have not been authorized to operate in competition with the former and those who invade the rights which the former has pursuant to the authority granted by the Public Service Commission. The paramount consideration should always be the public interest and public convenience. which are small body of waters . It is the passenger’s “ultimate destination” not “an agreed stopping place” that determines the country where suit is to be filed.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  The articles in the Warsaw Convention merely declare the carrier liable for damages in the enumerated cases. mandate or authority of another power. INC.separating the 117 Red Notes in Commercial Law . (MAPA VS. CHIOK0 )  The forum of action provided in Art. (UNITED AIRLINES VS. Neither said provisions nor others regulate or exclude liability for other breaches of contract by the carrier. (ALITALIA VS IAC)  There is international transportation: 1. (CHINA AIRLINES VS. with respect to other persons and other public utilities. a certificate of public convenience can be sold by the holder thereof because it has considerable material value and is considered as valuable asset. PSC)  Considering the environmental circumstances of the case. (NOTHWEST AIRLINES. trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. (SANTOS III V. 28(1) is a matter of jurisdiction rather than of venue. Although there is no doubt that it is private property. CA)  Nobody has the exclusive right to secure a franchise or a Certificate of Public Convenience. Under the Public Service Law. a certificate of public convenience does not confer upon the holder any proprietary right or interest or franchise in the route covered thereby and in the public highways. NORTHWEST)  A cause of action arising from the slashing and loss of personal effects by an airline passenger is well within the bounds of the Warsaw Convention while a cause of action arising from the shabby and humiliating treatment received from the airline employees is not. Hence. UY) PUBLIC UTILITIES  A certification of public convenience is included in the term "property" in the broad sense of the term. insofar as the interest of the State is involved. the ticket-issuing airline is the principal in a contract of carriage while the endorsee-airline is the agent. even though the power is not a party to the convention.) where the place of departure and the place of destination are within the territory of a single high contracting party if there is an agreed stopping place within a territory subject to the sovereignty. or misconduct of its employees. cannot be taken or interfered with without due process of law. Under no circumstance can the sea between Matnog and Allen be considered a continuation of the highway. However. and 2. (VDA.) where the place of departure and the place of destination are situated within the territories of two high contracting parties regardless of whether or not there be a break of transportation or a transshipment. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes. VS CUENCA)  The Warsaw Convention does not operate as an absolute limit of the extent of an airline’s liability. if the conditions specified therein are present. The obligation of the former remained and did not cease even when the breach occurred not on its own flight but on that of another airline which had undertaken to carry the passengers to one of their destinations. which represents the right and authority to operate its facilities for public service. a certificate of public convenience as property. it is affected with a public interest and must be submitted to the control of the government for the common good. DE LAT VS. VS. it does not regulate or exclude liability for other breaches of contract by the carrier.

)  For practical purposes. The former is the franchise to exist as a corporation. under the 14th Amendment. VS. (TAYAG VS. against unlawful discrimination. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator.. but an association of individuals under an assumed name and with a distinct legal entity. et al. is vested 'in the individuals who compose the corporation and not in the corporation itself and cannot be conveyed in the absence of legislative authority so to do but the special or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property except such special or secondary franchises as are charged with a public use. when as in this case the two terminals. after all. supra. Private corporations. color. BELL & CO. IMPERIAL INSURANCE. Diokno. In Stonehill. et al. INC. the right to exist as such. erect poles or string wires. this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures. however. PANTRANCO SOUTH EXPRESS. INC. which was specifically enacted. (BACHE & CO. they must be interpreted in consonance with the purpose of the Public Service Law. (SMITH. while the latter are certain rights and privileges conferred upon existing corporations such as the right to use the streets of a municipality to lay pipes of tracks. it cannot legitimately refuse to yield obedience to acts of its state organs. inadequate and improper" may be broad enough to cover a lot of things. are divisible into (1) corporate or general franchises. VS. BENGUET CONSOLIDATED. While the words "unsafe. Certainly not excluding the judiciary.)  Section 19 (a) of the Public Service Act contemplates of failure to provide a service that is safe. Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. are "persons" within the scope of the guaranties in so far as their property is concerned. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. (JRS BUSINESS CORP. franchises. (MANZANAL VS. The word "person" includes aliens. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. among other things. It refers specifically to the operator's inability to provide reliable vehicles to transport the riding public to their places of destination and to the failure to provide an adequate number of units authorized under his franchise at all times to secure the public of sustained service. AUSEJO) CORPORATION LAW ATTRIBUTES OF A CORPORATION  A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state acting according to law. RUIZ) 116 Law San Beda College of . Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service. More than that. without regard to any differences of race. vs. are universal in their application to all persons within the territorial jurisdiction. so far as relating to corporations. and (2) special or secondary franchises. (SAN PABLO VS. or nationality. It can only be proceeded against by due process of law. proper or adequate and refusal to render any service which can reasonably be demanded and furnished. that is.College of Law LAW San Beda COMMERCIAL land. likewise. INC. The primary franchise of a corporation. VS. NATIVIDAD)  A corporation is. whenever called upon to do so. Its property cannot be taken without compensation. to protect the public against unreasonable charges and poor inefficient service and to secure adequate sustained service for the public at the least possible costs. and is protected.)  The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights.

(FRANCISCO MOTORS CORP. The property of the corporation is its property and not that of the stockholders. VS.. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute. (LIM VS. CA) 117 Red Notes in Commercial Law .The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. INC. CA)  The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. may refuse to show its hand when charged with an abuse of such privileges. and be thereby held liable therefor by piercing its corporate veil. considering the nature of the legal services involved. and 3. to perpetuate the violation of a statutory or other positive legal duty. "even in the case of a one-man corporation". vested with special privileges and franchises. it does not follow that a corporation. although they have equities in it. it was incurred in their personal capacity.' In applying the 'instrumentality' or 'alter ego' doctrine. chose to "pierce the veil of corporate entity" usurping a power belonging to the court and assumed improvidently that since the complainant is the owner/president of Qualitrans Limousine Service. (BASECO vs. which under the law possess a personality separate and distinct from their stockholders. Such control must have been used by the defendant to commit fraud or wrong. will or existence of its own. not mere majority or complete stock control. It is a wellsettled doctrine both in law and in equity that as a legal entity. whatever obligation said incorporators. or dishonest and unjust act in contravention of plaintiff's legal rights. Inc. since the president. it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice. they are one and the same.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  It is elementary that the right against self-incrimination has no application to juridical persons. Inc. with how the corporation operated and the individual defendant's relationship to that operation. VS.)  The tenor of the NLRC judgment and the implementing writ is clear enough. When directors and officers of a corporation are unable to compensate a party for a personal obligation." (CONCEPT BUILDERS. as individual. as owners. however. and the corporation are separate entities. NLRC)  Furthermore. It directed Qualitrans Limousine Service. DALISAY)  Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. GREGORIO ARANETA. and is not affected by the personal rights. the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. (CRUZ VS. INC. Conversely. The absence of any one of these elements prevents 'piercing the corporate veil. not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind. but complete domination. directors and officers of the corporation had incurred. a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation. INC. Respondent. the courts are concerned with reality and not form. PCGG)  It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it. Lim are in the possession of and are registered in the name of private respondent corporations. Control. VS. (SULO NG BAYAN. 2. and in the absence of any cogency to shred the veil of corporate fiction. obligations and transactions of its stockholders or members. a corporation has a personality distinct and separate from its individual stockholders or members. to reinstate the discharged employees and pay them full backwages.

together with his employer. we hereby make reference to the case of Filipinas Broadcasting Network. he consciously contributes his efforts to its conduct and promotion. but such fact does not necessarily convert it into a profit-making enterprise. which can be experienced only by one having a nervous system. (ABS-CBN vs. The employee or agent of a corporation engaged in unlawful business naturally aids and abets in the carrying on of such business and will be prosecuted as principal if. Thus. (SIA VS. evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. AMEC-BCCM.R. resulting in social humiliation" is an obiter dictum. no senses. 2005) Note: The bar exams covers only decisions promulgated by the SC up to June 2004. since RBS is a corporation. JANUARY 21. CHOWDURY)  In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which lit is a president as in fact them is no such provisions in the Revised Penal Code under which petitioner is being prosecuted. The statement in People v. That a Club makes some profit 116 Law San Beda College of . the law implies damages. no emotions. where the broadcast is libelous per se. On this score alone the award for damages must be set aside. therefore. the existence of a criminal liability for which the accused is made answerable must be clear and certain. It cannot. PNB that a corporation may recover moral damages if it "has a good reputation that is debased. a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. In this case. In all criminal prosecutions. its purpose and effect. G. the existence of a criminal liability on his part may not be said to be beyond any doubt. AMEC is entitled to moral damages. This provision expressly authorizes the recovery of moral damages in cases of libel. 2005. The corporation obviously acts.College of Law LAW San Beda COMMERCIAL  The award of moral damages cannot be granted in favor of a corporation because.D. It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. VS. AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil Code. and it is their conduct which the law must deter. (PEOPLE VS. INC. however slight his contribution may be. CA)  Nevertheless.  An employee of a company or corporation engaged in illegal recruitment may be held liable as principal. the broadcasts are libelous per se. Inc. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages. Maneroand Mambulao Lumber Co. January 17. PEOPLE) Note: This case was decided at the time when P. only by and through its human agents. for purposes of clarifying the conflicting decisions as to the entitlement of a corporation to moral damages. Moreover. 141994. However. 115 or the Trust Receipts Law was not yet in effect) KINDS OF CORPORATIONS  It is conceded that the Club derived profit from the operation of its bar and restaurant. slander or any other form of defamation.In such a case. Therefore. with knowledge of the business. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. if it is shown that he actively and consciously participated in illegal recruitment. (FILIPINAS BROADCASTING NETWORK. being an artificial person and having existence only in legal contemplation. and can act. vs. it has no feelings. v. No.. Ago Medical and Educational Center-Bicol Christian College of Medicine. experience physical suffering and mental anguish.

However. of acts and doings of its subordinates in and about the affairs of the corporation. CA)  The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. it is true that petitioner did not directly act on behalf of the corporation. whenever possible. a club should always strive. It cannot be acquired through or waived. (CAGAYAN FISHING VS. It is. SANDIKO)  Where similar acts have been approved by the directors as a matter of general practice. In varying language. (HALL VS. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation. may be barred from denying its corporate existence in a suit brought against the alleged corporation. enlarged or diminished by. no faculties. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. custom. Jurisdiction is fixed by law and is not subject to the agreement of the parties. DE LOS SANTOS)  Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the SEC which calls a corporation into being. PHILIPPINE FISHING GEAR INDUSTRIES)  The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. In the first instance. therefore. The immunity of collateral attack is granted to corporations 'claiming in good faith to be a corporation under this act. the general manager may bind the company without formal authorization of the board of directors. Technically. to have a surplus (CIR VS. PICCIO) Red Notes in Commercial Law COMPONENTS OF A CORPORATION  A corporation. all those who benefited from the transaction made by the ostensible corporation. he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. until organized. the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. (BOARD OF LIQUIDATORS VS. knowing an association to be unincorporated. In such case. Unless there has been an evident attempt to comply with the law the claim to be a corporation 'under this act' could not be made in good faith. Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. On the other hand. nonetheless treated it as a corporation and received benefits from it. as it were. HEIRS OF MAXIMO KALAW) BY-LAWS 117 . or must be presumed to have. and policy. has no life and. CLUB FILIPINO)  The application of the doctrine of estoppel applies to a third party only when he tries to escape liability on a contract from which it had benefited on the irrelevant ground of defective incorporation. having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship. This is not saying that under no circumstances may the acts of promoters of corporation be ratified by the corporation if and when subsequently organized. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. (LIM TONG LIM VS. a child in ventre sa mere. an unincorporated association. may be held liable for contracts they impliedly assented to or took advantage of. the usages and practices of the company and by the knowledge which the board of directors has. which represented itself to be a corporation. who therefore know that it has not been registered there is no corporation by estoppel. despite knowledge of its legal defects. As has been remarked.' Such a claim is compatible with the existence of errors and irregularities. any act or omission of the parties. existence of such authority is established. In the case at bar.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW does not make it a profit making club. but not with a total or substantial disregard of the law. (LOZANO VS. (INT’L EXPRESS TRAVEL VS. by proof of the course of business. a third party who. neither can it be conferred by the acquiescence of the court.

There is no outright "demise" of corporate existence. Even less tenable is petitioner's claim that its right is "coterminous with the existence of the association. all acts within the powers of said corporation may be performed by agents of its selection. (PEOPLE’S AIRCARGO VS. (LOYOLA GRAND VILLAS HOMEOWNERS ASSOC. In other words. no matter how long continued. private respondent's insistence that it can legally dismiss petitioner on the ground that his tenure has expired is untenable. is entitled to security of tenure. it has been held that "although not expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business. can act only through its officers and agents. the incorporators must be given the chance to explain their neglect or omission and remedy the same. Indeed. the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation." Practice. Proper notice and hearing are cardinal components of due process in any democratic institution. it would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws and providing that his/her position shall cease to exist upon the occurrence of a specified event. (REPUBLIC VS. in respect to his power to act for the corporation. cannot give rise to any vested right if it is contrary to law. the right to amend the by-laws lies solely in the discretion of the employer. the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation.College of Law LAW San Beda COMMERCIAL  Even under the foregoing express grant of power and authority. hence. ACOJE MINING)  Inasmuch as a corporate president is often given general supervision and control over corporate operations. (SALAFRANCA VS. his services may only be terminated for causes provided by law. except so far as limitations or restrictions may be imposed by special charter. the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. In the absence of a charter or bylaw provision to the contrary. extensive as it may be. CA)  Admittedly. PHILAMLIFE) POWERS OF THE CORPORATION  While as a rule an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law. being a regular employee. A contrary interpretation would not find justification in the laws or the Constitution. Thus. cannot impair the obligation of existing contracts or rights. If we were to rule otherwise. However this right. of whatever status or rank. petitioner. and agents when once appointed. this being in the exercise of management prerogative or business judgment. VS." (GRACE CHRISTIAN HIGH SCHOOL VS. such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality. such as the private respondent. and. there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of bylaws embodied in Section 46 of the Corporation Code. or members acting in their 116 Law San Beda College of . agency or society. and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business of appellant company. To reiterate. CA)  Nor can petitioner claim a vested right to sit in the board on the basis of "practice. Prescinding from these premises. by-law or statutory provisions. CA)  Since a corporation. there are however certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation.

by a specific provision of law. petitioner failed to discharge the burden of proof to show that private respondent's action in seeking examination of the corporate records was moved by unlawful or ill motivated designs which could appropriately call for a judicial protection against the exercise of such right. the general 117 Red Notes in Commercial Law . DIESELMAN)  For the principle of apparent authority to apply. The right to vote inherent in and incidental to the ownership of corporate stock. (CASTILLO VS. the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner. to wit: When (1) He assents (a) to a patently unlawful act of the corporation. or (b) for bad faith or gross negligence in directing its affairs. The stockholder cannot be deprived of the to vote his stock nor may the right be essentially impaired. resulting in damages to the corporation. Inc. without necessarily piercing the veil of corporate fiction. or (c) for conflict of interest. there is no evidence on record of specific acts made by the respondent showing or indicating that it had full knowledge of any representations made by Roxas to the petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. or the by-laws. as when the stockholder is not acting in good faith and for a legitimate purpose. (b) knowledge thereof by the respondent which is sought to be held. SANDIGANBAYAN)  The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders' meeting is necessary to consider it because additional issuance of shares of stocks does not need approval of the stockholders. having knowledge thereof. to personally answer for his corporate action. (WOODCHILD HOLDINGS VS. 78085. its stockholders or other persons. (2) He consents to the issuance of watered stocks or who. Surely. the Court has collated the settled instances when. 74 of the Corporation Code is not absolute. trustee or officer. or (4) He is made. or when the demand is purely speculative or merely to satisfy curiosity. (3) He agrees to hold himself personally and solidarity liable with the corporation. (AF REALTY VS. NLRC) RIGHTS OF SHAREHOLDERS  One of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through his vote. or to create a lien or burden thereon.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW stead. Save for its unsubstantiated allegations. Jr. BALINGHASAY)  While it may be true that the right of inspection granted by Sec. 491-A-3-B-1 covered by TCT No. not even a scintilla of evidence that respondent Cojuangco. he was not able to exercise his right of pre-emption over the unissued shares. In the case at bar. and (c) reliance thereon by the petitioner consistent with ordinary care and prudence. was motivated by bad faith. the specific provisions take from the stockholder the burden of showing impropriety of purpose or motive. In other words. nay. through amending the charter. (SANTOS VS. in accordance with law. ROXAS ELECTRIC) LIABILITY OF DIRECTORS AND OFFICERS  In Tramat Mercantile. that the demand was for an illegitimate purpose or that the demand was impelled by speculation or idle curiosity.. vs. liabilities. In this case. either by the legislature or by the corporation without his consent. This is because the impropriety of purpose such as will defeat enforcement must be set up (by) the corporation defensively if the Court is to take cognizance of it as a qualification. and incapacities as are agents of individuals and private persons. personal civil liability can also be said to lawfully attach to a corporate director. respondent's substantial shareholdings in the SMC and UCPB cannot be an object of mere curiosity. Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance. provide for the issue and transfer of shares of stock of the Institute and shall prescribe the form of the certificate of stock of the Institute'. the same may not be said in the case of private respondent. are subject to the same rules. However.. Court of Appeals. The by-laws of the corporation itself states that 'the Board of Trustees shall. and as such is a property right. petitioner could offer no proof. (REPUBLIC VS. or that the respondent allowed him to do so. does not forthwith file with the corporate secretary his written objection thereto.

the assignment was valid between the parties. When the shares left unsubscribed are later reoffered. The subscriber is as much bound to pay his subscription. With more reason. That procedure cannot be followed in the instant case because. (PONCE VS. ALSONS CEMENT CORP)  Are attachments of shares of stock included in the term "transfer" as provided in Sec. Only the corporation has the legal personality to file suit rescinding the subscription agreement with the subscriber inasmuch as it was the real party in interest therein. The real contracting parties to a subscription agreement are the corporation and the subscriber alone. Thus. cannot vote nor be voted for. he fills up the blanks in the form by inserting his own name as transferee. he cannot therefore claim a dilution of interest. a civil case for rescission on the ground of breach of contract filed by a third party in their personal capacities will not prosper. PEERS) San Beda College of  It may be argued that despite non-compliance with the requisite endorsement and delivery. The certificate is then surrendered and a new one issued to the transferee. TIU)  The usual practice is for the stockholder to sign the form on the back of the stock certificate. meaning the private respondents as assignors and the petitioners as assignees. a corporate secretary may not be compelled to issue stock certificates without such registration. and not with respect to additional issues of originally authorized shares. Moreover. Parenthetically. as already noted. If the holder of the certificate desires to assume the legal rights of a shareholder to enable him to vote at corporate elections and to receive dividends. The certificate may thereafter be transferred from one person to another. While the assignment may be valid and binding on the petitioners and private respondents. the corporation has a claim on the said shares for the unpaid balance of Po's subscription. (BENITO VS. A corporate secretary may not be compelled to register transfers of shares on the basis merely of an indorsement of stock certificates. as yet. chattel mortgage over shares of stock need not be registered in the corporation's stock and transfer book inasmuch as chattel mortgage over shares of stock does not involve a "transfer of 116 Law . 63 of the Corporation Code? We rule in the negative. SEC) SHARES AND SUBSCRIPTIONS  A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation – its shares of stock. the petitioners as mere assignees. insofar as the assigned shares are concerned. (RURAL BANK OF LIPA CITY VS.College of Law LAW San Beda COMMERCIAL rule is that pre-emptive right is recognized only with respect to new issue of shares. Ceron. he must first cause the registration of the transfer and thereby enjoy the status of a stockholder insofar as the corporation is concerned. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. CA)  Before a transferee may ask for the issuance of stock certificates. it does not necessarily make the transfer effective. The right of the corporation to demand payment is no less incontestable. Then he delivers the certificate to the secretary of the corporation so that the transfer may be entered in the corporation's books. (ONG YONG VS. As succinctly declared in the case of Monserrat v. be deprived of their rights as stockholders. (NAVA VS. A stock subscription in a subsisting liability from the time the subscription is made. as he would be to pay any other debt. This is on the theory that when a corporation at its inception offers its first shares. and will not be entitled to dividends. until and unless the issue of ownership and transfer of the shares in question is resolved with finality. Consequently. the twenty shares in question we Dot covered by any certificate of stork in Po's name. the private respondents cannot. it is presumed to have offered all of those which it is authorized to issue. cannot enjoy the status of a stockholder.

2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW shares. no foreign corporation shall be permitted to transact business in the Philippines. although a foreign corporation is without license to transact business 117 Red Notes in Commercial Law . It is. was created when the parties voluntarily contracted without such license. As thus interpreted." (CHEMPHIL EXPORT VS. that an "illegal situation. VS. a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary. There is no denying. It is not the absence of the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation from access to our courts. in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case. No. therefore. at least. not necessary to declare the contract null and void even as against the erring foreign corporation. We. The parties are charged with knowledge of the existing law at the time they enter into the contract and at the time it is to become operative. In other words. and until it complies with the law in transacting business here.A. However. which all enlightened legal systems condemn. No.A. provided that the subject matter and the defendant are within the jurisdiction of the court. Neither does it appear to intend to prevent the courts from enforcing contracts made in contravention of its licensing provisions. in the first place. CA) DISSOLUTION AND LIQUIDATION  The word "trustee" as used in the corporation statute must be understood in its general concept which could include the counsel to whom was entrusted in the instant case. as this phrase is understood under the Corporation Code. Debtors like the petitioners herein may not take advantage of the failure of the corporation to transfer its assets to a trustee. 5455. (TOP-WELD MFG. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. 5455 at the time the contract was executed and at all times thereafter. sustain the appellate court's view that "it was incumbent upon TOP-WELD to know whether or not IRTI and ECED were properly authorized to engage in business in the Philippines when they entered into the licensing and distributorship agreements." and that only absolute transfers of shares of stock are required to be recorded in the corporation's stock and transfer book in order to have "force and effect as against third persons. R. unless it shall have the license required by law. (HOME INSURANCE CO. 5455 does not declare as void or invalid the contracts entered into without at securing a license or certificate to do business in the Philippines. petitioner had actual knowledge of the applicability of R. This conclusion is compelled by the fact that the same statute is now being propounded by the petitioner to bolster its claim. they are in pari delicto. The purpose in the transfer of the assets of the corporation to a trustee upon its dissolution is more for the protection of its creditor and stockholders." The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of R.A. No. The parties in this case being equally guilty of violating R. In this case. To sustain petitioners' contention would be to allow them to enrich themselves at the expense of another. the record shows that. EASTERN SHIPPING)  The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. VS." as the appellate court has put it. any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action. therefore.A. it shall not be permitted to maintain any suit in local courts. though. the prosecution of the suit filed by the corporation. assuming it has any to transfer which petitioner has failed to show. under the aforequoted provision. No. ECED)  The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code. Moreover. CA) FOREIGN CORPORATIONS  As between the parties themselves. (GELANO VS. 5455. Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases.

(AGILENT TECHNOLOGIES VS. CA)  More than the sheer number of transactions entered into. valves. the performance of acts or works or the exercise of some of the functions normally incident to. As alleged in its complaint. Thus. (RCBC VS. It is not really to enable the management committee or the rehabilitation receiver to 116 San Beda College of . however. Inc. Such license is not necessary if it is not engaged in business in the Philippines. There is no other way for petitioner to recover its huge financial investments which it poured into Marcopper’s rehabilitation and the local situs where the Deeds of Assignment were executed. it may still fall within the meaning of “doing business” based on the ruling of the Supreme Court that “Where a single act or transaction however is not merely incidental or casual but indicates the foreign corporation’s intention to do other business in the Philippines. without petitioner continuing to do business in the country. CA)  We agree with the finding of the respondent court that petitioner is not suing on an isolated transaction as it claims to be. INTEGRATED SILICON)  The party is estopped from questioning the capacity of a foreign corporation to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporations and thereafter committed a breach of or sought to renege on its obligations. to that extent. (ERIKS PTE. (COLUMBIA PICTURES VS. the sale by petitioner of the items covered by the receipts. BAJAR)  The true test (for doing business). even those holding valid and executory court judgments against it. a clear and unmistakable intention on the part of petitioner to continue the body of its business in the Philippines is more than apparent. said single act or transaction constitutes doing or engaging in or transacting business in the Philippines. and in the progressive prosecution of. LTD. it is engaged in the manufacture and sale of elements used in sealing pumps. Further. seems tot be whether the foreign corporation is continuing the body of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. credit is extended only to customers in good standing or to those on whom there is an intention to maintain long-term relationship. unarguably shows an intention to continue transacting with private respondent. INC. IGNIEBURO) Law CORPORATE REHABILITATION  The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality only upon the appointment of a management committee.” (MR HOLDINGS.College of Law LAW San Beda COMMERCIAL in the Philippines. expressed thus: The term (doing business) implies a continuity of commercial dealings and arrangements. pure and simple. as it is very obvious from the deed of assignment and its relationships with Marcopper and Placer Dome. IAC)  The reason for suspending actions for claims against the corporation should not be difficult to discover. and pipes for industrial purposes. and contemplates. since in the usual course of commercial transactions. valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial use. (EUROPEAN RESOURCES VS. its grant and extension of 90-day credit terms to private respondent for every purchase made. that its unmistakable intention is to continue the operations of Marcopper and shield its properties/assets from the reach of legitimate creditors. rehabilitation receiver. board or body. it does not follow that it has no capacity to bring an action. (Substance test) The second test is the continuity test. VS. was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and object of its business. the purpose and objects of its organization. The rule relating to estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere debet – no person ought to derive any advantage from his own wrong. While petitioner may just be an assignee to the Deeds of Assignment. VS. which are part and parcel of its main product line.

F. Indirectly. the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. CA)  It has been said that where upon the insolvency of a bank a receiver therefor is appointed. banking and credit system of the country and is granted. (RURAL BANK OF BUHI VS. Common sense and public policy dictate then that the authority to decide on whether to contest the resolution should he lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith. Thus. (FIRST PHIL. Philippines (now Bangko Sentral ng Pilipinas). the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects. INC. CA)  The purpose of the law in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. board or body.” Such powers. (BUSUEGO VS. and in this 117 Red Notes in Commercial Law . CA cited in PAL VS. HOMES. such as PESALA. cannot extend to ex post facto repudiation of perfected transactions. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day. such authority being reposed in the receiver. is that the appointment of a receiver may be made by the Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the protection of the banking institution. through the Monetary Board. Obviously. tribunal. form part of. In the process. (b) report by said department to the Monetary Board. a hearing or an opportunity to be heard may be subsequent to the closure. VS. the power of supervision and examination over banks and non-bank financial institutions performing quasibanking functions. The evident implication of the law. It is presumed that such a resolution is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. resulting in panic and hysteria. the real justification is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might duly hinder or prevent the “rescue” of the debtor company. Stated otherwise. CA)  There is no requirement whether express or implied. They are: (a) an examination made by the examining department of the Central Bank. SPOUSES SADIC) BANKING LAWS NEW CENTRAL BANK ACT  It must be remembered that the Central Bank of the. fortunes may be wiped out. that a hearing be first conducted before a banking institution may be placed under receivership. (B. is the government agency charged with the responsibility of administering the monetary. otherwise they would infringe against the non-impairment clause of the Constitution. of which savings and loan associations. it must be pointed out that such powers must be related to the “preservation of the assets of the bank (the reorganization thereof) and the restoration of its viability. INT’L BANK VS. the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. it is likewise intended to protect and safeguard the rights and interests of the stockholders. CA)  While admittedly the Central Bank Act gives vast and far-reaching powers to the conservator of a bank. due process does not necessarily require a prior hearing.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW substitute the defendant in any pending action against it before any court. and disillusionment will ran the gamut of the entire banking community. enormous and extensive as they are. On the contrary. therefore. and (c) prima facie showing that the bank is in a condition of insolvency or so situated that its continuance in business would involve probable loss to its depositors or creditors. (CENTRAL BANK VS.

ORTEGA)  Before an in-camera inspection may be allowed of bank deposits.College of Law LAW San Beda COMMERCIAL respect. (MARQUEZ VS. as far as lawful and practicable. i. It merely required Tan Kim Liong to inform the court whether or not the defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation only for purposes of the garnishment issued by it. (ONG VS. to obviate the proliferation of litigations and to avoid injustice and arbitrariness. (CHINA BANKING CORP.e. (4) In cases where the money deposited is the subject of the litigation. (2) In cases of impeachment. We explained therein the rationale behind the provision. and if the existence of the deposit is disclosed the disclosure is purely incidental to the execution process.. CA)  The fact that the insolvent bank is forbidden to do business. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts. 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 116 Law San Beda College of . the 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. through the expedient of converting their assets into cash and depositing the same in a bank." except in those cases enumerated therein. The bank personnel and the account holder must be notified to be present during the inspection. inquired or looked into. for conversion into cash. and [therefore] may not be examined. 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. should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations. even if ordered by the Court. CA) SECRECY OF BANK DEPOSITS ACT  The lower court did not order an examination of or inquiry into the deposit of B & B Forest Development Corporation. 1405 by providing an additional exception to the rule against the disclosure of bank deposits. The lawmaking body contemplated that for convenience only one court. the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. 1405 provides that bank deposits are "absolutely confidential . there must be a pending cases before a court of competent jurisdiction. that its assets are turned over to the Superintendent of Banks. Indeed there is no real inquiry in such a case. if possible. the inspection limited to the subject matter of the pending case before the court of competent jurisdiction. VS. the account must be clearly identified. (VILLANUEVA VS. DESIERTO)  Thus. It is clear that the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment." The only conclusion possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. . Further. An examination by the Office of the Ombudsman is not a pending litigation to allow examination of the respondent’s bank account. . 1405 declares bank deposits to be "absolutely confidential" it nevertheless allows such disclosure in the following instances: (1) Upon written permission of the depositor. while Republic Act No. as contemplated in the law. and that its liquidation is undertaken with judicial intervention means that. and such inspection may cover only the account identified in the pending case. so that the bank would hold the same intact and not allow any withdrawal until further order. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank. as a receiver. the judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. 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. all claims against the insolvent bank should be filed in the liquidation proceeding. (2) Upon order of a competent court in cases of bribery or dereliction of duty of public officials.

(ACME SHOE. and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage." To sustain the petitioner's theory. furniture. such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed. descendants. the security itself. (RIDAD VS. relatives or any other persons. real estate mortgage. or held by." the mortgage covers all after-acquired property of the classes mentioned. it submitted itself to the consequences of the law as specifically mentioned. furniture. by which it is deemed to have renounced any and all rights which it might otherwise have under the promissory note and the chattel mortgage as well as the payment of the unpaid balance. and restrict the inquiry only to property held by or in the name of the government official or employee. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon. 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. extending its scope and effect to after-acquired property. 3019 which quite categorically states that the term. respondent's spouse. by express stipulations.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW a public trust and any person who enters upon its discharge does so with the full knowledge that his life. or in substitution for. the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. and. No. PURISIMA) SPECIAL LAWS CHATTEL MORTGAGE  While a pledge. Having chosen to foreclose the chattel mortgage. LIMJAP)  In the instant case. but its ownership is concealed by its being recorded in the name of. RUBBER & PLASTIC VS. A mortgage may. (PNB VS. (TORRES VS. (BANCO FILIPINO VS. or his spouse and unmarried children is unwarranted in the light of the provisions of the statutes in question. is open to public scrutiny. be drawn to cover goods put in stock in place of others sold out from time to time. FILIPINAS INVESTMENT)  There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. a chattel mortgage.GANCAYCO)  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. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but. or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described. Where a mortgage covering the stock in trade. defendant corporation elected to foreclose its mortgage upon default by the plaintiffs in the payment of the agreed installments. "legitimately acquired property of a public officer or employee shall not include property unlawfully acquired by the respondent. and fixtures in the mortgagor's store provides that "all goods. goods on hand when the mortgage was executed. A mortgage may be made to include future acquisitions of goods to be added to the original stock mortgaged. upon foreclosure. of course. CA)  A stipulation in the chattel mortgage. is valid and binding where the after-acquired property is in renewal of. stock in trade. and bought the purchased vehicles at the public auction as the highest bidder. or is purchased with the proceeds of the sale of such goods. however. does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. can only cover obligations existing at the time the mortgage is constituted. This proposition is made clear by R. so far as relevant to his duty.A. but the mortgage must expressly provide that future acquisitions shall be held as included in the mortgage. however. A chattel mortgage may be "an accessory contract" to a contract of loan. This is an absurdity that we will not ascribe to the lawmakers. ascendants. and would make available to persons in government who illegally acquire property an easy and foolproof means of evading investigation and prosecution. but that fact alone does not make a third-party mortgagor solidarily bound with the 117 Red Notes in Commercial Law .

Though it is desirable that receipts issued by a bonded warehouseman should conform to the provisions of the Warehouseman Receipts Law. to perfect the pledge. SAYO. And the liability of the third-party mortgagors extends only to the property mortgaged.. would be that the law was complied with. nevertheless. the creditor has recourse on the principal debtor. mortgagor or pledgor. The signatory to the principal contract-loan-remains to be primarily bound.) San Beda College of  Regrettably. In other words. Under Section 1 of the Warehouse Receipts Act. JR.  The indorsement and delivery of the warehouse receipts (quedans) by Ramos and Zoleta to petitioner was not to convey "title" to or ownership of the goods but to secure (by way of pledge) the loans granted to Ramos and Zoleta by petitioner. this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge. by claiming that they "are still the legal owners of the subject quedans and the quantity of sugar represented therein. the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with Section 8 of the law. and indispensable in the sense that if they fell short of the requirement of the Warehouse Receipts Act. this hardly qualified as a valid. GO TIONG)  In conclusion. does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners. (PNB vs. the transferee or endorsee does not automatically become the owner of 116 Law . the warehouseman fees and charges have ceased to accrue from the date of the rejection by Noah's Ark to heed the lawful demand by petitioner for the release of the goods. Upon the other hand. however. but on an adverse claim of ownership.)  Imperative is the right of the warehouseman to demand payment of his lien at this juncture. Se.)  Where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt. The kind or nature of the receipts issued by him for the deposits is not very material. i. the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his lien. The presumption. because. SAYO. to pay the loan. merely constituted a symbolical or constructive delivery of the possession of the thing thus encumbered. JR. and that if the property covered by the quedans or warehouse receipts is lost without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan. in this case. said provisions are not mandatory. in accordance with Section 29 of the Warehouse Receipts Law. (CERNA VS. The indorsement of the warehouse receipts (quedans). by petitioner.College of Law LAW San Beda COMMERCIAL principal debtor in fulfilling the principal obligation that is. then said goods are to be regarded as lost on account of the real owner. It is only upon the default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. then the commodities delivered for storage become ordinary deposits and will not be governed by the provisions of the Bonded Warehouse Act.e. Should there be any deficiency. (GONZALES VS. (PNB VS. we hold that where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt. it would appear that the refusal of private respondents to deliver the goods was not anchored on a valid excuse. the pledgors. not the pledgee. because a warehouseman's lien is possessory in nature. 3893. i. legal excuse." Under the circumstances. The loss of the warehouseman's lien. rather than breached.e. 90-53023. the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or quedan but he merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds of the sale. (PNB VS.. Jr. the issuance of a warehouse receipt in the form provided by it is merely permissive and directory and not obligatory. the warehouseman loses his lien upon goods by surrendering possession thereof. as stated in their Answer with Counterclaim and Third-Party Complaint in Civil Case No. But even as to the owners-pledgors. much less decisive. non-satisfaction of the warehouseman's lien over the goods. Private respondents justified their refusal to deliver the goods. CA) WAREHOUSE RECEIPTS LAW  Any deposit made with a bonded warehouseman must necessarily be governed by the provisions of Act No.

this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge. and by that loan. the case of People vs. the bank is made to appear as the owner. just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. ORDOÑEZ)  From the legal and jurisprudential standpoint it is clear that the security interest of the entruster is not merely an empty or idle title. and a security feature which is in the covering trust receipt. it was but an artificial expedient. the failure of a person to turn over the proceeds of the sale of goods covered by a trust receipt or to return said goods if not sold is a public nuisance to be abated by the imposition of penal sanctions. the latter remained a lender and creditor. it could dispose of the goods in any manner it wants. It was merely the holder of a security title for the advances it had made to the VINTOLAS. If the beneficiary is not paid under such trust receipt. To a certain extent. the importer should be the real owner of the goods. The trust receipt arrangement did not convert the IBAA into an investor. then said goods are to be regarded as lost on account of the real owner. as a matter of public policy. the Court has repeatedly upheld the validity of the Trust Receipts Law and consistently declared that the said law does not violate the constitutional proscription against imprisonment for non-payment of debts. IBAA did not become the real owner of the goods. In fine. (ALLIED BANKING CORP." (TIOMICO VS. (MARTINEZ VS. and if the property covered by the quedans or warehouse receipts is lost later without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. the transaction involves a loan feature represented by the letter of credit. Under that set-up. therefore. such interest becomes a "lien" on the goods because the entruster's advances will have to be settled first before the entrustee can 117 Red Notes in Commercial Law . with the trust receipt as a security for the loan.D. CA)  A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW the goods covered by the warehouse receipt or quedan but he merely retains the right to keep. Nitafan (supra) held: "The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. If under the trust receipt. and with the consent of the owner to sell. for if it were go. No. there can be no violation of the right against imprisonment for non-payment of a debt. more of a legal fiction than fact. is a security agreement. A trust receipt. PNB) TRUST RECEIPTS LAW  As regards the first issue. and would include items obtained under a trust receipt used to repair and maintain equipment used in business. (VINTOLA VS. Verily. Since the IBAA is not the factual owner of the goods. Contrary to the allegation of the VINTOLAS. the trustee is liable under the law. 115 apply even when the trust receipt issued covers goods or items not destined for sale or for use in manufacture. the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. PD 115 is a declaration by the legislative authority that. which it cannot do. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. a bank extends a loan covered by the letter of Credit. In other words. PD 115 is a valid exercise of police power and is not repugnant to the constitutional provision of non-imprisonment for non-payment of debt. VS. Thus. them so as to satisfy the obligation from the proceeds of the sale." For the bank has previously extended a loan which the L/C represents to the importer. pursuant to which a bank acquires a "security interest” in the goods. The law does not seek to enforce payment of a loan. INSULAR BANK)  The penal provisions of P. In a similar vein. mortgagor or pledgor. they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods.

219 SCRA 610)  Although the word “Selecta” may be an ordinary or common word in the sense that it may be used or employed by any one in promoting his business or enterprise. are ordinarily not regarded as indicia of the origin of goods. the word or phrase has come to mean that the article was his product. characteristics. if the claim upon which the attachment suit was commenced is proved against the estate of the debtor. of the Insolvency Law is very clear-that attachments dissolved are those levied within one (1) month next preceding the commencement of the insolvency proceedings and judgments vacated and set aside are judgments entered in any action. including judgment entered by default or consent of the debtor. there is no conflict between the two provisions. For to refuse to recognize the title of the banker under the trust receipt as security for the advance of the purchase price would be to strike down a bonafide and honest transaction of great commercial benefit and advantage founded upon a well-recognized custom by which banking credit is officially mobilized for manufacturers and importers of small means. 96 PHIL. (ONG OI GUI VS. (VICTORIAS MILLING CO. The records however do not show that the winning bidder is such purchaser. on the other hand. there is cut off period--one (1) month in attachment cases and thirty (30) days. or is dissolved by an undertaking given by the defendant. 79 SCRA 207) San Beda College of  One who has adopted and used a trademark on his goods does not prevent the adoption and use on the same trademark by others for products which and of a different description. VS. in that trade and to that branch of the purchasing public. (PRUDENTIAL BANK VS. ONG SU. Section 79. The only exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good faith. VS. provides for the right of the plaintiff if the attachment is not dissolved before the commencement of proceedings in insolvency. unless they have acquired a secondary meaning. such as diamonds. (LYCEUM OF THE PHILIPPINES INC. NLRC) INSOLVENCY LAW  The provision of the above-quoted Section 32. it may acquire a secondary meaning as to be exclusively associated with its 116 Law . or of its composition. DIRECTOR. might nevertheless have been used so long and so exclusively by one producer with reference to its article that. Neither can private respondents plead preferential claims to the properties as petitioner has the primary right to them until its advances are fully paid. VS. cannot be appropriated and protected as a trademark to the exclusion of others. COURT OF APPEALS. In short. PHILIPPINE PATENTS OFFICE. 673)  Common geometric shapes. where the action was filed within thirty (30) days immediately prior to the commencement of the insolvency proceedings. the law warrants the validity of petitioner's security interest in the goods pursuant to the written terms of the trust receipt as against all creditors of the trust receipt agreement.College of Law LAW San Beda COMMERCIAL consolidate his ownership over the goods. Therefore. INC. or as a badge of authenticity. A contrary view would be disastrous. INTERMEDIATE APPELLATE COURT. as earlier stated. 215 SCRA 3160  A word or phrase originally incapable of exclusive appropriation with reference to an article on the market. sign or device to characterize its products. once adopted or coined in connection with one’s business as an emblem. (FABERGE INC. relied upon by private respondents. in judgments entered in actions commenced prior to the insolvency proceedings. because it is geographically or otherwise descriptive. IAC) INTELLECTUAL PROPERTY LAW TRADEMARK  A word or a combination of words which is merely descriptive of an article of trade. (RADIOLA-TOSHIBA VS. or qualities. Besides.

a registered trademark also for medicated plaster. its use by another may lead to confusion in trade and cause damage to its business. 133 SCRA 405) Red Notes in Commercial Law  It has been held that if a mark is so commonplace that it cannot be readily distinguished from others. 16 SCRA 495)  If the competing trademark contains the main or essential or dominant features of another by reason of which. VS. (ETEPHA VS. are so related as to lead the public to be deceived. STANDARD BRANDS INC. either by its own meaning or by association. the sound effects are confusingly similar. 50)  Infringement of trademark is a form of unfair competition. AL. VS. (ESSO STANDARD Eastern Inc. and he who first adopted it cannot be injured by any subsequent appropriation or imitation by others. Even if “Ang Tibay” therefore. VS. 356 SCRA 207)  Infringement of trademark depends on whether the goods of the two contending parties using the same trademark. no set rules can be deduced – each case must be decided on its own merits. had exactly performed that function for twenty-two years before the petitioner adopted it as a trademark in her own business. 116 SCRA 336)  In determining whether the trademarks are confusingly similar. particularly in ascertaining whether one trademark is confusingly similar to or is a colorable imitation of another. utility models. INC. In this sense. PETRA HAWPIA AND CO. VS. trademarks. (PHILIPPINE REFINING CO. “Ang Tibay” as used by the respondent to designate his wares. confusion and deception are likely to result. 110 PHIL. 115 SCRA 472)  The Convention of Paris for the Protection of Industrial Property. When the two words are pronounced. by respondent’s long and exclusive use of said phrase with reference to his products and his business. (ANG VS. (MARVEX COMMERCIAL CO. is a multilateral treaty that seeks to protect industrial property consisting of patents. Actual probable deception and confusion on the part of the customers by reason of defendant’s practices must always appear. 65 SCRA 575)  In infringement or trademark cases in the Philippines. VS. trade names and indications of source 117 . it has acquired a proprietary connotation. industrial designs. VS. and to cause him to purchase the one supposing it to be the other. COURT OF APPEALS. INC. (FRUIT OF THE LOOM INC. then infringement takes place. 224 SCRA 437)  The validity of a cause for infringement is predicated upon colorable imitation. (PHILIPPINE NUT INDUSTRY INC. INC. then it is apparent that it cannot identify a particular business. the application of the doctrine of secondary meaning could be sustained because. Court of Appeals. COURT OF APPEALS.A. (ARCE SONS AND CO. 858)  The trademark “Lionpas” for medicated plaster cannot be registered because it is confusingly similar to “Salonpas”. (SOCIETE DES PRODUITS NESTLE S. such as “ESSO”. the duplication or imitation is not necessary. ET. were not capable of exclusive appropriation as a trademark. NG SAM.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW products and business. The trademark ESSO which the petitioner uses for its various petroleum products can be used by another as trademark for cigarettes as the two classes of products flow through different trade channels. (ASIA BREWERY INC.. otherwise known as the Paris Convention. service marks. TEODORO. and the public will not be deceived.. to the origin or ownership of the wares to which it is applied. or such resemblance to the original as to deceive an ordinary purchaser giving such attention as a purchaser usually gives. The universal test question for infringement is whether the public is likely to be deceived. a similarity in the dominant features of the trademarks would be sufficient. VS. 74 PHIL. AL. a comparison of the words is not the only determining factor. 18 SCRA 1178)  The function of a trademark is to point distinctively. vs. DIRECTOR OF PATENTS ET.. The phrase “colorable imitation” denotes such a close or ingenious imitation as to be calculated to deceive ordinary persons. in any event. COURT OF APPEALS. The trademark in their entirety as they appear in their respective labels or hang tags must also be considered in relation to the goods to which they are attached. SELECTA BISCUIT CO.

(LA CHEMISE LACOSTE VS. (CONVERSE RUBBER CORP. and thereby render the trademark or trade name confusingly similar. 224 SCRA 576)  An unlicensed. The fact that distributor spent substantial sums to promote product covered by trademark is not sufficient to vest ownership of the trademark. have pledged to accord to citizens of the other member countries.. Goods are related when they belong to the same class or have the same descriptive properties. VS. COURT OF APPEALS. and of the registrant’s exclusive right to use the same in connection with the goods. COURT OF APPEALS.College of Law LAW San Beda COMMERCIAL or appellations of origin and at the same time aims to repress unfair competition. PEREZ. 251 SCRA 600) Law 116 San Beda College of  The right to the exclusive use of a corporate name with freedom from infringement is determined by priority of adoption. but is widely and favorably known in the Philippines through the use of its products bearing its corporate and trade name. They may also be related because they serve the same purpose. the test is whether the similarity is such as to mislead a person using ordinary care and discretion. VS. 318 SCRA 516)  A foreign corporation not doing business in the Philippines needs no license to sue in the Philippines for trademark violations. the registrant’s ownership of the mark or trade name. FERNANDEZ. composition. (PHILIP MORRIS INC. 129 SCRA 373)  A foreign corporation not doing business in the Philippines may have the right to sue before the Philippine courts but it may not necessarily be entitled to protection due to absence of actual use of the emblem in the Philippine market. (PHILIPS EXPORT B. The convention is essentially a compact among various countries which as members. The Philippine being a party to the Paris Convention for the Protection of Industrial Property. 206 SCRA 457) . 147 SCRA 154)  Agreement giving distributor ownership of packages does not necessarily get her exclusive use of the trademark. when they possess the same physical attributes or essential characteristics with reference to their form. trademark and other rights comparable to those accorded their own citizens by their domestic laws for an effective protection against unfair competition. (EMERALD GARMENT MANUFACTURING CORP.. 336 SCRA 266)  The reckoning point for the filing of a petition for cancellation of certificate of registration of trademark is not from the alleged date of use but from the date the certificate of registration was published in the Official Gazette and issued to the registrant. 55 SCRA 406)  A certificate of registration of a mark or trade name is prima facie evidence of the validity of the registration. (CANON KABUSHIKI KAISHA VS. VS. unregistered foreign corporation which has never done any business in the Philippines. the question that usually arises is whether the respective goods or services of the senior user are so related as to likely cause confusion of business or origin.V. business or services specified in the certificate. (GABRIEL VS. the right of a foreign corporation to file suit in the Philippine courts to protect its trademark is to be enforced. VS. texture or quality. 354 SCRA 434)  In cases of confusion of business or origin. In determining the existence of confusing similarity in corporate name. COURT OF APPEALS. INC. subject to any conditions and limitations stated therein. COURT OF APPEALS. (AMIGO MANUFACTURING INC. (MIRPURI VS. VS. UNIVERSAL RUBBER PRODUCTS INC. has a legal right to maintain an action in the Philippines to restrict the organization of a corporation whose sole purpose is to deal and trade in the same goods as those of the foreign corporation. COURT OF APPEALS. CLUETT PEABODY CO.

the rights are limited to what the statute confers. since whatever right one has to the invention covered by the patent arises alone from the grant of patent. Petitioner admits it has no patent over its aerial fuze. (SMITH KLINE BECKMAN CORPORATION vs. the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement. and on terms and conditions specified in the statute.). assignees. DRILON)  In determining the question of infringement.)  To be able to effectively and legally preclude others from copying and profiting from the invention. or as grantees. (CRESSER PRECISSION SYSTENS INC. refers only to the patentee's successorsin-interest. has no cause of action for infringement because the right to maintain an infringement suit depends on the existence of the patent. No patent. In short. SHOEMART. (SCHWARTZ VS. INCORPORATED)  The copyright does not extend to the general concept or format of its dating game show. in the strict sense of the term. only the patentee or his successors-in-interest may file an action for infringement. While petitioner claims to be the first inventor of the aerial fuze. INCORPORATED vs. (JOAQUIN VS. INCORPORATED. VS. are subject to appropriation without significant restraint. the patentee having the burden to show that all three components of such equivalency test are met. is purely a statutory right. Moreover. assignees or grantees since actions for infringement of patent may be brought in the name of the person or persons interested. CA) COPYRIGHT  Copyright. INCORPORATED. The phrase "anyone possessing any right.). and NORTH EDSA MARKETING. Therefore. Accordingly. The doctrine of equivalents thus requires satisfaction of the function-means-and-result test. title or interest in and to the patented invention" upon which petitioner maintains its present suit. It may be obtained and enjoyed only with respect to the subjects and by the persons. and NORTH EDSA MARKETING. still it has no right of property over the same upon which it can maintain a suit unless it obtains a patent therefor. 335 SCRA 493) PATENTS  A person or entity who has not been granted letters patent over an invention and has not acquired any right of title thereto either as assignee or as licensee. INCORPORATED vs. has no cause of action for infringement because the right to maintain an infringement suit depends on the existence of the patent. although with some modification and change. it is not necessary that the whole 117 Red Notes in Commercial Law . INCORPORATED)  Under the aforequoted law. it has no legal basis or cause of action to institute the petition for injunction and damages arising from the alleged infringement by private respondent. a person or entity who has not been granted letters patent over an invention and has not acquired any right or title thereto either as assignee or as licensee. of the exclusive right. SHOEMART. COURT OF APPEALS.2005 CENTRALIZED BAR OPERATIONS COMMERCIAL LAW  Where an unreasonable period of time had elapsed prior to the filing of a petition for revival of the patent application due to the negligence of the applicant’s counsel. there can be no infringement of a patent until a patent has been issued. (PEARL & DEAN (PHIL. a patent is a primordial requirement. COURT OF APPEALS ET AL. Being a mere statutory grant. such inaction would result in the forfeiture of the right to revive the patent application. once disclosed to the public without the protection of a valid patent. 286 SCRA 13)  The doctrine of equivalents provides that an infringement also takes place when a device appropriates a prior invention by incorporating its innovative concept and. Ideas. The ultimate goal of a patent system is to bring new designs and technologies into the public domain through disclosure. (PEARL & DEAN (PHIL. performs substantially the same function in substantially the same way to achieve substantially the same result. (CRESER PRECISON SYTEMS VS. it can cover only the works falling within the statutory enumeration or description. no protection. COURT OF APPEALS. whether as patentee.

(HABANA VS. ROBLES) 116 Law San Beda College of . If so much is taken that the value of the original is sensibly diminished. or the labors of the original author are substantially and to an injurious extent appropriated by another. that is sufficient in point of law to constitute piracy.College of Law LAW San Beda COMMERCIAL or even a large portion of the work shall have been copied.

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