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SC Decisions on Mercantile Law

I. NEGOTIABLE INSTRUMENTS LAWS


On October 10, 2002, a check in the amount of P1,000,000.00 postdated October 9,
2003 and drawn against the account of Marciano Lilia was deposited with the Allied
Banking Corporation. It sent the check for clearing to the Bank of the Philippine
Islands through the Philippine Clearing House. The Bank of the Philippine Islands
cleared the check. The payee of the check cleared the account and withdrew all the
funds. When Marciano Lilia discovered that P1,000,000.00 was debited from his
account, he complained. The Bank of the Philippine Islands credited his account with
the amount. Allied Banking Corporation contended that the Bank of the Philippine
Islands should bear the loss on the ground that it was negligent because of its
failure to return the check within twenty-four hours as provided in the Clearing
House Rules and Regulations. HELD: Both parties were negligent in the
encashment of the check postdated one year from its presentment. The proximate
cause of the encashment of the check was the negligence of the Bank of the
Philippine Islands, who cleared the postdated check sent to it through the clearing
facility without observing its own verification process. If it had only exercised
ordinary care in the clearing process, it could have easily noticed the glaring defect
upon seeing the date written on its face. Notwithstanding the antecedent
negligence of Allied Banking Corporation in accepting the postdated check for
deposit, it can seek reimbursement from the Bank of the Philippine Islands. The
demands of substantial justice are satisfied by allocating 60% of the damage to
Allied Banking Corporation and 40% to Bank of the Philippine Islands. (Allied
Banking Corporation vs. Bank of the Philippine Islands, 692 SCRA 186)
II. TRUST RECEIPTS LAW
1. Loan Contract
The Spouses Quirino dela Cruz and Gloria dela Cruz were engaged in the sale of
fertilizers and agricultural chemical products. Gloria dela Cruz applied for and was
granted by Planters Products, Inc. a credit line with trust receipts as collateral.
Later on, she signed the two trust receipts. She then obtained fertilizers and
agricultural chemical products by submitting customer order forms. Planters
Products, Inc. filed a case for a sum of money against the Spouses Quirino dela Cruz
and Gloria dela Cruz for their failure to pay for the products they ordered. HELD:
The contract did not involve a trust receipt transaction, such that its breach would
render Gloria dela Cruz criminally liable for estafa. Under Section 4 of the Trust
Receipts Law, the sale of goods by a person in the business of selling goods for
profit who, at the outset of the transaction, has, as against the buyer, general
property rights in such goods, or who sells the goods to the buyer on credit,
retaining title or other interest, as security for the payment of the purchase price,
does not constitute a trust receipt transaction.
When both parties enter into an agreement knowing that the return of the goods
subject of the trust receipt is not possible and without any fault on the part of the
trustee, it is not a trust receipt transaction. The only obligation would be the

delivery of the proceeds of the sale. The transaction becomes a mere loan, where
the borrower is obliged to pay the credit and the amount spent for the purchase of
the goods. Nevertheless, this does not erase the liabilities of the Spouses Quirino
dela Cruz and Gloria dela Cruz. (Dela Cruz vs. Planters Products, Inc., 691 SCRA 28)
A trust receipt signed for the purchase of materials which will not be resold but will
be used in the construction business is a simple contract of loan. (Hur Tin Yang vs.
People, 703 SCRA 606)
2.

Loss of Goods

The loss of the crops covered by a trust receipt due to a typhoon does not
extinguish the obligations of the entrustee. (De la Cruz vs. Planters Products, Inc.,
691 SCRA 28)
III. INSURANCE CODE
1.

Fire Insurance

On May 13, 1996, Malayan Insurance Company, Inc. issued a fire insurance policy
for the machineries and equipment of PAP Company, Ltd. located at the Sanyo
Building at Rosario, Cavite. The policy was renewed for one year on an as is
basis. On October 12, 1997, the machineries and equipment were totally lost
because of a fire. PAP Company, Ltd. filed a claim against the fire insurance policy.
Malayan Insurance Company, Inc. denied the claim because in September 1996, it
transferred the machineries and equipment to the Pace Factory at Rosario, Cavite.
This was a material fact that was concealed from it. HELD: The renewal policy
provides that the removal of the insured properties to any building or place without
the consent of Malayan Insurance Company, Inc. would free it from any liability. The
change of location increased the hazard to which the properties were exposed. The
old location was occupied by a factory of automotive and computer parts of PAP
Company, Ltd. and a factory of zinc and aluminum die cast, plastic glass for copying
machine with a rate of 0.449%. The Pace Factory repacked silicone sealant to
plastic cylinder with a rate of 0.65%. The rate was increased from 0.449% to
0.637%. An insurer can rescind an insurance policy if the following conditions are
present:
1)

The policy limits the use or conditions of the thing insured;

2)

There is an alteration in the use or condition;

3)

The alteration is without the consent of the insurer;

4)

The alteration is made by means within the control of the insured; and

5) The alteration increases the risk of loss. (Malayan Insurance Company, Inc. vs.
PAP Company, Ltd., 703 SCRA 314)
2.

Life Insurance

If a life insurance policy has been in force for at least two years from its date of
issuance, the insurance company can no longer deny a claim on the ground of

concealment or misrepresentation by the insured. (Manila Bankers Life Insurance


Corporation vs. Aban, 702 SCRA 417)
3.

Motor Vehicle Insurance

Arsenia Sonia Castor insured her car with Alpha Insurance and Surety Company
against loss or damage. When she instructed her driver to bring the car to the auto
shop for a tune-up, the driver no longer returned with the car. She filed a claim
against the insurance policy for the loss of the car. Alpha Insurance and Surety
Company denied it on the ground that one of the exceptions under the policy was
any malicious damage caused by a person in the service of the insured. Arsenia
Sonia Castor argued that the exception referred to damage to the car. HELD: The
insurance policy insured for loss due to theft. The theft perpetrated by the driver is
not an exception to the coverage of the policy. The exception refers only to
malicious damage, or injury to the car. It does not contemplate loss. (Alpha
Insurance and Surety Company vs. Castor, 704 SCRA 550)
4.

Health Insurance

Mitsubishi Motors Philippines Corporation and Mitsubishi Motors Philippines Salaried


Employees Union entered with a collective bargaining agreement. The collective
bargaining agreement provided that the company would pay the hospitalization
expenses of dependents of the employees subject to certain limitations. The
company would obtain group hospitalization insurance coverage or assume the
liability as self-insurer and payment would be made directly to the hospital and the
doctors.
The dependents of three employees were hospitalized. The dependents were
covered by personal health insurance. The personal health insurance companies
paid a portion of the medical expenses. The company deducted from its payments
the amounts paid by the personal health insurance companies. HELD: The
condition that payment by the employees should be made directly to the hospital
and doctor implies that the company is only liable to pay medical expenses actually
shouldered by the dependents of the employees. It does not include amounts paid
by the health insurance providers. (Mitsubishi Motors Philippines Salaried
Employees Union vs. Mitsubishi Motors Philippines Corporation, 698 SCRA 599)
5.

Subrogation

Vector Shipping Corporation was the operator of the tanker M/T Vector, while
Francisco Soriano was its registered owner. Caltex Philippines, Inc. chartered M/T
Vector to transport petroleum. The cargo was insured with American Home
Assurance Company. On December 20, 1987, M/T Vector collided with another
vessel. Both vessels were sank. The entire cargo of petroleum was lost. On July 12,
1988, American Home Assurance Company indemnified Caltex Philippines, Inc. for
the loss of the petroleum. On March 5, 1992, it sued Vector Shipping Corporation
and Francisco Soriano for reimbursement. The Regional Trial Court dismissed the
case on the ground of prescription, because it was based on a quasi-delict which
occurred on December 20, 1987 and the action was filed after four (4) years.

HELD: The cause of action was based upon an obligation created by law, because it
is based on the right of subrogation of the insurer by virtue of Article 2207 of the
Civil Code. It comes under Article 1194(2) of the Civil Code and prescribes in ten
years. (Vector Shipping Corporation vs. American Home Assurance Company, 700
SCRA 389)
IV. INTELLECTUAL PROPERTY CODE
1.

False Designation of Origin

The trademarks Hipolito & Sea Horse & Triangular Device and Fauna for
kerosene burners were owned by Casa Hipolito S.A. Portugal. They were assigned
by the owner to Vicente Lo in all countries except those in Europe and America. He
filed a case against Chester Uy, Winston Uychiyong and Cherry Uyco-Ong for
violation of Section 169 in relation to Section 170 of the Intellectual Property Code.
He claimed that Wintrade, which was owned by them, used the trademark without
his authorization for kerosene burners manufactured in the Philippines. The
trademark and the phrases Made in Portugal and Original Portugal appeared in
the wrappers of the kerosene burners. HELD: The owners of Wintrade placed the
words Made in Portugal and Original Portugal with the trademarks in products
produced in the Philippines with no authority from Casa Hipolito S.A. Portugal. The
law prohibits a person from profiting from the business reputation owned by another
and from deceiving the public as to the origins of the products. (Uyco vs. Lo, 689
SCRA 378)
2.

Dissimilarity of Trademarks

Levi Strauss and Company registered as trademarks for jeans a leather patch
showing two horses pulling a pair of pants and an arcuate pattern with the
inscription LEVI STRAUSS & CO. Victorio Diaz owned tailoring shops. He produced
jeans with the label LS Jeans Tailoring and a leather patch with two buffaloes. He
was charged with infringement of the trademarks of Levi Strauss and Company.
HELD: The trademark of Victorio Diaz is visually and aurally different from those of
Levi Strauss and Company. The letters LS cannot be mistaken as a derivative of
LEVI STRAUSS, because it is connected to the word TAILORING. Likewise, a
horse and a buffalo are different animals which an ordinary customer can easily
distinguish. (Diaz vs. People, 691 SCRA 139)
3.

Ownership of Trademark

Renaud Cointreau & Cie, a French partnership, applied to register Le Cordon Bleu &
Device as a trademark of a culinary school. Ecole de Cuisine Manille, Inc. opposed
on the ground that it had been using it as a trademark in the Philippines since
1948. Renaud Cointreau & Cie argued that it is the true and lawful owner of the
trademark, as Le Cordon Bleu is a culinary school of worldwide acclaim established
in France in 1895. HELD: Foreign trademarks which are not yet registered in the
Philippines are accorded protection against infringement and unfair competition
under Articles 16bis and 8 of the Paris Convention, to which the Philippines and
France are both signatories. Renaud Cointreau & Cie has been using the trademark

in France since 1893. In fact, the foundress and the directress of Ecole de Cuisine
Manille, Inc. both trained in Le Cordon Bleu. (Ecole de Cuisine Manille, Inc. vs.
Renaud Cointreau & Cie, 697 SCRA 345)
Birkenstock Orthopaedie GMBH and Co. KG applied for the registration of various
Birkenstock trademarks for footwear. Action on its application was suspended
because of the registration of the trademark Birkenstock and device in the name of
Shoe Town International and Industrial Corporation, the predecessor-in-interest of
Philippine Expo Marketing Corporation. However, because of the failure of
Philippine Expo Marketing Corporation and its predecessor-in-interest to file a tenth
year declaration of the actual use, the registration was cancelled. Philippine Expo
Marketing Corporation opposed the application of Birkenstock Orthopaedie GMBH
and Co. KG on the ground it and its predecessor-in-interest had been using the
trademark for more than sixteen years. HELD: The failure to file a declaration of
actual use within the requisite period resulted in the automatic cancellation of the
registration of a trademark. Such failure is tantamount to abandonment of any right
of the registrant over his trademark.
Besides, Birkenstock Orthopaedie GMBH and Co. KG is the true and lawful owner of
the trademark Birkenstock. Birkenstock was first adopted in Europe in 1774 by
Johann Birkenstock, a shoemaker, for footwear and thereafter by numerous
generations of his kins until it became the entity known as Birkenstock Orthopaedie
GMBH and Co. KG. (Birkenstock Orthopaedie GMBH and Co. KG vs. Philippine Shoe
Expo Marketing Corporation, 710 SCRA 474)
4.

Infringement of Trademark

Petron Corporation produces liquefied petroleum gas. It is the registered owner of


the trademark GASUL and GASUL cylinders used for its products. Pilipinas Shell
Petroleum Corporation is the authorized user in the Philippines of the trademark
SHELLANE used in the production and sale of SHELLANE liquefied petroleum gas.
Operatives of the National Bureau of Investigation brought empty liquefied
petroleum gas cylinders bearing the trademarks SHELLANE and GASUL to Republic
Gas Corporation, which refilled them. Money was then given for the refilling of the
empty cylinders.
A senior agent of the National Bureau of Investigation applied for search warrants.
The Regional Trial Court of Manila issued two search warrants. Operatives of the
National Bureau of Investigation searched the premises of Republic Gas Corporation
and seized empty and filled SHELLANE and GASUL cylinders. The officers and the
employees of the Republic Gas Corporation were charged with infringement of
trademark and unfair competition.
HELD: The officers and employees of Republic Gas Corporation committed
infringement of trademark when they refilled, without the consent of Pilipinas Shell
Petroleum Corporation and Petron Corporation, the liquefied petroleum gas
containers bearing their registered trademarks. The acts will confuse the public,

since they have no way of knowing that the gas contained in the liquefied
petroleum gas tanks bearing their trademarks had been illegally refilled.
By refilling and selling the liquefied petroleum gas cylinders bearing the registered
trademarks of Pilipinas Shell Petroleum Corporation and Petron Corporation, the
officers and employees of Republic Gas Corporation were selling goods by giving
them the general appearance of goods of other manufacturers. (Republic Gas
Corporation vs. Petron Corporation, 698 SCRA 666)
V. CORPORATION
1.

Juridical Personality

The stockholders of a corporation cannot claim damages for themselves for the
wrongful attachment of its assets. (Stronghold Insurance Company, Inc. vs. Cuenca,
692 SCRA 473)
The mere fact that a corporate officer signed a contract in behalf of a corporation is
not sufficient basis for piercing the veil of corporate fiction. (Saverio vs. Puyat, G.R.
No. 186433, November 27, 2013)
Because of the foreclosure of the mortgages on the properties of Marinduque Mining
and Industrial Corporation, the Development Bank of the Philippines and the
Philippine National Bank acquired substantially all its assets. They organized the
Nonoc Mining and Industrial Corporation to operate the business. Development
Bank of the Philippines and the Philippine National Bank owned 57% and 43%,
respectively, of the shares of stock of the corporation.
Later on, Nonoc Mining and Industrial Corporation hired Hercon, Inc. for its mine
stripping and road construction programs. Claiming that it was not fully paid,
Hercon, Inc. sued Nonoc Mining and Industrial Corporation, Development Bank of
the Philippines and Philippine National Bank for the unpaid balance, and asked that
they be held liable solidarily. The two banks claimed that they could not be held
liable, because of their separate juridical personalities.
The Regional Trial Court and the Court of Appeals ruled that the separate juridical
personalities of the banks should be disregarded, because the Nonoc Mining and
Industrial Corporation was merely their alter ego. HELD: To determine application
of the alter ego theory, a three-pronged test is laid down:
1.
Control, not by mere stock control but complete domination of finances, policy
and business practice in respect to the transaction assailed, so that the corporation
had no separate mind;
2.
Use of such control to commit fraud or wrong in contradiction of the right of
the plaintiff;
3.

Injury proximately caused by the control and breach of duty.

In the absence of control and fraud through the corporate cover of Nonoc Mining
and Industrial Corporation, no harm can be said to have been proximately caused
by the banks on Hercon, Inc. for which Hercon, Inc. can hold them solidarily liable

with Nonoc Mining and Industrial Corporation. (Philippine National Bank vs. Hydro
Resources Contractors Corporation, 693 SCRA 294)
Hammer Garments Corporation obtained loans from International Exchange Bank.
The payment was secured by a real estate mortgage on the properties of Goldkey
Development Corporation. As the loans were not paid, International Exchange Bank
foreclosed the real estate mortgage. Since the foreclosure sale resulted in a
deficiency, International Exchange Bank sued Hammer Garments Corporation and
Goldkey Development Corporation for the deficiency. The Regional Trial Court held
Goldkey Development Corporation liable on the ground that the separate juridical
personalities of the two corporations should be disregarded. HELD: The separate
juridical personalities of the two corporations should be disregarded. First, the
stockholders of both corporations are the Spouses Manuel Chua and Fe Tan Uy and
their families. Second, they share the same office. Third, Manuel Chua is the
president of both corporations. Manuel Chua signed the promissory notes of
Hammer Garments Corporation and the real estate mortgages of Goldkey
Development Corporation. Fourth, the assets of the two corporations were comingled. The proceeds of the loans were used to buy a managers check payable to
Goldkey Development Corporation. When Manuel Chua disappeared, Goldkey
Development Corporation ceased to operate. (Heirs of Fe Tan Uy vs. International
Exchange Bank, 690 SCRA 919)
Francisco Co, Jr. sued Abante Tonite, a tabloid, for publishing an article which was
allegedly libelous. Abante Tonite argued that it could not be sued since it was not a
juridical person. HELD: Abante Tonite is a corporation by estoppel as a result of its
having represented itself to the reading public as a corporation in its editorial box
despite its not being incorporated. (Macasaet vs. Co., Jr., 697 SCRA 187)
2.

Board of Directors

The power of a corporation to sue is vested in the board of directors. (Swedish


Match Philippines, Inc. vs. Treasurer of the City of Manila, 700 SCRA 428; Esguerra
vs. Holcim Philippines, Inc., 704 SCRA 490)
Alfredo Tan and Uy Keng See Willy, the president and the treasurer, respectively, of
Arma Traders Corporation, purchased paper products on credit and obtained loans
from Advance Paper Corporation in behalf of Arma Traders Corporation. The checks
issued to pay for the purchases and the loans were dishonored. Advance Paper
Corporation sued Arma Traders Corporation for payment. Arma Traders Corporation
alleged that the board of directors never passed a resolution authorizing the
transaction. HELD: The management of Arma Traders Corporation was left to
Alfredo Uy and Uy Keng See Willy. Since 1984 up to the filing of the case, the
stockholders and the board of directors never had any meeting. HELD: The
doctrine of apparent authority provides that a corporation will be estopped from
denying the authority of an agent if it knowingly permits an officer to act within the
scope of an authority and holds him out to the public as possessing the power to do
those acts. Its existence may be ascertained through a general manner in which
the corporation holds out an officer as having the power to act or the acquiscience
in his acts of a particular nature, with actual or constructive knowledge of them.

(Advance Paper Corporation vs. Arma Traders Corporation, G.R. No. 176897,
December 11, 2013)
Hammer Garments Corporation obtained loans from International Exchange Bank.
The payment of the loans were secured by a real estate mortgage. As Hammer
Garments Corporation defaulted in the payment of the loans, International
Exchange Bank foreclosed the mortgage extrajudicially. The foreclosure sale
resulted in a deficiency. International Exchange Bank sued the treasurer of Hammer
Garments Corporation for the deficiency. The Court of Appeals held her liable on the
ground that she was an officer of the board. The financial report submitted for the
application for the loans incorrectly declared the assets and cash flow. HELD: At
most, Fe Tan Uy could be charged with negligence in the performance of her duties.
Nonetheless, this is not sufficient. The negligence of the officer must be so gross as
to amount to bad faith. (Heirs of Fe Tan Uy vs. International Exchange Bank, 690
SCRA 919)
In the absence of bad faith and malice, corporate officers cannot be held liable for
breach of contract entered into by a corporation. (Gotesco Properties, Inc. vs.
Fajardo, 692 SCRA 319)
The general manager of a corporation cannot be held personally liable for the
obligations of a corporation in the absence of proof that it was merely his alter ego.
(Roxas vs. Our Ladys Foundation, 692 SCRA 578)
An internal audit of the accounts of Marina International Marketing Corporation led
to the discovery that Virginia Dy, an assistant vice president of Philippine Banking
Corporation, approved the purchase of shipping documents which were fictitious.
The Philippine Banking Corporation sued her for damages. HELD: She is liable for
the amounts paid. (Dy vs. Philippine Banking Corporation, 689 SCRA 507)
3.

Shares of Stock

Fil-Estate Golf and Development, Inc. sold a common share in Forest Hills Golf and
Country Club to Asuncion Construction Corporation. The purchase price for the
common share had not yet been fully paid. Asuncion Construction Corporation sold
the common share to Vertex Sales and Trading, Inc. Vertex Sales and Trading, Inc
paid the purchase price in full to Forest Hills Golf and Country Club, as well as the
transfer fee. For failure of Forest Hills Golf and Country Club to deliver the stock
certificate, Vertex Sales and Trading, Inc. sued for rescission of the sale. HELD: The
purchase price was paid in full on February 11, 1999, but the stock certificate was
delivered only on February 23, 2002. The failure to deliver the stock certificate
within a reasonable time is a substantial breach of contract that entitles Vertex
Sales and Trading, Inc. to rescind the sale. (Fil-Estate Golf and Development, Inc.
vs. Vertex Sales and Trading, Inc., 648 SCRA 2720)
4.

Derivative Suit

Juanito Ang and Roberto Ang were brothers and stockholders of Sunrise Marketing
(Bacolod), Inc. Their wives, Aniceta Ang and Rachel Ang, were also stockholders of
the corporation. Nancy Ang was the sister of Juanito Ang and Roberto Ang. Nancy

Ang and her husband, Theodore Ang, granted a loan of one million dollars to Juanito
Ang, Roberto Ang, Aniceta Ang and Rachel Ang to be used to settle the obligations
of Sunrise Marketing (Bacolod), Inc. and other corporations owned by the Ang
family. No written agreement was signed because of the close relationship among
the parties.
Nancy Ang and Theodore Ang sent a letter of demand, because they were not being
paid. Roberto Ang and Rachel Ang answered that they were not paying, because
they had not contracted any loan from Nancy Ang and Theodore Ang. Juanito Ang
and Aniceta Ang entered into a settlement with Nancy Ang and Theodore Ang.
Juanito Ang filed a derivative suit in behalf of Sunrise Marketing (Bacolod), Inc.
against Roberto Ang and Rachel Ang. He claimed that their intentional and
malicious refusal to pay their 50% share in the loan would affect the financial
viability of the corporation. HELD: The action is not a derivative suit. The loan was
not a corporate obligation but a personal debt of the Ang brothers and their
spouses. The proceeds of the loan were used to pay the loans of other corporations
owned by the Ang family and the purchase of real properties for the Ang brothers.
(Ang vs. Ang, 699 SCRA 272)
5.

Dissolution

Changing the name of a corporation does not result in its dissolution. (Zuellig
Transport and Cargo System vs. National Labor Relations Office, 701 SCRA 561)
The directors of a corporation which has been dissolved may continue acting as
trustees even beyond the three-year period for liquidation for the purpose of
liquidating the corporation. (Aguirre II vs. FQB+7, Inc., 688 SCRA 242)
Claiming to be a stockholder of FQB+7, Inc., Vitaliano Aguirre II filed a complaint
questioning the validity of the change in the composition of the directors and
stockholders of the corporation in the general information sheet on the basis of an
alleged meeting of the stockholders. Meanwhile, the Securities and Exchange
Commission dissolved FQB+7, Inc. for failure to comply with reportorial
requirements. HELD: The case can continue. The corporation does not seek to
continue the business of the corporation. Its aim is to vindicate the right of a
stockholder to the return of his stockholdings and to remove usurpers and
strangers from its affairs. The determination of which group is the rightful board of
directors will provide practical relief to the parties involved. The stockholdings of a
party is a property right which he may vindicate. The dissolution of the corporation
does not extinguish it. (Aguirre II vs. FQB+7, Inc., 688 SCRA 242)
The Metropolitan Building Services, Inc. supplied janitorial employees to the
Philippine College of Criminology, Inc. In 2008, the Philippine College of
Criminology, Inc. discovered that the certificate of incorporation of the Metropolitan
Building Services, Inc. had been revoked and terminated the contract with it. As a
result, the janitorial employees were terminated. The employees filed a case for
illegal dismissal. The Metropolitan Building Services, Inc. argued that it could not be
held liable, because its certificate of registration had been revoked. HELD: Under

Section 245 of the Corporation Code, any liability incurred by a corporation is not
impaired by its dissolution. (Vigilla vs. Philippine College of Criminology, Inc., 698
SCRA 247)
VI. SECURITIES REGULATION CODE
Ester Tanco-Gabaldon, Arsenio Tanco, and the Heirs of Ku Tiong Lau filed criminal
complaints against the Officers of Citibank, N.A. and the Citigroup Private Bank for
violation of the Securities Regulation Code, because they were sold income notes
which were not duly registered, and the sellers were not registered security issuers,
brokers, dealers or agents, and their investments were wiped out.
The officers claimed that the cases had prescribed, because under Sections 57 and
62.1 of the Securities Regulation Code, violations of Sections 56, 57, 57.1(a) and
57.1(b) prescribe within two years or five years. HELD: Section 62.1 merely
addressed the prescriptive period for civil liability. Because of the absence of a
prescriptive period for criminal liability in the Securities Regulation Code, Act No.
3326 applies. Section 1 of Act No. 3326 provides that for offenses punished by
imprisonment for six years or more prescribe after 12 years. (Citibank, N.A. vs.
Tanco-Gabaldon, 703 SCRA 172)
VII. CORPORATE REHABILITATION
Steel Corporation of the Philippines filed a petition for corporate rehabilitation. It
obtained an industrial all risks insurance policy against material damage and
business interruption. When a fire broke out in its plant, it filed a motion with the
court where its petition was pending asking the court to order the insurance
companies to pay the insurance proceeds. HELD: The rehabilitation court has no
jurisdiction over the insurance claim. Steel Corporation of the Philippines must file a
separate action for collection where the insurance companies can properly raise
their defenses. (Steel Corporation of the Philippines vs. Mapfre Insular Insurance
Corporation, 707 SCRA 601)
VIII. TRANSPORTATION AND PUBLIC UTILITIES
1.

Common Carrier

A customs broker who delivers the goods of its customers as part of its service is a
common carrier (Westwind Shipping Corporation vs. UCPB General Insurance
Company, Inc. 710 SCRA 544)
2.

Extent of Liability

A shipment of soybean meal consigned to Simon Enterprises, Inc. was transferred to


the receiving barges of Asian Terminals, Inc., the arrastre operator. A second
shipment of soybean meal was also transferred to the receiving barges of Asian
Terminals, Inc. Simon Enterprises, Inc. claimed that there was a shortage of 18.556
metric tons in the first shipment and a shortage of 199.863 metric tons in the
second shipment. It filed a claim for damages. As Asian Terminals, Inc. denied the
claim, Simon Enterprises, Inc. filed a case against it. HELD: Simon Enterprises, Inc.
failed to prove that the shipments suffered actual shortage, as there was no

competent evidence of its neglect at the port of origin. The bills of lading carried
the qualification shippers right, quantity and quality unknown. Besides, any
shortage being claimed may have been due to the inherent nature of the soybean
meal or the packaging as it was shipped in bulk and had moisture content of
12.5%. Soybean meal tends to settle or consolidate over time. (Asian Terminals,
Inc. vs. Simon Enterprises, Inc., 692 SCRA 87)
Nichimen Corporation shipped on board a vessel owned by Westwind Shipping
Corporation packages containing trucks and consigned to Universal Motors
Corporation. The shipment was insured with Philam Insurance Company, Inc. A
steel case was partly torn and crumpled on one side while it was being unloaded
from the vessel. Its contents were damaged. Philam Insurance Corporation, Inc.
paid the claim of Universal Motors Corporation against its policy. It sued Westwind
Shipping Corporation for indemnity. HELD: The responsibility of a common carrier
lasts from the time the goods are unconditionally placed in its possession until they
are delivered actually or constructively by the common carrier to the consignee.
(Asian Terminals, Inc. vs. Philam Insurance Company, Inc., 702 SCRA 88)
Kinsho-Mataichi Corporation shipped skids of tin-free steel for delivery to San Miguel
Corporation on board a vessel owned by Westward Shipping Corporation. San Miguel
Corporation insured the cargoes with UCPB General Insurance Company, Inc.
During the unloading, some skids were dented and punctured from the forklift used
by the stevedores. San Miguel Corporation filed a claim against the insurance
policy. UCPB General Insurance Company, Inc. paid the claim and sued Westwind
Shipping Corporation. It argued that it had no more custody of the skids when they
were damaged. HELD: Section 3(2) of the COGSA provides that among the
responsibilities of carriers is to properly and carefully discharge the goods carried.
The duty of care is non-delegable. The carrier is liable for the acts of the
stevedores. (Westwind Shipping Corporation vs. UCPB General Insurance Company,
Inc., 710 SCRA 544)
On August 29, 2003, September 13, 2003, and September 29, 2003, Sumitomo
Corporation shipped to Calamba Steel steel sheets in coil on board vessels of
Eastern Shipping Lines, Inc. The shipments were insured. Upon unloading upon
arrival in Manila, some of the coils in the shipments were found to be in bad
condition. Calamba Steel filed claims against the insurance policies, and BPI/MS
Insurance Corporation paid the claims and sued Eastern Shipping Lines, Inc. as a
subrogee. HELD: It is settled in maritime law jurisprudence that cargoes remain
under the custody of the carrier while they are being unloaded. The cargoes were
damaged even before they were turned over to the stevedore. The damages were
compounded by negligent acts of Eastern Shipping Lines, Inc. and the stevedore,
who mishandled the cargoes during the discharging operations. (Eastern Shipping
Lines, Inc. vs. BPI/MS Insurance Corporation, G.R. No. 193986, January 15, 2014)
3. Air Transportation
Wilfredo Reyes, Juanito Reyes, and Michael Roy Reyes purchased round-trip airplane
tickets from Cathay Pacific Airways for Manila-Hong Kong-Adelaide-Hong KongManila through Sampaguita Travel Corporation. On the return trip, they were not

allowed to board in Hong Kong on the scheduled date, because they did not have
confirmed reservations. It turned out that Sampaguita Travel Corporation inputted a
ticket number for the airplane ticket of Wilfredo Reyes but cancelled it the next day,
as no ticket numbers existed for Juanito Reyes and Michael Roy Reyes. They sued
for damages for breach of contract. HELD: Cathay Pacific Airways breached the
contract of carriage with the Reyes Family when it disallowed them to board the
plane in Hong Kong going to Manila on the date reflected in their tickets. (Cathay
Pacific Airways vs. Reyes, 699 SCRA 725)
4. Public Service Act
Republic Act No, 7252, which was enacted on March 20, 1992, gave GMA Network,
Inc., which was formerly known as Republic Broadcasting System, Inc., a legislative
franchise to operate radio and television broadcasting stations for 23 years. Upon
its application, the National Telecommunications Commission granted it provisional
authority to operate a radio station for 18 months from January 14, 1997.
Despite the expiration of the provisional authority, GMA Network, Inc. continued
broadcasting on the basis of a temporary permit for the period April 21, 1998 to
April 1, 2002 and April 2, 2001 to April 1, 2004. On September 13, 2002, GMA
Network, Inc. applied for a certificate of public convenience. The National
Telecommunications Commission renewed its provisional authority for three (3)
years until July 14, 2004, but fined it under Section 21 of the Public Service Act for
operating with an expired provisional authority from July 14, 1998 to September 13,
2002.
GMA Network, Inc. argued that the imposition of the fine was barred by the 60-day
prescriptive period in Section 28 of the Public Service Act, the fine of P76,050.00
was unconscionable, and the imposition of the fine was unfounded because of the
issuance of the temporary permit. HELD: The National Telecommunications
Commission is authorized to impose fines upon a public service utility under Section
21 of the Public Service Act for failure to comply with the terms and conditions of its
certificate. The imposition of the fine is imposed in an administrative proceeding.
The 60-day prescriptive period in Section 28 of the Public Service Act can be availed
of as defense only in criminal proceedings. Section 21 of the Public Service Act
provides for a fine not exceeding P200.00 per day for every day of violation. The
fine of P76,500.00 is equivalent to P50.00 per day and is consistent with the
limitation. A temporary permit is not a substitute for a provisional authority. (GMA
Network, Inc. vs. National Telecommunications Commission, G,R. No. 19612,
February 26, 2014)
5.

Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act

For the discovery of a tampered meter to constitute evidence of illegal use of


electricity, it must be witnessed and attested by an officer of the law or a
representative of the Energy Regulatory Commission. (Manila Electric Company vs.
Castillo, 688 SCRA 455)

Before service of electricity may be disconnected, a forty-eight hour written notice


must be given to the consumer. (Manila Electric Company vs. Castillo, 688 SCRA
455).
6.

Carriage of Goods by Sea Act

The failure to file a claim against a carrying vessel does not affect the right to sue it
for damages, (Asian Terminals, Inc. vs. Philam Insurance Company, Inc., 702 SCRA
88)
IX. USURY LAW
The Monetary Board has the power to suspend the ceiling on interest rates.
(Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board, 688 SCRA
530)
X. NEW CENTRAL BANK ACT
1. Receivership of Bank
The Monetary Board may place a bank under receivership without the need for a
prior hearing. (Vivas vs. Monetary Board of the Bangko Sentral ng Pilipinas, 703
SCRA 290)
2. Liquidation of Bank
The Monetary Board directed the Philippine Deposit Insurance Corporation to
proceed with the liquidation of the Rural Bank of Tuba (Benguet), Inc. because of its
insolvency. The Bureau of Internal Revenue asked the court to suspend the
liquidation proceedings until the Philippine Deposit Insurance Corporation has
obtained a tax clearance in accordance with Section 52(c) of the National Internal
Revenue Code. HELD: The provision pertains only to a regulation of the
relationship between the Securities and Exchange Commission and the Bureau of
Internal Revenue with respect to corporations contemplating dissolution or
reorganization. The liquidation of banks is governed by Section 3 of the New
Central Bank Act, which does not require a tax clearance. (Philippine Deposit
Insurance Corporation vs. Bureau of Internal Revenue, 698 SCRA 311)
XI. GENERAL BANKING LAW
1. Deposits
Rowena de Leon Cruz was assistant branch manager of a bank. Geoffrey Uymatiao
deposited United States currency under a certificate of deposit. The certificate of
deposit was pre-terminated. The signature of Geoffrey Uymatiao in the instruction
sheet was forged. It was Rowena de Leon Cruz who approved the pretermination
without the presentation of the certificate of deposit.
Geoffrey Uymatiao also had a dollar savings account which was dormant. It was
reactivated, and its funds were withdrawn. His signature in the instruction sheet
was forged. It was Rowena de Leon Cruz who approved the reactivation and the
withdrawal of money from the account.

Maybel Caluag deposited United States currency under a certificate of deposit. The
certificate of deposit was pre-terminated and the proceeds were subsequently
withdrawn. Rowena de Leon Cruz approved the pretermination without the
presentation of the certificate of deposit.
Evelyn Avila had a dollar savings account. The balance of her account was
withdrawn. At that time, she was in Australia. It was Rowena de Leon Cruz who
approved the withdrawal.
Rowena de Leon Cruz was dismissed for gross negligence and breach of trust. She
filed a case for illegal dismissal. She claimed that she compared the signatures in
the documents with the signatures in the signature specimen cards. HELD: Rowena
de Leon Cruz did not call the depositors to appear before her. She did not require
that the original certificates of deposit be surrendered. If she took these
precautions, the fraud could have been averted. (Cruz vs. Bank of the Philippine
Islands, 690 SCRA 546)
Robert Mar Chante maintained a current account with Far East Bank and Trust
Company. The bank issued to him a card to handle ATM transactions. The bank
alleged that on May 4, 1992, Robert Mar Chante used his card to withdraw an
amount of P967,000.00 from his account. At that time, the branch where the
account of Robert Mar Chante was kept was offline. The balance of the account was
P198,511.70; the maximum withdrawal limit was P50,000.00 per day; and the
withdrawals were not deducted from his current account. There was a system bug
at the time which allowed the withdrawals. Robert Mar Chante denied making the
withdrawals.
Far East Bank and Trust Company debited the current account of Robert Mar Chante
and sued him for the balance of P770,488.30. HELD: Far East Bank and Trust
Company had the burden of proof to show that the ATM card of Robert Mar Chante
was used to make the withdrawals and that he used the ATM card and PIN by
himself or by another person. The fact that the current account of Robert Mar
Chante and ATM card number were the ones used for the withdrawals is not
sufficient to support the conclusion that he made the withdrawals. The possibility
that a replacement card or some other equivalent scheme was used cannot be
discounted, most notably, since the withdrawals took advantage of the system bug.
The most damaging lapse was that the Bank failed to establish that the ATM facility
actually dispensed cash in the very large amount during the series of questioned
withdrawals. (Far East Bank and Trust Company vs. Chante, 707 SCRA 149)
Ana Grace Rosales and her mother, Yo Yuk To, opened a joint peso account with
Metropolitan Bank and Trust Company. Later on, Ana Grace Rosales accompanied
her client, Lui Chiu Tang, a Taiwanese applying for a retirees business, to open a
dollar savings account, as required by the Philippine Leisure and Retirement Agency,
since he could speak Mandarin only.
Later on, the dollar account of Lui Chiu Tang was closed and the entire deposit of
US$75,000.00 was withdrawn by an impostor. A month later, Ana Grace Rosales
and her mother opened a joint dollar account with an initial deposit of

US$14,000.00. Metropolitan Bank and Trust Company alleged that the serial
numbers of the dollar notes in the amount of US$1,800.00 deposited in their joint
account were the same as those of dollar notes withdrawn from the account of Lui
Chiu Tang.
Metropolitan Bank and Trust Company alleged that Ana Grace Rosales accompanied
the impostor of Lui Chiu Tang who was able to withdraw US$75,000.00. Ana Grace
Rosales denied taking part in the fraudulent withdrawal.
Metropolitan Bank and Trust Company returned the money of Lui Chiu Tang. It
issued a hold-out order against all the accounts of Ana Grace Rosales and her
mother. Metropolitan Bank and Trust Company filed a complaint for estafa against
Ana Grace Rosales with the Office of the City Prosecutor of Manila.
Ana Grace Rosales and her mother sued Metropolitan Bank and Trust Company for
breach of contract, because they were not allowed to withdraw from their account.
Metropolitan Bank and Trust Company argued that it had a valid reason for issuing
the hold-out order due to the fraudulent scheme of Ana Grace Rosales. HELD: The
stipulation authorized the bank to withhold as security for any obligation of the
depositor all monies in the possession of the Bank, and the Bank may assert a lien
on any balance of the account and apply it against any indebtedness of the bank.
The hold-out clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation in Article 1157 of the Civil Code. Although a
criminal case was filed against Ana Grace Rosales, this is not enough reason to
issue a hold-out order. The case is still pending and no final judgment of conviction
has been rendered against her. (Metropolitan Bank and Trust Company vs. Rosales,
G.R. No. 183204, January 13, 2014)
2. Loans
The Spouses Dio Dato and Sonia Sia obtained a credit line facility for P5,700,000.00
from the Bank of the Philippine Islands. They mortgaged five parcels of land. They
obtained a loan for P800,000.00. The Spouses Dio Dato and Sonia Sia failed to pay.
They filed a case against the Bank of the Philippine Islands.
The Bank of the Philippine Islands foreclosed extrajudicially the mortgage on one of
the parcels of land. The parcel of land was sold to it as the sole bidder.
The Spouses Dio Dato and Sonia Sia argued that there was no credit line facility for
P5,700,000.00, because they did not obtain P5,700,000.00. HELD: A credit line is
the amount of money which a banker agrees to supply a person on credit and is
generally agreed to in advance. It is the fixed limit of credit granted by a bank to a
customer and is usually intended to cover a series of transactions. The Bank of the
Philippine Islands did not have to require the execution of a promissory note for the
entire amount of P5,700,000.00. (Dato vs. Bank of the Philippine Islands, 710 SCRA
716)
Milo Ramos and Raul Obispo were best friends. The Spouses Milo Ramos and
Eleanor Ramos signed a deed of real estate mortgage in favor of Far East Bank and
Trust Company and gave it to Raul Obispo. Later on, they wrote Far East Bank and

Trust Company that they entrusted the title to the real property of Raul Obispo to be
used as collateral for a loan of P250,000.00 in their behalf and they had paid in full
to Raul Obispo. As Far East Bank and Trust Company took no action, the Ramos
Spouses filed an action for annulment of the real estate mortgage. They claimed
that upon verification with the Registry of Deeds, they were surprised to learn that
their property was mortgaged for P1,159,096.00 as collateral for a loan of Raul
Obispo. HELD: It is unbelievable that the Ramos Spouses surprisingly accepted the
P250,000.00 as loan proceeds without seeing any document containing the details
of the transaction. It is difficult to believe their explanation that they requested for
the documents as Raul Obispo did not give them any. Such failure should have
alerted them that something was amiss in the loan transaction. They accepted the
proceeds of the loan in the form of personal checks issued by Raul Obispo instead of
checks issued by the bank itself. It is also disturbing that they did not go directly to
the bank to pay their loan. The Ramos Spouses claimed that they settled their loan
by paying P250,000.00 to Raul Obispo. Does this mean the bank granted the loan
free of interest? These give rise to the inference that Raul Obispo was the borrower,
and the Ramos Spouses were accommodating mortgagors. (Ramos vs. Obispo, 692
SCRA 240)
Carlos Lim, Consolacion Lim and Carlito Lim obtained a loan from Development
Bank of the Philippines in 1969. They obtained a second loan in 1970. They made
a partial payment in 1978. In 1989, Development Bank of the Philippines agreed to
restructure the loan and gave them several extensions from 1989 to 1994. Because
of their failure to settle their loans, Development Bank of the Philippines cancelled
the restructuring agreement. Carlos Lim, Consolacion Lim, and Carlito Lim argued
that their loan should be deemed extinguished under Article 1186 of the Civil Code
because of the cancellation of the restructuring agreement. HELD: Carlos Lim,
Consolacion Lim, and Carlito Lim failed to make payments. Development Bank of
the Philippines had reason to cancel the restructuring agreement. (Lim vs.
Development Bank of the Philippines, 700 SCRA 210)
The mere loss of the motor vehicle mortgaged to secure the payment of a
promissory note does not extinguish the obligation of the maker. (De Leon vs. Bank
of the Philippine Islands, 710 SCRA 443).
The Spouses Deo Agner and Maricon Agner bought a motor vehicle from Citimotors,
Inc. They executed a promissory note secured by a chattel mortgage in favor of
Citimotors, Inc. Citimotors, Inc. assigned the promissory note with the chattel
mortgage to ABN AMRO Savings Bank, Inc., which in turn assigned it to BPI Family
Savings Bank, Inc.
As the Agner Spouses failed to pay, BPI Family Savings Bank, Inc. filed an action for
replevin. The complaint prayed for the delivery of the motor vehicle or the payment
of the loan in case the delivery of the motor vehicle could not be effected. The
motor vehicle was not recovered. The court ordered the Agner Spouses to pay their
loan. The Agner Spouses argued that the resort by the BPI Family Savings Bank,
Inc. both to replevin and collection of sum of money violated Article 1484 of the
Civil Code. HELD: There is no violation of Article 1484 of the Civil Code, as the

motor vehicle was not recovered. The trial court rightfully granted the alternative
prayer for a sum of money. (Agner vs. BPI Family Savings Bank, Inc. 697 SCRA 89)
Even if the ceiling on interest rates has been lifted, if the stipulated rate is
unconscionable, it should be struck down. (Advocates of Truth in Lending, Inc. vs.
Bangko Sentral Monetary Board, 688 SCRA 530)
The Spouses Florentino and Aurea Mallari obtained a loan from Prudential Bank. It
was stipulated that the loan would bear 23% interest per annum. The Mallari
Spouses executed a deed of real estate mortgage to secure the payment of the
loan. As the loan was not paid, Prudential Bank filed a petition for the extrajudicial
foreclosure of the real estate mortgage. The Mallari Spouses filed an action for
annulment of the real estate mortgage on the ground that the interest was
unconscionable. HELD: The interest rate of 23% per annum was not
unconscionable. (Mallari vs. Prudential Bank, 697 SCRA 555, 565)
The imposition by a bank of additional interest and penalty without the consent of
the debtor is void. (Lim vs. Development Bank of the Philippines, 700 SCRA 210)
Sarabia Manor Hotel Corporation obtained two bank loans to expand its hotel
business. The payment of the loans was secured by a real estate mortgage over
several parcels of land and by a suretyship agreement signed by its stockholders.
The completion of the building was delayed by two years because the contractor
abandoned the construction and its take-over resulted in a cost overrun.
Sarabia Manor Hotel Corporation filed a petition for corporate rehabilitation. The
Regional Trial Court approved the rehabilitation. It reduced the interest on the bank
loans at 6.75 percent per annum instead of the escalating interest rate of 8 percent
for 2002 to 2003, 8 percent from 2006 to 2010, 10 percent from 2011 to 2013, 12
percent from 2014 to 2015, and 14 percent up to 2018. Bank of the Philippine
Islands questioned the rehabilitation plan because of the imposition of the fixed
interest rate of 6.79 percent a year and the extended repayment period. HELD:
The interest rate of 6.75 a year is reasonable. The proposed escalating interest
rates are based on the assumption of future fluctuations despite the fact that its
interests as a secured creditor remain well preserved. (Bank of the Philippine
Islands vs. Sarabia Manor Hotel Corporation, 702 SCRA 432)
The Spouses Ignacio Juico and Alice Juico obtained two loans from China Banking
Corporation. They executed a real estate mortgage to secure the payment of the
loans. As they failed to pay the monthly installments, the mortgage was foreclosed
extrajudicially. As the proceeds of the foreclosure sale resulted in a deficiency,
China Banking Corporation filed a collection case against the Spouses Ignacio Juico
and Alice Juico. In their answer, they questioned the amount being claimed in the
complaint, because every month the interest rate was being charged based on the
prevailing interest rate. HELD: The two promissory notes authorized China Banking
Corporation to increase or decrease the interest rate without any advance notice in
case a law or Central Bank regulation is passed or promulgated increasing or
decreasing the interest rate. The claim is void, because it granted China Banking

Corporation the power to impose an increased rate of interest without a written


notice to the Juico Spouses and their written consent.
A detailed billing based on the new imposed interest with corresponding
computation of the total debt should have been provided to enable them to make
an informed decision. An appropriate form must also be signed by them to indicate
their conformity to the new rates. (Juico vs. China Banking Corporation, 695 SCRA
520)
The Spouses Bayan Andal and Gracia Andal obtained a loan of P21,805,000 from
the Philippine National Bank. It was stipulated that the rate of interest could be
increased or decreased for the subsequent interest period in the event of changes
in interest rates prescribed by law or the Monetary Board or increase in the overall
cost of funds by the bank. The payment of the loan was secured by a real estate
mortgage on five parcels of land.
As the Andal Spouses failed to pay for their loan in full, the Philippine National Bank
extrajudicially foreclosed the mortgage on three parcels of land. The Philippine
National Bank emerged as the winning bidder.
The Andal Spouses filed a complaint for the amount of the mortgage and the
foreclosure sale. They argued that the unilateral increase of interest rate charges
was void and no interest should be imposed on their loan. HELD: Only the rate of
interest increased. The stipulations requiring the Andal Spouses to pay interest on
their loan remained valid and binding. The legal rate of interest should be applied
to their unpaid obligation. (Andal vs. Philippine National Bank, G.R. No. 194201,
November 27, 2013)
Anchor Savings Bank filed an action for a sum of money against Ciudad Transport
Services, Inc., its president, Henry Furugay, and his wife, Glenda Furugay. While this
case was pending, the spouses donated their real properties in favor of their minor
children.
Claiming that the donation was in fraud of creditors, Anchor Savings Bank filed a
case for its rescission. HELD: Because of the subsidiary nature of the remedy of
rescission, the complaint must allege (1) the creditor exhausted the properties of
the debtor through levy and execution; (2) the creditor exercised all the rights and
actions of the debtor, save those personal to him; and (3) the contract was
executed in fraud of creditors. The complaint failed to allege the first two
requisites. The donation cannot be annulled. (Anchor Savings Bank vs. Furigay,
693 SCRA 384)
3. Investments
A bank which registered in the name of a trustee real estate in which it invested
because its total interest in real estate exceeded 50% of the combined capital
accounts cannot sue the trustee to recover the property, because the agreement is
contrary to law. (Banco Filipino Savings and Mortgage Bank vs. Tala Realty Services
Corporation, 705 SCRA 208)

4. Trusts
The late Joseph Goyanko, Sr. invested funds with the Philippine Asia Lending
Investors, Inc. As a result of the conflicting claims to the investment by his family
and his illegitimate family, Philippine Asia Lending Investors, Inc. deposited the
proceeds of the investment in the amount of P1,509,318.76 with United Coconut
Planters Bank under the name Phil. Asia: ITF (In Trust For) The Heirs of Joseph
Goyanko, Sr. Later on, the Bank allowed Philippine Asia Lending Investors, Inc. to
withdraw P1,500,000.00 from the account.
The administrator of the estate of Joseph Goyanko, Sr. sued United Coconut Planters
Bank. He argued since the opening of the account involved a trust with the bank as
trustee and the heirs as beneficiaries, the withdrawal should not have been
allowed. HELD: The creation of an express trust cannot be assumed from vague
declarations or circumstances capable of other interpretations. There were no
trustor and trustee. The bank was never under any equitable duty to deal with or
given any power of administration over the account. It was Philippine Asia Lending
Investors, Inc. who undertook the duty to hold title to the account for the benefit of
the heirs. The bank was a mere depositary of the proceeds of the interest.
(Goyanko, Jr. vs. United Coconut Planters Bank, 690 SCRA 79)
XII. ANTI-MONEY LAUNDERING LAW
On June 27, 2005, the Anti-Money Laundering Council applied with the Court of
Appeals for the issuance of a freeze order against monetary instruments and
properties of Lieutenant General Jacinto Ligot and his family pursuant to Section 10
of Anti-Money Laundering Act. On July 5, 2005, the Court of Appeals granted the
application for a period of twenty days.
On July 26, 2005, a motion to extend the freeze order was filed. On September 28,
2005, the Court of Appeals extended the freeze order until after all the appropriate
proceedings and investigations had been terminated. On November 25, 2005, the
Rules of Procedure in Cases of Civil Forfeiture took effect. It allowed extension of a
freeze order for a maximum period of six months. On January 31, 2006, the Ligot
Family filed a motion to lift the freeze order on the ground that it expired six months
after it was issued on July 5, 2005. HELD: A freeze order is meant to prevent the
owner from disposing of his properties and thwarting the effort of the State in
prosecuting the owner. The law is silent on the maximum period of time that the
freeze order can be extended. Section 55 of the Rule in Civil Forfeiture Cases limits
the extensions for a period of six months. The silence of the laws does not affect
the power of the Supreme Court under the Constitution to promulgate rules
concerning the protection of constitutional rights and procedure in all courts.
Pursuant to this power, the Supreme Court issued the Rule on Civil Forfeiture Cases.
The right to due process requires a limitation for the governmental action. The
freeze order bars the Ligot Family from using any of the property covered by it until
after a civil forfeiture proceeding is concluded in their favor and after they have
been adjudged as not guilty of the crimes they are suspected of committing. This is
beyond the purpose of a freeze order, which is intended solely as an interim relief.
(Ligot vs. Republic, 692 SCRA 509)

XIII. EXTRAJUDICIAL FORECLOSURE OF MORTGAGE


1. Scope of Mortgage
Paper City Corporation of the Philippines obtained loans from Rizal Commercial
Banking Corporation, Metropolitan Bank and Trust Corporation, and Union Bank of
the Philippines. The payment of the loans was secured by a mortgage trust
indenture and real estate mortgage on various parcels of land, machineries, and
equipment. As Paper City Corporation of the Philippines failed to pay, the real
estate mortgage was foreclosed extrajudicially, and the properties were sold to the
three banks. Paper City Corporation of the Philippines filed an action for annulment
of the foreclosure sale. Paper City Corporation of the Philippines filed a motion to
remove the machineries on the ground that they were not included in the
foreclosure sale. HELD: The mortgage and the foreclosure sale included the
machineries. Under Article 2127 of the Civil Code, a real estate mortgage extends
to the improvements. (Star Two (SPV-AMC) Inc. vs. Paper City Corporation of the
Philippines, 692 SCRA 439)
The Spouses Rodolfo and Emilie Montealegre obtained a loan from Philippine
National Bank. To secure its payment, they mortgaged a parcel of land, together
with the building erected on it, which was registered in the name of Emilie
Montealegre. As the Montealegre Spouses failed to pay, the Philippine National Bank
foreclosed the mortgage extrajudicially and emerged as the highest bidder.
The Spouses Bernard and Cresencia Moranon filed an action to annul the title of
Philippine National Bank on the ground that they were the true owners of the
property of Emilie Montealegre, who forged their signatures in the deed of sale in
her favor. Because of the pendency of the case, a tenant of the building deposited
the rental payments in court. The Regional Trial Court rendered a decision declaring
the title of Emilie Montealegre void subject to the mortgage lien in favor of
Philippine National Bank. It also declared the Moranon Spouses as the ones entitled
to the rentals which were deposited. HELD: The foreclosure sale could not have
included the building, because the Montealegre Spouses were not its owner.
Accordingly, the principle that the improvement shall follow the principal does not
apply. The building remained the property of the Montealegre Spouses. The claim
of Philippine National Bank for the rentals deposited has no basis. (Philippine
National Bank vs. Moranon, 700 SCRA 297)
2. Mortgagee in Bad Faith
Barbara Poblete obtained a loan from a cooperative and mortgaged a lot as
collateral to secure its payment. The cooperative in turn obtained a loan from the
Land Bank of the Philippines and used the same lot as collateral for the loan.
Barbara Poblete decided to sell the lot and asked her son-in-law, Domingo Balen, to
look for a buyer. Domingo Balen referred Angelito Maniego to her. She signed a
deed of absolute sale dated November 9, 1998 and referred to herself as a widow.
Domingo Balen delivered the deed of absolute sale to Angelito Maniego, but he
promised to pay the price upon his return from the United States.

Angelito Maniego paid the Land Bank of the Philippines for the loan of the
cooperative. He then applied for a loan in the amount of one million pesos and
offered the lot of Barbara Poblete as collateral. He succeeded in having the lot
transferred in his name on August 14, 2000 by presenting a deed of absolute sale
from Barbara Poblete dated August 14, 2000. He then obtained a loan from the
Land Bank of the Philippines for one million pesos the next day and mortgaged the
lot. As he failed to pay, the Land Bank of the Philippines applied to foreclose the
real estate mortgage exgtrajudicially.
Barbara Poblete filed an action to nullify the deed of absolute sale and to enjoin the
foreclosure sale. She alleged that her signature and the signature of her husband in
the deed of absolute sale were forgeries, as her husband died on April 27, 1996.
The Land Bank of the Philippines claimed that it was a mortgagee in good faith.
HELD: The Land Bank of the Philippines is not a mortgagee in good faith. It
processed the application of the loan of Angelito Maniego although the title was still
in the name of Barbara Poblete. It ignored the fact that the cooperative used it as a
collateral for the loan. When the person applying for a loan is not the registered
owner of the real property being mortgaged, such fact should have induced the
bank to make inquiries and confirm his authority to mortgage it. (Land Bank of the
Philippines vs. Poblete, 691 SCRA 613)
Fermina Guia sold a portion of the lot she owned to the Spouses Petronio and
Macaria Arguelles. Although the Arguelles Spouses immediately took possession of
the lot, the deed of sale was not registered with the Register of Deeds or annotated
on the certificate of title. Later on, Fermina Guia ordered her son Eddie Guia and his
wife to have the lot subdivided into three lots. The third lot, which corresponded to
the portion sold to the Arguelles Spouses, was in the name of Fermina Guia and was
not delivered to them.
The Guia Spouses obtained a loan from Malarayat Rural Bank and mortgaged the
third lot as security for the loan pursuant to the special power of attorney executed
by Fermina Guia. When the Arguelles Spouses discovered the annotation of the real
estate mortgage and the special power of attorney on the title to the third lot, they
registered an adverse claim and filed an action for annulment of the mortgage.
Malarayat Rural Bank foreclosed the real estate mortgage, acquired the third lot,
and registered it in its name. HELD: Where the mortgagor is not the registered
owner but is merely an attorney-in-fact, it is incumbent upon the mortgagee to
exercise greater care in dealing with the mortgagor. Where the mortgagee is a
bank, it cannot merely rely on the certificate of title. It should conduct an ocular
inspection to determine the real owner. Malarayat Rural Ban is not a mortgagee in
good faith. The unregistered sale in favor of the Arguelles Spouses must prevail
over its mortgage lien. (Arguelles vs. Malarayat Rural Bank, G.R. No. 200648, March
19, 2014)
3.

Personal Notice of Foreclosure Sale

The extrajudicial foreclosure of a real estate mortgage is void if it was stipulated


that the mortgagor must be given personal notice of it and no notice was given.

(Lim vs. Development Bank of the Philippines, 700 SCRA 210 and Ramirez vs. Manila
Banking Corporation, G.R. No. 198800, December 11, 2013)
4.

Place of Sale

A stipulation in a deed of real estate mortgage fixing the place of the foreclosure
sale does not preclude holding it at the location of the property if the stipulation
does not provide for exclusivity. (Heirs of the Late Spouses Flaviano Maglasang and
Salud Adaza-Maglasang vs. Manila Banking Corporation, 706 SCRA 235)
5. Selling Price
Sycamore Ventures Corporation and the Spouses Simon Paz and Leng Leng Paz
obtained loans from Metropolitan Bank and Trust Company. The payment of the
loans was secured by a real estate mortgage on the parcels of land of Sycamore
Ventures Corporation, together with their improvements. As Sycamore Ventures
Corporation and the Spouses Simon Paz and Leng Leng Paz failed to pay their loans,
Metropolitan Bank and Trust Corporation filed a petition to foreclose the real estate
mortgage extrajudicially.
Sycamore Ventures Corporation and the Spouses Simon Paz and Leng Leng Paz filed
an action for annulment of the real estate mortgage. They disputed the appraisal of
the value of the mortgaged properties. They asked that commissioners be
appointed to determine the true appraised value of the properties and that the
foreclosure of the real estate mortgage be enjoined. The Regional Trial Court
granted their prayer. HELD: The law does not provide that the appraised value of
the mortgaged property be determined and that the appraised value shall be the
basis for the bid price. (Sycamore Ventures Corporation vs. Metropolitan Bank and
Trust Company, 709 SCRA 559)
6. Issuance of Writ of Preliminary Injunction
Solid Builders, Inc. obtained several loans from China Banking Corporation. Medina
Foods Industries, Inc. mortgaged several parcels of land to secure their payment.
China Banking Corporation sent a letter of demand to Solid Builders, Inc. for
payment of its outstanding loans. Claiming that the interests, penalties, and
charges imposed on the loans were unconscionable, Solid Builders, Inc. and Medina
Foods Industries, Inc. filed an action to enjoin the foreclosure of the real estate
mortgage. HELD: Administrative Resolution No. 99-10-05 provides that no
temporary restraining order or writ of preliminary shall be issued against the
extrajudicial foreclosure of the real estate mortgage unless the debtor pays the
mortgagee at least 12 percent per annum interest on the principal obligation, which
shall be updated monthly while the case is pending. (Solid Builders, Inc. vs. China
Banking Corporation, 695 SCRA 101)
7.

Deficiency

The Spouses Flaviano and Salud Maglasang obtained loans from Manila Banking
Corporation. They mortgaged seven properties to secure the payment of their
loans. After Flaviano Maglasang died intestate, his widow and the children filed a

petition for the settlement of his estate. The heirs executed an extrajudicial
partition of the estate of Flaviano Maglasang. With its execution, the court
terminated the proceedings. As the loans owed by Flaviano Maglasang had not
been paid, Manila Banking Corporation extrajudicially foreclosed the mortgage on
the properties of the estate. As the foreclosure sale resulted in a deficiency, Manila
Banking Corporation sued the heirs of Flaviano Maglasang for it. HELD: Under
Section 7, Rule 86 of the Rules of Court, a secured creditor has three options: (a)
waive the mortgage and claim the entire debt from the estate as an ordinary claim;
(b) foreclose the mortgage judicially and prove the deficiency as an ordinary claim;
or (c) rely on the mortgage exclusively. The third option includes extrajudicial
foreclosure. The result of adopting the third option is to waive any deficiency.
(Heirs of the Late Spouses Flaviano Maglasang and Salud Adaza-Maglasang vs.
Manila Banking Corporation, 706 SCRA 235)
8.

Void Foreclosure Sale

Guaria Corporation obtained a loan of P3,387,000.00 from the Development Bank


of the Philippines to finance the development of its resort, and executed a
promissory note that would be due on November 3, 1988. It executed a real estate
mortgage over several properties as security for the repayment of the loan. The
loan was released in installments, and the proceeds were used to defray the cost of
additional improvements.
Guaria Corporation demanded the release of the balance of the loan. The
Development Bank of the Philippines refused. Instead, it directly paid some
suppliers despite the objection of Guaria Corporation. When the Development
Bank of the Philippines found upon investigation that the construction had not been
completed, it demanded that the completion of the project be expedited.
Unsatisfied with the inaction of Guaria Corporation, the Development Bank of the
Philippines foreclosed the mortgage extrajudicially and acquired the properties
mortgaged. It then obtained a writ of possession.
Guaria Corporation sued for the annulment of the foreclosure and the cancellation
of the certificate of sale. HELD: A loan is a reciprocal obligation. This means that
the creditor should release the full amount, and the debtor repays it when it
becomes due and demandable. Because of its failure to release the proceeds of the
loan entirely, the Development Bank of the Philippines had no right yet to exact
from Guaria Corporation compliance with its obligations. The foreclosure of the
mortgage was premature and void. The restoration of possession and the payment
of reasonable rentals to Guaria Corporation in accordance with Article 561 of the
Civil Code are in order. (Development Bank of the Philippines vs. Guaria
Agricultural and Realty Development Corporation, G.R. No. 160758, January 19,
2014)
Predisons Realty Corporation mortgaged a parcel of land to the Philippine Bank of
Communications to secure the payment of a loan. It then transferred the land to its
sister company, Ivory Crest Realty and Development Corporation. Ivory Crest Realty

and Development Corporation obtained permits and licenses to construct and sell
condominium units on the land from the Housing and Land Use Regulatory Board.
When the loan was not paid, the Philippine Bank of Communications filed a petition
to foreclose the mortgage extrajudicially. Buyers of condominium units filed actions
with the Housing and Land Use Regulatory Board to enjoin the auctions. They also
asked for the delivery of their titles to the condominium units free from the
mortgage. The Philippine Bank of Communications assailed the jurisdiction of the
Housing and Land Use Regulatory Board over it. HELD: Section 1(a) of Presidential
Decree No. 957 includes in the jurisdiction of the Housing and Land Use Regulatory
Board cases involving unsound real estate practices. It is broad enough to include
third parties to sales contracts. The complaints filed were for unsound real estate
business practices of Predisons Realty Corporation and Ivory Crest Realty and
Development Corporation. The Philippine Bank of Communications was impleaded
on the basis of the allegation that the mortgage failed to meet the requirement of
Section 18 of Presidential Decree No. 957 that the proceeds of the loan shall be
used for the development of the condominium. The Housing and Land Use
Regulatory Board has jurisdiction over an action for annulment of the mortgage.
(Philippine Bank of Communications vs. Pridisons Realty Corporation, 688 SCRA 200)
9.

Right of Possession of Mortgagor

Juanita Ermitano leased her house and lot to Lailanie Paglas for one year. Juanita
Ermitano mortgaged the property in favor of Charlie Yap. Later on, the mortgage
was foreclosed extrajudicially. Charlie Yap purchased it during the foreclosure sale.
Charlie Yap sold the property to Lailanie Paglas subject to the right of redemption of
Juanita Ermitano. Meanwhile, Juanita Ermitano sent a letter of demand to Lailanie
Paglas to pay the rentals and to vacate the property. As she refused, Juanita
Ermitano filed an ejectment case against her. HELD: The subsequent acquisition of
ownership of the property is not a sufficient excuse for refusing to pay the rentals.
The right of a purchaser at a foreclosure sale is merely inchoate until after the
expiration of the period of redemption without the right being exercised. When the
period of redemption expired without Juanita Ermitano having redeemed the
property, she lost her possessory right over it. (Ermitano vs. Paglas, 689 SCRA 158)
10. Writ of Possession
The buyer at the extrajudicial foreclosure of a real estate mortgage may obtain
possession of the property even before the expiration of the redemption period by
posting the requisite bond. (LZK Holdings and Development Corporation vs.
Planters Development Bank, G.R. No. 187973, January 20, 2014)
The Spouses Edgardo Cristobal and Maria Teresita Cristobal obtained a loan from
Metropolitan Bank and Trust Company. The payment of the loan was secured by a
real estate mortgage. As the loan was not paid, Metropolitan Bank and Trust
Company foreclosed the mortgage extrajudicially and emerged as the highest
bidder. It registered the certificate of sale. It then filed a petition for a writ of
possession. HELD: After consolidation of the title in the name of the buyer, the writ
of possession becomes a matter of right. Hence, Metropolitan Bank and Trust

Company must first show that it has consolidated ownership in its name.
(Metropolitan Bank and Trust Company vs. Cristobal, G.R. No. 175768, December
11, 2013)
The Spouses Jose Ingles and Josefina Ingles obtained a loan from Charles Esteban.
They mortgaged a parcel of land as collateral for the loan. As the loan was not paid,
Charles Esteban foreclosed the mortgage extrajudicially. He was declared the
highest bidder. He then filed a petition for a writ of possession. The petition was
granted. A petition for annulment of order was filed in the Court of Appeals. HELD:
The assailed orders are not the final orders in civil actions that may be the subject
of annulment. They were issued in connection with a proceeding for the
extrajudicial foreclosure of a mortgage. (Ingles vs. Estrada, 695 SCRA 289)
A petition for a writ of possession cannot be consolidated with an action for
annulment of the real estate mortgage and the foreclosure sale. (Ingles vs. Estrada,
695 SCRA 285)
11. Pendency of Action for Annulment of Real Estate Mortgage or
Foreclosure Sale
The issuance of a writ of possession to the buyer at the foreclosure sale is
ministerial despite the pendency of an action for annulment of the real estate
mortgage or the foreclosure sale. (Tolosa vs. United Coconut Planters Bank, 695
SCRA 138; Darcen vs. V.R. Gonzales Credit Enterprises, Inc., 695 SCRA 207;
Nagtatan vs. United Coconut Planters Bank, 702 SCRA 615; United Coconut Planters
Bank vs. Lumba, G.R. No. 162757, December 11, 2013)
The issuance of a writ of possession cannot be enjoined if the right of redemption of
the mortgagor has expired. (Philippine Bank of Communications vs. Yeung, G.R. No.
179691, December 4, 2013)
12. Enforcement of Writ of Possession against Third Parties
The writ of possession can be enforced against a third party who is a buyer or
transferee of the mortgagor. (Rural Bank of Santa Barbara (Iloilo), Inc. vs. Centeno,
693 SCRA 110; Darcen vs. V.R. Gonzales Credit Enterprises, Inc., 695 SCRA 207;
Marquez vs. Alindog, G.R. No. 189045, January 22, 2014)
The writ of possession cannot be enforced against a third party who is claiming
rights adverse to the mortgagor. (Royal Savings Bank vs. Asia, 695 SCRA 511;
Aldover vs. Court of Appeals, 706 SCRA 188)
13. Redemption
An expression of a desire to redeem the property whose mortgage was foreclosed
does not constitute exercise of the right of redemption unless it is accompanied by
a tender of payment. (Hoyas vs. Philippine Amanah Bank, 697 SCRA 505)
Goldenway Merchandising Corporation obtained a loan of P2,000,000.00 from
Equitable PCI Bank. It executed a real estate mortgage to secure its payment. As it
failed to pay, the real estate mortgage was foreclosed extrajudicially. The

properties were sold to Equitable PCI Bank during the foreclosure sale. The
certificate of sale was registered on February 16, 2001. On March 8, 2001,
Goldenway Merchandising Corporation offered to redeem the properties. Equitable
PCI Bank rejected the offer on the ground that the certificate of sale had already
been registered. Goldenway Merchandising Corporation filed a case, alleging the
redemption period was one year. HELD: Under Section 47 of the General Banking
Law, juridical persons are allowed to exercise a right of redemption only until but
not after the registration of the certificate of sale and in no case more than three
months after the sale, whichever comes first. (Goldenway Merchandising
Corporation vs. Equitable PCI Bank, 693 SCRA 439)