COMMERCIAL LAW DIGESTS COVERS CORPORATION LAW CASES

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002
CORPORATION LAW
2001
TCL Sales Corporation v. CA & Ting Ping Lay [349 SCRA 35 (Jan.5, 2001)]
Jurisdiction of the SEC
Rights of a Shareholder
Duty of Corporate Secretary to enter transfer of Shares in Corporate Books
Facts: Ting Ping Lay, not one of the original subscribers of the shares of stock of TCL Sales
Corporation, acquired his shares by purchasing those of some of the original subscribers. In
order to protect his shareholdings with TCL, Lay requested Anna Teng, TCL Corporate
Secretary to enter the transfer of shares of stock for proper recording of his acquisitions in the
Stock & Transfer Book of TCL. He too demanded issuance of new certificates of stock in his
favor.
TCL, however, even after repeated demands, refused. Lay filed a case with the SEC for
mandamus against TCL and Teng. This was in turn granted by the SEC denying a later MR as
well. The CA dismissed TCL’s petition as well for being filed out of time.
Issues: (1) WON SEC has jurisdiction over the petition for mandamus filed by Lay.
(2) WON the alleged transfer of shares in favor of Lay are valid and can be
ordered recorded.
Held: Denied and CA decision affirmed. Even if Lay were not a Share Holder, he is still a
member of the public whose investment in the corporate the law seeks to protect and
encourage, as his purchase of shares of stock has been established. Principal function of SEC
is supervision and control of corps, partnerships, assoc with the view of protecting and
encouraging investments for the protection of economic development. SEC has power of
control & supervision over all corps to encourage active public participation in the affairs of
private corps through investments.
Jurisdiction over an action for mandamus lies with the SEC even if the proponent is not yet a
SH of record, as in the case of Abejo v. de la Cruz. SEC by express mandate has absolute
jurisdiction to enforce the provisions of the Corp Code among which is the stock purchaser’s
right to secure the corresponding certificate of stock in his name.
Determination of whether or not a Share Holder is entitled to exercise the rights of a Share
Holder is within jurisdiction of the SEC. The SEC en banc found that TCL did not refute the
validity of the transfers of the shares of stock – they conceded that they could not assail the
documents evincing the transfer of the shares to Lay. Lay was able to establish prima facie
ownership through the deeds of transfer of shares of stock of TCL. A listing of TCL’s Share
Holders & their respective shares before & after the execution of a certain deed of assignment
shows that Lay is indeed listed as a Share Holder of TCL. The dispute is an intra-corp
controversy involving Share Holders of TCL.
As held in Lim Tay v. CA, the duty of the corporate secretary to record transfers of stocks is
ministerial. It however, cannot be compelled when the transferee’s title has no prima facie
validity or is uncertain. Mandamus will not issue to establish a right but only to enforce one
already established.
Although during the trial before the SEC, TCL admitted that they ignored Lay’s request was
based simply on the fact that they did not want to grant it. Having been capricious, whimsical &
unwarranted, it constitutes bad faith. However, the SEC en banc modified & deleted the said
award for damages imposed on the corp. The matter of damages now concerns only Teng, the
corporate secretary. It was Teng’s refusal as corp secretary to record the transfer of the shares,
without evidence that such refusal was authorized by TCL’s BOD, that caused damage. No
error was committed by the respondent court in refusing to disturb the SEC’s findings.
Union Bank of the Philippines v. SEC [June 6, 2001]

Revised Securities Act
Facts: On April 4, 1997, petitioner Union Bank sought the opinion of Chairman Perfecto Yasay,
Jr. of respondent Commission as to the applicability and coverage of the Full Material
Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3) of the
Revised Securities Act which exempts securities issued or guaranteed by banking institutions
from the registration requirement provided by Section 4 of the same Act.
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Chairman Yasay replied and informed the petitioner that while the requirements of
registration do not apply to securities of banks which are exempt under Section 5(a) (3) of the
Revised Securities Act, however, banks with a class of securities listed for trading on the
Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act Rules governing
the filing of various reports with respondent Commission.
On July 17, 1997, respondent Commission wrote petitioner, enjoining the latter to show
cause why it should not be penalized for its failure to submit a Proxy/Information Statement in
connection with its annual meeting held on May 23, 1997, in violation of respondent
Commission’s ‘Full Material Disclosure Rule.’
“Failing to respond to the aforesaid communication, petitioner was given a ‘2nd Show Cause
with Assessment’ by respondent Commission on July 21, 1997. Petitioner was then assessed a
fine of P50,000.00 plus P500.00 for every day that the report [was] not filed, or a total of P91,
000.00 as of July 21, 1997. Petitioner was likewise advised by respondent Commission to
submit the required reports and settle the assessment, or submit the case to a formal hearing.
The SEC issued an order:
“In view of the foregoing, the appeal filed by the Union Bank of the Philippines is
hereby denied. The penalty imposed in the amount of P91,000.00 as of July 21, 1997,
for failure to file SEC Form 11-A excludes the fine accruing after the cut-off date until
the final submission of the report. Further, the amount of P50,000.00 shall be collected
for the violation of RSA Rule 34(a)-1 or Rule 34 (c)(1).”
Issue: WON is required to comply with the respondent SEC’s full disclosure rules.
Held: The petition is not meritorious. Section 5 of the Revised Securities Act states that:
Sec 5. Exempt Securities. (a) Except as expressly provided, the requirement of registration
under subsection (a) of Section four of this Act shall not apply to any of the following
classes of securities:
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(3) Any security issued or guaranteed by any banking institution authorized to do
business in the Philippines, the business of which is substantially confined to banking,
or a financial institution licensed to engage in quasi-banking, and is supervised by the
Central Bank.
This provision exempts from registration the securities issued by banking or financial
institutions mentioned in the law. Nowhere does it state or even imply that petitioner, as a
listed corporation, is exempt from complying with the reports required by the assailed RSA
Implementing Rules.
It must be emphasized that petitioner is a commercial banking corporation listed in the
stock exchange. Thus, it must adhere not only to banking and other allied special laws, but
also to the rules promulgated by Respondent SEC, the government entity tasked not only
with the enforcement of the Revised Securities Act, but also with the supervision of all
corporations, partnerships or associations which are grantees of government-issued
primary franchises and/or licenses or permits to operate in the Philippines.
That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the
Philippine Stock Exchange (PSE) does not exempt it from complying with the continuing
disclosure requirements embodied in the assailed Rules. Petitioner, as a bank, is primarily
subject to the control of the BSP; and as a corporation trading its securities in the stock market,
it is under the supervision of the SEC. It must be pointed out that even the PSE is under the
control and supervision of respondent. There is no over-supervision here. Each regulating
authority operates within the sphere of its powers. That stringent requirements are imposed is
understandable, considering the paramount importance given to the interests of the investing
public.
Otherwise stated, the mere fact that in regard to its banking functions, petitioner is already
subject to the supervision of the BSP does not exempt the former from reasonable disclosure
regulations issued by the SEC. These regulations are meant to assure full, fair and accurate
disclosure of information for the protection of investors in the stock market. Imposing such
regulations is a function within the jurisdiction of the SEC. Since petitioner opted to trade its
shares in the exchange, then it must abide by the reasonable rules imposed by the SEC.
2000
Cyanamid Philippines, Inc. vs CA, CTA and Commissioner of Internal Revenue

January 20, 2000
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Accumulation of Profits
Facts: Petitioner is a corporation organized under Philippine laws and is a wholly owned
subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the manufacture
of pharmaceutical products and chemicals, a wholesaler of imported finished goods and an
imported/indentor. In 1985 the CIR assessed on petitioner a deficiency income tax of
P119,817) for the year 1981. Cyanamid protested the assessments particularly the 25% surtax
for undue accumulation of earnings. It claimed that said profits were retained to increase
petitioner's working capital and it would be used for reasonable business needs of the company.
The CIR refused to allow the cancellation of the assessments, petitioner appealed to the CTA.
It claimed that there was not legal basis for the assessment because 1) it accumulated its
earnings and profits for reasonable business requirements to meet working capital needs and
retirement of indebtedness 2) it is a wholly owned subsidiary of American Cyanamid Company,
a foreign corporation, and its shares are listed and traded in the NY Stock Exchange. The CTA
denied the petition stating that the law permits corporations to set aside a portion of its retained
earnings for specified purposes under Sec. 43 of the Corporation Code but that petitioner's
purpose did not fall within such purposes. It found that there was no need to set aside such
retained earnings as working capital as it had considerable liquid funds. Those corporations
exempted from the accumulated earnings tax are found under Sec. 25 of the NIRC, and that the
petitioner is not among those exempted.
The CA affirmed the CTA's decision.
Issue: Whether or not the accumulation of income was justified.
Held: In order to determine whether profits are accumulated for the reasonable needs of the
business to avoid the surtax upon the shareholders, it must be shown that the controlling
intention of the taxpayer is manifested at the time of the accumulation, not intentions
subsequently, which are mere afterthoughts. The accumulated profits must be used within
reasonable time after the close of the taxable year. In the instant case, petitioner did not
establish by clear and convincing evidence that such accumulated was for the immediate needs
of the business.
To determine the reasonable needs of the business, the United States Courts have
invented the "Immediacy Test" which construed the words "reasonable needs of the business"
to mean the immediate needs of the business, and it is held that if the corporation did not prove
an immediate need for the accumulation of earnings and profits such was not for reasonable
needs of the business and the penalty tax would apply. (Law of Federal Income Taxation Vol 7)
The working capital needs of a business depend on the nature of the business, its credit
policies, the amount of inventories, the rate of turnover, the amount of accounts receivable, the
collection rate, the availability of credit and other similar factors. The Tax Court opted to
determine the working capital sufficiency by using the ration between the current assets to
current liabilities. Unless, rebutted, the presumption is that the assessment is correct. With the
petitioner's failure to prove the CIR incorrect, clearly and conclusively, the Tax Court's ruling is
upheld.
Rufina Lim vs CA, Auto Truck, TBA Corporation, Sspeed Distributing Inc., Active
Distributors, Alliance Marketing Corporation, Action Company, Inc. (January 24, 2000)
Tests to Pierce the Veil of Corporate Fiction
Facts: Rufina Lim is the surviving spouse of Pastor Lim whose estate is the subject of probate
proceedings. The private respondents are corporations formed, organized and existing under
Philippine Laws and which own real properties. Pastor Lim died June 1994, Rufina Lim filed for
the administration of the estate. The properties which were owned by the corporations were
included in the inventory of the estate. They filed for the exclusion of the properties from said
estate and the cancellation of the annotation of lis pendens in the TCTs of said properties.
The RTC granted the motions. However Rufina Lim filed an amended petition which
averred that such corporations were owned by Pastor Lim, that such were dummies of Pastor
Lim, that those listed as incorporators are there only for the purpose of registration with the
SEC, and that the real properties, although registered in the name of the corporations, were
actually acquired by Pastor Lim during his marriage with Rufina Lim. The RTC acting on such
motion set aside its order and ordered the Register of Deeds to reinstate the lis pendens. The
respondent filed for certiorari with the CA which granted its prayer. Rufina Lim disputes such
decision and urges that not only are the properties of the corporations part of the estate but also
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the corporations themselves. She cites that Pastor Lim during his lifetime organized and wholly
owned the 5 corporations.
Issue: Whether or not a corporation in its universality be the proper subject of and be included in
the inventory of the estate of a deceased person?
Held: The real properties included in the inventory of the estate of the late Pastor Lim are in
the possession of and are registered in the name of private respondent corporations, which
under the law possess a personality separate and distinct from their stockholders and in the
absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness
of said titles in favor of private respondents should stand. It is settled that a corporation is
clothed with personality separate and distinct from that of persons composing it. It may not
generally be held liable for that of the persons composing it. It may not be held liable for the
personal indebtedness of its stockholders or those of the entities connected with it. A
corporation by legal fiction and convenience is an entity shielded by a protective mantle and
imbued by law with a character alien to the persons comprising it. But "when the fiction is urged
as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and isolates
the corporation from...will be lifted to allow for its consideration merely as an aggregation of
individuals." First Philippine International Bank vs CA (252 SCRA 259)
The test in determining the applicability of piercing the veil of corporation fiction is as
follows: 1) Control, not mere majority or complete stock control but complete domination not
only of finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as of this transaction had at the time no separate mind, will or existence of
its own. 2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff's legal right. 3) The control and breach of duty must proximately cause
the injury. The absence of these elements prevent the piercing. Petitioner failed to adduce
evidence that would justify such piercing. Mere ownership by a single stockholder or by a
corporation of all or nearly all of the capital stock is not sufficient reason for disregarding the
fiction of separate corporate personalities.
Francisca Baluyot vs Paul Holganza and the Office of the Ombudsman (Visayas)
represented by Arturo Mojica, Dir. Virginia Planca-Santiago and Graft Investigation
Officer Anna Marie Militante (February 9, 2000)
Incorporation Test to determine Nature of Corporation ( Private/ Public)
Facts: During a spot audit in 1977, the auditors from the Philippine National Red Cross (PNRC)
headquarters discovered a case shortage in the funds of its Bohol chapter. The chapter
administrator, petitioner Baluyot, was held accountable and thereafter, respondent Holganza as
member of the board Bohol chapter, filed a complaint with the Ofc. of the Ombudsman for
malversation. Upon recommendation of respondent Militante, an administratiave docket of
dishonesty was also opened against Baluyot. Baluyot raised the defense that the Ombudsman
had no jurisdiction as he had authority only over government owned or controlled corporations
which the PNRC was not. She gives as evidence of its private character 1) it does not receive
budgetary support from the government and all money given to it by the latter and its
instrumentalities become private funds of the organization. 2) funds for the payment of
personnel's salaries and other emoluments come from yearly fund campaigns, private
contributions and rentals from its properties. 3) it is not audited by COA. PNRC, petitioner
claims falls under the International Federation of Red Cross, Swiss-based organization.
Issue: Whether or not PNRC is a government owned or controlled corporation or a private

corporation.
Held: The Court cited the case of Camporedondo vs. NLRC. "Resolving the issue set out...we
rule that the PNRC is a government owned and controlled corporation, with an original charter
under RA No. 95, as amended, The test to determine whether a corporation is government
owned or controlled or private in nature is simple. Is it created by its own charter for the
exercise of a public function, or by incorporation under the general corporation law? Those with
special charters are government corporations subject to its provisions, and its employees are
under the jurisdiction of the Civil Service Commission, and are compulsory members of the
GSIS. The PNRC was not "impliedly converted to a private corporation" simply because its
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charter was amended to vest in it the authority to secure loans, be exempted from payment of
all duties, taxes, fees and other charges of all kinds on all importations and purchases for its
exclusive use, on donations for its disaster relief work and other services and in its benefits and
fund raising drives..." Clearly then, public respondent has jurisdiction over the matter.
Andres Lao vs. CA, the Associated Anglo-Amedican Tabacco Corp. and Esteban Co.
February 17, 2000
Corporate Officers not personally liable for Authorized Corporate Acts
Facts: In 1965 a Contract of Sales Agent was entered by the Association of Anglo-American
Tobacco Corporation with Andres Lao. Lao was to sell cigarettes manufactured and shipped by
the Corporation to his address in Tacloban, and he would remit the sales proceeds. Lao would
receive commission for those sold, with a monthly salary and operational allowance. In 1968
Lao's attention was called to his enormous accounts and the difficulty in obtaining a tally despite
his avowal of regular remittance of collections. In 1969 it was established that his liability
amounted to P525,053. Also, the Corp. discovered that Lao was engaged in a construction
business and suspecting that he diverted the sale proceeds to such business, it gave a demand
letter for payment of his obligations. It also found that contrary to his allegations, he did not
have a huge collectible from customers and nothing was due to the Corporation. From then on,
the Corp. no longer sent him shipments. In 1970, Andres, Jose and Tomas Lao brought a
complaint for accounting and damages against the Corp.. The court ordered both to undergo a
court supervised accounting but also ordered the Corporation to pay the Lao's actual loss of
earnings, moral damages, exemplary damages, atty. fees and cost of suit. Later the court gave
a supplemental decision dismissing Lao's claim of overpayment. The Corp. and the Lao's
appealed. The CA found the Corp. liable for actual damages of loss of earnings, moral
damages and exemplary damages. It also ordered the Corp. to pay the claim of overpayment
by Lao. The Corp. file a motion for reconsideration and during its pendency, Esteban Co, the
new VP of the Corp. filed a complaint with the fiscal alleging Lao failed to remit an amount which
he allegedly misappropriated and converted to his own personal use. Pending the criminal
case, Lao filed against the Corp. and Esteban Co a complaint for malicious prosecution. The
fiscal found that Lao did not commit estafa and that his liability was civil. The trial court found
the Corp and Esteban Co guilty of malicious prosecution. They appealed. Co asserts that he
cannot be held jointly and severally liable with the Corp. as he was acting as executive vice
president and his action was within the scope of his authority as such corporate officer.
Issue: Whether or not Co should be held solidarily liable with the Corp.
Held: A perusal of his affidavit reveals that at the time he filed the complaint on June 1974, Co
was vice president of the Corp. As a corporate officer, his power to bind the Corp as its agent
must be sought from statute, charter, by-laws, a delegation of authority to a corporate officer, or
from the acts of the board of directions, expressed or implied from custom of doing business. In
this case, no such sources of Co's authority from which to deduce whether or not he was acting
beyond the scope of his responsibilities are mentioned, or proven. It is logical to conclude that
the board or by-laws of the Corp. vested Co with certain executive duties, one of which is the
case for the Corp. That Co was authorized to institute the estafa case is buttressed by the fact
the Corp failed to make an issue out of his authority to file the case. The defense should have
been specially pleaded by the Corp. Its failure to interpose such defense could only mean that
the filing of Co was with consent and authority of the Corp. Thus, Co may not be held
personally liable for acts performed by him in pursuance of an authority.
Pilipinas Bank vs CA and Ricardo Silverio (February 22, 2000)

SEC Jurisdiction, Requirement of Proof of Relationship of Parties and Subject Matter
Facts: In 1991, Pilipinas bank filed a complaint against Silverio to secure payment of two loans
he obtained from petitioner when he was still its majority stockholder. Silverio contends that it is
the SEC and not the regular courts that has jurisdiction over the suit which is an intra-corporate
controversy between the Bank and its stockholder and that there is a pending case in the SEC
wherein the petitioner may plead his claim.
The Bank in answer to a request for admission, admits that Silverio was a stockholder,
that it instituted a case for Specific Performance and Breach of Contract before the SEC. It also
admits that Silverio had a capital infusin of 25 million credited to paid in surplus in its books but
the same was written off against losses of the Bank, in the same may equities of other
stockholders were proportionately written off. The court granted the motion to dismiss and
denied the Banks motion for reconsideration. The Bank filed for certiorari with the CA, which
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found the case to be intra-corporate and dismissed the case. It cited Sec. 5 of P.D. 902-a.
Motion for reconsideration denied.
Issue: Whether or not the establishment of a relationship between a stockholder and

corporation in a dispute necessarily vest jurisdiction in the SEC.
Held: The Bank invoke the ruling of the cases of Viray vs. CA wherein the Court ruled that the
establishment of the relationship does not always confer jurisdiction on the SEC. The better
policy is determining which body has jurisdiction would be to consider not only the status or the
relationship of the parties but also the nature of the question. And in Macapalan Vs. Katalbas-
Moscardon, the Court held that simple money claims, without any averment of fraud or
misrepresentation committed by the corporations involved, are cognizable by the ordinary
courts.
However, there is no question that the present case instituted by the Bank to collect
loans obtained by Silverio who in turn seeks to recover his 25 million deposit in paid-in surplus
which was written off by the Bank , is an intra-corporate controversy. Considering the
relationship of the parties and the subject matter of the controversy, jurisdiction is with the SEC.
Question which arise, such as: whether the loans obtained by Silverio were in his personal
capacity or as accommodation, he having been the majority stockholder and whether the write-
off was applied for his loan accounts or for a proportionate reduction of his equity, call for an
investigation of specific matters within the exclusive competence and authority of the SEC to
pass upon.
Presidential Commission on Good Government v. The Hon. Sandiganbayan

February 23, 2000
Piercing Veil of Corporate Fiction to recover Ill-Gotten Wealth
Facts: World Universal Trading & Investment Co., S.A. *WUTIC( was a sociedad anonima
registered in Panama but not licensed to do business in the Philippines. Construction
Development Corporation of the Philippines, now known as Philippine National Construction
Corporation (CDCP/PNCC) is duly organized and existing under the laws of the Philippines.
PCGG ordered the sequestration and provisional takeovers against assets and records of
Rodolfo Cuenca, Universal Holdings, Cuenca Investment, PNCC and San Mariano Milling
Corporation. In 1987 PCGG filed with the Sandiganbayan a complaint against Cuenca for
illegally acquiring assets in the Cuenca owned corporations of CDCP/PNCC, Asia International
Hardwood Limited (AHL), a Hongkong based company and Construction Development
Corporation International Limited, Hongkong, a wholly owned subsidiary or alter ego of
CDCP/PNCC. In 1991, claiming to be an assignee of AHL, WUTIC filed with the RTC against
CDCP/PNCC to enforce a foreign judgement which WUTIC had obtained in Hongkong against
CDCPI, which is wholly owned by CDCP/PNCC. After trial, the RTC found in favor of WUTIC, it
considered CDCP/PNCC and CDCPI as "one corporate entity" and liable to pay WUTIC.
CDCP/PNCC appealed, the CA affirmed the decision of the RTC and the Supreme Court denied
it on petition for review. Upon motion of WUTIC, the RTC issued a writ of execution and Sheriff
Harina issued notices of garnishment against the accounts, shares of stocks and income of
CDCP/PNCC with various banks and corporations.
In October 197, PCGG Commissioner Mendoza attended the PNCC board meeting and
discovered the writ and notices of garnishment. After realizing that WUTIC/AHL's claim could
be Cuenca's in disguise, PCGG enjoined ONCC and/or any person acting in its behalf from
taking any action which would dissipate or affect the assets of CDCP/PNCC. PCGG filed for
certiorari with the Sandiganbayan to annul the RTC decision, writ and garnishment. The
Sandiganbayan dismissed the petition ruling that it had not jurisdiction to annul the judgement of
the RTC. It claimed to have only appellate jurisdiction over decisions of the RTC in criminal
cases involving offenses relating to public office.
Issue: Whether or not the Sandiganbayan committed grave abuse of discretion in summarily
dismissing the petition for certiorari despite the possibility that WUTIC is a dummy corporation
or an alter ego of Rodolfo Cuenca.
Held: The 3 corporations involved in this petition, PNCC/CDCP, AHL and CDCPI, Hongkong
are under sequestration are defendants in the sequestration case pending before the
Sandiganbayan. AHL had claims against CDCPI and assigned the same to WUTIC. Eventually
WUTIC obtained a favorable judgement in a Hongkong court. Due to the closure of CDCPI in
Hongkong, WUTIC filed a case with RTC against PNCC/CDCP to enforce a foreign judgement
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obtained against CDCPI. Both corporations are Cuenca-owned and under sequestration.
Hence there is valid ground for PCGG to evaluate the validity of WUTIC's claim as a legitimate
assignee or merely a dummy corporation set up to circumvent the sequestration case. As per
the Court, it should be noted that despite the initial sequestration orders and the case filed with
the Sandiganbayan against stockholdings of Rodolfo Cuenca and th so-called Cuenca-owned
corporations, AHL, ONCC/CDCP and CDCPI, the PCGG was not made a party in the civil case
in Hongkong and the case to enforce the foreign judgement filled with the trial court.
Considering the interconnections between the participating corporations in the said transactions
and the existence of the sequestration case, the PCGG should have been informed of the
above cases to question and verify the veracity of the claim.
The Court stated that it is aware of various schemes employed to circumvent
sequestration orders, dissipate sequestered assets and thwart PCGG's efforts to recover ill-
gotten wealth. That there is a possibility that WUTIC is a dummy corporation formed by Rodolfo
Cuenca, or his alter ego, the reach the sequestered assets, there is a need to vigorously guard
these assets and preserve them pending resolution of the sequestration case before the
Sandiganbayan.
DLSU vs Dela Salle University Employees Association (DLSUEA)

Dela Salle University Employees Association-National Federation of Teachers and
Employees Union (DLSUEA-NAFTEU) vs DLSU (April 12, 2000)
Piercing the Veil of Corporate Fiction to determine members of Collective Bargaining
Unit
Facts: Dela Salle University and DLSUEA-NAFTEU entered into a collective bargaining
agreement with a life span of 3 years. During the freedom period, negotiations with the
University for a new CBA were unsuccessful. Identifying the unresolved issues, the matter was
submitted for arbitration. One of the issues was the scope of the bargaining unit. Magsalin, as
arbitrator decided that the Computer Operators assigned at the Computer Services Center just
like any other Computer Operators in other units, should be included as members of the
bargaining unit, the discipline officers belong to the rank-and-file on the basis of the nature of
their job and that the employees of the College of St. Benilde, the College having a personality
separate and distinct from the University, such employees are outside the bargaining unit of
said University.
Both parties filed for reconsideration with the Magsalin but were not entertained by him.
The University then filed for certiorari with the Court.
Issue: Whether or not to pierce the veil of corporate fiction of the College of St. Benilde-DLSU
(whether or not the employees thereat are within or outside the bargaining unit.)
Held: The Solicitor General supports the employees of the College of St. Benilde and the
Union that the veil of corporate fiction should be pierced and thus, according to the Union, the
University and the College of St. Benilde should be considered as only one entity because the
latter is but a mere intergral part of the University.
However, the Court affirms the findings of the voluntary arbitrator that the employees of
the College of St. Benilde should be excluded from the bargaining unit of the rank and file
employees of Dela Salle University, because the two educational institutions have their own
separate juridical personality and not sufficient evidence was shown to justify the piercing of the
veil of corporate ficiton.
Leyson vs. Office of the Ombudsman, Tirso Antiporda, Chairman, UCPB and CIIF Oil
Mills, and Oscar A. Torralba, President, CIIF Oil Mills (April 27, 2000)
Control and Function Test to determine Nature of Corporation (public/private)
Facts: In 1996 International Towage and Transport Corp. (ITTC), a domestic corporation
engaged in shipping business, entered into a 1 yr. contract with Legaspi Oil Company, Inc.
(LEGASPI OIL), Granexport Manufacturing Corp. (GRANEXPORT) and United Coconut
Chemicals, Inc. (UNITED COCONUT), comprising the Coconut Industry Investment Fund (CIIF)
companies for the transport of coconut oil in bulk through MT Transasia. The majority of
shareholdings of these companies are owned by the United Coconut Planters Bank (UCPB) as
administrator of CIIF. Under the contract, 3 month advance notice would be given to terminate
the contract. However, the CIIF with their new president Torralba terminated the contract
without such advance notice and engaged another vessel, MT Marilag.
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Leyson, Ex. Vice Pres. Of ITTC filed with the Office of the Ombudsman against Torralba.
In another complaint, petitioner charged Antiporda as Chairman of UCPB and CIIF Oil Mills and
Torralba with violation of the Anti- Graft and Corrupt Practices Act. The Ombudsman dismissed
the complaint finding that the case is a simple breach of contract and that the entities involved
are private corporations over which it has no jurisdiction. Motion for reconsideration was
denied. Petitioner raises the issue to the Court. He submits that based on Philippine Coconut
Producers Federation Inc. (COCOFED) vs PCGG and Republic vs. Sandiganbayan, the Court
has declared that the coconut levy funds are public funds, then corporations formed and
organized from those funds or whose controlling stocks are from those funds should be
regarded as government owned and/or controlled corporations. As in the present case, since
the funding or controlling interest of the companies being headed by private respondents was
given or owned by the CIIF as shown in the certification of their Corporate Secretary, it follows
that they are government owned and/or controlled corporations. Corollarily, petitioner asserts
that respondents Antiporda and Torralba are public officers subject to the jurisdiction of the
Ombudsman.
Private respondents counter that the CIIF companies were duly organized under the
Corporation Code and that their stockholders are private individuals and entities.
Issue: Whether or not the CIIF companies are public corporation.
Held: The Court found in favor of the respondents. The jurisprudential rules invoked by
petitioner are incomplete without resorting to the definition of "government owned or controlled
corporation" contained in par. 13, Sec. 2 Introductory Provisions of the Administrative Code of
1987. It mentions 3 requisites 1) any agency organized as a stock or non-stock corp. 2) it is
vested with functions relating to public needs whether governmental or proprietary in nature 3)
owned by the Government directly or through its instrumentalities either wholly or in case of
stock corp. at least 51% of its capital stock.
In the present case, UCPB owns 44.1% of Legaspi Oil, which is below 51% and
removes it from the definition of government owned or controlled corp. UCPB owns 91.24% of
GRANEXPORT and 92.85% of United Coconut. However, there is no showing that both were
vested with functions relating to public needs whether governmental or proprietary in nature.
The CIIF companies are private corporations and not within the scope of the jurisdiction of the
Office of the Ombudsman.
ARB Construction Co., Inc v CA (May 31, 2000)

Facts: In 1993 TBS Security and Investigation Agency (TBSS) entered into 2 service contracts
with ARBC wherein TBSS agreed to provide and post securioty guards in the 5 establishments
being maintained by ARBC. In 1994, ARBC informed TBSS of its desire to terminate the
service contracts. ARBC also informed TBSS through its Vice President for Operations, Mark
Molina, that it was replacing its security guards with those of Global Security for Investigation
Agency (GSIA). TBSS informed ARBS that it could not preterminate the service contracts nor
post security guards from GSIA as these would run counter to their contracts. Later, Molina
wrote TBSS conceding that ARBS could not preterminate the contract but nevertheless
decreased the security guards to only 1, allegedly pursuant to Clause 2 of the service contract.
TBSS subsequently filed a complaint for preliminary injunction against ARBC and GSIA. In
answer, ARBC claimed that it decreased the number of security guards because they were
found to be grossly negligent and inefficient. TBSS, in addition to the allegations in its original
complaint, alleged in an amended and supplemental complaint that ARBC illegally deducted
from the payroll amounts representing the value of 1 unit of concrete vibrator and cassette
recorder and furthermore, ARBC withheld additional amounts from its payroll as payment for the
parts of the grader that were stolen. ARBC filed its opposition to the filing of such.
Subsequently, MArk Molina also filed a motion to dismiss the amended and supplemental
complaint on the ground that it did not state a cause of action. The RTC denied the motion. On
appeal, the CA denied both petitions of ARBC and Molina. Hence this petition.
Aside from arguing that the CA erred in holding that TBSS had a right to change its
cause of action in view of a change in the situation of the parties after the filing of the original
complaint, both ARBC and Molina argue that the CA erred in holding that the allegations in the
amended and supplemental complaint were sufficient to hold Molina liable to TBSS in his
personal capacity.
8
Issue: Whether or not Molina is personally liable for his act of applying amounts payable to
TBSS to losses suffered by ARBC due to TBSS security guards. (Whether or not Molina was
acting in his capacity as an officer of ARBC)
Held: The Court agrees with ARBC and Molina. The CA, affirming the order of the RTC, ruled
that Molina by his actions imputed pretended and fabricated violations, blaming TBSS for
alleged losses and deducting the values from TBSS' billings. It likewise held that since all these
accusations and imputations were made by Molica such are sufficient cause of action against
Molina in his personal capacity.
However, it is basic that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal entity to
which it may be related. As a general rule, a corporation may not be made to answer for acts or
liabilities of its stockholders or those of the legal entities it may be connected an vice versa.
However, the veil of corporate fiction may be pierced when it is used as a shield to further an
end subversive of justice; or for purposes that could not have been intended by the law that
created it; or to defeat public convenience, justify a wrong, protect fraud or defend crime; or to
perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit o the
stockholders.
The general rule is that officers of a corporation are not personally liable for their official
acts unless it is shown that they have exceeded their authority. (Art. 31 of the Corporate Code.)
Absent any proof of bad faith or malice, Molina cannot be held jointly and severally liable for any
obligation which ARBC may be held accountable for.
Jardine Davies Inc. vs. CA and Far East Mills Supply Corporation; Pure Foods
Corporation vs CA (June 19, 2000)
Corporation entitled to Moral Damages (reputation besmirched)
Facts: In 1992 Purefoods decided to install 2 generators in its food processing plant in San
Roque, Marikina. A bidding for the supply and installation was held among the bidders was Far
East Mills Supply Corporation (FEMSCO). Thereafter, in a letter addressed to FEMSCO
president, Purefoods confirmed the award of the contract. Immediately FEMSCO submitted the
requirements such as a performance bond and all risk insurance policy as well as purchasing
the necessary materials. However, in another letter, Purefoods unilaterally cancelled the award
citing "significant factors" which were uncovered and brought to their attention "which dictate the
cancellation and warrant a total review and re-bid of the project." FEMSCO protested the
cancellation but before the matter could be resolve, Purefoods awarded the project with Jardine
Nell, a division of Jardine Davies.
FEMSCO sued both Purefoods and Jardine. The RTC granted Jardine’s demurrer to
evidence but found in favor of FEMSCO against Purefoods and order indemnification.
FEMSCO appealed the granting of the demurrer filed by Jardine and Purefoods appealed the
decision of the court. The CA affirmed the decision of the RTC but ordered Jardine to pay
FEMSCO damages for inducing Purefoods to violate the contract as such, Jardine must pay
moral damages. In addition, Purefoods was also directed to pay FEMSCO moral damages and
exemplary damages Both Purefoods and Jardine filed motions for reconsideration which were
denied.
Issue: Whether or not moral damages may be granted to a corporation?
Held: The Court has awarded in the past moral damages to a corporation whose reputation has
been besmirched. (Asset Privatization Trust v. CA, 300 SCRA 379) In this case, respondent
FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the project, only to be canceled later.
The Court thus, sustained respondent appellate court's award of moral damages. However, as
there is no showing whatsoever that Jardine induced Purefoods, the decision of the CA is
modified. The order to Jardine Davies to pay FEMSCO moral damages is reversed and set
aside.
Rubberworld (Phils.) vs. NLRC [336 SCRA 433 (July 26, 2000)]
Facts: Petitioner Rubberworld, a corporation established in 1965, is engaged in the

manufacture of footwear, bags and garment. Private respondents are employees of the said
9
corporation. On August 26, 1994, Rubberworld filed with the Department of Labor and
employment a notice of temporary shutdown of operations to take effect on September 26,
1994. Before the effectivity date, however, Rubberworld was forced to prematurely shutdown its
operations.
On November 11, 1994, private respondents filed with the NLRC a complaint against
petitioner for illegal dismissal and non-payment of separation pay. On November 22, 1994,
Rubberworld filed with the SEC a petition for declaration of suspension of payments with a
proposed rehabilitation plan.
On December 28, 1994, SEC issued an order suspending all actions for claims against
Rubberworld in accordance with P.D. 902-A. Despite this order, however, the Labor Arbiter
ruled against Rubberworld, declaring its shutdown illegal and making the corporation liable for
damages and payment of separation pay. The NLRC affirmed the decision of the Labor Arbiter.
Hence, Rubberworld filed with the SC a petition to annul the NLRC resolution.
Issue: Whether or not NLRC acted without or in excess of its jurisdiction?
Held: P.D. 902-A is clear that “all actions for claims against corporations, partnerships, or
associations under management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly.” NLRC thus acted without an in excess of its jurisdiction
when it proceeded to decide the case despite the suspension order. As a consequence, any
resolution decisions or order that is rendered without jurisdiction is a nullity.
BA Savings Bank vs. Sia [336 SCRA 484 ((July 27,2000)]

Powers of the Board of Directors
Facts: The Court of Appeals issued a Resolution denying due course to a Petition for Certiorari
filed by BA Savings Bank, on the ground that ‘the Certification on anti-forum shopping
incorporated in the petition was signed not by the duly authorized representative of the
petitioner, as required under Supreme Court Circular 28-91 but by its counsel.xxx” A Motion for
Reconsideration was filed by petitioner, attached to it was a BA Savings Bank Corporate
Secretary’s Certificate. The Certificate showed that the petitioner’s Board of directors approved
a resolution authorizing the petitioners lawyers to represent it in any action or proceeding before
any court, tribunal or agency; and to sign the Certificate of Non-forum Shopping, among others.
The MR was denied.
Issue: Whether or not the Supreme Court Revised Circular No. 28-91 allows a corporation to
authorize its counsel to execute a certificate of non-forum shopping in its behalf
Held: Yes. The resolution of the Board of Directors was sufficient to vest petitioner’s lawyers
with authority to bind the corporation and was specific enough as to the acts they were
empowered to do. In the case of natural persons, Circular 28-91 requires the patties
themselves to sign the certificate of non-forum shopping. However, such requirement cannot be
imposed on artificial persons, like corporations, for the reason that they cannot do the task
themselves. Corporations act only through their officers and duly authorized agents. The
Circular does not require corporate officers to sign the certificate. Further, there is no
prohibition against authorizing agents to do so.
Pascual vs. Court of Appeals [339 SCRA 117 (Aug. 25, 2000)]
Facts: Private respondents filed an action for reconveyance of a piece of land and for
accounting and damages against petitioners. Petitioners filed a motion to dismiss on the ground
of lack of jurisdiction. They claim that the case involves an intra-corporate dispute and thus, the
SEC has jurisdiction and not the regular courts. The trial court denied the motion to dismiss and
ruled that the case does not involve an intra-corporate dispute. The CA affirmed. Hence, this
petition.
Issue: Whether or not this case involves an intra-corporate dispute and whether or not the SEC
has jurisdiction over it?
Held: Pursuant to R.A. 8799, §5.2, which took effect on August 8, 2000, the jurisdiction of the
Sec to decide cases involving intra-corporate dispute was transferred to courts of general
jurisdiction. Thus, the question as to whether this case involves an intra-corporate dispute is
10
now only of academic interest. Even if the case involves an intra-corporate dispute, it would be
remanded to the RTC just the same.
Manila Hotel Corp. v. National Labor Relations Commission [343 SCRA 1 (Oct.13, 2000)]
Requisites to Piercing the Veil of Corporate Fiction
Facts: Marcelo Santos was an overseas worker, a printer at the Mazoon Printing Press,
Sultanate of Oman when he was directly hired by the Palace Hotel, Beijing by its GM Gerhard
Shmidt as he was recommended by Nestor Buenio, his friend. Santos resigned from Mazoon
and thereafter signed an employment contract mailed to him. The contract stated it would be for
a period of 2 years.
After a short vacation in the Phil & barely a year into the contract, Santos was terminated
from his job due to retrenchment, and repatriated to the Phil. Santos, through his lawyer,
demanded full compensation pursuant to the employment agreement which Shmidt denied.
Santos then filed a complaint with the NLRC against MHC, MHICL, the Palace Hotel & Shmidt
for illegal dismissal.
The Labor Arbiter grants payment of damages to Santos which was vacated on appeal
by the NLRC. On an MR, the NLRC found Santos illegally dismissed & recommended that he
be paid actual damages equivalent to his salaries for the unexpired portion of his contract. MRs
were denied, hence this petition.
Issue: WON MHC is liable to Santos.
Held: Granted. Piercing the veil of corporate fiction – fact that MHC is an incorporator & owns
50% of the capital stock of MHICL is not enough to pierce the veil. Even if we assume: NLRC
had jurisdiction over the case & MHICL was liable for Santos’ retrenchment, still MHC, as a
separate & distinct juridical entity, cannot be held liable. Piercing the veil is an equitable
remedy. When the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corp as an association of persons. It is
done only when the corp is a mere alter ego or business conduit of a person or another corp.
 Clear & convincing evidence is needed to pierce the veil of corporate fiction. There is no
such evidence to show that MHICL & MHC are 1 & the same entity.
 Test to enable piercing of the veil, except in express agency, estoppel or direct tort:
a)Control, not mere majority or complete domination; b)Such control must have e=been
used by the defendant to commit fraud or wrong, etc.; c)The aforesaid control & breach
of duty must approximately cause the injury or unjust loss complained of.
 Fact that the Palace Hotel is a member of the Manila Hotel Group is not enough to
pierce the corporate veil – there is no evidence to show that they are 1 & the same
entity.
 Contrary to what Santos claims that MHICL signed his employment contract, MHICL
Vice-President signed as a mere witness under the word ‘noted’. Furthermore, there is
no EER between Santos & MHICL.
Transfarm & Co., Inc. v. Daewoo Corporation [343 SCRA 410 (Oct.17, 2000)]
Jurisdiction of SEC
Facts: Daewoo Corp (Daewoo) entered into a joint venture agreement with Transfarm & Co.
(Transfarm) for the delivery, assembly, production & distribution of Daewoo cars in the country.
Transdaewoo Automotive Manufacturing Company was to be incorporated with Transfarm
owning 70% & Daewoo 30%. Transfarm & TAMC were then to enter into a separate agreement
that would name Transfarm as the exclusive distributor in the country of Daewoo cars.
Parties stipulated that controversies or claims arising out of the joint venture itself should
be settled by arbitration conducted in Hong Kong but the joint venture agreement itself was to
be governed & construed in accordance with Philippine laws.
When the agreement went awry, Transfarm & TAMC filed a complaint with the RTC
against Daewoo & Daewoo Motor Co., Ltd. (DMCL), a corp organized under Korean laws & not
doing business in the Phils, praying that Daewoo & DMCL be ordered to refrain from doing
business here. An MTD was filed on the ground that what was field was an intracorp
controversy hence cognizable by the SEC. RTC denied such MTD. CA dismisses the case &
says that jurisdiction is with the SEC. With a subsequent MR rebuffed, Transfarm now files a
petition with the SC.
During the pendency of the petition with the SC, RA8799 was enacted.
11
Issue: WON SEC has jurisdiction over the dispute.
Held: CA decision set aside & case remanded back to RTC.

 The Securities Regulation Code (RA 8799) transferred to the courts of general
jurisdiction the SEC’s jurisdiction over all cases enumerated under Sec.5 of PD 902-A.
The SEC shall retain jurisdiction over pending cases involving intra-corp disputes
submitted for final resolution which shall be resolved within 1 year from the enactment of
RA 8799. The SEC shall retain jurisdiction over pending suspension of payments/
rehabilitation cases filed as of 30 June 2000 until finally disposed.
 The instant case, neither filed nor pending with the SEC, let alone ready for final
resolution by it, is clearly cognizable by the RTC.
EXTRA:
• Statutes regulating court jurisdiction & procedure are generally construed to be
applicable to actions pending & undetermined at the time of the passage of said
enactments.
International Express Travel & Tour Services, Inc. v. CA, Kahn & Philippine Football
Federation [343 SCRA 674 (Oct.19, 2000)]
Creation of Separate Corporate Personality
Liability of Person Acting for Unincorporated Entity
Doctrine of Estoppel
Facts: IETTSI wrote a letter to the Federation through its president, Kahn, offering its services
as a travel agency. This was accepted by the Federation. IETTSI secured airline tickets for the
trips of the athletes & officials of the Federation to the South East Asian Games in Kula Lumpur
as well as other trips to China & Brisbane. A demand letter was sent to the Federation re:
payment of the tickets. After 3 partial payments, Kahn issued a personal check as partial
payment for the Federation’s balance. No further payments were made, causing IETTSI to file a
civil case before the RTC against Kahn in his personal capacity on the ground that he allegedly
guaranteed the said obligation & as President of the Federation, impleading the Federation as
an alternative defendant.
Kahn filed a counterclaim against IETTSI averring that it had no cause of action against
him either in his personal nor official capacity as he did not guarantee the payment but merely
acted as an agent of the Federation w/c has a separate & distinct juridical personality. The
Federation, in failing to file its answer, was declared in default.
The RTC found Kahn personally liable since a voluntary unincorporated association, like
the Federation, doesn’t have the power to enter nor ratify a contract. The contract thus entered
into by its officers or agents on its behalf is not binding on the association nor enforceable
against it – but against the officers or agents in their personal capacity. On appeal to the CA,
decision was reversed saying that IETTSI failed to prove that Kahn guaranteed the obligation,
hence this petition.
Issues: (1) WON the Federation has a separate juridical personality.

(2) WON Kahn can be held personally liable for the unpaid obligations of the
Federation
Held: CA decision reversed & set aside. RTC decision reinstated.

RA 3135 & PD 604 recognized the juridical existence of national sports associations.
The power to purchase, sell, lease & encumber property are acts w/c may only be done by
persons, whether natural or artificial, with juridical capacity and these have been granted to
national sports associations, clearly indicating their juridical personality. However, such does
not automatically take place by mere passage of the laws.
Before a corp may acquire juridical personality, the State must give its consent either in
the form of a special law or a general enabling act. Nowhere can it be found in RA 3135 & PD
604 any provision creating the Philippine Football Federation. These laws merely recognized
the existence of national sports associations & provided the manner by which they may acquire
juridical personality.
The statutory provisions require that before an entity may be considered as a national
sports association, such must be recognized by the accrediting organization, the Philippine
Amateur Athletic Federation under RA 3135 & the Department of Youth & Sports Development
12
under PD 604. In attempting to prove juridical existence of the Federation, Kahn attached a
copy of the constitution & by-laws of the Federation this doesn’t prove the said Federation has
been recognized & accredited.
Any person acting or purporting to act on behalf of a corp w/c has no valid existence
assumes such privileges & obligations & becomes personally liable for contracts entered into or
for such other acts performed as such agent. Hence, Kahn should be liable for the unpaid
obligations of the unincorporated Federation. He is presumed to have known of the corp
existence or non-existence of the Federation.
Doctrine of Corporation by Estoppel – applies to third persons only when he tries to
escape liability on a contract from w/c he has benefited on the irrelevant ground of defective
corporation. Here, IETTSI is not trying to escape liability from the contract but rather is the 1
claiming from it.
Heirs of Ramon Durano, Sr. v. Uy [344 SCRA 238 (Oct.24, 2000)]

Separate Juridical Personality
Alter Ego: Piercing the Veil of Corporate Fiction
Facts: Ramon Durano III & wife instituted an action for damages against Uy, etc. accusing them
of officiating a hate campaign against them by lodging complaints in the police for ‘invasion of
property’; sending complaints to the Office of the President depicting them as oppressors,
landgrabbers & usurpers; spreading false rumors & damaging tales w/c put them into public
contempt & ridicule.
In their answer, Uy, etc. lodged affirmative defenses, demanded the return of their
property & made counterclaims for actual, moral & exemplary damages. They claim that in the
first week of August 1970, they received mimeographed notices signed by Durano, Sr. informing
them that the land they were tilling, formerly owned by Cepco was purchased by Durano & Co,
directing them to immediately turn over the property. Even before they could vacate, Durano &
Co. proceeded to bulldoze & destroy their property & fire at air even. September 15, 1970
Durano & Co. sold the property to Durano III who proceeded to register the lands in his name.
They claim that they were deprived of their independent source of income, were made victims of
serious violence & demanded damages for cost of improvements on the land that were
destroyed.
The Duranos moved for the dismissal of their complaint w/c the trial court granted w/o
prejudice to the right of Uy, etc. to maintain their counterclaim. The counterclaim was later
upheld. This decision was affirmed by the CA. Hence this petition.
Issue: WON Durano can invoke the doctrine of separate corporate personality to evade liability
for damages
Held: Denied & CA decision modified. The Duranos hinge their claim on the TCTs issued in the
name of Durano III. Their validity was put into serious doubt by the ff: a) the certificates reveal
the lack of registered title of Cepoc to the Properties; b) alleged reconstituted titles of Cepoc
were not produced in evidence; c) deed of sale between Cepoc & Durano & Co. was
unnotarized & thus unregisterable
Fraud in the issuance of a certificate of title may be raised only in an action expressly
instituted for that purpose; and not collaterally as in an action for reconveyance & damages.
The rule on indefeasibility of title – Torrens titles can only be attacked for fraud w/in 1 year from
the date of issuance of the decree of registration; an action for reconveyance may prosper if a
property wrongfully registered has not passed to an innocent purchaser for value. The
purchase of Durano & Co. could not be said to have been in good faith since it is not disputed
that Durano III acquired the property w/ full knowledge of Uy’s occupancy thereon. Uy’s action
for reconveyance will prosper, it being clear that the property, wrongfully registered in the name
of Durano III, has not passed to an innocent purchaser for value.
Notarization of the deed of sale is essential to its registrability, & the action of the RD in
allowing the registration of the unacknowledged deed of sale was unauthorized & did not render
validity to the registration of the document.
A buyer who could not have failed to know or discover that the land sold to him was in
the adverse possession of another is a buyer in bad faith. A purchaser cannot just close his
eyes to facts w/c should put a reasonable man upon his guard, such as when the subject of the
sale is in the possession of persons other than the seller. Uy & company were in open
possession & occupancy of the properties when Durano & Co. supposedly purchased the same
from Cepoc.
13
In applying the instrumentality or alter ego doctrine, the courts are concerned w/ reality
& not form, w/ how the corp operated & the individual defendant’s relationship to that operation.
Whether a corporation is a mere alter ego is purely one of fact. Shortly after the sale by
Cepco to Durano & Co., the latter sold the property to Durano III, who immediately procured the
registration of the property in his name. Obviously, Durano & Co. was used by Durano III,etc.
as an instrumentality to appropriate the disputed property for themselves.
Test to enable piercing of the veil, except in express agency, estoppel or direct tort:
a)Control, not mere majority or complete domination; b)Such control must have e=been used by
the defendant to commit fraud or wrong, etc.; c)The aforesaid control & breach of duty must
approximately cause the injury or unjust loss complained of.
• Sec.8 Rule 51 indicates that the CA is not limited to reviewing only those errors assigned
by appellant but also those closely related to or dependent on an assigned error. CA is
imbued w/ sufficient discretion to review matters.
• Ordinary acquisitive prescription, in the case of immovable property, requires possession
of the thing in good faith & w/ just title for a period of 10 years.
• Remedies of an owner on whose land somebody has built in bad faith: a) appropriate
what has been built w/o any obligation to pay indemnity; b) demand that the builder
remove what he had built; c) compel the builder to pay the value of the land. In any
case, landowner is entitled to damages (Art.451)
Reynoso IV v. CA & General Credit Corporation [345 SCRA 335 (Nov.22, 2000)]
Separate Juridical Entity
Sufficiency of Proof to Pierce the Veil of Corporate Fiction
Facts: Commercial Credit Corporation (CCC), a financing & investment firm, decided to
organize franchise companies in different parts of the country, wherein it shall hold 30% equity.
Employees of CCC were designated as resident managers of the franchise companies –
Bibiano Reynoso IV was resident manager in CCC-QC.
Due to the DOSRI Rule prohibiting lending of funds by a corporation to its directors,
officers, Share Holders & other persons with related interests therein, CCC decided to form
CCC Equity Corporation, a wholly-owned subsidiary to which CCC transferred its 30% equity in
CCC-QC together with 2 seats on the BoD. In the new set-up, several employees of CCC
became employees of CCC-Equity.
A complaint for a sum of money was later field by CCC-QC against Reynoso, who in the
meantime was dismissed from CCC-Equity, & wife for embezzlement of funds which were used
to buy a house in Valle Verde. Reynoso claims the money he used represented his money
placements in CCC-QC shown by 23 checks he issued to CCC-QC.
RTC dismissed the case against Reynoso and found his counterclaim for damages to be
meritorious hence granted it. For failing to pay the docket fees, CCC-QC’s appeal to the IAC
was dismissed hence the RTC decision became final & executory. However, the judgment
became remained unsatisfied prompting Reynoso to file a Motion for Alias Writ of Execution.
CCC-QC opposed saying that its premises & records had been taken over by CCC.
CCC meanwhile became known as General Credit Corporation. So, when the RTC
ordered GCC to file its comment on the petition of Reynoso, it claimed that it was not a party to
the case & Reynoso should direct his claim against CCC-QC. Reynoso replied saying that
CCC-QC is in adjunct instrumentality, conduit & agency of CCC & invoked the ruling in Ramoso
v. GCC where the SC declared that GCC, CCC-Equity & other franchised companies including
CCC-QC were declared as 1 corp. Reynoso claimed that GCC is just the new name of CCC
hence both should be treated as 1 entity. Cases were filed in the RTC of Pasig & QC to levy on
the properties of GCC. CA on the other hand enjoins the auction sale of the properties.
Issue: (1) WON the piercing the veil of corporate fiction was proper.
Held: CA decision reversed and set aside. Injunction against levying on properties of GCC &
their auction sale lifted. The use by CCC-QC of the same name of Commercial Credit
Corporation was intended to publicly identify it as a component of the CCC group of companies
engaged in one & the same business: investment & financing. When the mother corporation &
its subsidiary corporations cease to act in good faith and honest business judgment, when the
corporate fiction is used to perpetuate fraud or promote injustice, the law steps in to remedy the
injustice. The corporate character is not necessarily abrogated. It continues for legitimate
objectives; however pierced, to remedy injustices.
A court judgment becomes useless & ineffective if the employer, in this case CCC as a
14
mother corporation, is placed beyond the legal reach of the judgment creditor who after
protracted litigation, has been found entitled to positive relief. Courts have been organized to
put an end to controversy. This should not be negated by an inapplicable and wrong use of the
fiction of the corporate veil.
The defense of separateness will be disregarded where the business affairs of a
subsidiary corporation are so controlled by the mother corporation to the extent that it becomes
an instrument or agent of its parent. But even when there us dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when used to defeat
public convenience, justify wrong, protect fraud, or defend crime.
Factually & legally, CCC had dominant control of the business operations of CCC-QC:
a. the exclusive management contract insured that CCC-QC would be managed &
controlled by CCC & not deviate from the commands of the mother corp
b. CCC appointed its own employee as the resident manager of CCC-QC
c. Salaries, pensions, benefits, etc were from CCC, which later became GCC
d. Unity of interest, management, control, intensive auditing function of CCC over CCC-
QC, sharing of office space
e. Lawyers of the CCC-QC case were all in-house counsels of CCC
Ramoso v. CA & General Credit Corporation [347 SCRA 463 (Dec.8, 2000)]
Sufficiency of Proof to Pierce the Veil of Corporate Fiction
Facts: Commercial Credit Corporation (CCC), a general financing & investment firm, decided to
organize franchise companies in different parts of the country, wherein it shall the franchise
company shall be managed by CCC’s resident manager, management fee equivalent to 10% of
net profit before taxes shall be paid to CCC, all expenses shall be borne by the franchise
company except salary of the resident manager & cost of credit investigation, CCC shall set
prime rates for discounting or rediscounting of receivables. Each investor, Ramoso included,
was asked to sign a continuing guarantee for bad accounts that might be incurred by CCC.
Due to the DOSRI Rule prohibiting lending of funds by a corp to its directors, officers,
Share Holders & other persons with related interests therein, CCC decided to form CCC Equity
Corporation, a wholly-owned subsidiary to which CCC divested its equity in the franchise
companies but continued to provide a discounting line for receivables of the franchise
companies through CCC Equity. CCC meanwhile became known as General Credit
Corporation.
Upon investigation, investors discovered the dissipation of the assets of their respective
franchise companies: transfer or assignment of uncollectible notes & accounts, utilization of
spurious commercial papers to generate paper revenues, release of collateral in connivance
with unauthorized loans, divesting its assets through a questionable offset of receivables
arrangement with 1 of its creditors.
Investors filed a case for receivership, an order directing GCC & CCC-Equity solidarily to
pay them for the losses sustained, nullification of the offset agreement. GCC filed an MTD for
lack of SEC jurisdiction & that the petitioners were not the real parties in interest. Hearing
officer ordered piercing of the corporate veil, declaring GCC, GCC-Equity & the other franchise
companies as 1 & later declared that GCC is not liable for losses since as investors, they
assumed the risk of loss nor are the individual petitioners who executed a continuing guarantee
to secure the obligation of the franchised companies to GCC arising from the discounting
accounts. SEC en banc reversed this ruling which was affirmed by the CA hence this petition.
Issue: (1) WON GCC’s fraud & mismanagement of the franchise companies warrant a piercing
of its veil of corporate fiction.
(2) WON only the SEC has jurisdiction over the issue of whether individual petitioners
may be held liable on the surety agreements for bad accounts incurred by GCC.
Held: Denied for lack of merit & CA decision affirmed. As a general rule, a corp will be looked
upon as a legal entity, unless & until sufficient reason to the contrary appears. When the notion
of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corp as an association of persons. Also, the corp entity may be
disregarded in the interest of justice in cases such as fraud that may work inequities among
members of the corp internally, involving no rights of the public or third persons. There must be
fraud & proof of it. The wrongdoing must be clearly & convincingly established, not presumed.
Where the existence of the corp should be pierced depends on questions of facts,
15
appropriately pleaded. The burden of proving is on the party seeking to have the court pierce
the veil of corporate fiction.
Any taint of bad faith on the part of a financing & investment corp in enticing investors
may be resolved in ordinary courts since this is in the nature of a contractual relationship.
Ramoso signed the continuing guaranty of the franchise companies’ bad debts in their own
personal capacities. Hence they are responsible for their individual acts. The liabilities of
Ramoso arose out of the regular financing venture of the franchise companies, there is no
evidence that these bad debts were fraudulently incurred. Changing their subsidiary liability by
converting them to guarantors of bad debts cannot be done by piercing the veil of corp identity.
Not every conflict between a corporate & its Share Holders involves corporate matters
that only the SEC can resolve. Expedient as the policy may be to vest in administrative bodies
power to adjudicate matters that fall within their particular field of expertise, it should not deprive
the courts of justice the power to decide ordinary cases in accordance with the general laws that
do not require any particular expertise or training to interpret & apply. The franchised
companies’ accounts discounted by GCC would arise even if there is no intra-corporate
relationship between the parties – hence it did not arise out of the parties’ relationships as
Share Holders. The matter is better left to the regular courts in which suits have been filed to
enforce the suretyship agreements.
A close scrutiny of the facts shows that the disputed decision of the hearing officer dealt
mainly with control of GCC over the franchises – this is not enough to pierce the veil. The
circumstances leading to bankruptcy should also be taken into consideration – was there fraud,
dishonesty, etc.
Test to enable piercing of the veil, except in express agency, estoppel or direct tort:
a)Control, not mere majority or complete domination; b)Such control must have e=been used by
the defendant to commit fraud or wrong, etc.; c)The aforesaid control & breach of duty must
approximately cause the injury or unjust loss complained of.
1999
Reburiano vs. CA [301 SCRA 342 (Jan 21 1999)]

Continuation of juridical personality for 3 years after dissolution of corporation for
limited purpose
Facts: RTC rendered judgment in favor of Pepsi Cola Bottling Co. ordering Reburiano to pay
P55,000 with interest for the unpaid bottles of softdrinks it received from the company. RTC
issued a writ of execution. However, before the promulgation of the decision of the RTC, Pepsi
amended its articles of incorporation to shorten its term of existence. The RTC was not notified
of this fact.
Reburiano then moved to quash the writ of execution on the ground that Pepsi no longer
had juridical personality, hence, it could no longer sue and be sued.
RTC denied Reburiano’s petition to quash the writ of execution. An appeal was made.
CA dismissed the appeal. Hence, this petition for review on certiorari.
Issue: Whether or not Pepsi still had juridical personality to pursue its case against Reburiano
after a shortening of its corporate existence.
Held: YES. Sec. 122 of the Corporation Code provides that every corporation whose charter
expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner, shall nevertheless be continued
as a body corporate for 3 years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose
of continuing the business for which it was established.
However, Reburiano further argues that when Pepsi undertook a voluntary dissolution,
there was no showing that a receiver or trustee was ever appointed. He contends that Sec. 122
of the Corporation Code above cited does not authorize a corporation, after the 3 year
liquidation period, to continue actions instituted by it within said period of 3 years. SC held that
in the case of Gelano vs. CA, a corporation that has a pending action and which cannot be
16
terminated within the 3 year period after dissolution is authorized to convey all its property to
trustees to enable it to prosecute and defend suits by or against the corporation beyond the 3
year period. No reason could be conceived why a suit already commenced by the corporation
itself during its existence, not by a mere trustee who, by fiction, merely continues the legal
personality of the dissolved corporation, should not be accorded similar treatment allowed to
proceed to final judgment and execution thereof.
Counsel of the dissolved corporation can be considered a trustee. Also, the board of
directors may be permitted to complete the corporate liquidation by continuing as trustees by
legal implication.
Moreover, the Corporation Code provides:
Sec. 145 – Amendment or Repeal – No right or remedy in favor of or against any
corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred
by any such corporation, stockholders, members, directors, trustees, or officers, shall be
removed or impaired either by the subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any part thereof.
ABS CBN Broadcasting Corporation vs. CA [301 SCRA 572 (Jan 21 1999)]
Power of the Board of Directors
Delegation to Executive Committee
Facts: In 1990, ABS CBN and Viva executed a Film Exhibition Agreement whereby Viva gave
ABS CBN an exclusive right to exhibit some Viva films. Said agreement contained a stipulation
that ABS shall have the right of first refusal to the next 24 Viva films for TV telecast, provided
that such right shall be exercised by ABS from the actual offer in writing.
Hence, through this agreement, Viva offered ABS a list of 36 films from which ABS may
exercise its right of first refusal. ABS however, through VP Concio, did not accept the list since
she could only tick off 10 films. This rejection was embodied in a letter.
In 1992, Viva again approached ABS with a list consisting of 52 original films where Viva
proposed to sell these airing rights for P60M.
Viva’s Vic del Rosario and ABS’ general manager Eugenio Lopez III met at the Tamarind
Grill to discuss this package proposal. What transcribed at that meeting was subject to
conflicting versions.
According to Lopez, he and del Rosario agreed that ABS was granted exclusive film
rights to 14 films for P36M, and that this was put in writing in a napkin, signed by Lopez and
given to del Rosario. On the other hand, del Rosario denied the existence of the napkin in
which Lopez wrote something, and insisted that what he and Lopez discussed was Viva’s film
package of the 52 original films for P60M stated above, and that Lopez refused said offer,
allegedly signifying his intent to send a counter proposal. When the counter proposal arrived,
Viva’s BoD rejected it, hence, he sold the rights to the 52 original films to RBS.
Thus, ABS filed before RTC a complaint for specific performance with prayer for TRO
against RBS and Viva. RTC issued the TRO enjoining the airing of the films subject of
controversy. After hearing, RTC rendered its decision in favor of RBS and Viva contending that
there was no meeting of minds on the price and terms of the offer. The agreement between
Lopez and del Rosario was subject to Viva BoD approval, and since this was rejected by the
board, then, there was no basis for ABS’ demand that a contract was entered into between
them. That the 1990 Agreement with the right of first refusal was already exercised by Ms.
Concio when it rejected the offer, and such 1990 Agreement was an entirely new contract other
than the 1992 alleged agreement at the Tamarind Grill. CA affirmed. Hence, this petition for
certiorari with SC.
Lopez claims that it had not fully exercised its right of first refusal over 24 films since it
only chose 10. He insists that SC give credence to his testimony that he and del Rosario
discussed the airing of the remaining 14 films under the right of first refusal agreement in
Tamarind Grill where there was a contract written in the alleged napkin.
Issue: Whether or not there was a perfected contract between Lopez and del Rosario.
Held: NO. A contract is a meeting of minds between 2 persons whereby one binds himself to
give something or to render some service to another for a consideration. There is no contract
unless the following requisites concur: (1) consent of the contracting parties (2) object certain
which is the subject of the contract (3) cause of the obligation, which is established.
Contracts that are consensual in nature are perfected upon mere meeting of the minds.
Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer must be certain. To
17
convert the offer into a contract, the acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort
from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a
counter offer and is a rejection of the original offer. Consequently, when something is desired
which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate
consent because any modification or variation from the terms of the offer annuls the offer.
In the case at bar, when del Rosario met with Lopez at the Tamarind Grill, the package
of 52 films was Viva’s offer to enter into a new Exhibition Agreement. But ABS, through its
counter proposal sent to Viva, actually made a counter offer. Clearly, there was no acceptance.
The acceptance should be unqualified. When Viva’s BoD rejected the counter proposal, then
no contract could have been executed. Assuming arguendo that del Rosario did enter into a
contract with Lopez at Tamarind Grill, this acceptance did not bind Viva since there was no
proof whatsoever that del Rosario had specific authority to do so. Under the Corporation Code,
unless otherwise provided by said law, corporate powers, such as the power to enter into
contracts, are exercised by the BoD. However, the board may delegate such powers to either
an executive committee or officials or contracted managers. The delegation, except for the
executive committee, must be for specific purposes. Delegation to officers makes the latter
agents of the corporation, and accordingly, the general rules of agency ad to the binding effects
of their acts would apply. For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so. That del
Rosario did not have the authority to accept ABS’ counter offer was best evidenced by his
submission of the counter proposal to Viva’s BoD for the latter’s approval. In any event, there
was no meeting of the minds between del Rosario and Lopez.
The contention of Lopez that their meeting in Tamarind Grill was a continuation of their
right of first refusal agreement over the remaining 14 films is untenable. ABS’ right of first
refusal had already been exercised when Ms. Concio wrote to Viva choosing only 10 out of the
36 films offered by del Rosario. It already refused the 26 films.
Luxuria Homes Inc. vs. CA [302 SCRA 315 (Jan 28 1999)]

Ownership in Capital Stock not sufficient to Pierce Veil of Corporate Fiction
Facts: Posadas and her 2 minors co-owned a 1.6 hectare property in Sucat which was
occupied by squatters. Posadas negotiated with Bravo regarding the development of said
property into a residential subdivision. She authorized Bravo to negotiate with the squatters.
Meanwhile, Posadas assigned the property to Luxuria Homes via a deed of assignment.
Relations with Bravo turned sour. Bravor demanded payment for services rendered. Posadas
refused to pay. Bravo instituted a complaint for specific performance with the RTC. He
included Luxuria Homes, Inc. as respondent since he alleged that Posadas surreptitiously
formed said corporation and transferred the parcel of land to it to evade payment and defraud
creditors. RTC adjudged in favor of Bravo. CA affirmed. Hence, this petition for review.
Issue: Whether or not Luxuria Homes, Inc. was a party to the transactions entered into by
Posadas and Bravo and thus could be held jointly and severally liable with Posadas.
Held: No. It is evident from the records that Bravo sent demand letters more than a year and a
half after the execution of the Deed of Assignment in favor of Luxuria and the issuance of AoI of
Luxuria. The transfer was made at the time the relationship between Posadas and Bravo was
still very pleasant. Furthermore, Posadas is not the majority stockholder of Luxuria. The AOI
shows that Posadas owns approximately 33% only of the capital stock. Hence, Posadas cannot
be considered as an alter ego of Luxuria Homes.
To disregard the separate juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed. The separate personality of the
corproation may be disregarded only when the corporation is used as a cloak or cover for fraud
or illegality, or to work injustice, or where necessary for the protection of the creditors. In the
case at bar, Bravo failed to show proof that Posadas was acting in bad faith.
Calma vs. CA [302 SCRA 682 (Feb 9 1999)]

Investigatory Powers of the SEC
Facts: Sometime in 1990, the Hukbalahap Veterans Association (Hukvets) filed a letter
complaint with the SEC alleging that petitioners Calma, Liwanag, Cayanan and Maglangue
surreptitiously arrogated unto themselves the powers and functions of trustees and officers of
Hukvets.
18
SEC, through its Prosecution and Enforcement Department issued a resolution directing
the Board of Trustees to call within 30 days a general membership meeting for the election of 7
new members of the board. Petitioners objected to this. SEC denied their motion for
reconsideration.
Petitioners went to the CA contending that the SEC Prosecution and Enforcement
Department was without jurisdiction to entertain and adjudicate corporate election contests. CA
was unpersuaded. Hence, this petition before the SC.
Issue: Whether or not the Prosecution and Enforcement Department of the SEC has jurisdiction
to investigate the letter complaint filed by Hukvets.
Held: Yes.
(1) SEC has both regulatory and adjudicative functions. Relative to the latter, SEC has original
and exclusive jurisdiction to hear and decide controversies and cases involving (a) intra-
corporate and partnership relations between the corporation, officers and stockholders,
including elections or appointments; (b) state and corporate affairs in relation to the legal
existence of the corporation, partnership or to their franchises; (c) investors and corporate
affairs; (d) petitions for suspension of payments.
(2) The Prosecution and Enforcement Department of the SEC has the inherent power,
according to Sec. 6 of P.D. 1758 amending P.D. 902-A, to investigate, on complaint or motu
propio, any act or omission of the Board of Directors/Trustees of corporations, their
stockholders, officers or partners, including any fraudulent devices, schemes or representations,
in violation of any law.
Hence, SEC, under its adjudicative jurisdiction, has the power to hear and decide
controversies involving intra-corporate relations between and among members and officers of a
corporation. The Prosecution and Enforcement Department was established as its adjudicative
arm. As such, it is vested with the authority to investigate, on complaint or motu propio, any act
or omission of the Board of Directors of corporations, as in the case at bar.
Azcor Manufacturing Inc. vs. NLRC [303 SCRA 26 (Feb 11 1999)]

Piercing the Veil of Corporate Fiction to prevent evasion of obligations or confuse the
legitimate issues
Facts: Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal. He
alleged that he worked for Azcor as ceramics worker for more than 2 years. Then, due to
asthma, he filed a leave of absence. Upon returning to work, he was not permitted to do so. He
later on amended his complaint and impleaded Filipinas Paso as additional respondent.
On the other hand, Azcor contends that Capulso validly resigned from the company, as
evidenced by a letter of resignation, for which Capulso then sought employment from Filipinas
Paso, from which he also resigned. The Labor Arbiter dismissed the case. On appeal to the
NLRC, it adjudged in favor of Capulso holding Filipinas Paso and Azcor solidarily liable. Hence,
this petition with the SC.
Issue: Whether or not Filipinas Paso may be held jointly and severally liable with Azcor for back
wages of Capulso.
Held: Yes. The doctrine that a corporation is a legal entity or a person in law distinct from the
persons composing it is merely a legal fiction for purposes of convenience and to subserve the
ends of justice. This fiction cannot be extended to a point beyond its reason and policy. Where,
as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a
vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the 2
corporations would be merged as one, the first being merely considered as the instrumentality,
agency, conduit, or adjunct of the other.
In the case at bar, there was much confusion as to the identity of Capulso's employer,
but, for sure, it was Filipinas Paso and Azcor's own making. First, Capulso had no knowledge
that he was already working under Filipinas Paso since he continued to retain his Azcor ID.
Second, his pay slips contained the name of Azcor giving the impression that Azcor was paying
his salary. Third, he was paid the same salary and he performed the same kind of job, in the
same work area, in the same location, using the same tools and under the same supervisor.
Neugene Marketing Inc. vs. CA [303 SCRA 295 (Feb 18 1999)]

Ownership of Corporate Share/Stock Certificates
19
Facts: Neugene was duly registered with SEC to engage in trading business. Private
Respondents Sy, Yang, and Suen, holders of 5250 shares or 2/3 of the outstanding capital
stock sent notice to the BoD for a board meeting. In this meeting, they approved a resolution
dissolving Neugene.
SEC thus issued a Certificate of Dissolution of Neugene. Petitioners Tan, Martin,
Moreno and Lee brought an action to annul said SEC Certification contending that they were the
majority stockholders of the corporation, and that prior to the board meeting, the private
respondents had already divested themselves of their stockholdings by endorsing them in blank
and delivering them to the Uy family. The latter in turn awarded said stock certificates to Johnny
Uy, who in turn sold the same to petitioners. Hence, private respondents could no longer validly
vote for the dissolution of Neugene at the time of the board meeting.
Private respondents contend that the assignment of shares were simulated and
fraudulently effected since the endorsement in blank by them of the stock certificates to the Uy
family was only for safekeeping when they were stolen from a vault by Johnny Uy.
SEC nullified the Certificate of Dissolution. CA, on the other hand, upheld Neugene's
dissolution. Hence, this petition with the SC.
Issue: Whether or not private respondents divested themselves of their stockholdings when
they voted for the resolution dissolving Neugene.
Held: No. Entries in the Stock and Transfer Book show that at the time of dissolution of
Neugene, the private respondents owned at least 2/3 of the outstanding capital stock, in
sufficient compliance with Sec. 118 of the Corporation Code of the Philippines.
Petitioners submitted the same Stock and Transfer Book to show that the certificates of
private respondents were cancelled. But after a careful examination of the evidence on record,
SC found that the stock certificates of private respondents were stolen and therefore not validly
transfered, and the transfers of stock relied upon by petitioners were fraudulently recorded in
the Stock and Transfer Book of Neugene.
The true relationship between stockholders of Neugene and that of the Uy family was
that they had an understanding that the beneficial ownership of Neugene would remain with the
Uy family, such that the shares of stock were endorsed in blank, upon issuance, by the
shareholders and entrusted to the Uy family for safekeeping. Such beneficial ownership has
been admitted through the testimonies not only of private respondents but also of petitioners.
Rubberworld Inc. vs. NLRC [305 SCRA 721 (April 14 1999)]

Effect of Petition for Suspension of Payments on all other claims
Facts: Rubberworld filed with the SEC a petition for suspension of payments. SEC ruled
favorably on the request and accordingly, it issued an order for the creation of a management
committee; and all actions for claims against the corporation pending before any court, tribunal,
office, board, body were suspended.
The employees of Rubberworld filed against the corporation a complaint for illegal
dismissal and unfair labor practice. Rubberworld moved to suspend the proceedings relying on
the SEC order. The Labor Arbiter denied Rubberworld’s motion ruling that claims as regards
labor cases are not included in the SEC order. Rubberworld appealed to the NLRC, which
affirmed the Labor Arbiter’s decision. Hence, this petition for certiorari.
Issue: Whether or not a petition for suspension of payments filed under P.D. 902-A effectively
suspends all actions against a corporation including labor claims.
HELD: YES. P.D. 902-A provides that upon the appointment of a management committee,
rehabilitation receiver, board or body pursuant to this decree, all actions for claims against
corporations, partnerships, or associations under management or receivership pending before
any court, tribunal, board or body shall be suspended accordingly. The law is clear. Upon the
creation of a management committee or the appointment of a rehabilitation receiver, all claims
for actions shall be suspended. No exception in favor of labor claims is mentioned in the law.
Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely
encumbers the management committee’s time and resources. The said committee would need
to defend against these suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again.
The preferential right of workers and employees under Article 110 of the Labor Code
may be invoked only upon the institution of insolvency or judicial liquidation proceedings and not
20
during rehabilitation proceedings, the purpose of which is to enable the company to gain a new
lease on life and thereby allow creditors to be paid their claims from its earnings.
SC also noted that PD 902-A does not provide for the duration of the automatic stay.
And in the case at bar, the SEC order neither contains such. Hence, the suspensive effect in
this case had no time limit and remained in force as long as reasonably necessary to
accomplish the purpose of the SEC order.
1998
Bitong vs. CA [292 SCRA 503 (July 13 1998)]

Ownership of Corporate Shares/ Stock Certificates: Valid Issuance
Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She filed a
complaint with the SEC to hold respondent spouses Apostol liable for fraud, misrepresentation,
disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of the
corporation to the prejudice of the stockholders. She alleges that certain transactions entered
into by the corporation were not supported by any stockholder’s resolution.
The complaint sought to enjoin Apostol from further acting as president-director of the
corporation and from disbursing any money or funds. Apostol contends that Bitong was merely
a holder-in-trust of the JAKA shares of the corporation, hence, not entitled to the relief she prays
for. SEC Hearing Panel issued a writ enjoining Apostol.
After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the
complaint filed by Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC
Hearing Panel decision. Apostol filed petition for review with the CA. CA reversed SEC en
banc ruling holding that Bitong was not the owner of any share of stock in the corporation and
therefore, not a real party in interest to prosecute the complaint. Hence, this petition with the
SC.
Issue: Whether or not Bitong was the real party in interest.
Held: Based on the evidence presented, it could be gleaned that Bitong was not a bona fide
stockholder of the corporation. Several corporate documents disclose that the true party in
interest was JAKA.
Although her buying of the shares were recorded in the Stock and Transfer Book of the
corporation, and as provided by Sec. 63 of the Corp Code that no transfer shall be valid except
as between the parties until the transfer is recorded in the books of the corporation, and upon its
recording the corporation is bound by it and is estopped to deny the fact of transfer of said
shares, this provision is not conclusive even against the corporation but are prima facie
evidence only. Parol evidence may be admitted to supply the omissions in the records, explain
ambiguities, or show what transpired where no records were kept, or in some cases where such
records were contradicted. Besides, the provision envisions a formal certificate of stock which
can be issued only upon compliance with certain requisites: (1) certificates must be signed by
the president or vice president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation, (2) delivery of the certificate; (3) the par value, as to par
value shares, or the full subscription as to no par value shares, must be first fully paid; (4) the
original certificate must be surrendered where the person requesting the issuance of a
certificate is a transferee from a stockholder.
These considerations are founded on the basic principle that stock issued without
authority and in violation of the law is void and confers no rights on the person to whom it is
issued and subjects him to no liabilities. Where there is an inherent lack of power in the
corporation to issue the stock, neither the corporation nor the person to whom the stock is
issued is estopped to question its validity since an estoppel cannot operate to create stock
which under the law cannot have existence.
Lim Tay vs. CA [293 SCRA 634 (Aug 5 1998)]

Established Ownership of Corporate Shares/ Stock Certificates necessary to be entitled
to rights of shareholder
Facts: Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of P40,000. This was
secured by a contract of pledge whereby the former pledged their 300 shares of stock each in
Go Fay & Company to the latter. However, they failed to pay their respective loans. Hence,
Lim Tay filed a petition for mandamus against Go Fay & Company with the SEC praying that an
21
order be issued directing the corporate secretary of the said corporation to register the stock
transfers and issue new certificates in favor of Lim Tay.
Go Fay & Company filed its answer contending that SEC had no jurisdiction to entertain
the complaint on the ground that since Lim Tay was not a stockholder of the company, no intra
corporate controversy took place; and furthermore, that the default of payment of Sy Guiok and
Sy Lim did not automatically vest in Lim Tay the ownership of the pledged shares.
SEC dismissed the complaint. On appeal to the CA, it affirmed SEC’s decision. Hence,
this petition for certiorari with the SC.
Issue: Whether or not SEC had jurisdiction.
Held: No. The registration of shares in a stockholder’s name, the issuance of stock certificates,
and the right to receive dividends which pertain to the said shares are all rights that flow from
ownership. The determination of whether or not a shareholder is entitled to exercise the above
mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is
not clearly established and is still unresolved at the time the action for mandamus is filed, then
jurisdiction lies with the regular courts.
In the case at bar, reading into the contract of pledge, the stipulation shows that Lim Tay
was merely authorized to foreclose the pledge upon maturity of the loans, not to own them.
Such foreclosure was not automatic, for it must be done in a public or private sale. Nowhere
was it mentioned that he exercised his right of foreclosure. Hence, his status was still a mere
pledgee, and under civil law, this does not entitle him to ownership of the shares of stock in
question.
Nicario vs. NLRC [295 SCRA 619 (Sept 17 1998)]

Separate Corporate Personality
Facts: Nicario was employed as a salesgirl, later promoted to supervisor, with Mancao
Supermarket. She was terminated in 1989. Nicario filed a complaint for illegal dismissal with
NLRC. The Labor Arbiter dismissed the case. Nicario appealed to the NLRC. NLRC
remanded the case back to the Labor Arbiter for lack of due process. Labor Arbiter adjudged in
favor of Nicario, ordering Mancao Supermarket to pay unpaid service incentive leave, 13 th
month pay, overtime pay and rest day pay, but dismissed Nicario’s claims for holiday premium
pay and unpaid salaries.
Nicario appealed to NLRC. It affirmed in toto the decision of the Labor Arbiter. In its
motion for reconsideration, NLRC deleted the award of overtime pay and ruled that Antonio
Mancao is not jointly and severally liable with Mancao Supermarket in paying Nicario. Hence,
this certiorari proceeding.
Issue: Whether or not Antonio Mancao is solidarily liable with Mancao Supermarket as
manager.
Held: NO. The general rule is that officers of a corporation are not personally liable for their
official acts unless it is shown that they have exceeded their authority. However, the legal
fiction that a corporation has a personality separate and distinct from stockholders and
members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as
a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.
In this case, there is no showing that Antonio Mancao, as manager of the company,
deliberately and maliciously evaded the company’s financial obligation to Nicario. Hence, there
appearing to be no evidence on record that Antonio Mancao acted maliciously or deliberately in
the non-payment of benefits to Nicario, he cannot be held jointly and severally liable with
Mancao supermarket.
San Juan Structural and Steel Fabricators Inc. vs. CA [296 SCRA 631 (Sept 29 1998)]
Effect of Unauthorized Acts of Corporate Officer
Sufficiency of Proof to Pierce Veil of Corporate Fiction
Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich
Sales Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to
the former a parcel of land upon a P100,000 earnest money, balance to be payable within
March 2, 1989. Upon payment of the earnest money, and on March 1, 1989, San Juan
22
allegedly asked to be submitted a computation of the balance due to Motorich. The latter,
despite repeated demands, refused to execute the Deed of Assignment of the land. San Juan
discovered that Motorich entered into a Deed of Absolute Sale of the land to ACL Development
Corporation. Hence, San Juan filed a complaint with the RTC.
On the other hand, Motorich contends that since Nenita Gruenberg was only the
treasurer of said corporation, and that its president, Reynaldo Gruenberg, did not sign the
agreement entered into by San Juan and Motorich, the treasurer’s signature was inadequate to
bind Motorich to the agreement. Furthermore, Nenita contended that since San Juan was not
able to pay within the stipulated period, no deed of assignment could be made. The deed was
agreed to be executed only after receipt of the cash payment, and since according to Nenita, no
cash payment was made on the due date, no deed could have been executed.
RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich
to enter into said contract with San Juan, and that a majority vote of the BoD was necessary to
sell assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA affirmed
this decision. Hence, this petition with SC.
Issues: (1) Whether or not there was a valid contract existing between San Juan and Motorich.
(2) Whether or not the veil of corporate fiction could be pierced.
Held: (1) No. The contract entered into between Nenita and San Juan cannot bind Motorich,
because the latter never authorized nor ratified such sale. A corporation is a juridical person
separate and distinct from its stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders and may not be sold by them without express
authorization from the corporation’s BoD. This is in accordance with Sec. 23 of the Corporation
Code.
Indubitably, a corporation can only act through its BoD or, when authorized either by its
by laws or by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the AoI, by laws, or relevant provisions of law. A corporate officer
or agent may represent and bind the corporation in transactions with 3rd persons to the extent
that the authority to do so has been conferred upon him, and this includes powers which have
been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with the officer or agent to
believe that it has conferred. Furthermore, persons dealing with an assumed agent, whether
the assumed agency be a general or special one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish it.
Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a
sale of its assets.
In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenita’s
authority to represent the corporation. Selling is obviously foreign to a corporate treasurer’s
function. Neither was real estate sale shown to be a normal business activity of Motorich. The
primary purpose of said corporation is marketing, distribution, import and export relating to a
general merchandising business. Unmistakably, its treasurer is not cloaked with actual or
apparent authority to buy or sell real property, an activity which falls way beyond the scope of
her general authority.
Acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them.
(2) No. San Juan argues that the veil of corporate fiction should be pierced because the
spouses Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital stock, they
needed no authorization from the BoD to enter into the said contract.
The veil can only be disregarded when it is utilized as a shield to commit fraud, illegality
or inequity, defeat public convenience, confuse legitimate issues, or serve as a mere alter ego
or business conduit of a person or an instrumentality, agency or adjunct of another corporation.
Hence, the question of piercing the veil becomes a matter of proof. In the case at bar, SC found
no reason to pierce the veil. San Juan failed to establish that said corporation was formed for
the purpose of shielding any fraudulent act of its officers and stockholders.
People's Aircargo and Warehousing Co., Inc. vs. CA [297 SCRA 170 (Oct 7 1998)]
23
Power of Board of Directors to Bind Corporation
Facts: People's Aircargo is a domestic corporation organized to operate a customs bonded

warehouse. To obtain a license for the corporation from the Bureau of Customs, Punsalan, its
President, solicited a proposal from Sano for the preparation of a feasibility study. Sano
submitted a letter proposal to Punsalan of the terms and conditions of the contract, amounting
to P350,000.00. Punsalan sent a letter to Sano confirming to their agreement. Accordingly,
Sano prepared the feasibility study. Sano was paid in full.
Thereafter, a 2nd contract was entered into for consultancy services. Hence, the Bureau
of Customs issued a license to People's Aircargo. Sano was not paid for this 2nd contract.
Hence, he filed a collection case against the corporation. Meanwhile, Punsalan sold his shares
in People's Aircargo andresigned as president.
People's Aircargo denied that there were consultancy services rendered by Sano. It
alleged that the 2nd contract entered into between him and Punsalan was without authority.
RTC adjudged in favor of Sano. CA affirmed. Hence, this petition.
Issue: Whether or not the Punsalan had apparent authority to bind People's Aircargo to the 2nd
contract.
Held: Yes. The general rule is that, in the absence of authority from the BoD, no person, not
even its officers, can validly bind a corporation. A corporation is a juridical person, separate and
distinct from its stockholders and members, having powers, attributes and properties expressly
authrized by law or incident to its existence. Being a juridical entity, a corporation may act
through its BoD, which exercises almost all corporate powers, lays down all corporate business
policies and is responsible for the efficiency of management as is under Sec. 23 of the
Corporation Code.
The power and responsibility to decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the board, subject to AoI, by laws, or relevant
provisions of law. However, just as a natural person may authorize another to do certain acts
for and on his behalf, the BoD may validly delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate by laws or authorization from the board, either expressly or
impliedly by habit, custom or acquiescence in the general course of business.
In the case at bar, since the corporation had previously allowed Punsalan to enter into
the first contract with Sano without a board resolution expressly authorizing him, thus, it had
clothed its president with apparent authority to execute the subject 2nd contract.
If a corporation knowingly permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as possessing the power to do
those acts, and thus, the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent's authority.
MWSS vs. CA [297 SCRA 287 (Oct 7 1998)]

Acts of Corporate Officer: Effects of Ratification by Board
Facts; MWSS leased 128 hectares of its land to CHGCCI for 25 years with a stipulation
allowing the latter to exercise a right of first refusal should the subject property be made open
for sale. The terms and conditions of CHGCCI’s purchase was nonetheless subject to
presidential approval.
Then Pres. Marcos directed MWSS to negotiate the cancellation of this lease agreement
between MWSS and CHGCCI. However, MWSS’ general manager, Ilustre, informed CHGCCI
that the property was up for sale, and that as per their contract, CHGCCI had the preferential
right to buy said property. Hence, the property was purchased, and Pres. Marcos later on
approved this sale. Then, BoT of MWSS also approved the sale by passing a resolution.
CHGCCI sold the land to Ayala.
10 years later, MWSS filed an action against CHGCCI and Ayala in RTC praying for the
declaration of nullity of the MWSS-CHGCCI sales agreement. RTC dismissed the petition. CA
affirmed. Hence, this petition for certiorari with SC. MWSS holds that Ilustre was never given
the authority by the BoT to enter into the initial agreement, and therefore, the sale of the
property was null and void.
Issue: Whether or not the sale was valid.
24
Held: Yes. Assuming that Ilustre was not given the ample authority to enter into the agreement,
this infirmity was cured by ratification. So settled is the precept that ratification can be made by
the corporate board either expressly or impliedly. Implied ratification may take various forms –
like silence or acquiescence, by acts showing approval or adoption of the contract, or by
acceptance and retention of benefits flowing therefrom. Both modes of ratification have been
made in this case. There was express ratification made by the BoT of MWSS when it passed a
resolution approving the sale of the subject property to CHGCCI, authorizing Ilustre to sign for
and in behalf of MWSS the contract papers relative thereto. Implied ratification by silence or
acquiescence is revealed from the acts of MWSS in sending 3 demand letters for the payment
of the purchase price, accepting P25M as down payment, and accepting a letter of credit for the
balance. Furthermore, MWSS did not return any of these amounts covering the purchase price
at any point in time. This is indicative of MWSS’ acceptance and retention of benefits flowing
from the sales transactions which is another form of implied ratification.
1997
Hahn v. Court of Appeals [266 SCRA 537 (January 22, 1997)]

Jurisdiction Over Foreign Corporation
Doing Business in the Philippines Without a License
Facts: Petitioner is a Filipino citizen doing business under the name of “Hahn-Manila”. Private
respondent BMW is a non-resident corporation incorporated in Germany. Petitioner executed in
favor of private respondent a “Deed of Assignment with a Special Power of Attorney” which
constituted petitioner as the exclusive dealer of private respondent as long as the assignment of
its trademark and device subsisted. However, no formal contract was drawn between the two
parties. Thereafter, petitioner was informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to Columbia Motors Corp. (CMC). BMW expressed
dissatisfaction with various aspect of petitioner’s business but nonetheless also expressed
willingness to continue business relations with petitioner on the basis of a standard BMW
contract otherwise, if said offer was unacceptable to petitioner then BMW would terminate
petitioner’s exclusive dealership. Petitioner refused BMWs offer in which case BMW withdrew its
alternative offer and terminated petitioner's exclusive dealership. Petitioner therefore filed an
action for specific performance and damages against BMW to compel it to continue the
exclusive dealership.
BMW moved to dismiss the case contending that the trial court did not acquire
jurisdiction over it through the service of summons on DTI because BMW is a foreign
corporation and is not doing business in the Philippines. The trial court deferred the resolution of
the motion for dismissal until after trial on the merits for the reason that the grounds advanced
by BMW did not seem indubitable. BMW appealed said order to the CA. The CA resolved that
BMW was not doing business in the country and therefore jurisdiction over it could not have
been acquired through the service of summons on DTI and it dismissed the petition.
Issue: W/N BMW is doing business in the Philippines so as to enable the court to acquire
jurisdiction over it through the service of summons on the DTI.
HeId: RA 7042 enumerates what acts are considered as “doing business”. Section 3(d)
enumerating such acts includes the phrase “appointing representatives or distributors in the
Philippines” but not when the representative or distributor “transacts” business in his own name
for his own account. In the case at bar, petitioner is private respondent BMW’s agent and not
merely a broker. The record reveals that private respondent exercised control over petitioner’s
activities as a dealer and made regular inspections of petitioner’s premises to enforce its
standards. Since BMW is considered as doing business in the Philippines, the trial court validly
acquired jurisdiction over it by virtue of the service of summons on the DTI. Furthermore, it is
now settled that, for purposes of having summons served on a foreign corporation in
accordance with the Rules of Court, it is sufficient that it be alleged in the complaint that the
foreign corporation is doing business in the Philippines. The court need not go beyond the
allegations in the complaint in order to determine whether or not it acquired jurisdiction. Such
determination that the foreign corporation is doing business in the Philippines is only tentative
and only for the purpose of enabling the court to acquire jurisdiction. A contrary determination
may be made based on the court’s findings or evidence presented.
25
Eriks PTE., Ltd. v. Court of Appeals [February 6, 1997]

Effect of Doing Business in Philippines without a License: Barred From Access to
Courts
Facts:
1. Petitioner Eriks Pte., Ltd. is a nonresident foreign corporation engaged in the manufacture
and sale of elements used in sealing pumps, valves and pipes for industrial purposes, and
PVC pipes and fittings for industrial uses.
2. Private respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene
EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner
various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes
and fittings.
3. The transfer of goods were perfected in Singapore for private respondent’s account with a
90-day credit term. Subsequently, demands were made by petitioner upon private
respondent to settle his account, but the latter failed/refused to do so.
4. Petitioner corporation filed with the RTC a complaint for the recovery of US$41,939.63.
Private respondent responded with a Motion to Dismiss, contending that petitioner
corporation had no legal capacity to sue. The trial court dismissed the action on the ground
that petitioner is a foreign corporation doing business in the Philippines without a license.
5. On appeal, the respondent court affirmed the RTC as it deemed the series of transactions
between petitioner corporation and private respondent not to be an “isolated or casual
transaction.” Thus, respondent court found petitioner to be without legal capacity to sue.
Issue: Is a foreign corporation which sold its products 16 times over a 5-month period to the
same Filipino buyer without first obtaining a license to do business in the Philippines, prohibited
from maintaining an action to collect payment therefor in Philippine courts? In other words, is
such foreign corporation “doing business” in the Philippines without the required license and
thus barred access to our court system?
Held:
1.The Corporation Code provides:
“Section 133. Doing business without a license — No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.” The aforementioned provision prohibits, not merely absence of the
prescribed license, but it also bars a foreign corporation “doing business” in the Philippines
without such license access to our courts. A foreign corporation without such license is not
ipso facto incapacitated from bringing an action. A license is necessary only if it is
“transacting or doing business” in the country.
2. The test to determine whether a foreign company is “doing business” in the Philippines,
thus: "x x x The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to another. The term implies a
continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions normally incident to,
and in progressive prosecution of, the purpose and object of its organization (Mentholaturn
Co., Inc. v. Mangaliman).
3. The accepted rule in jurisprudence is that each case must be judged in the light of its
environmental circumstances. It should be kept in mind that the purpose of the law is to
subject the foreign corporation doing business in the Philippines to the jurisdiction of our
courts. It is not to prevent the foreign corporation from performing single or isolated acts, but
to bar it from acquiring a domicile for the purpose of business without first taking the steps
necessary to render it amenable to suits in the local courts.
4. Thus, we hold that the series of transactions in question could not have been isolated or
casual transactions. What is determinative of "doing business" is not really the number or
the quantity of the transactions, but more importantly, the intention of an entity to continue
the body of its business in the country. The number and quantity are merely evidence of
26
such intention. The phrase "isolated transaction” has a definite and fixed meaning, i.e. a
transaction or series of transactions set apart from the common business of a foreign
enterprise in the sense that there is no intention to engage in a progressive pursuit of the
purpose and object of the business organization. Whether a foreign corporation is “doing
business” does not necessarily depend upon the frequency of its transactions, but more
upon the nature and character of the transactions.
5. Accordingly, petitioner must be held to be incapacitated to maintain the action a quo against
private respondent. By this judgment, we are not foreclosing petitioner’s right to collect
payment. Res judicata does not set in a case dismissed for lack of capacity to sue, because
there has been no determination on the merits. Moreover, this Court has ruled that
subsequent acquisition of the license will cure the lack of capacity at the time of the
execution of the contract. By securing a license, a foreign entity would be giving assurance
that it will abide by the decisions of our courts, even if adverse to it.
Republic Planters Bank vs. Agana, Sr. [March 3, 1997]

Rights of Holders of Perferred Shares
Legality of Interest Bearing Shares
1. Private respondent Robes Francisco Realty & Dev’t Corp. secured a loan from petitioner in
the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were
issued to private respondent corporation. In other words, instead of giving the legal tender
totaling to the full amount of the loan which is P120,000.00, petitioner lent such amount partially
in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value
of P10.00 per share, or for P4,000 each, for a total of P8,000.00. Said stock certificates were in
the name of private respondent Adalia Robes and Carlos Robes, who, however, subsequently
endorsed his shares in favor of Adalia Robes.
Said certificates of stock bear the following terms and conditions:
1. The right to receive a quarterly dividend of 1%, cumulative and participating.
2. That such preferred shares may be redeemed, by the system of drawing lots, at any time
after 2 years from the date of issue at the option of the Corporation.
Private respondents proceeded against petitioner and filed a complaint anchored on
private respondents’ alleged rights to collect dividends under the preferred shares in question
and to have petitioner redeem the same under the terms and conditions of the stock certificates.
The trial court ordered the petitioner to pay private respondents the face value of the
stock certificates as redemption price, plus 1% quarterly interest. Hence this petition.
Issue: W/N respondents have the right to collect dividends and whether they can compel
petitioner to redeem the preferred shares.
Held:
1. A preferred share of stock is one which entitles the holder thereof to certain preferences
over the holders of common stock. The preferences are designed to induce persons to
subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most
common forms may be classified into two: (1) preferred shares as to assets; and (2)
preferred as to dividends. The former is a share which gives the holder thereof the
preference in the distribution of the assets of the corporation in case of liquidation; the latter
is a share the holder of which is entitled to receive dividends on said share to the extent
agreed upon before any dividends at all are paid to the holders of common stock. There is
no guarantee, however, that the share will receive any dividends.
2. Preferences granted to preferred stockholders do not give them a lien upon the property of
the corporation nor make them creditors of the corporation, the right of the former being
always subordinate to the latter. Shareholders, both common and preferred are considered
risk takers who invest capital in the business arid who can look only to what is left after
corporate debts and liabilities are fully paid.
3. Redeemable shares are shares usually preferred, which by their terms are redeemable at a
fixed date, or at the option of either issuing corporation, or the stockholder, or both at certain
redemption price; redemption may not be made where the corporation is insolvent or if such
redemption will cause insolvency or inability of the corporation to meet its debts as they
mature.
4. While the stock certificates in the case at bar does allow redemption, the option to do so
27
was clearly vested in the petitioner bank. The redemption is therefore optional.
5. The redemption of said shares cannot be allowed. The Central Bank made a finding that
said petitioner has been suffering from chronic reserve deficiency, and that such finding
resulted in the directive prohibiting the petitioner bank from redeeming any preferred share,
on the ground that said redemption would reduce the assets of the Bank to the prejudice of
its depositors and creditors. Redemption of preferred shares was prohibited for a just and
valid reason.
6."Interest bearing stocks", on which the corporation agrees absolutely to pay interest before
dividends are paid to common stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or surplus only.
Samahan ng Optometrists sa Pilipinas v. Acebedo International Corp. [270 SCRA 298

(March 21, 1997)]
Powers of the Corporation
Facts: Respondent Acebedo Optical applied for a permit with the Office of the Mayor of
Cancion, Ilocos Sur for the operation of a branch office. Said application was opposed by
herein petitioner on the ground that respondent is a juridical entity. Said application was denied.
Issue: WIN a corporation engaged in the business of selling optical wares, supplies, etc. which
as an incident to and in the ordinary course of business hire optometrists be said to be
practicing the profession of optometry which may only be engaged in by natural persons.
Held: Respondent is a corporation created and organized for the purpose of conducting the
business of selling optical lenses, etc. The determination of proper lenses to sell entails the
employment of optometrists. Under R.A. 8050 (Revised Optometry Law), there is no prohibition
against hiring by corporation of optometrists or considers the hiring by the corporation of
optometrists as a practice by the corporation itself of the profession of optometry.
Aguenza v. Metrobank [GR 74336, April 7, 1997]

Effects of Unauthorized Acts of Corporate Officers
Facts: Intertrade Corp authorized and empowered Aguenza and Arrieta (its president and EVP,
respectively) to jointly apply for open credit lines with Metrobank. The two officers executed a
Continuing Suretyship Agreement whereby both bound themselves jointly and severally with
Intertrade to pay Metrobank whatever obligation Intertrade occurs. Subsequently, Arrieta and
Perez, Intertrade's bookkeeper, obtained another loan from Metrobank and they also promised
to pay the loan, jointly and severally. Arrieta and Perez defaulted in the payment. Metrobank
sued Intertrade, impleading Aguenza on the basis of the Continuing Suretyship Agreement
executed earlier. (Incidentally, Intertrade made an admission that the loan obtained by
Arrieta and Perez was a corporate liability.)
Issue: WIN Aguenza is liable.
Held: No. Arrieta’s subsequent action (of obtaining the loan together with Perez) was ultra
vires, and to bind the corporation, it had to be ratified through a board resolution. Emphatically,
Intertrade has a distinct personality separate from its members. The corporation transacts its
business only through its corporate officers or agents. Whatever authority these officers or
agents may have is derived from the Board of Directors or other governing body unless
conferred by the charter of the corporation. An officer’s power as an agent of the corporation
must be sought from the statute, charter, the by laws, as in a delegation of authority to such
officer, or the acts of the Board of Directors formally expressed, or implied from a habit or
custom of doing business.
Garcia vs. CA [GR 123639, June 10, 1997]

Jurisdiction of SEC
Facts: ARCI and Chiudian (major stockholders of Dynetics) acquired a foreign loan with
Philguarantee as guarantor. They defaulted in the payment of the loan causing a collapse in the
business of Dynetics. Garcia (president of Dynetics), ARCI and Chiudian eventually entered
into a Settlement and Mutual Release Agreement (SMRA) in order to settle the financial
28
condition of the company and to rehabilitate it. Philguarantee allegedly reneged on its
commitment and Garcia filed a case against it in the regular courts. Philguarantee questioned
the jurisdiction of the regular courts and insisted that the case should have been filed with SEC.
Issue: W/N SEC has jurisdiction.
Held: Yes. SC stated thus: "To determine which body has jurisdiction over the present
controversy, we rely on the sound judicial principle that jurisdiction over the subject matter of a
case is conferred by law and determined by the allegations of the complaint irrespective of
whether the plaintiff is entitled to all or some of the claims asserted therein. We have judiciously
gone over petitioner’s original complaint and are convinced that the case at bar is a classic
illustration of a dispute between stockholders -- private respondent, the current majority and
controlling stockholder of Dynetics and petitioner, the erstwhile majority stockholder of said
corporation . Petitioner’s stubborn insistence that he brought the case for damages in his
capacity as an aggrieved surety and not as a stockholder is belied by the opening statement in
his complaint.”
The case of Lozano vs. de los Santos, GR 125221, June 19, 1997, likewise held as
follows:
"The grant of jurisdiction to the SEC must be viewed in the light of its nature and function
under the law. This jurisdiction is determined by a concurrence of 2 elements, (1) the status or
relationship of the parties; (2) the nature of the question that is the subject of their controversy."
Grace Christian High School v CA [(October 23, 1997)]

Right of Share Holders to Vote for the Board of Directors
Right of Share Holders to Be Voted to the Board of Directors
Facts: Petitioner Grace Christian High School is an educational institution offering preparatory,
kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent
Grace Village Association, Inc., on the other hand, is an organization of lot and/or building
owners, lessees and residents at Grace Village. In 1968, the by-laws of the association
provided in Article IV, as follows: “The annual meeting of the members of the Association shall
be held on the first Sunday of January in each calendar year at the principal office of the
Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the
Board of Directors, composed of eleven (11) members to serve for one year until their
successors are duly elected and have qualified.”
On December 20, 1975, a committee of the board of directors prepared a draft of an
amendment to the by-laws, reading as follows: “The Annual Meeting of the members of the
Association shall be held on the second Thursday of January of each year. Each Charter or
Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as
he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00)
PESOS for one vote. The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest number of votes shall be
declared and proclaimed elected until their successors are elected and qualified. GRACE
CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.”
This draft was never presented to the general membership for approval. Nevertheless,
from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a
permanent seat in the board of directors of the association. From 1975 until 1989 petitioner's
representative had been recognized as a "permanent director" of the association. But on
February 13, 1990, petitioner received notice from the association's committee on election that
the latter was "reexamining" (actually, reconsidering) the right of petitioner's representative to
continue as an unelected member of the board. As the board denied petitioner's request to be
allowed representation without election, petitioner brought an action for mandamus in the Home
Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose
decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of
Appeals, which in turn upheld the decision of the HIGC's appeals board. Hence this petition for
review.
1. The Petitioner herein has already acquired a vested right to a permanent seat in the
Board of Directors of Grace Village Association;
2. The amended By-laws of the Association drafted and promulgated by a Committee on
December 20, 1975 is valid and binding; and
3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member
of the Board of Directors of the Association without the benefit of election is allowed under the
law.
29
Issue: (1) WON the 1975 Amendment is valid despite not having been approved by the
General Assembly
(2) WON the Corporate Code grants Grace Christian High School a right to a seat at the
Board
Held: (1) This provision of the by-laws actually implements §22 of the Corporation Law which
provides that the owners of a majority of the subscribed capital stock, or a majority of the
members if there be no capital stock, may, at a regular or special meeting duly called for the
purpose, amend or repeal any by-law or adopt new by-laws. The owners of two-thirds of the
subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate
to the board of directors the power to amend or repeal any by-law or to adopt new by-laws:
Provided, however, That any power delegated to the board of directors to amend or repeal any
by-law or adopt new by-laws shall be considered as revoked whenever a majority of the
stockholders or of the members of the corporation shall so vote at a regular or special meeting.
The proposed amendment to the by-laws was never approved by the majority of the
members of the association as required by these provisions of the law and by-laws. But
petitioner contends that the members of the committee which prepared the proposed
amendment were duly authorized to do so and that because the members of the association
thereafter implemented the provision for fifteen years, the proposed amendment for all intents
and purposes should be considered to have been ratified by them. Petitioner contends:
Considering, therefore, that the "agents" or committee were duly authorized to draft the
amended by-laws and the acts done by the "agents" were in accordance with such authority, the
acts of the "agents" from the very beginning were lawful and binding on the homeowners (the
principals) per se without need of any ratification or adoption. The more has the amended by-
laws become binding on the homeowners when the homeowners followed and implemented the
provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts
done by duly authorized "agents" but express approval and confirmation of what the "agents"
did pursuant to the authority granted to them.
(2) The present Corporation Code (B.P. Blg. 68) provides:
“§23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.”
This provision leave no room for doubt as to the meaning: the board of directors of
corporations must be elected from among the stockholders or members. There may be
corporations in which there are unelected members in the board but it is clear that in the
examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of
and for as long as they hold a particular office. But in the case of petitioner, there is no reason at
all for its representative to be given a seat in the board. Nor does petitioner claim a right to such
seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in
1975 that a proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that for fifteen years it has not
been questioned or challenged but, on the contrary, appears to have been implemented by the
members of the association cannot forestall a later challenge to its validity. Neither can it attain
validity through acquiescence because, if it is contrary to law, it is beyond the power of the
members of the association to waive its invalidity. For that matter the members of the
association may have formally adopted the provision in question, but their action would be of no
avail because no provision of the by-laws can be adopted if it is contrary to law.
It is probable that, in allowing petitioner's representative to sit on the board, the members
of the association were not aware that this was contrary to law. It should be noted that they did
not actually implement the provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the allowance of petitioner's representative
as an unelected member of the board of directors. It is more accurate to say that the members
merely tolerated petitioner's representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of "practice."
Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to
law. Even less tenable is petitioner's claim that its right is "coterminus with the existence of the
association."
CREDIT TRANSACTIONS
30
2001
Project Builders, Inc. v. CA [June 19, 2001]

Usury Law
Facts: On August 21, 1975, plaintiff-respondent Industrial Finance Corporation (ICF) and
defendant-petitioner Project Builders Inc. (PBI) entered into an agreement whereby it was
agreed that plaintiff would provide a maximum amount of P2,000,000.00 (which was
subsequently increased to 5,000,000) against which said defendant would discount and assign
to plaintiff on a ‘with recourse non-collection basis’ its (PBI’s) accounts receivable under the
contracts to sell specified in said agreement. Against the credit line, defendant PBI discounted
with plaintiff on different dates accounts receivables with different maturity dates from different
condominium-unit buyers.
To secure compliance with the terms and conditions of the agreement, defendants
on the same date executed a Deed of Real Estate Mortgage in favor of plaintiff. When
defendants allegedly defaulted in the payment of the subject account, plaintiff foreclosed
the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00.’
‘The foreclosed property was redeemed a year later, but after application of the
redemption payment, plaintiff claims that there is still a deficiency in the amount of
P1,323,053.08.
Issue: WON the agreement forged by petitioners and private respondent is a simple loan or a
financing transaction governed by the provisions of Republic Act No. 5980; and
WON there was a violation of the Usury law.
HELD:
It is a financing agreement. private respondent is a financing company as so defined by the
Financing Company Act.
(a) “Financing companies,” x x x organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or agricultural enterprises,
either by discounting or factoring commercial papers or accounts receivable, or
by buying and selling contracts, leases, chattel mortgages, or other evidences
of indebtedness or by leasing of motor vehicles, heavy equipment and industrial
machinery, business and office machines and equipment, appliances and other
movable property.
An insistence of petitioners that the subject transaction should be considered a simple loan
since private respondent did not communicate with the debtors, condominium unit buyers, to
collect payment from them, is untenable. In an assignment of credit, the consent of the debtor
is not essential for its perfection, his knowledge thereof or lack of it affecting only the
efficaciousness or inefficaciousness of any payment he might make. Since it is a financing
agreement, plaintiff can still recover the deficiency.
Petitioners’ claim that private respondent is proscribed from imposing interest and other
charges beyond the limits set out by the Financing Company Act lacks merit. The law states:
“SEC. 5. Limitation on purchase discount, fees, service and other Charges. --- In the case
of assignments of credit or the buying of installment papers, accounts receivables and other
evidences of indebtedness by financing companies, the purchase discount, exclusive of
interest and other charges, shall be limited to fourteen (14%) per cent of the value of the
credit assigned or the value of the installment papers, accounts receivable and other evidence
of indebtedness purchased based on a period of twelve (12) months or less, and to one and
one-sixth (1 1/6%) per cent for each additional month or fraction thereof in excess of twelve
months, regardless of the terms and conditions of the assignment or purchase.”
Clearly, the 14% ceiling provided for purchase discount is exclusive of interest and other
charges. A purchase discount is distinct from interest. The term purchase discount refers to the
difference between the value of the receivable purchased or credit assigned, and the net
amount paid by the finance company for such purchase or assignment, exclusive of fees,
service charges, interests and other charges incident to the extension of credit, and it is
akin to “time price differential,” or the increase in price to cover the expense generally entailed
by transactions on credit. There is thus no impingement of the Usury Law.
2000
PHILIPPINE NATIONAL BANK vs. SPOUSES FRANCISCO and MERCED RABAT
31
(G.R. No. 134406. November 15, 2000)

Extrajudicial Foreclosure Sale
In extrajudicial foreclosure sales, personal notice to the mortgagor is not necessary
Section 3 of Act No. 3135 reads:
Section 3. Notice shall be given by posting of the sale for not less than twenty days in at
least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall be published once a week for
at least three consecutive weeks in a newspaper of general circulation in the municipality or city.
Clearly personal notice to the mortgagor is not required.
The requirements of posting and publication in a newspaper of general circulation were duly
complied with by the PNB as correctly found by the trial court, to which we accord great respect.
A question of non-compliance with the notice and publication requirements of an extrajudicial
foreclosure sale is a factual issue and the resolution thereof by the trial court is binding and
conclusive upon us absent any showing of grave abuse of discretion.
Colinares vs. Court of Appeals [339 SCRA 609 (Sept. 25,2000)]

Trust Receipts Law
Facts: Melvin Colinares and Lordino Veloso (Petitioners) were contracted for a consideration of
P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s convent.
Petitioners obtained the materials needed for the construction project from CM Builders Centre.
Petitioners applied for a commercial letter of credit with the Philippine Banking Corporation
(PBC) in favor of CM Builders Centre. PBC approved the letter of credit to cover the full invoice
value of the goods. Petitioners signed a pro-forma trus receipt as security.
PBC wrote to Petitioners demanding that the amount be paid within seven days from
notice. Instead of complying with the demand, Veloso confessed that they lost P19,195 in the
Carmelite Monastery Project and requested for a grace period to settle the account. The grace
period lapsed and PBC sent a new demand letter to Petitioners. Petitioners proposed that the
terms of payment of the loan be modified. Petitioners were charged with the violation of P.D.
No. 115 (Trust Receipts Law) in relation to Art. 315 of the Revised Penal Code. The Petitioners
were convicted.
Issue: Assuming there was a valid trust receipt, whether or not the accused were properly
charged, tried and convicted for violation of P.D. No. 115 in relation to Art. 315 of the RPC,
notwithstanding the novation of the so-called trust receipt converting the trustor-trustee
relationship to creditor-debtor situation
Held: Section 4 of P.D. No. 115 defines a trust receipt transaction as any transaction by and
between a person referred to as the entruster, and another person referred to as the entrustee,
whereby the entruster who owns or holds absolute title or security interest over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon
the latter’s execution and delivery to the entruster of a signed document called a “trust receipt”
wherein the enteustee binds himself to hold the designated goods, documents or instruments
with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount
owing to the entruster or as appears in the trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt. A thorough examination of the facts obtaining in the
case at bar reveals that the transaction intended by the parties was a simple loan, not a trust
receipt agreement. On the day the Petitioners received the merchandise from CM Builders
Centre, ownership was already transferred to Petitioners who were to use the materials for the
construction project. It was only a day later that they went to the bank to apply for a loan to pay
for the merchandise. This situation belies what normally obtains in a pure trust receipt
transaction where goods are owned by the bank and only released to the importer in trust
subsequent to the grant of the loan. Nowhere in the testimony of PBC’s witness does it appear
that PBC represented to Petitioners that the transaction they were entering into was not a pure
loan but had trust receipt implications. The Information charged Petitioners with intent to
defraud and misappropriating the money for their personal use. But Petitioners employed no
artifice in dealing with PBC and never did they evade payment of their obligation. Petitioners
acquitted.
MELVIN COLINARES and LORDINO VELOSO vs. HONORABLE COURT OF APPEALS,

and THE PEOPLE OF THE PHILIPPINES (G.R. No. 90828, September 5, 2000)
Sectrans; Trust receipts
32
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as
any transaction by and between a person referred to as the entruster, and another person
referred to as the entrustee, whereby the entruster who owns or holds absolute title or security
interest over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a signed
document called a "trust receipt" wherein the entrustee binds himself to hold the designated
goods, documents or instruments with the obligation to turn over to the entruster the proceeds
thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or
the goods, documents or instruments themselves if they are unsold or not otherwise disposed
of, in accordance with the terms and conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation to "return" it (devolvera) to the owner.
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
the trust receipt to the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1)
of the Revised Penal Code, 34 without need of proving intent to defraud.
HUERTA ALBA RESORT INC. vs. COURT OF APPEALS and SYNDICATED

MANAGEMENT GROUP INC. (G.R. No. 128567, September 1, 2000)
Security Transactions: Equity of Redemption and Right of Redemption; Estoppel
The right of redemption in relation to a mortgage – understood in the sense of a

prerogative to re-acquire mortgaged property after registration of the foreclosure sale – exists
only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a
judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank
or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the
right of redemption within one (1) year from the registration of the sheriff's certificate of
foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale 'when confirmed be an order
of the court. . . . shall operate to divest the rights of all the parties to the action and to vest their
rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such
rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are
those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the
General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest
or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure
— after confirmation by the court of the foreclosure sale — which right may be exercised within
a period of one (1) year, counted from the date of registration of the certificate of sale in the
Registry of Property.
To repeat, no such right of redemption exists in case of judicial foreclosure of a
mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the
foreclosure sale, 'when confirmed by an order of the court. . . shall operate to divest the rights of
all the parties to the action and to vest their rights in the purchaser.' There then exists only what
is known as the equity of redemption. This is simply the right of the defendant mortgagor to
extinguish the mortgage and retain ownership of the property by paying the secured debt within
the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after
the foreclosure sale but prior to its confirmation.
Philippine National Bank vs. Court of Appeals [337 SCRA 381 (Aug. 8, 2000)]
Preference of Credit: Maritime Lien
Facts: To finance the acquisition of 7 shipping vessels, the Philippine International Shipping
Corporation (PISC) applied for and was granted by National Investment Development
Corporation (NIDC) guaranty accomodations. As security for these guaranty accomodations,
PISC executed chattel mortgages on the vessels to be acquired by it. Meanwhile, PISC entered
into a contract with Hong Kong United Dockyards, Ltd. for the repair and conversion of one of
the vessels, M/V Asean Liberty. The Central Bank of the Phils. authorized PISC to open with
China Banking Corporation (CBC) a standby letter of credit for US$545,000 in favor of Citibank,
N.A. to cover the repair and partial conversion of the vessel M/V Asean Liberty.
PISC executed an Application and Agreement for Commercial Letter of Credit for US$545,000
33
with CBC in favor of Citibank. CBC then issued its Irrevocable Standby Letter of Credit for
US$545,000 in favor of Citibank for the account of PISC. PISC executed a promissory note for
US$545,000 in favor of Citibank pursuant to the Loan Agreement between PISC and Citibank.
Upon failure of PISC to fulfill its obligations, Citibank sent CBC a letter drawing on the Letter of
Credit. CBC then instructed its correspondent Irving Trust Co. to pay to Citibank the amount of
US$242,225. Subsequently, for failure of PISC to settle its obligations under the guaranty
accommodations, the Philippine National Bank (PNB) conducted an auction sale of the
mortgaged vessels. NIDC emerged as the highest bidder in these auctions. PISC, claiming
that the foreclosure sale of its mortgaged vessels was illegal and irregular, instituted a civil case
for the annulment of the foreclosure and auction sale. CBC filed a complaint in intervention for
recovery upon a maritime lien against the proceeds of the sale of the foreclosed vessels.
Issue: Whether or not CBC’s claim as evidenced by its Irrevocable Letter of Credit is in the
nature of a maritime lien under the provisions of P.D. No. 1521; and if so, whether or not said
maritime lien is preferred over the mortgage lien of PNB/NIDC on the foreclosed vessel M/V
Asean Liberty
Held: Under the provisions of P.D. No. 1521, any person furnishing repairs, supplies, or other
necessities to a vessel on credit will have a maritime lien. Such maritime lien, if it arose prior to
the recording of a preferred mortgage lien, shall have priority over the said mortgage lien. In
this case, it was Hongkong United Dockyards, Ltd. which originally possessed a maritime lien
over the vessel M/V Asean Liberty by virtue of its repair of the said vessel on credit. CBC,
however, stands as guarantor of the loan extended by Citibank to PISC. It was Citibank which
advanced the money to PISC. It was only upon the failure of PISC to fulfill its obligations under
its promissory note to Citibank that CBC was called upon by Citibank to exercise its duties
under the Standby Letter of Credit. The applicable law, which is the Shipping Mortgage Decree
of 1978, was patterned closely after the U.S. Ship Mortgage Act of 1920. Being of foreign
origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed with the aid
of foreign jurisprudence. Under American jurisprudence, “furnishing money to a master in good
faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the
vessel, raises a lien just as though the things for which money was obtained to pay for had been
furnished by the lender”. This is in accord with Art5. 1302 of the Civil Code which provides that
there is legal subrogation “when a third person, not interested in the fulfillment of the obligation,
pays with the express or tacit approval of the debtor”. In this case, the amount for the repair of
vessel M/V Asean Liberty was advanced by Citibank and was used for the purpose of paying off
the original maritime lienor, Hongkong United Dockyards, Ltd. As a person not interested in the
fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank was
subrogated to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the vessel.
CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the
latter’s debtor. Art. 2067 of the civil Code provides that “the guarantor who pays is subrogated
by virtue thereof to all the rights which the creditor had against the debtor”.
When CBC honored its contract of guaranty with Citibank on March 30, 1983, it also
acquired by subrogation the maritime lien over the vessel which attached to it on March 12,
1979 in favor of Hongkong United Drydocks, Ltd. The maritime lien of CBC thus arose prior to
the recording of PNB/NIDC’s mortgage on September 25, 1979. As such, the said maritime lien
has priority over the said mortgage lien.
PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR. vs. COURT OF APPEALS, THE
HONORABLE DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD (DARAB),
ALFREDO PARE, PABLO GALANG and AMADO VIE (G.R. No. 129572, June 26, 2000)
Sectrans; Right of Redemption
Republic Act No. 3844, Section 12, provides as follows:

"In case the landholding is sold to a third person without the knowledge of the agricultural
lessee, the latter shall have the right to redeem the same at a reasonable price and
consideration. Provided, that the entire landholding sold must be redeemed. Provided further,
that where there are two or more agricultural lessees, each shall be entitled to said right of
redemption only to the extent of the area actually cultivated by him. The right of redemption
under this section may be exercised within two (2) years from the registration of the sale and
shall have priority over any other right of legal redemption."
In this case, the certificate of sale of the subject property, which was sold at public
auction, was registered with the Register of Deeds of Pampanga on July 31, 1985. The two-
year redemption period thus expired on July 31, 1987. The complaint for redemption was filed
34
by respondents only on July 14, 1992, five (5) years after expiration of the redemption period
prescribed by law.
Nonetheless, private respondents may continue in possession and enjoyment of the land
in question as legitimate tenants because the right of tenancy attaches to the landholding by
operation of law. The leasehold relation is not extinguished by the alienation or transfer of the
legal possession of the landholding.
SPS. ONG v. CA (GR. No. 121494, June 8, 2000.)

Securities Transactions; Mortgage, Foreclosure
As a rule, any question regarding the validity of the mortgage or its foreclosure cannot be a legal
ground for refusing the issuance of a writ of possession. Regardless of whether or not there is a
pending suit for annulment of the mortgage or the foreclosure itself, the purchaser is entitled to
a writ of possession, without prejudice of course to the eventual outcome of said case. Hence,
an injunction to prohibit the issuance of writ of possession is entirely out of place.
Eastern Assurance and Surety Corporation v. CA [322 SCRA 73 (Jan. 18, 2000)]
Rate of Legal Interest
Facts: Private Respondent Tan insured his building in Dumaguete against fire with petitioner
Eastern Assurance (EASCO). In 1981, the building was destroyed by fire. Tan’s claim for
indemnity was refused and therefore he filed a complaint for breach of contract with damages.
The RTC order EASCO to pay Tan the sum of the insurance policy plus legal rate of interest
from June 26 until fully paid.
The CA affirmed the decision. No further appeal was taken and the same became final
and executory on Aug, 25 1993. EASCO thereafter tendered the full amount of the policy plus
interest of 6% per annum from June 1981 to July 1993. Tan refused the accept on the ground
that the legal rate of interest is 12%. EASCO filed with the RTC to fix the legal rate of interest.
The RTC issued a resolution fixing it at 12%. The CA set the interest at 6% from June 26, 1981
to Aug. 24,1993 and 12% from Aug. 25, 1993 until money judgment is fully paid.
Issue: What is the legal rate of interest for money judgments?
Held: In Eastern Shipping Line v CA the Court held (at pp. 95-97)
"II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12 per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6 per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12 per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit
35
This case falls under paragraph 3. When the judgment awarding a sum of money
becomes final and executory, the monetary award shall earn interest at 12% per annum from
the date of such finality until its satisfaction, regardless of whether the case involves a loan or
forbearance of money. The reason is that this interim period is deemed to be by then equivalent
to a forbearance of credit
1999
PACIONARIA BAYLON v. CA & LEONILA TOMACRUZ (August 1999)

Civil Law/ Credit Transactions
It is petitioner’s contention that even though she is a guarantor under the terms of the
PN, she is not liable because private respondent did not exhaust the property of the principal
debtor and has not resorted to all the legal remedies by law against the debtor. Petitioner is
invoking the benefit of excussion pursuant to Art 2058 of the CC which provides that the
guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor, and has resorted to all the legal remedies against the debtor. SC agrees
and further held that the liability of the guarantor may be determined only after that of the
principal debtor has been adjudicated so that in the case at bar, it was held that it was
premature to determine whether the petitioner is liable as a guarantor and whether she is
entitled to such concomitant rights since the most basic prerequisite is wanting – that is, no
judgement was first obtained against the principal debtor.
UNION BANK v CA & FERMINA & REYNALDO DARIO (August 1999)

Civil Law/ Lis Pendens/ Real Estate Mortgage
The buyer in a foreclosure sale becomes the absolute owner of the property purchased if
it is not redeemed during the period of 1 year after the registration of the sale. Thus, upon failure
to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the
auction buyer, the issuance of a certificate of title in favor of the purchaser becomes ministerial
upon the RD.
However, with the main action for reconveyance pending before the RTC, the notice of
lis pendens , which despite consolidation remains annotated on the buyer’s TCT subject to the
outcome of the litigation, sufficiently protects private respondent’s interest over the property. A
transferee pendente lite stands exactly in the shoes of the transferor.
PAMECA WOOD TREATMENT PLANT et al. v. CA (July 1999)

Civil Law/ Chattel Mortgage
The effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of
pledge under Art 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire
principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess
of the amount of the principal obligation, Sec 14 of the Chattel Mortgage Law expressly entitles
the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and
costs.
Since the Chattel Mortgage Law bares the creditor-mortgagee from retaining the excess
of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay
the deficiency in case of a reduction in the price at public auction.
Busuego vs. CA [304 SCRA 473 (March 11 1999)]

Power of Monetory Board
Facts: The 16th regular examination of the books and records of PAL Employees Savings and
Loan Association (PESALA) was conducted by a team of CB Examiners. Several irregularities
were found to have been committed by the PESALA officers. Hence, CB sent a letter to
petitioners for them to be present at a meeting specifically for the purpose of investigating said
anomalies. Petitioners did not respond. Hence, the Monetary Board adopted a resolution
including the names of the officers of PESALA in the watchlist to prevent them from holding
responsible positions in any institution under CB supervision.
Petitioners filed a petition for injunction against the MB in order to prevent their names
from being added in the said watchlist. RTC issued the TRO. The MB appealed to the CA
which reversed RTC. Hence, this petition for certiorari with the SC.
36
Petitioners contend that the MB resolution was null and void for being violative of their
right to due process by imposing administrative sanctions where the MB is not vested with
authority to disqualify persons from occupying positions in institutions under the supervision of
CB.
Issue: Whether or not the MB resolution was null and void.
Held: NO. The CB, through the MB, is the government agency charged with the responsibility
of administering the monetary, banking and credit system of the country and is granted the
power of supervision and examination over banks and non-bank financial institutions performing
quasi-banking functions of which savings and loan associations, such as PESALA, form part of.
The special law governing savings and loan associations is R.A. 3779, the Savings and
Loan Association Act. Said law authorizes the MB to conduct regular yearly examinations of the
books and records of savings and loan associations, to suspend a savings and loan association
for violation of law, to decide any controversy over the obligations and duties of directors and
officers, and to take remedial measures. Hence, the CB, through the MB, is empowered to
conduct investigations and examine the records of savings and loan associations. If any
irregularity is discovered in the process, the MB may impose appropriate sanctions, such as
suspending the offender from holding office or from being employed with the CB, or placing the
names of the offenders in a watchlist.
Tiomico vs. CA [304 SCRA 216 (March 4 1999)]

Constitutionality of Trust Receipts Law
Facts: Tiomico opened a Letter of Credit with BPI for $5,600 to be used for the importation of 2
units of forklifts and a truck. Upon the maturity of the trust receipt, he made a partial payment,
leaving a balance of $4,770. Failing to pay the said amount, he was accused of a violation of
PD 115, otherwise known as the Trust Receipts Law for failure to remit back to BPI the
proceeds of the sale of the forklifts or surrender said machineries if not sold.
Tiomico entered a plea of not guilty. RTC found him guilty. Hence, this petition for
review with SC.
Issue: Whether or not the Trust Receipts Law violates the constitutional proscription against
imprisonment for non-payment of debts.
Held: No. PD 115 is a declaration by the legislative authority that, as a matter of public policy,
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.
It is within the authority of Congress to proscribe certain acts deemed pernicious and
inimical to public welfare. Acts mala in se are not the only acts that the law can punish. An act
may not be considered by society as inherently wrong, hence, not malum in se, but because of
the harm that it inflicts on the community, it can be outlawed and criminally punished as malum
prohibitum. The State can do this in the exercise of its police power.
In fine, 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.
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. The law does not seek to enforce payment of a loan. Thus, there can be no
violation of the right against imprisonment for non-payment of a debt.
VALMONTE, ET AL V CA. PNB, ET AL. (Feb. 18, 1999)

Extrajudicial Foreclosure; Requirements; Inadequacy of the Price, Redemption;
Estoppel; Merger; Pactum Commissorium
Inadequacy of price is of no moment when there is a right to redeem for the reason that
the judgment debtor has always the chance to redeem and reacquire the property. In fact, the
property may be sold for less than its fair market value precisely because the lesser the price,
the easier for the owner to effect a redemption.
Foreclosure sale conducted on a holiday is valid. Since the law used the word “MAY”, it
is merely discretionary and cannot be given a probative meaning.
37
The act of asking for an extension of time to redeem foreclosed properties estops one
from impugning the foreclosure sale.- If a party in interest enters into a lawful agreement,
stipulation, compromise or arrangement calculated to benefit him in connection with a mortgage
foreclosure sale, he inevitably affirms thereby the validity, force and effect of the sale. Similarly,
a party cannot later on rely upon the supposed defects of the sale.
Merger; requirements.- (a) merger of the characters of the creditor and debtor must be in
the same person; (b) it must take place in the person of the principal creditor or principal debtor;
and (c) it must be complete and definite. There is merger when the mortgagee purchases the
foreclosed properties on which it had another subsisting mortgage credit.- Here, merger took
place in the person of PNB, the principal creditor. The merger was brought about when during
the auction sale, PNB purchased the properties on which it had another subsisting mortgage
credit. The two loans referred to are separate and distinct and the mere allegation of by
petitioners that said loans constitute a single indivisible obligation is without evidence.
Pactum commissorium is not present when there is foreclosure of the mortgage.- PC
takes place when in a mortgage contract, it is stipulated that the ownership of the property
would automatically pass to the vendee in case no redemption is made within a given period,
this enabling the mortgagee to acquire ownership of the mortgaged property without need of
foreclosure. IT is not so in the present case where there was foreclosure of the mortgage.
Valid title passes to the vendee despite the existence of an annotated unforeclosed
mortgage.
1998
Quezon Development Bank vs. CA [300 SCRA 206 (Dec 16 1998)]

Penalty Charges
Facts: Quezon Development Bank (QDB) and Construction Services of Australia-Phils Inc.
(CONSAPHIL) entered into a loan agreement by which QDB granted CONSAPHIL loans in the
amount of P490,000 and P415,000. CONSAPHIL executed 2 promissory notes accordingly.
For failure to pay, QDB filed a case for recovery with the RTC of Makati. RTC adjudged
in favor of QDB ordering CONSAPHIL to pay the sum of P850,000 with 48% interest.
CONSAPHIL appealed to the CA. CA modified RTC’s judgment ordering CONSAPHIL to pay
P905,000 with 14% interest plus a penalty of 36% per annum.
CONSAPHIL filed a motion for reconsideration. CA modified its decision absolving
CONSAPHIL from paying the penalty of 36% per annum. Hence, this petition for review on
certiorari filed by QDB alleging that the promissory notes clearly stipulate the payment of
penalty charges in the event of failure of the borrowers to pay the notes on maturity and that
CONSAPHIL fully understood this. To support this, QDB showed a letter written by
CONSAPHIL requesting QDB to waive the penalty charges. CONSAPHIL, on the other hand,
claims that the penalty charges only apply in the event the amounts of the loan were subject to
amortizations.
Issue: Whether the penalty charges are applicable to the amounts stated in the promissory
notes.
Held: NO. The subject promissory notes were on a standard form used by QDB. In these
instruments, there are stipulations regarding amortizations although the loans in this case were
payable in lump sums and that the loan agreements did not provide for them much less for the
payment by the borrower of penalty charges.
Clearly, the stipulations regarding penalty charges have no application to the loans in
this case which are payable in lump sum.
With regard to the waiver, SC held that CONSAPHIL was only mistaken concerning a
question of law, and that this cannot be the basis of a finding of liability.
Medel vs. CA [299 SCRA 481 (Nov 27 1998)]

Usury Law
Facts: Medel obtained several loans from Gonzales totalling P500,000. These were evidenced
by several promissory notes agreeing to an interest rate of 5.5% per month with additional
service charge of 2% per annum, and penalty charge of 1% per month.. On maturity, Medel
failed to pay their indebtedness. Hence, Gonzales filed with the RTC of Bulacan a complaint for
collection of the full amount of the loan.
38
RTC declared that the promissory notes were genuine, however, it ruled that although
the Usury Law had been repealed, the interest charged by Gonzales on the loans was
unconscionable. Hence, RTC applied the legal rate of interest for loan of money, goods or
credit of 12% per annum.
CA reversed the ruling of the RTC holding that the Usury Law had become legally
inexistent. Hence, this petition for review on certiorari.
Issue: Whether or not the interest rate stipulated upon was valid.
Held: NO. SC held that the stipulated rate of interest at 5.5% per month on the P500,000 loan
was excessive. However, it could not consider the rate “usurious” because CB Circular No. 905
has expressly removed the interest ceilings prescribed by the Usury Law and that said law is
now legally inexistent.
CB Circular 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latter’s effectivity. A CB Circular cannot repeal a law. Only a law can repeal
another law. By virtue of this circular, the Usury Law has been rendered ineffective. Interest
can no be charged as lender and borrower may agree upon.
Nevertheless, SC held that the interest of 5.5% per month, or 66% per annum, stipulated
upon by the parties in the promissory note was unconscionable, and hence, contrary to morals,
if not against the law. The stipulation is void. The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or
unconscionable.
SC ordered that the interest of 12% per annum and additional 1% a month penalty
charge as liquidated damages reasonable.
A. Francisco Realty and Development Corp. vs. CA [298 SCRA 349 (Oct 30 1998)]
Pactum Commissorium
Facts: A. Francisco Realty granted a loan of P7.5 M to spouses Javillonar, in consideration of

which, the latter executed a promissory note, a real estate mortgage over a certain property,
and a deed of sale of said mortgaged property in favor of A. Francisco.
Upon maturity, Javillonar spouses failed to pay, and as a consequence, A. Francisco
registered the sale of the mortgaged property, for which a new TCT was issued.
A. Francisco demanded possession of the mortgaged realty. Spouses refused to
vacate. Hence, A. Francisco filed a case for possession before the RTC.
The spouses admitted that they owed money in favor of A. Francisco but they also
alleged that it was not their intention to sell the realty as the deed of sale executed by them was
merely an additional security for the payment of their loan. RTC adjudged in favor of A.
Francisco. On appeal, CA reversed RTC decision and dismissed the complaint against the
spouses holding that the deed of sale was void, being in the nature of a pactum commissorium
prohibited by law. Hence, this petition with the SC.
Issue: Whether or not the deed of sale executed by the spouses was void, being in the nature
of pactum commissorium.
Held: Yes. Art. 2088 of the Civil Code provides that the creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is void.
What is envisioned by this article is a provision in the deed of mortgage providing for the
automatic conveyance of the mortgaged property in case of the failure of the debtor to pay the
loan. A pactum commissorium is a forfeiture clause in a deed of mortgage. The proscribed
stipulation of automatic conveyance must be found in the mortgage deed itself.
In the case at bar, the stipulations in the promissory note provide that, upon failure of
spouses to pay interest, ownership of the property would be automatically transferred to A.
Francisco and the deed of sale in its favor would be registered. These stipulations are in
substance a pactum commissorium. They embody the two elements of pactum commissorium,
to wit:
(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by
way of security for the payment of the principal obligation;
(2) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of non-payment of the principal obligation within the
stipulated period.
39
Empire Insurance Company vs. NLRC [294 SCRA 263 (Aug 14 1998)]
Liability of a Surety
Facts: Andal applied with G&M Phils. for an overseas employment as a domestic helper in
Saudi Arabia. She was hired for a term of 2 years. Upon working for 2 years, she was
repatriated. Upon her repatriation, she brought a complaint before the POEA for illegal
dismissal, non-payment and underpayment of salaries. Impleaded in the complaint was Empire
Insurance as surety of G&M.
Empire Insurance Company theorized that Andal was without any cause of action
against it for the alleged reason that the liability of its principal, G&M had not been established.
Further, it argued that its liability, if any, for the money claims sued upon was merely subsidiary.
G&M contends that Andal was not illegally dismissed, but that she abandoned her job.
POEA adjudged in favor of Andal ordering G&M to pay the salaries due Andal.
Empire appealed the case to the NLRC. NLRC affirmed in toto the decision of the
POEA. Hence, this petition with the SC.
Issue: Whether or not NLRC erred in adjudging Empire jointly liable with G&M for the payment
of Andal’s monetary claims.
Held: NO. Empire is solidarily liable with its principal, G&M. Suretyship is a contractual relation
resulting from an agreement whereby one person, the surety, engages to be answerable for the
debt, default or miscarriage of another, known as the principal. Where the surety bound itself
solidarily with the principal obligor, the former is so dependent on the principal debtor such that
the surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable. The surety’s liability is solidary but the nature of its undertaking is such that unless
and until the principal debtor is held liable it does not incur liability.
Lim Tay vs. CA [293 SCRA 634 (Aug 5 1998)]

Contract of Pledge
Facts: Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of P40,000. This was
secured by a contract of pledge whereby the former pledged their 300 shares of stock each in
Go Fay & Company to the latter. However, they failed to pay their respective loans. Hence,
Lim Tay filed a petition for mandamus against Go Fay & Company with the SEC praying that an
order be issued directing the corporate secretary of the said corporation to register the stock
transfers and issue new certificates in favor of Lim Tay.
Go Fay & Company filed its answer contending that SEC had no jurisdiction to entertain
the complaint on the ground that since Lim Tay was not a stockholder of the company, no intra
corporate controversy took place; and furthermore, that the default of payment of Sy Guiok and
Sy Lim did not automatically vest in Lim Tay the ownership of the pledged shares.
SEC dismissed the complaint. On appeal to the CA, it affirmed SEC’s decision. Hence,
this petition for certiorari with the SC.
Issue: Whether or not SEC had jurisdiction.
Held: No. The registration of shares in a stockholder’s name, the issuance of stock certificates,
and the right to receive dividends which pertain to the said shares are all rights that flow from
ownership. The determination of whether or not a shareholder is entitled to exercise the above
mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is
not clearly established and is still unresolved at the time the action for mandamus is filed, then
jurisdiction lies with the regular courts.
In the case at bar, reading into the contract of pledge, the stipulation shows that Lim Tay
was merely authorized to foreclose the pledge upon maturity of the loans, not to own them.
Such foreclosure was not automatic, for it must be done in a public or private sale. Nowhere
was it mentioned that he exercised his right of foreclosure. Hence, his status was still a mere
pledgee, and under civil law, this does not entitle him to ownership of the shares of stock in
question.
PNB vs. Sayo, Jr. [292 SCRA 202 (July 9 1998)]

Warehouse Receipts Law, Warehouseman’s Lien
40
Facts: Noah’s Ark Sugar Refinery issued several warehouse receipts covering sugar deposited
by RNS Merchandising and St. Therese Merchandising. Subsequently, these same receipts
were endorsed to Ramos and Zoleta. The latter then used the receipts as security for two loan
agreements with PNB, thus endorsing them with said bank. When Ramos and Zoleta could not
pay their loan to the bank, PNB demanded delivery of the sugar stocks covered by the receipts
from Noah'’ Ark Sugar Refinery.
Noah refused to comply with the demand alleging ownership of the sugar. It alleged that
the owner of Noah, Looyuko, entered into an agreement with RNS and St. Therese
Merchandising to sell the sugar indicated in the warehouse receipts stored in Noah for an
amount of P63,000,000. Checks were issued but they were dishonored for being drawn against
insufficient funds.
Hence, PNB filed a complaint with the RTC. RTC dismissed said complaint. On appeal
to the SC by way of petition for review on certiorari, SC ordered Noah and its owner, Looyuko,
to deliver to PNB the sugar stocks covered by the warehouse receipts in controversy.
However, Noah filed an Omnibus Motion seeking deferment of the judgment until it was
heard on its warehouseman’s lien. RTC granted the order and evidence was received in
support thereof. RTC adjudged that there existed a valid lien in favor of Noah, and accordingly,
execution of the judgment against Noah should be stayed until the full amount of Noah’s lien
shall have been satisfied. PNB then filed certiorari proceedings before the SC. SC held that
while PNB was entitled to the sugar stocks as endorsee of the receipts, delivery to it shall only
be effected upon payment of the storage fees. SC further ruled that imperative is the right of the
warehouseman to demand payment of his lien because he loses his lien upon goods by
surrendering possession thereof.
RTC Judge Sayo, Jr. allowed a writ of execution in favor of Noah to collect on its
warehouseman’s lien against PNB. Hence, this certiorari proceeding before the SC.
Issue: (1) Whether or not PNB is liable for storage fees.

(2) If yes, what is the duration of time the right of PNB over the goods may be subject
to the lien?
Held: (1) YES. PNB contends that it was a mere pledgee as the receipts were used to secure
two loans it granted. SC agreed with this and held that the indorsement and delivery of the
receipts by Ramos and Zoleta to PNB was not to convey title to or ownership of the goods but to
secure the loans by way of pledge. The indorsement of the receipts to perfect the pledge
merely constituted a symbolical or constructive delivery of the possession of the thing thus
encumbered. The creditor, in a contract of real security, like pledge, cannot appropriate without
foreclosure the things given by way of pledge. Any stipulation to the contrary is null and void for
being pactum commissorio. The law requires foreclosure in order to allow a transfer of title of
the goods given by way of security from its pledgor, and before any such foreclosure, the
pledgor, not the pledgee, is the owner of the goods.
However, SC held that the warehouseman nevertheless is entitled to his lien that
attaches to the goods invokable against anyone who claims a right of possession thereon.
(2) SC held that where a valid demand by the lawful holder of the receipts for the
delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse
provided by the law itself, the warehouseman’s lien is thereafter concomitantly lost. As to what
the law deems a valid demand, Section 8 of the Warehouse Receipts Law enumerates what
must accompany a demand.
SC held that regrettably, the factual settings do not sufficiently indicate whether the
demand to obtain possession of the goods complied with Sec. 8. The presumption,
nevertheless, would be that the law was complied with. On the other hand, it would appear that
the refusal of Noah to deliver the goods was not anchored on a valid excuse, i.e., non-
satisfaction of the lien over the goods, but on an adverse claim of ownership. Under the
circumstances, this hardly qualified as a valid, legal excuse. The loss of the lien, however, 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, i.e., the pledgors, not the
pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and
charges have ceased to accrue from the date of the rejection by Noah to heed the lawful
demand by PNB for the release of the goods.
Hence, the time from which the fees and charges should be made payable is from the
time Noah refused to heed PNB’s demand for delivery of the sugar stocks and in no event
beyond the value of the credit in favor of the pledgee since it is basic that, in foreclosures, the
41
buyer does not assume the obligations of the pledgor to his other creditors even while such
buyer acquires title over the goods less any existing preferred lien thereover.
1997
DOMINADOR D. BORNASAL, JR., Clerk of Court and Ex-Officio Sheriff, RTC Valenzuela
v. DEPUTY SHERIFF JAIME T. MONTES, RTC Valenzuela, Br. 75 (October 1997)
Civil Law/Extrajudicial foreclosure of real estate mortgage
Complainant alleged: (1) upon examining a petition for extrajudicial foreclosure,

complainant realized that the property involved was in Taytay, Rizal, hence he refused to issue
a notice of sheriff's sale; (2) respondent, together with a lady representative of a party, argued
that pursuant to the PN secured by the mortgage, the stipulated venue of any legal action would
be in Valenzuela; (3) complainant still refused to conduct the foreclosure sale pursuant to Act
No. 3135, §2; (4) that the party withdrew its petition for extrajudicial foreclosure; and (5) but
respondent issued/falsified complainant's signature on a notice of sheriff's sale concerning the
property, likewise was the publication falsified.
Respondent categorically admitted all the accusations, but invoked good faith.
Good faith is unavailing. Respondent could not have been unaware of the legal
consequences of his act of effecting a notice of sheriff's sale even after withdrawal of the
petition for extrajudicial foreclosure. Further, the sale in Valenzuela of a property in Taytay
contravened Act No. 3135, §2.
However, in view of respondent's plea of forgiveness which appears sincere and
proceeds from a voluntary admission of charges = suspended for one (1) month without pay.
HILARIO T. DE LOS SANTOS v. CA, EMILIO MILLER, SR., et al. (September 1997)
Civil Law/Subrogation; Civil Law & Commercial Law/Mortgages
Petitioner sued private respondents to remove a cloud and to deliver title. Miller was
petitioner’s business partner in the MS Rice Mill Co. (MSRMC), while the other 2 private
respondents were officials at Manphil Investment Corp. Petitioner alleged that he and Miller
borrowed P450,000.00 from Manphil in consideration of which petitioner mortgaged his house
and lot; and that out of the profits of MSRMC, Miller surreptitiously paid the loan from Manphil
in full, but despite the fact that said payment extinguished the real estate mortgage, private
respondents maliciously refused to return petitioner’s title.
Petitioner contends that under his agreement with Miller, the latter is entitled to be repaid
what the latter had advanced in petitioner’s behalf, and that ownership of petitioner’s house and
lot should not have “reverted automatically” to Miller.
Petitioner is under a misapprehension. The CA did not hold that by virtue of Miller’s
payment in full of the loan to Manphil, Miller automatically owned petitioner’s property; only that
Miller succeded to Manphil’s rights as petitioner’s creditor under Art. 1303, NCC.
The CA erred, however, in holding that Miller cannot be compelled to return petitioner’s
TCT until Miller has been repaid what he advanced in behalf of petitioner. It is undisputed that
petitioner’s mortgage to Manphil annotated at the back of the TCT was already cancelled in
1983, apparently upon payment of the loan. There is therefore no more mortgage to which the
property covered by the TCT is subject and therefore no basis for Miller’s refusal to return the
TCT to petitioner.
PERFECTA QUINTANILLA v. CA & RCBC (September 1997)

Civil Law & Commercial Law/Mortgages
An action to foreclose a mortgage is usually limited to the amount mentioned in the

mortgage, but where on the four corners of the contract, the intent of the parties is manifest that
the mortgage shall also answer for future loans, then the same is valid and binds the parties.
The amount stated in the mortgage between petitioner and RCBC does not limit the
amount for which it may stand as security considering that under the terms of the contract, the
intent to secure future debts is apparent. It would have been different if the mortgage contract
here simply provided that it was intended only "to secure the payment of the same and those
that may hereafter be obtained the principal of all of which is hereby fixed at P45,000..." Yet the
parties further stipulated "as well as those that the Mortgagee may extend to the Mortgagor."
Thus the general rule that mortgage must be limited to the amount mentioned in the mortgage
cannot be applied here.
42
STATE INVESTMENT HOUSE v. CA, SEC & PHIL. BLOOMING MILLS (PBM) (August 1997)
Civil Law/Preferrence of Credits
In any rehabilitation/receivership proceeding where claims of several creditors shall have

to be resolved, Art. 2242 applies where a mortgaged piece of realty is involved.
Petitioner’s motion filed with the SEC to declare and confirm the highest preference of
petitioner’s first mortgage lien is premature. There may or may not exist claims enumerated in
Arts. 2242 and 2243 which shall be considered as mortgagees of the specific property involved.
At best, this issue should be resolved in light of the rehabilitation plan approved by the SEC.
Here, the foreclosure sale of the mortgaged property was declared to be void, and
petitioner’s claim was accordingly referred to the SEC for determination of the preferences or
priorities under the law in the settlement of claims of firms under receivership or liquidation.
There are no longer any previous foreclosure proceedings to speak of.
RODRIGO B. SUPENA v. JUDGE ROSALIO G. DE LA ROSA (RTJ-93-1031, Jan. 28, 1997)

Civil Law & Commercial Law/Extrajudicial foreclosure of real estate mortgage
We have 3 different types of sales: an ordinary execution sale (governed by Rule 39), a
judicial foreclosure sale (Rule 68) and an extrajudicial forclosure sale (Act No. 3135, as
amended by Act No. 4118). This case involves the third type.
If the main concern of respondent judge in holding in abeyance the auction sale in
Manila scheduled on May 26, 1993 was to determine whether or not venue of the execution sale
was improperly laid, he would have easily been enlightened by referring to the correct law, Act
No. 3135, §§s 1 and 2. Here, the real property subject of the sale is situated in Sta. Cruz,
Manila, hence, in accordance with §2, the sale cannot be made outside of Manila. Further, the
intention of the parties is reflected by the Deed of Real Estate Mortgage, that the foreclosure
would be governed by Act 3135 and the sale would be held at the capital of the province where
the property was located.
Respondent judge, thus, had no valid reason to entertain any doubt as to the propriety of
the venue of the auction sale in Manila. He referred to the venue stipulation in the Loan
Agreement, however, to the effect that any action would be instituted in the Makati courts, then
cited Rule 4 of the Rules re: venue. Again, we reiterate that the law in point is Act No. 3135, a
special law, and not the general provisions of the Rules. Further, Rule 4 refers to actions (as
defined by Rule 2, §1), which an extrajudicial foreclosure is not. It is clear that the operative fact
which converts a claim into an action or suit is the filing of the same with a court of justice.
(Hagans v. Wislizenus, 42 Phil. 880, 882 [1920]) Unlike an action, an extrajudicial foreclosure
of real estate mortgage is initiated by filing a petition with the office of wheriff of the province
where the sale is to be made. And if ever the executive judge comes into the picture, it is only
because he exercises administrative supervision over the sheriff.
Written stipulations as to venue are either mandatory or permissive, and inquiry must be
made as to whether or not the agreement is restrictive in the sense that the suit may be filed
only in the place agreed upon. Bottom line: venue stipulations in a contract, while valid and
enforceable, do not as a rule supersede the general rule set forth in Rule 4. In the absence of
qualifying or restrictive words, they should be considered merely as an agreement on additional
forum, not as limiting venue to the specified place.
1996
CHINA BANKING CORPORATION, et al. v. CA, et al. (G.R. No. 121158, Dec. 5, 1996)
Civil & Commercial Law/Mortgages:
It is well settled that mortgages given to secure future advancements or loans are valid
and legal contracts, and that the amounts named as consideration in said contracts do not limit
the amount for which the mortgage may stand as security if from the four corners of the
instrument the intent to secure future and other indebtedness can be gathered.
Foreclosure is valid where the debtors, as in this case, are in default in the payment of
their obligation. The essence of a contract of mortgage is that a property has been identified or
set apart from the mass of the debtor-mortgagor's property as security for the payment of
money or the fulfillment of an obligation to answer the amount of indebtedness, in case of
default payment. It is a settled rule that in a real estate mortgage when the obligation is not paid
when due, the mortgagee has the right to foreclose the mortgage and to have the property
seized and sold in view of applying the proceeds to the payment of the obligation.
43
We find that the issuance of injunctive relief by the trial court unjustified. The function of
the writ is to preserve the status quo, and it may be issued only when there is a clear showing
that the right to be protected exists and the acts against which the writ is to be directed are
violative of the right. Here, we fail to see any reason why the foreclosure of the mortgages
should be enjoined. On the face of private respondents' clear admission that they were unable
to settle their obligations which secured the mortgages, petitioners have a clear right to
foreclose, as provided by law.
On the other hand, if the mortgagee sues to collect, he waives his mortgage lien. He will have
no more priority over the mortgaged property. If the judgment in the action to collect is
favorable to him, and it becomes final and executory, he can enforce the judgment by execution.
He can even levy execution on the same mortgaged property, but he will not have priority over
the latter and there may be other creditors who have better liens on the mortgagor's properties.
FORTUNE MOTORS v. METROPOLITAN BANK & CA (G.R. No. 115068, November 1996)
Civil Law & Commercial Law/Mortgages: extrajudicial foreclosure: notice:
A perusal of P.D. No. 1079 and Act 3135 shows that they do not require that the
newspaper which publishes judicial notices should be a daily newspaper. Under the former, it is
enough that the newspaper be a newspaper or periodical which is authorized by law to publish
and which which is regularly published for at least one year before the date of publication. Nor
is there a requirement that the newspaper should have the largest circulation in the place of
publication.
Personal notice in extrajudicial foreclosure is not necessary. §3, Act No. 3135, as
amended by Act No. 4118 (re: extrajudicail foreclosre of real estate mortgages), requires only
the posting of notice of sale in 3 public places and publication of that notice in a nogc. It is clear
that lack of personal notice to the mortgagor is not a ground to set aside the foreclosure sale.
(citations omitted)
§3, Act 3135 merely requires that the notice of sale be posted for not less than 20 days
in at least 3 public places of the municipality or city where the property is situated. The
aforementioned places are certainly the public places contemplated by law, as these are places
where people interested in purchasing real estate congregate.
ACME SHOE CORP. & CHUA PAC v. CA, PRODUCERS BANK, et al. (G.R. No. 103576,
Aug. 22, 1996)
Civil Law/Mortgages
Would it be valid to have a clause in a chattel mortgage that purports to likewise extend
its coverage to obligations yet to be contracted or incurred?
Contracts of security are either personal or real. In the former, such as a guaranty or
suretyship, faithful performance of the obligation by the principal debtor is secured by the
personal commitment of another (the guarantor or surety). In the latter, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by an encumbrance of property -- in
pledge, the placing of a movable property in the possession of the creditor; in chattel mortgage,
by execution of the corresponding deed substantially in the form prescribed by law; in real
estate mortgage, by execution of a public instrument encumbering the real property covered
thereby; and in antichresis, by a written instrument granting to the creditor the right to receive
the fruits of an immovable property with the obligation to apply such fruits to the payment of
interest, if owing, and thereafter to the principal of his credit -- upon the essential condition that if
the principal obligation becomes due and the debtor default, then the property encumbered can
be alienated for the payment of the obligation, but that should the obligation should be duly paid,
then the contract is automatically extinguished proceeding from the accessory character (See
Mla. Surety v. Velayo, 21 SCRA 515) of the agreement. As the law so puts it, once the
obligation is complied with, then the contract of security becomes, ipso facto null and void. (See
§3, Act 1508)
While a pledge, real estate mortgage or antichresis may exceptionally secure after-
incurred obligations so long as these future debts are accurately described (See Mojica v. CA,
201 SCRA 517; Lim Julian v. Lutero, 49 Phil. 703), a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. 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, the security, itself, 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 (Act No. 1508). Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred obligation can constitute an
44
act of default on the part of the borrower of the financing agreement whereon the promise is
written but, of course, 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.
A chattel mortgage must comply substantially with the form prescribed by Act No. 1508.
One requisite, under §5, is an affidavit of good faith. While it is not doubted that if such an
affidavit is not appended to the agreement, the chattel mortgage would still be valid between the
parties (not against third persons acting in good faith [See PRC v. Jarque, 61 Phil. 229]), the
fact, however, that the statute has provided that the parties to the contract must execute an oath
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet
merely contemplated. In the chattel mortgage here involved, the only obligation specified in the
chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully
paid, By virtue of §3, the payment of the obligation automatically rendered the chattel mortgage
void or terminated. In Belgian Catholic Missionaries v. Magallanes Press (49 Phil. 647): "A
mortgage that contins a stipulation in regard to future advances in the credit will take effect only
from the date the same are made and not from the date of the mortgage." (reiterated in Jaca v.
Davao Lumber, 113 SCRA 107) The significance of this ruling to the instant problem would be
that since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of
the loan (being merely accessory in nature, it cannot exist independently of the principal
obligation), there no longer was any chattel mortgage that could cover the new loans that were
concluded thereafter.
BA FINANCE v. CA & REYES (July 1996)

Civil Law & Commercial Law/Mortgages
A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of
the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to
foreclose thereon. Since the mortgagee's right of possession is conditioned upon the actual fact
of default which itself may be controverted, the inclusion of other parties, like the debtor or
mortgagor himself, may be required in order to allow a full and conclusive determination of the
case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the
mortgage, it is not only the existence of, but also the mortgagor's default on, the chattel
mortgage that, among other things, can properly uphold the right to replevy the property. The
burden to establish a valid justification for that action lies with the plaintiff. An adverse
possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be
bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up
an action for replevin. Mortgagee cannot maintain replevin suit against a third person who is a
possessor in good faith, especially while mortgagor not in default.
GARCIA v. CA & SECURITY BANK (SBTC) (July 1996)

Civil Law & Commercial Law/Contracts, Suretyships, Trust Receipts, Contracts of
Adhesion; Privity
The phrase "such other obligations" in the Indemnity Agreement is vague, equivocal and
patently ambiguous. It is, therefore, subject to interpretation.
It is a well-stated legal principle that if there is any doubt on the terms and conditions of
the surety agreement, the doubt should be resolved in favor of the surety. Ambiguous contracts
are construed against the party who caused the ambiguity.
On the matter of petitioner's liability for the deficiency balance under the SWAP LOAN,
the chattel mortgage executed between Dynetics and SBTC was merely for additional security
which did not alter, affect, or modify the terms and conditions of the Indemnity Agreement
executed between Garcia and SBTC, even if, it must be admitted, the chattel mortgage was
entered into without the knowledge of or notice to Garcia. Hence, Garcia, contrary to his
submission, was not released as surety by virtue of execution of the aforementioned chattel
mortgage.
Finally, it should be noted that the chattel mortgage was entered into by Dynetics and
SBTC. Garcia was not a party to the chattel mortgage nor was he aware of the contract or its
provisions. It is a basic principle in law that contracts can only bind those who had entered into
it, and it cannot favor or prejudice a third person.
SERVICEWIDE SPECIALISTS, INC. v. CA, RICARDO TRINIDAD & ELISA TRINIDAD (May
1996)
Civil Law/Chattel Mortgage/Interpretation of Contract
45
The central issue is: whether or not petitioner should have applied the installment
payments made by private respondents for the payment of the car to the payment of the
insurance premiums without prior notice to private respondents.
While it is true that the Chattel Mortgage does not say that notice to the mortgagor of the
renewal of the insurance premium by the mortgagee is necessary, at the same time, there is no
provision that authorizes petitioner to apply the payments made to it for the payment of the
chattel to the payment of the said premiums.
Furthermore, even if the car were not covered with the proper insurance, there is nothing
in the provisions of the Chattel Mortgage that authorizes petitioner to apply previous payments
for the car to the insurance. What it states is that petitioner is not obligated to convert any of the
installments made by private respondents for the car to the payment for the renewal of the
insurance. Should it decide to do so, it has to send notice to private respondents who had
already paid in full the principal indebtedness.
BOHANAN v. CA, L & R CORP. and SPOUSES CABRERA (April 1996)

Civil Law/Extra-judicial foreclosure of mortgage; Sheriff's Certificate of Posting not
indispensable
Personal notice on the mortgagor is not required under Act No. 3135. All that is required
is that notice be given by posting notices of the sale for not less than twenty (20) days in at least
three (3) public places of the municipality or city where the property is situated, and publication
once a week for at least three (3) consecutive weeks in a newspaper of general circulation in
the municipality or city, if the property is worth more than four hundred pesos.
Also, a certificate of posting is not statutorily required, much less considered
indispensable, for the validity of a foreclosure sale either under Act 3135. Rather, it is
significant only in the matter of proving compliance with the required posting of notice. And
although the SC said in Tambunting that "the presumption of compliance with official duty has
been rebutted by the failure to present proof of posting and publication of the notice of sale," this
cannot be construed to mean that a certificate of posting is indispensable without which a
questioned foreclosure sale is automatically doomed as invalid. For the fact alone that there is
no certificate of posting attached to the sheriff's records is not sufficient to prove the lack of
posting. In Tambunting the absence of the affidavit of publication was considered fatal because
no equally convincing and competent proof of compliance was offered to compensate for its
non-presentation. In the case at bench, however, although Deputy Sheriff failed to present a
certificate of posting because some records were lost when the sheriff's office was transferred
he did declare under oath that he posted notices of the questioned sale. Such testimony
suffices.
PNB v. HON. PRES. JUDGE SE (April 1996)

Commercial Law & Civil Law/Warehouse Receipts Law
Considering that petitioner does not deny the existence, validity and genuiness of the
Warehouse Receipts it cannot disclaim liability for the payment of the storage fees stipulated
therein. As contracts, the receipts must be respected by authority of Article 1159 of the Civil
Code.
Imperative is the right of the warehouseman to demand payment of his lien at this
juncture, because, in accordance with §29 of the Warehouse Receipts Law, the warehouseman
loses his lien upon goods by surrendering possession thereof because a warehouseman's lien
is possessory in nature.
PHILIPPINE BANK OF COMMUNICATIONS v. CA (February 1996)

Sectrans, Mortgages
1) Distinction between mortgages to secure future advancements and mortgages

over two specific amounts procured in a single instance. In the latter, "an action to foreclose a
mortgage must be limited to the amount mentioned in the mortgage."
2) "Dragnet clause:" a mortgage provision specifically phrased to subsume all debts
of past or future origin."
3) Scope of mortgage, does it include penalty charges? A mortgage must
sufficiently describe the debt sought to be secured, which description must not be such as to
mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within
the terms of the mortgage. In this case, the mortgage contract provides that it secures "notes
and other evidences of indebtedness." Under the ejusdem generis rule, the penalty charge
46
does not belong to the species of obligations enumerated in the mortgage, hence, the mortgage
cannot be understood to secure the penalty.
DBP v. CA (February 1996)

Sectrans; Mortgage; Public land
The crux of this appeal thus lies in the basic issue of whether the land in dispute could
have been validly mortgaged while still the subject of a Free Patent Application with the
government. We hold that petitioner bank did not acquire valid title over the land in dispute
because it was public land when mortgaged to the bank. We cannot accept petitioner's
contention that the lot in dispute was no longer public land when mortgaged to it since the
Olidiana spouses had been in open, continuous, adverse and public possession thereof for
more than 30 years. In Visayan Realty v. Meer (96 Phil. 515 [1955]) we ruled that the approval
of a sales application merely authorized the applicant to take possession of the land so that he
could comply with the requirements prescribed by law before a final patent could be issued in
his favor. Meanwhile the government still remained the owner thereof, as in fact the application
could still be canceled and the land awarded to another applicant should it be shown that the
legal requirements had not been complied with. What divests the government of title to the land
is the issuance of the sales patent and its subsequent registration with the Register of Deeds. It
is the registration and issuance of the certificate of title that segregates public lands from the
mass of public domain and convert it into private property. (Dir. of Lands v. De Luna, 110 Phil..
28 [1960]) Since the disputed lot was still the subject of a Free Patent Application when
mortgaged to petitioner and no patent was granted to the Olidiana spouses, said lot remained
part of the public domain.
With regard to the validity of the mortgaged contracts, Art. 1085 (2), Civil Code,
specifically requires that the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged. Thus, since the disputed property was not owned by the Olidiana spouses when
they mortgaged it to petitioner the contracts of mortgage and all their subsequent legal
consequences are null and void. (See Vda. de Bautista v. Marcos, 3 SCRA 434 [1961])
1995
CASTRO v. CA (G.R. No. 97401, Dec. 6, 1995)

Mortgages
The issue is whether a residential house, constructed by the lessee on a portion of the
leased property, which, in turn, was encumbered under a real estate mortgage by the lessor,
can be rightly covered by a writ of possession following the foreclosure sale of the mortgaged
land? HELD: NO. The house owned by petitioners was improperly included in the writ of
possession issued by the trial court.
Art. 2127, NCC extends the effects of the real estate mortgage to accessions and
accessories found on the hypothecated property when the secured obligation becomes due.
The law is predicated on an assumption that the ownership of such acces
ecurity, whether real or personal, needs as an indispensable element thereof the ownership by
the pledgor or mortgagor of the property pledged or mortgaged. The rationale should be clear
enough -- in the event of default on the secured obligation, the foreclosure sale of the property
would naturally be the next step that can expectedly follow. A sale would result in the
transmission of title to the buyer which is feasible only if the seller can be in a position to convey
ownership of the thing sold (Art. 1458, NCC). It is to say, in the instant case, that a foreclosure
would be ineffective unless the mortgagor has title to the property to be foreclosed.
It may not be amiss to state, in passing, that in respect of the lease on the foreclosed
property, the buyer at the foreclosure sale merely succeeds to the rights and obligations of the
pledgor-mortgagor subject, however, to the provisions of Article 1676 of the Civil Code on its
possible termination.
OLEA v. CA (247 SCRA 274, G.R. 91995)

Civil Law; Mortgage; Pactum Commissorium
Article 1602 of the NCC, being remedial in nature, may be applied retroactively to cases
prior to the effectivity of the NCC.
Where, in a contract of sale with pacto de retro, the vendor remains in physical
possession of the land sold as lessee or otherwise, the contract should be considered an
equitable mortgage.
47
Where the contract contains a stipulation that upon payment by the vendor of the
purchase price within a certain period the document shall become null and void and have no
legal force and effect, the purported sale should be considered a mortgage contract.
Even when a document appears on its face to be a sale with pacto de retro the owner of
the property may prove that the contract is really a loan with mortgage by raising as an issue the
fact that the document does not express the true intent and agreement of the parties, and parol
evidence then becomes competent and admissible to prove that the instrument was merely
given as a security for the repayment of the loan.
UY v. CA [246 SCRA 703 (1995 July)]

Civil Law/Mortgages
In the case of an investment and financing company, ascertainment of the status and
condition of properties offered to it as security for the loans it extends must be a standard and
indispensable part of its operations. Surely, it cannot simply rely on an examinations of a
Torrens certificate to determine what the subject property looks like as its condition is not
apparent in the document.
SPS. JOSE & HERMINIA ROSARIO v. CA

Civil Law/ Trust
Trust relations between parties may either be express or implied. Express trusts are
created by the direct and positive acts if the parties, by some writing or deed, or will, or by words
evidencing an intention to create a trust. Implied trusts are those which without being express,
are deducible from the nature of the transaction as matters of intent, or which are superinduced
on the transaction by operation of law as a matter of equity, independently of the particular
intention of the parties. Implied trusts may either be resulting or constructive. Resulting trusts
are based on the equitable doctrine that valuable consideration and not legal title determines
the equitable title or interest and presumed to have been contemplated by the parties. They
arise from the nature or circumstances of the consideration involved in a transaction whereby
one person thereby becomes invested with legal title but is obligated in equity to hold his legal
title for the benefit of another. On the other hand, constructive trusts are created by the
construction of equity in order to satisfy the demands of justice and prevent unjust enrichment.
INSURANCE
Rizal Surety & Insurance Company v. Court of Appeals [336 SCRA 12 (2000)]
Insurance Contract; Interpretation of provisions
Facts: Transworld Knitting Mills (TKM) insured a four-span building and stocks with Rizal
Surety. Fire broke out that gutted the four-span building and stocks in the adjourning two-span
building. Rizal contended that the insurance policy only covered the four-span and the damage
to the two-span and stocks therein are not covered. TKM theorized that the two-span was not
an annex as claimed by Rizal, but an integral part of the four-span, as stocks was also stored in
the two-span building.
Issue: Was the damage to the two-span building compensable under the insurance policy?
Held: Yes. Both the trial and appellate court found that the two-span was an integral portion of
the building. Also considering that the two-span was already existing when the insurance policy
was contracted, Rizal should have specifically excluded the two-span from the coverage of the
policy. Article 1377 of the Civil Code: The interpretation of obscure words or stipulations in a
contract shall not favors the party who caused the obscurity. Thus, any doubt in the
interpretation of the contract must be resolved in favor of the insured TKM.
Malayan Insurance Corp vs. CA [270 SCRA 242 (March 20, 1997)]
Arrest of Vessel by Civil Authorities: Peril of the Sea
Facts: TKC Mktg. was the owner/consignee of soya bean meal (insured with the Malayan
48
Insurance) which was loaded on board the vessel which, while docked in South Africa enroute
to Manila, was arrested and detained by the civil authorities pursuant to a lawsuit on a question
of its ownership and possession. TKC notified Malayan about this and claimed on the insurance
policy. Malayan refused to pay and posits that the arrest of the vessel by civil authorities on a
question of ownership was an excepted risk under the marine insurance policies.
Issue: W/N the arrest is included in the phrase "perils of the sea".
Held: Yes. By way of a historical background, marine insurance developed as an all-risk

coverage, using the phrase "perils of the sea" to encompass the wide and varied range of risks
that were covered.
Additionally, where restrictive provisions (in the insurance policies) are open to two
interpretations, that which is most favorable to the insured is adopted. Indemnity and liability
insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured.
49
INTELLECTUAL PROPERTY
Joaquin Jr. vs. Drilon [302 SCRA 225 (Jan 28 1999)]

Necessity of presentation of Master Copy
Format not Copyrightable
Facts: BJPI is the holder/grantee of a Certificate of Copyright of Rhoda and Me, a dating game
show aired from 1970-1977. In 1991, while watching TV, Joaquin, president of BJPI, saw an
episode of It's a Date, produced by IXL Productions. Joaquin wrote IXL a letter demanding the
latter to stop airing It's a Date, but since IXL continued airing the show, Joaquin filed an
information for violation of PD 49. In the meantime, IXL successfully registered the first episode
of It's a Date and was issued a certificate of copyright.
Upon review of the Department of Justice, the case was dismissed in favor of IXL. It
contended that Joaquin failed to establish the existence of probable cause due to his failure to
present the copyrighted master videotape of Rhoda and Me. Furthermore, it adjudged that
BJPI's copyright covers only a specific episode of Rhoda and Me and that the formats or
concepts of dating game shows are not covered by copyright protection under PD 49. Hence,
this petition with SC.
Issues: (1) Whether or not the presentation of the master tape is necessary to establish
probable cause.
(2) Whether or not the format of Rhoda and Me is a product of ingenuity and skill and
is thus entitled to copyright protection.
Held: (1) Yes. The presentation of the master tapes of the copyrighted show was necessary
for the validity of search warrants. The court cannot presume that duplicate or copied tapes
were necessarily reproduced from master tapes that it owns. The investigating officer should
have the opportunity to compare the video tapes of the two shows. Mere description by words
of the general format of the two dating game shows is insufficient. The presentation of the
master videotape in evidence was indispensable to the determination of the existence of
probable cause.
(2) No. The format of a show is not copyrightable. Sec. 2 of PD 49, otherwise known as
the Decree on Intellectual Property, enumerates the classes of work entitled to copyright
protection. The format or mechanics of a TV show is not included in the list of protected works.
For this reason, the protection afforded by the law cannot be extended to cover them.
Copyright, in the strict sense of the term, is purely a statutory right. It is a new or
independent right granted by the statute, and not simply a pre-existing right regulated by the
statute. Being a statutory grant, the rights are only such as the statute confers, and may be
obtained and enjoyed only with respect to the subjects and by the persons, and on terms and
conditions specified in the statute.
PD 49, Sec. 2, in enumerating what are subject to copyright, refers to finished works and
not to concepts. The copyright does not extend to an idea, procedure, process, system, method
of operation, concept, principle, or discovery, regardless of the form in which it is described,
explained, illustrated, or embodied in such work.
However, BJPI's copyright covers audio-visual recordings of each episode of Rhoda and
Me, as falling within the class of works mentioned in Sec. 2 of PD 49, to wit:
"Cinematographic works and works produced by a process analogous to
cinematography or any process for making audio-visual recordings."
50
NEGOTIABLE INSTRUMENTS LAW
2001
Philippine Commercial & International Bank (PCIB) v. CA [350 SCRA 446 (Jan.29, 2001)]
Liability of Drawee Bank
Effects of Crossed Checks
Doctrine of Comparative Negligence
Facts: Ford drew & issued a crossed Citibank check in favor of the CIR as payment of
percentage or manufacturer’s sales tax. It was deposited with PCIB & cleared by the Central
Bank. Upon payment to Citibank, it was paid to PCIB as collecting or depository bank.
Proceeds never found its way to the BIR hence Ford was compelled to make a second payment
w/c the BIR received.
It was later found that Rivera, the General Ledger Accountant of Ford recalled the
Citibank check claiming error in assessing the tax due. With his instructions, PCIB replaced the
check the 2 of its own Manager’s checks. Alleged members of a syndicate later deposited the 2
MC’s with the Pacific Banking Corp. Ford then filed a third-party complaint impleading PBC &
Rivera – court dismissed complaint against PBC for lack of cause of action & that of Rivera
since summons could not be served on him declaring him a ‘fugitive from justice’. The trial court
found PCIB & Citibank jointly & severally liable but Citibank was later absolved by the CA. Ford
& PCIB now appeal the decision.
Later, 2 more Ford checks were victims of the same modus operandi, with the same
banks and people involved.
It was then found that Rivera, instead of delivering the same to the payee, passed the
checks to a co-conspirator, Castro, a pro-manager of PCIB. Conniving with Dulay, Asst.Mgr. at
another PCIB branch, Castro opened a checking account for himself. Castro deposited a
worthless Bank of America check in the exact amount as the Ford check & while this worthless
check was coursed through PCIB’s main office enroute to the Central Bank for clearing,
replaced it with Ford’s, tampering documents to cover the replacement. As a result, the Ford
check was cleared by Citibank & the fictitious deposit account credited with the same amount of
the Ford check. From this, Castro drew various checks distributing the shares of other
participating conspirators.
RTC this time held Citibank, the drawee bank liable & absolved PCIB. Ford & Citibank
appealed to the CA claiming that PCIB was clearly negligent when it failed to exercise diligence
required to be exercised by a banking institution
Issue: WON Ford has the right to recover from the collecting & the drawee banks the value of
the checks intended as payment to the BIR? (a question of liability based on the degree of
negligence among the parties concerned)
Held: Affirmed. PCIB is declared solely responsible for the loss of the proceeds regarding the
first case while Citibank & PCIB are held equally liable for the loss of the proceeds in the second
case.
The mere fact that the forgery was committed by a drawer-payor’s confidential
employee, who by virtue of his position, had unusual facilities for perpetrating the fraud &
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.
Although it appears that the employees of Ford initiated the transactions attributable to an
organized syndicate, their actions were not the proximate cause of encashing the checks
payable to the CIR. The degree of Ford’s negligence couldn’t be characterized as the
proximate cause of the injury to the parties. Its BoD did not confirm the request of Rivera to
recall the Citibank check. Rivera’s instruction to replace said check with PCIB’s Manager’s
check was not in the ordinary course of business w/c could have prompted PCIB to validate the
same. Note too that these checks were crossed checks. The checks were apparently turned
around by Ford’s employees, who were acting on their own personal capacity.
The neglect of PCIB to verify whether Rivera’s letter requesting for replacement of the
check showed lack of care & prudence required.
The relationship between the payee or holder of commercial paper & the bank to w/c it
is sent for collection is, in the absence of an agreement to the contrary, that of principal & agent.
A bank w/c receives such paper for collection is the agent of the payee or holder. Even
assuming that the diversion of the amount of the check payable to the collecting bank in behalf
51
of the designated payee may be allowed, still, it must be properly authorized by the payor or that
the payor has clothed his agent with apparent authority to receive the proceeds of such check.
Crossing of the check with “Payee’s Account Only” is a warning that the check should
be deposited only in the account of the payee. It is the collecting bank, PCIB, w/c is duty bound
to scrutinize the check & know its depositors before it could make the clearing indorsement “all
prior indorsements and/or lack of indorsements guaranteed”
A bank w/c cashes a check drawn upon another bank without requiring proof as to the
ID of persons presenting it or making inquiries with regard to them cannot hold the proceeds
against the drawee when the proceeds of the check were afterwards diverted to the hands of a
third party. The drawee bank has a right to believe that the cashing bank/ collecting bank had,
by usual investigation, satisfied itself of the authenticity of the negotiation of the checks. One
who encashed a check w/c had been forged or diverted and in turn received payment thereon
from the drawee, is guilty of negligence w/c proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may recover from the holder the money paid on the
check.
Citibank should have scrutinized the Citibank checks before paying the amount of the
proceeds thereof to the collecting bank of the BIR. The clearing stamps at the back of the
checks do not bear any initials. The fact that the drawee bank did not discover the irregularity
seasonably constitutes negligence in carrying out the bank’s duty to its depositors. Banks are
under an obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.
Doctrine of Comparative Negligence: Where both the collecting & drawee banks failed
in their respective obligations & both were negligent in the selection & supervision of their
employees, both are equally liable for the loss of the proceeds of checks fraudulently encashed.
A bank’s liability as obligor is not merely vicarious but primary, wherein the defense if exercise
of due diligence in the selection & supervision of its employees is of no moment.
The statute of limitations begins to run when the bank gives the depositor notice of the
payment, and an action upon a check is ordinarily governed by the statutory period applicable to
instruments in writing: 10 years from the time the right of action accrues – when the instrument
was issued & the corresponding check was returned by the bank to its depositor. Ford’s cause
of action to recover the amount of the check was seasonably filed as it was filed barely 6 years
after.
Ford is not completely blameless. Failure on the part of the depositor to examine its
passbook, statements of account & cancelled checks & to give notice w/in a reasonable time of
any discrepancy w/c it may in the exercise of due care & diligence find therein – the contributory
negligence of the plaintiff, serves to mitigate the banks’ liability by reducing the award of interest
from 12% per annum to 6% per annum.
General rule: a bank is liable for the fraudulent acts or representations of an officer or
agent acting within the course & apparent scope of his employment or authority. Moreover,
Sec.5 of the Central Bank Circular No.580 Series of 1977 provides that any theft affecting items
in transit for clearing, shall be for account of the sending bank, PCIB in this case.
Extra: Sec.55 of the NIL – when title is defective: when he obtained the instrument or nay
signature thereto, by fraud, duress, force & fear or other unlawful means or for an illegal
consideration or when he negotiates it in breach of faith or under circumstances amounting to
fraud.
Mendoza v. CA [June 25, 2001]

Promissory Notes
Facts:: Danilo Mendoza owned a single proprietorship called Atlantic Exchange Philippines. In
1978, this company was granted by PNB a 500,000 peso credit line and a 1,000,000 peso
Letter of Credit/Trust Receipt (LC/TR) line.
In 1981, he wrote a letter to PNB requesting for a restructuring of his past accounts into
a 5 year term loan and for an additional LC/TR line of 2M and gave some proposals changing
the terms. Petitioner Mendoza claimed that Respondent PNB found his proposal favorable and
recommended the implementation of the agreement s as long as he submit a formal agreement
and he sign two blank promissory notes. The petitioner complied with these requirements.
The PN were filled up with the amounts of 2M and 1M and for a period of two years, not
five. Also, PNB increased the rate of the interest from 21% to 32% pursuant to the escalation
clauses contained therein.
52
When petitioner failed to pay the PN’s when they fell due, respondent extra-judicially
foreclosed on his mortgaged properties.
Petitioner alleges that the foreclosure was null and void since his loans were supposed
to be restructured to 5 years pursuant to their verbal agreement. Thus, the loan was not yet due
and demandable. Also, he claims damages because the PNs were improperly filled out by PNB.
Furthermore, he posits that the escalation clauses in the PNs were null and void.
Petitioner argues that he submitted the requirements according to the instructions given
to him and that upon submission thereof, his proposed five-year restructuring plan was deemed
automatically approved by respondent PNB. He then presented some letters to show the
favorable response of PNB bank to their proposal.
Issue: WON the Promissory Notes were improperly filled out.
Held: The PNs were not improperly filled out. Private transactions are presumed to be fair and
regular. The burden of presenting evidence to overcome this presumption falls upon petitioner.
Considering that petitioner imputes a serious act of fraud on respondent PNB, which is a
banking corporation, this court will not be satisfied with anything but the most convincing
evidence. Besides, it could be gleaned from the record that the petitioner is an astute
businessman who took care to reduce in writing his business proposals to the respondent bank.
It is unthinkable that the same person would commit the careless mistake of leaving his subject
two (2) promissory notes in blank in the hands of other persons.
2000
Radiowealth Finance Company v. Del Rosario [335 SCRA 288 (2000)]

Where payment for interest is not expressly provided in the Promissory Note.
Facts: Spouses X executed and delivered a promissory note to Radiowealth. The P/N provided
for 12 monthly installments, but did not indicate the date whence such payment would
commence and what date of the month payments shall be due. A late payment penalty of 2.5%
per month for each unpaid installment from due date until paid. The debtors paid the first
installment with a check, which was dishonored by the drawee bank. Radiowealth sued, and
asked for 14% interest p.a. until payment. The spouses contend that the obligation is not yet
due and demandable as Radiowealth allegedly allowed them to apply their promotional services
as payment for the P/N. This was supposedly the reason why the commencement for the
payment of installments was left blank. Hence, the courts should fix the period for payment.
Issue: When will the interest start to run considering that the date for the commencement of
installment payments was left blank?
Held: The note expressly stipulated that the debt should be amortized monthly. While the
specific date was left blank, the note was clear that each payment was to be made monthly. The
only conclusion was that the payment already became due and demandable as evidence by the
fact that respondents started paying, even if the checks were dishonored. Yet as the note
already stipulated a late payment penalty of 2.5%, payment of interest was not expressly
stipulated in the note, and should be deemed included in such penalty.
Bank of the Philippine Islands vs. CA and Benjamin Napiza [2000]

Liability of Drawee Bank for its negligence
Facts: In 1987 private respondent deposited in Foreign Currency Deposit Unit (FCDU) savings
account which he maintained in petitioner Bank's Buendia Avenue Extension Branch a
Continental Bank Manager's Check dated Aug. 17,1984 payable to "cash" in the amount of
$2,500 and duly endorsed by private respondent on its dorsal sides. The check belonged to a
Henry Chan who went to the office of respondent and requested him to deposit the check in his
account by way of accommodation and for the purpose of clearing the same. Respondent
acceded and agreed to deliver to Chan a signed blank withdrawl slip, with the understanding
that as soon as the check is cleared both of them would go to the bank to withdraw the amount
upon repondent's presentation of his passbook to the bank. Using the blank withdrawal slip
given by respondent to Chan, on Oct. 23, 1984 a Ruben Gayon Jr. was able to withdraw the
amount of $2,541 from the account. The slip shows that the amount was payable to Ramon A.
de Guzman and Agnes C. de Guzman, and was duly initialed by the branch assistant manager,
Teresita Lindo. On Nov. 20, petitioner Bank received communication from the Wells Fargo
53
Bank International of NY that the check was a counterfeit check because "it was not of the type
or style of checks issued by Continental Bank International" Bank Manager Ariel Reyes
informed respondent regarding the dishonor of the check. Respondent wrote to counsel of
petitioner that he deposited the check for "clearing purposes" only to accommodate Chan and
that he signed the authority to withdraw subject to its clearing. Moreover, he did not receive its
proceeds. Petitioner Bank filed a complaint praying for the return of $2,500 plus legal interest.
In his ans. Respondent admitted that signed a "blank" withdrawal slip with the understanding the
amount would be withdrawn only after the check has been cleared, that he instructed the party
to whom he issue the signed blank withdrawal slip to return it to him after the banks draft's
clearance so he could lend his passbook for the withdrawal and that without his knowledge, the
party was able to withdraw the amount through collusion with one of the Bank's employees.
The Bank should have disallowed the withdrawal because the passbook was not presented, it
has no one to blame but itself for being grossly negligent and that it already admitted having
paid the amount of the check by mistake. The Bank on the other hand asserts that respondent
alone was liable for the value, that he was estopped from disclaiming liability because he
himself authorized the withdrawal by signing the withdrawal slip. The trial court dismissed the
complaint holding that the Bank could not hold respondent liable as this would render "inutile"
the requirement of clearance from the drawee bank before the value of a particular foreign
check or draft can be credited to the account. “It was incumbent upon the petitioner to credit the
value of the check only upon receipt of the notice of final payment and should not have
authorized the withdrawal from the latter’s account. Having admitted that it committed a
“mistake” in not waiting for the clearance, petitioner should suffer the loss. The CA affirmed the
decision.
Issue: Whether or not respondent Napiza is liable under his warranties as a general indorser.
Held: Petitioner claims that respondent having affixed his signature at the dorsal side of the
check should be liable as a general indorser in accordance with Sec. 66 of the NIL. Also,
respondent may be held liable as an indorser of a check even as an accommodation party
(Town Savings and Loan Bank Inc. v CA) However, to hold respondent liable for the amount of
the check by strict application of the law and without considering the attending circumstances in
the case would result in an injustice and in an erosion of the public trust in the banking system.
The withdrawal slip itself indicates a special instruction that the amount is payable to Ramon A.
de Guzman &/or Agnes de Guzman. Petitioner's personnel should have been duly warned that
Gayon who was also employed in petitioner's Buendia Branch was not the proper payee.
Although at the dorsal side of the slip is an authority to withdraw to Gayon and respondent does
not deny having signed such authority, with petitioner's clear admission that the withdrawal slip
was a blank one except for respondent's signature the unavoidable conclusion is that the
typewritten name of Gayon was intercalated and thereafter signed by Gayon or whoever was
allowed by petitioner to withdraw the amount. Moreover, the slip contains a boxed warning that
states that it must be signed and presented with the passbook by the depositor in person. To
withdraw thru a representative, the depositor should accomplish the authority at the back.
As correctly held by the CA, in depositing the check in his name, respondent did not
become the outright owner of the amount. By depositing, respondent merely designated
petitioner as the collecting bank. Petitioner shall only then credit the value thereon after the
drawee bank shall have paid the amount of the check. "The collecting bank or last indorser
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 representation has done its duty to ascertain the
genuineness of the endorsements" In the case at bar, it allowing the withdrawal, petitioner
failed to exercise the diligence of a good father. While it is true that having signed the blank
slip, respondent set the events in motion that resulted in the withdrawal. However, the
negligence of petitioner's personnel was the proximate cause of the loss sustained.
Francisco T. Sycip Jr. vs, CA and People of the Philippines [2000]

When are Postdated Checks deemed “Issued”
Facts: To buy on installment a townhouse unit, petitioner issued to Francel Realty Corporation
(FRC) 48 postdated checks each in the amount of P9,304. Later, due to a disagreement
regarding defects in the unit and incomplete features of the townhouse, petitioner suspended
payment. Notwithstanding notarial notices, FRC continued to present for encashment the
checks. Thus petitioner sent "stop payment" orders to the bank. Subsequent check presented
54
were then dishonored. FRC filed a complaint for violation of B.P. 22. The trial court found Sycip
guilty. On appeal, the CA affirmed the findings of the trial court.
Issue: The main issue is not related to NIL but among the side issues relates: When are
postdated checks considered as having been "issued"
Held: The second element of BP 22 involves knowledge on the part of the issuer at the time of
the check's issuance that he did not have enough funds or credit in the bank for payment.
Admittedly, what is involved here are postdated checks. Postdating simply means that on the
date indicated on its face, the check would be properly funded, not that the checks should be
deemed as issued only then. The checks in this case were issued a the time of the signing of
the Contract to Sell. But we find from the records no showing that the time the checks were
issued, petitioner had knowledge that his deposit or credit in the bank would be insufficient to
cover them when presented for encashment.
1999
Security Bank and Trust Company vs. Triumph Lumber and Construction Corporation
[301 SCRA 537 (Jan 21 1999)]
Liability of Drawee Bank
Facts: Triumph was a depositor of Security Bank with a savings and current checking account.
Their arrangement was that the bank would notify Triumph in case a check of more than
P10,000 would be presented for encashment.
3 checks payable to cash and all drawn against Triumph were presented for encashment
with Security Bank. These were allegedly encashed by unauthorized persons to the damage of
the corporation for being forgeries. Hence, Triumph filed a complaint with the RTC.
Security bank, on the other hand, alleged that Triumph's office was forced open
including the filing cabinet where the check booklets were kept. And this incident was not
reported to the bank, thus, it was Triumph's own negligence that caused damage to it. Besides,
it avers that it was diligent because it first verified in accordance with standard bank practices
and procedures the genuineness of the signatures and endorsements.
RTC adjudged in favor of Security Bank holding that Triumph failed to show that the
signatures on the checks were forged because it did not even present the originals of the
checks. On appeal, CA reversed contending that the bank did not follow the arrangement of
notifying Triumph of the encashment of a check if it was more than P10,000. Hence, this
petition.
Issue: Whether or not Security Bank was negligent.
Held: NO. Evidence proved to show that the agreement with the bank was that all
encashments over the counter of P10,000 and above should be accompanied by one of the
signatories of Triumph Corp. But this arrangement was only made a few days after the
encashment of the checks in question.
At any rate, since the questioned checks, which were payable to cash, appeared regular
on their face and the bank found nothing unusual in the transaction, as Triumph usually issued
checks in big amounts made payable to cash or to a particular person or to a company, the
bank could not be faulted in paying the value of the disputed checks.
Triumph is the one which stands to be blamed for its predicament. It should have
informed the bank that certain checks were missing from the check booklet which was stolen.
Maralit v. Imperial [301 SCRA 605 (Jan. 21, 1999)]

Liability as indorser
Facts: Petitioner Maralit if the assistant manger of Naga City branch of the PNB. Respondent
Imperial on 3 separate occasions deposited in her SA in PNB three US treasury warrants and
on the same days withdrew their peso equivalent. The warrants were subsequently returned by
the US Treasury on the ground that the amounts have been altered. Maralit filed 3 separate
complaints for estafa versus Imperial claiming that as a consequence she was held personally
liable by PNB for the total amount.
Imperial claims that she was merely helping a relative to encash the warrants, that she
withdrew the amounts with the approval of petitioner, that she did not know that the amounts on
the warrants have been altered nor did she represent to the petitioner that the warrants were
55
genuine. Moreover, upon being informed of the dishonor of the warrants, she immediately
contacted her relative and signed a acknowledgement of debt promising to pay the amount.
The MTC acquitted Imperial of criminal liability but found her civilly liable as indorser of
the checks. The decision becaming executory, the petitioner moved for execution of the same.
Respondent moved to quash on the ground that the judgment did not order he to pay a specific
sum to a particular person, it merely adjudicated the criminal aspect but not the civil aspect
hence no judgment which can be the subject of execution. The MTC denied the motion to
quash. The RTC issued a writ of injunction to stop execution.
Issue: The RTC held that the MTC did not really find respondent liable for the amount because
it was petitioner who was found responsible for making the defraudation possible. However,
that portion of the decision (on which the RTC based its decision) actually refers to Imperial’s
criminal liability and not her civil liability. More specifically, the portion in question refers to the
allegations in the 3 informations. Nevertheless, the MTC held that Imperial was civilly liable
“…said loss is chargeable to the accused who upon her indorsements warrant that the
instrument is genuine in al respect what it purports to be and that she will pay the amount
thereof in case of dishonor (Sec. 66 NIL)”
Thus, while the MTC found petitioner partly responsible for the encashment of the
altered checks, it found respondent civilly liable because of her indorsement of the treasury
warrants, in addition to the fact that respondent executed a notarized acknowledgement of debt
promising to pay.
(The reason why Maralit is partially responsible is that she disregarded banking rules that out of
town checks and US Treasury Warrants should be 1st cleared before the same is paid. More so
if the holder is a 2nd indorser.)
1998
Security bank & Trust Co. v CA [June 18, 1998]

Relationship of Drawee Bank to Payee: Can the Drawee file action against the Payee
Facts: A.T. Diaz Realty, through Anita Diaz, bought from Ricardo Lorenzo his undivided share
in a parcel of land which he owned in common with Servando Solomon. In connection with this
transaction, Diaz issued a check for P60,000.00 in the name of Ricardo Lorenzo's agent, private
respondent Crispulo Arboleda. The check, dated November 7, 1983, was to be drawn against
the current account of A.T. Diaz Realty in the Marikina branch of the Security Bank and Trust
Co. (SBTC). According to Diaz, the money was part of the purchase price of the land. It was to
be used to pay the capital gains tax on the transaction and to reimburse Solomon for payments
he had made for delinquent real estate taxes on the land. In return, Solomon would deliver to
Diaz the title to the land. But on Nov. 8, 1983, Solomon informed Diaz that, as he had not yet
been reimbursed by private respondent, he could not deliver to Diaz the title to the land. Diaz
decided to reimburse Solomon and to pay the capital gains tax herself. Consequently, she
issued two more checks, one for P20,000.00, in the name of Solomon for the reimbursement,
and another one for P40,000.00, payable to bearer, for the payment of the tax. Thereafter, on
the same date, she ordered SBTC to stop payment on the check. Diaz allegedly advised private
respondent of the order and requested the return of the check to her.
However respondent encashed the check on Nov. 24, 1983, SBTC employees of
petitioner bank failing to notice that the check was the subject of a stop payment order. (The
drawer, A.T. Diaz Realty, had two accounts with petitioner, a savings account and a current
account. By agreement with petitioner Bank, it was possible for the drawer to draw a check
against its current account and have it supported by funds from the savings account, if funds
from the current account were insufficient. The stop payment order was posted in the current
account ledger but the bank employee looked directly at the savings account ledger which had
no stop payment order was posted.) Upon discovering the error the next day, SBTC recredited
the amount (P60,000.00) to A.T. Diaz Realty's account. Respondents told SBTC that they
would return it provided Diaz showed him the receipt for payment of the capital gains tax. As
Diaz failed to show receipts, Arboleda and Libongco refused to return the money. Petitioner,
therefore, filed the instant suit.
The trial court ruled that petitioner incurred no liability even if it encashed the check
despite a stop payment order, because of a note in the stop payment order form which the
depositor agrees . . . not to hold the bank liable on account of payment contrary to the
request . . . if the same occurs through inadvertence, accident or oversight . . . Petitioner
appealed to the Court of Appeals which, as earlier stated, affirmed the decision of the trial court.
Hence, this petition.
56
Issue: WON the Drawee Bank may file suit against the Payee
Held: The petition must fail. Petitioner contends that whatever claim respondent has against
Anita Diaz is immaterial to this case. It is argued that private respondent has an obligation to
return the money he received based on Art. 2154 of the Civil Code (If something is received
when there is no right to demand it, and it was unduly delivered through mistake, the obligation
to return it arises.) However this contention has no merit. There was no contractual relation
created between petitioner and private respondent as a result of the payment by the former of
the amount of the check. Petitioner simply paid the check for and in behalf of Anita Diaz.
Therefore, the question whether private respondent Crispulo Arboleda has a right to keep the
proceeds of the check is very relevant to this action brought to recover the amount. As private
respondent points out:
It is Anita Diaz to whom respondent sold their property. It is Anita Diaz who issued the
subject check in payment of the balance of the purchase price, and earmarked for the payment
of the capital gains tax and agent's commission for the sale of the property. If the check was
dishonored upon presentment for payment, respondent cannot sue petitioner but only the
drawer (Anita Diaz) for lack of privity. The funds from which the check shall be paid belong to
Anita Diaz and merely deposited with the petitioner bank. The stop payment order was issued
by Anita Diaz for alleged "incomplete transaction" which is a misrepresentation.
Whether petitioner is liable to Anita Diaz for cashing the check after it had been ordered
not to pay is a matter between them. By restoring the amount it had paid to the account of A.T.
Diaz Realty, petitioner merely stepped into the shoes of the drawer. Consequently, its present
action is subject to the defenses which private respondent Arboleda might raise had this action
been instituted by Anita Diaz.
Allied Banking Corporation vs. CA [294 SCRA 803 (Aug 31 1998)]

Jurisdiction of Philippine Clearing House Corporation
Facts: Hyatt Terraces Baguio issued 2 crossed checks drawn against Allied Bank in favor of
Meszellen Commodities Services. These checks were deposited with COMTRUST. After
clearing with PCHC, Allied paid the proceeds of the checks to COMTRUST as the collecting
bank.
Meszellen sued Allied for damages which it allegedly suffered when the value of the
checks were paid not to it but to some other person.
During trial, Allied filed a 3rd party complaint against BPI as successor-in-interest of
COMTRUST, for reimbursement in the event that it would be adjudged liable in the main case to
pay Meszellen.
The 3rd party complaint was admitted by the trial court. BPI filed a motion to dismiss said
rd
3 party complaint on the ground that RTC had no jurisdiction over the nature of the action.
RTC dismissed said 3rd party complaint. CA affirmed. Hence, Allied filed this petition for review
on certiorari under Rule 45.
Issue: Whether or not the 3rd party complaint was within the jurisdiction of RTC or the Philippine
Clearing House Corporation via Sec. 38 of the Clearing House Rules and Regulations which
state that any dispute between 2 or more clearing participants involving any item cleared
through the PCHC shall be submitted to the Arbitration Committee.
Held: PCHC has jurisdiction. A 3rd party complaint of one bank against another involving a
check cleared through the PCHC is unavailing, unless the 3rd party claimant has first exhausted
the arbitral authority of the PCHC Arbitration Committee and obtained a decision from said body
adverse to its claim.
SC held that it defers to the primary authority of PCHC over the present dispute because
its technical expertise in this field enables it to better resolve questions of this nature. It further
held that such was not prejudicial to the interest of any party since primary recourse to the
PCHC does not prevent an appeal to the trial courts on questions of law. Furthermore, when
the error is so patent, gross and prejudicial as to constitute grave abuse of discretion, courts
may address questions of fact already decided by the arbitrator.
Since banks have given their written and subscribed consent to arbitration under the
auspices of the PCHC, the rule that a trial court, which has jurisdiction over the main action,
also has jurisdiction over the 3rd party complaint, even if the said court would have no jurisdiction
over it had it been filed as an independent action, would not apply to banks. By participating in
the clearing operations of the PCHC, banks like Allied have agreed to submit disputes to
57
arbitration. Accordingly, it cannot invoke the jurisdiction of the trial courts without prior recourse
to PCHC Arbitration Committee.
BPI Express Card Corporation vs. CA [296 SCRA 260 (Sept 25 1998)]
Nature of a Check
Effect of Payment by Check
Facts: Marasigan was a complimentary member of BPI Express Card Corporation with a credit
limit of P5,000. In October of 1989, his statement of account of P8,987 was not paid in due
time. BPI demanded immediate payment. Marasigan issued a post dated check (December) of
P15,000 to cover the unpaid debt.
When Marasigan invited some guests to eat at Café Adriatico, his card was dishonored.
Hence, he filed a complaint with RTC for damages. RTC ruled in favor of Marasigan. CA
affirmed. Hence, this petition with the SC.
Issue: Whether or not BPI had the right to suspend the credit card of Marasigan.
Held: Yes. Under the terms and conditions of the credit card, signed by Marasigan, any card
with outstanding balances after 30 days from original billing shall automatically be suspended.
This provision cannot be any clearer. By Marasigan’s own admission, he made no payment
within 30 days from original billing. Consequently, as early as November, BPI had the right to
automatically suspend his credit card.
Although Marasigan issued a check of P15,000, this was post dated to effect in
December. A check is only a substitute for money and not money, the delivery of such an
instrument does not, by itself operate as payment. Thus, the issuance of the post dated check
was not effective payment. It did not comply with his obligation. Hence, BPI was still justified in
suspending his credit card.
1997
Traders Royal Bank v. Court of Appeals [269 SCRA 15 (March 3, 1997)]

Certificate of Indebtedness Not Negotiable
Mere Ownership by Single Stockholder not sufficient reason to Pierce Veil
Facts: Defendant Filriters is the registered owner of CBCI No. D891. Under the deed of
assignment, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation
(Phihfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered
in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a
repurchase agreement, granting Philfinance the right to repurchase the instrument on or before
April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a
deed of assignment, conveying to appellant TRB all its rights and title to CBCI No. D891.
Armed with the deed of assignment, TRB sought the transfer and registration of CBCI
No. D891 in its name before the Central Bank. CB, however, refused to effect the transfer and
registration in view of an adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against CB in
the RTC. The suit was treated by the RTC as a case of interpleader when CB prayed in its
amended answer that Filriters be impleaded as a respondent and the court adjudge which of
them is entitled to the ownership of CBCI No D891. TRB appealed to the CA after failing to
secure a favorable judgment from the lower court. The respondent court affirmed the RTC.
Held:
1. A certificate of indebtedness which pertains to certificates for the creation and maintenance
of a permanent improvement revolving fund, is similar to a "bond". The freedom of
negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to
pay a sum of money to a specified person or entity for a period of time.
2. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely
an equitable remedy, and may be awarded only in cases when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. Piercing the veil of
corporate entity requires the court to see through the protective shield which excepts its
stockholders from liabilities that they could, ordinarily, be subjected to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing corporate
58
fiction. But to do this, the court must be sure that the corporate fiction was misused, to such
an extent that injustice, fraud, or crime was committed upon another, disregarding, thus,
his/her/its rights. It is the protection of the interests of innocent third persons dealing with
the corporate entity which the law aims to protect by this doctrine.
3. Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.
4. Petitioner, being a commercial bank, cannot feign ignorance of CB Circular 769, and its
requirements. An entity which deals with corporate agents within circumstances showing
that the agents are acting in excess of corporate authority, may not hold the corporation
liable.
TRANSPORTATION LAW
1999
Fortune Express Inc. v CA [305 SCRA 14 (March 18, 1999)]

Liability of Common Carrier for negligence resulting to Breach of Contract
Hijacking and Death of Passenger
What is a Fortuitous Event
Damages payable for Death of Passenger (Computation of Life Expectancy and Loss of
Expected Income)
Facts: Because of a report of its field agent, the Philippine Constabulary of at Cagayan de Oro
warned the operations manager of Fortune Express that certain Maranaos were planning to
take revenge (for a collision between the petitioner’s bus and a jeepney which resulted in death
of two Maranao passengers) by burning some of petitioner’s buses. The manager assured the
Constabulary that they would take extra precautions.
On Nov. 22, 1989 3 armed Maranaos pretending to be passengers seized a bus of
petitioner on route to Iligan City. They shot the driver in the arm and ordered all the passengers
off the bus. Atty. Caorang, a passenger, returned to retrieve something from the overhead rack
which he was allowed to do so. However, upon learning that the Hijackers intended, using
gasoline, to set the bus on fire with the driver still inside, he pleaded for the life of the driver.
While this was ongoing, the driver took the opportunity to escape by crawling out through a
window. Other passengers reported seeing the Maranaos shot Atty. Caorang The bus was set
on fire, thereafter, some passengers were able to pull Atty. Coarang out of the bus and he was
rushed to the hospital. He died in operation.
The Trial Court dismissed the complaint for damages due to breach of contract filed by
the heirs of Coarang. It found that, despite the report by the Constabulary, the diligence
demanded by law does not include the posting of security guards in the buses also even if
there were guards such is not guaranteed to deter the determined assault of the lawless.
Morever, the Hijackers did not intend to harm the passengers as they asked them to leave the
bus. The death of Atty. Caorang was an unexpected and unforeseen occurrence over which
defendant (Fortune) had no control.
The CA reversed finding Fortune guilty of negligence. The defendant-appellee never
adopted even a single safety measure for the protection of the passengers (despite the report of
the threat). One available safeguard was frisking passengers. If frisking was resorted to even
temporarily, defendant might be excused from liability. On hindsight, the handguns and the
gallon of gasoline used which were all brought aboard the bus could have been discovered.
The defendant was not expected to assign security guards on all its buses but at least to adopt
a system of verification in response to the report such as frisking. The CA awarded indemnity
for death (P3+ million) and attorney’s fees.
Issue: (1) WON Fortune is guilty of negligence resulting in breach of contract of carriage
(2) WON the attack was a force majeure.
Held: (1) 1763 of the Civil Code, states that a common carrier is responsible for injuries
suffered by the passengers on account of willful acts of other passengers if its employees could
have prevented the act through the exercise of the diligence of a good father of the family.
Despite warning by the Constabulary, petitioner did nothing to protect the safety of its
passengers. Had petitioner and its employees been vigilant they would not have failed to see
that the Maranaos (as passengers) had a large quantity of gasoline with them. Under the
59
circumstances, frisking and inspection of baggage should have been made before allowing
them to board. As held in Gacal v Philippine Air Lines Inc. a common carrier can be held liable
for failing to prevent a hijacking by frisking passengers and inspecting baggage.
(2) Seizure of the Bus was not force majeure. Art. 1174 states that a fortuitous event is
one which could not be foreseen or which though foreseen is inevitable. To be considered a
force majeure it is necessary that (a) the cause of the breach of the obligation must be
independent of the human will. (b) the event must be either unforeseeable or unavoidable (c)
the occurrence must be such as to render it impossible for the debtor to fulfill the obligation in a
normal manner (d) the obligor must be free of participation in or aggravating the injury.
Despite the report of the Constabulary, Fortune took no steps to safeguard the lives of
the passengers or their properties. The event was foreseeable was is therefore lacking one of
the requisites mentioned above. Therefore, this is not a fortuitous event.
Other issues:
(a) The deceased was not guilty of contributory negligence. He was allowed by
the Maranaos to retrieve something from the bus. What angered them was
his attempt to plead for the life of the driver. He was playing the role of the
Good Samaritan. this act cannot certainly be considered an act of negligence
or recklessness.
(b) 1764 in relation to 2206 of the Civil Code provides for payment for the death
of passengers caused by breach of contract. It is presently fixed at P50,000.
(c) Compensation for loss of earning capacity is also provided for in 1764 in
relation to 2206. The formula for computation is:
Net earning capacity = life expectancy x (gross annual income – necessary
living expenses)
Formula for life expectancy s as follows:
2/3 x (80 – 37)
Sulpicio Lines vs. CA [305 SCRA 478 (March 29 1999)]

Collision
Facts: Aquarius Fishing Co. filed a complaint for damages against Sulpicio Lines Inc. for a
collision which occurred between their boats. Aquarius contended that the collision was due to
the negligence of Sulpicio when it was at twice its normal speed, wanting to overtake Aquarius.
Sulpicio, on the other hand, claims that since Aquarius had no lookout at that time, it was the
negligent one. RTC adjudged in favor of Aquarius. CA affirmed RTC's decision. Hence, this
petition with the SC.
Sulpicio contends that it was evident that Aquarius' patron and crew were negligent. The
Rules of the Road of the Phil. Merchant Rules and Regulations required that all vessels must
have a lookout, of which Aquarius did not have.
Issue: Who was negligent?
Held: Sulpicio. The duty to keep out of the way remained with Sulpicio even if the overtaking
vessel cannot determine with certainty whether she is forward of or aft more than 2 points from
the vessel. Sulpicio must assume responsibility as it was in a better position to avoid the
collision. It should have blown its horn or given signs to warn the other vessel that it was to
overtake it.
Assuming arguendo that Aquarius had no lookout during the collision, the omission does
not suffice to exculpate Sulpicio from liability. When it overtook Aquarius, it was duty bound to
slacken its speed and keep away from other vessels, which it failed to do.
1998
Far Eastern Shipping Company vs. CA [297 SCRA 30 (Oct 1 1998)]

Collision: Presumption Against Moving Vessel
Duties and Liability of Pilot
Facts: The M/V Pavlador, flying under the flagship of USSR, owned and operated by Far
Eastern Shipping Company (FESC), arrived at the port of Manila. Capt. Abellana was tasked by
the PPA to supervise the berthing of the vessel. Gavino was assigned by Manila Pilot’s
Association (MPA) to conduct docking maneuvers for the safe berthing of the vessel.
60
Gavino boarded the vessel at the quarantine anchorage and stationed himself in the
bridge, with the master of the vessel Kavankov beside him. The vessel then lifted anchor from
the quarantine anchorage and proceeded to the Manila International Port. When the vessel
reached the landmark, Gavino ordered the engine stopped. When the vessel was already about
2,000 ft from the pier, Gavino ordered the anchor dropped. However, one of the anchors did not
take hold as expected. The speed of the vessel did not slacken. A commotion ensued between
the crew members. A brief conference ensued between Kavankov and the crew members.
When Gavino inquired what was all the commotion about, Kavankov assured Gavino that there
was nothing to it.
After Gavino noticed that the anchor did not take hold, he ordered the engines half-
astern. Abellana, who was then on the pier apron, noticed that the vessel was approaching the
pier fast. Kavankov likewise noticed that the anchor did not take hold. Gavino thereafter gave
the full-astern code. Before the right anchor and additional shackles could be dropped, the bow
of the vessel rammed into the apron of the pier causing damage to it. Kavankov filed his sea
protest. Gavino submitted his report to the PPA.
PPA filed before RTC a complaint for sum of money against FESC and Gavino. RTC
adjudged in favor of PPA. On appeal, CA affirmed the decision of RTC. Hence, this petition for
certiorari with SC.
FESC contends that since the vessel was under compulsory pilotage at the time of the
incident, it was the compulsory pilot, Gavino, who was in command and had complete control in
the navigation and docking of the vessel. It is the pilot who supersedes the master for the time
being in the command and navigation of a ship and his orders must be obeyed in all respects
connected with her navigation. Consequently, Gavina was solely responsible for the damage
caused upon the pier apron and not FESC. It further claims that the master of the vessel did not
commit any act of negligence when he failed to countermand or overrule the orders of the pilot
because he did not see any justifiable reason to do so. In other words, the master cannot be
faulted for relying absolutely on the competence of the compulsory pilot.
Issue: Whether or not FESC is liable considering its contentions.
Held: Yes. First, we must bear in mind the evidentiary rule in American jurisprudence that there
is a presumption of fault against a moving vessel that strikes a stationary object such as a dock
or navigational aid. In admiralty, this presumption does more than merely require the ship to go
forward and produce some evidence on the presumptive matter. The moving vessel must show
that it was without fault or that the collision was occasioned by the fault of the stationary object
or was the result of inevitable accident. It has been held that such vessel must exhaust every
reasonable possibility which the circumstances admit and show that in each, they did all that
reasonable care required. In the absence of sufficient proof in rebuttal, the presumption of fault
attaches to a moving vessel which collides with a fixed object and makes a prima facie case of
fault against the vessel. The task, therefore, is to pinpoint who was negligent – the master of
the ship, the harbor pilot or both.
Capt. Gavino failed to measure up to the strict standard of care and diligence required of
pilots in the performance of their duties by not making sure that his directions were promptly and
strictly followed as per his testimony. Generally, a pilot supersedes the master for the time
being in the command and navigation of the ship, and his orders must be obeyed in all matters
connected with her navigation. He becomes the master pro hac vice and should give all
directions as to speed, course, stopping and reversing, anchoring, towing and the like. And
when a licensed pilot is employed in a place where pilotage is compulsory, it is his duty to insist
on having effective control of the vessel, or to decline to act as pilot. The pilot does not take
entire charge of the vessel, but is deemed merely the adviser of the master, who retains
command and control of the navigation even in localities where pilotage is compulsory. Hence,
a pilot is presumed to have skill and knowledge in respect to navigation in the particular waters
over which his license extends superior to that of the master. He is not held to the highest
possible degree of skill and care, but must have and exercise the ordinary skill and care
demanded by the circumstances.
However, Kavankov is no less responsible for the allision. His unconcerned lethargy as
master of the ship in the face of troublous exigence constitutes negligence. While it is
indubitable that in exercising his functions a pilot is in sole command of the ship and supersedes
the master for the time being in the command of the ship, the master does not surrender his
vessel tot he pilot and the pilot is not the master. The master is still in command of the vessel
notwithstanding the presence of a pilot. There are occasions when the master may and should
interfere and even displace the pilot, as when the pilot is obviously incompetent. He is not
wholly absolved from his duties while a pilot is on board his vessel, and may advise with or offer
61
suggestions to him. He is still in command of the vessel, except so far as her navigation is
concerned, and must cause the ordinary work of the vessel to be properly carried on and the
usual precaution taken.
A perusal of Kavankov’s testimony makes it apparent that he was remiss in the
discharge of his duties as master of the ship, leaving the entire docking procedure up to the
pilot, instead of maintaining watchful vigilance over this risky maneuver.
Hence, both Kavankov and Gavino are negligent. In sum, where a compulsory pilot is in
charge of a ship, the master being required to permit him to navigate it, if the master observes
that the pilot is incompetent or physically incapable, then it is the duty of the master to refuse to
permit the pilot to act. But if no such reasons are present, then the master is justified in relying
upon the pilot, but not blindly.
1997
Mitsui O.S.K. Lines Ltd., represented by MAGSAYSAY AGENCIES, INC. v CA [(March 11,
1998.)]
Carriage of Goods by Sea Act (COGSA): Damage due to delay and prescription
period
Facts: Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines
by its agent, Magsaysay Agencies. It entered into a contract of carriage through Meister
Transport, Inc., an international freight forwarder, with private respondent Lavine Loungewear
Manufacturing Corporation to transport goods of the latter from Manila to Le Havre, France.
Petitioner undertook to deliver the goods to France 28 days from initial loading. On July 24,
1991, petitioner's vessel loaded private respondent's container van for carriage at the said port
of origin. However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with
the result that the shipment arrived in Le Havre only on November 14, 1991. The consignee
allegedly paid only half the value of the said goods on the ground that they did not arrive in
France until the "off season" in that country. The remaining half was allegedly charged to the
account of private respondent which in turn demanded payment from petitioner through its
agent. Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under
the Carriage of Goods by Sea Act.
The Regional Trial Court, as aforesaid, denied petitioner's motion as well as its
subsequent motion for reconsideration. On petition for certiorari, the Court of Appeals sustained
the trial court's orders. Hence this petition containing one assignment of error:
Issue: (1) WON damage due to delay is covered under COGSA

(2) WON (if covered) the action has prescribed
Held: Section 3 of COGSA provides that unless notice of loss or damage and the general
nature of such loss or damage be given in writing to the carrier or his agent at the port of
discharge or at the time of the removal of the goods into the custody of the person entitled to
delivery thereof under the contract of carriage, such removal shall be prima facie evidence of
the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is
not apparent, the notice must be given within three days of the delivery.
The carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods
should have been delivered: Provided, that, if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after the delivery of the goods or the date when
the goods should have been delivered.
(1) In Ang v. American Steamship Agencies, Inc., the question was whether an action
for the value of goods which had been delivered to a party other than the consignee is for "loss
or damage" within the meaning of s3(6) of the COGSA. It was held that there was no loss
because the goods had simply been misdelivered. "Loss" refers to the deterioration or
disappearance of goods. As defined in the Civil Code and as applied to Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act, "loss" contemplates merely a situation where
no delivery at all was made by the shipper of the goods because the same had perished, gone
out of commerce, or disappeared in such a way that their existence is unknown or they cannot
be recovered.
Conformably with this concept of what constitutes "loss" or "damage," this Court held in
another case that the deterioration of goods due to delay in their transportation constitutes
62
"loss" or "damage" within the meaning of 3(6), so that as suit was not brought within one year
the action was barred:
Whatever damage or injury is suffered by the goods while in transit would result in loss
or damage to either the shipper or the consignee. As long as it is claimed, therefore, as it is
done here, that the losses or damages suffered by the shipper or consignee were due to the
arrival of the goods in damaged or deteriorated condition, the action is still basically one for
damage to the goods, and must be filed within the period of one year from delivery or receipt,
under the above-quoted provision of the Carriage of Goods by Sea Act.
There would be some merit in appellant's insistence that the damages suffered by him
as a result of the delay in the shipment of his cargo are not covered by the prescriptive provision
of the Carriage of Goods by Sea Act above referred to, if such damages were due, not to the
deterioration and decay of the goods while in transit, but to other causes independent of the
condition of the cargo upon arrival, like a drop in their market value
The rationale behind limiting the said definitions to such parameters is not hard to find or
fathom. Said one-year period of limitation is designed to meet the exigencies of maritime
hazards. In a case where the goods shipped were neither lost nor damaged in transit but were,
on the contrary, delivered in port to someone who claimed to be entitled thereto, the situation is
different, and the special need for the short period of limitation in cases of loss or damage
caused by maritime perils does not obtain. (Ang)
In the case at bar, there is neither deterioration nor disappearance nor destruction of
goods caused by the carrier's breach of contract. Whatever reduction there may have been in
the value of the goods is not due to their deterioration or disappearance because they had been
damaged in transit.
(2) Although we agree that there are places in the section (Article III) in which the
phrase need have no broader meaning than loss or physical damage to the goods, we disagree
with the conclusion that it must so be limited wherever it is used. We take it that the phrase has
a uniform meaning, not merely in Section 3, but throughout the Act; and there are a number of
places in which the restricted interpretation suggested would be inappropriate. For example
Section 4(2) [Article IV(2) (sic) exempts exempts (sic) the carrier, the ship (sic), from liability
"loss or damage" (sic) resulting from certain courses beyond their control. 9
What is in issue in this petition is not the liability of petitioner for its handling of goods as
provided by 3(6) of the COGSA, but its liability under its contract of carriage with private
respondent as covered by laws of more general application. The question before the trial court
is not the particular sense of "damages" as it refers to the physical loss or damage of a shipper's
goods as specifically covered by s3(6) of COGSA but petitioner's potential liability for the
damages it has caused in the general sense and, as such, the matter is governed by the Civil
Code, the Code of Commerce and COGSA, for the breach of its contract of carriage with private
respondent. The suit below is not for "loss or damage" to goods contemplated in §3(6), the
question of prescription of action is governed not by the COGSA but by Art. 1144 of the Civil
Code which provides for a prescriptive period of ten years.
PHILAMGEN vs. CA and FELMAN [GR 116940, June 11, 1997]

Code of Commerce: Limited Liability
Facts: Coke loaded on board a vessel owned and operated by Felman 7,500 cases of
softdrinks for shipment. The shipment was insured with Philamgen. The vessel sank..
Philamgen paid Coke, and now it seeks reimbursement from Felman as subrogee.
Issue: W/N Felman is liable.
Held: Yes. As to the issue of seaworthiness of the vessel, the sinking was ascribed to the entry
of seawater through a hole in the hull caused by the vessel's collision with a partially submerged
log and all other evidence revealed that the vessel was overloaded. Thus, it was held that the
vessel was unseaworthy.
Secondly, Art. 587 of the Code of Commerce (on limited liability) is not applicable to the
case at bar. Simply put, the ship agent is liable for negligent acts of the captain in the care of
the goods loaded on the vessel. This liability however can be limited through abandonment of
the vessel, its equipment and freightage as provided in Art. 537. Nonetheless, there are
exceptional circumstances wherein the ship agent could still be held answerable despite
abandonment, as where the loss or injury was due to the fault of ship owner and captain. It must
63
be stressed that Art. 587 speaks only of situations where the fault or negligence is committed
solely by the captain. Where the ship owner is likewise to be blamed, Art. 587 will not apply, and
such situation will be covered by the provisions of the Civil Code on common carriers.
Lastly, it is held that Philamgen's action against Felman (for reimbursement) is
sanctioned by Art. 2207 of the NCC. The doctrine of subrogation has its roots in equity. It is
designed to promote and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.
Valenzuela Hardwood and Industrial Supply vs. CA and Seven Brothers [GR 102316,
June 30, 1997]
Code of Commerce Inapplicable to Private Carriers
Facts: SV Shipping Corp undertook to transport Valenzuela’s logs from Isabela to Manila. The
vessel sank. Valenzuela filed a formal claim with SV for the value of the lost logs. SV refused to
pay on the basis of the provisions in their contract exempting them from liability in case of loss.
Issue: W/N the stipulation in the charter party that the "owners shall not be responsible for loss,
split, short-landing, breakage and any kind of damages to the cargo" is valid.
Held: Yes. It should be noted at the outset that there is no dispute between the parties that the
proximate cause of the sinking of the vessel resulting in the loss of the cargo was the "snapping
of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of
the captain in stowing and securing the logs on board the vessel and not due to fortuitous
event". Likewise undisputed is the status of SV as a private carrier when it contracted to
transport the cargo of Valenzuela (admitted as such by the latter in its petition). Thus, Article
1745 and other Civil Code provisions on common carriers are inapplicable.
In a contract of private carriage, the parties may validly stipulate that responsibility for
the cargo rests solely on the charterer, exempting the ship owner from liability for loss of or
damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article
1306 of the Civil Code, such stipulation is valid because it is freely entered into by the parties
and the same is not contrary to law, morals, good customs, public order, or public policy.
Indeed, their contract of private carriage is not even a contract of adhesion.
64

COMMERCIAL LAW DIGESTS COVERS CORPORATION LAW CASES

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COMMERCIAL LAW DIGESTS COVERS CORPORATION LAW CASES

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COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

Union Bank of the Philippines v. SEC [June 6, 2001]

Cyanamid Philippines, Inc. vs CA, CTA and Commissioner of Internal Revenue

Issue: Whether or not the accumulation of income was justified.

Issue: Whether or not PNRC is a government owned or controlled corporation or a private

Pilipinas Bank vs CA and Ricardo Silverio (February 22, 2000)

Issue: Whether or not the establishment of a relationship between a stockholder and

Presidential Commission on Good Government v. The Hon. Sandiganbayan

DLSU vs Dela Salle University Employees Association (DLSUEA)

Issue: Whether or not the CIIF companies are public corporation.

ARB Construction Co., Inc v CA (May 31, 2000)

Issue: Whether or not moral damages may be granted to a corporation?

Facts: Petitioner Rubberworld, a corporation established in 1965, is engaged in the

Issue: Whether or not NLRC acted without or in excess of its jurisdiction?

BA Savings Bank vs. Sia [336 SCRA 484 ((July 27,2000)]

Issue: WON MHC is liable to Santos.

Issue: WON SEC has jurisdiction over the dispute.

Held: CA decision set aside & case remanded back to RTC.

Issues: (1) WON the Federation has a separate juridical personality.

Held: CA decision reversed & set aside. RTC decision reinstated.

Heirs of Ramon Durano, Sr. v. Uy [344 SCRA 238 (Oct.24, 2000)]

Reburiano vs. CA [301 SCRA 342 (Jan 21 1999)]

Luxuria Homes Inc. vs. CA [302 SCRA 315 (Jan 28 1999)]

Calma vs. CA [302 SCRA 682 (Feb 9 1999)]

Azcor Manufacturing Inc. vs. NLRC [303 SCRA 26 (Feb 11 1999)]

Neugene Marketing Inc. vs. CA [303 SCRA 295 (Feb 18 1999)]

Rubberworld Inc. vs. NLRC [305 SCRA 721 (April 14 1999)]

Bitong vs. CA [292 SCRA 503 (July 13 1998)]

Issue: Whether or not Bitong was the real party in interest.

Lim Tay vs. CA [293 SCRA 634 (Aug 5 1998)]

Issue: Whether or not SEC had jurisdiction.

Nicario vs. NLRC [295 SCRA 619 (Sept 17 1998)]

Power of Board of Directors to Bind Corporation

Facts: People's Aircargo is a domestic corporation organized to operate a customs bonded

MWSS vs. CA [297 SCRA 287 (Oct 7 1998)]

Issue: Whether or not the sale was valid.

Hahn v. Court of Appeals [266 SCRA 537 (January 22, 1997)]

Eriks PTE., Ltd. v. Court of Appeals [February 6, 1997]

Republic Planters Bank vs. Agana, Sr. [March 3, 1997]

Samahan ng Optometrists sa Pilipinas v. Acebedo International Corp. [270 SCRA 298

Aguenza v. Metrobank [GR 74336, April 7, 1997]

Issue: WIN Aguenza is liable.

Garcia vs. CA [GR 123639, June 10, 1997]

Issue: W/N SEC has jurisdiction.

Grace Christian High School v CA [(October 23, 1997)]

Project Builders, Inc. v. CA [June 19, 2001]

PHILIPPINE NATIONAL BANK vs. SPOUSES FRANCISCO and MERCED RABAT

(G.R. No. 134406. November 15, 2000)

Colinares vs. Court of Appeals [339 SCRA 609 (Sept. 25,2000)]

MELVIN COLINARES and LORDINO VELOSO vs. HONORABLE COURT OF APPEALS,

HUERTA ALBA RESORT INC. vs. COURT OF APPEALS and SYNDICATED

The right of redemption in relation to a mortgage – understood in the sense of a

Republic Act No. 3844, Section 12, provides as follows:

SPS. ONG v. CA (GR. No. 121494, June 8, 2000.)

Issue: What is the legal rate of interest for money judgments?

PACIONARIA BAYLON v. CA & LEONILA TOMACRUZ (August 1999)

UNION BANK v CA & FERMINA & REYNALDO DARIO (August 1999)

PAMECA WOOD TREATMENT PLANT et al. v. CA (July 1999)

Busuego vs. CA [304 SCRA 473 (March 11 1999)]

Issue: Whether or not the MB resolution was null and void.

Tiomico vs. CA [304 SCRA 216 (March 4 1999)]

VALMONTE, ET AL V CA. PNB, ET AL. (Feb. 18, 1999)