SPS. PERENA vs. SPS. ZARATE, COMMON CARRIER v.

PRIVATE CARRIER
PNR and CA
A carrier is a person or corporation who undertakes to transport or convey goods or persons from one place to another, gratuitously or for hire.
The carrier is classified either as a private/special carrier or as a common/public carrier. A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may desire his or its services, undertakes, by special
agreement in a particular instance only, to transport goods or persons from one place to another either gratuitously or for hire. The provisions on
ordinary contracts of the Civil Code govern the contract of private carriage. The diligence required of a private carrier is only ordinary, that is, the
diligence of a good father of the family.
In contrast, a common carrier is a person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering such services to the public. Contracts of common carriage are governed by the provisions
on common carriers of the Civil Code, the Public Service Act, and other special laws relating to transportation. A common carrier is required to
observe extraordinary diligence, and is presumed to be at fault or to have acted negligently in case of the loss of the effects of passengers, or the
death or injuries to passengers.
Applying these considerations to the case before us, there is no question that the Pereñas as the operators of a school bus service were: (a)
engaged in transporting passengers generally as a business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a fee. Despite catering to a limited clientèle, the
Pereñas operated as a common carrier because they held themselves out as a ready transportation indiscriminately to the students of a
particular school living within or near where they operated the service and for a fee.
Although the basis of the right to relief of the Zarates (i.e., breach of contract of carriage) against the Pereñas was distinct from the basis of the
Zarates’ right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held jointly and severally
liable by virtue of their respective negligence combining to cause the death of Aaron. Verily, the Pereñas and the PNR were joint tortfeasors.
HEIRS OF JOSE MARCIAL K. In this case, the action filed by the heirs is primarily for the recovery of damages arising from breach of contract of carriage allegedly committed by
OCHOA vs. G & S TRANSPORT G & S. Clearly, it is an independent civil action arising from contract which is separate and distinct from the criminal action for reckless
CORPORATION imprudence resulting in homicide filed by the heirs against Padilla by reason of the same incident. Hence, regardless of Padilla’s acquittal or
conviction in said criminal case, same has no bearing in the resolution of the present case.
There was therefore no error on the part of the CA when it resolved this case without regard to the fact that Padilla has already been acquitted by
the RTC in the criminal case. Moreover, while the CA quoted some portions of the MTC Decision in said criminal case, we however find that those
quoted portions were only meant to belie G & S’ claim that the proximate cause of the accident was the negligence of the driver of the delivery
van which allegedly hit the Avis taxicab. Even without those quoted portions, the appellate court’s ultimate finding that it was Padilla’s negligence
which was the proximate cause of the mishap would still be the same. The fact that the MTC Decision from which the subject quoted portions
were lifted has already been reversed by the RTC is therefore immaterial.
MOF COMPANY, INC. vs. SHIN In sum, a consignee, although not a signatory to the contract of carriage between the shipper and the carrier, becomes a party to the contract by
YANG BROKERAGE reason of either a) the relationship of agency between the consignee and the shipper/ consignor; b) the unequivocal acceptance of the bill of
CORPORATION lading delivered to the consignee, with full knowledge of its contents or c) availment of the stipulation pour autrui, i.e., when the consignee, a
third person, demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignee’s favor, specifically the
delivery of the goods/cargoes shipped.
SPOUSES DANTE and LEONORA The Civil Code defines "common carriers" in the following terms: Article 1732. Common carriers are persons, corporations, firms or associations
CRUZ vs. SUN HOLIDAYS, INC.
NOSTRADAMUS
VILLANUEVA v. PRISCILLA and
LEANDRO LUIS DOMINGO
JOSE SANICO AND VICENTE
CASTRO v. WERHERLINA P.
COLIPANO
PCI LEASING AND FINANCE,
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to
the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community
or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly considered ancillary thereto.
The constancy of respondent’s ferry services in its resort operations is underscored by its having its own Coco Beach boats. And the tour packages
it offers, which include the ferry services, may be availed of by anyone who can afford to pay the same. These services are thus available to the
public.
The registered owner of any vehicle is directly and primarily responsible to the public and third persons while it is being operated.
In the 1957 case of Erezo v. Jepte, the SC explained: The principle upon which this doctrine is based is that in dealing with vehicles registered
under the Public Service Law, the public has the right to assume or presume that the registered owner is the actual owner thereof, for it would be
difficult for the public to enforce the actions that they may have for injuries caused to them by the vehicles being negligently operated if the public
should be required to prove who the actual owner is.
A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against
him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for
relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires.
Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of the registered owner who the law holds
primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways. To require
the driver of the vehicle to be authorized by the actual owner before the registered owner can be held accountable is to defeat the very purpose
why motor vehicle legislations are enacted in the first place.
This Court has consistently ruled that regardless of who the actual owner is of a motor vehicle might be, the registered owner is the operator of
the same with respect to the public and third persons, and as such, directly and primarily responsible for the consequences of its operation. In
contemplation of law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered merely as
his agent.
[Duavit v. CA: the court absolved the registered owner from liability after finding that the vehicle was virtually stolen from the owner's garage by a
person who was neither authorized nor employed by the owner.]
Only Sanico breached the contract of carriage. It is beyond dispute that Colipano was injured while she was a passenger in the jeepney owned
and operated by Sanico that was being driven by Castro. Both the CA and RTC found Sanico and Castro jointly and severally liable. This, however, is
erroneous because only Sanico was the party to the contract of carriage with Colipano. Since the cause of action is based on a breach of a
contract of carriage, the liability of Sanico is direct [and immediate] as the contract is between him and Colipano. Castro, being merely the driver
of Sanico's jeepney, cannot be made liable as he is not a party to the contract of carriage.
R.A. 8556 provides: Section 12. Liability of lessors. - Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle,
INC. vs. UCPB GENERAL aircraft, vessel, equipment, machinery or other property leased to a third person or entity except when the motor vehicle, aircraft, vessel,
INSURANCE CO., INC. equipment or other property is operated by the financing company, its employees or agents at the time of the loss, damage or injury.
The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do not supersede or repeal the law on compulsory motor
vehicle registration. No part of the law expressly repeals Section 5(a) and (e) of R.A. No. 4136, as amended, otherwise known as the Land
Transportation and Traffic Code, to wit: Sec. 5. Compulsory registration of motor vehicles. - (a) All motor vehicles and trailer of any type used or
operated on or upon any highway of the Philippines must be registered with the Bureau of Land Transportation (now the Land Transportation
Office) for the current year in accordance with the provisions of this Act. x x x x
(e) Encumbrances of motor vehicles. - Mortgages, attachments, and other encumbrances of motor vehicles, in order to be valid against third
parties must be recorded in the Bureau (now the Land Transportation Office). Voluntary transactions or voluntary encumbrances shall likewise be
properly recorded on the face of all outstanding copies of the certificates of registration of the vehicle concerned.
Cancellation or foreclosure of such mortgages, attachments, and other encumbrances shall likewise be recorded, and in the absence of such
cancellation, no certificate of registration shall be issued without the corresponding notation of mortgage, attachment and/or other
encumbrances.
Neither is there an implied repeal of R.A. No. 4136. As a rule, repeal by implication is frowned upon, unless there is clear showing that the later
statute is so irreconcilably inconsistent and repugnant to the existing law that they cannot be reconciled and made to stand together. There is
nothing in R.A. No. 4136 that is inconsistent and incapable of reconciliation. Thus, the rule remains the same: a sale, lease, or financial lease, for
that matter, that is not registered with the Land Transportation Office, still does not bind third persons who are aggrieved in tortious incidents,
for the latter need only to rely on the public registration of a motor vehicle as conclusive evidence of ownership. A lease such as the one
involved in the instant case is an encumbrance in contemplation of law, which needs to be registered in order for it to bind third parties
SINGAPORE AIRLINES LIMITED The defense that the delay was due to fortuitous events and beyond petitioner’s control is unavailing. When an airline issues a ticket to a
vs. ANDION FERNANDEZ passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he be
transported on that flight and on that date. If he does not, then the carrier opens itself to a suit for a breach of contract of carriage.
In an action for breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent.
All that is necessary to prove is the existence of the contract and the fact of its non-performance by the carrier. In the case at bar, it is undisputed
that the respondent carried a confirmed ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-Singapore; and 2) Singapore-Manila.
In her contract of carriage with the petitioner, the respondent certainly expected that she would fly to Manila on Flight No. SQ 72 on January 28,
1991. Since Singapore Airlines did not transport Fernandez as covenanted by it on said terms, Singapore Airlines clearly breached its contract of
carriage with Fernandez, and the latter had every right to sue Singapore Airlines for this breach.
JAPAN AIRLINES vs. MICHAEL We find that JAL did not breach its contract of carriage with respondents. It may be true that JAL has the duty to inspect whether its passengers
ASUNCION and JEANETTE have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could
ASUNCION not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a
sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein
respondents. As such, JAL should not be faulted for the denial of the shore pass applications. Prior to their departure, respondents were aware
that upon arrival in Narita, they must secure shore pass entries for their overnight stay. To reiterate, JAL or any of its representatives have no
authority to interfere with or influence the immigration authorities. The most that could be expected of JAL is to endorse respondents’
applications, which Higuchi did immediately upon their arrival in Narita.
ANTONIA MARANAN vs. Unlike the old Civil Code, the new Civil Code of the Philippines expressly makes the common carrier liable for intentional assaults committed by its
PASCUAL PEREZ, ET AL. employees upon its passengers, by the wording of Art. 1759 which categorically states that: Common carriers are liable for the death of or injuries
to passengers through the negligence or willful acts of the former's employees, although such employees may have acted beyond the scope of
their authority or in violation of the orders of the common carriers.
The Civil Code provisions on the subject of Common Carriers are new and were taken from Anglo-American Law. There, the basis of the carrier's
liability for assaults on passengers committed by its drivers rests either on: (1) the doctrine of respondeat superior or (2) the principle that it is the
carrier's implied duty to transport the passenger safely.
Under the first, which is the minority view, the carrier is liable only when the act of the employee is within the scope of his authority and duty. It is
not sufficient that the act be within the course of employment only.
Under the second view, upheld by the majority and also by the later cases, it is enough that the assault happens within the course of the
employee's duty. It is no defense for the carrier that the act was done in excess of authority or in disobedience of the carrier's orders. The carrier's
liability here is absolute in the sense that it practically secures the passengers from assaults committed by its own employees.

COMPAÑIA MARITIMA vs. The weights stated in a bill of lading are prima facie evidence of the amount received and the fact that the weighing was done by another will
COURT OF APPEALS and not relieve the common carrier where it accepted such weight and entered it on the bill of lading. Besides, common carriers can protect
VICENTE CONCEPCION themselves against mistakes in the bill of lading as to weight by exercising diligence before issuing the same.
While Compania Maritima has proven that Concepcion did furnish it with an inaccurate weight of the payloader, Compania Maritima is
nonetheless liable, for the damage caused to the machinery could have been avoided by the exercise of reasonable skill and attention on its part
in overseeing the unloading of such a heavy equipment. Circumstances clearly show that the fall of the payloader could have been avoided by
petitioner's crew.
Art. 1733. Common carriers, from the nature of their business and for reason of public policy, are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of the passengers transported by them according to all the circumstances of each case.

SULPICIO LINES, INC., VS. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract, unless there is fraud or bad
DOMINGO CURSO, et. al. faith.8 As an exception, moral damages may be awarded in case of breach of contract of carriage that results in the death of a passenger
Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least P3,000, even though there may have been mitigating
circumstances. In addition:
xxx
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death
of the deceased.

Article 2206(3) set forth the persons entitled to moral damages. The omission from Article 2206(3) of the brothers and sisters of the deceased
passenger reveals the legislative intent to exclude them from the recovery of moral damages for mental anguish by reason of the death of the
deceased. Inclusio unius est exclusio alterius.
The solemn power and duty of the courts to interpret and apply the law do not include the power to correct the law by reading into it what is not
written therein. Thus, the CA erred in awarding moral damages to the respondents.

EDNA DIAGO LHUILLIER vs. Article 1 of the Warsaw Convention provides:

BRITISH AIRWAYS
1. This Convention applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by
aircraft performed by an air transport undertaking.
2. For the purposes of this Convention the expression "international carriage" means any carriage in which, according to the contract made by the parties, the
place of departure and the place of destination, whether or not there be a break in the carriage or a transhipment, are situated either within the territories of
two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the
sovereignty, suzerainty, mandate or authority of another Power, even though that Power is not a party to this Convention. A carriage without such an agreed
stopping place between territories subject to the sovereignty, suzerainty, mandate or authority of the same High Contracting Party is not deemed to be
international for the purposes of this Convention.

Thus, when the place of departure and the place of destination in a contract of carriage are situated within the territories of two High Contracting
Parties, said carriage is deemed an "international carriage". In the case at bench, Lhullier’s place of departure was London, United Kingdom while
her place of destination was Rome, Italy. Both the United Kingdom and Italy signed and ratified the Warsaw Convention. As such, the transport of
the petitioner is deemed to be an "international carriage" within the contemplation of the Warsaw Convention. Since the Warsaw Convention
applies in the instant case, then the jurisdiction over the subject matter of the action is governed by the provisions of the Warsaw Convention.
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before –

1. the court where the carrier is domiciled; [London, United Kingdom]

2. the court where the carrier has its principal place of business; [ London]

3. the court where the carrier has an establishment by which the contract has been made; or [Ticket issued in Rome, Italy]

4. the court of the place of destination. [Rome, Italy]

Article 28(1) of the Warsaw Convention is jurisdictional in character, not a venue provision.

ALFREDO RAMOS, et. When an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger
al. v. CHINA SOUTHERN has every right to expect that he would fly on that flight and on that date. If that does not happen, then the carrier opens itself to a suit for breach
AIRLINES CO. LTD. of contract of carriage. In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier
was at fault or was negligent. All he has to prove is the existence of the contract and the fact of its non-performance by the carrier, through the
latter's failure to carry the passenger to its destination.
It is beyond question in the case at bar that the Ramoses had an existing contract of air carriage with China Southern Airlines as evidenced by the
airline tickets issued by Active Travel. The airlines' claim that petitioners do not have confirmed reservations cannot be given credence by the
Court. The petitioners were issued two-way tickets with itineraries indicating the date and time of their return flight to Manila. These are binding
contracts of carriage. China Southern Airlines allowed petitioners to check in their luggage and issued the necessary claim stubs showing that they
were part of the flight. It was only after petitioners went through all the required check-in procedures that they were informed by the airlines that
they were merely chance passengers. Airlines companies do not, as a practice, accept pieces of luggage from passengers without confirmed
reservations. The foregoing circumstances lead us to the inevitable conclusion that petitioners were bumped off from the flight.
SULPICIO LINES, INC. vs.
NAPOLEON SESANTE, NOW
SUBSTITUTED BY HEIRS
MARIBEL ATILANO, et. al.
TORRES-MADRID BROKERAGE,
INC. vs. FEB MITSUI MARINE
INSURANCE CO., INC.
LAND TRANSPORTATION
FRANCHISING AND
REGULATORY BOARD (LTFRB)
vs. G.V. FLORIDA TRANSPORT,
INC.,
PHIL-NIPPON KYOEI, CORP. vs.
ROSALIA GUDELOSAO
A common carrier may be relieved of any liability arising from a fortuitous event pursuant to Article 1174 of theCivil Code. But while it may free a
common carrier from liability, the provision still requires exclusion of human agency from the cause of injury or loss. Else stated, for a common
carrier to be absolved from liability in case of force majeure, it is not enough that the accident was caused by a fortuitous event. The common
carrier must still prove that it did not contribute to the occurrence of the incident due to its own or its employees' negligence.
In order to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligation, must be independent of human will; (2) it must be impossible to foresee the event which constitute the caso
fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill
his obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.
Even assuming the seaworthiness of the M/VPrincess of the Orient, the petitioner could not escape liability considering that, as borne out by the
aforequoted findings of the BMI, the immediate and proximate cause of the sinking of the vessel had been the gross negligence of its captain in
maneuvering the vessel.
A brokerage may be considered a common carrier if it also undertakes to deliver the goods for its customers. Common carriers are persons,
corporations, firms or associations engaged in the business of transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public. By the nature of their business and for reasons of public policy, they are bound to observe extraordinary
diligence in the vigilance over the goods and in the safety of their passengers. The law does not distinguish between one whose principal business
activity is the carrying of goods and one who undertakes this task only as an ancillary activity.
That TMBI does not own trucks and has to subcontract the delivery of its clients’ goods, is immaterial. As long as an entity holds itself to the public
for the transport of goods as a business, it is considered a common carrier regardless of whether it owns the vehicle used or has to actually hire
one.
It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the Commission ample power and discretion
to order the cancellation and revocation of any certificate of public convenience issued to an operator who has violated, or has willfully and
contumaciously refused to comply with, any order, rule or regulation of the Commission or any provision of law. What matters is that there is
evidence to support the action of the Commission. To allow petitioner to continue its operation would be to sacrifice public interest and
convenience in favor of private interest.
Contrary to its contention, this is not simply a case of one erring bus unit. Instead, the series or combination of violations it has committed with
respect to the ill-fated bus is indicative of its design and intent to blatantly and maliciously defy the law and disregard, with impunity, the
regulations imposed by petitioner upon all holders of CPCs. Thus, the Court finds nothing irregular in petitioner's imposition of the penalty of
sixmonths suspension of the operations of respondent's 28 CPCs. In other words, petitioner did not commit grave abuse of discretion in imposing
the questioned penalty.
These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in
the voyage, provided that the owner or agent abandons the vessel. When the vessel is totally lost, in which case abandonment is not required
because there is no vessel to abandon, the liability of the shipowner or agent for damages is extinguished. Nonetheless, the limited liability rule is
not absolute and is without exceptions. It does not apply in cases: (1) where the injury or death to a passenger is due either to the fault of the
shipowner, or to the concurring negligence of the shipowner and the captain; (2) where the vessel is insured; and (3) in workmen's compensation
claims.
PIONEER INSURANCE and
SURETY CORPORATION vs. APL
CO. PTE. LTD.
ACE NAVIGATION CO., INC. vs.
FGU INSURANCE
CORPORATION and PIONEER
INSURANCE AND SURETY
CORPORATION
In the Bill of Lading, it was categorically stated that the carrier shall in any event be discharged from all liability whatsoever in respect of the
goods, unless suit is brought in the proper forum within nine months after delivery of the goods or the date when they should have been
delivered. The same, however, is qualified in that when the said nine-month period is contrary to any law compulsory applicable, the period
prescribed by the said law shall apply.
The present case involves lost or damaged cargo. It has long been settled that in case of loss or damage of cargoes, the one-year prescriptive
period under the COGSA applies. It is at this juncture where the parties are at odds, with Pioneer Insurance claiming that the one-year prescriptive
period under the COGSA governs; whereas APL insists that the nine-month prescriptive period under the Bill of Lading applies.
A reading of the Bill of Lading between the parties reveals that the nine-month prescriptive period is not applicable in all actions or claims. As an
exception, the nine-month period is inapplicable when there is a different period provided by a law for a particular claim or action-unlike
in Philippine American where the Bill of Lading stipulated a prescriptive period for actions without exceptions. Thus, it is readily apparent that the
exception under the Bill of Lading became operative because there was a compulsory law applicable which provides for a different prescriptive
period. Hence, strictly applying the terms of the Bill of Lading, the one-year prescriptive period under the COGSA should govern because the
present case involves loss of goods or cargo. In finding so, the Court does not construe the Bill of Lading any further but merely applies its terms
according to its plain and literal meaning.
A bill of lading is defined as "an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it, stating the name of
the consignor, the terms of the contract for carriage, and agreeing or directing that the freight to be delivered to the order or assigns of a specified
person at a specified place."
It operates both as a receipt and as a contract. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks and condition, quality, and value. As a contract, it names the contracting parties, which include the consignee,
fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. As such, it shall only be
binding upon the parties who make them, their assigns and heirs.
In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b) the carrier PAKARTI; and (c) the consignee HEINDRICH.
However, by virtue of their relationship with PAKARTI under separate charter arrangements, SHINWA, KEE YEH and its agent SKY likewise became
parties to the bill of lading. In the same vein, ACENAV, as admitted agent of CARDIA, also became a party to the said contract of carriage.
The respondents, however, maintain that ACENAV is a ship agent and not a mere agent of CARDIA, as found by both the CA and the RTC. The
Court disagrees. Article 586 of the Code of Commerce provides:
ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the obligations contracted by the latter
to repair, equip, and provision the vessel, provided the creditor proves that the amount claimed was invested therein.
By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the port in which she may be
found.
Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH of the arrival of the vessel in order for the latter
to immediately take possession of the goods. ACENAV was not a ship agent within the meaning and context of Article 586 of the Code of
Commerce, but a mere agent of CARDIA, the shipper. Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to
the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient
notice of his powers. Both exceptions do not obtain in this case.
ALFREDO MANAY, JR. v. CEBU
AIR,INC.
SPOUSES JESUS and ELIZABETH
FERNANDO vs. NORTHWEST
AIRLINES, INC.
A.F. SANCHEZ BROKERAGE INC.
vs. COURT OF APPEALS and
FGU INSURANCE
CORPORATION
ESTELA L. CRISOSTOMO vs.
Court of Appeals and
CARAVAN TRAVEL & TOURS
INTERNATIONAL, INC.
The Air Passenger Bill of Rights mandates that the airline must inform the passenger in writing of all the conditions and restrictions in the contract
of carriage. Purchase of the contract of carriage binds the passenger and imposes reciprocal obligations on both the airline and the passenger. The
airline must exercise extraordinary diligence in the fulfillment of the terms and conditions of the contract of carriage. The passenger, however, has
the correlative obligation to exercise ordinary diligence in the conduct of his or her affairs.
Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees with kindness, respect, courtesy
and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an action for damages
against the carrier. The failure to promptly verify the validity of the ticket connotes bad faith on the part of Northwest.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong. It means breach of a known duty through some motive, interest or ill will that partakes of the nature of fraud. A finding of bad faith
entitles the offended party to moral damages.
A contract of carriage, in this case, air transport, is primarily intended to serve the traveling public and thus, imbued with public interest. The law
governing common carriers consequently imposes an exacting standard of conduct. A contract to transport passengers is quite different in kind
and degree from any other contractual relation because of the relation which an air-carrier sustains with the public. Its business is mainly with the
travelling public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation
attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action or damages.
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as
an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes
to deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of the Civil Code, extraordinary diligence in the vigilance
over the goods it transports according to all the circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence.
By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. Such person or association of persons are regarded as carriers and are
classified as private or special carriers and common or public carriers. A common carrier is defined under Article 1732 of the Civil Code as persons,
corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or goods and
is therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its
covenant with its customers is simply to make travel arrangements in their behalf. Respondent’s services as a travel agency include procuring
tickets and facilitating travel permits or visas as well as booking customers for tours.
ETERNAL GARDENS MEMORIAL
PARK CORPORATION vs. THE
PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY
PHILAMCARE HEALTH SYSTEMS,
INC. vs. COURT OF APPEALS and
JULITA TRINOS
ASIAN TERMINALS, INC. vs.
FIRST LEPANTO-TAISHO
INSURANCE CORPORATION
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In
the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage
of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve
the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December
10, 1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application.
The answer assailed by Philamcare was in response to the question relating to the medical history of the applicant. This largely depends on opinion
rather than fact, especially coming from Ernani who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in
good faith and without intent to deceive will not avoid a policy even though they are untrue.
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual
fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material
to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to
be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.
Non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s cause of action for reimbursement as subrogee. Since it was not agreed during
the pre-trial proceedings that FIRST LEPANTO will have to prove its subrogation rights by presenting a copy of the insurance contract, ATI is barred from
pleading the absence of such contract in its appeal. It is imperative for the parties to disclose during pre-trial all issues they intend to raise during the trial
because, they are bound by the delimitation of such issues. The determination of issues during the pre-trial conference bars the consideration of other
questions, whether during trial or on appeal.
At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to collect reimbursement as the subrogee of GASI.
"Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or securities."
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies which the insured may have against the
third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance
claim.
Sps. NILO and STELLA UY CHA,
and UNITED INSURANCE CO.,
INC. vs. COURT OF APPEALS and
CKS DEVELOPMENT CORP.
GAISANO CAGAYAN, INC. vs.
INSURANCE COMPANY OF
NORTH AMERICA
SUN LIFE OF CANADA
(PHILIPPINES), INC. v. MA.
DAISY'S. SIBYA
ARMANDO GEAGONIA vs. CA
Sec. 18 of the Insurance Code provides: No contract or policy of insurance on property shall be enforceable except for the benefit of some person having
an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by spouses Cha over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions
of Section 17 of the Insurance Code which provide: The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof.
Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses
over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy
to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha. The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the property insured.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance,
one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in
respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the
insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an insurable
interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a
vendor's lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time
of the loss covered by the policies.
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from its issuance, to investigate and verify
whether the policy was obtained by fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere
three months from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the death of the insured
within the two-year period will render the right of the insurer to rescind the policy nugatory. As such, the incontestability period will now set in.
Condition 3 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code which provides
and COUNTRY BANKERS
INSURANCE CORPORATION
THE INSULAR LIFE ASSURANCE
COMPANY, LTD. vs. PAZ Y. KHU
SUN LIFE CANADA
(PHILIPPINES) v. SANDRA
that "a policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid
the policy." Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It
is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its
violation would thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon same subject matter, the same
interest therein, and the same risk.
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be one
policy, or each may take out a separate policy covering his interest, either at the same or at separate times. The mortgagor's insurable interest covers
the full value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the property. The mortgagee's insurable
interest is to the extent of the debt, since the property is relied upon as security thereof, and in insuring, he is not insuring the property but his
interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value
of the mortgaged property. Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.
The Insurance Code pertinently provides that:
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent.
The Court discerns a genuine ambiguity or obscurity in the language of the two documents. In the Letter of Acceptance, Khu declared that he was
accepting "the imposition of an extra/additional x x x premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It is true that the
phrase as used in this particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court notes that the reinstatement was
conditioned upon the payment of additional premium not only prospectively, that is, to cover the remainder of the annual period of coverage, but also
retroactively, that is for the period starting June 22, 1999. Hence, by paying the amount of P3,054.50 on December 27, 1999 in addition to the P25,020 he
had earlier paid on September 7, 1999, Khu had paid for the insurance coverage starting June 22, 1999. At the very least, this circumstance has
engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether the phrase "effective June 22,
1999" refers to the subject of the sentence, namely "the reinstatement of this policy," or to the subsequent phrase "changes are made on the policy."
Given the obscurity of the language, the construction favorable to the insured will be adopted by the courts. Accordingly, the subject policy is deemed
reinstated as of June 22, 1999. Thus, the period of contestability has lapsed.
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract
of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to
preclude the insurer from noncompliance with its obligations.
Notably, however, Sun Life incorrectly invokes the Tio Khe Chio case to refute its liability to pay interest. Tio Khe Chio, which involves marine
insurance, is instructive on the issue of payment of interest. There, the Court pointed to Sections 243 and 244 of the Insurance Code which
TAN KIT explicitly provide for payment of interest when there is unjustified refusal or withholding of payment of the claim by the insurer, and to
Article 2209 of the New Civil Code which likewise provides for payment of interest when the debtor is in delay.
Tio Khe Chio clearly is not applicable here as said case deals with payment of interest on the insurance proceeds in which the claim therefor
was either unreasonably denied or withheld or the insurer incurred delay in the payment thereof.
In this case, what is involved is an order for petitioner to refund to respondents the insurance premium paid by Norberto as a
consequence of the rescission of the insurance contract on account of the latter's concealment of material information in his insurance
application.
Moreover, Sun Life did not unreasonably deny or withhold the insurance proceeds as it was satisfactorily established that Norberto was
guilty of concealment.
TIU v. ARRIESGADO As can be gleaned from the Certificate of Cover, Tiu’s insurance contract with PPSI was issued pursuant to the Compulsory Motor Vehicle
Liability Insurance Law. The limit of the insurer’s liability for each person was expressly provided at P12,000, while the limit per accident
was pegged at P50,000. An insurer in an indemnity contract for third party liability is directly liable to the injured party up to the extent
specified in the agreement, but it cannot be held solidarily liable beyond that amount.
PPSII could not then just deny Tiu’s claim; it should have paid P12,000 for the death of Felisa Arriesgado, and Pedro Arriesgado’s
hospitalization expenses of P1,113.80, which the trial court found to have been duly supported by receipts. The total amount of the claims
would not exceed the P50,000 limit under the insurance agreement––even when added the claims of the other injured passengers which
PPSII claimed to have settled.
To restate, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide compensation for the
death or bodily injuries suffered by innocent third parties or passengers as a result of the negligent operation and use of motor vehicles.
The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle
owners.
GAISANO v. DEVELOPMENT The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding. Section 77 of the
INSURANCE AND SURETY Insurance Code provides, to wit: An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
CORPORATION insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.”
In the instant case, there is no dispute that the check was delivered to and was accepted by Trans-Pacific, only on September 28, 1996. No
payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996. While Gaisano claims that Trans-
Pacific was informed that the check was ready for pick-up on September 27, 1996, the notice of the availability of the check, by itself, does
not produce the effect of payment of the premium. Trans-Pacific could not be considered in delay in accepting the check because when it
informed Gaisano that it will only be able to pick-up the check the next day, Gaisano did not protest to this, but instead allowed Trans-
Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the insurance policy effective.
ROQUE v. INTERMEDIATE It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and inevitable
APPELLATE COURT action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with
proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the 'peril of the ship.' The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. The
purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen.
Roque likewise incorrectly argues that barratry, against which the cargo was also insured, existed when the personnel of the tugboat and
the barge committed a mistake by turning loose the barge from the tugboat east of Cabuli Point. Barratry as defined in American Insurance
Law is "any willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose without the consent of
the owners, and to the prejudice of the owner's interest." Barratry necessarily requires a willful and intentional act in its commission. No
honest error of judgment or mere negligence, unless criminally gross, can be barratry.

MANULIFE PHILIPPINES, "The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a
INC. v. YBAÑEZ defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer." For failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for
rescission of insurance contracts.

LOADSTAR SHIPPING In case the damaged portion of the goods can be segregated from those delivered in good condition, the consignee may reject those in
COMPANY, INC. VS damaged condition and accept merely those which are in good condition. But if the consignee is able to prove that it is impossible to use
MALAYAN INSURANCE those goods which were delivered in good condition without the others, then the entire shipment may be rejected. To reiterate, under
COMPANY Article 365, the nature of damage must be such that the goods are rendered useless for sale, consumption or intended purpose for the
consignee to be able to validly reject them. If the effect of damage on the goods consisted merely of diminution in value, the carrier is
bound to pay only the difference between its price on that day and its depreciated value as provided under Article 364.
Malayan, as the insurer of PASAR, neither stated nor proved that the goods are rendered useless or unfit for the purpose intended by
PASAR due to contamination with seawater. Hence, there is no basis for the goods' rejection under Article 365 of the Code of Commerce.
Clearly, it is erroneous for Malayan to reimburse PASAR as though the latter suffered from total loss of goods in the absence of proof that
PASAR sustained such kind of loss
ALPHA INSURANCE AND Alpha Insurance incorrectly argued that damage in said exception means loss due to injury or harm to person, property or reputation, and
SURETY CO., v. CASTOR should be construed to cover malicious "loss" as in "theft,” and thus the vehicle as a result of it being stolen by the latter's driver is excluded
from the policy. Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which
the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.
Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given
their meaning as understood in common speech. Adverse to Castor’s claim, the words "loss" and "damage" mean different things in
common ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means
deterioration or injury to property.
MALAYAN INSURANCE v. A civil case before the trial court involving recovery of payment of the insured's insurance claim plus damages, can proceed
LIN simultaneously with an administrative case before the Insurance Commission.
Office of the [IC] is an administrative agency vested with regulatory power as well as with adjudicatory authority. Among the several
regulatory or non-quasi-judicial duties of the Insurance Commissioner under the Insurance Code is the authority to issue, or refuse issuance
of, a Certificate of Authority to a person or entity desirous of engaging in insurance business in the Philippines, and to revoke or suspend
such Certificate of Authority upon a finding of the existence of statutory grounds for such revocation or suspension. The grounds for
revocation or suspension of an insurer's Certificate of Authority are set out in Section 241 and in Section 247 of the Insurance Code as
amended. The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code.
Moreover, Section 416 of the Insurance provides that the authority to adjudicate granted to the Commissioner under this section shall be
concurrent with that of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts from taking
cognizance of a suit involving the same subject matter.
THE INSULAR ASSUANCE Section 27 of the Insurance Code provides that a concealment whether intentional or unintentional entitles the injured party to rescind a
CO., LTD. v. HEIRS OF JOSE contract of insurance. Insular Life correctly notes that proof of fraudulent intent is unnecessary for the rescission of an insurance contract
H. ALVAREZ on account of concealment. The Insurance Code distinguishes representations from concealments. Chapter 1, Title 4 is on concealments.
It spans Sections 26 to 35 of the Insurance Code; it is where Section 27 is found. Chapter 1, Title 5 is on representations. It spans Sections 36
to 48 of the Insurance Code. Section 26 defines concealment as "[a] neglect to communicate that which a party knows and ought to
communicate." However, Alvarez did not withhold information on or neglect to state his age. He made an actual declaration and
assertion about it.
Section 44 of the Insurance Code states, "A representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations." If indeed Alvarez misdeclared his age such that his assertion fails to correspond with his factual age, he made a false
representation, not concealment. Section 45 provides that if a representation is false in a material point, whether affirmative or promissory,
the injured party is entitled to rescind the contract from the time when the representation becomes false. Section 45, however, does not
replicate Section 27’s non-distinction between intentional and unintentional concealment. Section 45 concerns rescission due to false
representations. Rescission under Section 45 remains subject to the basic precept of fraud having to be proven by clear and convincing
evidence. Clear and convincing proof is more than mere preponderance, but not to extent of such certainty as is required beyond
reasonable doubt as in criminal cases.
When the insured makes a representation, he must assure himself that a representation on a material fact is not false; and if it is false, that
it is not a fraudulent misrepresentation of a material fact. This returns the burden to insurance companies, which, in general, have more
resources than the insured to check the veracity of the insured's beliefs as to a statement of fact. Consciousness in defraudation is
imperative and it is for the insurer to show this.
In the instant case, Insular Life relied only on the Health Statement form personally accomplished by Jose Alvarez wherein he wrote that his
birth year was 1942. However, such form alone is not sufficient absent any other indications that he purposely wrote 1942 as his birth year.
Alvarez must have accomplished and submitted many other documents when he applied for the housing loan and executed supporting
 instruments like the promissory note, real estate mortgage, and Group Mortgage Redemption Insurance. A design to defraud would have
demanded his consistency. He needed to maintain appearances across all documents.
H.H. HOLERO, CONSTRUCTION HHHC incorrectly insists that the GSIS's letters dated April 26, 1990 and June 21, 1990 did not amount to a "final rejection" of its claims,
INC., v. GSIS arguing that they were mere tentative resolutions pending further action on HHHC’s part or submission of proof in refutation of the reasons
for rejection.
"Final rejection" simply means denial by the insurer of the claims of the insured and not the rejection or denial by the insurer of the
insured's motion or request for reconsideration. The rejection referred to should be construed as the rejection in the first instance, as in
the two letters discussed earlier.
Sun Insurance Office, Ltd. v. CA held that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from
the denial of the claim. Sun Insurance likewise cited Eagle Star Insurance Co. vs. Chia Yu where the Court held that the right of the insured
to the payment of his loss accrues from the happening of the loss. However, the cause of action in an insurance contract does not accrue
until the insured's claim is finally rejected by the insurer. This is because before such final rejection there is no real necessity for bringing
suit.
Clearly, that HHHC’s causes of action for indemnity respectively accrued from its receipt of the letters dated April 26, 1990 and June 21,
1990, or the date the GSIS rejected its claims in the first instance. Consequently, given that it allowed more than twelve (12) months to
lapse before filing the necessary complaint before the RTC on September 27, 1991, its causes of action had already prescribed.
GSIS v. PRUDENTIAL GSIS' affirmative defense that the non-payment of the last reinsurance premium merely rendered the contract ineffective pursuant to
GUARANTEE Section 77 of PD 612 no longer involves any factual issue, but stands solely as a mere question of law in the light of the foregoing
admissions hence allowing for a judgment on the pleadings. In Makati Tuscany, the Court ruled that the non-payment of subsequent
installment premiums would not prevent the insurance contract from taking effect; that the parties intended to make the insurance
contract valid and binding is evinced from the fact that the insured paid — and the insurer received — several reinsurance premiums due
thereon, although the former refused to pay the remaining balance.
Makati Tuscany likewise held that Section 77 (1) strictly requires prepayment of premiums as a condition to the validity of the contract; and
(2) precludes the parties from stipulating that the policy is valid even if premiums are not paid. However, Section 77 does not expressly
prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public
policy.
EQUITABLE INSURANCE Equitable Insurance was able to present as evidence the marine open policy that vested upon it, its rights as a subrogee. Subrogation is
CORPORATION v. 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
TRANSMODAL in justice, equity and good conscience ought to pay. Thus, the CA erred in holding that Equitable Insurance only presented the marine risk
INERNATIONAL, INC. note because the latter actually complied with the principle laid down in Malayan Insurance. In fact, the CA decision even made mention
that EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099 and the marine risk note were offered in evidence.
Transmodal had the opportunity to examine the said documents or to object to its presentation as pieces of evidence. Transmodal likewise
was able to cross-examine Equitable’s witness regarding the said documents. Equitable cleary established its right to step into the shoes of

ORIENTAL ASSURANCE
CORPORATION v. MANUEL
ONG
WHITE GOLD MARINE SERVICES,
INC. vs. PIONEER INSURANCE
AND SURETY CORPORATION
AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION
(BERMUDA) LTD.
GULF RESORTS v. PHILIPPINE
CHARTER INSURANCE
the insured who has a direct cause of action against Transmodal on account of the damages sustained by the cargoes.
Moreover, Asian Grand Terminals vs. First Lepanto provided that, as a general rule, the marine insurance policy needs to be presented in
evidence before the insurer may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right.
As subrogee, Oriental merely stepped into the shoes of the consignee and may only exercise those rights that the consignee may have against the
wrongdoer who caused the damage. “it can recover only the amount that is recoverable by the assured." And since the right of action of the
consignee is subject to a precedent condition stipulated in the Gate Pass, which includes by reference the terms of the Management Contract,
necessarily a suit by the insurer is subject to the same precedent condition.
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members all
contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are
divided among themselves, in proportion to their interest. Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely,
protection and indemnity, war risks, and defense costs. A P & I Club is "a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members." By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of authority issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.
. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All
the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to
extend earthquake shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake
shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. Thus, an insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.26
An INSURANCE PREMIUM is the consideration paid an insurer for undertaking to indemnify the insured against a specified

MA. LOURDES FLORENDO vs.
PHILAM PLANS, INC., PERLA and
MA. CELESTE ABCEDE
UCPB GENERAL INSURANCE CO.,
INC. vs. MASAGANA TELAMART,
INC.
peril. In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches. In the
subject policy, no premium payments were made with regard to earthquake shock coverage, except on the two swimming
pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is
consistent with the history of petitioner’s previous insurance policies from AHAC-AIU.
By its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the information
that Philam Plans needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla the needed
information and delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans' instruction.
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s since this did not
fall within the five-year timeframe that the disclosure contemplated. But a pacemaker is an electronic device implanted into the body and connected to
the wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy to the
heartbeat. That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under treatment
for irregular heartbeat within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan application. These
clearly fell within the five-year period. More, even if Perla's knowledge of Manuel's pacemaker may be applied to Philam Plans under the theory of
imputed knowledge, it is not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 27 of
the Insurance Code, Manuel's concealment entitles Philam Plans to rescind its contract of insurance with him.
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he authorized her action.
Philam Plans had every right to act on the faith of that certification. Lourdes could not seek comfort from her claim that Perla had assured Manuel that
the state of his health would not hinder the approval of his application and that what is written on his application made no difference to the insurance
company. But, indubitably, Manuel was made aware when he signed the pension plan application that, in granting the same, Philam Plans and Philam Life
were acting on the truth of the representations contained in that application.
. An insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the
contrary is void. The parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding
before actual payment.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the Court of Appeals, is not applicable. In that case, payment of the premium was in
fact actually made on December 24, 1981, and the fire occurred on January 18, 1982. Here, the payment of the premium for renewal of the policies was
tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. Masagana did not even give UCPB a notice of loss within a reasonable time
after occurrence of the fire.
TURN AROUND….
SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
EXCEPTIONS TO SECTION 77:
1. When the grace period applies; (Sec. 77)

SUN INSURANCE v. CA and LIM
TIO KHE CHIO vs. CA and
EASTERN ASSURANCE AND
SURETY CORP.
ROMARICO VITUG VS. COURT
OF APPEALS
2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made oa the time of
the loss; (Makati Tuscany Condominium Corp. v. CA)
4. If the insurer granted the insured a credit term for the payment of the premium and the loss occurs before the expiration of the term, recovery should
be allowed even if the premium is paid after the loss but within the credit term;
5. Where the parties are barred by estoppel
Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from
the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the
indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are only
four exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the case at bar.
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this
rule, especially in view of the circumstances of this case as above analyzed.
The legal rate of interest in the case at bar is 6% per annum as correctly held by the Appellate Court.
Section 243 of the Insurance Code: "The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within 30 days after
proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is
not had or made within 60 days after such receipt by the insurer of the proof of loss, then the loss or damage shell be paid within 90 days after such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent."
Section 244 of the Insurance Code: "In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may
be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged
to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice
the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two
hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment."
In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or withholding of payment on Chio’s claim. In fact, CA held
that “EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while not sufficient to free it from liability under its policy,
nevertheless is sufficient to negate any assertion that in refusing to pay, it acted unjustifiably. "The case posed some genuine
issues of interpretation of the terms of the policy as to which persons may honestly differ. This is the reason the trial court did not say EASCO's refusal
was unjustified."
A Survivorship Agreement is an agreement whereby the co-depositors agree to permit either of them to withdraw the whole deposit during
their lifetime and transfer the balance to the survivor upon the death of one of them.
Survivorship agreement;
May Corona si Rowena;
Namatay sa New York;
Reimbursement!
KAREN SALVACION vs. CENTRAL
BANK OF THE PHILIPPINES
Math teacher yung rapist;
Paborito ni Karen ang Pilipino
kaya sumama siya papuntang
Kalayaan.
Gago yung kapitbahay;
magpalit dawn g damit…
dafuq?
JOSEPH VICTOR EJERCITO vs.
SANDIGANBAYAN
plunder
SPS. CESAR LARROBIS, JR. and
VIRGINIA LARROBIS vs.
The court ruled that a Survivorship Agreement is neither a donation mortis causa, nor a donation intervivos. It is in the nature of aleatory
contracts, wherebu one or both of the parties reciprocally bind themselves to give or to do something in consideration of that the other
shall give or do upon the happening of an event, which is to occur at an indeterminate time or is uncertain, such as death.
The court further ruled that although the survivorship agreement is per se not contrary to law, its operation or effect may be violative of the
law. For instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, to transfer property in
fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled upon such grounds. No such vice has been
imputed and established against the agreement involved in this case.
"The purpose of PD 1246 in according protection against attachment, garnishment and other court process to foreign currency deposits is stated in its
whereases. "It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign Currency Deposit System were designed to
draw deposits from foreign lenders and investors. It is these deposits that are induced by the two laws and given protection and incentives by them.
"Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit encouraged by PD Nos. 1034 and 1035 and given
incentives and protection by said laws because such depositors stays only for a few days in the country and, therefore, will maintain his deposit in the
bank only for a short time. Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with China Banking Corporation only for safekeeping
during his temporary stay in the Philippines.
"For the reasons stated above, the dollar deposit of Bartelli is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and P.D. No.
1246 against attachment, garnishment or other court processes."
The term "deposits" used in the Secrecy of Bank Deposits Law should be understood broadly and not limited only to accounts, which give rise to a
creditor-debtor relationship between the depositor and the bank. If the money deposited under an account may be used by banks for authorized loans to
third persons, then such account, whether it creates a creditor-debtor relationship between the depositor and the bank, falls under the accounts which
the law seeks to protect for the purpose of boosting the economic development of the country. Trust Account No. 858 is, without doubt, one such
account. Section 2 of RA 1405 clearly shows that the term "deposits" was intended to be understood broadly by using the phrase "of whatever nature,"
which proscribes any restrictive interpretation of "deposits." Moreover, as per Section 2, generally, the law applies not only to money, which is deposited
but also to those, which are invested. The law was not intended to apply only to "deposits" in the strict sense of the word. Otherwise, there would have
been no need to add the phrase "or invested.
The protection afforded by the law is not absolute and is subject to exceptions. In the present case, two exceptions apply, to wit: (1) the examination
of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation. Consequently, these accounts are no longer protected by the Secrecy of Bank Deposits Law, there being
two exceptions to the said law applicable in this case, namely: (1) the examination of bank accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials, and (2) the money deposited or invested is the subject matter of the litigation.
Philippine National Bank v. Gancayco held that cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen
why these two classes of cases cannot be excepted from the rule making bank deposits confidential. An examination of the "overt or criminal acts as
described in Section 1(d)" of R.A. No. 7080 would make the similarity between plunder and bribery even more pronounced since bribery is essentially
included among these criminal acts. Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of bribery must also apply
to cases of plunder.
One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract, is that its occurrence must be such as to render it
impossible for a party to fulfill his obligation in a normal manner.
PHILIPPINE VETERANS BANK
PHILIPPINE NATIONAL
BANK vs. JUAN F. VILA
HILARIO SORIANO vs. PEOPLE
OF THE PHILIPPINES
PHILIPPINE NATIONAL BANK vs.
SPOUSES CHEAH CHEE CHONG
and OFELIA CAMACHO CHEAH
Respondent's claims that because of a fortuitous event, it was not able to exercise its right to foreclose the mortgage on petitioners' property; and that
since it was banned from pursuing its business and was placed under receivership from April 25, 1985 until August 1992, it could not foreclose the
mortgage on petitioners' property within such period since foreclosure is embraced in the phrase "doing business," are without merit.
While it is true that foreclosure falls within the broad definition of "doing business," that is: . . a continuity of commercial dealings and arrangements and
contemplates to that extent, the performance of acts or words or the exercise of some of the functions normally incident to and in progressive prosecution
of the purpose and object of its organization, it should not be considered included, however, in the acts prohibited whenever banks are "prohibited from
doing business" during receivership and liquidation proceedings. This is consistent with the purpose of receivership proceedings, i.e., to receive
collectibles and preserve the assets of the bank in substitution of its former management, and prevent the dissipation of its assets to the detriment of the
creditors of the bank.
Before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for
mortgage and to verify the genuineness of the title to determine the real owner thereof. The apparent purpose of an ocular inspection is to protect the
"true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent
certificate of title thereto. Here, [the] PNB has failed to exercise the requisite due diligence in ascertaining the status and condition of the property being
offered to it as security for the loan before it approved the same. Clearly, the PNB failed to observe the exacting standards required of banking
institutions which are behooved by statutes and jurisprudence to exercise greater care and prudence before entering into a mortgage contract.
A bank officer violates the DOSRI law when he acquires bank funds for his personal benefit, even if such acquisition was facilitated by a fraudulent loan
application. Directors, officers, stockholders, and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a defense to
escape culpability for their circumvention of Section 83 of Republic Act (RA) No. 337.
The prohibition in Section 83 is broad enough to cover various modes of borrowing. It covers loans by a bank director or officer (like herein petitioner)
which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. It applies even if the director or officer is a
mere guarantor, indorser or surety for someone else's loan or is in any manner an obligor for money borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the approval, reportorial and ceiling requirements under Section 83 are complied with. The prohibition is intended to
protect the public, especially the depositors, from the overborrowing of bank funds by bank officers, directors, stockholders and related interests, as such
overborrowing may lead to bank failures. It has been said that "banking institutions are not created for the benefit of the directors [or officers]. While
directors have great powers as directors, they have no special privileges as individuals. They cannot use the assets of the bank for their own benefit
except as permitted by law. Stringent restrictions are placed about them so that when acting both for the bank and for one of themselves at the same
time, they must keep within certain prescribed lines regarded by the legislature as essential to safety in the banking business".
A direct borrowing is obviously one that is made in the name of the DOSRI himself or where the DOSRI is a named party, while an indirect borrowing
includes one that is made by a third party, but the DOSRI has a stake in the transaction. The latter type — indirect borrowing — applies here.
Here, while PNB highlights Ofelia's fault in accommodating a stranger's check and depositing it to the bank, it remains mum in its release of the proceeds
thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice. It is worthy of notice that the 15-
day clearing period alluded to is construed as 15 banking days. Even PNB's agreement with Philadelphia National Bank regarding the rules on the
collection of the proceeds of US dollar checks refers to "business/banking days." Ofelia deposited the subject check on November 4, 1992. Hence, the
15th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling
up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the lapse of the
standard 15-day clearing period.
It bears stressing that "the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of
diligence is expected." PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its
own banking policy amounts to gross negligence, which the law defines as "negligence characterized by the want of even slight care, acting or omitting to

SPS. CRISTINO & EDNA
CARBONELL vs. METRO
POLITAN BANK AND
TRUST COMPANY
SUBIDO PAGENTE CERTEZA
MENDOZA AND BINAY LAW
OFFICES VS. COURT OF APPEALS
act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as
other persons may be affected." With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty
to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. "The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct." A bank is expected to
be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.
Although the petitioners suffered humiliation resulting from their unwitting use of the counterfeit US dollar bills, the respondent, by virtue of its having
observed the proper protocols and procedure in handling the US dollar bills involved, did not violate any legal duty towards them. Being neither guilty of
negligence nor remiss in its exercise of the degree of diligence required by law or the nature of its obligation as a banking institution, the latter was not
liable for damages. Given the situation being one of damnum absque injuria, they could not be compensated for the damage sustained.
Section 11 of the AMLC allowing ex-parte bank inquiry orders does not violate due process or privacy, but the owner of such accounts should be given
notice of such orders and the opportunity to prove that probable cause for such bank inquiry orders does not exist.
The letter of the Presiding Justice failed to cite Rules 10.c.3 and 10.d of the IRR on Authority to File Petitions for Freeze Order. Said rules expressly provide
that the bank shall likewise immediately furnish a copy of the notice of the freeze order upon the owner or holder of the monetary instrument or
property or related accounts subject to said Bank Inquiry Order. There is nothing in Section 11 nor the implementing rules and regulations of the AMLA
which prohibits the owner of the bank account, as in this instance SPCMB, to ascertain from the CA, post issuance of the bank inquiry order ex-parte, if
his account is indeed the subject of an examination.
The Presiding Justice effectively precluded and prevented SPCMB of any recourse, amounting to a denial of SPCMB's letter request. SPCMB as the owner
of the bank account, which may be the subject of inquiry of the AMLC, ought to have a legal remedy to question the validity and propriety of such an
order by the appellate court under Section 11 of the AMLA.
That there are no specific rules governing the bank inquiry order does not signify that the CA cannot confirm to the actual owner of the bank account
reportedly being investigated whether it had in fact issued a bank inquiry order for covering its accounts, of course after the issuance of the Freeze Order.
Applying the Doctrine of Necessary Implication in cases involving the Bank Inquiry Order, SPCMB should be given an opportunity to prove that no
probable cause exists. Section 11 of the AMLA providing for ex-parte bank inquiry orders is not unconstitutional because there is no physical seizure of
property involved at that stage. The "bank inquiry order" under Section 11 is a provisional remedy to aid the AMLC in the enforcement of the AMLA.
Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into certain bank deposits and investments does not violate
substantive due process. There is no physical seizure of property involved at that stage. It is the preliminary and actual seizure of the bank deposits or
investments in question, which brings these within reach of the judicial process, specifically a determination that the seizure violated due process.
The relevant portion of Section 11 of the AMLA, as amended, reads, to wit: SEC. 11. Authority to Inquire into Bank Deposits. —[The] AMLC may inquire
into or examine any particular deposit or investment, including related accounts, with any banking institution or non-bank financial institution upon order
of any competent court based on an ex parte application in cases of violations of this Act, when it has been established that there is probable cause that
the deposits or investments, including related accounts involved, are related to an unlawful activity as defined in Section 3(i) hereof or a money
laundering offense under Section 4 hereof.
Section 11 of the AMLA has three elements: (1) ex-parte application by the AMLC; (2) determination of probable cause by the CA; and (3) exception of
court order in cases involving unlawful activities defined in Sections 3 (i) (1), (2), and (12).
Congress enacted RA 10167, amending Section 11 of the AMLA and specifically inserted the word ex-parte appositive of the nature of this provisional
remedy available to the AMLC. Prior to the amendment, Section 11 of the AMLA did not allow the issuance of such ex-parte orders.
One must note the distinction between a bank inquiry order (Section 11) and a freeze order (Section 10) as discussed in Republic of the Philippines vs.
Eugenio, specifically the effects on the bank investments and deposits subject of such orders, to wit:
“A bank inquiry order under Section 11 does not necessitate any form of physical seizure of property of the account holder. What the bank inquiry order
authorizes is the examination of the particular deposits or investments in banking institutions or non-bank financial institutions. The monetary
instruments or property deposited with such banks or financial institutions are not seized in a physical sense, but are examined on particular details such
as the account holder's record of deposits and transactions. Unlike the assets subject of the freeze order, the records to be inspected under a bank inquiry
order cannot be physically seized or hidden by the account holder. Said records are in the possession of the bank and therefore cannot be destroyed at
the instance of the account holder alone as that would require the extraordinary cooperation and devotion of the bank.”
Clearly, the bank inquiry into certain bank deposits and investments by the AMLC authorized by Section 11 of the AMLA, as amended, still does not
contemplate any form of physical seizure of the targeted corporeal property. Moreover, procedural due process is essentially the opportunity to be heard.
In this case, at the investigation stage by the AMLC into possible money laundering offenses, SPCMB demands that it have notice and hearing of AMLC's
investigation into its bank accounts.
SPCMB points out that the AMLC's bank inquiry is preliminary to the seizure and deprivation of its property as in a freeze order under Section 10 of the
AMLA which peculiarity lends itself to a sui generis proceeding akin to the evaluation process in extradition proceedings. Thus, it must be determined
whether AMLC is an administrative body with quasi-judicial powers.
The test as laid down in Ruperto vs. Torres is whether or not the agency exercises judicial or investigatory functions. Adjudication signifies the exercise of
power and authority to adjudicate upon the rights and obligations of the parties before it. Hence, if the only purpose for investigation is to evaluate
evidence submitted before it based on the facts and circumstances presented to it, and if the agency is not authorized to make a final pronouncement
affecting the parties, then there is an absence of judicial discretion and judgment.
Notably, a preliminary investigation, similar to what AMLC conducts, is not an exercise of judicial power or part of trial––it is a proceeding to determine
the existence of probable case. Plainly, the AMLC's investigation of money laundering offenses and its determination of possible money laundering
offenses, specifically its inquiry into certain bank accounts allowed by court order, does not transform it into an investigative body exercising quasijudicial
powers. Hence, Section 11 of the AMLA authorizing a bank inquiry court order, cannot be said to violate SPCMB's constitutional right to procedural due
process.
Although there is a statutory right to privacy granted to bank deposits, Section 11 of the AMLA is a recognized, lawful exception that has passed the
scrutiny of the courts. Section 11 incorporates by reference that "[t]he authority to inquire into or examine the main and the related accounts shall
comply with the requirements of Article III, Sections 2 and 3 of the 1987 Constitution.
SPCMB argues nothing in the AMLA allows the withholding of information and/or any court records or proceedings pertaining to an examination of a
bank account, especially if the court has already granted the authority to conduct the examination.” Relevantly, Republic vs Eugenio, held the right to
privacy with regard to bank deposits exists in the Philippine jurisdiction, to wit:
“There is a right to privacy governing bank accounts in the Philippines, and that such right finds application to the case at bar. The source of such right is
statutory, expressed as it is in R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955. The right to privacy is enshrined in Section 2 of that law.
Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy in the Philippines. Subsequent laws, including the AMLA
may have added exceptions to the Bank Secrecy Act, yet the secrecy of bank deposits still lies as the general rule. It falls within the zones of privacy
recognized by our laws.
The AMLA provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire into a bank account upon order of any competent court
in cases of violation of the AMLA, it having been established that there is probable
 cause that the deposits or investments are related to unlawful activities as defined in Section 3(i) of the law, or a money laundering offense under Section
4 thereof. Further, in instances where there is probable cause that the deposits or investments are related to kidnapping for ransom, certain violations of
the Comprehensive Dangerous Drugs Act of 2002, hijacking and other violations under R.A. No. 6235, destructive arson and murder, then there is no need
for the AMLC to obtain a court order before it could inquire into such accounts.”
Therefore, the following are the principles of the right to privacy vis-à-vis bank deposts:
1. The 1987 Constitution did not allocate specific rights peculiar to bank deposits;
2. The general rule of absolute confidentiality is simply statutory, i.e., not specified in the Constitution, which has been affirmed in jurisprudence;
3. Exceptions to the general rule of absolute confidentiality have been carved out by the Legislature which legislation have been sustained, albeit
subjected to heightened scrutiny by the courts; and
4. One such legislated exception is Section 11 of the AMLA
The AMLA, likewise, provides safeguards before a bank inquiry order is issued, ensuring adherence to the general state policy of preserving the
absolutely confidential nature of Philippine bank accounts:
(1) The AMLC is required to establish probable cause as basis for its exparte application for bank inquiry order;
(2) The CA, independent of the AMLC's demonstration of probable cause, itself makes a finding of probable cause that the deposits or investments are
related to an unlawful activity under Section 3 (i) or a money laundering offense under Section 4 of the AMLA
(3) A bank inquiry court order ex-parte for related accounts is preceded by a bank inquiry court order ex-parte for the principal account which court order
exparte for related accounts is separately based on probable cause that such related account is materially linked to the principal account inquired into;
and
(4) The authority to inquire into or examine the main or principal account and the related accounts shall comply with the requirements of Article III,
Sections 2 and 3 of the 1987 Constitution. The foregoing demonstrates that the inquiry and examination into the bank account are not undertaken
whimsically and solely based on the investigative discretion of the AMLC.

PHILIPPINE BANKING Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered by a Torrens
CORPORATION vs. ARTURO DY, Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the public interest in upholding the
BERNARDO DY, JOSE DELGADO indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon.
AND CIPRIANA DELGADO
In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest,
Tan’s bihon factory failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to
conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof. The
apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim
thereon from a usurper who may have acquired a fraudulent certificate of title thereto.

APEX BANCRIGHTS HOLDINGS, It is settled that "the power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an
INC. vs. BSP and PDIC exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and
could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection
a three-way merger
clauses of the Constitution." Otherwise stated and as culled from the above provision, the actions of the Monetary Board shall be final and executory and
may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of jurisdiction. "There is grave abuse of discretion when there is an evasion of a positive
duty or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law as when the judgment rendered is not based on law and
evidence but on caprice, whim and despotism." In line with the foregoing considerations, the Court agrees with the CA that the Monetary Board did
not gravely abuse its discretion in ordering the liquidation of EIB through its Resolution No. 571.

BALAYAN BAY RURAL BANK,
INC., represented by Statutory
Liquidator, PDIC, vs. NATIONAL
LIVELIHOOD DEV’T CORP.
Bank in Batangas
BANCO FILIPINO SAVINGS AND
MORTGAGE BANK vs. BANGKO
SENTRAL NG PILIPINAS and THE
MONETARY BOARD
PETER L. SO vs. PHILIPPINE
Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make an independent determination of whether a bank may still be
rehabilitated or not. As expressly stated in the afore-cited provision, once the receiver determines that rehabilitation is no longer feasible, the Monetary
Board is simply obligated to: (a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with liquidation
While we agree with the conclusion reached by the RTC that the PDIC should be included in Civil Case No. 09-917, its reliance on Section 19, Rule 3 of
the Revised Rules of Court on transfer of interest pendente lite as justification for its directive to include the PDIC in the case is erroneous.
For one, the properties of an insolvent bank are not transferred by operation of law to the statutory receiver/liquidator but rather these assets are just
held in trust to be distributed to its creditors after the liquidation proceedings in accordance with the rules on concurrence and preference of credits. The
debtor’s properties are then deemed to have been conveyed to the Liquidator in trust for the benefit of creditors, stockholders and other persons in
interest. This notwithstanding, any lien or preference to any property shall be recognized by the Liquidator in favor of the security or lienholder, to the
extent allowed by law, in the implementation of the liquidation plan.
In addition, the insolvent bank's legal personality is not dissolved by virtue of being placed under receivership by the Monetary Board. It must be stressed
here that a bank retains its juridical personality even if placed under conservatorship; it is neither replaced nor substituted by the conservator who shall
only take charge of the assets, liabilities and the management of the institution.
It being the fact that the PDIC should not be considered as a substitute or as a co-defendant of the petitioner bank but rather as a representative party or
someone acting in fiduciary capacity, the insolvent institution shall remain in the case and shall be deemed as the real party in interest.
A bank which has been ordered closed by the BSP is placed under the receivership of the PDIC. As a consequence of the receivership, the closed bank
may sue and be sued only through its receiver, PDIC. Any action filed by the closed bank without its receiver may be dismissed.
The New Central Bank Act provides that when the Monetary Board finds a bank insolvent, it may "summarily and without need for prior hearing forbid
the institution from doing business in the Philippines and designate the PIDC as receiver of the banking institution. Prior to the New Central Bank Act, an
insolvent bank could only be sued or sue through its liquidator. The Old Central Bank Act, meanwhile, applied the same principle to the receiver of an
insolvent bank. The relationship between the Philippine Deposit Insurance Corporation and a closed bank is fiduciary in nature. Section 30 of the New
Central Bank Act directs the receiver of a closed bank to "immediately gather and take charge of all the assets and liabilities of the institution" and
"administer the same for the benefit of its creditors." Rule 59 of the Rules of Court likewise grants the receiver "the general powers of a receiver.”
Section 6, Rule 59 provides "a receiver shall have the power to bring and defend, in such capacity, actions in his [or her] own name."
The New Central Bank likewise provides that receiver shall also "in the name of the institution, [may] retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action against, the institution." Considering that the receiver has the power to take charge of all
the assets of the closed bank and to institute for or defend any action against it, only the receiver, in its fiduciary capacity, may sue and be sued on behalf
of the closed bank.
Balayan Bay Rural Bank vs. NLDC likewise held that a receiver of a closed bank is tasked with the duty to hold the assets and liabilities in trust for the
benefit of the bank's creditors. As fiduciary of the insolvent bank, Philippine Deposit Insurance Corporation conserves and manages the assets of the bank
to prevent the assets' dissipation. This includes the power to bring and defend any action that threatens to dissipate the closed bank's assets. The PDIC
does so, not as the real party-in-interest, but as a representative party,
Banco Filipino’s suit concerned its Business Plan, a matter that could have affected the status of its insolvency. PDIC’s participation is necessary due to its
duty to conserve the bank’s assets and to examine any possible liability that the bank might undertake under the Business Plan. PDIC also safeguards the
interests of the depositors in all legal proceedings. The authority of Banco Filipino’s Board of Directors was suspended when it was placed under
receivership. Thus, the defect in the verification and certification of nonforum shopping is fatal for having been signed by the Board of Directors.
In carrying out their quasi-judicial functions, the administrative officers or bodies are required to investigate facts or ascertain the existence of facts,
DEPOSIT INSURANCE hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature.
CORPORATION
The Court has laid down the test for determining whether an administrative body is exercising judicial or merely investigatory functions: adjudication
signifies the exercise of the power and authority to adjudicate upon the rights and obligations of the parties. Hence, if the only purpose of an
investigation is to evaluate the evidence submitted to an agency based on the facts and circumstances presented to it, and if the agency is not authorized
to make a final pronouncement affecting the parties, then there is an absence of judicial discretion and judgment.
Thus, the legislative intent in creating PDIC as a quasi-judicial agency is clearly manifest. Indeed, PDIC exercises judicial discretion and judgment in
determining whether a claimant is entitled to a deposit insurance claim, which determination results from its investigation of facts and weighing of
evidence presented before it. Noteworthy also is the fact that the law considers PDIC's action as final and executory and may be reviewed only on the
ground of grave abuse of discretion. Clearly, a petition for certiorari, questioning the PDIC's denial of a deposit insurance claim should be filed before the
CA, not the RTC. This further finds support in Section 22 of the PDIC's Charter.
DEVELOPMENT BANK OF THE If the borrower is not duly informed of the data required by the law prior to the consummation of the availment or drawdown, the lender will have no
PHILIPPINES vs. FELIPE P. right to collect such charge or increases thereof, even if stipulated in the promissory note. However, such failure shall not affect the validity or
ARCILLA, JR enforceability of any contract or transaction.
In the present case, DBP failed to disclose the requisite information in the disclosure statement form authorized by the Central Bank, but did so in the
loan transaction documents between it and Arcilla. There is no evidence on record that DBP sought to collect or collected any interest, penalty or other
charges, from Arcilla other than those disclosed in the said deeds/documents.
The Court is convinced that Arcilla's claim of not having been furnished the data/information required by R.A. No. 3765 and CB Circular No. 158 was but
an afterthought. Despite the notarial rescission of the conditional sale in 1990, and DBP's subsequent repeated offers to repurchase the property, the
latter maintained his silence. Arcilla filed his complaint only on February 21, 1994, or four years after the said notarial rescission.
After a careful perusal of the records, We find that the appellee had been sufficiently informed of the terms and the requisite charges necessarily
included in the subject loan. It must be stressed that the Truth in Lending Act (R.A. No. 3765), was enacted primarily "to protect its citizens from a lack of
awareness of the true cost of credit to the user by using a full disclosure of such cost with a view of preventing the uninformed use of credit to the
detriment of the national economy" (Emata vs. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No. 3765). Contrary to appellee's claim
that he was not sufficiently informed of the details of the loan, the records disclose that the required informations were readily available in the three
(3) promissory notes he executed. Precisely, the said promissory notes were executed to apprise appellee of the remaining balance on his loan when the
same was converted into a regular housing loan. And on its face, the promissory notes signed by no less than the appellee readily shows all the data
required by the Truth in Lending Act (R.A. No. 3765).
Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent as to sign documents without
knowing fully well the legal implications and consequences of his actions, and that appellee was a former employee of appellant. As
such employee, he is as well presumed knowledgeable with matters relating to appellant's business and fully cognizant of the terms
of the loan he applied for, including the charges that had to be paid.
It might have been different if the borrower was, say, an ordinary employee eager to buy his first house and is easily lured into accepting onerous terms
so long as the same is payable on installments. In such cases, the Court would be disposed to be stricter in the application of the Truth in Lending Act,
insisting that the borrower be fully informed of what he is entering into. But in the case at bar, considering appellee's education and training, We must
hold, in the light of the evidence at hand, that he was duly informed of the necessary charges and fully understood their implications and effects.

BPI FAMILY SAVINGS BANK, Rehabilitation defined; Rehabilitation is not a remedy when there is no viable business concern to be restored.
INC. VS. ST. MICHAEL Rehabilitation presupposes a position of successful operation and solvency at the time the Rehabilitation Petition is
MEDICAL CENTER, INC. filed.
Restoration is the central idea behind the remedy of corporate rehabilitation. In common parlance, to "restore" means "to bring back to or put back into a former or
original state."42 Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be
paid their claims out of its earnings.

VIVA SHIPPING LINES, INC. Respondent-Creditors are indispensable parties that must be impleaded in rehabilitation proceedings; A Proposed
VS. KEPPEL PHILIPPINES Rehabilitation plan must be feasible.
MARINE, INC.
The first rule breached by petitioner is the failure to implead all the indispensable parties. Petitioner did not even interpose reasons why it should be excused from
compliance with the rule to "state the full names of the parties to the case, without impleading the court as respondents." Petitioner did exactly the opposite. It failed to
state the full names of its creditors as respondents. Instead, it impleaded the Presiding Judge of the originating court. The Rules of Court requires petitioner to implead
respondents as a matter of due process. Creditors are indispensable parties to a rehabilitation case, even if a rehabilitation case is non-adversarial. A corporate
rehabilitation case cannot be decided without the creditors' participation. The court's role is to balance the interests of the corporation, the creditors, and the general
public. This court cannot exercise its equity jurisdiction and allow petitioner to circumvent the requirement to implead its creditors as respondents.

LINGKOD MANGGAGAWA SA During a Petition to Declare State of Suspension, the SEC’s Order to Suspend all Pending Claims applies to Labor
RUBBERWORLD, ADIDAS- Cases
ANGLO VS. RUBBERWORLD
Given the factual milieu obtaining in this case, it cannot be said that the decision of the Labor Arbiter, or the decision/dismissal order and writ of execution issued by the
(PHILS), INC.
NLRC, could ever attain final and executory status. The Labor Arbiter completely disregarded and violated Section 6(c) of Presidential Decree 902-A, as amended, which
categorically mandates the suspension of all actions for claims against a corporation placed under a management committee by the SEC. Thus, the proceedings before the
Labor Arbiter and the order and writ subsequently issued by the NLRC are all null and void for having been undertaken or issued in violation of the SEC suspension
Order dated December 28, 1994. As such, the Labor Arbiters decision, including the dismissal by the NLRC of Rubberworld’s appeal, could not have achieved a final and
executory status.

JUANITO GARCIA & ALBERTO The SEC’s Order of Suspension embraces all claims against the corporation whether for damages founded on a
DUMAGO VS. PHILIPPINE breach of contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature. No exception in
AIRLINES, INC. favor of labor claims is mentioned in the law. What are automatically stayed or suspended are the proceedings of a
suit and not just the payment of claims during the execution stage after the case had become final and executory.
While reinstatement pending appeal aims to avert the continuing threat or danger to the survival or even the life of the dismissed employee and his family, it does not
contemplate the period when the employer-corporation itself is similarly in a judicially monitored state of being resuscitated in order to survive.

JOSE MARCEL PANLILIO VS. Criminal Cases are not covered by “pending claims” under the Suspension Order. However, civil indemnity awarded
RTC BRANCH 51, CITY OF
MANILA, REP BY JUDGE upon conviction can be stayed by the rehabilitation court.
ROSALES
Corporate rehabilitation and the settlement of claims against a corporation is not a legal ground for extinction of criminal liabilities. The penal sanctions can be
implemented after trial, but civil indemnity awarded as a result of conviction would be subject to the stay order issued by the rehabilitation court.

The prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society,
reform and rehabilitate him or, in general, to maintain social order. As correctly observed in Rosario, it would be absurd for one who has engaged in criminal conduct could
escape punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer.

The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in their individual
capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully
discharge his functions as mandated by law. The rehabilitation receiver is not charged to defend the officers of the corporation

SPOUSES SOBREJUANITE VS. A Complaint to Rescind a Contract to Sell with Damages is within the purview of a “claim” with PD No. 902-A.
ASB DEVELOPMENT
In Finasia Investments and Finance Corp. v. Court of Appeals “The word claim as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a
CORPORATION
pecuniary nature. It means the assertion of a right to have money paid. It is used in special proceedings like those before administrative court, on
insolvency.” And in Arranza v. B.F. Homes, Inc., claim is defined as referring to actions involving monetary considerations. The interim rules define a
claim as referring to all claims or demands, of whatever nature or character against a debtor or its property, whether for money or otherwise. The
definition is all-encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or exemptions. Although the petition for
rehabilitation with prayer for suspension of actions and proceedings was filed before the SEC on May 2, 2000, or prior to the effectivity of the interim
rules, the same would still apply pursuant to Section 1, Rule 1 thereof which provides: “Scope These Rules shall apply to petitions for rehabilitation filed
by corporations, partnerships, and associations pursuant to Presidential Decree No. 902-A, as amended.” The complaint filed by Sobrejuanite is a claim
as defined under the Interim Rules of Procedure on Corporate Rehabilitation.

The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and
preserve the rights of party litigants as well as the interest of the investing public or creditors. Such suspension is intended to give enough breathing space
for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and resources to litigations in
various fora. The suspension would enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial
or extra-judicial interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other action to continue would only add
to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the
corporation instead of being directed toward its restructuring and rehabilitation.

METROPOLITAN Claims against the banks that issued Irrevocable Letters of Credit can be pursued separately and independently from the rehabilitation case,
WATERWORKS AND thus not within “claims” suspended by PD No. 902-A.
SEWERAGE SYSTEM VS. HON.
On Letters of Credit: (see page 224 , Atty Zarah’s book) Letters of credit were developed for the purpose of insuring to a seller payment of a
REYNALDO B. DAWAY
definite amount upon the presentation of documents and is thus a commitment by the issuer that the party in whose favor it is issued and who can
collect upon it will have his credit against the applicant of the letter, duly paid in the amount specified in the letter. They are in effect absolute
undertakings to pay the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations
and not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty . What
 distinguishes letters of credit from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and other required
shipping documents are presented to it. They are definite undertakings to pay at sight once the documents stipulated therein are presented.
BUREAU OF INTERNAL Sending Notice of Informal Conference and a Formal Letter of Demand are part of the collection of taxes—an action or proceeding for the
REVENUE VS. LEPANTO enforcement of a claim suspended pursuant to the Commencement Order under FRIA.

CERAMICS, INC. Verily, the inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed corporation during the rehabilitation
period by providing the best possible framework for the corporation to gradually regain or achieve a sustainable operating form. It enables the company
to gain a new lease in life and thereby allow creditors to be paid their claims from its earnings. Thus, rehabilitation shall be undertaken when it is shown
that the continued operation of the corporation is economically more feasible and its creditors can recover, by way of the present value of payments
projected in the plan, more, if the corporation continues as a going concern than if it is immediately liquidated.

In order to achieve such objectives, Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order - which includes a
Stay or Suspension Order - all actions or proceedings, in court or otherwise, for the enforcement of "claims" against the distressed company shall be
suspended. Under the same law, claim "shall refer to all claims or demands of whatever nature or character against the debtor or its property, whether for
money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to; (1) all
claims of the government, whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors and officers of the
debtor arising from acts done in the discharge of their functions falling within the scope of their authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases against the directors and officers acting in their personal capacities."\

In the case at bar, it is undisputed that LCI filed a petition for corporate rehabilitation. It is likewise undisputed that the BIR - personally and by
publication - was notified of the rehabilitation proceedings involving LCI and the issuance of the Commencement Order related thereto. Despite the
foregoing, the BIR, through Misajon, et al., still opted to send LCI: a notice of informal conference; and (b) a Formal Letter of Demand, notwithstanding
the written reminder coming from LCI's court-appointed receiver of the pendency of rehabilitation proceedings concerning LCI and the issuance of a
commencement order. Notably, the acts of sending a notice of informal conference and a Formal Letter of Demand are part and parcel of the entire
process for the assessment and collection of deficiency taxes from a delinquent taxpayer, - an action or proceeding for the enforcement of a claim which
should have been suspended pursuant to the Commencement Order. Unmistakably, Misajon, et al. 's foregoing acts are in clear defiance of the
Commencement Order.

In sum, it was improper for Misajon, et al. to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings
concerning the latter, and in the process, willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br.
35 correctly cited them for indirect contempt.

LEONARDO S. UMALE VS. ASB The debtor corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of
REALTY CORPORATION its business and properties, subject only to the monitoring of the appointed rehabilitation receiver. Thus ASB Realty can sue for unlawful
detainer against an errant lessee.

Corporate rehabilitation is defined as the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation
continues as a going concern than if it is immediately liquidated It was first introduced in the Philippine legal system through PD 902-A, as amended.
 The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern, because the assets of a
business are often more valuable when so maintained than they would be when liquidated.

BANK OF THE PHILIPPINE Principles of Feasibility; the opposition of a distressed corporation's majority creditor is manifestly unreasonable if it counter-proposes
ISLANDS VS. SARABIA MANOR unrealistic payment terms and conditions which would, more likely than not, impede rather than aid its rehabilitation.
HOTEL CORPORATION
Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation provide a rehabilitation plan may be approved even
over the opposition of the creditors holding a majority of the corporation's total liabilities if there is a showing that rehabilitation is
feasible and the opposition of the creditors is manifestly unreasonable.

Known as "cram-down" clause, this provision, which is currently incorporated in FRIA, is necessary to curb the majority creditors' natural
tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders.
Otherwise stated, the “cram-down provision” forces the creditors to accept the terms and conditions of the rehabilitation plan, preferring long-
term viability over immediate but incomplete recovery.

“[A corporation’s] liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain
daily operations, has a definite source of financing for its proper and full implementation, and anchored on realistic assumptions
and goals. This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose
is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by the following: (a) the absence of a
sound and workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative capital
infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily operations; and (e)
negative net worth and the assets are near full depreciation or fully depreciated.”

Applying these principles, the SC found that (1) Sarabia has the financial capability to undergo rehabilitation; (2) Sarabia has the ability to
have sustainable profits over a long period of time; and (3) The interests of Sarabia’s creditors are well protected.

Moreover, the opposition of a distressed corporation's majority creditor is manifestly unreasonable if it counter-proposes unrealistic payment
terms and conditions which would, more likely than not, impede rather than aid its rehabilitation. The unreasonableness becomes further
manifest if the rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditor's claims, and yet the latter persists
on speculative or unfounded assumptions that his credit would remain unfulfilled.

BPI’s opposition is manifestly unreasonable because its proposed escalating interest rates remain hinged on the theoretical assumption of
future fluctuations in the market, this notwithstanding the fact that its interests as a secured creditor remain well-preserved.

Meanwhile, the 6.75% per annum interest rate already constitutes a reasonable rate of interest which is consistent with Sarabia's projected
rehabilitation. In any case, BPI's interests as a secured creditor are adequately protected by the maintenance of all Sarabia's existing real
estate mortgages over its hotel properties as collateral as well as by the reinstatement of the comprehensive surety agreement of Sarabia's
stockholders, among other terms in the approved rehabilitation plan.

METROBANK VS. LIBERTY A debtor corporation already in default can still avail of the remedy of rehabilitation. The phrase "any debtor who foresees the impossibility of
CORRUGATED BOXES meeting its debts when they respectively fall due" in Rule 4, Section 1 of the Interim Rules need not refer to a specific period or point in time
MANUFACTURING when the debts mature. It may refer to the debtor corporation's general realization that it will not be able to fulfill its obligations — a
CORPORATION realization that may come before default.
A corporation that may seek corporate rehabilitation is characterized not by its debt but by its capacity to pay this debt. Section 1, Rule 4 of
the Interim Rules provide, to wit:

SECTION 1. Who May Petition. — Any debtor who foresees the impossibility of meeting its debts when they respectively fall
due, or any creditor or creditors holding at least 25% of the debtor's total liabilities, may petition the proper Regional Trial Court
to have the debtor placed under rehabilitation.

Metrobank insists that the words of the Interim Rules are clear and must be given their plain and literal meaning. However, the definition of a
"claim" and the nature of stay orders contemplate situations where debtor corporations already in default may be under rehabilitation. The
term "claim," includes "all claims or demands of whatever nature or character," and is not limited to claims which have not yet defaulted.
Likewise, Rule 4, Section 1 does not limit who may file a petition for rehabilitation.

In this case, the phrase "any debtor who foresees the impossibility of meeting its debts when they respectively fall due" in Rule 4, Section 1
of the Interim Rules need not refer to a specific period or point in time when the debts mature. It may refer to the debtor corporation's general
realization that it will not be able to fulfill its obligations — a realization that may come before default. Notably, Section 2, Rule 2 of the Interim
Rules provides for a liberal construction of its provisions.

Construing the phrase "when they respectively fall due" to mean that the debtor must already be in default defeats the clear purpose of the
lawmakers. It unjustly limits rehabilitation to corporations with matured obligations.

Metrobank’s interpretation would undermine the purpose of the Interim Rules. There is no reason why corporations with debts that may have
already matured should not be given the opportunity to recover and pay their debtors in an orderly fashion.

The opportunity to rehabilitate the affairs of an economic entity, regardless of the status of its debts, redounds to the benefit of its creditors,
owners, and to the economy in general. Rehabilitation, rather than collection of debts from a company already near bankruptcy, is a better
use of judicial rewards.

The condition that triggers rehabilitation proceedings is not the maturation of a corporation's debts but the inability of the debtor to pay these.
In Express Investments III Private Ltd. and Export Development Canada v. Bayan Telecommunications, Inc. this Court allowed Bayantel to
undergo rehabilitation proceedings despite Bayantel's status as a debtor corporation already in default.