Is a civil suit for the enforcement of liability in case of sale of unregistered
June 1, 2016  securities subject to the doctrine of primary jurisdiction ?
Survey of Recent Jurisprudence in Commercial Law
( January 2012 to May 31, 2016 )
( inclusive of cases penned by SC Justice Presbitero Velasco)
Dean Nilo T. Divina
SECURITIES AND REGULATION CODE
Does SEC have jurisdiction to carry out the liquidation of a corporation ?
SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has
jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of
the corporation now pertains to the appropriate regional trial courts. This is the correct
procedure because the liquidation of a corporation requires the settlement of claims for
and against the corporation, which clearly falls under the jurisdiction of the regular
courts. The trial court is in the best position to convene all the creditors of the
corporation, ascertain their claims, and determine their preferences. BANK OF THE
PHILIPPINE ISLANDS, as successor-in-interest of Far East Bank and Trust
Company, v. EDUARDO HONG, doing business under the name and style "SUPER
LINE PRINTING PRESS," G.R. No. 161771, February 15, 2012
What are the prescriptive periods to enforce liabilities in case of sale of
unregistered securities or falsity in the registration statement ?
Under Section 62 of the SRC, no action shall be maintained to enforce any liability
created under Section 56 of the SRC ( False registration statement ) and Section 57
( sale of unregistered security and liabilities arising in connection with prospectus,
communication and other reports ) unless brought within two ( 2 ) years after discovery
of the untrue statement or omission or after the violation upon which it is based but not
more than five ( 5 ) years after the security was bona fide offered to the public or more
than 5 years after the sale, respectively. However, it should be noted that the civil
liabilities provided in the SRC are not limited to Sections 56 and 57. Clearly, the intent is
to encompass in Section 62 the prescriptive periods only of the civil liability in cases of
violations of the SRC. Given the absence of prescriptive period for the enforcement of
criminal liability in violations of SRC, ACT No. 3326, the law applicable to offenses
under special laws, applies. Under Section 73 of the SRC, violation of its provisions is
punishable by imprisonment of not less than seven years nor more than 21 years.
Applying ACT no. 3326, criminal prosecution for violations of SRC prescribes in 12
years. Citibank N.A. vs. TANCO-GABALDON, et al. G.R. No. 198444, September 4,
2013
Civil suits falling under the SRC ( like liability for selling unregistered securities ) are
under the exclusive original jurisdiction of the RTC and hence, need not be first filed
before the SEC, unlike criminal cases wherein the latter body exercises primary
jurisdiction. Pua vs. Citibank, N. A. G.R. No. 180064, September 16, 2013
Can an employee be considered as associated person or salesman in case of sale
of unregistered securities ?
The violation of Section 28 of the SRC has the following elements : a ) engaging in the
business of buying or selling securities as a broker or dealer; or b ) acting as salesman;
or c) acting as associated person of any broker or dealer unless registered as such with
the SEC. Thus, a person is liable for violating Section 28 of the SRC where acting as a
broker, dealer or salesman, is in the employ of a corporation which sold or offered for
sale unregistered securities in the Philippines. Securities and Exchange Commission
vs Santos, GR. No. 195542, March 19, 2014
Which court/agency has jurisdiction to investigate violations of its rules on proxy
solicitation ?
The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases
enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies
are solicited in relation to the election of corporate directors, the resulting controversy,
even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be
properly seen as an election controversy within the original and exclusive jurisdiction of
the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5 (c) of
Presidential Decree No. 902-A
Indeed, the validation of proxies in this case relates to the determination of the
existence of a quorum. Nonetheless, it is a quorum for the election of the directors, and,
as such, which requires the presence – in person or by proxy – of the owners of the
majority of the outstanding capital stock of the corporation. The SEC therefore has no
jurisdiction over the dispute but the Regional Trial Court. Securities And Exchange
Commission  vs. The Honorable Court Of Appeals et. al. G.R. No. 187702, October
22, 2014
Intra-corporate controversy
What are the tests to determine intra corporate controversy
©2016 Dean Nilo T. Divina, All Rights Reserved
1
In order to limit the broad definition of intra corporate dispute, the Supreme Court within the jurisdiction of the regional trial court designated as a special commercial
applied the relationship and nature of the controversy test. Under the Relationship Test, court. In determining whether a dispute constitutes an intra-corporate controversy, the
no doubt exists that the parties were members of the same association, but this Court uses two tests, namely, the relationship test and the nature of the controversy
conclusion must still be supplemented by the controversy test before it may be test. Applying these two tests, the present case is indeed an intra-corporate
considered as an intra-corporate dispute. Relationship alone does not ipso facto make controversy.
the dispute intra-corporate; the mere existence of an intra-corporate relationship does
not always give rise to an intra-corporate controversy. The incidents of that relationship Anent the first test, it is admitted that petitioner is a condominium corporation. On the
must be considered to ascertain whether the controversy itself is intra-corporate. This is other hand, respondent is a member of the condominium corporation.
where the Controversy Test becomes material.
As regards the second test, the case principally dwells on the propriety of the
Under the controversy test, the dispute must be rooted in the existence of an intra-
assessment made by petitioner against respondent as well as the validity of petitioner’s
corporate relationship, and must refer to the enforcement of the parties' correlative
act in preventing respondent from participating in the election of the corporation’s Board
rights and obligations under the Corporation Code, as well as the internal and intra-
of Directors. To be sure, this action partakes of the nature of an intra-corporate
corporate regulatory rules of the corporation, in order to be an intra-corporate dispute.
controversy. While the CA may be correct that the RTC has jurisdiction, the case should
Gulfo v. Ancheta, G.R. No. 175301, August 15, 2012
have been filed not with the regular court but with the branch of the RTC designated as
a special commercial court. The CA, therefore, gravely erred in remanding the case to
A complaint against the PCGG to withdraw its opposion with the Philippine Stock
the RTC for further proceedings. Also, while Republic Act (RA) No. 9904, or the Magna
Exchange for the listing of the shares representing the increase of capital stock of a
Carta for Homeowners and Homeowners’ Associations empowers the HLURB to hear
sequestered corporation ( until the conflicting claims of two sets of board of directors are
and decide inter-association and/or intra-association controversies or conflicts
settled ) is an intra-corporate dispute that falls under the jurisdiction of the Regional Trial
concerning homeowners’ associations, the same can not be applied in the present
Court (RTC), not the Sandiganbayan. Philippine Overseas Telecommunications
case as it involves a controversy between a condominium unit owner and a
Corporation vs. Africa, et al. G.R. No. 184622, July 3, 2013; PHILIPPINE
condominium corporation. While the term association as defined in the law covers
COMMUNICATIONS SATELLITE CORPORATION v. SANDIGANBAYAN,G.R. No.
homeowners’ associations of other residential real property which is broad enough to
203023, 17 June 2015,
cover a condominium corporation, it does not seem to be the legislative intent. Medical
Plaza Makati Condominium Corporation vs. Cullen G.R. No. 181416, November 11,
Upon the enactment of Republic Act No. 8799, the jurisdiction of the SEC over intra-
2013
corporate controversies and the other cases enumerated in Section 5 of P.D. No. 902-A
was transferred to the Regional Trial Court. The jurisdiction of the Sandiganbayan has
Cite recent cases not considered intra-corporate in nature
been held not to extend even to a case involving a sequestered company
notwithstanding that the majority of the members of the board of directors were PCGG
A complaint for damages filed by a member of the subdivision homeowners association
nominees. Abad vs. Araneta, et al. G.R. No. 200620, March 18, 2015
for the harm he suffered when another member maliciously closed a portion of the
Cite recent cases considered intra-corporate in nature
plaintiff’s drainage pipe which led to the overflowing of his septic tank is not an intra
corporate controversy following nature of the controversy test. Gulfo v. Ancheta, G.R.
A controversy between the condominium corporation and its members-unit owners for
No. 175301, August 15, 2012
alleged unsound business practices and violation of the master deed of restriction does
not fall within the jurisdiction of the HLRUB despite its expansive jurisdiction. It is
In Reyes, the Court pronounced that “in cases governed by the Interim Rules of
considered an intra-corporate controversy falling within the jurisdiction of the Regional
Procedure on Intra-Corporate Controversies a bill of particulars is a prohibited pleading.
Trial Court designated as special commercial court. Lim vs. Distinction Properties
It is essential, therefore, for the complaint to show on its face what are claimed to be the
Development and Construction, GR no. 194024, April 25, 2012
fraudulent corporate acts if the complainant wishes to invoke the court’s special
commercial jurisdiction.” This is because fraud in intra-corporate controversies must be
Where a member of the condominium corporation was denied the right to vote for
based on “devises and schemes employed by, or any act of, the board of directors,
alleged non-payment of condominium dues and assessment, the action although
business associates, officers or partners, amounting to fraud or misrepresentation which
denominated as one for damages is an intra-corporate controversy and therefore, falling
may be detrimental to the interest of the public and/or of the stockholders, partners, or

©2016 Dean Nilo T. Divina, All Rights Reserved

2
members of any corporation, partnership, or association,” as stated under Rule 1,
Section 1 (a)(1) of the Interim Rules. The act of fraud or misrepresentation complained
of becomes a criterion in determining whether the complaint on its face has merits, or
within the jurisdiction of special commercial court, or merely a nuisance suit . Guy vs.
Guy, G.R. No. 189486.September 5, 2012
A college dean is not a corporate officer if his position is not provided for in the by-laws.
The complaint for constructive dismissal is a labor dispute, not an intra-corporate
controversy. Barba vs. Liceo de Cagayan University, GR. No. 193857, November
28, 2012
When the officer claiming to have been illegally dismissed is an ordinary employee of
the corporation, jurisdiction over the same lies with the labor arbiter. It is only when the
officer claiming to have been illegally dismissed is classified as a corporate officer that
the issue is deemed intra-corporate dispute which falls within the jurisdiction of the trial
court designated as special commercial court. Cosare vs. Bradcom Asia, GR. No.
201298, February 5, 2014
An intra-cooperative dispute between two officers on one hand and the board of
directors on the other falls within the jurisdiction of the regular courts and not the
labor arbiter. Pascual vs. Caniogan Credit and Development Cooperative, GR No.
172980, July 22, 2015 )
If a complaint involving an intra-corporate controversy is raffled to a branch of
the RTC that is not a special commercial court, should the court dismiss the
complaint for lack of jurisdiction or order its re-raffle to the special commercial
court ?
Pertinent to this case is RA 8799 which took effect on August 8, 2000. By virtue of said
law, jurisdiction over cases enumerated in Section 5 of Presidential Decree No. 902-A
was transferred from the Securities and Exchange Commission (SEC) to the RTCs,
being courts of general jurisdiction. Item 5.2, Section 5 of RA 8799 provides:
SEC. 5. Powers and Functionsof the Commission. - x x
x Trademark
xxxx
5.2 The Commission's jurisdiction over all cases
enumerated under Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of
general jurisdiction or the appropriate Regional
Trial Court: Provided, that the Supreme Court in the
exercise of its authority may designate the
Regional Trial Court branches that shall exercise
jurisdiction over the cases. The Commission shall
retain jurisdiction over pending cases involving intra-
corporate disputes submitted for final resolution which
should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.
To clarify, the word "or" in Item 5.2, Section 5 of RA 8799 was intentionally used by the
legislature to particularize the fact that the phrase "the Courts of general jurisdiction" is
equivalent to the phrase "the appropriate Regional Trial Court." In other words, the
jurisdiction of the SEC over the cases enumerated under Section 5 of PD 902-A was
transferred to the courts of general jurisdiction, that is to say (or, otherwise known as),
the proper Regional Trial Courts.
Going back to the case at bar, the Court nonetheless deems that the erroneous raffling
to a regular branch instead of to a Special Commercial Court is only a matter of
procedure - that is, an incident related to the exercise of jurisdiction - and, thus, should
not negate the jurisdiction which the RTC of Muntinlupa City had already acquired. In
such a scenario, the proper course of action was not for the commercial case to be
dismissed; instead, Branch 276 should have first referred the case to the Executive
Judge for re-docketing as a commercial case; thereafter, the Executive Judge should
then assign said case to the only designated Special Commercial Court in the station,
i.e., Branch 256. Note that the procedure would be different where the RTC acquiring
jurisdiction over the case has multiple special commercial court branches; in such a
scenario, the Executive Judge, after re-docketing the same as a commercial case,
should proceed to order its re-raffling among the said special branches. Manuel Luis
Gonzales vs GJH Land, Inc, GR No. 202664, November 20, 2015
INTELLECTUAL PROPERTY
Is the mark “ St. Francis “ registrable ?
Shang Properties are not guilty of unfair competition in using the marks “THE ST.
FRANCIS TOWERS” and “THE ST. FRANCIS SHANGRI-LA PLACE.” The “true test” of
unfair competition has thus been “whether the acts of the defendant have the intent of
deceiving or are calculated to deceive the ordinary buyer making his purchases under
the ordinary conditions of the particular trade to which the controversy relates.” It is
©2016 Dean Nilo T. Divina, All Rights Reserved
3
therefore essential to prove the existence of fraud, or the intent to deceive, actual or
probable, determined through a judicious scrutiny of the factual circumstances attendant
to a particular case. Here, the element of fraud is wanting; hence, there can be no
unfair competition. What the CA appears to have disregarded or been mistaken in its
disquisition, however, is the geographically-descriptive nature of the mark “ST.
FRANCIS” which thus bars its exclusive appropriability, unless a secondary meaning is
acquired.
SFDC, however, was not able to prove its compliance with the requirements stated in
Section 123.2 of the IP Code to be able to conclude that it acquired a secondary
meaning — and, thereby, an exclusive right — to the “ST. FRANCIS” mark, which is
geographically-descriptive of the location in which its realty developments have been
built. While it is true that SFDC had been using the mark “ST. FRANCIS” since 1992, its
use thereof has been merely confined to its realty projects within the Ortigas Center. As
its use of the mark is clearly limited to a certain locality, it cannot be said that there was
substantial commercial use of the same recognized all throughout the country. Neither
is there any showing of a mental recognition in buyers’ and potential buyers’ minds that
products connected with the mark “ST. FRANCIS” are associated with the same source
— that is, the enterprise of SFDC. Thus, absent any showing that there exists a clear
goods/service-association between the realty projects located in the aforesaid area and
herein SFDC as the developer thereof, the latter cannot be said to have acquired a
secondary meaning as to its use of the “ST. FRANCIS” mark. Shang Properties Realty
Corporation vs. St. Francis Development Corporation, G.R. No. 190706, July 21,
2014
Does the act of refilling empty LPG Gas cylinder tank bearing a registered
trademark amount to infringement or unfair competition or both ?
The mere unauthorized use of a container bearing a registered trademark in connection
with the sale, distribution or advertising of goods or services which is likely to cause
confusion, mistake or deception among the buyers or consumers can be considered as
trademark infringement. Here, petitioners have actually committed trademark
infringement when they refilled, without the respondents’ consent, the LPG containers
bearing the registered marks of the respondents. Petitioners’ acts will inevitably confuse
the consuming public, since they have no way of knowing that the gas contained in the
LPG tanks bearing respondents’ marks is in reality not the latter’s LPG product after the
same had been illegally refilled. The public will then be led to believe that petitioners are
authorized refillers and distributors of respondents’ LPG products, considering that they
are accepting empty containers of respondents and refilling them for resale.
Unfair competition has been defined as the passing off (or palming off) or attempting to
pass off upon the public of the goods or business of one person as the goods or
business of another with the end and probable effect of deceiving the public. Passing off
(or palming off) takes place where the defendant, by imitative devices on the general
appearance of the goods, misleads prospective purchasers into buying his merchandise
under the impression that they are buying that of his competitors. Thus, the defendant
gives his goods the general appearance of the goods of his competitor with the intention
of deceiving the public that the goods are those of his competitor.
In the present case, respondents pertinently observed that by refilling and selling LPG
cylinders bearing their registered marks, petitioners are selling goods by giving them the
general appearance of goods of another manufacturer. Obviously, the mere use of
those LPG cylinders bearing the trademarks "GASUL" and "SHELLANE" will give the
LPGs sold by REGASCO the general appearance of the products of the petitioners.
Republic Gas Corporation vs. Petron Corporation. G.R. No. 194062, June 17, 2013
 
Can the registrant of the trademark Kolin for household appliances preclude the
adoption of the same trademark for electronic products ?
Whether or not the products covered by the trademark sought to be registered by
Taiwan Kolin, on the one hand, and those covered by the prior issued certificate of
registration in favor of Kolin Electronics, on the other, fall under the same categories in
the NCL is not the sole and decisive factor in determining a possible violation of Kolin
Electronics’ intellectual property right should petitioner’s application be granted. It is
hornbook doctrine, as held in the above-cited cases, that emphasis should be on the
similarity of the products involved and not on the arbitrary classification or general
description of their properties or characteristics. The mere fact that one person has
adopted and used a trademark on his goods would not, without more, prevent the
adoption and use of the same trademark by others on unrelated articles of a different
kind.
In accord with common empirical experience, the useful lives of televisions and DVD
players last for about five (5) years, minimum, making replacement purchases very
infrequent. The same goes true with converters and regulators that are seldom replaced
despite the acquisition of new equipment to be plugged onto it. In addition, the amount
the buyer would be parting with cannot be deemed minimal considering that the price of
televisions or DVD players can exceed today’s monthly minimum wage. In light of these
circumstances, it is then expected that the ordinary intelligent buyer would be more
discerning when it comes to deciding which electronic product they are going to
purchase, and it is this standard which this Court applies herein in determining the
likelihood of confusion should petitioner’s application be granted. Taiwan Kolin
Corporation, LTD., vs. Kolin Electronics Co. Inc. G.R. No. 209843, March 25, 2015 (
J VELASCO )
Copyright
©2016 Dean Nilo T. Divina, All Rights Reserved
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What do you understand by the must carry rule ?
The improved broadcast signals that CATV offers may infringe or encroach upon the
audience or viewer market of the free-signal TV.  This is so because the latter’s signal
may not reach the remote areas or reach them with poor signal quality.  To foreclose
this possibility and protect the free-TV market (audience market), the must-carry rule
was adopted to level the playing field. With the must-carry rule in place, the CATV
networks are required to carry and show in full the free-local TV’s programs, including
advertisements, without alteration or deletion.  This, in turn, benefits the public who
would have a wide-range of choices of programs or broadcast to watch.  This also
benefits the free-TV signal as their broadcasts are carried under the CATV’s much-
improved broadcast signals thus expanding their viewer’s share.
In view of the discussion above, the Court finds that the quoted sections of MC 4-08-
88, i.e., 6.2, 6.2.1, 6.4(a)(1) and 6.4(b) which embody the “must-carry rule,” are the
governing rules in the present case.  These provisions sufficiently and fairly implement
the intent of Section 2 of EO No. 205 to protect the broadcast television market vis-à-
vis the CATV system.  For emphasis, under these rules, the phrase “television and
broadcast markets” means viewers or audience market and not commercial
advertisement market as claimed by the petitioner.  Therefore, the respondent’s act of
showing advertisements does not constitute an infringement of the “television and
broadcast markets” under Section 2 of EO No. 205. GMA Network, Inc. vs. Central
CATV, Inc. G.R. No. 176694, July 18, 2014
TRANSPORTATION
Are the following common carrier ?
Freight forwarder ? informal school bus operator ? Uber ? Time charterer ?
 
 Persons engaged in the business of transporting students from their respective
residences to their school and back are considered common carrier. Despite catering to
a limited clientele, they 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. Spouses Perena vs
Spouses Nicolas, GR No. 157917, August 29, 2012
A charter party has two types. First, it could be a contract of affreightment whereby the
use of shipping space on vessels is leased in part or as a whole, to carry goods for
others. The charter-party provides for the hire of vessel only, either for a determinate
period of time (time charter) or for a single or consecutive voyage (voyage charter). The
shipowner supplies the ship’s stores, pay for the wages of the master and the crew, and
defray the expenses for the maintenance of the ship. The voyage remains under the
responsibility of the carrier and it is answerable for the loss of goods received for
transportation. The charterer is free from liability to third persons in respect of the ship.
Second, charter by demise or bareboat charter under which the whole vessel is let to
the charterer with a transfer to him of its entire command and possession and
consequent control over its navigation, including the master and the crew, who are his
servants. The charterer mans the vessel with his own people and becomes, in effect,
the owner for the voyage or service stipulated and hence liable for damages or loss
sustained by the goods transported.
“[C]ommon carriers, as a general rule, are presumed to have been at fault or negligent if
the goods they transported deteriorated or got lost or destroyed. That is, unless they
prove that they exercised extraordinary diligence in transporting the goods. In order to
avoid responsibility for any loss or damage, therefore, they have the burden of proving
that they observed such diligence.
Here, HEUNG-A failed to rebut this prima facie presumption when it failed to give
adequate explanation as to how the shipment inside the container van was handled,
stored and preserved to forestall or prevent any damage or loss while the same was in
its possession, custody and control.
PROTOP is solidarily liable with HEUNG-A for the lost/damaged shipment in view of the
bill of lading the former issued to NOVARTIS. PROTOP breached its contract with
NOVARTIS, the consignee, when it failed to deliver the goods in the same quantity,
quality and description as stated in Bill of Lading. Philam Insurance Company, Inc.
(Now Chartis Philippines Insurance, Inc.) vs. Heung-A Shipping Corporation and
Wallem Philippines Shipping, Inc. G.R. No. 187701 &G.R. No. 187812, July 23,
2014
Recent cases on liability of common carrier
The liability of a common carrier does not cease by mere transfer of custody of the
cargo to the arrastre operator. Like the duty of seaworthiness, the duty of care of the
cargo is non-delegable and the carrier is accordingly responsible for the acts of the
master, the crew, the stevedore and his other agents. The fact that a consignee is
required to furnish persons to assist in unloading a shipment may not relieve the carrier
of its duty as to such unloading. It is settled in maritime law jurisprudence that cargoes
while being unloaded generally remain under the custody of the carrier. Since the
damage to the cargo was incurred during the discharge of the shipment and while under
the supervision of the carrier, the latter is liable for the damage caused to the cargo.
The arrastre operator is likewise liable. The functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the establishment of the
©2016 Dean Nilo T. Divina, All Rights Reserved
5
consignee or shipper and the ship’s tackle. Being the custodian of the goods discharged
from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn
them over to the party entitled to their possession. While it is true that an arrastre
operator and a carrier may not be held solidarily liable at all times, the facts of these
cases show that apart from the stevedores of the arrastre operator being directly in
charge of the physical unloading of the cargo, its foreman picked the cable sling that
was used to hoist the packages for transfer to the dock. Moreover, the fact that the
packages were unloaded with the same sling unharmed is telling of the inadequate care
with which the stevedore handled and discharged the cargo. Westwind Shipping
Corporation vs. UCPB General Insurance Co., GR no. 2002289, November 25,
2013
There is no dispute that the custody of the goods was never turned over to the
consignee or his agents but was lost into the hands of unauthorized persons who
secured possession thereof on the strength of falsified documents. When the goods
shipped are either lost or arrived in damaged condition, a presumption arises against
the carrier of its failure to observe that diligence, and there need not be an express
finding of negligence to hold it liable. To overcome the presumption of negligence, the
common carrier must establish by adequate proof that it exercised extraordinary
diligence over the goods. In the present case, Nedlloyd failed to prove that they did
exercise the degree of diligence required by law over the goods they transported, it
failed to adduce sufficient evidence they exercised extraordinary care to prevent
unauthorized withdrawal of the shipments. Nedlloyd Lijnen B.V. Rotterdam And The
East Asiatic Co., Ltd. vs. Glow Laks Enterprises, Ltd., G.R. No. 156330, November
19, 2014
Mere proof of delivery of the goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happenedhe transporter shall be held
responsible. From the foregoing, the fault is attributable to ESLI. While no longer an
issue, it may be nonetheless state that ATI was correctly absolved of liability for the
damage. Eastern Shipping Lines, Inc. vs. BPI/MS Insurance Corp., & Mitsui
Sumitomo Insurance Co., Ltd. G.R. No. 182864, January 12, 2015
As custodian of the shipment discharged from the vessel, the arrastre operator must
take care of the same and turn it over to the party entitled to its possession. It must
establish that it exercised the required diligence in handling the shipment. Otherwise, it
shall be presumed that the loss or damage to the shipment was due to its fault.
However, if the arrastre operator was able to prove delivery of the shipment to the
consignee in good and complete condition and with locks and seals intact and the
consignee’s representative signed on the gate pass to evidence the receipt of the
shipment in good order, then the arrastre operator can not be held liable for the alleged
loss or damage. Marina Port Services, Inc. vs American Home Assurance
Corporation, GR No. 201822, August 12, 2015
Since it is the duty of the arrastre operator to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such responsibility also
develops upon the carrier. Both the arrastre operator and the customs broker ( as a
common carrier ) are therefore charged with and obligated to deliver the goods in good
condition to the consignee. In case of loss or damage to the goods, they are both
presumed to be at fault. ( Asian Terminals vs Allied Guarantee Insurance, Co.,
INc. GR No. 182208, October 14, 2015 )
A bus company cannot be held liable for damages, because a passenger surreptitiously
carried a gun in his baggage and suddenly used it to shoot a passenger, because
common carriers should be given leeway to assume passengers are not bringing
anything dangerous unless something indicates a stringent inspection should be made.
(G.V. Florida Transport, Inc. vs. Heirs of Romoe Battung, Jr., G.R. No. 208802,
October 14, 2015.)
A common carrier is converted into a private carrier notwithstanding the existence of the
time charter party agreement with the shipowner since the said agreement was not
limited to the ship but also extends to the control of its crew. Despite the denomination
as Time Charter by the parties, their agreement undoubtedly reflected that their
intention was to enter into a Bareboat Charter Agreement. (Federal Phoenix
Assurance Co. vs Fortune Sea Carrier, Inc., GR No. 188118, November 23, 2015
An air carrier is not liable as a result of the cancellation of a connecting flight due to
typhoon and more so if the common carrier demonstrated good faith when it exerted its
best efforts to accommodate the delayed flight passengers on another flight after the
typhoon subsided but that flight also failed to leave because of the airport set curfew.
Marito Bernales vs Northwest Airlines, GR. No. 182395, October 5, 2015
NEGOTIABLE INSTRUMENTS LAW
Are the following instruments negotiable ?
Certificate of deposit ? Passbook ? SWIFT electronic messages ?
The electronic messages are not signed by the investor-clients as supposed drawers of
a bill of exchange; they do not contain an unconditional order to pay a sum certain in
money as the payment is supposed to come from a specific fund or account of the
investor-clients; and, they are not payable to order or bearer but to a specifically
©2016 Dean Nilo T. Divina, All Rights Reserved
6
designated third party. Thus, the electronic messages are not bills of exchange.  As
there was no bill of exchange or order for the payment drawn abroad and made payable
here in the Philippines, there could have been no acceptance or payment that will
trigger the imposition of the DST under Section 181 of the Tax Code. The Hongkong
And Shanghai Banking Corporation Limited-Philippine Branches vs.
Commissioner Of Internal Revenue G.R. Nos. 166018 & 167728, June 04, 2014
A certificate of deposit is defined as a written acknowledgment by a bank or banker of
the receipt of a sum of money on deposit which the bank or banker promises to pay to
the depositor, to the order of the depositor, or to some other person or his order,
whereby the relation of debtor and creditor between the bank and the depositor is
created. In particular, the certificates of deposit contain provisions on the amount of
interest, period of maturity, and manner of termination. Specifically, they stressed that
endorsement and presentation of the certificate of deposit is indispensable to their
termination. In other words, the accounts may only be terminated upon endorsement
and presentation of the certificates of deposit. Without the requisite presentation of the
certificates of deposit, the bank may not terminate them. Bank of the Philippine Islans
vs Tarcila Fernandez, GR. No. 173134, September 2, 2015
Consideration
A check constitutes an evidence of indebtedness and is a veritable proof of an
obligation. Thus, checks completed and delivered to a person by another are sufficient
by themselves to prove the existence of the loan obligation obtained by the latter from
the former. ( Ting Ting Pua vs Spouses Benito, GR No. 198660, October 23, 2013 ) (
J VELASCO )
The bare denial of the maker of a promissory note that he obtained a loan from the
payee and that he agreed to affix her signature on the loan documents in blank or in an
incomplete state only because the branch manager led her to believe that what she was
signing were related to the bank’s high-yielding products, can not prevail over the
presumption that every negotiable instrument has been issued for a valuable
consideration. Philippine National Bank vs. Pasimio, GR No. 205590, September 2,
2015 ( J VELASCO )
Cases on unauthorized payment of negotiable instrument
The fact that a person, other than the named payee of the crossed check, was
presenting it for deposit should have put the bank on guard. It should have verified if the
payee authorized the holder to present the same in its behalf or indorsed it to him. The
bank’s reliance on the holder’s assurance that he had good title to the three checks
constitutes gross negligence even though the holder was related to the majority
stockholder of the payee. While the check was not delivered to the payee, the suit may
still prosper because the payee did not assert a right based on the undelivered check
but on quasi-delict. Equitable Banking Corporation vs Special Steel Products, June
13, 2012
When the drawee bank pays a materially altered check, it violates the terms of the
check, as well as its duty to charge its client’s account only for bona fide disbursements
he had made. If the drawee did not pay according to the original tenor of the instrument,
as directed by the drawer, then it has no right to claim reimbursement from the drawer,
much less, the right to deduct the erroneous payment it made from the drawer’s account
which it was expected to treat with utmost fidelity. The drawee, however, still has
recourse to recover its loss. The collecting banks are ultimately liable for the amount of
the materially altered check. It cannot further pass the liability back to Cesar and Lolita
absent any showing in the negligence on the part of Cesar and Lolita which
substantially contributed to the loss from alteration. Cesar V. Areza And Lolita B.
Areza vs. Express Savings Bank, Inc. And Michael Potenciano, G.R. No. 176697,
September 10, 2014
If a blank check signed by a party to a joint venture and delivered to his co-party with
the instruction that it should not be filled up without his previous approval, was filled up
and delivered by the co-party to an acquaintance of the drawer by misrepresenting that
the drawer needed a loan, the payee cannot hold the drawer liable. The payee is not a
holder in due course because of the lack of privity of the drawer with the loan
agreement. (Patrimonio vs. Gutierrez, , GR No. 187769, June 4, 2014)
When a car dealer had sold the same car twice with the second sale payable on
installments, the finance company to which the promissory note representing the
balance of the purchase price was negotiated will be considered a holder in due course
provided that the PN is negotiable and that the holder acquired the PN under conditions
making him a holder in due course. An invalid PN is not a defense available against
such holder in due course . Consequently, the buyer who issued the PN can not avoid
liablity to the holder.( Violago vs. BA Finance Corporation, GR No. 158262, July 21,
2008, J VELASCO )
Is a manager’s check subject to stop payment order ?
While indeed, it cannot be said that manager’s and cashier’s checks are pre-cleared,
clearing should not be confused with acceptance. Manager’s and cashier’s checks are
still the subject of clearing to ensure that the same have not been materially altered or
otherwise completely counterfeited. However, manager’s and cashier’s checks are pre-
accepted by the mere issuance thereof by the bank, which is both its drawer and
drawee. Thus, while manager’s and cashier’s checks are still subject to clearing, they
cannot be countermanded for being drawn against a closed account, for being drawn
against insufficient funds, or for similar reasons such as a condition not appearing on
©2016 Dean Nilo T. Divina, All Rights Reserved
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the face of the check. Long standing and accepted banking practices do not
countenance the countermanding of manager’s and cashier’s checks on the basis of a
mere allegation of failure of the payee to comply with its obligations towards the
purchaser. On the contrary, the accepted banking practice is that such checks are as
good as cash. Metropolitan Bank And Trust Company vs. Wilfred N. Chiok G.R. No.
172652 November 26, 2014
INSURANCE
 
Are HMOs liable as insurance company ?
HMOs are not insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are
merely incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal purpose,
then the business is not insurance. Philippine Health Care Providers vs.
Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009.
For purposes of determining the liability of a health care provider to its members, a
health care agreement is in the nature of non-life insurance, which is primarily a contract
of indemnity.  Once the member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health care provider must pay
for the same to the extent agreed upon under the contract. Limitations as to liability
must be distinctly specified and clearly reflected in the extent of coverage which the
company voluntary assume, otherwise, any ambiguity arising therein shall be construed
in favor of the member.  Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract - the
insurer.  This is equally applicable to Health Care Agreements.  The phraseology used
in medical or hospital service contracts, such as “ standard charges “, must be liberally
construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary
clauses of doubtful import should be strictly construed against the provider. Thus, if the
member, while on vacation, underwent a procedure in the USA, the standard charges
referred to in the contract should mean standard charges in USA and not the cost had
the procedure been conducted in the Philippines. Fortune Medicare Inc. vs Amorin.
G.R. No. 195872, March 12, 2014.
Elements of incontestability clause
The "Incontestability Clause" under Section 48 of the Insurance Code provides that an
insurer is given two years – from the effectivity of a life insurance contract and while the
insured is alive – to discover or 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.
After the two-year period lapses, or when the insured dies within the period, the insurer
must make good on the policy, even though the policy was obtained by fraud,
concealment, or misrepresentation, as in this case, when the insured did not personally
apply for the policy as she was illiterate and that it was the beneficiary who filled up the
insurance application designating herself as beneficiary. Section 48 regulates both the
actions of the insurers and prospective takers of life insurance. It gives insurers enough
time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their
attempts at insurance fraud would be timely uncovered – thus deterring them from
venturing into such nefarious enterprise. Manila Bankers Life Insurance Corporation
vs Cresencia Aban. G.R. No. 175666, July 29, 2013.
Effect of Alteration in the use and condition of the thing insured
With the transfer of the location of the subject properties, without notice and without the
insurer’s consent, after the renewal of the policy, the insured clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the
Insurance Code provides that a neglect to communicate that which a party knows and
ought to communicate, is called a concealment. Under Section 27 of the Insurance
Code, “a concealment entitles the injured party to rescind a contract of insurance.”
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind
the insurance contract in case of an alteration in the use or condition of the thing
insured. Section 168 of the Insurance Code provides, as follows: An alteration in the
use or condition of a thing insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of fire insurance. Malayan
Insurance Company vs. PAP Co. (PHIL. BRANCH). G.R. No. 200784, August 07,
2013.
When does the right to payment of the insured accrue ?
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.
It is thus clear that petitioner’s causes of action for indemnity respectively accrued from
its receipt of the letters where the insurer 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, its causes of action had already prescribed.
©2016 Dean Nilo T. Divina, All Rights Reserved
8
H.H. Hollero Construction, Inc. vs. Government Service Insurance System and
Pool of Machinery Insurers G.R. No. 152334, September 24, 2014

What are the rights of the insurer as subrogee ?

The rights of a subrogee cannot be superior to the rights possessed by a subrogor.

“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 rights to which the
subrogee succeeds are the same as, but not greater than, those of the person for whom
he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor
did not have. In other words, a subrogee cannot succeed to a right not possessed by
the subrogor. A subrogee in effect steps into the shoes of the insured and can recover
only if the insured likewise could have recovered.”

Consequently, an insurer indemnifies the insured based on the loss or injury the latter
actually suffered from. If there is no loss or injury, then there is no obligation on the part
of the insurer to indemnify the insured. Should the insurer pay the insured and it turns
out that indemnification is not due, or if due, the amount paid is excessive, the insurer
takes the risk of not being able to seek recompense from the alleged wrongdoer. This
is because the supposed subrogor did not possess the right to be indemnified and
therefore, no right to collect is passed on to the subrogee. Loadstar Shipping
Company, Incorporated And Loadstar International Shipping Company,
Incorporated vs. Malayan Insurance Company, Incorporated G.R. No. 185565,
November 26, 2014.

What is the prescriptive period for the insurer to enforce its rights of
subrogation ?

After payment by the insurer to the insured, it is subrogated to the rights of the latter. Its
right of subrogation under Article 2207 of the Civil Code in relation to Article 1144 gives
rise to a cause of action created by law. The prescriptive period for cause of action
based on law ( such as subrogation ) is ten years. Thus, the insurer has 10 years from
the date it indemnified the insured to file the action against the wrongdoer. Vector
Shipping Corporation vs. American Home Assurance Company, G.R. No. 159213,
July 3, 2013.

The security deposit of insurance companies with the Insurance Commission is immune
from levy or execution. Capital Insurance and Surety vs Del Monte Motor Works,
GR No. 159979, December 9, 2015

©2016 Dean Nilo T. Divina, All Rights Reserved

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