Ver. 2005


This Handout is specially prepared and copyrighted for the use of enrollees in the Modular Bar Review in Mercantile Law conducted by PRIMUS INFORMATION CENTER, INC. on August 12 – 13, 2005 at the World Trade Center Institute Phils., 14th Floor, Ramon Magsaysay Center, Roxas Blvd. cor. Dr. Quintos Street, Manila. It is a synthesis of the doctrines that may be asked during the 2005 Bar Examination in Mercantile Law. Also included are the doctrinal rulings enunciated by the Supreme Court in selected decisions up to March 31, 2005. An analysis of previous Bar Questions shows that the doctrines are merely repeated from year to year for 80% to 90% of the Bar Questions asked in Mercantile Law for any given year. The frequently asked doctrines are marked BAR in this Handout. The remaining 10% to 20% are either sourced from doctrines that were asked only once (which are sometimes considered as “crazy”) or from recent jurisprudence. The sentences in bold are the verbatim provisions of commercial laws. The verbatim provisions are sometimes outlined to provide an easy reference. The reviewee should please note that this Handout is rather voluminous. The reviewee should therefore be very selective in using this Handout. He should concentrate only on the doctrines marked BAR and should read the unmarked items only if he has time. It is highly advisable for the reviewee to master the doctrines marked BAR. NOTES AND COMMENTS are the detailed applications in jurisprudence of the doctrines and should merely be browsed. The reviewee should only browse the unmarked doctrines. The suggested answers are sometimes lengthy in order to serve as expository devices. The reviewees should note it may not be advisable to write long answers due to lack of material time on their part to write long answers, and the examiners also do not have time to read long answers. Practice writing short answers.

This Handout is copyrighted and is for the exclusive use of reviewees who have attended the Modular Bar Review in Mercantile Law offered by PRIMUS INFORMATION CENTER, INC., and others PRIMUS or the author has personally authorized. It is prohibited to reproduce any part of this Handout in any form or any means, electronic or mechanical, including photocopying without the written permission of the author. Authorized copies are numbered and manually signed by a representative of PRIMUS. Possessors and users of unauthorized copies, as well as those who shall lend their copies for unauthorized reproduction, shall not only be subject to criminal prosecution and civil damages but also to THE LAW OF KARMA SUCH THAT THEY WILL NOT PASS THE BAR EXAMINATION IN MERCANTILE LAW OR IF THEY DO SO WOULD BE UNHAPPY AND UNSUCCESSFUL IN LIFE.

(1) CODE OF COMMERCE (a) Merchants and Commercial Transactions . Articles 1 to 63.
1. What is meant by the theory of manifestation in the perfection of contracts as adopted in the Code of Commerce ?
SUGGESTED ANSWER: A theory in the perfection of contracts which recognizes that the contract is perfected at the time when the acceptance is made by the offeree.

Prepared by Prof. Abelardo T. Domondon, AB (Econ), BSC (Acctg), LLB, MA (Econ), LLM, DCL (Cand.). Lawyer-CPA-Customs Broker, Management Consultant, Professor of Law and Pre-Bar Reviewer.


2. What is the theory of recognized under the Civil Code ?

cognition in the perfection of contracts

SUGGESTED ANSWER: The contract is perfected at the time the acceptance came to the knowledge of the offeror.

5. What is a joint account ?
SUGGESTED ANSWER: A joint account is a transaction of merchants where other merchants agree to contribute the amount of capital agreed upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.

6. Distinguish joint account from partnership.
SUGGESTED ANSWER: The following are the distinctions: a. A partnership has a firm name WHILE a joint account has none and is conducted in the name of the ostensible partner. b. A partnership has a juridical personality and may sue and be sued under its firm name WHILE a joint account has no juridical personality and can sue and be sued only in the name of the ostensible partner. c. A partnership has a common fund WHILE a joint account has none. d. In a partnership, all general partners have the right of management WHILE in a joint account the ostensible partner manages its business operations. e. Liquidation of a partnership may, by agreement, be entrusted to a partner or partners WHILE in a joint account liquidation thereof can only be done by the ostensible partner.

(b) Letters of Credit under the Code of Commerce (Articles 567 to 572, inclusive)
SUGGESTED ANSWER: A letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee.
(Transfield Philippines, Inc. v. Luzon Hydro Corporation, et al., G. R. No. 146717, November 22, 2004 citing various authorities)

BAR: 1. What is a letter of credit ?

a. UCP rules govern letters of credit. Since letters of credit have gained general acceptability in international trade transactions, the International Chamber of Commerce (ICC) has published from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the l/c area, the latest of the revisions being that in 1993. There being no specific provisions which govern the legal complexities arising from transactions involving letters of credit, not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of UCP is undeniable. (Ibid., Bank of America, NT & SA v. Court of Appeals, et al., G. R. No. 105395, 10 December
1993, 228 SCRA 357)

Thus, the observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code, commercial transactions shall be governed by usages and customs generally observed. (Ibid., citing Bank of Philippine
Islands v, De Reny Fabric Industries, Inc., 146 Phil. 269; 35 SCRA 256 (1970)

of credit ? SUGGESTED ANSWER: The three distinct and independent contracts are: a. The contract of sale between the buyer and the seller; b. The contract of the buyer with the issuing bank, and c. The letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. (Keng Hua Paper Products Co., Inc. v.
Court of Appeals, et al., 286 SCRA 257)

BAR: 2. What are the three distinct and independent contracts in a letter

3. In letters of credit in banking transactions, distinguish the liability of a confirming bank from a notifying bank.
SUGGESTED ANSWER: A confirming bank adds its credit to the letter of credit and therefore is liable if the opening importer fails to pay the exporter while a notifying bank being merely one who gives advice as to the existence does not incur any such liability.

BAR: 4. BV agreed to sell to AC, a Ship and Merchandise Broker, 2,500 cubic meters of logs at $27 per cubic meter FOB. After inspecting the logs, CD issued a purchase order.


On the arrangements made upon instruction of the consignee, H & T Corporation of Los Angeles, California, the SP Bank of Los Angeles issued an irrevocable letter of credit available at sight in favor of BV for the total purchase price of the logs, The letter of credit was mailed to FE Bank with the instruction “to forward it to the beneficiary.” The letter of credit provided that the draft to be drawn is on SP Bank and that it be accompanied by, among other things, a certification from AC, stating that the logs have been approved prior to shipment in accordance with the terms and conditions of the purchase order. Before loading on the vessel chartered by AC, the logs were inspected by customs inspectors and representatives of the Bureau of Forestry, who certified to the good condition and exportability of the logs. After the loading was completed, the Chief Mate of the vessel issued a mate’s receipt of the cargo which stated that the logs are in good condition. However, AC refused to issue the required certification in the letter of credit. Because of the absence of the certification, FE Bank refused to advance payment on the letter of credit. 1) May FE Bank be held liable under the letter of credit ? Explain. 2) Under the facts stated above, the seller, BV, argued that FE Bank, by accepting the obligation to notify him that the irrevocable letter of credit has been transmitted to it on his behalf, has confirmed the letter of credit. Consequently, FE Bank is liable under the letter of credit. is the argument tenable ? Explain. SUGGESTED ANSWER: 1) No. Without the certification from AC, which is a condition in the letter of credit, FE has no obligation to advance payment of the letter of credit. (Feati Bank v. Court of Appeals, et al., 196 SCRA 576) 2) No. FE Bank is merely a notifying bank because there is no showing that it has added its credit to the letter of credit.

BAR: 5. On 26 March 1997 Transfield and Luzon Hydro (LHC) entered into a Turnkey Contract whereby Transfield, as Turnkey Contractor, undertook to construct, on a turnkey basis, a 70 Megawatt power station (PROJECT). To ensure Transfield’s compliance with the contracted target completion date it opened, with ANZ Bank, in favor of LHC two standby letters of credit (SECURITIES) on 20 March 2000. As a result of some problems that beset the PROJECT completion arbitration was resorted to. Foreseeing that LHC would call on the SECURITIES Transfield advised ANZ Bank of the arbitration proceedings with the warning that until resolution of the arbitration no payment on the SECURITIES should be made to LHC or its representatives otherwise it would be subject to damages. LHC then demanded from ANZ Bank payment of the SECURITIES by surrendering the required drafts and documents required under the L/C and was in fact paid. Did ANZ act correctly under the premises ? Is it liable for damages to Transfield ? Reason out your answer. SUGGESTED ANSWER: Yes, ANZ acted correctly under the premises. The engagement of ANZ Bank as the issuance bank is to pay LHC, the beneficiary of the credit once the draft and required documents are presented to it. The so-called :independence principle” assures LHC, the beneficiary, of prompt payment independent of any breach in the main contract and precludes ANZ, the issuing bank from determining whether the main contract is actually accomplished or not. Under this principles issuing banks, such as ANZ, assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance, or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever. (Transfield Philippines, Inc. v. Luzon
Hydro Corporation, et al., G. R. No. 146717, November 22, 2004 citing various authorities)

(i) Bulk Sales Law (Act 3952)

BAR: 1. “X” is the sole proprietor of a store engaged in the business of trading auto spare parts, both wholesale and retail. Scared by what he perceived as the political and economic instability besetting country, he decided to

The sale of his business “ lock.4 emigrate to Canada with his entire family. but found out that Excel Corporation had no more assets left. or materials otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor are not deemed to be a sale or transfer in bulk ? SUGGESTED ANSWER: a. In the affirmative. wares. Inc. 1) & 2) are registered with the Bureau of Domestic Trade. assignment of stock of goods. Yes. 2) Sale of all or substantially all of the business. transfer or disposition is in the ordinary course of business. stock and barrel” to his compadre is considered as a sales in bulk under the Bulk Sales Act because it is a: 1) Sale. NOTES AND COMMENTS: a. c. He liquidated all his assets including his auto spare parts business “lock. the sale is valid. and 3) Nos. which could lead to its closure. When the sale.500. on the theory that Microsoft. transfer. should prepare an inventory of the stocks to be sold and informs all the creditors ten (10) days before the sale or the projected sale in bulk. what must be done by the parties so as to comply with the law ? c.. SUGGESTED ANSWER: The suit will not prosper. The sale is null and void. The recourse of the creditors is to question the validity of the sale from “X” to his compadre. the nature and amount of credits due them. or disposition is other than in the ordinary course of business. if “X” failed to comply with the procedure steps required by law under question letter (b) hereof ? SUGGESTED ANSWER: a. mortgage or BAR: . If X’s compadre does not have knowledge of the falsity of the schedule. When there is a waiver of the provisions of the Bulk Sales Law of all the creditors. Purpose of Bulk Sales Law. one of the creditors of Excel Corporation tried to collect the amount due it. BAR: 3. The creditor then sued Microsoft. When the sale. What are the instances when the sale. transfer or disposition is by virtue of a judicial order. 4.. The purchaser holds the property he bought in trust for the seller. What are the effects of failure to observe the requirements under the Bulk Sales Act ? SUGGESTED ANSWER: a. the sale is void because he is in bad faith. Inc. so as to recover what were sold to his compadre. and d. Inc. Since the sale is covered by the Bulk Sales Law. a. Is he covered by the provisions of the Bulk Sales Law ? b.00 which he planned to reinvest in Canada. Subsequently. provision. Suppose “X” submitted a false statement on the schedule of his creditors. is a mere alter ego of Excel Corporation. To prevent secret or fraudulent sale of the business. to the detriment of the creditors. However. and 3) Sale of all or substantially all of the fixtures and equipments. b. BAR: 2. 2) “X”. c. if the vendee has knowledge of such falsity. “X” is covered by the Bulk Sales Law.000. Excel Corporation sold its assets to Microsft. after complying with the requirements of the Bulk Sales Law. What is the right of his creditors. d. b. merchandise. Will the suit prosper ? Explain. “X” must comply with the following requirements in order to make the sale valid: 1) X’s affidavit listing all the names of all his creditors. c. stock and barrel” to his compadre for US$1. b. The purchaser has the right to demand from the seller the return of the purchase price plus damages.. transfer. What is the effect of such false statement to his compadre ? d. as the seller. The purchaser is liable to the seller’s creditors for properties he bought and already disposed of by him.

Warehouse Company issued a receipt expressly providing that the goods be delivered to the order of said Patrick. BAR: b. is owned 100% by Justin. which were substantially in the form and contains the terms prescribed for negotiable warehouse receipts by Section 2 of Act No. (ii) The Warehouse Receipts Law (Act 2137 in relation to the General Bonded Warehouse Act. engaged in the wholesale of paper products.. 5. defined. 31. A receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt. Regina to pay Joy Bank the Bank now demanded from XYZ Warehouse. Is this a sale in bulk subject to the Bulk Sales Act ? Explain briefly.000.5 The sale by Excel Corporation of its assets to Microsoft. Inc. The Warehouse Receipts Law. the warehouseman loses his lien upon goods by surrendering possession thereof. A warehouseman need not deliver until the lien is satisfied (Sec. Non-negotiable warehouse receipt. Regina who used these quedans as security for loans obtained from Joy Banking Corporation in the amount of P35 million. Inc. 4. A warehouse receipt is a written acknowledgment by the warehouseman that he has received goods from the depositor and holds the same in trust for him. nor an agreement on the part of Microsoft. it now refuses to release the sugar until Joy Bank pays storage fees. A receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person.) A non-negotiable receipt shall have plainly placed upon its face by the issuing warehouseman. defined.) c. “non-negotiable” or “not negotiable.. may. to assume Excel Corporation’s liabilities. Negotiable warehouse receipt. Acting upon a writ of execution the sheriff proceeded to levy on the cement and directed Warehouse Company to deliver to him the deposited cement. BAR: 2. A warehouseman shall have a lien on goods deposited for all lawful charges for storage and preservation of the goods (Sec. the release to it of the sugar covered by the five (5) quedans. at his option treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. v.00. Inc.000 bags of cement. (Philippine National Bank. XYZ refused claiming ownership because the check payment made by Mia Therese of the sugar covered by the five (5) quedans bounced.. Is XYZ justified in refusing to release the sugar until the storage fees are paid ? SUGGESTED ANSWER: Yes. The business still continues and the creditors may proceed against the same corporation which owed them. 7. No. one of Patrick’s creditors obtained judgment against Patrick for P50. SUGGESTED ANSWER: No. The quedans were endorsed by Ma. He decided to sell all of his shares of stock to James and Jerome. In this case. Jr. Furthermore.. a holder who purchased it for value supposing it to be negotiable. The transaction is a sale of the shares of stock and not of the business which would result to detriment of the creditors. Paolo. defined. Warehouse receipt. (Sec. A month after. The Warehouse Receipts Law) 10. 2137. 1996) NOTES AND COMMENTS: a. et al. The Warehouse Receipts Law. (Sec.” Upon failure to do so. Upon failure of Ma. Regina to Joy Bank. April 18.. 27.R. There was merely a change in ownership of the business. G. The shares of stock of Aldrin. After XYZ’s claim of ownership was dismissed. Warehouse Receipts Law). nor in the assumption of such liabilities by Microsoft. XYZ Warehouse. Warehouse Receipts Law) and in accordance with Sec. Inc. Judge Se. Patrick deposited with Warehouse Company for safekeeping . 5. 29 of the Warehouse Receipts Law. Act 3893) 1. did not result in the transfer of its liabilities to Microsoft. XYZ’s claim for storage fees was incompatible with its claim of ownership hence it could not have waived its right to storage fees. there is nothing is the problem which shows that there was a merger of consolidation. Inc. The five (5) quedans were subsequently negotiated and endorsed by Mia Therese to Ma. 119231. Inc. Inc. issued five (5) warehouse receipts (quedans) for sugar to Mia Therese Merchandising. (Sec.

Who should bear the loss – the pledgor or the bank ? Why ? SUGGESTED ANSWER: The pledgor should bear the loss. Albert negotiated the receipt to Baldo who purchased the said receipt for value and in good faith. 10. or which has been indorsed to him or in blank by the person to whom delivery was promised by the terms of the receipt or by his mediate or immediate indorser. BAR: a. the person who deposited the goods and upon presentation of the warehouse receipt. he is likewise liable. The Warehouse Receipts Law. if such signature is requested by the warehouseman.. b. BAR: b. To guarantee the payment of a loan obtained from a bank. the tobacco disappeared from the warehouse. BAR: c. WRL) The above may be used by the warehouseman to defend himself WHY HE DELIVERED. not to make such delivery. In case the warehouseman refuses or fails to deliver the goods in compliance with a demand by the holder or depositor so accompanied. if negotiable. the burden shall be upon the warehouseman to establish the existence of a lawful excuse for such refusal. with such indorsements as would be necessary for the negotiation of the receipt. I would advice the Warehouse Company not to deliver the goods to the sheriff.6 a. the creditor ? Explain your answers briefly. 2137. Thereafter. Warehouse liable for conversion if he delivers without a valid indorsement the goods covered by a negotiable warehouse receipt deliverable to the depositor or his order. 2) An offer to surrender the receipt. These are the defenses a warehouseman could use to justify his REFUSAL to deliver. does not result to an assumption of risk of loss by the creditor. the buyer of the receipt. or who has written authority from the person so entitled either indorsed upon the receipt or written upon another paper. such as a pledge. 8. if such demand is accompanied with: 1) An offer to satisfy warehouseman’s lien. Justification of warehouseman in making delivery. (Sec. WRL) BAR: 3. Patrick sold the receipt to Roberto on the basis of which. Roberto filed a claim with the sheriff. or 2) Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods. A warehouseman. otherwise it may be held liable for conversion. because Roberto would be a person who has stepped into the shoes of Patrick who made the deposit. if prior to delivery he had either: 1) been requested. Would Roberto. the ownership of the goods remains with the depositor or his transferee. Instances where liable for conversion even with indorsement or authority: The warehouseman is also liable even with indorsement or with authority . Albert purchased from Sammy 150 cavans of palay on credit. Where a warehouse receipt is pledged. William issued to Albert a negotiable warehouse receipt in the name of Albert. . What advice will you give Warehouse Company ? Explain your answer briefly. by or on behalf of the person lawfully entitled to a right of property or possession in the goods. Before Raoul could pay for the loan. 9. Yes. then the warehouse could legally refuse to make delivery. (Sec. when the goods are delivered. an acknowledgment that they have been delivered. Raoul pledged 500 bales of tobacco deposited in a warehouse to said bank and endorsed in blank the warehouse receipt. Any contract or real security. (Sec. It should deliver only to Patrick. and 3) A readiness and willingness to sign. or 3) A person in possession of a negotiable receipt by the terms of which the goods are deliverable to him or order. SUGGESTED ANSWERS: a. is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor. in the absence of some lawful excuse provided by Act No. Albert deposited the palay in William’s warehouse. 2) A person who is either himself entitled to delivery by the terms of the nonnegotiable receipt issued for the goods. b. or his agent. have better rights to the cement than Paolo. NOTES AND COMMENTS: BAR: 4. Instances where warehousemen bound or obligated to deliver. BAR: d. or to the bearer. WRL) If the above are not present. A warehouseman is justified in delivering the goods to one who is: 1) The person lawfully entitled to the possession of the goods. Assuming that a week prior to the levy.

R. as amended). 110844. a licensed warehouseman under the General Bonded Warehouse Law (Act 3893. et al. Baldo’s right is superior to that of Sammy who is not in a possession to present any negotiable receipt to enable the warehouseman to effect delivery. R. (iii) Presidential Decree 115 on Trust Receipts 1. Do you agree with Warren’s contention ? Explain.. having no prior title to the goods on which the loan is to be given and not having possession which remains in the borrower. the purchaser of the receipt. No. March 4.R. He now assails the constitutionality of P. demand delivery of the palay. Herminio opened a letter of credit with the Bank of Philippine Islands for the importation of certain equipment. 1994) Alternative definition: A trust receipt is a document in which is expressed a security transaction whereunder the lender. All the essential terms required under Section 2 of the Warehouse Receipts Law (Act 2137. 115. A trust receipt partakes of the nature of a security transaction. 115. BAR: 5. the purchaser of the receipt for value and in good faith ? Why ? 2) When can the warehouseman be obliged to deliver the palay to Albert ? SUGGESTED ANSWER: 1) Baldo. G. April 27. the unpaid vendor. G. the Trust Receipts Law on the ground that it constitutions imprisonment for non-payment of a debt. 2000) c. is a declaration by the legislative authority to make the act punishable under its authority to prescribe certain acts as pernicious and inimical to public welfare under the exercise of police power. It could never be a mere additional or side document. by reason of Albert’s negotiation. He claims that he is not liable because of the free-from-liability clause stipulated in the receipt. 2000) b. 1999) NOTES AND COMMENTS: a. Nature of a trust receipt. lends his money to the borrower on security of the goods which the borrower is privileged to sell clear of the lien with an agreement to pay all or part of the proceeds of the sale to the lender. 108638. 122539. Otherwise. he could upon surrender of the receipt. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. who demanded delivery of the goods. 110844. Warren issued the corresponding warehouse receipt in the form he ordinarily uses for such purpose in the course of his business. It is a security agreement pursuant to which a bank acquires a “security interest” in the goods. et al. Acts and omissions penalized.D. April 29. (Ching v. undermining the importance and defeating with impunity the purpose of such an indispensable tool in commercial transactions. 2003) d.. March 11. April 27. Trust receipt. G. of the merchandise imported or purchased. et al. No. 119858. Since Albert is again the holder. if Baldo indorses the receipt back to him. A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise who may not be able to acquire credit except through utilization.R. No.R. Court of Appeals. Court of Appeals. Samantha stored hardware materials in a bonded warehouse of Warren. Purpose of Trust Receipts Law. SUGGESTED ANSWER: No. No. (Tiomico v. The goods are held as security by the lending institution for the loan obligation. He failed to pay and also failed to deliver the equipment despite demand. The law requires the warehouseman to exercise due diligence in the care and custody of the things deposited in his warehouse.. as collateral. G. Warren could not deliver because the goods were nowhere to be found in his warehouse. As the person in possession of a negotiable receipt. No. Court of Appeals. No. the receipt issued to Samantha contains a stipulation that Warren would not responsible for the loss of all or any portion of the hardware materials covered by the receipt even if such loss is caused by the negligence of Warren or his representatives or employees. et al. a party to a trust receipt agreement could easily renege on its obligation thereunder. (Nacu vs. P. Rule on his contention..7 1) Who has a better right to the deposit. as amended) are embodied in the form. It punishes dishonesty and abuse of confidence in the handling of money or goods to the prejudice of public order. 2) The warehouseman can be obliged to deliver the palay to Albert. et al. G. defined.D. Court of Appeals. The “free-from-liability” clause is void. In addition. The Trust Receipts Law is violated whenever the entruster fails to: . Sammy.. (Ong v. Court of Appeals. or Baldo. (Ching v. SUGGESTED ANSWER: Contention is bereft of merit. Samantha endorsed and negotiated the warehouse receipt to Britney.

" Not negotiable because it is conditional being payable out of a particular fund and no other. Negotiability is not affected.L. if promise or order depends upon: a) A future event which may or may not happen b) A past event unknown to the parties 2) Conditional and not negotiable if promise or order to pay out of a particular fund. 119858. et al. (Traders Royal Bank v. The bar candidate should master the analytical steps: a. 3) No date. 1) If no signature.R. 119858. IBAA. 115997. Example: "Pay B or order P10. (Sec. 159 SCRA 140) The mere failure to account or return gives rise to the crime which is malum prohibitum. No. Look for the DATE: 1) If dated. April 29. G. The date is prima facie the true date of the instrument. No.) NOTES AND COMMENTS: a. (2) Negotiable Instruments Law (Act No. negotiable 1) Conditional and not negotiable. 2) If ante-dated or post-dated. he must be named or otherwise indicated therein with reasonable certainty.8 1) turn over the proceeds of the sale. (Security Bank & Trust Company v. It must contain an unconditional promise or order to pay a sum certain in money. Characteristic of negotiable paper. et al.I. Negotiability not affected UNLESS ante-dated or post-dated for fraudulent purpose. c. R. Trusts receipts and domestic letters of credit are contracts of adhesion and any ambiguities must be held strictly against the bank. not negotiable.. Return of the goods if unsold merely extinguishes the entrustee’s criminal liability. NOTE: This area is one of the most popular areas under Negotiable Instruments Law. 2031) SUGGESTED ANSWER: An instrument to be negotiable must conform to the following requirements: a. 2000) g.. 4) If no date. Look for SIGNATURE of maker (PN) or drawer (BE). Look for UNCONDITIONAL PROMISE (PN) or UNCONDITIONAL ORDER (BE). N. G. What are the requisites of a negotiable instrument ? ANALYTICAL STEPS FOR SOLVING PROBLEMS INVOLVING NEGOTIABILITY OF INSTRUMENTS. or 2) return the goods covered by the trust receipt if the goods are not sold . 2003) f. He is still civilly liable for the unpaid loan. There is no requirement to prove intent to defraud. 1. b. No. true date may be inserted. 3) Unconditional and negotiable even if indicates a particular BAR: . The language of negotiability which characterizes negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. G. Court of Appeals. Court of Appeals. Persons criminally liable for violation in case of corporations. et al. negotiable. a) If instrument payable at fixed period after date (1) Wrong date is inserted (a) No effect on instrument. Where the instrument is addressed to a drawee. d. If present.. Court of Appeals. November 27. if if holder in due course (b) Instrument invalid. 269 SCRA 15) BAR: 1. Negotiable character not affected. (Vintola v. (Ong v. c. April 29.00 out of my money in your hands.000. It must be in writing and signed by the maker or drawer. are the officers or employers or other persons responsible for the offense are liable to suffer the penalty of imprisonment. Violation of Trust Receipts Law is criminal in character. It must be payable to order to bearer. 2) If signed. if not holder in due course b. Court of Appeals. 2003) e. (Ong v. R.

Happening of the event does not cure the defect. Inc. September 21. The company subsequently indorsed the note to California Finance Corporation which financed the purchase.000. Example: "I promise to pay B or order P1. 000. or on or before a fixed period after occurrence of a certain event though happening be uncertain.000. or when the instrument is overdue.00 and executed a promissory note for the balance. The promissory note reads: “For value received.9 fund out of which reimbursement is to be made or particular account to be debited. 4) Payable at a determinable future time and negotiable if payable at a fixed period after date or sight. BAR: 2. 2005.00 in payment of the house I bought from him on March 17. f. 5) Unconditional and negotiable even if statement of the transaction is given.00 in carabaos. If not." 3) If at the option of the drawer. not negotiable because it is conditional." d. or order at its office in Makati City. negotiable. g.00 subject to the terms and conditions of the March 17.000. Example: "Pay to B or order P100. Example: "Pay B or order P10." 6) Conditional and not negotiable because qualified. 2) Not negotiable.000. I promise to pay Autocars. 4) Unconditional and negotiable if dependent upon a future event which is certain to happen even if time of happening is not known. Miky brought a motor car payable in installments from Autocars.) Miky . if not in money. Example: "To C: Pay to B or order P50. not negotiable.00 monthly for ten (10) months starting October 21. e. Is the instrument payable TO ORDER or BEARER ? If so. for P550. Is the instrument payable ON DEMAND or AT A FIXED OR DETERMINABLE FUTURE TIME ? If so. 1) If not.000. 2005.00 or 50 cavans of rice at the option of the holder. at sight or presentation. 2005. Manila. He made a down payment of P50.00. if payable on contingency.00.00 and reimburse yourself out of my money in your hands.000. (Sgd. Example: "I promise to pay B or order the equivalent of P50." Negotiable: 3) Payable on demand and negotiable when expressed to be payable on demand. then negotiable.000. on or before a fixed or determinable future time specified therein. 2005 Deed of Sale for the sale of his house. the sum of P500. two (2) days after he passes the Bar. Example: "I promise to pay B or order P1." 2) Negotiable even if holder has election require something to be done in lieu of money.000. not negotiable." Negotiable because there is no condition as to source of funds only with respect to reimbursement which occurs after the instrument is paid.00 with interest at twelve percent (12%) per annum. Is the sum CERTAIN IN MONEY ? If so. is he named or otherwise indicated on the instrument with reasonable certainty ? If so negotiable.000. no time for payment is expressed on the instrument. not negotiable. payable in equal installments of P50. Inc. If not. negotiable 1) Not negotiable.000. If the instrument is addressed to a drawee.000.

It contains an unconditional promise to pay Sergio Dee or order. 2005 and the other installments on or before the fifth day of the succeeding month thereafter. June 3.) Manager Because Miky defaulted in the payment of his installments. Autocars. at a fixed and determinable future time within five (5) months from October 5.500. 2005 P10. Can a bill of exchange or a promissory note qualify as a negotiable instrument if: .00 in five (5) installments. b) California Finance Corporation is a holder in due course because it took the instrument complete and regular upon its face. (Sgd. a non-negotiable instrument open to all defenses available to the assignor and. (Sgd.00.’s title.) NOEL CASTRO SUGGESTED ANSWER: It is negotiable because it is in writing signed by the maker.00 For value received. it is payable on demand as no date of maturity is shown. Noel Castro. The sum is a sum certain although it is payable in installments with interest. Inc. a sum certain in money (although to be paid in installments). a) Is the promissory note a mere assignment of credit or a negotiable instrument ? Why ? b) Is the California Finance Corporation a holder in due course ? Explain briefly. Miky argued that the promissory note is merely an assignment of credit. California Finance Corporation initiated a case against her for sum of money. Manila. I promise to pay Sergio Dee or order the sum of P10. By: (Sgd. therefore. that it took the instrument in good faith and for value. September 1. it contains an unconditional promise to pay a sum certain in money at a fixed or determinable future time. Inc. BAR: 4. It is in writing and signed by the maker Lito Villa. with the first installment payable on October 5. 2005 P2.500. notes: BAR: 3. and it is payable to order. California Finance Corporation is not a holder in due course. SUGGESTED ANSWER: a) The promissory note is a negotiable instrument because it conforms to the requirements of a negotiable instrument.00 which is a sum certain in money.00 I promise to pay Pedro San Juan or order the sum of P2. that it is not overdue and without notice that it had been previously dishonored. it contains an unconditional promise to pay a sum P2. 2003.500.) LITO VILLA SUGGESTED ANSWER: The promissory note is negotiable. It is in writing signed by the maker Miky. Discuss the negotiability or non-negotiability of the following Manila.000. and that it had no notice of any infirmity in the instrument or defect in Autocars.10 Pay to the order of California Finance Corp.000.

You were asked to referee.000. The payee acknowledged having received the note on August 1. Which of the opposing views is correct ? Explain. The promissory note is not a negotiable instrument because it is not payable to order or bearer. SUGGESTED ANSWER: Chimpanzee is correct. that GLORIA is not a holder in due course under Article 52 of the Negotiable Instruments Law (Act 2031) and therefore does not enjoy the rights and protection under the statute. insisting on the note’s negotiability. but not the year of its maturity. It was signed by MIKE and written under his letterhead specifying the address. The instrument is not payable at a fixed or determinable future time. BAR: SUMMARY OF VARIOUS SITUATIONS INVOLVING INSTRUMENTS. The instrument is payable to bearer because the name of the payee does not purport to be the name of any person. GLORIA accepted the promissory note as payment for services She rendered to DATO. “PAY TO LULI OR ORDER 400 PESOS. the latter said it was not a negotiable instrument under the law and could not be a valid substitute for cash. who happens to be your friend. Complete instrument 1) Delivered a) With forgery and alteration b) Without forgery and alteration 2) Not delivered a) With forgery and alteration NEGOTIABLE . Incomplete instrument 1) Delivered a) With forgery and alteration b) Without forgery and alteration 2) Not delivered a) With forgery and alteration b) Without forgery and alteration a. (d) No. BAR: 5. or (d) it names two alternative drawees ? SUGGESTED ANSWER: (a) Yes. GLORIA is an indorsee of a promissory note that simply states. no place of payment and no consideration mentioned. Gorilla thought of converting the note into cash by endorsing it to his brother Chimpanzee. When Gorilla presented Panther’s note to Chimpanzee. Gorilla preferred cash BAR: 6. GLORIA asks for your advice specifically in connection with the note being undated and not mentioning a place of payment and any consideration. The promissory note is a piece of paper with the following hand-printed notation: “PANTHER WILL PAY GORILLA ONE HUNDRED THOUSAND PESOS IN PAYMENT FOR HIS CAR 1 WEEK FROM TODAY. the true date may be inserted. The lack of a date does not impair the negotiability of a instrument.00. the place of payment and consideration does not affect the negotiability of the instrument. the true date may be inserted. The absence of consideration results to the presumption that there is consideration. but Panther is a friend so Gorilla accepted Panther’s promissory note for P100. If there is no date.” Below this notation is Panther’s signature with “8/1/05” next to it. The negotiable character of an instrument is not affected by the lack of date. Another area that the reader should master: SUMMARY OF SITUATIONS a.” The note has no date. indicating the date of the promissory note. who in turn received the note from LULI LIM as payment for a prepaid cellphone card worth 450 pesos. Panther bought a used car from Gorilla. What would your advice be ? SUGGESTED ANSWER: The absence of a date. (c) Yes. The order is conditional if addressed to two or more drawees in the alternative or in succession. which happens to be his residence. Gorilla took the opposite view. 2005.11 (a) it is not dated. A Bar reviewee had told GLORIA. is given. or (b) the day and the month. or (c) it is not payable to “cash”. If there is no date. (b) No.

Meg issued a negotiable promissory note to Leon authorizing Leon to fill up the amount in blank up to P10. c. Ana learns of the dishonesty foisted upon her by Beth. Ana was able to instruct the Bank in time to dishonor the check. BAR: INCOMPLETE INSTRUMENT NOT DELIVERED. There is likewise conclusive presumption of delivery. This is so because Carlos is a holder in due course who does not have any knowledge of the extent of authority given to Beth. a. Supposing further.000. This is a case of an incomplete instrument but delivered as it was entrusted to Beth. BAR: 8. BAR: 7. SUGGESTED ANSWER: Yes. Supposing in the above problem. She knew of the instrument's infirmity when the instrument was negotiated to her. endorses and delivers the check to Carlos who accepts it in good faith as payment for goods sold to Beth. PROBLEMS: INCOMPLETE BUT DELIVERED BAR: ILLUSTRATIVE INSTRUMENTS. 2) Party prior to completion bound if filled up a) In accordance with authority b) Within reasonable time b. Irrespective of compliance with no.00. filled it up to P25.000. fills in the amount of P50. it is dishonored.00 from Meg ? SUGGESTED ANSWER: No. as between Ana and Carlos. Completed and delivered with authority. to safekeep the checks and fill them out when and as required to pay her accounts as they fall due. 2) above prior parties still bound but only to holder in due course. because Mara is a holder in due course.000. that the check is for the payments of Ana’s account only. Meg could interpose the personal defense of want of authority.000. that Mara did not know of the lack of authority.000. in the above problem. Moreover under the doctrine of comparative negligence. Ana a very busy businessperson does not have time to sign checks one by one. Reason: Indorser warrants the instrument is in all respect what it purports to be. whether payable to bearer or order.000. it was the negligence of Ana in entrusting the check to Beth which is the proximate cause of the loss.00. a. because Mara is not a holder in due course. she signs several checks in blank and instructs Beth. Leon however. valid.12 b) Without forgery and alteration BAR: INCOMPLETE INSTRUMENT BUT DELIVERED. When Carlos encashes the check.000. Completed and delivered without authority 1) Valid against party whose signature was placed after delivery like indorser. b. The rules apply whether the instrument is a promissory note or bill of exchange.00.000. . because the instrument was not strictly filled up in accordance with the authority given. She may thus enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. she not being aware of any infirmity in the instrument at the time she took it. Leon negotiated the instrument to Mara who knows that Meg's instructions was for Leon to fill it up to P10. Ana’s personal assistant. prima facie authority to fill it up for any amount. both innocent parties. Can Carlos hold Ana liable for the P50. assuming that the Carlos gave notice of dishonor to Ana. Holder has prima facie authority to fill up blanks 1) Signature on blank paper delivered by signatory with intention of making it a negotiable instrument. Beth fills out one of the checks by placing her name as payee. her personal assistant.00 value of the check ? Explain briefly.00 only. Could Mara collect P25. Could Leon collect P25. may Mara collect the P25. So.00 from Meg ? SUGGESTED ANSWER: Yes.00 from Meg ? SUGGESTED ANSWER: No.

Under the circumstances. if Pocholo as well as the drawee bank dishonors the check. Negligence on Pocholo's part which resulted in the loss of the check. 2) BAR: ILLUSTRATIVE INSTRUMENT. there is valid delivery. Paolo to Patrick. if the incomplete check was delivered by Pocholo to Edwin for safekeeping. may Rhia proceed against Jeddah ? SUGGESTED ANSWER: Yes. in case of dishonor by the drawee bank and/or Pocholo and the other indorsers. b. Supposing under the same set of facts. Reason: Delivery is essential to validity. May Rhia proceed against Pocholo in case of dishonor by the drawee bank ? SUGGESTED ANSWER: No. It is not obligated to know the signature of the payee as in this case. because Jeddah as an indorser warrants that the instrument is what it purports to be and if it is dishonored and necessary proceedings for dishonor taken. there is prima facie presumption of delivery which may be rebutted. Rhia. Under the above problem. 9. b. Reasons: a. Patrick to Sally. e. Rules apply whether 1) Promissory note or bill of exchange 2) Payable to bearer or order 3) With or without forgery and material alteration. the one who made possible the loss should be liable. she shall pay the holder. Here Pocholo made possible the loss as he signed the blank check knowing fully well that if stolen. Under the same set of facts. Rochelle left her friend and classmate Lora inside her car. Rochelle could not be considered negligent as she could not have expected that Lora would remove a check from her checkbook. All of the subsequent indorsers as well as the holder were all holders in due course. Pocholo should have immediately advised the bank to stop payment. that the drawee bank upon presentation by Rhia encashed the check and Pocholo now sues the bank. hence no way of identifying.13 Not valid against party whose signature was placed before delivery. is Edwin liable ? SUGGESTED ANSWER: Yes. It's obligation is to deliver on a genuine signature of Pocholo. what defenses may the drawee bank raise against Pocholo ? SUGGESTED ANSWER: a. c. because he was responsible for the theft. However. Jeddah to Rhia. Without forgery and alteration. NOTE: The reader should solve the problem as if there is an incomplete but delivered instrument. Under the same set of facts. Lora stole a blank check which she found in Rochelle's car. if not a holder in due course. c. Rhia is a holder in due course. Pocholo signed a blank check and kept it in his safe. This was BAR: COMPLETE AND DELIVERED INSTRUMENT. a. because there was no valid delivery which is essential to the validity of the instrument. Is the bank liable despite allegations that Rochelle was negligent ? SUGGESTEDANSWER: Yes. it could be negotiated. Good faith on the part of the bank. it is considered as having paid out of its own funds. BAR: 8. b. with respect to a holder in due course. As between two innocent parties. all parties bound. A bank is bound to know the signatures of its clients and if it pays on a forged check. Sally to Jeddah. He had no reason to suspect that a classmate and friend would breach her trust. the filling up and subsequent negotiation of the instrument. forged Rochelle's signature and encashed the same with the Union Bank (the drawee-depository). Furthermore. PROBLEMS: INCOMPLETE NOT DELIVERED stolen by Edwin who filled in the amount and placed a fictitious person as payee signed the name of the payee and indorsed the same to Paolo. d. With forged indorsement and/or alteration 1) Order instruments . therefore there is a prima facie showing of delivery which Pocholo must now rebut with proof of non-delivery. the payee did not encash the check.

SUGGESTED ANSWER: Micky whose indorsement is forged and the parties prior to him including the maker. Fidel then deposits it in Daya Bank (Collecting Bank). Dennis and the payee. give discharge therefore. for the amount paid. IN FORGED BAR: 11. then there are no rights that are transferred. What are the rights of the parties ? SUGGESTED ANSWER: a. Drawer's account (Tina''s) cannot be charged (debited. and if her account is charged. (2) Subsequent parties bound Reason: Bound on warranties of indorsers unless otherwise specified (a) Whether or not holder in due course (b) Only forged signature is inoperative b) Order bill of exchange (1) Drawee cannot charge drawer's account (a) If charged drawer has right to recover (2) Drawer has no right against collecting bank (3) Drawee can recover from collecting bank (4) Collecting bank bears loss (a) Can recover from person it paid (5) Payee can recover from (a) Drawer (b) Collecting bank (c) Payee cannot recover from drawee (6) Drawer not liable to the collecting bank 2) Bearer instruments a) Bearer promissory note (1) Prior parties liable (2) Forged signatory not liable to party not holder in due course b) Bearer bill of exchange (1) Drawee bank liable BAR: ILLUSTRATIVE PROBLEM: RIGHTS OF PARTIES INDORSEMENT OF PROMISSIORY NOTE PAYABLE TO ORDER. c.14 a) Order promissory note (1) Prior parties not bound. d. Dennis makes a promissory note payable to the order of Kay. Tina issued a check to Nellie or order as the payee with Eastern Bank as the drawee. State the rights and liabilities of the parties. Tina can recover from Eastern Bank. Freddie obtains possession of the note and forging the signature of Micky endorses it to Angelo who then indorses it to Bea. then prior parties bound. Since the predecessor of the holder obtained the note by fraudulent and unlawful means. whether or not she is a holder in due course. BAR: ILLUSTRATIVE PROBLEM: RIGHTS OF PARTIES INDORSEMENT OF BILL OF EXCHANGE PAYABLE TO ORDER. deducted. Kay cannot be held liable to the holder Bea. Reason: Forged signature wholly inoperative unless estoppel sets in. Western Bank indorses the check to Eastern Bank through the clearing house. the proceeds of the check. No right to retain the note. Fidel fraudulently obtains the check and forges Nellie's signature. or enforce payment could be acquired under a forged indorsement. A forged indorsement is wholly inoperative and does not transfer any rights. b. Angelo is liable to Bea because of Angelo's warranties as a general indorser that the instrument is what it purports to be and that he shall pay in case of dishonor. subtracted or reduced) by the drawee (Eastern Bank). IN FORGED BAR: 10. Somehow. . Reasons: a. An order note can be negotiated only by indorsement completed by delivery. Fidel then withdraws from Daya Bank. who indorses it to Micky.

On March 23. (Security Bank & Trust Company v. Triumph now claims that due to Solid Bank’s gross and inexcusable negligence in determining the forgery of the drawer’s signatures. The payee (Nellie) can recover from the collecting bank (Daya Bank). On June 19. an absolute and contractual duty to pay the check only to the person to whom made payable or upon his genuine indorsement. d. On the same day of the burglary. Reason: There is no privity of contract. January 21. Fidel. if the payee Nellie advised Tina of the loss. Reasons: 1) Duty of collecting bank to exercise care in collecting is true only to the purported payee. treasurer and general manager appearing on the specimen signature cards. Reason: Possession of the forged instrument is unlawful and money collected is held in trust for rightful owners. The drawer authorizes and directs the drawee to pay only to the payee or to the order of the payee not to another.000.10. The bank would have been then immediately advised. Triumph discovered that the door of its office was forced open. i. Triumph Lumber and Construction Corporation. These were given due course following the standard bank procedure for verification of the check signatures and regularity of other particulars of the said check.15 Reason: The depository (drawee Eastern Bank) owes to the depositor (drawer Tina). the collecting bank (Daya Bank) must have indorsed the check to the drawee bank (Eastern Bank). e. neither was Solid Bank advised. otherwise the drawer would be unjustly enriched) h. c.R. 12. Drawer (Tina) is not liable to the collecting bank (Daya Bank). Reason: She still retained her claim as it was not extinguished. It then demanded that Solid Bank credits back its account the value of the checks it claimed were wrongfully encashed. Drawee bank (Eastern Bank) can recover from the collecting bank (Daya Bank). Drawee (Eastern Bank's) defenses: Drawer. Reason: Since the check passed through the clearing house. the three checks which were all drawn against its current account were encashed by unauthorized persons. Will the suit prosper ? SUGGESTED ANSWER: No. This was not reported to the police. Triumph made three separate deposits totaling P374. g. 1999) NOTES AND COMMENTS: The above cited case was decided as shown above because of Triumph’s failure to prove forgery. The payee (Nellie) can still recover from the drawer (Tina). G. 2) The drawer does not suffer any damage caused by the collecting bank as he can recover from the drawee bank which has no right to charge the drawer's account. The loss resulted from Triumph’s negligence. Collecting bank (Daya Bank) bears the loss but it can recover from the person to whom it paid the check. three (3) Triumph checks totaling P300. 2005. b. It is the author’s view that had Triumph . including that of the filing cabinet where its savings account passbook. and immediately after said deposits. the drawer's account was charged by the drawee bank.00 were successively presented to Solid Bank for encashment. check booklets and other bank documents were kept. Reason: There is no privity of contract between Tina and Daya Bank. Rebuffed in its demand. 126696. Tina is precluded from raising the defense of forgery due to estoppel on account of negligence. for example. Exception: The payee (Nellie) cannot recover if the check was impaired through her fault. Drawer (Tina) has no right to recover from the collecting bank (Daya Bank). 2003. Triumph sues Solid Bank. Triumph Lumber Corporation opened a current account deposit with Security Bank and authorized withdrawals on the basis of any of three signatures of Triumph’s president. Under the above circumstances a prudent and reasonable man would have gone over the check booklets after the burglary and have discovered that three checks were missing. The payee (Nellie) cannot recover from the drawee bank (Eastern Bank). therefore it is liable on an indorser's warranty of genuineness and liability to pay in case of dishonor. (Note: This is on the assumption that. but she (Tina) did not inform Eastern Bank.554. f. No.

” He cannot interpose the defense that signatures prior to him are forged. Parties who warrant or admit the genuineness of the signature in question and those who. The drawee bank’s duty is but to verify the genuineness of the drawer’s signature and not of the endorsement because the drawer is its client. Hence. (Sec. supra) d. 5) Moreover. Effects of a forged indorsement on an instrument payable to order. The general rule then is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the drawer. the collecting bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. 3) A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank is a gnarl indorser which warrants the genuineness of the instrument. The bank is also in a better position to detect forgery. The risk of loss must perforce fall on the drawee bank. or to give a discharge therefor. only the person whose signature is forged can raised the defense of forgery even against a holder in due course. (Associated Bank v. a. Thus. by their acts. et al. A person may be bound under a forged signature. and its companion case Philippine National Bank v. While the drawee bank may not debit the drawer’s account. 6) The drawee bank is not similarly situated as the collecting bank because the drawee bank makes no warranty as to the genuineness of the endorsements. 2) An indorser of an order instrument warrants “that the instrument is genuine and in all respects what it purports to be. The drawee bank is under strict liability to pay the check to the order of the payee. The drawer’s instructions are reflected on the face and by the terms of the check.. Where the drawee bank did not pay a holder or other person entitled to receive payment. Indorsers. it may generally pass liability back through the . even if the indorsement on the check deposited by the bank’s client is forged. that he has good title to it. Payment under a forged endorsement is not to the drawer’s order. fraud or irregularity in the endorsement. a forged indorsement does not operate as the payee’s indorsement. Court of Appeals. Effect of forged signature. the collecting bank is made liable because it is privy to the depositor who negotiated the check. Checks with forged indorsements should be differentiated from checks bearing forged signatures of the drawer. When a signature is forged or made without authority of the person whose signature it purports to be. the collecting bank had no right to be paid by the drawee bank. or to enforce payment against any party thereto.. it does not comply with the terms of the check and violates its duty to charge its customer’s (the drawer’s) account only for properly payable items. Even if it was not negligent. So. It has taken a risk on the deposit. the signature of the rightful holder is essential to transfer title to the same instrument.. when the indorsement is a forgery. When the holder’s indorsement is forged all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. if he is precluded from setting up the forgery or want of authority. his address and history because he is a client. Since a forged indorsement is inoperative. silence or negligence are estopped from setting up the defense of forgery are precluded from using this defense. persons negotiating by deliver and acceptors are warrantors of the genuineness of the signatures on the instrument. 252 SCRA 620) b. In bearer instruments. c. 4) The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment had done its duty to ascertain the genuineness of the endorsements. Court of Appeals. and no right to retain the instrument. When the drawee bank pays a person other than the payee. it would still be liable to the drawee bank because of his indorsement. it has no right to reimbursement from the drawer. (Associated Bank v. it is wholly inoperative. 23. 23 does not avoid the instrument but only the forged signature. et al.16 been able to prove forgery. et al. the signature of the payee or holder is not necessary to pass title to the instrument. can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. 1) Where the instrument is payable to order at the time of the forgery. and that the instrument is at the time of his indorsement valid and subsisting. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. 7) The chain of liability does not end with the drawee bank. The collecting bank must necessarily return the money to the drawee bank because it was paid wrongfully. the bank would NOT have been liable as shown by the following discussion. The bank knows him. Court of Appeals. that all prior parties had capacity to contract. Negotiable Instruments Law) Sec.

Raymond. Bank liability attaches even if not negligent. Bunny and Nellie ? SUGGESTED ANSWER: Yes. (PNB v. If the drawee bank delays in informing the presentor/collecting bank of the forgery. G. it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. Lina. The bearer BAR: ILLUSTRATIVE PROBLEM: RIGHTS OF PARTIES IN COMPLETE AND DELIVERED INSTRUMENT BUT MATERIALLY ALTERED. to the forger himself. No drawee bank has the right to pay a forged check. Rationale for bank’s liability if it pays on a forged signature... If payment is made the drawee cannot charge the drawer’s account. Inc. R. 2004 citing various authorities) If a loss. it shall have to recredit the amount of the check to the amount of the drawer. (Associated Bank. G.. August 13. the drawee bank can recover the amount paid on the check bearing the forged endorsement from the collecting bank. et al. v. (Samsung Construction Company Philippines. The rile has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. negotiates the note to Amboy by mere delivery thence to Raymond. . Effects where the drawer’s signature was forged. because the instrument is a bearer instrument that passes title by mere delivery.(Samsung Construction Company Philippines. supra) f. No. The bank’s liability attaches even if it exerts due diligence and care in preventing such faulty discharge. can be traced to the neglect or fault of either. the drawer is precluded from asserting the forgery as a defense. R. thence to Nellie. No. Eventually. Moreover. The drawee bank can seek reimbursement or a return of the amount it paid from the presentor/collecting bank or person. if available. of course. Far East Bank and Trust Company. 8) A drawee bank has the duty to promptly inform the presentor/collecting bank of the forgery upon discovery. National City Bank of New York. Forgeries often deceive the eye of the most cautious experts. 63 Phil. which must be borne be by one or two innocent persons. The forgery may be so bear like the genuine as to defy detection by the depositor himself. the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance. but not against Nellie whose signature was forged. May Lina proceed against Nini. BAR: 13. Hence. Nini makes a promissory note payable to bearer. 2004) g. OR OF BEARER BILL OF EXCHANGE. If it does. 711 (1936) The bank is so situated that it would have been the last bulwark in the detection of the forgery. v. Inc. 129015. thereby depriving said presentor/collecting bank of the right to recover from the forger. the loss falls on the party who took the check from the forger (the collecting bank).. Reason: Estoppel. then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss. The drawer can recover from the drawee bank. and when a bank has been so deceived. Far East Bank and Trust Company. 9) If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature. August 13. thence to Bunny.17 collection chain to the party who took from the forger and. and yet the bank is liable to the depositor if it pays the check. the drawee bank is deemed negligent and can no longer recover from the presentor/collecting bank. . Supposing Lina is not a holder in due course may prior parties be held liable ? SUGGESTED ANSWER: Yes. supra) e. The traditional justification for the result is that the drawee is in a superior position to detect forgery because he has the maker’s signature and is expected to know and compare it. The instrument was lost and George who found the note placed a signature purporting that of Nellie and negotiates the note to Lina by mere delivery such that Lina is a holder in due course. even if innocent of intentional fraud. such loss would be borne by the negligent party. et al. BAR: ILLUSTRATIVE PROBLEM: RIGHTS OF PARTIES IN FORGED INDORSEMENT OF PROMISSORY NOTE PAYABLE TO BEARER. (Associated Bank. The liability chain ends with the drawee bank whose responsibility it is to know the drawer’s signature since the latter is its customer. Reason: Forged indorsement is not necessary to the title of the holder. 129015. or on the forger himself.

Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four (24) hours. Ping Bank without noticing the alteration paid the check debiting P150. Inc. As a result of the BIR did not receive the tax payment. The Central Bank Circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. issued various cross-checks drawn against CITIBANK.. the drawee bank.00 as payment for a second-hand car. After receiving his bank statement. (PCIB v. et al. Castro himself subsequently opened a Checking Account in a name of a fictitious person denominated as “Reynaldo Reyes” in the Meralco Branch of PCIBank where Dulay works as Asst. prepared checks for payment to the BIR. the collecting bank. however. et al. Richard deposited the altered check with Gloria Bank which forwarded the same to Ping Bank for payment. items bearing a forged endorsement shall be returned within twenty-four (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Court of Appeals.000.00 by Ping Bank. In other words. Ford is guilty of contributory negligence which could serve to limit the liability of the two banks. and PCIBank. and Ford was forced to pay the tax anew. statements of account. SUGGESTED ANSWER: Yes. Rivera passed on the checks to Castro who was a pro-manager of the San Andres Branch of PCIB. Series of 1977 provides that any theft affecting items in transit for clearing shall be to the account of the sending bank in this case. (Associated Bank v. Court of Appeals. a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law.18 BAR: 14. Ford Philippines. PCIB’s Asst. the drawee bank. N. Instead. Discuss fully the rights and liabilities of the parties concerned. A bank holding out its officers and agents as worthy of confidence will not be permitted to shirk its responsibilities for fraud committed by these employees even though no benefit accrued to the bank therefrom.00 from Gloria Bank and disappeared. Circular No.. Court of Appeals. (Philippine National Bank v. Ford could recover against CITIBANK. which is to ensure that the amount of the checks should be paid only to its designated payee. This is so because it did not pay in accordance with the terms of Sandra’s command and that it was negligent for failure to detect the alteration. Court of Appeals.00 from the account of Sandra. is liable because it did not discover the irregularity seasonably constituting negligence in its duty to perform which was incumbent upon it. Sandra discovered the alteration and demanded restitution from Progressive Bank. In connivance with Dulay. However. Without the knowledge of Sandra. N.000.00 which alteration could not be detected by the naked eye. Furthermore.. Ford filed suit to recover from the drawee CITIBANK. the collecting bank. and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein. An alteration is said to be material if it alters the effect of the instrument. G.A. 121413.A. the syndicate succeeded in encashing the checks and appropriating the value. Richard withdrew the amount of P150. PCIBank.B.R. Nos. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to he obligation of a party.A. et al. Sandra Zuce issued to Richard Cam a check for P50.000. 24-hour rule deleted since 1980... Sec. and its companion case Philippine National Bank v. of delivering the same to the payee. 580. et al.000. It failed as the depositor to examine its passbook. N. 121479 & 128704. Manager. SUGGESTED ANSWER: Sandra has the right to be restituted the amount of P150. It appears that Rivera Ford’s General Ledger Accountant.000. Has Ford the right to recover from the collecting bank and the drawee bank the value of the checks intended as payment to the Commissioner of Internal Revenue. with the Commissioner of Internal Revenue. 531 of CB Circular No. Ford is guilty of contributory negligence which would mitigate the bank’s liability. Manager at its Meralco Branch. NOTES AND COMMENTS: a.A.. 256 SCRA 491) b. 2001) NOTES AND COMMENTS: . January 29. Under Section 4 (c) of C. N. 580. is liable because its employees were able to perpetrate the scam in the apparent course of their employment. PCIBank. and the collecting bank PCIBank the value of the checks.. 252 SCRA 620) 15. CITIBANK. Thus. Richard changed the amount to P150. Material alteration.

N.19 a. the name of the drawer and the drawee were not altered.) and spoliation (alterations done by a stranger) will not avoid the instrument. 2005. Nos. G. Relationship between payee and collecting bank.I. et al. "Y" Bank credited "R" Bank’s account for the amount stated in the check. that of principal and agent. 121479 & 128704. (PCIB v. 16 of the Negotiable Instruments Law. (PCIB v. Court of Appeals.. Delivery completes the contract 1) Between immediate and remote parties 2) Delivery effectual b. on August 30. DE Bank however returned the check to "Y" Bank. 121413. Burgos. in the absence of some circumstance raising estoppel against the drawer. dated August 7... (De la Victoria vs. However. Nos.R. 121479 & 128704. who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank. The salary check of a government officer or employee does not belong to him before it is physically delivered to him. in the absence of agreement to the contrary.00 was issued by "A" to "X" Marketing drawn against DE Bank. The mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent. et al. As ordinarily understood. 1. the alteration of the serial number is immaterial or innocent alteration. The intended payee was the same. a. in turn sent the check to DE Bank for clearing. et al. G. (Samsung Construction Company Philippines. changes on items other than those required to be stated under Sec. does not entitle the bank to shift the loss to the drawer-payor. "X" Marketing a client of "R" Bank deposited the questioned check in its savings account in said bank. Under Sec. A bank which receives such paper for collection is the agent of the payee or holder. The aforementioned alteration did not change the relations between the parties. A. 2004) b.. The sum of money due to the payee remained the same. the check clearly shows the name of "A" printed on its face. 121413. No. DE Bank returned the check to "Y" Bank and debited its account for the amount covered by the check because there was a “material alternation” of the check’s number. January 29. delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof.650. 2005. Court of Appeals. August 13.L. DE Bank cleared the check as good and thereafter. On August 11. et al. G. (Vitug cited in Philippine National Bank v. "Y" Bank in turn debited "R" Bank’s account. An innocent alteration (generally. Forgery committed by drawer-payor’s confidential employee does not automatically result to bank’s absolution.. Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. "R" Bank deposited the check with "Y" Bank which. the rule likewise applies to checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. et al. 256 SCRA 491) NOTES AND COMMENTS: a. Was the alteration of the serial number of the check a material alteration affecting the negotiability of the check ? SUGGESTED ANSWER: No. The relationship between the payee or holder of commercial paper and the bank to which it is sent for collection is. Far East Bank and Trust Company. Until that time the check belongs to the government. If under authority 1) To a holder in due course a) Valid delivery presumed b) Prior parties bound 2) If delivery conditional a) Prior parties not bound 17. In turn. A check with serial number 7-3666-223-3. Francisco Realty and Development Corporation (AFRDC) represented by its president Adelia as well as Herby Commercial and Construction Corporation (HCCC) represented by its president Jaime entered into a contract with GSIS for the construction of housing units and land . v.R. 2001) 16. "R" Bank could not debit "X" Marketing’s account which was already closed. 2001) The bare fact that the forgery was committed by an employee of the party whose signature was forged does not necessarily imply that such party’s negligence was the cause for the forgery. and sent the check back to DE Bank. but the holder may enforce it only according to its original tenor. 129015. January 29. every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Inc. R. 245 SCRA 374) BAR: COMPLETE BUT NOT DELIVERED INSTRUMENT. Court of Appeals. 2005 in the amount of P97.

Adelia now claims that she was authorized to sign Jaime’s name on the check by virtue of a Certification executed by Jaime in her favor giving her authority to collect all the receivables of HCCC from GSIS. still. despite knowledge by the Bank that Vilma was only an accommodation party. without endorsing the promissory note. The XYZ Bank is willing to lend to your client the sum of P1. She is an accommodation party. X.000. Adelia forged Jaime’s signature without his knowledge or consent. November 29. when so signing.00. et al. An agent. Brad Jolie makes a promissory note payable to bearer and delivers the same to Angelina Pitt. BAR: BAR: 20. he may indorse in such terms as to negative personal liability. Ambiguous negotiable instruments. G. 1999) BAR: 18. Alpha. as it was negotiated to Michael. and then deposited the checks in her IBAA savings account. One who has signed the instrument as maker. Where any person is under obligation to indorse in a representative capacity. executed a promissory note in favor of BUR Bank. When Susan defaulted BUR Bank sued Amalia. May Amalia be held liable ? Explain. Adelia. what do you call that person and what are his liabilities ? SUGGESTED ANSWER: instrument.I. and for the purpose of lending his name to some other person. She liable to BUR Bank which is a holder for value. Accommodation party. Brad Jolie. The note is subsequently dishonored by Brad Jolie. acceptor. Phi and Omega signed a promissory note in favor of “We promise to pay Rho on December 31. Signed: Angelina. Susan’s sister.20 development.000. N. Suppose the bank requires your client to secure the signature of a person who is well-known to it before your client’s promissory note can be accepted. the holder may treat it either as a bill of exchange or a promissory note at his election. GSIS partially paid on the contract the amount of P500. The note remained a bearer instrument and may be negotiated by merely delivery. (Sec. at the dorsal portion of the said checks to make it appear that HCCC had indorsed the checks. 116320. Court of Appeals.) b. The character of the note being a bearer instrument is not affected by the special indorsement made by Angelina Pitt. May Michael proceed against Brad Jolie for the note ? SUGGESTED ANSWER: Yes.R. Amalia. transfers and delivers the same to Michael. Michael being the holder may therefore proceed against the issuer of the note.00 payable in five (5) years with interest at 12% per annum secured only by a surety bond. SUGGESTED ANSWER: Yes. Instead of signing Jaime’s name.500. 19. however. No. at the time of taking the instrument knew him to be only an accommodation party. (Francisco v. otherwise he shall be held personally liable. By way of accommodation. Such a person is liable on the instrument to a holder for value. He is an accommodation party and he is liable on the NOTES AND COMMENTS: a. Rho stating: BAR: 21. including the questioned checks.L. without receiving value therefor. despite its knowledge that Amalia received no part of the loan. Where a negotiable instrument is so ambiguous that there is doubt whether it is a bill or a note. Will the defense prosper ? SUGGESTED ANSWER: No. should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal.000. Adelia should have signed her own name and expressly indicated that she was signing as an agent of HCCC.00 with BUR Bank. or indorser. Angelina Pitt. 29. Even assuming that Adelia was authorized by HCCC to sign Jaime’s name. who became the holder. did not indorse the instrument in accordance with law.” Later.. drawer. 2004 the sum of . endorses it to X in this manner: “Payable to X. Jaime discovered that from the GSIS payment Adelia had received and signed seven checks of various dates and amounts drawn against IBAA and payable to HCCC for completed and delivered work under the contract. Susan applied for a loan of P100. notwithstanding such holder.

12345 in the amount of P200. because Indian Forex.00 payable on March 7. (Moran. Boy. she will pay the amount thereof to the holder Monrico Mart. its immediate indorser. (Tan vs. the liability of Alpha. TPC agreed to purchase an additional 7. Court of Appeals. There are different kinds of checks among which are: Memorandum check. 230 SCRA 643. cashier’s check. 22. Court of Appeals. As worded. B. 891011 in the amount of P250. 128927. 2005. Crossed check. Indian is guilty of gross negligence and as such is not a holder in due course. Boy’s title to the check or his possession. Kinds of checks. 230 SCRA 799) BAR: b.000 kilos of carabeef.R. 2005. Boy’s failure to deliver the meat. Court of Appeals. Mr. (Bataan Cigar and Cigarette Factory. traveller’s check and crossed check. Relying on Mr. Rho sued Phi and Omega who put up the defense that Rho should have impleaded Alpha.00 payable on March 5. A bill of exchange drawn on a bank payable on demand. as an indorser. NOTES AND COMMENTS: a. et al. Boy. Inc. A check. to deliver 5. Boy’s failure to deliver. 456789 amounting to P430. the value of the four checks ? Why ? SUGGESTED ANSWER: No. Again TPC issued two (2) postdated crossed checks. et al.000. Remedios engages that upon due presentment. BAR: 24. is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediate payment. 2004. Thus. et al. Inc. and check no. (Sapiera v. as the case may be and if dishonored and the necessary proceedings are taken. May Remedios be held liable for the amount of the checks ? SUGGESTED ANSWER: Yes. Rho could proceed against any of them individually. When presented for payment these checks were dishonored because the drawer'’ account was already closed. As a result of Mr. A check is a bill of exchange drawn on a bank payable on demand. Inc. Inc. Check distinguished from bill of exchange.00. Failing in this respect. Both Arturo and Remedios were acquitted of estafa. and paid for them with checks issued by Arturo and signed at the back by Remedios. It may be crossed generally or specially.21 P5. On July 13. Phi and Omega on the note is joint.00. recover from TPC. is the defense valid ? Why ? SUGGESTED ANSWER: The defense is not valid. 239 SCRA 310) BAR: 23. Check no. A bank is under no obligation to make part payment on a check up to only the amount of the drawer’s fund. 2005. check no. is not a holder in due course. Tocino Products Corporation (TPC). or both. a firm engaged in the manufacture of longganisa. Check.” when the note fell due.. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. The crossing of the checks should have put Indian on inquiry and upon it devolves the duty to ascertain Mr.. 1999) NOTES AND COMMENTS: a. as distinguished from an ordinary bill of exchange.000. G. It may be issued so that presentment can be made only by a bank. 101112 amounting to P430.. It is crossed generally when only the words “and company” are written or nothing is written between the parallel lines. September 14. What are the effects of crossing a check ? . Boy’s representation that he would complete delivery within three months from December 2004. TPC issued stop order payments on all the four checks on March 1. et al.000. On various occasions Remedios. Court of Appeals. supra) There is an element of certainty or assurance in an ordinary check that it will be paid upon presentation that is why it is perceived as a substitute for currency in commercial and financial transactions. Where a signature is so placed upon a negotiable instrument that it is not clear in what capacity the person making the same intended to sign. engaged one of its suppliers Mr.00 and check no. she is deemed to be an indorser.000.. Boy sold all the four checks at a discount to Indian Forex. A. in payment of the 5. a check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. the checks are to be accepted or paid. It could recover from Mr. Could Indian Forex. vs. Moran vs. starting October 2004. 2005.000 kilos of carabeef. No.000. a sari-sari store owner purchased from Monrico Mart various merchandise. TPC issued two (2) crossed postdated checks both dated March 21.000 kilos of carabeef despite Mr. BAR: b.

. or for illegal one who has an account with a bank. b. b. This is agreement or conduct which renders the enforcement of the instrument inequitable.22 SUGGESTED ANSWER: a. The check may be negotiated only once . vs. 59 of the same law further states that every holder is deemed prima facie a holder in due course. That it is complete and regular upon its face. by unlawful means. Want of delivery of incomplete instrument d. Want of delivery of a complete instrument c. (Bataan Cigar and Cigarette Factory. The personal or equitable defenses. Minority f. The act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose. Lack of agent’s authority where he has apparent authority NOTES AND COMMENTS: BAR: 28. Inc. Filing of wrong date or blanks contrary to authority g. b. What are the kinds of defenses against the validity of a negotiable instrument ? SUGGESTED ANSWER: The defenses that may be raised against a negotiable instrument are: a. The real. Otherwise stated the holder is not a holder in due course. . Void contract j. Negotiation amounting to fraud f. Insanity without court appointed guardian i. Fraud in factum or fraud in esse contractus g. Court of Appeals. SUGGESTED ANSWER: a. Glaring alteration b. when it is shown that the title of any person who has negotiated the instrument was defective. Illegality of the contract or instrument by statute Give examples of personal or equitable defenses that are available against any person other than a holder in due course. legal or absolute defenses which are available against the whole world including a holder in due course. Want of authority of agent h. c. These defenses are available only against a person who is not a holder in due course. Forgery c. et al. acquired the title as holder in due course. duress or fear. BAR: 27. in breach of faith h. and c. Acquisition of instrument by force. Give examples of real. These defenses attaches to the instrument and is available against the whole world including a holder in due course. 52 of the Negotiable Instruments Law states that a holder in due course is a holder who has taken the instrument under the following conditions: a. Fraud amounting to forgery e. the burden is on the holder to prove that he or some other person under whom he claims. and without notice that it had been previously dishonored if such was the fact. Fraud in inducement d. SUGGESTED ANSWER: a. BAR: 25. However. 230 SCRA 643) SUGGESTED ANSWER: Sec. Mistake e. legal or absolute defenses. Who is a holder in due course ? BAR: 26. That he became a holder of it before it was overdue. That he took it in good faith and for value. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it Sec. Absence or failure of consideration b. 4. so that the holder must inquire if he has received the check pursuant to that purpose. The check may not be encashed but only deposited in the bank.

Excel did not ask Jose the purpose of crossing the check. P ordered the drawee bank to stop payment on the check. 2031) ? Explain your answer. Inc. A payee is an immediate party in relation to the maker and is subject to all defenses.e. Presumption of consideration. February 28. as security for a diamond ring to be sold on commission. and partial failure of consideration is a defense pro tanto. Since Jose failed to deliver the newsprint. 2004.00 postdated September 30. 28.000. is it a holder in due course ? 2) Whether Po’s defense of lack of consideration as against Jose is also available as against Excel ? SUGGESTED ANSWER: 1) No. when MT Investment sued her.. (Atrium Management Corp. Absence of consideration available only against not holder in due course. Inc.00 to her. Excel wants to know from you as counsel: 1) Whether as second indorser and holder of the crossed check. 2001) NOTES AND COMMENTS: a.R. NIL) b. SUGGESTED ANSWER: No. 24. “Absence or failure of consideration is a matter of defense as against any person not a holder in due course=. when MT Investment presented the check for payment. by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents. for having taken the instrument with notice that the same was for deposit only to the account of the payee. Efforts of Excel to collect from Po failed. in payment of newsprint which Jose promised to deliver. It does not follow that because a holder is not a holder in due course.23 a.. and every person whose signature appears thereon to have become a party thereto for value. et al.. Excel not being a holder in due course is subject to the personal defense of aBsence or lack of consideration which Po may raise against Jose. the check having been issued merely as security for the ring that she could not sell Does Eva have a valid defense ? . 2004. payment of newsprint. he would be altogether precluded from recovering on the instrument. 109491 & 121794. Is one who is not a holder in due course precluded from recovering on the instrument ? SUGGESTED ANSWER: No. “Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. Court of Appeals.” (Sec. 109491 & 121794. Po Press issued in favor of Jose a postdated crossed check. It is a primary obligation of the issuing bank and accepted in advance by its mere issuance and. The disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. 230 SCRA 643) One such defense is absence or failure of consideration. Court of Appeals. (Atrium Management Corp. 2) Yes. Imelda. BAR: 31. Eva raised the defense of absence of consideration. Eva failed to sell the ring. Since. Court of Appeals. Cashier’s check.. real or personal. Thus.. Eva issued to Imelda a check in the amount of P50. vs. i. Unable to retrieve her check. available to the maker of the promissory note. so she returned it to Imelda on September 19. (Bataan Cigar and Cigarette Factory. February 28. G. NIL) BAR: 29.” (Sec. v. at a discount. 2001) BAR: 30. The instrument is a crossed check and Excel did not take it for the purpose for which the check was issued. negotiated the check to MT Investment which paid the amount of P40. whether the failure is an ascertained and liquidated amount or otherwise.000. Nos. Court of Appeals. 239 SCRA 310) within the meaning of the Negotiable Instruments Law (Act No. Eva withdrew her funds from the drawee bank. et al. Can a payee in a promissory note be a “holder in due course” BAR: 32. Later on. having put on guard by the nature of the instrument being a crossed check. Nos. G. Jose sold and negotiated the check to Excel. the drawee bank dishonored it. 2004. et al. et al. Excel did not inquire as to the purpose it is not a holder in due course.R. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the instrument. On September 15. v. (Tan vs.

No. 2005) b. No. Reasons: a. No. Ty v.. Court of Appeals. 149275. 149695. People. When is notice of dishonor not required to be given to drawer ? SUGGESTED ANSWER: a. No. loss or some responsibility. Ty v. That the check was issued merely as a security is not a ground for discharging an instrument in the hands of a holder in due course.R.. (Lee v. Notice of dishonor. 145498. 123031. (Cebu International Finance Corporation v. G. It is clear that a money market transaction is one of loan. When the check was deposited. 2005) c. G. et al. This means that the check must necessarily be due and demandable because only a check that has become due can be presented for payment and subsequently dishonored. The term denotes that a check has been presented for payment and was subsequently dishonored by the drawee bank. G. or some forbearance. R. Court of Appeals. Presumption of consideration. or not to do in favor of the party who makes the contract. the amount of P500. et al. et al. February 28. “Where a drawee to whom a bill is delivered for acceptance destroys the same. it becomes primarily liable for its payment. d. Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. On April 25. November 17. Notice of dishonor to be in writing. 2005. MT Investment is a holder in due course as it took the instrument complete and regular upon its face. it had no notice of any infirmity in the instrument or defect in the title of Imelda. 145498. et al. detriment. 439 SCRA 220) b. A check is merely a substitute for money. April 28. (Dico v. When the drawer is the person to whom the instrument is presented for payment. January 17. G..” and took custody of the check pending investigation of several counterfeit checks drawn against CIFC’s checking account to trace the perpetrators of the forgery. to return the bill accepted or non-accepted to the holder. and without notice that it had been previously dishonored if such was the fact. 428 SCRA 206) .L. or the offended party either by personal delivery or by registered mail. It is an obligation do. People. Vicente invested in CIFC. profit or benefit accruing to the party who makes the contract. 101163. or refuses within twenty-four hours after such delivery or such other period as the holder may allow. R. Where the drawer has countermanded payment. and that at the time the was negotiated to it. No.I.000. c. that it took the instrument in good faith and for value. 2004. R. Furthermore CIFC anchors its arguments of payment on SEc. The notice of dishonor of a check may be sent to the drawer or maker by the drawee bank. . 149275. Valuable consideration may consist either in some right. 2004 citingSia v. R. Court of Appeals. Where the drawer and the drawee are the same person. CIFC now asserts that since BPI accepted the check. 114.R. September 27.00 to mature after one month with interest at the rate of 20. January 17.. to act. suffered or undertaken by the other side. int4erest. (Sec. a quasi-banking institution engaged in money market operations. When the drawee is a fictitious person or a person not having capacity to contract.. February 28. October 12. The delivery of a check produces only payment when it has been encashed or when through the fault of the creditor it has been impaired. which should have been paid for in cash. b. (State Investment v. such as the maker or indorser. Upon maturity CIFC issued a check of P514. Court of Appeals. he will be deemed to have accepted the same.94 in favor of Vicente representing the proceeds of his matured investment plus interest. (Lee v. et al.390. or labor. 2005. R. No. Court of Appeals. 2004. G. N.. January 11. (Rigor v.) NOTES AND COMMENTS: a. Court of Appeals. 439 SCRA 220) 33. G. September 27. 144887. the holder of the check. People.” Was there effective payment to Vicente ? SUGGESTED ANSWER: No. the person negotiating it. In the absence of evidence to the contrary it is presumed that a check was issued for valuable consideration. Absence or lack of consideration is not available as a defense against a holder in due course. e. No. (Dico v. 2004. et al. 1999) 34.24 SUGGESTED ANSWER: No. Postdated check cannot be dishonored if it was presented for payment before its due date. G. when BPI offset the value of the check against its losses from the forged checks the check was deemed paid. 2005. Consequently.5% for 32 days. BPI dishonored it with the annotations “Subject to Investigation. No. b. or service given. People. 1993) NOTES AND COMMENTS: a. R. G. that it became a holder of it before the instrument became overdue. 137 of the Negotiable Instruments Law which states that.

1460) ? SUGGESTED ANSWER: Yes. Since the limit of BAR: 3. SUGGESTED ANSWER: Yes. b) As the drawer who is secondarily liable Gemma is discharged because of the failure to give notice of dishonor within thirty (30) days from dishonor. The failure of PN to show up at the specified place of payment on the specified maturity date is tantamount to waiver of his right to recover the interest due after the maturity date of the note and costs of collection. After dishonor by the drawee bank. “reasonable time” is meant not more than six (6) months from date of the issue of the check.A. The note mentions the place of payment on the specified maturity date as the office of the corporate secretary of PX Bank during banking hours. He was insured by his employer with itself as the beneficiary. PN is the holder of a negotiable promissory note within the meaning of the Negotiable Instruments Law (Act 2031). et al. BD has a bank deposit of half a million pesos. There is no showing in the problem that the member of the MILF or Abu Sayyaf is a citizen or national of a country with which the Philippines is at war. he would like some protection for the excess by taking out an insurance against all risks or contingencies of loss arising from any unsound or unsafe banking practices including unforeseen adverse effects of the continuing crisis involving the banking and financial sector in the Asian region.D. RP was at the aforesaid office ready to pay the note but PN did not show up. 2001. (Far East Realty Investment. the period to give notice of dishonor must be the same time that notice would reach Gemma if sent by mail. (3) Insurance Code (P. She could not be held liable because the same was not presented within a reasonable period of time. 2005. What is prohibited to be insured is a public enemy which is defined as a citizen or national of a country with which the Philippines is at war. he stands to be damaged to the extent of the deposit not covered by the deposit insurance.D. Inc. plus interests and costs. for the following reasons: a) The check is already stale having been presented for payment only on March 5.. 166 SCRA 256) BAR: 36. The holder presented the check to the drawee bank only on March 5. 2) No. On maturity date. May a member of the Moro Islamic Liberation Front (MILF) or its BAR: 2. 1) What is meant by “unreasonable time” as applied to presentment ? 2) Is Gemma liable to the holder ? SUGGESTED ANSWER: 1) As applied to presentment for payment. A company owned house at Dasmarinas Village was BAR: 1. It is not shown that the holder and Gemma resided in the same place hence. Jeremiah was a most valued employee of Fortune Manufacturing . No.. v. What PN later did was to sue XL for the face value of the note. The bank dishonored the check on the same date. 2005. In short. The note was originally issued by RP to XL as payee. but only with respect to the face value of the note. 2005.25 BAR: 35. Gemma drew a check on September 13. Abu Sayyaf. Any period beyond six (6) months is considered “unreasonable time” and the check becomes stale. Court of Appeals. the insurance coverage of the Philippine Deposit Insurance Corporation Act (R. 1460) ? SUGGESTED ANSWER: Yes. 1460) breakaway group. be insured with a company licensed to do business under the Insurance Code of the Philippines (P. 2001. Corporation for the past twenty years. 3591) is only one tenth of BD’s deposit. which is beyond six (6) months from the issue of the check on September 13. No. Does BC have an insurable interest within the meaning of the Insurance Code of the Philippines (P. XL indorsed the note to PN for goods bought by XL. BD has an insurable interest in his own bank deposits because the contemplated peril might result to the loss of the said bank deposits. Will the suit prosper ? Explain.D. the holder gave a formal notice of dishonor to Gemma through a letter dated April 27.

Fortune could recover on the policy covering Jeremiah's life because insurable interest on life need not exist at the time of the death.. In good faith Marion did not disclose the fact that she previously consulted an oncologist because after the medical consultation. However there is no showing in the problem of any change in the insurance in Jeremiah’s favor so his heirs could not also recover on the policy. Insurance Code) b. BAR: c. On September 1. Insurable interest in property must exist at the time of taking AND at the f. MLQ does not have insurable interest in the condominium unit. NOTES AND COMMENTS: a.26 furnished for his use which was insured with the owner as the beneficiary. who may recover on the fire insurance policy ? State the reason(s) for your answer. with XYZ Insurance Co. or in whom he has a pecuniary interest. BAR: BAR: e. of his spouse and of his children. Neither could JQ the owner recover because he is not the named beneficiary. Both of the policies were up to December 31. or respecting property or service. He had insurable interest as owner-insured. and 4) Of any person upon whose life any estate or interest vested in him depends. NOTES AND COMMENTS: UP Law Center suggests the following answer: “JQ can recover on the fire insurance policy for the loss of the said condominium unit. the house was burned resulting to Jeremiah's death. of which death or illness might delay or prevent the performance. The insurance company's physician conducted a physical examination but was not able to detect the fact that Marion was already in the advance stage of cancer. 2004. (Sec. or any relation thereto or liability in respect thereof of such nature that a contemplated peril might directly damnify the insured. Marion insured her own life naming her boyfriend Jeffrey as her irrevocable beneficiary. and made the loss payable to his brother. MLQ cannot recover although he was named the beneficiary because he had no insurable interest in the property at the time of the loss. 2005. On July 4. On June 15. SUGGESTED ANSWER: Nobody. 3) Of any person under a legal obligation to him for he payment of money. Fortune could not recover on the policy covering the house because it did not have any insurable interest at the time of the loss on July 4.2005. Insurable interest in life should exist at the time of taking and NOT necessarily at the time of death. Every person has an insurable interest in the life and health: 1) Of himself. insured the same against fire BAR: 5. 13. Every interest in property. Insurable interest in property is required for a person who secures property insurance. Insurable interest in life distinguished from insurable interest in property. In case of loss by fire of the said condominium unit. owner of a condominium unit. For the beneficiary to recover on the fire or property insurance policy. Who could recover on the insurance policies ? Explain. SUGGESTED ANSWER: Nobody could recover on the insurance policy covering the house. To remove the temptation of insuring a person's life and then killing him to recover the insurance proceeds. In this case. 10. As beneficiary in the fire insurance policy. the title of the house at Dasmarinas Village was transferred to Jeremiah's name. Insurance Code) time of loss.” BAR: 4. Purpose for requirement of insurable interest in life. d. (Sec. 2005 Jeremiah retired from the company. numerous fortune tellers predicted that she will not die . Insurable interest is required for a person who insures the life of another. 2) The beneficiary need not have an insurable interest in the life of the insured WHILE the beneficiary in property insurance should have an insurable interest in the property insured both at the time of insurance and at the time of loss. MLQ. As part of his retirement package. JQ. it is required that he must have insurable interest in the property insured. 1) In insurable interest in life must exist at the time of taking and need not exist at the time of death WHILE insurable interest in property must exist both at the time of taking and time of loss. MLQ cannot recover on the fire insurance policy. This is so because the ownership was already transferred to Jeremiah. 2) Of any person on whom he depends wholly or in part for education or support. 2005. whether real or personal.

there is no concealment. NOTES AND COMMENTS: BAR: a.. The matter concealed was material and relevant to the approval and issuance of the policy. NOTES AND COMMENTS: a. and who likewise testified that he ministered to the ailing Florence two days immediately prior to her death.27 of cancer. the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentations of the insured or his agent. 6. 26. Eliza on the other hand presented the municipal health officer who issued the death certificate. There was concealment. On January 9. The Court ruled that there was no fraud. which is a neglect to communicate that which a party knows and ought to communicate. It is sufficient that the non-disclosure misled the insurer in forming his estimates on the risks of the proposed insurance policy or in making inquiries. This is so because. 2003. the investigator was not presented. PhilAm Life Insurance denied the claim and refused to pay on the ground of fraud because its investigator reported on the basis of interviews with witnesses that Florence had long died before the insurance policy was issued. A neglect to communicate that which a party knows and ought to communicate. it having probable and reasonable influence upon the insurer’s forming an estimate of the disadvantages of the proposed contract. are prima facie evidence of the facts therein stated. in the amount of P100. PhilAm Life Insurance received an application for life insurance from Florence an application for life insurance dated December 16. Since the policy is two years old. Jeffrey now claims the life insurance proceeds. would your answer be the same ? SUGGESTED ANSWER: No. death certificates and notes by a municipal health officer in the regular performance of his duties. 48. there is no unreasonable delay. Supposing under the above set of facts that the insurance was secured on August 31. the incontestability clause has already set in which defeats the concealment. Fraud being the ground invoked by PhilAm Life Insurance for refusing to honor the claim. In April. Since the insurance was non-medical. Furthermore the duly-registered death certificate is considered a public document and the entries found therein are presumed correct unless there is positive evidence to the contrary. Jeffrey could not be a donee because of the illicit relationship hence cannot be a beneficiary in life insurance. 1991. Insurance Code) Note that if the party does not know he is sick. Concealment defined. as materiality of the information withheld does not depend on the state of mind of the insured nor on the actual or physical events which ensue.. the incontestability clause does not find application because the two year period has not yet lapsed. Decide. NOTES AND COMMENTS: . On September 2. as principal beneficiary. Is Eliza entitled to her claim of interest at double the legal rate because of delay in the payment of her claim ? SUGGESTED ANSWER: Eliza is entitled to legal interest only and not the 24% she claims. (Sec. (2nd par. SUGGESTED ANSWER: Jeffrey could not recover. However. then there could be no recovery on the insurance policy of Marion.000. PhilAm Life Insurance did not require a medical examination and on February 11. 2005 while Marion was on her way to attend PreWeek Review classes for the Bar she was run over by a bulldozer which caused her death on the spot. 2005 PhilAm Life received a claim from Eliza which declared that Florence died of acute pneumonia on September 10. Sec. Good faith is not a defense to concealment. Incontestability clause. et al. 1991 issued a policy on the sole basis of the application. ( Sunlife Assurance Company of Canada vs. Eliza. Insurance Code) Would it make any difference in your answers to the above if Marion was married to Francis ? What about if it was Jeffrey who was married to Daniela ? SUGGESTED ANSWER: Under the above circumstances if Marion and Jeffrey were married to persons other than themselves. 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 its last reinstatement. Court of Appeals. 2004.00 which designated her sister. 1990. It is settled that the insured need not die of the disease he had failed to disclose to the insurer. 245 SCRA 268) In the above problem.

G. Purita filed her claim for the proceeds of the policy as the designated beneficiary therein. (Sec. c.R. he assured her it was not loaded. There is no showing in the problem that negligence is an excepted risk. 126223. The widow. 888 of the Midland Life Insurance Co. 138737. sought to collect under the policy. as the revocable beneficiary. Insurance Code) b. is disqualified to be a beneficiary of Juan de la Cruz because she is a prohibited donee because of their illicit relation. (Philippine American Life Insurance Company v. . Persons who are disqualified under the provisions of the Civil Code from being designated as donees are also prohibited to be beneficiaries of a life insurance contract. Finman General Assurance Corp. He pointed the gun at his sister who got scared. He then pointed the gun at his temple and pulled the trigger. that suicide committed in a state of insanity shall make the insurer liable regardless of the date of the commission of the suicide. The nearest of kin of the insured. Sun-Moon Insurance rejected her claim on the ground that the death of Henry was not accidental. He was playing with his handgun from which he had previously removed its magazine. Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of P500.” Six months later Henry Dy died of a bullet wound in his head. NOTES AND COMMENTS: a. No. He. designated Purita. whether as accessory. Investigation showed that one evening Henry was in a happy mood although he was not drunk. (Sun Insurance v. Juan de la Cruz is married to Cynthia with whom he has three legitimate children. Decide. A beneficiary who participates in killing the insured. et al. Under Section 242 of the Insurance Code. Juan de la Cruz was issued Policy No. No. cannot recover from the death of the insured by reason of public policy. July 12. accomplice or principal. shall receive the insurance proceeds. Death by suicide recoverable but after policy has become incontestable. G. Juan de la Cruz referred to Purita in his application and policy as the legal wife. Insurance Code) Exceptions or instances where killer-beneficiary could recover: 1) Where the killing is accidental. The fact that Henry removed the magazine At the most Henry was negligent in not seeing to it that the gun was not loaded. Cynthia.28 a. et al.. Among such persons are the following: 1) Persons guilty of adultery or concubinage could not take a life insurance and name the other as a beneficiary. Henry’s wife Beverly. 2001. et al. Court of Appeals. Three years later.000. 2001) BAR: 7. Court of Appeals. however. Juan de la Cruz died. as the designated beneficiary. also filed a claim as the legal wife. November 15. The gun fired and Henry slumped dead on the floor. To whom should the proceeds of the insurance policy be awarded ? SUGGESTED ANSWER: The proceeds of the insurance policy to the estate of Juan de la Cruz. his common-law wife. if not disqualified. (Sec. Court of Appeals.. however. Killer-beneficiary cannot recover.00. the common-law wife.. Beverly sued the insurer. 211 SCRA 554) NOTES AND COMMENTS: a. and 3) Where the beneficiary was insane at the time of the killing.00.000. The insurer in a life insurance contract shall be liable in case of suicide by the insured committed after the policy has been in force for a period of two years from the date of its issue or its last reinstatement. A provision in the policy states that “the company shall not be liable in respect of bodily injury consequent upon the insured person attempting to commit suicide or willfully exposing himself to needless peril except n an attempt to save human life. 180-A. It is clear that Henry did not commit suicide. Discuss fully. Beneficiary cannot recover where insured lawfully executed. the refusal of the insurer to pay a life insurance claim within the period prescribed will entitle the beneficiary to collect interest on the proceeds “at the rate of twice the ceiling prescribed by the Monetary Board” for the duration of the delay. 12. v. on August 19.R. unless the policy provides a shorter period: provided. The concept of prohibited donees. 2) Where the killing is in self-defense. Purita. SUGGESTED ANSWER: Beverly can recover. on a whole life plan for P20. BAR: 8. 2000. unless the refusal to pay is based on the ground that the claim is fraudulent.

164) NOTES AND COMMENTS: a. such that each one of them may insure the same property for his own sole benefit. What is double insurance ? SUGGESTED ANSWER: A double insurance exists where the same person or property is insured by several insurers separately in respect of the same subject and interest.. While it is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property. In case of loss there could only be 70% recovery of the damage or loss. et al. GOYU executed two real estate mortgages and two chattel mortgages in favor of Rizal Bank. Under the four mortgages. the partnership engaged in a sale of construction materials. Under the business name Pino Shop. What is reinsurance ? BAR: 12. et al. 289 SCRA 1292) 10. the intention of the parties should govern. et al. and companion cases.000. or descendants. an insurance company approved by Rizal Bank. Julie went to court and contended that she should not be blamed for the omission. GOYU applied for credit facilities and accommodations with Rizal Bank. he is deemed to have acted as a co-insurer with the insurer up to the extent of the deficiency.000. and subsequently to endorse and deliver the insurance policies to Rizal Bank.00. MICO’s underwriter. her claims were denied separately for breach of policy condition which required the insurer to give notice of any insurance effected covering the stocks in trade. Julie and Alma formed a business partnership. The insurable interests of a mortgagor and a mortgagee on the mortgaged policy are separate and distinct hence there is no double insurance if the mortgagor and the mortgagee take out separate insurances. A fire of unknown origin gutted the store of the partnership.00 and then from EIC for P200.00. BAR 11. to insure him against the liability by reason of such original insurance. she again got an insurance contract with RSI for P1. SUGGESTED ANSWER: Where an insured insures his property for less than its value. In such a case.000. Alchester.000. SUGGESTED ANSWER: This is a situation where the insurer procures a third party. 3) Person who takes an insurance policy on his own life and by the reason of the office of a public officer designates as the beneficiary such public officer. with were registered with the Registry of Deeds. 9.00. GOYU committed itself to insure the mortgaged property with MICO. (Rizal Commercial Banking Corporation. In such a case there is co-insurance by the insured up to the extent of 30%. For example. ascendants. As security for its credit facilities with Rizal Bank. his wife. Court of Appeals. .29 2) Persons found guilty of adultery and concubinage could not take a life insurance and name the other as a beneficiary in consideration of the adultery or concubinage as the case may be. RSI and EIC knew of the existence of the additional insurance coverages and that she was not informed about the requirement that such other or additional insurance should be stated in the policy. a reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured. (Geagonia v. 1) Is the contention of Julie tenable ? Explain.. Julie filed her claims with the three insurance companies. Who could recover on the insurance claim ? SUGGESTED ANSWER: Rizal Bank could recover up to the extent of its interest on the mortgage. clearly indicate that Rizal Bank is truly the entity for whose benefit the policies were clearly intended. called the reinsurer. Court of Appeals. the insurer shall be liable only for such proportion of the loss or damage that the amount of insurance bears to the designated percentage of the full value of the property insured. where there is loss or damage.000. Subsequently. property valued as P1.000. However. Julie insured the stocks in trade of Pino Shop with WGC Insurance Company for P350. alleging that the insurance agents for WGC.000. In the case at bar the endorsements made in favor of Rizal Bank. v. Basically. Example where there is no double insurance. 241 SCRA 152..00 was insured only for P700. What is co-insurance ? IMPT: 11. from whom GOYU secured the insurance prepared the indorsements but it turned out that the endorsements do not bear the signature of any officer of GOYU.

The mortgagee’s insurable interest is to the extent of the debt.R.000. SUGGESTED ANSWERS: a. SUGGESTED ANSWER: 1) No. An insurance policy contains the following clause: “The insured shall give notice to the Company of any insurance or insurances already effected. et al. the same interest therein. b. Lara could recover P750. Court of Appeals. because their insurable interest is different. (Ibid. (Geagonia vs. a) Both insurance companies now disclaim responsibility because of the violation of the “other insurance clause. The mortgagee has an insurable interest only up to the extent of the credit he has granted to the mortgagor. since the property is relied upon as security thereof. 1992) 2) No. In other words it is subrogated to the interest of Angelina. Court of Appeals. Effect of violation. (New Life Enterprises. and the same risk.” Could they legally do so ? b) In case. 241 SCRA 152) BAR: . et al. v.) NOTES AND COMMENTS: a..000. There is no violation of the other insurance clause where the mortgagor and the mortgagee took separate insurances. His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt.. The violation of the “other insurance” clause would avoid the policy. how much would be the extent of their respective liabilities ? c) Could Lara refuse to pay her obligation of P500. No.00 and Angelina. Angelina likewise insured the house. wither at the same time or at separate times. Other insurance prohibition clause. Julie’s failure to disclose the other insurances is considered as violation of a warranty. et al. 114427. in violation of the “other insurance clause” because their insurable interest is different. G. Both Lara and Angelina did not advise their respective insurers of the existence of the other insurances. 1995) 13. No. G. et al. BAR: b.000. not exceeding the value of the mortgaged property. The mortgagor’s insurable interest covers the full value of the mortgaged property. and in insuring he is not insuring the property but his interest or lien thereon. Court of Appeals.00 considering that the house was already burned ? Reason out your answers. February 6. P500. There is no violation where the mortgagor and the mortgagee took separate insurances. 94071. Court of Appeals.00 with Croft Insurance with the policy stating that any other insurances shall be declared otherwise all benefits under the policy shall be forfeited.000. Raider Insurance takes the place of Angelina. While both of the insurance policies were in force the house was burned. Thus. Mortgaged properties. March 31. even though the mortgage debt is equivalent to the full value of the property. The mortgagor and the mortgagee have each an independent insurable interest on the property and both interests may be covered by one policy or each may take out a separate policy covering his interest. The insurance policy also contained an “other insurance” clause. No. (Geagonia vs. NOTES AND COMMENTS: a.000. 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.00 from Angelina and as security she mortgaged her house worth P750. or which may subsequently be effected covering any of the property or properties hereby insured unless such notice be given and the particulars be stated therein before the occurrence of the loss otherwise all benefits under the policy shall be deemed forfeited. Insurable in mortgaged properties. It is Julie’s duty as the insured to disclose the other insurances covering the same subject matter of the insurance being applied for. also against fire with Raider Insurance in the amount of P500. (Geagonia vs. et al. the extent of their respective insurable interests.000. Lara insured the house against fire for P750. 241 SCRA 152) b.30 2) May she recover on her fire insurance policies ? Explain.. c.” The condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. No. Lara obtained a loan of P500.000. Exception: The other insurance must be upon the same subject matter. For reasons see above..00.00 to Angelina. The mortgagor has an insurable interest in the full value of the mortgaged property irrespective of the amount for which it is mortgaged.R. both Lara and Angelina could recover. separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee. and this would not violate the “other insurance” clause in the policy..

Leuterio’s heirs recover ? State your reasons.00. Dr. As a result of the non-payment insurance claim. et al.00 shall be paid. cancer. Consequently. which would have resulted to a full payment of the mortgage debt to DBP. In this type of insurance. Unless the interest of the person insured is susceptible of exact pecuniary estimation. and the mortgagor continues to be a party to the contract. 2004. SUGGESTED ANSWER: Yes. In a similar vein. the defense of concealment of Dr. It accrues simply upon payment of the insurance claim by the insurer. in this case P86. Insurable interest in mortgaged properties in “mortgage redemption insurance.200. Civil Code) The right of subrogation is not dependent upon. where the mortgagor pays the insurance premium under the group insurance policy.” The rationale of a group insurance policy of mortgagors. Upon being sued by Dr.” is a device for the protection of both the mortgagee and the mortgagor. No. Any change unaccompanied by a change in insurance suspends the insurance until the interest in the thing and the insurance is vested in the same person. . Thus. G. the mortgagee is simply an appointee of the insurance fund. In August 6. Grepalife issued the certificate on Dr. (Article 2207.31 BAR: c. and no showing of the exact amount of Dr. DBP should not unjustly enrich itself by collecting the insurance proceeds after it has foreclosed the property. the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. a death benefit in the amount of P86. 20. thereby relieving the heirs of the mortgagor from paying the obligation. the cause of his death. In the event of the debtor’s death before his indebtedness with the creditor shall have been fully paid. an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the sum assured. Insurance Code) d. any privity of contract or upon written assignment of claim. the proceeds from such insurance will be applied to the payment of the mortgage debt.R. On the part of the mortgagee. it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage debt. the insurance proceeds shall inure to the benefit of the heirs of Dr. ample protection is given to the mortgagor so that in the event of his death. Leuterio’s heirs for the insurance proceeds Grepalife now raises. et al.200. Dr. Leuterio died due to ”massive cerebral hemorrhage. Leuterio’s outstanding loan.” DBP submitted a claim. Could Dr. the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. 2005. 245 SCRA 796) 14. the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who violated he contract. a housing debtor of DBP. Grepalife and DBP entered into a contract of group life insurance with Grepalife agreeing to insure the lives of eligible housing loan mortgagors of DBP. Court of Appeals. On November 11. Leuterio. October 13. Subrogation. Dr. on the “mortgage redemption insurance” but it was denied by Grepalife on the ground of non-disclosure that Dr. (Coastwise Lighterage Corporation vs.. Leuterio stated that he never had high blood pressure. Since DBP has already foreclosed on the residential lot in satisfaction of Dr. and that to the best of his knowledge. making the loss payable to the mortgagee. 1999) NOTES AND COMMENTS: a. applied for membership in the group life insurance plan. Concealment of the state of health of the insured mortgagor as basis for refusing payment of insurance claims should be established by sufficient proof of the real state of health of the insured. Leuterio’s being hypertensive. Leuterio. Leuterio was suffering from hypertension.. on November 15. and he has received indemnity from the insurance company for the injury or loss arising our of the wrong or breach of contract complained of. nor does it grow out of. 2004. Leuterio’s outstanding indebtedness to DBP at the time of his death. In his application. if there is any shall then be paid to the beneficiary/ies designated by the debtor. Court of Appeals. 113899.000. The policy state that upon receipt of proof of debtor’s death during the terms of the insurance. such loss – payable clause does not make the mortgagee a party to the contract. Effect of change of interest in property. (Sec. the insurance is on the mortgagor’s interest. otherwise known as the “mortgage redemption insurance.. (Great Pacific Life Assurance Corporation v. The insurance taken was a life insurance policy which is a valued policy. Leuterio’s insurance coverage to the extent of his DBP mortage indebtedness of P86. he was in good health.00. DBP then foreclosed on the property. etc. If the plaintiff’s property has been insured.

with the same effect as if it had been performed by the mortgagor. Any other event which effectively deprives the owner of the possession. Insurance Code) b. et al. or d. G. The loss was caused by perils of the ship and not of the sea.” The stones were loaded in two lighters. Is the insurance company liable under its policy ? SUGGESTED ANSWER: No. 1999 15. c. (Sec. Court of Appeals. within a reasonable time and with reasonable diligence. A total destruction of the thing insured. 130. Instances where there is a constructive total loss of the thing insured which would entitle an insured to abandon in marine insurance: 1) If more than three-fourths of its value is actually lost or would have to be expended to recover it from the peril. Court of Appeals. the insured filed an action on the policy for recovery of the damages caused to the cargo. where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee. or 4) If the thing insured. b. without incurring the like expense or risk. An insurance company issued a marine insurance policy covering a shipment by sea from Mindoro to Batangas of 1. the insurance is deemed to be upon the interest of the mortgagor. 131. 139. What damages may be recovered in marine insurance ? SUGGESTED ANSWER: Recovery could be made only if the damage was caused by perils of the sea not by perils of the ship. October 13.000 pieces of Mindoro garden stones against “total loss only. the first with 600 pieces and the second with 400 pieces. or assigns a policy of insurance to a mortgagee. is to be performed by the mortgagor. “(U)pon an actual total loss.. will have the same effect. 113899. et al. Because of rough seas. which would otherwise avoid the insurance. 135. a person insured is entitled to payment without notice of abandonment.” During the voyage. May the insured recover damages ? SUGGESTED ANSWER: No. (Sec. may be performed by the mortgagee therein named. 200 SCRA 459) NOTES AND COMMENTS: a. being cargo or freightage. prior to the loss. Insurance Code) BAR: 16. although the property is In the hands of the mortgagee. 3) If the thing insured. 17. and the voyage cannot be performed nor another ship procured by the master. 2) If it is injured to such an extent as to reduce its value more than three-fourths. The owner of the shipment filed claims against the insurance company on the ground of constructive total loss inasmuch as more than three-fourths (3/4) of the value of the stones had been lost in one of the lighters. of the thing insured. and any act of his. A marine insurance policy on a cargo states that “the insurer BAR: 18. Insurance Code) . Defects of the ship are perils of the ship.” (Great Pacific Life Assurance Corporation v. damage was caused the second lighter resulting in the loss of 325 out of the 400 pieces. shall be liable for losses incident to perils of the sea. but any act which. which reads: “Unless the policy provides. No. The irretrievable loss of thing by sinking or by being broken up. (Sec. Constructive total loss in marine insurance. Insurance Code) c.R. (Oriental Assurance Corporation v. at the port of destination. But freightage cannot in any case be abandoned unless the ship is also abandoned. There is no constructive total loss because the three-fourths loss is to be computed on the whole shipment of 1. This is so because the defective drainpipe is attributable to the condition of the ship. seawater entered the compartment where the cargo was stored due to the defective drainpipe of the ship.000 stones which are covered by the single policy coverage. What is meant by actual total loss in marine insurance ? SUGGESTED ANSWER: An actual total loss for insurance purposes is caused by: a. (Sec. under the contract of insurance. who does not cease to be a party to the original contract. is a ship and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a risk which a prudent man would not take under the circumstances. Any damage to the thing which renders it valueless to the owner for the purpose for which he held it.. to forward the cargo. One which gives to a person a right to abandon.32 This could be seen from the provisions of Section 8 of the Insurance Code.

77 of the Insurance Code is that notwithstanding any agreement to the contrary. 78. “Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment. Policy No. was issued. The general rule provided in Sec. 00099047. On 6 April 2005. no policy or contract of insurance issued by an insurance company is valid and binding until the premium thereof has been paid. that Antonio violated several provisions of the contract. Section 306 of the Insurance Code provides that . whereby American undertook to indemnify Antonio for any damage or loss arising from fire up to P200. Is RC’s claim for total loss justifiable ? Explain. although the materials of which it consisted still exist. so far as to make the policy binding. Could Antonio recover ? SUGGESTED ANSWER: Yes. 206-4234498-7 .33 BAR: 19. American denied the claim raising the issue that there was no existing insurance contract as a result of non-payment of the premium. failure to notify American of any insurance already effected to cover the insured goods. In 2005 Antonio obtained a fire insurance from American Home Assurance Company the stock in trade of his business. 2001) 21. Filipino and Domestic.R. The insurer may grant credit extension for the payment of premium and if this has been the consistent practice.” (Sec.R. In case of a life or industrial life policy whenever the grace period provision applies. (Makati Tuscany Condominium Corporation v. The corresponding official receipt was issued on 10 April 2005. The rice was imported to be sold for human consumption. April 4. et al. The check was drawn against a Manila bank and deposited in American’s Cagayan de Oro bank account. Insurance Code) c. Estoppel. Court of Appeals. Prudential. G. No.50 to American’s agent James as payment for the renewal of the policy. notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.000. SUGGESTED ANSWER: Yes. as where the cargo by the process of decomposition or other chemical agency no longer remains the same kind of thing as before. When the cargo arrived in Manila. 1991 citing various cases) BAR: 20. which it intended to sell locally. Due to stormy weather. 215 SCRA 463) d.983.. The check drawn by Antonio in American’s favor and delivered to its agent was honored when presented and American forthwith issued its official receipt. It also contends that assuming the existence of a contract. Such a loss may exist where the form and specie of the thing is destroyed.. Court of Appeals. and with it the rice cargo. RC Corporation purchased rice from Thailand. v. because the rice was no longer fit for human consumption. Are there any exceptions to the rule ? Explain your answer briefly. It is now fit only for animal feed. Subsequently. No. 95070. On 5 April 2005. September 5. a new insurance policy. Complete physical destruction of the subject matter is not essential to constitute actual total loss.00 for the period 25 March 2005 to 25 March 2006. (Pan Malayan Insurance Corporation v. among others. namely: Pioneer. The renewal certificate issued to Antonio contained the acknowledgment that the premium had been paid. b. RC filed a claim for total loss with the insurer. Antonio then filed an insurance claim with American and four other coinsurers. Moonlight Enterprises. the ship carrying the rice became submerged in sea water. Masagana Telamart. Admittedly the rice could still be used as animal feed. the insurer could not take refuge in the nonpayment of the premium. There was payment. 137172. James delivered to Antonio Renewal Certificate No.. Section 77 may not apply if the parties have agreed to the payment in installments of the premiums and partial payment has been made at the time of the loss. SUGGESTED ANSWER: The following are the instances where the nonpayment of the premium does not render the insurance contract or policy invalid: a. G. et al. In turn. Antonio issued a check in the amount of P2. The insurance was due to expire on 25 March 1990. (UPCB General Insurance Co. Moonlight Enterprises was completely razed by fire with a total estimated loss of between P 4 million to P 5 million.

SUGGESTED ANSWER. On October 20. So long as an application for insurance has not been either accepted or rejected. There was no acceptance by the insurance as of the date when Primitivo died on November 25.000. 78 of the same Code explicitly provides. No.000. Court of Appeals. (Perez v. Under Article 1318 of the Civil Code. The conditions imposed by the insurer for the protection of the contract is not a potestative or facultative condition. Primitivo drowned and died on November 25. a. notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. There was non-fulfillment of the condition. b. or determined. Chua. payment of the premium. 1999) 22.R.R. but is a suspensive one whereby the acquisition of rights depends upon the happening of an event which constitutes the condition. 2004. On November 1. he applied for an additional insurance coverage of P50.00 additional insurance which amounts to P150.34 any insurance company which delivers a policy or contract of insurance to an insurance agent or broker shall be deemed to have authorized such agent or broker to receive on its behalf payments of premiums. No. before it shall take effect. The filing of the insurance application.000. The insurer now disclaims liability on the additional P50.000. must have been a completed contract.00. His wife paid P2. The corporation may not be penalized for the delay in the processing of the application papers. so far as to make the policy binding. one party undertakes to compensate the other for loss on a specified subject by specified perils. Requisites for a contract of insurance. 2004. 78 establishes a legal fiction of payment and should be interpreted as an exception to Section 77. he underwent a physical examination which he passed.” Is Primitivo’s beneficiary entitled to the proceeds additional P50. nothing to be completed. so Primitivo accomplished another one.. “An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment. am/are in good health. G. The application form was lost. is a meeting of the minds between two persons whereby one binds himself. 11239. with respect to the other to give something or to render some service.” Section. A contract. and submission to the insurer. As is the procedure. Hence. all of Primitivo’s papers were then sent to the Manila office of BF Lifeman Insurance Corporation which received the papers on November 27.00 in view of a triple indemnity rider on the policy? Explain briefly. to be binding from the date of application. Primitivo’s beneficiary is not entitled to the insurance proceeds for the following reasons: a. it is merely an offer or proposal to make a contract. Insurance is a contract whereby. c) The insurer cannot be held for gross negligence. nothing to be passed upon. On December 2. like other contracts. et al. must be assented to by both parties either in person or by their agents. the suspensive condition was the policy must have been delivered and accepted by the applicant while he is in good health. on the other hand. January 28. the insurer then approved the policy and issued the corresponding policy not knowing that in the meantime. Delay in acting on the application does not constitute acceptance even though the insured has forwarded his first premium with his application. Sec. In this case. There can be no contract of insurance unless the minds of the parties have net in agreement. It should be noted that an application is a mere offer which requires the overt act of the insurer for it to ripen into a contract. however.075. Primitivo was insured with BF Lifeman Insurance Corporation for P20.00 as premiums to the agent who issued a receipt indicating that the amount was merely a “deposit”. Contract of insurance is perfected where there is an offer to be covered and the insurance has accepted the offer absolutely. 2004. G. (American Home Assurance Company v. were all subject to the acceptance of the insurer. 2004. 2004. 1987. June 28. inasmuch as the applicant was already dead at the time the policy was issued. The contract. When insurance contract perfected.00 coverage because of failure to comply with the following requisites stated in the application form for the perfection of the contract of insurance: “There shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We. 1304421.000. b) A contract of insurance. the non-fulfillment of the condition resulted in the non-perfection of the contract. there is no contract unless the following requisites concur: . one that leaves nothing to be done. 2000) NOTES AND COMMENTS. In 1998. for a stipulated consideration.00.

What are the conditions for the availment of a no fault . b. Several cases were filed against Guillermo. Where the insurance is made for a definite period of time and the insured surrenders his policy. among which include a. In case of over insurance by several insurers. the insurer never incurred any liability under the policy. Although the victims or their heirs may proceed directly against the insurer for indemnity. Court of Appeals.35 (1) Consent of the contracting parties. being primary. G. the third party liability is only up to the extent of the insurance policy and those required by law. the insured is entitled to a ratable return of the premium. Insurance Code) insurance ? SUGGESTED ANSWER: a. Proofs of loss shall be sufficient to substantiate the claim. No. May the insurer be impleaded directly by the victims or their heirs ? If so. et al. The liability of the insurer therefore.. 11239. d. (Perez v. No. (3) Cause of the obligation which is established. Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (2) Object certain which is the subject matter of the contract. A collision between a truck driven by Guillermo owned by the National Food Authority (NFA) and a public utility Tamaraw FX owned and operated by Victor resulted to the death of five persons and injury to ten others. This is so because common carriers are required to secure the Compulsory Motor Vehicle Liability Insurance (CMVLI). It was found that Guillermo’s negligence was he proximate cause of the accident. When the contract is voidable on account of the fraud or misrepresentation of the insurer or of his agent or on account of facts the existence of which the insured was ignorant without his fault. January 28. NFA. To the whole premium. (Sec.R. Death certificate and evidence sufficient to establish the proper payee. Victor as well as his insurer. What is no fault insurance and what is the proof required in these cases ? SUGGESTED ANSWER: No need to prove fault or negligence of any kind in order of recover. Police report of accident. that of the insured carrier or vehicle owner is based upon tort. the direct liability of the indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault. is not dependent on the recovery of judgment from the judgment insured. proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. June 21. SUGGESTED ANSWER: The insured is entitled to a return of the premium paid in the following instances: a. NFA’s insurer of the truck for death and injuries.. could they be held solidarily liable ? Explain your answers. 2000) 23. unless a short period rate has been agreed upon and appears on the face of the policy.R. et al. c. Guillermo. after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued. b. It does not include property damage. It is now established that the injured or the heirs of the victims of a vehicular accident may sue directly the insurer of the vehicle. he shall be entitled to such portion of the premium corresponding to the unexpired time at a pro rata rate. all of whom were passengers of the FX. NFA and GSIS. Only for claims for death or injury of any passenger or third party. Name instances when an insured is entitled to a return of the premium paid. GSIS and the insurer of the FX were required to pay jointly and severally the heirs of the deceased passengers. (Government Service Insurance System v. While it is true that where the insurance contract provides for indemnity against liability to third persons. SUGGESTED ANSWER: Yes. or medical report and evidence of medical or hospital disbursement in respect of which refund is claimed. by any default of the insured other than actual fraud. 24. G. 378. and such third persons can directly sue the insurer. 1999) BAR: 25. BAR: 26. This is so because the liability of the insurer is based on contract. The offer must be certain and the acceptance absolute. 101439. Court of Appeals. or when. if no part of the insured’s interest in the thing insured be exposed to any of the perils agreed upon.

1991) More than one year had lapsed when the suit was filed only on March 20. G. (Sun Insurance v. Y and Z chose to avail of the “nofault” indemnity clause. It does not appear from the facts that X. G. SUGGESTED ANSWER: No.000. a pedestrian waiting for a ride at the scene of the collision. These were contained in 1.250 bags shipped to the Philippines and insured by First Insurance Co. While driving his car along EDSA. Judge. Consolacion. 2005 despite the denial having taken place on February 28. and ordered Dragon Insurance to pay indemnity to all three plaintiffs. November 14. 1988) b) No. against all risks at the port of origin under a Marine Policy with the notation.S. On March 20. Joseph Chua bought and imported from Taipei 50 metric tons of Dicalcium Phospate. et al. The insurance company moved to dismiss the complaint contending that the liability of Cesar has not yet been determined with finality. Should Robin’s action be given due course ? Explain. The insurer cannot be held solidarily liable with Cesar because its liability is based on contract while that of Cesar is based on tort. et al. The bus had a CMVLI policy issued by Dragon Insurance Corporation.R. “Claim. 60506. The insurance policy contained the usual stipulation that any action or suit must be filed within one year after the rejection of the claim.. c. . In all cases. X. payable in U. Where an insurance policy insures directly against liability. dismissed the suit against RM Travel. There is no need to wait for a determination of Cesar’s liability with finality.. March 13. Total indemnity in respect of one person shall not exceed P5.00. Court of Appeals. (Shafer v.. mounting or dismounting from. comprehensive motor vehicle liability insurance (CMVLI) underwritten by Fast Pay Insurance Company when it collided with a speeding bus owned by RM Travel.. the insurer’s liability accrues immediately upon the occurrence of the injury or event upon which the liability depends. the police report established that the bus was the offending vehicle. the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. G. Do you agree with the court’s judgment ? Explain. Y and Z jointly sued RM Travel and Dragon Insurance for indemnity under the Insurance Code of the Philippines (P. et al. a) Is the contention of the insurer correct ? Explain.. b) May the insurer be held liable with Cesar ? SUGGESTED ANSWER: a) No. 378. On April 3. The prescriptive period of one (1) year from rejection of claim stated in policy for filing suit is not suspended by a request for reconsideration of claim denial.D. No. BAR: 28. After his building burned down. and Z. b. Claim may be made against one motor vehicle only. In any other case. but EFG reiterated its position.36 b. claim shall be against the insurer of the directly offending vehicle. Inc. August 6. et al. Insurance Code) causing injuries to the latter. 30. The court should not have applied the no-fault indemnity policy. 89741. de Maglana.. (vda. The case against RM Travel Insurance should not be dismissed to enable the parties to recover against it any damages which may not have been covered by the insurance policy issued by Dragon. Robin commenced action against EFG. 2005. Robin sought reconsideration of the denial. 2003. (1996. 2003. v. Cesar sideswiped Roberto. No. L-78848. The insurer is not correct. claim shall lie against the insurer of the vehicle in which the occupant is riding. Robin filed his claim for fire loss with EFG. On February 28. Y. In the case of an occupant if a vehicle.R. X was riding in a suburban utility vehicle (SUV) covered by a BAR: 29. 1992) BAR: 27. 2004. Roberto sued Cesar and the third party liability insurer for damages and/or insurance proceeds. EFG denied Robin’s claim.R. The collision resulted in serious injuries to X. dismissed the suit against RM Travel and ordered Dragon Insurance to pay indemnity for the following reasons: a. adapted) SUGGESTED ANSWER: No. Feed Grade. 1460) The lower court applied the “no-fault” indemnity policy of the statute. Robin insured his building against fire with EFG Assurance. if any. Hon. etc. a passenger of the bus. (Sec.

Inc. 33. (Smith. Nature of statements: Concealment is neglect to communicate. Rizal now refuses to pay contending that the fire insurance policy covered only the contents of the four-span building. Sec. The two storey-building was already existing when the fires insurance policy contract was entered into.” On January 12. SUGGESTED ANSWER: a. Distinguish one from the other: concealment. representations are mere collateral inducements to the contract. c. Smith. Bell & Co. Joseph brought suit against Smith. As a result of damages suffered. Extent: The facts concealed must be material. That the ship is seaworthy to make the voyage and/or to take in certain cargoes. fire broke out in the compound of Transworld. As a settling agent acting within the scope of its authority. and not the damage caused on the two-storey annex building. Is the contention correct ? SUGGESTED ANSWER: No. 2004 to March 13. Bell could not be held liable because there is no privity of contract between it and Joseph. the injured party is entitled to rescind from the time when the representation becomes false. “xxx contained and/or stored during the coverage of this Policy in the premises occupied by them forming part of the buildings situated within own Compound xxx. v. especially if it is making a voyage through belligerent waters. Bell and Co. representations oral or written statement. Rizal is liable for the damage caused on the two-storey building.. That the ship shall carry the necessary documents to show nationality or neutrality and that it will not carry document which will cast reasonable suspicion thereon. 2005. while warranties are conclusively presumed material.37 Currency at Manila. Furthermore. A two-storey building that was behind the four-span building where fun and amusement machines and spare parts were stored. Inc. 267 SCRA 530) SUGGESTED ANSWER: The following are the implied warranties in marine insurance: a.” Smith. b. c. Bell be held liable ? Explain. Bell cannot be held personally liable and/or solidarily liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim. Rizal Surety & Insurance Company issued Fire Insurance Policy No. included among others those.500. 45727 in favor of Transworld Knitting Mills. representation and warranty as used in insurance. SUGGESTED ANSWER: No. It razed the middle portion of its four-span building and partly gutted the left and right sections thereof. Court of Appeals.00 for the period August 14.. The coverage of the policy reads. even if the death or loss was die to a cause not at all related to the concealed matter. May Smith. BAR: 31. those warranted are part of the contract. 190 of the Insurance Code clarifies the role of the resident agent of a foreign insurance company to be merely the representative tasked to receive legal processes on behalf of its principal and not to answer personally for any insurance claims.000. for P 1. What warranties are implied in marine insurance ? BAR: 32. 2004. Rizal should have specifically excluded said two-storey building from the coverage . so also with representations.00 which amount was increased to P1. the insured. upon breach of a warranty the insurer has the right to rescind.” and stamped at the lower left side of the policy as “Claim Agent. d. There is solidary liability only when the obligation expressly so states or when the law or the nature of the obligation requires solidarity. was also destroyed by the fire. if the representation is false on a material point. d. That the ship shall not carry contraband. warranties may be express or implied. b. Inclusion in contract: The facts concealed are not part of the contract.000. Smith. Consequences: Concealment vitiates the contract and entitles the insurer to rescind. 2005. et al. On March 13. Bell as a result of its refusal to pay claiming to be a mere settling or claim agent because it has not even taken part in the contract of insurance. That the ship shall not deviate from the voyage insured.500.

NOTES AND COMMENTS: a. Will the suit prosper ? Explain. After a month. While the policy was in effect. While the suit was pending. (Rizal Surety & Insurance Company v. No.R. Court of Appeals. 208 SCRA 487) construction employees variously assigned to its provincial infrastructure projects. The loss of the car by theft is a covered loss. This is in accord with the provisions of Article 1377 of the New Civil Code which provides that. HL filed a claim for the loss of the car with the insurance company but it was denied on the ground that his wife who was driving the car when it was carnapped was in possession of an expired driver’s license. a P30. State which of the four accounts are deemed insured by the Philippine Deposit Insurance Corporation. May the insurance company be held liable to indemnify HL for the loss of the insured vehicle ? Explain.” (Rizal Surety & Insurance Company v. et al. March 13. Liabilities on contract of suretyship. A stipulation as to the coverage of the fire insurance policy which has created doubt should be resolved against the insurer whose lawyer or managers would have drafted the fire insurance policy. Horace maintains a P10. 2001) BAR: 35. through its executive PJ. and (c) malicious act. Interpretation of insurance contracts. SUGGESTED ANSWER: Yes. HL insured his brand new car with P Insurance Company for comprehensive coverage wherein the insurance company undertook to indemnify him against loss or damage to the car (a) by accidental collision xxx (b) by fire.38 of the fire insurance if minded to exclude the same. Court of Appeals.00 trust fund in a medium size commercial bank. PJ instructed the insurance company to issue the settlement check to the order of X Company. .00 money market placement and a P40. G. No. (Republic v. a violation of the “authorized driver” clause of the insurance company. raw materials and supplies stored “in the premises” of Transworld which was an integral part of the four-span building.000.. SUGGESTED ANSWER: Yes. 2000) BAR: 34. external explosion. Since X Company.000. July 18.000. Because the car could not be recovered. burglary.000. as amended by P. 103073. it is bound by the conduct of its agent. et al.. It went on to provide such fire insurance policy which covers the products. five of the covered employees perished at sea on their way to their provincial assignments. et al. July 18. which will undertake the payment to the individual claimants of their respective shares. X Company procured a group accident insurance policy for its Philippine Deposit Insurance Corporation Act (R. 2000) NOTES AND COMMENTS: a. as their authorized representative to enter into a settlement with the insurance company. Y Insurance Company underwrote the coverage. the premiums of which were paid for entirely by X Company without any employee contributions.00 checking account. Their wives sued Y Insurance Company for payment of death benefits under the policy. When a settlement was reached. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. 7400 1. “The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Section 176 of the Insurance Code provides that the liability of the surety of sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. No. or theft. Court of Appeals. It is immaterial that HL’s wife was driving the car with an expired driver’s license at the time it was carnapped. et al. acted as agent of the Y Insurance Company.D. but it did not.A. It is the standard practice in the group insurance business that the employer-employee policyholder is the agent of the insurer. PJ.. 1937 and R. the car was carnapped while parked in the parking space in front of the Intercontinental Hotel in Makati. (Perla Compania de Seguros v.00 savings account. a P20. Court of Appeals. PJ misappropriated the settlement amount and the wives pursued their case against Y Insurance Company. 3591)..A. HL’s wife who was driving said car before it was carnapped reported immediately the incident to various government agencies in compliance with the insurance requirements. the wives signed a power of attorney designating an X Company executive .

(Loadstar Shipping Co. Court of Appeals. No distinction is made between one whose principal business activity is the carrying of goods and one who does such carrying only as an ancillary activity. 168 SCRA 612) BAR: 1. The vessel. and one who does such carrying only as an ancillary activity (in local idiom. et al. a strong wind hits the vessel. corporation. et al. allegedly as a result of a typhoon. Sanchez Brokerage. firm or association engaged in the business of carrying OR transporting passengers or goods or both. v. No. September 28. When sued for damages Star Shipping cites a stipulation in the charter agreement exempting the company from liability for loss or damage a rising from the negligence of its agents.000. A common carrier undertaking to carry a special cargo or chartered to a special person becomes a private carrier hence not subject to the above prohibition. No distinction between principal business and “sideline” offering of service to public. (A . Inc. 1999) b. including “total loss by total loss of the vessel. G.. Define a common carrier. Is the stipulation valid ? Would you hold the shipping company liable ? SUGGESTED ANSWER: Yes.e. the vessel sank off Limasawa Island. No. resulting to total loss of the vessel and the cargo. (De Guzman v.R. Common carrier ceases to be common carrier if chartered and becomes a private carrier. December 21. 168 SCRA 612.067. v. from a single consignee. 147079. null and void. During the trip. Christine charters a vessel owned and operated by Star Shipping Co. et al.. in turn was insured by PGAI for P4 million. (Home Insurance Co. G. R. Customs broker is a common carrier. Inc. tile wood assemblies and apitong mouldings with a total value of P6. Art.. Court of Appeals. offering its services to the public. (Art.. v.. on board its M/V Cherokee lawanit hardwood. Court of Appeals. Arts. 2. Christine countered by stating that the aforementioned stipulation is against public policy and therefore. 617 (1988) c. hence the shipping company is not liable.00 checking account are deemed insured by the Philippine Deposit Insurance Corporation. It is considered as such even if its principal function is to prepare the correct customs declaration and proper shipping documents as required by law if it undertakes to deliver the goods for pecuniary consideration. (4) Transportation Laws (a) Common Carriers (New Civil Code. and insured for the same amount with MIC against various risks.00 savings account and the P20. Civil Code) It is not necessary for a transport company to have a certificate of public convenience and necessity before it could be considered as a common carrier. 23 SCRA 24) 3. 349 to 379) SUGGESTED ANSWER: A person.. The stipulation is valid. The . Star Shipping’s employees negligently stowed the two generators by failing to properly lash and secure them in the vessel’s hold.000.F.00. Neither does it distinguish between a carrier offering its services to the “general public.178. by land.39 SUGGESTED ANSWER: The P10. 131621. as “a sideline”) It 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. It should exercise extraordinary diligence in the care of goods. Loadstar received. American Steamship Agencies. a common carrier. 1732 of the Civil Code makes no distinction between one whose principal business activity is the carrying of persons or goods or both. Evidence shows that the wind condition in the area where the vessel sank was moderate. 1732. for the purpose of transporting two generators to Cebu. and one who offers services or solicits business only from a narrow segment of the general population.. the general community or population. water of air for compensation. 2004 citing De Guzman v.” It likewise carried passengers. Court of Appeals. causing severe damages to the generators which slid in the hold and hit each other. 1732 to 1766) (b) Commercial Contracts for Transportation Overland (Code of Commerce Arts. NOTES AND COMMENTS: a. The prohibition against exempting a carrier from liability as a result of the acts or omissions of its employees is applicable only to common carriers. On 20 November 1984.” i. episodic or unscheduled basis.

and that the claim was barred by prescription. it was shown that the vessel was also carrying passengers. One party prepares the stipulation in the contract while the other party merely affixes his signature or his “adhesion” thereto. Further. 325 Phil. 2004 citing Philippine Commercial International Bank v.. Neither the Civil Code nor the Code of Commerce states a specific period on the matter. Nature of a bill of lading and interpretation. the carrier and the consignee undertake specific responsibilities and assume stipulated obligations.. R. 286 SCRA 257) BAR: 4. 2004) b. Inc. The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent.. it did not sink because of any storm that may be deemed as force majeure. No. What do you understand by a “bill of lading” ? BAR: 5. is not reason enough to convert the vessel from a common carrier to a private carrier. undertook to carry a special cargo or was chartered to a special person only. the literal meaning of the stipulations shall control. MIC then paid the consignee and the latter signed a subrogation receipt. et al. Where the terms of the contract are clear and leave no doubt upon the intention of the contracting parties. NOTES AND COMMENTS: a. giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Loadstar raises the defense that it is not a common carrier because it does not have a CPCN. G. occasional. but which the latter cannot modify. It is a contract by which three parties. v. In any event. Stipulations therein are valid and binding in the absence of any showing that the same are contrary to law. and this public character is not altered by the fact that the carriage of the goods in question was periodic. MIC then filed suit against both Loadstar and PGAI. et al. There was no charter party... September 28. 588. Contracts of adhesion are not invalid per se. SUGGESTED ANSWER: Loadstar is a common carrier. (Provident Insurance Corporation v. It is a receipt of the goods shipped. R. or damage to. A bill of lading is a contract of adhesion but once accepted it is binding. The bill of lading defines the rights and liabilities of the parties in reference to the contract of carriage.40 consignee made a claim with Loadstar which was ignored. 131621. G. et al. G. v. 255 SCRA 48) A bill of lading is in the nature of a contract of adhesion where one of the parties imposes a ready-made form of contract which the other party may accept or reject. if he adheres he gives his consent. public order and public policy. which appears to be purely coincidental. especially where. Rule on the contentions. vs. (Telengtan Brothers & Sons. namely. as in this case. The records do not disclose that M/V Cherokee on the date in question. Court of Appeals. No.. (Loadstar Shipping Co. 255 SCRA 299 (1996) . and b. It likewise posits the application of the “limited liability” theory. customs. SUGGESTED ANSWER: a. Court of Appeals. (Philippine Airlines. Inc.. Court of Appeals. morals. Court of Appeals. (Keng Hua Paper Products Co. Explain the two-fold character of a “bill of lading. inasmuch as the wind condition in the area where it sank was determined to be moderate. cargoes sustained during transit. that there was only one shipper consignee for a special cargo. may be applied suppletorily to the case at bar.” Once delivered and accepted it constitutes a contract of carriage even though not signed. January 15. the shipper. v. (Provident Insurance Corporation v. Nevertheless.R. these types of contracts have been declared as binding as ordinary contracts. Court of Appeals. January 15. hence the COGSA which provides for a one-year period of limitation on claims for loss of. REASON: One who adheres to the contract is free to reject it entirely. Inc. et al. 1999) SUGGESTED ANSWER: A written acknowledgment of the receipt of goods and an agreement to transport and to deliver them at a specified place to a person named therein or on his order. episodic or unscheduled. It is not necessary that the carrier be issued a certificate of public convenience. the bare fact that the vessel was carrying a particular type of cargo for one shipper. the reason being that the party who adheres to the contract is fee to reject it entirely . Court of Appeals. Inc. Loadstar was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. REASON: There is actual and constructive notice of the contents giving rise to the presumption that the same was a perfected and binding contract. Prescription has not yet set in. 118030. No. 118030. 236 SCRA 617) Obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly interpreted but not unreasonably against the drafter thereof when justified in the light of the operative facts and surrounding circumstances. Court of Appeals.

v. BAR: a. 131621. is dispensed with or diminished.” A common carrier.. 4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family. the contract of carriage as stipulated in the bill of lading must be treated independently of the contract of sale between the seller and the buyer and he contract for the issuance of a letter of credit between the buyer and the issuing bank. 7) that the common carrier is not responsible for the loss. deliberately disregarded its solemn duty to exercise extraordinary diligence and obviously acted NOTES AND COMMENTS: . or deterioration of goods on account of the defective condition of the car. Inc. violence or force. (Art. 1745. Court of Appeals. unjust and contrary to public 1) That the goods are transported at the risk of the owner or shipper. The second is one providing for an unqualified limitation of such liability to an agreed valuation. According to an almost uniform weight of authority. wear and tear and common employment. 3) That the common carrier need not observe any diligence in the custody of the goods. Inc. ship... 3 above. v.R. Acceptance by the consignee of the bill of lading binds it to the terms which includes payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by the tariff rules. Stipulations considered unreasonable. Court of Appeals. 6) that the common carrier’s liability for acts committed by thieves. SUGGESTED ANSWER: No. Breach of duty by a common carrier. destruction. Inc. Civil Code) b. with full awareness that it was exposed to perils of the sea. 286 SCRA 257) c.. 286 SCRA 257) BAR: d. For reasons. using the utmost diligence of very cautious persons. Court of Appeals. vehicle. in allowing its unseaworthy vessel to leave the port of origin and undertake the contracted voyage. Was Coastwise Lighterage transformed into a private carrier by virtue of the contract of affreightment with Pag-Asa ? What degree of diligence should Coastwise observe ? Reasons. v. 5) That the common carrier shall not be responsible for the acts or omissions of his or its employees. Inc. et al. (Keng Hua Paper Products Co. the first and second kinds of stipulations are invalid as being contrary to public policy. It turned out that the patron employed by Coastwise was not licensed. (Keng Hua Paper Products Co. Hence.. Court of Appeals. What are the three kinds of stipulations made in bills of lading regarding liability ? SUGGESTED ANSWERS: The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. see Loadstar case. with a due regard for all the circumstances. (Keng Hua Paper Products Co. et al. destruction. G. v. An allowance or compensation for the delay or detention of a vessel.. 2) That the common carrier will not be liable for any loss. airplane or other equipment used in the contract of carriage. or of a man of ordinary prudence in the vigilance over the movables transported. 1999) COMMENTS AND NOTES: BAR: policy: a. (Loadstar Shipping Co. but the third is valid and enforceable. no. one of the barges struck an unknown sunken object causing damage to the barge and the molasses. No. entered into a contract to transport molasses from Negros to Manila with Coastwise Lighterage Corporation.41 BAR: 6. The third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. A letter of credit and a bill of lading are separate contracts.. or of robbers who do not act with grave or irresistible threat. “A common carrier is bound to carry the passengers safely as far as human care and foresight can provide. It is the true measure of damages in all cases of mere detention. for that allowance has reference to the ship's expenses. 286 SCRA 257) 6. which provides that. or deterioration of the goods. et al. Upon reaching Manila Bay while approaching Pier 19. September 28. The failure of a common carrier to maintain in seaworthy condition the vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. et al. Inc. Demurrage defined. and it should observe extraordinary diligence. using the latter’s dumb barges.. Pag-asa Sales.

February 7. If the interruption should be caused by the disability of the vessel and a passenger should agree to await the repairs. 1999) h. et al. et al. Transhipment is the act of taking cargo out of one ship and loading it in another. supra) i. Proximate cause. Where the delay in a contracted voyage is incurred after the commencement of such voyage. G. 2005) BAR: f. v. instead of dropping anchor in or at the periphery of the Port of Calapan. et al. without right to recover for losses and damages if the interruption is due to fortuitous event or force majeure. The extraordinary responsibility of the common carrier lasts until actual or constructive delivery of the cargoes to the consignee or to the person who has a right to receive them. Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property and rights. vs. It follows that the presumption of negligence that attaches to common carriers. v. common carriers are presumed to have been at fault or to have acted negligently. No. The mere proof of delivery of goods in good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. Lorenzo Shipping Corporation.. he may not be required to pay any increased price of passage. unbroken by any efficient intervening cause. produces injury and without which the result would not have occurred. August 25. However.R. Court of Appeals. Inc. by placing a person whose navigational skills are questionable at the helm of the vessel. G. February 7. No absolute obligation on the part of a carrier to accept a cargo. the passengers shall be obliged to pay the fare in proportion to the distance covered. et al. (Magellan v. he could be presumed to have both the skill and the knowledge that would have prevented the accident. “Those obliged to deliver or do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Degree of care. 246 SCRA 376) d. unless they prove that they observed extraordinary diligence. it takes the risk of delivering it in good condition as when it was loaded. where a common carrier accepts a cargo for shipment for valuable consideration. Court of Appeals. That which. etc. No. Lorenzo Shipping Corporation. When duty ends. The carrier has not exercised this burden if the patron of its vessel is unlicensed. (Coastwise Lighterage Corporation vs. R. 153563. lacks not just the skill to do so. R. In a court case involving claims for damages arising from death . counsel for the bus operator files a demurrer to evidence arguing that the complaint should be dismissed because the plaintiffs did not submit any evidence that the operator or its employees were negligent. Inc. (Macam.. If you were the judge. Article 269 of the Code of Commerce. not Article 1169 of the Civil Code applies. would you dismiss the complaint ? SUGGESTED ANSWER: No. Court of Appeals. 245 SCRA 796) g. once the goods it transports are lost. Court of Appeals. Court of Appeals. 155 SCRA 48) BAR: c.” Article 1169 of the Civil Code states in part. (Republic. 2005) e. proceeded on its voyage on the assumption that it will be able to beat and race with the typhoon and reach its destination before it. Court of Appeals. 254 SCRA 260) Article 698 of the Code of Commerce reads: “In case a voyage already begun should be interrupted.42 with bad faith and in a wanton and careless manner. 125524. but with a right to indemnity if the interruption should have been caused by the captain exclusively. Since no evidence was BAR: 7. v. it is not relieved of liability for loss or injury resulting therefrom.. It is immaterial whether or not the same person. It may also logically. The carrier cannot safely claim to have exercised extraordinary diligence... et al. follow that a person without license to navigate. et al. or apparent upon observation but it accepts the goods notwithstanding such condition. destroyed or deteriorated. Inc. 201 SCRA 102) and injury of bus passengers. et al. When duty starts. (Sulpicio Lines. (Sabena Belgian World Airlines v. The exacting standard of extraordinary diligence is imposed on common carriers is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier. but his living expenses during the stay shall be for his own account. Where the vessel’s crew took a calculated risk when it proceeded despite the typhoon brewing somewhere in the general direction to which the vessel was going.. v. Even if the fact of improper packing is known to the carrier or its personnel.. et al.. (Philippine Airlines. This presumption can be overcome only by proof of the exercise of extraordinary diligence. (Republic.. The vessel took a greater risk when. or returning to the port of Manila which is nearer. In case of death of or injuries to passengers. et al. firm or entity owns the two (2) vessels. the sinking of the vessel was due to gross negligence. (TransAsia Shipping Lines. Had the patron been licensed. in natural and continuous sequence. G. 153563.. A common carrier is obliged to transport its passengers to their destinations with the utmost diligence of a very cautious person. thus making it liable for moral and exemplary damages. once the goods have been lodged for shipment. No. Court of Appeals. which eventually met the accident. v.” b. Rationale for extraordinary diligence. but also the utmost familiarity with the usual and safe routes taken by seasoned and legally authorized ones.

et al. In what instances are common carriers not liable ? SUGGESTED ANSWER: Common carriers are not liable where the loss. a presumption arises against the carrier of its failure to observe that requisite diligence.. Inc.. 256 SCRA 746) BAR: b.43 presented to overcome this presumption the case should not be dismissed and the bus operator should now be required to present its evidence. (Philippine Home Assurance Corp. Martin claimed for the value of his cargo. December 21. No.000. NOTES AND COMMENTS: BAR: a. (Eastern Shipping Lines.. destruction or deterioration was caused by: a. The character of the goods or defects in the packaging or in the containers. Inc. . Act of the public enemy in war.F. storm.00. Court of Appeals. It cannot be an Act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. vs.This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. et al. As a general rule common carriers are responsible for the loss. Martin had bought the equipment from Hong Kong for US$ 5. destruction. or other natural disaster or calamity. Civil Code) NOTES AND COMMENTS: a.00 instead of just P200.” The cargo was totally damaged before reaching Cebu. the equipment was shipped through M/S Lapu-Lapu under a bill of lading which contained the following provision in big bold letters: “The limit of the carrier’s liability for any loss or damage to cargo shall be P200. et al.000. the court need not even make an express finding of fault or negligence on the part of the common carrier. Flood. d. whether declared by its shipper or otherwise. G. 147079. earthquake. In case of loss of goods in transit. (Art. Court of Appeals. and there need not be an express finding of negligence to hold it liable. BAR: c. R. No finding of negligence needed. (Baliwag Transit.00 or P225. the common carrier is presumed under the law to have been at fault or negligent. c. of the time and place. Court of Appeals. or deterioration of the goods.. 234 SCRA 78) In a contract of carriage. A stipulation in the bill of lading limiting the carrier’s liability unless the shipper declares a higher value and a higher rate of freight is valid and enforceable. et al. it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured.. Act or omission of the shipper or owner of the goods. Inc. Unless the presumption is rebutted.00 regardless of the actual value of such cargo.00 as per the limitation on the bill of lading. but he nevertheless accepts the same without protest or exception notwithstanding such condition. When loss occurs common carrier presumed to be at fault or is negligent. et al. Fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means. 1734. Lorenzo Shipping Corporation.. Is there any legal basis for Martin’s claim ? SUGGESTED ANSWER: None. When the goods shipped either are lost or arrived in damaged condition. v. No. Carrier is liable for defective packing if improper packing is known to the carrier or his employees or is apparent upon ordinary observation. Fault or negligence defined. (Sabena Belgian World Airlines v. There being no showing that Martin declared a higher value of the video equipment and had paid a higher rate of freight. Fire not natural. Fault or negligence consists in the omission of that diligence which is demanded by the nature of an obligation and corresponds with the circumstances of the person. (A . This rule remains basically unchanged even when the contract is breach by tort or although non-contradictory principles on quasi-delict may then be assimilated as also forming part of the governing law. Court of Appeals. he is bound on the stipulation in the bill of lading limiting liability. R. Sanchez Brokerage. G. 257 SCRA 468) b. Court of Appeals. e. b.000. 255 SCRA 38) BAR: 8. et al. v. $5. whether international or civil. 2004 Cebu. v. (Republic. Order or act of competent public authority. February 7. v. 2005) REASON: Common carriers in the carriage of goods are bound to observe not just the due diligence of a good father of a family but that of “extraordinary” care in the vigilance over the goods. Martin shipped an expensive video equipment to a friend in . 153563. NOTES AND COMMENTS: BAR: 10. lightning.

and has been fairly and freely agreed upon. Five (5) coils of steel arrived in the Philippines on board vessel already damaged. Finally. to which the contract refers shall be taken into consideration on the question of whether or not a stipulation limiting the common carrier’s liability is reasonable.” (Art. the three day notice is dispensable so long as the claim is filed within the one year prescriptive period. G. First Insurance Co.000. there was notation on the bill of lading “metal envelopes rust stained and slightly dented. good customs and public policy. unless the shipper or owner declares a greater value.. The shipping line pointed to him the provision on the bill of lading limiting liability to only P500. 255 SCRA 48) The stipulation is valid even if the shipper has not read nor signed the stipulation. what advice shall you give him ? SUGGESTED ANSWER: He should try to settle the case considering that the shipping line's contentions are correct. Civil Code) REASON: The limitation of the carrier’s liability is sanctioned by the freedom of the contracting parties to establish such stipulations. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading. there was no notice of loss filed within the three-day period provided under the Carriage of Goods by Sea Act.. Furthermore. if it is reasonable and just under the circumstances.00. terms. clauses. (Art. Harold just arrived from Singapore. R. is binding.. et al. 255 SCRA 48) . There could be recovery up to the extent of damage proven because there is no stipulation on the bill of lading limiting liability. Is the carrier liable and to what extent? SUGGESTED ANSWER: The carrier is liable up to the extent of the loss that could be proved by the cargo owner. v. Each of the boxes contained goods worth P15. (Philippine Airlines. Court of Appeals. If you are consulted by Harold. Instance where shipper could collect higher value. 2002) 12. 1750. NOTES AND COMMENTS: a. unless the shipper or owner declares a greater value. 1749. as a matter of fact he did not read them because of poor eyesight. (Philippine Airlines. The shipping agent issued to him a bill of lading for the two boxes. v. Harold claimed that the letters were so small that they could barely be read. Civil Code) A contract fixing the sum that may be recovered by the owner or shipper for the loss. Civil Code) BAR: 11. He loaded on the same boat two balikbayan boxes full of goodies for "pasalubong" to his relatives. Civil Code) b.. Forthwith he demanded that he be paid the value of the goods and that the fare he paid for them be returned. v. et al. (Belgian Chartering and Shipping N. The stipulation in the bill of lading limiting the common carrier’s liability to the value of goods appearing in the bill. A common carrier is estopped from blaming a passenger for not declaring the value of the cargo shipped and which would have otherwise entitled her to recover a higher amount of damages where she had been effectively prevented from doing so upon the advice of the carrier’s personnel for reasons best known to themselves. Stipulation limiting liability valid. Inc. He immediately proceeded to Manila North Harbor where he boarded a boat bound for Cebu City. et al. Inc. provided they are not contrary to law..44 a. or deterioration of the goods is valid. (Art. June 5. 143133.. When they were loaded. 1749. (Art. The carrier could not claim exemption from liability due to deficiency of packing because it accepted the cargo in that condition.00 per box.” The letter of credit indicated that a higher valuation of the cargo has been declared by the shipper. just and in consonance with public policy. When he claimed the boxes at the Cebu City terminal of the shipping lines he discovered that they were forcibly opened and were emptied of their contents. He likewise claimed that he is not bound by the conditions since he did not sign the same. Inc. and that it would be unfair for the shipping line to disclaim responsibility when it is very clear that the loss occurred while in its custody.V. is valid and binding.. destruction. The fact that the common carrier has no competitor along the line or route. or conditions as they may be deemed convenient.. 1751. or a part thereof. No. Court of Appeals. Phil. The Supreme Court has cautioned against blind reliance on adhesion contracts where the facts and circumstances warrant that they should be disregarded. morals. The notation on the bill of lading is not sufficient to limit liability. Criteria to determine reasonableness.

Is Victory Liner liable to Pasahero ? Explain. a. Since he had not slept 24 hours.45 b. under Article 1186 of the Civil Code (The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. that condition was deemed fulfilled considering that the collective action of the carrier’s personnel in tossing around the claim and leaving it unresolved for an indefinite period of time was tantamount to “voluntarily preventing its fulfillment. 118030. boarded a Victory Liner bus bound for Olongapo. Yes. Carrier’s liability for actual. c. unless it is done with the use of arms or through an irresistible force. (Philippine Airlines. (Art. which sufficiently informed the carrier of the damage sustained by the cargo. the consequences of which cannot. The hold-up is a force majeure under the rule on necessary deposits. c.. Court of Appeals. the consequence of which cannot . NOTES AND COMENTS: a. where the value of the articles are specifically declared on the face of the bill of lading even if no higher freight payment was made. Where timely filing of formal claim dispensed with. it was not the passenger’s fault that the letter of demand for damages could only be filed.. Domingo overpass smashed the front windshield and hit Pasahero in the face. e. moral and exemplary damages and attorney’s fees. who has entered the hotel is not deemed force majeure. Pasahero.” On grounds of equity. just to be exculpated from liability on pure technicality and bureaucratic subterfuge. January 15. While the bus was traversing the superhighway. like Pasahero. Civil Code) . January 15. . it should have undertaken the necessary precautions to avoid injury to its paying passengers. (Provident Insurance Corporation v. Pasahero told the bus driver that he had valuable items in his bag which was placed near his feet.. Where the failure to file the formal claim within the prescriptive period contemplated in the air waybill was largely due to the carrier’s own doing.. be attributed to the passenger. Pampanga. 2001. et al. is Victory Liner liable to Pasahero ? Explain. c. which agreement would be a sine qua non for the accrual of the right of action to recover damages from the carrier. The unprofessional indifference of the carrier’s personnel despite full and actual knowledge of the damage to the cargo. Victory Liner did not exercise utmost diligence. a paying passenger. No. R. the filing of the baggage freight claim. 118030. to afford the carrier or depositary a reasonable opportunity and facilities to check the validity of the claims while the facts are still fresh in the minds of the persons who took part in the transaction and the documents are still available. (Provident Insurance Corporation v. SUGGESTED ANSWERS: a. b. G. after months of exasperating follow-up of the claim. The unexplained cause of damage to the cargo constitutes gross carelessness or negligence which by itself justifies the award of damages. Can Pasahero hold the bus company liable for damages ? Explain. et al. Such a requirement is not an empty formalism. Considering the fore knowledge of stone-throwing incidents. It has a definite purpose. Court of Appeals. v. 24 hours from delivery.e. this was largely because of the carrier’s own doing. Supposing that two armed men staged a hold-up while the bus was speeding along the North Expressway. Court of Appeals. because the responsibility of common carriers in the case of loss or damage to hand carried baggage is governed by the rule on necessary deposits. Inc. a stone hurled from the Sto. constituted substantial compliance with the requirement of the contract for the filing of a formal claim. 255 SCRA 48) d.g. There have been incidents of unknown persons throwing stones at passing vehicles from the overpasses in the North Expressway. Manila Port Service. in all fairness. et al. he requested the driver to keep an eye on the bag should be doze off during the trip. R. b. Thus. another passenger took the bag away and alighted at Guagua.). et al. A bill of lading may provide for a period within to file claims for damages. The act of a thief or robber. but his wallet as well. Shipper could collect higher value despite limitation on the bill of lading unless a higher freight payment is made. Court of Appeals. 255 SCRA 48) BAR: 13. 2004) e. One of them pointed a gun a Pasahero and stole not only his bag. Pasahero lost an eye and suffered other injuries. Yes. in all fairness. the same is to be dispensed with. G.because of the use of arms hence the bus company would not be liable. i. 2004 citing Consunji v. (Philippine Airlines. If there was any failure to file the formal claim within the prescriptive period. Inc. He chose a seat at the front near the bus driver. smacks of willful misconduct and insensitivity to their customer’s plight tantamount to bad faith and renders unquestionable the carrier’s liability for damages. No. Act of thief when force majeure. 231 (1960)) d. 110 Phil. While Pasahero was asleep. Bill of lading may provide period within which to file claims. v. Even if the claim for damages was conditioned on the timely filing of a formal claim.. Rationale for limiting period to file claims. No. be attributed to the passenger.

a Bank to whom the central was indebted claimed the cargo and presented the original of the B/L stating that the Central had failed to settle its obligations with the Bank. Should the bus company be held liable for damages A? SUGGESTED ANSWER: Yes. Since this was not done but the goods were delivered. particularly those handcarried by passengers. The gasoline ignited and exploded causing injury to Sam who filed a civil suit for damages against the bus company claiming that Ed should have been subjected to inspection by the conductor. Sam boarded a passenger bus. using the utmost diligence of very cautious persons. Art.. True. Civil Code) If it were an airline company involved in the above problem. Goods covered by a B/L are to be delivered only to the holder thereof upon surrendered of the original B/L. 180 SCRA 346) central in Dumaguete. Negros Oriental.” with notice of arrival to be addressed to the Central. If stone throwing isolated no liability. and airline companies may open and investigate suspicious packages and cargoes. For a cargo of machinery shipped from abroad to a sugar BAR: 15. Degree of care. could have resulted to the discovery of the gasoline. Civil Code) c. from the nature of their business and for reasons 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. unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755. would your answer be the same ? Explain your answer briefly. If there is no showing that the stone throwing incident previously happened so as to impose a an obligation on the part of the personnel of the bus company to warn the passengers and to take the necessary precaution. Was there misdelivery by the carrier to the sugar central considering the non-surrender of the B/L ? Why ? SUGGESTED ANSWER: Yes. Presumption of fault. The same reasons would be advanced as in the above answer. for breach of the contract of carriage. NOTES AND COMMENTS: In a 1992 Bar question with similar factual antecedents U. the latter claimed that: (1) there was a stipulation in the ticket issued to “A” absolutely exempting the carrier from . 6235) BAR: 16. it must be indorsed by the shipper in favor of the Central. Law Center suggests that in overland transportation the common carrier is not bound nor empowered to make an examination of the contents of packages or bags. Common carriers. The bus company disclaimed liability resulting from the explosion contending that it was unaware of the contents of the plastic bag and invoking the right of Ed to privacy. common carriers are presumed to have been at fault or to have acted negligently. according to all the circumstances of each case.46 b. et al. such stone throwing would constitute fortuitous event negating liability on the part of the bus company. After all the bus company is not an insurer. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide.P. Suppose “A’ was riding on an airplane of a common carrier when the accident happened and “A” suffered serious injuries. The cargo arrived at its destination and was released to the Central without surrender of the B/L on the basis of the latter’s undertaking to hold the carrier free and harmless from any liability. (Art. (Rep.. The bus company is presumed to have been at fault unless it observed extraordinary diligence. SUGGESTED ANSWER: Yes. Duty of common carrier. Another passenger. Furthermore. there is misdelivery of the goods. but ordinary diligence. in the case of air carriers. Ed. Act No. (Art. 1755. BAR: 14. Since the B/L is “To Shipper’s Order”. In an action by “A” against the common carrier. (Pilapil v. 1733. It is clear that the gasoline should have smelled considering that it was placed only in a plastic bag and would have been noticed by the bus company employees and kept in a safe place. the Bill of Lading (B/L) stipulated “To Shipper’s Order. brought a gallon of gasoline placed in a plastic bag into the same bus where Sam was riding. In case of death of or injuries to passengers. with a due regard for all the circumstances. a. Subsequently. 1756. not even extraordinary diligence. It is bound to carry Sam safely as far as human care and foresight provide. Court of Appeals. Civil Code) b. it is not lawful to carry flammable materials in passenger aircraft. (1st par.

lightning. 1987 the two vessels collided in the open sea. earthquake. The defenses are contrary to law because they negate the extraordinary diligence required of common carriers. On December 20. 1734. 253 SCRA 175) (c) Maritime Commerce (Code of Commerce. Inc. as superseded by R. Civil Code) NOTES AND COMMENTS: a. (Summa Insurance Corporation v. What is the nature of the relationship between a consignee and arrastre operator ? SUGGESTED ANSWER: It is akin to that existing between the consignee or owner of shipped goods and the common carrier. is also binding on a consignee because it is incorporated in the gate pass and delivery receipt which must be presented by the consignee before delivery can be effected to it. In the performance of its job.47 liability from the passenger’s death or injuries and notices were posted by the common carrier dispensing with the extraordinary diligence of the carrier. No. Paragraph 6 of Section 3 of Carriage of Goods by Sea Act (Com. the arrastre operator. 1758. a. but not for wilful acts or gross negligence. Arts. b.493 manifested passengers. (Art. whether international or civil. 2) Flood. the passenger ship MV Dona Paz owned and operated by Sulpicio Lines. On December 20. The following are: 1) Observance of extraordinary diligence. including those which are intended to limit the liability of one of the contracting parties. Court of Appeals. 5) The character of the goods or defects in the packaging or in the containers. 6) Order or act of competent public authority. an arrastre operator is bound by the management contract it had executed with the Bureau of Customs. motor tanker MT Vector left Limay. All the crew members of Dona Paz died. 573 to 736. an arrastre operator’s duty is to take good care of the goods and turn them over to the party entitled to their possession. only 24 survived. The reduction of fare does not justify any limitation of the common carrier’s liability. storm. (Art. or that between a depositor and a warehouseman. the provision of the management contract which limits the arrastre operator’s liability finds application where there is no showing of a declaration by the consignee of a higher valuation by showing the invoice of the goods entrusted and the payment of higher arrastre fees. 1987. upon taking delivery of the cargo. a consignee tacitly accepts the provisions of the management contract. 580-584 of Code of Commerce. 4) Act or omission of the shipper or owner of the goods. The issues are whether Caltex. also Arts. or other natural disaster or calamity.000 passengers (unmanifested). Thus. Act 65) 1. 1987. Bataan enroute for Masbate loaded with petroleum products shipped by Caltex. Being the custodian of the goods discharged from a vessel. 6106. On December 19. However. Two survived from MT Vector.. et al. Degree of diligence cannot be reduced by reduced fare. . Indeed. and whether Sulpicio Lines is the one liable for the passengers. left the port of Tacloban headed for Manila with a complement of 59 crew and 1. a stipulation limiting the common carrier’s liability for negligence is valid. and of the estimated 4. Inc. the charterer of MT Vector is liable to the passengers. Are those defenses valid ? b. a management contract which is a sort of a stipulation pour autrui within the meaning of Article 1311 of the Civil Code. “When a passenger is carried gratuitously. Consequently. Civil Code) 17. What are the defenses available to any common carrier to limit or exempt it from liability ? SUGGESTED ANSWER: a. 806 to 845 of the Code of Commerce).A. the arrastre operator should observe the same degree of diligence required of a common carrier and a warehouseman as enunciated under Article 1733 of the Civil Code and Section 3 (b) of the Warehouse Receipts Law respectively. 3) Act of the public enemy in war. Arts. and (2) “A” was given a discount on his plane fare thereby reducing the liability of the common carrier with respect to “A” in particular.

the charterer merely having use of the space in the vessel in return for his payment of the charter hire. A contract of affreightment may be either 1) Time charter. If the charter is a contract of affreightment. (Caltex (Philippines). (Caltex (Philippines). defined... G. Under a contract of affreightment. 131166.. Distinction between two kinds of charter parties (i. loading and unloading of the cargo. the charterer will generally be regarded as the owner for the voyage or service stipulated. Inc. Caltex as the charterer has no liability for damages under Philippine Maritime laws. 131166. 246 SCRA 299) NOTES AND COMMENTS: a.. The general rule is that moral damages are not recovered in culpa contractual except when the presence of bad faith was proven. v. the ship owner to supply the ship’s store. or 2) Voyage charter. Inc. September 30. 2) Time charter. fraudulent and reckless manner.. The charterer mans the vessel with his own people and becomes. which covers all the time up to the moment when the risk of collision begins. moral damages may be recovered when it results in the death of a passenger. wherein the leased vessel is leased to the charterer for a fixed period of time. Article 2232 of the Civil Code gives the Court the discretion to grant exemplary damages in breach of contract when the defendant acted in a wanton. command and navigation to the charterer. No. the general owner retains possession. the charter party provides for the hire of the vessel only.R. defray the expenses for the maintenance of the ship. Court of Appeals. Court of Appeals. either for a determinate period of time or for a single or consecutive voyage.. the rights and the responsibilities of ownership rest on the owner. 1999) c. pay for the wages of the master of the crew. Under a contract of affreightment. is the safe and reliable carriage of people and goods by sea. The charterer is free from liability to third persons in respect of the ship. (Coastwise Lighterage Corporation v. September 30. Inc. Sulpicio Lines. the owner for the voyage of service stipulated. To achieve this end. Zones of time in collision: 1) First Zone. In both cases. (Sulpicio Lines. However. an instrument may be used which is the grant of exemplary damages by the Court . September 30. et al. or some principal part thereof. (Caltex (Philippines). command and navigation of the ship. Sulpicio Lines. defined. 131166. v. G. subject to liability for damages caused by negligence. A charter party agreement does not turn a common carrier into a private one. No.. The parties into a voyage charter retains the character of the vessel as a common carrier.R. Inc. also known as a voyage charter. Under demise or bareboat charter. wherein the ship is leased for a single voyage. Inc. A contract of affreightment is one by which the owner of as ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods. No.R.. the owner remains as carrier and must answer for any breach of duty as to the care. which has been increased to P50. Kinds of charter party agreement. Caltex and Vector entered into a contract of affreightment. in consideration of the payment of freight. et al. Inc. et al. G. The charterer mans the vessel with his own people and becomes the owner pro hac vice. Inc. 245 SCRA 706) f. Kinds of contract of affreightment. v. Inc. et al.R. (Caltex (Philippines). et al. It should be Sulpicio Lines who should be liable for the death of the passengers. 1999) b.. A charter party is a contract by which an entire ship.. 1) Demise or bareboat. Under demise or bareboat.. bareboat or demise) and contract of affreightment (voyage charter) 1) Control of vessel. which leaves the general owner in possession of the ship as owner for the voyage. Sulpicio Lines. 2) Liability. September 30. Inc.000. is let by the owner to another person for a specified time or use. The Supreme Court took judicial notice of the dreadful regularity with which grievous Maritime disasters occur in our waters with massive loss of life. BAR: e. vs. Contract of affreightment. No. Charter party. the charterer is liable to others for damages. 3) Voyage charter.. et al. Although a charter party may transform a common carrier into a private one. in breach of contract of carriage.00.48 SUGGESTED ANSWER: No. G. Sulpicio Lines being a common carrier is liable for actual and compensatory damages under Article 2206 in relation to Article 1764 of the Civil Code for deaths of its passengers caused by the breach of the contract of carriage. the same however is not true in a contract of affreightment on account of the distinctions between the two. . The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or private but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the one hand. 131166. 1999) d. v. The owner must completely and exclusively relinquish possession.e. on a particular voyage.. One of the ends of law and public policy . in effect. or a charter party or similar contract on the other. 1999) On the other hand. Sulpicio Lines. of special importance in an archipelagic state like the Philippines.

49 2) Second Zone. from a real and known risk. c. 2. What is meant by the doctrine of limited liability or real and hypothecary nature of maritime law ? SUGGESTED ANSWER: The liability of the ship owner or ship agent arising from the operation of a ship (in the transportation of goods and passengers) is confined to the vessel. but he may exempt himself therefrom by abandoning the vessel with all the equipments and the freight it may have earned during the voyage. The owners of the cargo saved as well as the owners of the vessel should contribute to the value of the cargo jettisoned. or insurance. Is the shippers’ contention valid ? Explain.. 92735 and companion cases. which covers the time when the collision is certain and the time of impact. its cargo. When are the instances where the doctrine of limited liability or NOTES AND COMMENTS: a. In answer to the complaint. v. as well as insurance. BAR: 4. the shippers’ sole contention was that. . Provisions on principle of limited liability.. G. his liability would be extinguished. et al. some had to be jettisoned.R. et al. 587. MV SuperFast. and without fault or negligence of anyone on the ship. SF Shipping thereafter filed a complaint demanding all the other cargo owners to share in the total repair costs incurred by the company and in the value of the lost and jettisoned cargoes. repairing or provisioning the vessel. (Philippine Home Assurance Corp. SF Shipping is not entitled to contribution/reimbursement from the shippers for the cost of repairs on the vessel. river. SUGGESTED ANSWER: No. Inc. b. was on its way to Zamboanga City from the Manila port when it accidentally. e. each damaged party should bear its or own damage and those that did not suffer any loss or damage were not obligated to make any contribution in favor of those who did. Where the vessel is insured. 2000) BAR: 5. Court of Appeals.. The accident caused damage to the vessel and loss of an accompanying crated cargo of passenger PR. injury or damage sustained is attributable to the fault or negligence of the ship owner or to the concurring fault or negligence of the ship owner or ship agent and the captain (patron) of the vessel. What does general average or gross average include ? SUGGESTED ANSWER: General or gross average includes all damages and expenses which are deliberately caused in order to save the vessel. 3) Third Zone. but only in a bay. if any. a passenger-cargo vessel owned by SF Shipping Company plying the inter-island routes. but special carrier. hit a huge floating object. Court of Appeals. The principle of limited liability is enunciated in the following provisions of the Code of Commerce: Art. so that if ship owner or ship agent abandons the ship. d. When death. equipment and freight. and there is no insurance. In order to lighten the vessel and save it from sinking and in order to avoid risk of damage to or loss of the rest of the shipped items (none of which was located on the deck). et al. In case of the expenses for equipping. equipment. and freight. (Monarch Insurance Co. v. No. In case the vessel is not a common. or both at the same time. lake or gulf. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of goods which he loaded on the vessel. SF Shipping had the vessel repaired at its port of destination. real and hypothecary nature of maritime law does not find any application ? SUGGESTED ANSWER: The doctrine of limited liability does not apply: a. In Workmen’s Compensation claims. June 8. just as well if the vessel would totally sink or be a total loss. under the Code of Commerce. which covers the time between the moment when the risk of collision begins and the moment when it becomes a practical certainty. and f. Jettison of cargoes in order the save the vessel constitute general average. Where the formalities prescribed under Articles 813 and 814 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to gross average were not complied with the carrier cannot claim for contribution from the consignees for additional freight and salvage charges. 257 SCRA 649) 3. In case the voyage is not maritime...

The concept of the hypothecary or limited liability rule finds application to liability for loss or damage or goods and not for expenses of refitting. 94867. Where fault is established but it cannot be determined which of the two vessels was at fault. In cases where the ship owner is likewise to be blamed..R. 2000) b. equipping or provisioning the vessel. storm. or other natural disaster or calamity. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. etc. each other due to fault imputable to both. the ship captain and crew of the vessel would render inapplicable the rule on limited liability. destruction. No. No. BAR: 7. Which party should bear the damage to the vessels and the cargoes if the cause of the collision was a fortuitous event ? Explain.. v. v. The carrier is not liable if the cause is a fortuitous event since it is not an insurer of loss or damage. Each co-owner may exempt himself from his liability by the abandonment.. the doctrine of inscrutable fault finds application and both shall be deemed to be at fault. et al. c. Article 587 does not apply. Limited liability DOES NOT apply where captain’s fault is not on loading goods. Collision caused by storm results to both vessels bearing own loss. et al. which plied the inter-island routes of the company from La Union in the north to Davao City in the south.. et al. both shipowners are solidarily liable. No. G.R. Is X Shipping Company’s assertion valid ? Explain. G. v. X Shipping Company asserted exemption from liability on the basis of the hypothecary or limited liability rule under Article 587 of the Code of Commerce. although there was a very strong possibility that it could not have been avoided if the captain of the SS Masdaam was not drunk and the captain of the M/V Princess was not asleep at the tie of collisions. No. Allied Guarantee Insurance Co. earthquake. Principle of limited liability applies ONLY if the captain is at fault in loading goods. 2. Court of Appeals. G. Inc. Faced with a claim for payment of the refitting and repair. G. Who should bear the damages to the vessels and their cargoes ? SUGGESTED ANSWER: The shipowners shall each bear their respective loss of their vessels. 2000) BAR: 6.. G. 837. Since both of them are fault then each must bear its own damage. Art. Two vessels coming from opposite directions collided with BAR: 8.. 94867. v. Court of Appeals.. 587. A severe typhoon was raging when the vessel SS Masdaam .. No. 95578. It sank off the coast of Zambales while en route to La Union from Manila. unless the same is due to flood. Court of Appeals. SUGGESTED ANSWER: 1. lightning.. Court of Appeals.. 3. There were no casualties in that disaster. No. June 8. X Shipping Company spent almost a fortune in refitting and repairing its luxury passenger vessel.. Equitable Insurance Corporation v. If it cannot be determined which of the two vessels was at fault resulting in the collision. before a notary.50 Art. Such a situation will be covered by the provisions of the Civil Code on common carriers. Equitable Insurance Corp. Nobody. The MV Marina met an untimely fate during its post-repair voyage. It is conceded that the typhoon was the major cause of collision. The civil liability incurred by shipowners in the case prescribed in this section. A finding that a fortuitous event was the sole cause of the loss of the vessel would absolve the shipowner from any and all liability pursuant to Article 1734(1) of the Civil Code which provides in part that common carriers are responsible for the loss. et al.R. the MV Marina. June 8. What are the liabilities of the two vessels with respect to the damage caused to them and their cargoes ? Explain. which party should bear the damage caused to the vessels and the cargoes. or deterioration of the goods they carry. 590. 1. et al. v. For the losses and damages suffered by their cargoes. 95578. shall be understood as limited to the value of the vessel with all its appurtenances and the freightage served during the voyage. Inc. (cited in Monarch Insurance Co. of the part of the vessel belonging to him. On the other hand. Consequently. collided with M/V Princess. (Monarch Insurance Co. Article 587 speaks only of situations where the fault or negligence is committed solely by the captain..R. The investigation showed that the captain alone was negligently. et al. Allied Guarantee Insurance Co. repairing. SUGGESTED ANSWER: No. 92735. Court of Appeals. This despite both of the captains were negligent.R.R. Explain. 92735. a finding that the vessel sank by reason of fault and/or negligence of the shipowner. each vessel shall bear their respective damages. 2. etc. 3. G. Court of Appeals.

The provisions of the Civil Code relative to suspension of prescriptive periods find application only to prescriptive periods under the said Code. It shall be covered by the Civil Code provisions providing for a ten (10) year prescriptive period. the goods were not loaded at Taiwan on time hence when the goods arrived in France they arrived "off-season" and Lavine was paid only for one-half of the value by its buyer. In turn. Maritime Company. 'Loss" refers to the deterioration or disappearance of goods.. SUGGESTED ANSWER: a. but upon inspection of the contents. Compania Maritima. (Ang v. The answer would not be the same because the provisions of COGSA relative to the prescriptive period does not apply. NOTES AND COMMENTS: a. What would your advice be ? SUGGESTED ANSWER: I would advice RC to file with BC Shipping Company a notice of damage within three days from discovery of damage. (Dole Phil. RC discovered that the items inside had all been badly damaged. would your answer be the same ? Explain briefly. that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.51 BAR: 9. If the consignee’s action were predicated on misdelivery or conversion of the goods. Prescriptive period for lost or damaged cargoes under the Carriage of Goods by Sea Act is one (1) year from delivery or when should be delivered. No. COGSA) BAR: 10. He did not file any notice of damage or anything with anyone. pursuant to Article 1155 of the Civil Code providing that the prescription of actions is interrupted when there is a written extra judicial demand by the creditors. Has the action. the crate appeared intact. Somehow or the other. 148 SCRA 118) The COGSA does not provide for the application of this provision of the Civil Code. least of all with BC Shipping Company. RC imported computer motherboards from the United States and had them shipped to Manila aboard an ocean-going cargo ship owned by BC Shipping Company. the consignee contended. a. that the period of prescription was suspended by the written extrajudicial demand it had made against the carrier within the one-year period. through Meister. b. Yes. What he did was to proceed directly to your office to consult you about whether he should have given a notice of damage and how long a time he had to initiate a suit under the provisions of the Carriage of Goods by Sea Act (C. v. Instead the provisions of the Civil Code on prescription including those on suspension of the prescriptive period should be applied. 65). and not to prescriptive periods provided for in special laws unless specially provided for. (Sec. When the cargo arrived at the Manila seaport and delivered to RC. is not given as provided.A. together with his claim. Is Lavine's claim covered by the one year prescriptive period under the Carriage of Goods by Sea Act considering the "loss" in value ? SUGGESTED ANSWER: No. the carrier pleaded in its Answer the affirmative defense of prescription under the provisions of said Act inasmuch as the suit was brought by the consignee after one (1) year from delivery of the goods. Inc. to transport ladies wear from Manila to France with transhipment at Taiwan. The one (1) year period provided under the COGSA is not interrupted by the written extrajudicial demand as provided under the Civil Code. either apparent or concealed. If BC Shipping does not pay his claim RC should file suit against BC Shipping Company to recover the value of the damage within one (1) year from delivery. The deterioration or disappearance or destruction of goods must be caused by the carrier's breach of contract as in . if a notice of loss or damage. that. 133 SCRA 600) 11. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damaged unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: provided. in fact. Lavine entered into a contract with Mitsui. prescribed ? Why ? b. A local consignee sought to enforce judicially a claim against the carrier for loss of a shipment f drums of lubricating oil from Japan under the Carriage of Goods by Sea Act (COGSA) after the carrier had rejected its demand. Deterioration in value of goods as a result of delayed delivery is not "loss or damage" contemplated under the Carriage of Goods by Sea Act (COGSA). 3 [6].

M/V Asean Liberty needed repair and conversion. among others. the date of the contract for the repair and conversion of M/V “Asean Liberty. v. The prescriptive period therefore is ten (10) years under the Civil Code. When Citibank advanced the amount of US$242. CBC’s maritime lien has priority over the said mortgage lien. The one year period under COGSA is not interrupted by the written extrajudicial demand. Later. pursuant to Article 1155 of the Civil Code providing that the prescription of actions is interrupted when there is a written extrajudicial demand by the creditors. The consignee of a shipment of drilling equipment from Norway filed suit against the carrier for loss under the Carriage of Goods by Sea Act (COGSA) after the carrier had rejected its demand. When CBC honored its contract of guarantee with Citibank. The Philippine International Shipping Corporation (PISC) was granted guaranty accommodations by National Investment and Development Corporation to finance the acquisition of seven (7) ocean-going vessels subject to the terms and conditions set forth in the Guaranty Agreements.200. Ltd. Compania Maritima. A promissory note was executed for the amount by PISC in favor of Citibank. PISC instituted before the RTC an action for the annulment of the foreclosure sale.” (Philippine National Bank/National Investment Development Corporation v. 133 SCRA 600) 13.00 for the Standby Letter of Credit in favor of Citibank. Court of Appeals. CBC filed suit in the amount of US$242. et al.K. (Ang v. the loss or damage must refer to mishandling of the cargo and not to the carrier's general liability under its contract of carriage.00.000. In turn. (Mitsui O. PISC executed in favor of PNB/NIDC Chattel Mortgages over the seven vessels. 128661.225. CBC has a preferred maritime lien. when CBC chose to exercise its right to the maritime lien during the proceedings in the trial court. To cover the contract price. Ltd.00 for the purpose of paying off PISC’s debt to Hongkong United Dockyards. The carrier pleaded prescription under the provisions of said Act inasmuch as the suit was brought by the consignee after one (1) year from delivery of the goods.52 damage while in transit. When PISC failed to settle its obligation with PNB.00 in favor of Citibank.” Thus. v. the consignee contended that the period of prescription was suspended by the written extrajudicial demand it had made against the carrier within the one-year period. 2000) . Rule on CBC’s contention of having a maritime lien..” a maritime lien had already been attached to the said vessel. to do the job at a contract price of HK$2..000. a “preferred mortgage lien shall have priority over all claims against the vessel” except. it acquired the existing maritime lien over the vessel. Maritime Company. No. 287 SCRA 366) 12. Pursuant to Section 17 of the Ship Mortgage Decree of 1978. PISC defaulted in its obligation under the promissory note. it likewise acquired by subrogation the maritime lien that was already existing over the vessel M/V “Asean Liberty. SUGGESTED ANSWER: No. 148 SCRA 118) If the consignee’s action were predicated on misdelivery or conversion of the goods. (Dole Phil. Has the action prescribed ? Why ? SUGGESTED ANSWER: Yes. G. the costs of repair were debited against CBC and remitted to Citibank. it was actually enforcing a privilege that attached to the ship before the mortgage to PNB/NIDC. As security for the guaranty accommodations. Court of Appeals. et al. Lines. The provisions of Article 1155 of the Civil Code on interruption of the prescriptive period applies only to the periods provided for under the Civil Code.. would your answer be the same ? Explain briefly. prior to the recording of the Chattel Mortgages.S.225. As such.. Thus. PISC entered into a Contract Agreement with Hongkong United Dockyards. The fact that the ladies wear became "off-season" is not “loss or damage” therefore not subject to the prescriptive period of one year under the COGSA. August 8. six of the mortgaged vessels were auctioned and sold to NIDC as the highest bidder. PISC opened a standby letter of credit with China Banking Corporation (CBC) for the amount of US$545. This time the provisions of the Civil Code on interruption of the prescriptive period will apply. one of the vessels. It insists that its claim is a preferred maritime lien which is superior to PNB/NDC’s mortgage lien. Ltd. not under special laws like the GOGSA. SUGGESTED ANSWER.R. “maritime liens arising prior in time to the recording of the preferred mortgage. Inc. made repairs on the said vessel on credit. Yes. The maritime lien over the vessel M/V “Asean Liberty” arose or was constituted at the time Hongkong United Drydocks. Ltd.

on the order of the owner of such vessel. Subrogation. Maritime Lien for Necessaries. Priorities. including any possessory commonlaw lien of which a lienor is deprived under the provisions of Section 16 of this Decree. (Ibid. which may be enforced by suit in rem.” (Philippine National Bank/National Investment Development Corporation v. in order to forward the voyage of the vessel. if it arose prior to the recording of a preferred mortgage lien. as amended BAR: 1. A maritime lien “constitutes a present right of property in the ship. by a proceeding in rem. use of drydock. supplies.S.) (d) Public Service Act (Com. and (7) preferred mortgage registered prior in time. 1521. Significantly. and when carried into effect by legal process. Sections 17 and 21 of the said Presidential Decree provides as follows: “Sec. persons entitled to such lien. supplies. provides that “any person furnishing repairs. or a corporation or copartnership. upon the order of the owner.. The record of judicial sale or sale by public auction shall be recorded in the Record of Transfers & Encumbrances of Vessels in the port of documentation. Under American jurisprudence.” (Arrangement supplied) ‘Sec. (4) salvage.” (Ibid. and one advancing money to discharge a valid lien gets a lien of equal dignity with the one discharged. The preferred mortgage lien shall have priority over all claims in the order stated: (1) expenses and fees allowed and costs taxed by the court and taxes due to the government. “(a) advances to discharge maritime liens create a lien on the vessel. The applicable law on the matter is Presidential Decree No. otherwise known as the Ship Mortgage Decree of 1978. towage. it is inchoate. (3) general average. including contract salvage. and it shall be necessary to allege or prove that credit was given to the vessel. like our Ship Mortgage Decree of 1978. Preferred Liens. Under these provisions.R. Article 2067 of the New Civil Code provides that “the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. Ship Mortgage Act of 1920. to any foreign or domestic vessel. 2000) b. Such maritime lien.30. Act 146). Preference. shall have priority over the said mortgage lien. association. (b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade. who substitutes him in all his rights.” Being of foreign origin. when it exists. (Ibid. August 8. All credits not paid. Any person furnishing repairs. or other necessaries. towage. “furnishing money to a master in good faith to obtain repairs or supplies or to remove liens. No. it relates back to the period when it first attached. and (6) damages arising out of tort. in like amount and in accordance with the priorities established herein to the proceeds of the sale. the provision of the Ship Mortgage Decree of 1978 may thus be construed with the aid of foreign jurisprudence from which they are denied except insofar as they conflict with existing laws or are inconsistent with local customs and institutions. Other Liens – (a) Upon the sale of any mortgaged vessel in any extra-judicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon. 128661. 17. Maritime Lien. all pre-existing claims on the vessel. Interpretation. to be afterward enforced in admiralty by process in rem. raises a lien just as though the things (for which) money was obtained to pay for had been furnished by the lender. a jus in re. or other necessaries to any vessel.) d. Maritime lien. By definition. Court of Appeals. or of a person authorized by the owner has a maritime lien on the vessel. shall be held terminated and shall thereafter attach. or other necessaries to a vessel on credit will have a maritime lien on the said vessel. 21. the residue shall be divided among them pro rata. or joint stock company constituted and organized under the . supplies. a. The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the U. shall have a maritime lien on the vessel.) c. which may be enforced by suit in rem. (2) crew’s wages. nature.” Likewise. any person furnishing repairs.53 NOTES AND COMMENTS. subrogation is the transfer of all the rights of the creditor to a third person. whether foreign or domestic. (5) maritime liens arising prior in time to the recording of the preferred mortgage.) e. What are the requisites for the issuance of a certificate of public convenience (CPC) ? Alternatively. whether fully or partially shall subsist as ordinary credits enforceable by personal action against the debtor. the Federal Maritime Lien Act of the United States. (Ibid. use of dry dock or maritime railway. From the moment the claim or privilege attaches. or marine railway. what requirements must be met before a certificate of public convenience may be granted under the Public Service Act ? SUGGESTED ANSWER: a) The applicant must be a citizen of the Philippines. Those who provide credit to a master of a vessel for the purpose of discharging a maritime lien also acquire a lien over the said vessel. G. et al.

Legislative franchise to operate jai-alai imbued with public interest and involves an exercise of police power. b. and therefore is not presumed to disable itself or abandon the discharge of its duty. Secondly. 239 SCRA 386). 2000 and companion case) 2. (Sec. one of his taxicab units was boarded by three (3) robbers as they escaped after staging a hold-up. When the operator fails to provide a service that is safe. and c) The applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner (Kilusang Mayo Uno Labor Center vs. Firstly. When can the Land Transportation Franchising and Regulatory Board exercise its power to suspend or revoke a certificate of public convenience ? SUGGESTED ANSWER: The following are some of the instances: a. In short. should not be construed as rendering service that is unsafe. NOTES AND COMMENTS: a. 19 [a]. (Mansanal v. it in effect amends his certificate of public convenience. The City of Manila passed an ordinance banning provincial buses from the city. The familiar rule is that laws which grant the right to exercise a part of the police power of the state are to be construed strictly and any doubt must be resolved against the grant. 1) May the reliance of X on Section 16 (m) of the Public Service Act be sustained ? Explain. The presumption is influenced by constitutional considerations. 2) Was X correct in his contention that under Section 17 (j) of the Public Service Act it is only the Commission which can require compliance with the provisions of the ordinance ? SUGGESTED ANSWER: 1) No. Philippine Amusement and Gaming Corporation. et al. he contended that even if the ordinance was valid. Because of said incident. regulate or control the streets of the City of Manila. One evening. 164 SCRA 36) BAR: 4. proper or adequate.54 laws of the Philippines. Was the revocation of the certificate of public convenience of Robert justified ? Explain. Constitutions are widely understood to withhold from legislatures any authority to bargain away their police power for the power to protect the public interest is beyond abnegation. Robert is a holder of a certificate of public convenience to operate a taxicab service in Manila and suburbs. Ausejo. among other things. 138298. Garcia. it is only the LTFRB which can require compliance with its provisions under Section 17 (j) of said Act and since the implementation of the ordinance was without sanction or approval of the Commission. a thing which only the Land Transportation Franchising and Regulatory Board (LTFRB) can do under Section 16 of the Public Service Act. the Land Transportation Franchising and Regulatory Board revoked the certificate of public convenience of Robert on the ground that said operator failed to render safe. The ordinance is challenged as invalid under the Public Service Act by X who had a certificate of public convenience to operate autotrucks with fixed routes from certain towns in Bulacan and Rizal to Manila and within Manila. Under said section. he claimed that the ordinance was null and void because. inadequate and improper. proof of public necessity.R. November 29. Thus.. courts do not assume that the legislature intended to part away with its power to regulate public morals. The legislature is regarded as the guardian of society.. its enforcement was unauthorized and illegal. No. (Lagman v. modify or revoke a certificate of public convenience after notice and hearing. When the operator refuses to render any service which can be reasonably demanded and furnished. City of Manila. proper and adequate service as required under Section 19 (a) of the Public Service Act. G. to superintend. ( SUGGESTED ANSWER: No. Jr. b) The applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation. at least sixty percentum (60%) of its stock or paid-up capital must belong entirely to citizens of the Philippines. A single hold-up incident. the Commission is empowered to amend. (Del Mar v. Public Service Act) BAR: 3. which is not related at all in the manner by which Robert operates his certificate of public convenience. 17 SCRA 579) . The power of the LTFRB under Section 16 (m) of the Public Service Act is subordinate to the authority of the City of Manila under Section 18 (hh) of its revised charter.

What will be your advice ? Explain. The powers conferred by law upon the LTFRB were not designed to deny or supersede the regulatory power of the local government units over motor traffic in the streets subject to their control.55 2) No. there is a clear distinction between the “operation” of a public utility and the "ownership" of the facilities and equipment used to serve the public. In law. as provided for in this Act. . in no uncertain terms. WWW Communications. one may operate a public utility without owning the . WWW Communications seeks your professional advice on whether or not its reorganized business activity would be considered a public utility requiring a franchise or certificate or any other form of authorization from the government. is hereby declared to be of public utility. it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. the refining of petroleum products sourced from abroad as is done by PETRON is not within the contemplation of the law. refining. WWW Communications will be the flagship entity which will own the facilities and provide the services. requires a franchise for the operation of a public utility. PETRON is a petroleum company which owns the largest. No. and everything relating to the manufacture. Towards this objective. which is given the right to demand its service. most modern complex refinery in the Philippines. While a franchise is needed to operate these facilities to serve the public. the company has been aggressively acquiring telecommunications businesses and broadcast media enterprises. The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. Section 7 of R. 241 SCRA 334) BAR: 5. No.” Is PETRON a public utility ? Why? SUGGESTED ANSWER: No. Hence. the activities considered as “public utility” under Section 7 of R. contending that the Batong Bakal Corporation has not secured a franchise to operate and maintain an electric plant. The ultimate plan is to have only two organizations: one to own the facilities of the combined business and to develop and produce content materials. application for a Certificate of Public Convenience for the purpose of supplying electric power and lights to the factory and its employees living within the compound. Committee on Privatization. One can own said facilities without operating them as a public utility or conversely. However. A “public utility” under the Constitution and the Public Service Act is one organized “for hire or compensation” to serve the public. Is the opposition’s contention correct ? SUGGESTED ANSWER: No. Inc. It plans to re-focus its corporate direction of gradually converting itself into a full convergence organization. (Bagatsing v. 387 refer only to petroleum which is indigenous to the Philippines. SUGGESTED ANSWER: The reorganized business activity of WWW Communications would not be considered as a public utility requiring a franchise.A. A legislative franchise not required for an entity to operate as a supplier of electric power and light to its own factory and its employees living in the compound provided that it does not make an offer of service to the public in general. the Petroleum Act of 1949.Everything relating to the exploration for and exploitation of petroleum which may consist naturally or below the surface of the earth.. PETRON is not engaged in oil refining for hire and compensation to process the oil of other parties. 6. The application was opposed by the Bulacan Electric Corporation. is an e-commerce company whose present business activity is limited to providing its clients with all types of information technology hardware. What constitutes a public utility is not their ownership but their use to serve the public. and consolidating their corporate structures. It is also the country’s biggest combined retail and wholesale market of refined petroleum products. The Constitution. provides that: “Petroleum operation a public utility. storage.A. they do not by themselves constitute a public utility. 387. and another to operate the facilities and provide mass media and commercial telecommunications services. or transportation by special methods of petroleum. The Batong Bakal Corporation filed with the Board of Energy an 7. Likewise.

et al. Filipino ownership is not required. Garcia. 1994 ) REASON: Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission (LTFRB) so that the latter may take proper safeguards to protect the interest of the public.non-voice messages or transmissions. Build-and-transfer (BT). What is the effect of failure to get approval of sale or mortgage of franchise ? SUGGESTED ANSWER :In operating a truck without the transfer thereof having been approved by the Public Service Commission (now LTFRB). failed to .. et al. There is an implicit recognition that VAS is not strictly a public service offering in the way that voice-to-voice lines are. This arrangement may be employed in the construction of any infrastructure project including critical facilities which for security or strategic reasons. but merely supplementary to the basic services. shall pay the contractor the total investment on the project in addition to a reasonable rate of return.. BT no.R. et al. there should be no distinction between voice or oral and data or . aerial) or any other media qua voice (i.. et al. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. the ownership and operation thereof are turned over to the government. v. exactly like data (or non-voice) messages. are deregulated but National Telecommunications Commission (NTC) still has jurisdiction over SMS offerings. the transferee acted merely as agent of the registered owner and should be responsible to him (the registered owner) for any damages he may cause the latter through his negligence. One where the contractor undertakes the construction and financing of an infrastructure facility. 88195-96. Is an international gateway facility (IGF) a telephone system ? SUGGESTED ANSWER: No. 243 SCRA 436) c. The government. 241 SCRA 486) NOTES AND COMMENTS: a. register the complete number of units required by her certificate. When the statutory text speaks of “messages”. Jr.. Garcia. c. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them themselves. including questions of rates and customer complaints. et al. (Tatad. It is not. The dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well appreciated when we consider the transportation industry.e. Inc. Pepay. et al. NTC. Of course it follows that if there are any damage caused to the general public the registered owner is directly answerable and not the unregistered transferee. et al. January 27.56 facilities used to serve the public. BOT compliance with citizenship requirement. v.. However.. as sound waves).. voice transmissions.. Voice messages do not travel via wires (cables whether submarine or underground or. NTC. It will permit messages originating from a person using PLDT’s domestic telephone system to enter the transmitting and carrying facilities of an international carrier and as well allow messages incoming from abroad through the international carrier’s carrying facilities to enter the domestic system.. must be operated directly by the government. claiming that she was so shocked and burdened by the successive accidents and BAR: 10. et al. 8. for example. The owner of the infrastructure facility must comply with the citizenship requirement of the Constitution on the operation of a public utility. Telecommunications. An IGF system which would mediate between a domestic telephone system and the transmitting and carrying facilities of an international carrier... (Tatad. (Tatad. Value-added services (VAS) such as SMS. The contractor undertakes the construction and financing of the facility. 243 SCRA 436) b. The contractor operates the facility for a fixed period during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. (“Y” Transit Co.. but after completion. Jr.. BOT contractor operates. Distinctions between BOT and BT: a. a holder of a certificate of public convenience. Communication over distance making no limiting reference to the means or mode of such communication. vs. she tried to justify such failure by the accidents that allegedly befell her. Jr. Garcia. 241 SCRA 486) 9. (Philippine Long Distance Telephone Company v. NLRC. et al. in turn. BT government operates. Build-operate-transfer (BOT). b. G. travel in the form of electronic impulses through cables (or any other media) and are simply converted at the point of reception or destination into other forms visually or audibly perceptible by human beings (Philippine Long Distance Telephone Company v. v. the contractor transfers the ownership and operation of the project to the government. 243 SCRA 436) NOTES AND COMMENTS: a. and operates and maintains the same. After the expiration of the agreed term...

. the Montreal Agreement of 1966.. (Philippine Airlines. if the damage is caused by his willful misconduct or by such default on his part is considered to be equivalent to damage caused by any agent of the carrier acting within the scope of his employment. v. After purchasing firearms and on the way back to Manila Rolando checked-in and presented before Northwest representatives two identical baggage which were required to be opened and supporting documents were presented. et al. U. Within our jurisdiction. purchased a round trip ticket from Northwest for his travel to Chicago. Uy. or ignored. on a special mission to purchase firearms for the .255 SCRA 48) NOTES AND COMMENTS: The Warsaw Convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or an absolute limit of the extent of that liability. although she always had the money and financial ability to buy new trucks or repair the destroyed ones. et al. Antonio and Carlos jointly filed an application for sale and transfer of Antonio’s CPC and substitution of the vessel “MV Lotus” with another owned by Carlos. v. 10 SCRA 769) in 2000 to operate a ferry between Mindoro and Batangas using the motor vessel “MV Lotus”. Pepay could have undertaken the registration of the complete number of units through her authorized representatives . 255 SCRA 38) BAR: a. Inc. (Sabena Belgian World Airlines v. (Halili v. she was confused and thrown off tangent momentarily. He stopped operations in 2003 due to unserviceability of the vessel. Warsaw Convention may be ignored. as amended by the Hague Protocol of 1955. (Cohon v. and other municipal special laws. The Warsaw Convention does not operate as an exclusive enumeration of the instances when a carrier shall be liable for breach of contract or as an absolute limit of the extent of liability. It denies to the carrier availment of the provisions which exclude or limit his liability. Basilio was granted a CPC for the same route. The provisions therein contained specifically on the limitation of carrier’s liability. It has the force and effect of law in the country being a treaty commitment assumed by the Philippine Government.. 188 SCRA 719) BAR: 11. are operative in the Philippines but only in appropriate situations. and the holder may not legally transfer the same to another. 318 SCRA 576) Philippine Senate.. SUGGESTED ANSWER: No.A. What is the Warsaw Convention ? SUGGESTED ANSWER: It is another name for the Convention for the Unification of Certain Rules Relating to International Carriage by Air. Court of Appeals. Court of Appeals. In 2005. After a few months. because Basilio filed a complaint for illegal operations with the Maritime Industry must not be construed to preclude the operation of the Civil Code and pertinent laws. Recognition of the Warsaw Convention does not preclude the operation of the Civil Code and other pertinent laws in the determination of the extent of liability of the common carrier. the Warsaw Convention can be applied. et al. Code of Commerce. (United Airlines v. Court of Appeals. and back to Manila. SUGGESTED ANSWER: No. The joint application should be disapproved.57 misfortunes that she did not know what she was doing. Are the reasons given by Pepay sufficient grounds to excuse her from completing her units ? Explain. The unserviceability of the vessel covered by the certificate rendered ineffective the certificate itself. Antonio was granted a Certificate of Public Convenience (CPC) (e) The Warsaw Convention of 1929 (Limited to the Carrier’s Liability) 1. is much a part of Philippine law as the Civil Code. Should Antonio’s and Carlos’ joint application be approved ? Give your reasons. Herras. Court of Appeals. (Philippine Airlines. Rolando. the Guatemala Protocol of 1971 and the Montreal Protocols of 1975). depending on the peculiar facts presented by each case. 257 SCRA 33) b. he discovered that Carlos was operating on his route under Antonio’s CPC. Rolando then sealed the baggage and a Northwest representative placed a red tag on the baggage with firearms with the BAR: 2. being a treaty to which the Philippines is a signatory. The Warsaw Convention. Inc.

” (Sec. etc. 161730. If the stockholders do not want to dilute their shares through increase in capital stock. v.58 marking “CONTAINS FIREARMS. et al. “The Congress shall not. Philippine Veterans Bank. No. do not share the confidence of the stockholders and refuse to grant more loans. families or groups special privileges denied to other citizens. 2) Government-owned or controlled corporations created by special charters. R. When an airline issues a ticket to a passenger confirmed for a particular flight on a certain date. and when it finally arrived the firearms were missing. Northwest now claims that under the Warsaw Convention and the contract of carriage its liability is limited only to US$9. etc. Corporation Law 1. (Northwest Airlines. v. What tools are available to the stockholders to replenish capital ? b. Court of Appeals. January 14. a common carrier is bound to carry its passengers safely as far as human care and foresight can provided. No. 147402. . using the utmost diligence of very cautious persons. . 284 SCRA 408) NOTES AND COMMENTS: a. 147402. 2004 citing National Development Company v. by law. Two classes of corporations recognized under the Constitution: 1) Private corporations created under a general law. (Feliciano. the stockholders did not like to give up: Creditor-banks. except by general law. 16. and companion case. SUGGESTED ANSWER: Claim without merit. etc. Constitutional basis for classification. G. which historically gave certain individuals. Nonetheless. Increase the capital stock of the corporation.. January 28.07 per pound or US$20 per kilo or a total of US$640. The convention’s provisions do not “regulate or exclude liability for other breaches of contract by the carrier” or misconduct of its officers and employees. R. If the passenger is not transported or if in the process of transporting he does or is injured the carrier may be held liable for a breach of contract of carriage. Obligations of carrier in confirmed flights. v. January 14. thereby infusing additional funds. Assuming that the corporation continues to operate even with depleted capital would the stockholders or the managers be solidarily liable for the obligations incurred by the corporation ? Explain.00. (Feliciano. Thus. The passenger has every right to expect that he be transported on that flight and on that date and it becomes the carrier’s obligation to carry him and his luggage safely to the agreed destination. 68) BAR: 1. G. 2004) b. it was found out that one baggage was missing. etc. etc. R. with due regard for all the circumstances. 2005) 5. etc. create a private corporation ? Reason out SUGGESTED ANSWER: Congress cannot enact a law creating a private corporation. briefly. Governmentowned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.” Upon arrival at Manila. G. 192SCRA 257) The purpose of this constitutional prohibition is to ban private corporations created by special charters. Issue a call for the payment of unpaid subscriptions if there are any. et al. May Congress. 10 December 1990. G. 84132-33. (Japan Airlines v. or as an absolute limit of the extent of that liability. Commission on Audit. a contract of carriage arises.. a. No. 147402. 1987 Constitution) (a) The Corporation Code (BP Blg. v. they could give advances to the corporation. or for some particular or exceptional type of damage. January 14.. Commission on Audit. Article XII. The Warsaw Convention does not operate as an exclusive enumeration of the instances of an airline’s liability. organization. Commission on Audit.. No. R. c. provide for the formation. or regulation of private corporations. Rule on the claim of limited liability. In fact.. Inc. b. (Feliciano. however. it is now in negative territory. The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. SUGGESTED ANSWER: The stockholders may resort to the following: a. As a result of perennial business losses a corporation’s net worth has been wiped out.. Asuncion. G. R. No. 2004 citing Bernas) NOTES AND COMMENTS: a.

G. where the corporation is already insolvent all its assets are considered held in trust by its directors and officers for the benefit of creditors. 127937. hence they may be held liable for negligence or mismanagement. 141994. Corporate fiction. G. July 28.. 2000) BAR: 3. Fifteen individuals formed a private corporation pursuant to the provisions of the Corporation Code of the Philippines (Batas Pambansa Blg. however. Thus. 116124-25. 218 SCRA 85) worth has been wiped out. November 22. et al. mental anguish or moral shock. 366. G. G. 2000) c. 68). In fact. Purpose of corporate set-up. which the corporation owns. It may not be held liable for the personal indebtedness of its stockholders of those of the entities connected with it. slander. G. . As a result of perennial business losses a corporation’s net b. Leon lost his corporate positions but he refused to return the motor vehicle claiming that as a stockholder with a substantial equity share. Court of Appeals. (National Telecommunications Commission v. However. G. BAR: 4. 2005) NOTES AND COMMENTS: a. Until the liquidation of the corporation. (Lim v. The concept of corporations was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends. 22 SCRA 359 (1963) that “a corporation may have a good reputation which. may also be a good ground for the award of moral damages” is an obiter dictum. Court of Appeals. it cannot experience physical suffering or such sentiments as wounded feelings.. R. v. unlike a natural person. Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein. Incorporator Mr. to which the creditors may look for satisfaction. Article 2219 (7) of the Civil Code which expressly authorizes the recovery of moral damages in cases of libel. 130 Phil. or any other form of defamation does not distinguish whether the plaintiff is a natural or juridical person. Leon valid ? Explain. IV v. dividends must never impair the subscribed capital.59 BAR: 2. A juridical person is generally not entitled to moral damages because. Jr. 141994. January 17. The corporation has a personality distinct and separate from that of its stockholders or managers. v. PNB. et al. (Filipinas Broadcasting Network..R. 1999) Another variation of the “trust fund” doctrine posits that any distribution of corporate assets as a consequence of corporate liquidation are considered as held in trust by the recipient stockholder for the benefit of the creditors of the corporation. No. a corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued with a character alien to the persons comprising it. Leon was elected director and president – general manager. Court of Appeals. The statement in Mambulao Lumber Co. the stockholders did not like to give up: Creditor-banks. Mr.R. 86883-85. et al. Inc. Part of his emolument is a Mercedes Benz.. nor an the corporation buy its own shares using the subscribed capital as the consideration therefore. An educational corporation sued two radio broadcasters for libel because of malicious imputations against the school. January 24. It may not generally be held liable for that of the persons composing it.R. The award of moral damages to AMEC-BCCM was not premised upon the Mambulao obiter but upon Article 2219 (7) of the Civil Code which does not make a distinction whether the plaintiff is a juridical or natural person to be entitled to damages. no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this principle. No. Manero. January 17. SUGGESTED ANSWER: No. he owns that portion of the corporate assets now in his possession. et al. do not share the confidence of the stockholders and refuse to grant more loans. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM. (Reynoso.. Assuming that the corporation continues to operate even with depleted capital would the stockholders or the managers be solidarily liable for the obligations incurred by the corporation ? Explain. 29 January 1993. No. (Filipinas Broadcasting Network. Inc. Nonetheless. if besmirched. The ‘trust fund” doctrine considers unpaid subscribed capital as a trust fund for the payment of the debts of the corporation. v. R. Nos. it is now in negative territory. 124715. et al. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM. Generally corporation not entitled to damages. R. serious anxiety. No. et al. Nos. NOTES AND COMMENTS: a. After a few years. 2005 citing People v. Is it entitled to moral damages as a corporation ? SUGGESTED ANSWER: Yes. subscription commitments cannot be condoned or remitted. it also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons. Is the contention of Mr.

When the corporate fiction is used to defeat public convenience. R. b. while C owns only nominal but fully paid up shares and is a director and officer. 2005 and its companion case) BAR: 5. may be held liable jointly and severally with the corporation because it appears in the problem that there were fraudulent practices in directing corporate affairs. BAR: 7. the wrong-doing must be clearly and convincingly. corporate property such as the Mercedes Benz is not property of any stockholder such as Mr. or defend crime or when a corporation is the mere alter ego or business conduit of a person. Umezawa.. the law creating it was declared invalid. Consequently. The distinction between the title of a corporation. during its existence. B and C ? SUGGESTED ANSWER: a. justify wrong. 8. Under the nationality theory the citizenship of the stockholders determines nationality irrespective of the place of incorporation. Under the theory of incorporation. Nos. NOTES AND COMMENTS: a. Tinghil. Leon. B’s shares are fully paid up. A has an unpaid subscription of P100. and the interest of its members or stockholders in the property of the corporation is familiar and well-settled. Corporate property not owned by stockholders. A corporation was created by special law. v. B and C are shareholders of XYZ Company. XYZ Corporation becomes insolvent. . June 16. G. What is the nationality of a corporation organized and incorporated under the laws of a foreign country. established. G. If you were counsel for a creditor of XYZ Company.000. When is the veil of corporate fiction pierced ? b. under its charter. the nationality of the corporation subject of the problem. as director.R. 149357. 1995) BAR: 9. A’s liability is limited only up to his unpaid subscription. the circumvention of statutes. but owned 100% by Filipinos ? SUGGESTED ANSWER: Under the control test. 111810-11. When the fiction is used as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation. Certain legal acts flowed prior to the invalidating of the law which should have recognition. et al. A corporation acquires juridical personality through State consent. A corporation has a personality separate and distinct from that of the stockholders. March 4. There is no cause of action against B because he has fully paid up his subscription. upon the termination or dissolution of the corporation after payment of its debts. 2005 citing various cases) To disregard the separate juridical personality of a corporation. c. Inc. An action may be instituted against A up to the extent of his unpaid subscription. the veil with which the law covers and isolates the corporation from the members or stockholders who composed it will be lifted to allow for its consideration merely as an aggregation of individuals. It is a basic postulate that before a corporation SUGGESTED ANSWER: The following were the instances where the Supreme Court ruled that the veil of corporation fiction may be pierced: a. The interest of each stockholder consists in the right to a proportionate part of the profits whenever dividends are declared by the corporation. is Filipino. No.00. (Mobilia Products.. What are the tests of corporate nationality ? SUGGESTED ANSWER: The tests are the nationality theory and the theory of incorporation. C. 6. February 3. protect fraud. The ownership of that property is in the corporation. Inc. 159121.. and not in the holders of shares of its stock. NOTES AND COMMENTS: a. A. which he is supposed to hold in trust for the benefit of corporate creditors. No. and to a like proportion of the property remaining. et al vs. (Pamplona Plantation. the achievement or perfection of a monopoly or generally the perpetration of knavery or crime.R.60 SUGGESTED ANSWER: No. NLRC. v. hence corporate liabilities could not be collected against stockholders. The corporation has a personality distinct and separate from that of its stockholders. May such corporation claim to be a de facto corporation ? SUGGESTED ANSWER: Yes from the time the law became effective up to the declaration of its invalid. would you advise legal action against A. G. and it is established that the insolvency is the result of fraudulent practices within the company. ( Yu. et al. the place of incorporation determines nationality irrespective of nationality of stockholders. Later. It cannot be presumed.

115849. Court of Appeals. Inc. 2004 citing Tan Boon Bee & Co. Lopez. No. July 20. Piercing the veil of corporate fiction is warranted. 2000) e. et al. v. No. Lim v. On one occasion. “X” Corporation was found to be without assets.. et al.. Inc. 117932.. No. to avoid inclusion of corporate assets as part of the estate of a decedent. (ARB Construction Co. December 4. v. where a wrong is sought to be justified. Upon execution of the court’s decision. adjunct or business conduit for the sole benefit of the stockholders. 309 SCRA 72 (1999) BAR: 10. (Sunio v. or defend crime. (Republic v. 1996. the law will regard the corporations as merged into one.61 c. at the same address... where public convenience is defeated. Inc. Mr. 124715. G. (Velarde v. 126554. The principle requiring the piercing of the corporate veil mandates courts to see through the protective shroud that distinguishes one corporation from a seemingly separate one. 1 SCRA 160 (1961) NOTES AND COMMENTS: a. Where badges of fraud exist. Doggie owns 90% of the shares of ANIMAL Corporation is of no moment. G. Inc. G. protect fraud. Plaintiffs filed a collection action against “X” Corporation. Doggie owns 90% of the shares of the capital stock of ANIMAL Corporation. Mere majority ownership of stocks of a corporation is not per se a cause for piercing the corporate veil. 2000) g.397-398 cited in Santos v. 127 SCRA 390. The two corporations have the same board of directors and “Y” . No. Mr. such that in the case of two corporations. the same business venture. NLRC..R. Doggie as President and General Manager.. as where the second corporation merely continued the operations of the first corporation under the same owners. G. (First Philippine International Bank. 2005) and to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. Tinghil. 2004 citing Francisco Motors Corporation v. business conduit or instrumentality of a person or another entity or that piercing the corporate fiction is necessary to achieve justice or equity. Inc. ANIMAL Corporation.R. January 24. NLRC. No.. that the corporate entity was merely a farce and that it was used as an alter ego. Will the action prosper ? SUGGESTED ANSWER: The action will prosper against ANIMAL Corporation because it is the real party in interest. to avoid liability arising from debt. January 24.R. Two entities cannot be deemed separate and distinct where there is a showing that one is merely the continuation of the other. justify wrong. No. February 3. when made use as a shield to perpetrate fraud and/or confuse legitimate issues. vs. Jarenao. Doggie. NLRC. executed a contract to sell a subdivision lot in favor of Mr.R. et al. or to defeat public convenience. 153886. There must be evidence that the corporate entity was used to commit fraud or to do wrong. v. (Velarde v. To avoid a judgment credit. however. No. 1996. represented by Mr. Lopez. protect fraud. 163 SCRA 205 (1988) and Yutivo Sons hardware Co. March 13. Inc. etc. et al. or for purposes that could not have been intended by the law that created it. Thereafter plaintiffs filed an action against its present and past stockholder “Y” corporation which owned substantially all of the stocks of “X” Corporation. Doggie merely acted in representation of the corporation which has a personality distinct and separate from Mr. When the corporate fiction is used as a shield to further an end subversive of justice. citing various cases) d.. G. Court of Appeals. 159121. 153886. Court of Appeals. or defend crime. v. G. the corporate fiction or the notion of legal entity should come to naught. the corporate character is not necessarily abrogated.R. May 31. 2000) BAR: 11. January 14. No. Cow filed an action for rescission and damages against ANIMAL Corporation and Mr. Mr. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. G. January 24. 101699. 124715. et al. justify wrong.. No. When the notion of separate legal entity should be set aside and the factual truth upheld. It continues for other legitimate objectives. (Avon Dale Garments. or as an alter ego. The veil is pierced only in certain instances in order to promote substantial justice (Pamplona Plantation. only in cases when the separate legal entity is used to defeat public convenience. et al.R. v. Doggie. (Lim v. Court of Appeals. R. 2000) NOTES AND COMMENTS: a. et al. G. and even continued to hire the same employees. R. or to perpetuate deception.. et al.R. G.R. For failure of ANIMAL Corporation to develop the subdivision. Sandiganbayan. Court of Appeals. The fact that Mr. or to promote unfair objectives or otherwise to shield them.. January 14. 128606. Cow. G. Court of Tax Appeals. No. 1995) f.

Moreover. but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind. R.. 1) Control. G. and can be more than. 2) Such control must have been used by the defendant to commit fraud or wrong. Lopez. Uy. IV v.. will or existence of its own. May “Y” Corporation be held liable for the debts of “X” Corporation ? Why ? SUGGESTED ANSWER: Yes. Nos.62 Corporation financed the operations of “X” Corporation. not only of the finances. the par value of the shares. It is clear that there is complete domination by “Y” of “X”. January 14. but complete domination. August 11. The subscribed capital is the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for. (Velarde v. (Lopez Realty. “X” and “Y” Corporation should be treated as one.. or dishonest and unjust act in contravention of plaintiff’s legal right. et al. (Lim v. or on its property. Inc. Inc. NOTES AND COMMENTS: Tests in determining whether to pierce veil of corporate personality. et al.R. No.R. G. November 22. (Ibid. et al. vs. No.. 153886.R. Merely interlocking directorate does not justify piercing. et al.. Inc. not mere majority or complete stock control. G. (Avon Dale Garments. 137686. to perpetuate the violation of a statutory or other positive legal duty. Court of Appeals. 3) The aforesaid control and breach of duty must proximately prevent “piercing the corporate veil. No. justify wrong. (Reynoso. It cannot be presumed. 2000) 5) The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. SUGGESTED ANSWER: It is an act which refers to a. February 8. BAR: 14. it is the amount that the corporation receives. G.. in consideration of the original issuance of the shares. NLRC. G. What is the effect of a change in corporate name ? SUGGESTED ANSWER: It does not make a new corporation. rights. the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience. 344 SCRA 238 (2000) BAR: a. Define an ultra vires act. Fontecha. G. whether effected by a special act or under a general law. or liabilities. 2000) b. Sr. (Rural Bank of Milaor. 116124-25.. would only be unenforceable conformably with Article 1403 of the Civil Code. and that they have the same board of directors. to disregard the separate juridical personality of a corporation. 76801.. G. 1995) Providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code. 2004) 12. No. 2004 citing Heirs of Ramon Durano. v. 2000) capital and stock dividends ? What is meant by the “trust fund doctrine” ? SUGGESTED ANSWER: Capital refers to the value of the property or assets of a corporation. vs. not only of the finances. January 24. the wrongdoing must be clearly and convincingly established.” 4) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. protect fraud or defend crime. Lopez. Inc. it has no effect on the identity of the corporation. But even when there is dominance over the affairs of the subsidiary. implied or incidental powers as so provided by law or the charter would be void under Article 5 of the Civil Code. This is evident from the fact that “Y” owned substantially all the stocks of “X”. which need not necessarily be. 124715. or not necessary or incidental in the exercise of the powers so conferred. et al. 153886. one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation b. The existence of interlocking directors. Camarines Sur v.R. corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. 1995) 13. No. Consequences of ultra vires acts. et al. Court of Appeals. (Velarde v. The act is not susceptible to ratification. which determines policy. but of policy and business practice. Ocfemia. An act of a corporation which is either illegal or outside of express. January 14. In fine. inclusive of the premiums if any. R. No. and an unauthorized act (if within corporate powers) of the board or a corporate officer. July 20.R. What is capital ? How is it differentiated with subscribed .) NOTES AND COMMENTS: a. 117932.


In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account. It is the same amount that can loosely be termed as the “trust fund” of the corporation. The ‘trust fund” doctrine considers unpaid subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this principle. Thus, dividends must never impair the subscribed capital; subscription commitments cannot be condoned or remitted; nor an the corporation buy its own shares using the subscribed capital as the consideration therefore. (National Telecommunications Commission v. Court of Appeals, et al., G.R. No. 127937, July
28, 1999)

Another variation of the “trust fund” doctrine posits that any distribution of corporate assets as a consequence of corporate liquidation are considered as held in trust by the recipient stockholder for the benefit of the creditors of the corporation. SUGGESTED ANSWER: a. To vote, including the right to appoint a proxy; b. To share in the profits of the corporation including the right to declare stock dividends, but an unpaid subscriber does not have a right to stock dividends; c. To a proportionate share in the assets of the corporation upon liquidation; d. The right of appraisal; e. The preemptive right to shares; f. To inspect corporate books and records; g. To elect directors and to be elected as such; h. Such other rights as may contractually be granted to the stockholders by the corporation or by special law. NOTES AND COMMENTS: BAR: a. Stockholders of unpaid subscriptions have all the above rights of stockholders including right to vote. However, if already declared delinquent, and the call for the unpaid subscription is issued with the expiration of the delinquent subscriber loses all of the above rights.
b, Stockholder’s right to vote. One of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock and as such is a property right. The stockholder cannot be deprived of the right to vote his stock nor may the right be essentially impaired, either by the legislature or by the corporation, without his consent, through amending the charter, or the by-laws. (Castillo, et al., v. Balinghasay, et al., G. R.
No. 150976, October 18, 2004 citing Fletcher)

BAR: 15. State the rights of a stockholder.

16. Corporate mergers take effect after SEC approval. (Associated Bank v. Court
of Appeals, et al., G.R. No. 123793, June 29, 1998)

17. What is meant by the doctrine of corporate opportunity ?
SUGGESTED ANSWER: Corporation could prohibit by rules election of director of competitor because such director might be privy to business secrets that may be passed on to the competitor.

BAR: a. Disloyalty of director. Where a director by virtue of his office, acquires for himself a business opportunity which should belong to the corporation thereby obtaining profits to corporation’s prejudice. PENALTY: Director must account to the corporation for such profits by refunding the same even if he risked his own funds in the venture. WHEN NO REFUND: If the act is ratified by 2/3 vote of outstanding capital stock.
18. Who is an “independent director” ?
SUGGESTED ANSWER: An independent director means a person who, apart from his fees and shareholdings, in independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying our his responsibilities as a director in any corporation required to make periodic reports to the SEC. (SRC Rule 38.1)


a. An independent director includes among others a person who: 1) Is not a director or officer of the corporation or of its related companies or any of its substantial shareholders (other than as an independent director of any of the foregoing);


2) Is not a substantial shareholder of the corporation or its related companies or any of its substantial shareholders; 3) Is not a relative of any director, officer or substantial shareholder of the corporation, any of its related companies or any of its substantial shareholders. For this purpose, relatives includes spouse, parent, child, brother, sister, and the spouse of such child, brother or sister; 4) Is not acting as a nominee or representative of any director or substantial shareholder of the corporation, any of its related companies or any of its substantial shareholders; 5) Has not been employed in any executive capacity by that public company, any of its related companies or by any of its substantial shareholders within the last five (5) years; 6) Is not retained as professional adviser, by that public company, any of its related companies or any of its substantial shareholders within the last five (5) years; 7) Is not retained as professional adviser, by that public company, any of its related companies or by any of its substantial shareholders, either personally or through his firm; or 8) Has not engaged and does not engage in any transaction with the corporation or with any of its related companies or with any of its substantial shareholders, whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms length and are immaterial. (SRC Rule 38.1)

BAR: 19. What are the conditions for a corporation to invest its funds in another corporation or business or for any other purpose than that stated in its primary purpose ? SUGGESTED ANSWER: a. Approval by a majority of the Board of Directors; b. Said approval is ratified by two-thirds of the stockholders representing the outstanding capital stock; c. Written notice of the proposed investment and the date, time and place of the stockholders' meeting at which such proposal will be taken up must be sent to each stockholder. (Sec. 42, Corporation Code) If the investment is in accord with the principal purposes only the approval of the Board of Directors is required.
20. On August 6, 1997, the Court of Appeals resolved to deny due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that “the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner as required under Supreme Court Circular No. 28-91, but by its counsel, in contravention of said circular x x x.” A Motion for Reconsideration was subsequently filed by BA Savings Bank which attached a Corporate Secretary’s Certificate, dated August 14, 1997 which showed that a May 21, 1997 Resolution authorized its lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others. May the corporate lawyers execute the Certificate of Non-forum shopping ? Explain briefly.
SUGGESTED ANSWER: Yes. The Board Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. (BA Savings Bank v. Sia, et al., G.R. No. 131214, July 27, 2000)

a. A corporation acts through its board, officers or agents. A corporation exercises the powers expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence, through its board of directors and/or its duly authorized officers and agents. Physical acts, like signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by specific act of the board of directors. All acts within the powers of a corporation may be performed by agents of its selection; and except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons. (BA Savings Bank v. Sia, et al., G.R. No. 131214, July 27, 2000)


b. Corporate officers may bind the corporation. Corporate officers may act on such matters as may be authorized either expressly by the Bylaws or Board Resolutions or impliedly as such as by general practice or policy or as are implied by express powers. When officers are allowed to act in particular cases, their acts conformably therewith can bind the company. Hence, a corporate officer entrusted with general management and control of the business has the implied authority to act or contract for the corporation which may be necessary or appropriate to conduct the ordinary business. (Rural Bank of Milaor, Camarines Sur v. Ocfemia, et
al., G.R. No. 137686, February 8, 2000)

c. Corporation may be estopped in questioning officer’s authority to enter into transactions. It is a familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent , to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts, and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority. (Lapulapu Foundation, Inc., et al., v. Court of Appeals, et al., G. R. No. 126006, January 29,
2004 citing Soler v. Court of Appeals, 358 SCRA 57 (2001)

d. Source of authority to bind corporation. The authority of certain individuals to bind the corporation is generally derived from law, corporate by-laws or authorization from the board, either expressly or impliedly, by habit, custom or acquiescence in the general course of business. (People’s Aircargo and Warehousing Corporation, Inc. v. Court of Appeals, 297 SCRA 170) e. When acts of corporate officers DO NOT bind the corporation. If the act of corporate officers comes within corporate powers but it is not done without any express or implied authority therefor from the by-laws, board resolutions or corporate practices, such an act does not bind the corporation. (Rural Bank of Milaor, Camarines Sur v. Ocfemia, et al., G.R. No. 137686, February 8, 2000) This is specially true where the party with whom the corporate officer contract is aware of the latter’s limits of powers, in which case as far as the corporation is concerned, the unauthorized act is declared void under Article 1898 of the Civil Code, although susceptible to ratification by the corporate principal. This is so because any person dealing with corporate boards and officers may be said to be charged with the knowledge that the latter can only act within their respective limits of power, and he is put to notice accordingly. Thus, it would generally behoove such a person to look into the extent of the authority of corporate agents since the onus would ordinarily be with him. (Ibid.) f. When UNAUTHORIZED acts of corporate officers BIND the corporation. 1) If ratified. The Board, acting within its competence, may ratify the unauthorized act of the corporate officer. (Rural Bank of Milaor, Camarines Sur v. Ocfemia, et al., G.R. No. 137686, February 8, 2000) An action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in a subsequent legal meeting, or impliedly by the corporation’s subsequent course of conduct. (Lopez Realty, Inc., et al. vs. Fontencha, et al., G.R. No. 76801, August 11, 1995) 2) Under estoppel. So, too, a corporation may be held in estoppel from denying as against innocent third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority. (Rural Bank of Milaor, Camarines Sur v. Ocfemia, et al., G.R. No. 137686, February 8, 2000) A corporation may be held to be in estoppel from denying as against third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority. (Hydro Resources Contractors Corporation v. National Irrigation Administration, G. R. No. 160215, November 10, 2004) In both of the above instances the act must not be an ultra vires act. In order to be ratified or enforceable under estoppel, the unauthorized act of the corporate officer must be within the authorized corporate powers. Otherwise, the act if ultra vires would be void an not be the source of any rights and obligations. Of course, damages may be awarded to the aggrieved party if the corporation or the corporate officer misled the other party into believing that the act is a valid corporate act. Do not forget that there is a distinction between a valid corporate act but the officer is not authorized to bind the corporation, from one where the act is not a valid corporate act, and neither is the officer authorized to bind the corporation. In the last instance, there is no corporate liability. BAR: g. Instances when corporate director, trustee or officer may be held personally liable to the corporation: 1) When he assents to a patently unlawful act of the corporation; 2) When he acts in bad faith or with gross negligence in directing the affairs of the corporation, or in conflict with the interest of the corporation resulting in damages to the corporation, its stockholders or other persons; 3) When he consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 4) When he agrees to hold himself personally and solidarily liable with the corporation; or 5) When he is made, by a specific provision of law, to personally answer for the corporate action. (FCY Construction Group, Inc., et al. v. Court of Appeals, et al., G.R. No. 123358,
February 1, 2000 citing Tramat Mercantile, Inc. et al., v. Court of Appeals, et al., 238 SCRA 14)

A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. 3) The par value. Who has a better right to the DOC. trustees. trustees. Are contracts entered into by a corporation with its directors. Garcia then claimed that the DOC was his. 2) That the vote of such director or trustee was not necessary for the approval of the contract. R. Dico then transferred the DOC to Garcia. must first be fully paid. The following are the instances where such contracts entered by a corporation with its directors. When corporate officers liable.R. et al. countersigned by the secretary or assistant secretary. and 4) That in the case of an officer. Court of Appeals. hence it does not bind other parties . there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up of the person whose name is inserted therein has no control over the books of the company. the contract has been previously authorized by the board. (Bitong v. (H. (Ibid. The transfer of shares of stocks in corporate books require indorsement on the shares.. or officers valid ? SUGGESTED ANSWER: The general rule is that a contract entered into by a corporation with its directors. The operative act which determines ownership of shares of stocks. 4) The original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. Jomoaud. the spouses Atinon or Garcia? Explain. or 2) they are guilty of bad faith or gross negligence in directing its affairs. The general rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. Subsequently. No. G. (Sec. Intermediate Appellate Court. or of two-thirds (2/3) of the stockholders present in a meeting called for the purpose: Provided. et al. v. and that the DOC was merely used by Dico in order to assist him in entertaining clients. NOTES AND COMMENTS: BAR: a. 290. in the case of a contract with a director or trustee. The transfer was not recorded in the corporate books. G. or officers is voidable at corporation's option. He further alleged that Dico is the manager of his (Garcia’s) business. 1) The certificates must be signed by the president or vice-president. No. G. Marina Properties Corporation.. Hence. and sealed with the seal of the corporation. 2) Delivery of the certificate is an essential element of its issuance. 2000) Personal liability of corporate officers validly attaches only when: 1) they assent to a patently unlawful act of the corporation.R. Requirements for the issuance of a formal certificate of stock. v. 2000) NOTES AND COMMENTS: a. as to par value shares. 32. trustees. Carlos Construction. Dico is the registered owner of Proprietary Ownership Certificate (POC) No. May 31. provided further that the contract is fair and reasonable under the circumstances. January 29. which resignation was duly entered in the minutes of the meeting of the Club’s Board of Directors. 147614. 0668 in the Cebu Country Club. (Garcia v. 207 SCRA 234) BAR: b. he resigned as proprietary member of said club. February 1. or officers are valid: 1) That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting. et al. 133969. or 3) they incur conflict of interest. Inc. Corporation Code) Where any of the first two conditions is absent.L. 324 SCRA 270. January 26.. 2004 citing Sec. 282. 3) That the contract is fair and reasonable under the circumstances. Court of Appeals. et al. resulting in damages to the corporation. That full disclosure of the adverse interest of the trustee or director involved is made at such meeting. 291 SCRA 503) . (ARB Construction Co. 126554. Court of Appeals.66 f. 2000 and other cases) 21.... 31 of the Corporation Code and FCY Construction Group. If not so indorsed. 381 Phil. its stockholders or other persons. presumption is that person whose name appears thereon is the owner.) 22. (Razon v. v. In a case filed by the spouses Atinon against Dico.. the prevailing spouses levied on the DOC and a schedule for public auction was set. No. such contract may be ratified by the vote of two-thirds (2/3) of the stock outstanding. inc. or the full subscription as to no par value shares. et al. SUGGESTED ANSWER: The spouses Atinon have a better right. Inc.

(Bitong. (Bitong v. except as between the parties. neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence. until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction. Requirements for valid transfer of stocks: 1) There must be a deliver of the stock certificate. as to all persons interested. such as when the same is violative of the trust fund doctrine. and 3) To be valid against third parties.67 Stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Jomouad. May 15. revocation may be had prior to the declaration of cash dividends and for stock dividends prior to the issuance.770 dozens of soccer jerseys. 281 SCRA 503) BAR: d. (Litton Mills.. Where there is an inherent lack of power in the corporation to issue the stock. (Litton) entered into an agreement with Empire Sales Philippines Corporation. G. NOTES AND COMMENTS: a. however. b. except the parties to such transfers. v. on the books of the corporation. Cash dividends may be declared by the Board alone WHILE stock dividend declaration requires the approval of at least two-thirds (2/3) of the outstanding capital stock entitled to vote. Court of Appeals. Litton Mills. And it is equally clear that all transfers of shares be so entered are invalid as to attaching or execution creditors of the assignors. Sec. 2) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer. and the obvious intention of the legislature in using it was. 63 of the Corporation Code is explicit in its provisions that “No transfer. No. Inc. but because they are made so void by statute. et al. Stated otherwise. Similarities between cash dividends and stock dividends: 1) Both must be declared from unrestricted surplus. shall be valid. Court of Appeals. money is received by the stockholders WHILE in stock dividends shares of stock of the corporation are received.. and. Cash dividends withdraw assets from the corporation in the form of cash (money) and near cash WHILE stock dividends do not. 94980. All transfers not so entered on the books of the corporation are absolutely void. Gelhaar’s act in purchasing soccer jerseys to be within the ordinary course of business of the company considering that it was engaged in the manufacture of uniforms. Otherwise it can no longer be revoked once the right thereto has already vested in the stockholders. In cash dividends.R. v. Diosomito) SUGGESTED ANSWER: a. such act will be considered as constituting doing business. 2) Both must be declared by the Board of Directors. Inc.R. indeed. et al. not because they are without notice or fraudulent in law or fact. whereby Litton agreed to supply Gelhaar 7. Distinguish cash dividends from stock dividends. The rule is that the endorsement of the certificate of stock by the owner or his attorneyin-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery.. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Where a single act or transaction of a foreign corporation is not merely incidental or casual but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state. the date of the transfer. BAR: 23. No. Dividend declaration may be revoked if the same was irregularly declared. 24. the transfer must be recorded in the books of the corporation. It is not really the fact that there is only a single act done that is material to the consideration of whether a foreign corporation is doing business in the Philippines. 133969. as well as to the corporation and to subsequent purchasers in good faith. as local agent of Gelhaar Uniform Company (Gelhaar). et al. as here required. that all transfers of shares should be entered. Court of Appeals. January 26. The acts noted above are of such a character as to indicate a purpose to do business. 281 SCRA 503) BAR: c. a corporation organized under the laws of the United States. (Garcia v.. et al.” The true meaning of the language is. 2000 citing Uson v. c. Reason why attachment prevails over unrecorded transfer. is Gelhaar doing business in the Philippines? SUGGESTED ANSWER: Yes. b. Considering this single transaction. the number of the certificate or certificates and the number of shares transferred. G. 1996) NOTES AND COMMENTS: .

The contract in pertinent part contains pre-termination clauses.. Doing business. Ingenieruburo Birkhahn + Nolte. v. 2000) 25. No foreign corporation transacting business in the Philippines without a license. Reason: A corporation has legal status only within the state or territory in which it was organized. (Hutchinson Ports Philippines Limited v.. et a.68 a.R. (Georg Grotjahn GMBH & Co. General rule: Unlicensed foreign non-resident corporations cannot file suits in the Philippines. SBMA is estopped from questioning the capacity to sue of UIG. G. et al. 2004 citing Subic Bay Metropolitan Authority.. Each case must be judged in the light of its peculiar circumstances. Thus. On 8 September 1997. et al. a letter of pre-termination was served by SBMA requiring UIG to vacate the premises. No. UIG then paid the rental arrearages but the other obligations remained unsatisfied.. September 14. August 31. On 12 September 1997. et al. but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. regardless of volume of business. For this reason. Isnani and Communication Materials and Design v. Universal International Group of Taiwan.R. SBMA effectively recognized its personality and capacity to institute the suit before the trial court. 2000) .1 of the lease and Development Agreement and required it to show cause why SBMA should not pre-terminate the agreement. 131367. No. it is the performance by a foreign corporation of the acts for which it was created. No.. Section 133 of the Corporation Code specifically provides that. G. 131680. it has been held that “a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the Philippines for which a license is required. (Hutchinson Ports Philippines Limited v. UIG filed a complaint against SBMA for “Injunction and Damages” with prayer for a writ of temporary restraining order and writ of preliminary injunction. suit or proceeding in any court or administrative agency of the Philippines.R. 159586. September 14.. CA. No. 2000) Examples: 1) A foreign corporation performing acts pursuant to its primary purpose and functions as regional/area headquarters for its home office is clearly doing business in this country. 131367. et al. v. Without such license it cannot institute suit in the Philippines.” In this regard. etc. SBMA served the formal notice of closure of Subic Bay Golf Course and took over possession of the subject premises. 2000) This doctrine of estoppel was initiated as early as 1924 in Asia Banking Corporation v. a. The amount or volume of the business is of no moment. There is no general rule or governing principle . et al. G. that determines whether a foreign corporation needs a license or not. July 26. et al. Universal International Group of Taiwan. (European Resources and Technologies. v. vs.laid down as to what constitutes “doing” or “engaging in” or “transacting” business in the Philippines. It is common ploy of defaulting local companies which are sued by unlicensed foreign companies not engaged in business in the Philippines to invoke lack of capacity to sue. Subic Bay Metropolitan Authority. Thus. SBMA sent a letter to UIG declaring the latter in default of its contractual obligations to SBMA under Section 22...R. In entering into the LDA with UIG. et al. a corporation organized in another country has no personality to file suits in the Philippines unless it acquires a license from the SEC and appoint an agent for service of process. G. On 7 March 1997. August 31. Isnani. Inc. NOTES AND COMMENTS. (Subic Bay Metropolitan Authority. it has often been held that a single act or transaction may be considered as “doing business” when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. et al. 235 SCRA 216) 2) Participating in the bidding process constitutes “doing business” because it shows the foreign corporation’s intention to engage in business here. commercial tourism and residential center. Standard Products and reiterated in Georg Grotjohn GMBH v. Subic Bay Metropolitan authority. a ‘Lease and Development Agreement’ was executed by UIG and SBMA under which UIG shall lease from petitioner SBMA the Binictican Golf Course and appurtenant facilities thereto to be transformed into a world class 18-hole golf course. G. Does UIG have the capacity to sue? SUGGESTED ANSWER. 131680. golf club/resort. The bidding for the concession contract is but an exercise of the corporation’s reason for creation or existence. for even a singular act cannot be merely incidental or casual if it indicates the foreign corporation’s intention to do business. R.. shall be permitted to maintain or intervene in any action.. or its successors or assigns. On 25 May 1995. On even date. Yes..

117932. Still in the absence of a board of directors or trustees. R. in Merrill Lynch Futures v. Inc. vs. 2004) d. July 17. Court of Appeals. v. a domestic firm is estopped from denying the former’s capacity to sue. et al. Court of Appeals. 159586. It may.. etc. Requirement for foreign corporations to secure license was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in this country.70 (1924) In other words. For example. Hence. et al.69 b.. If a foreign corporation operates a business in the Philippines without a license.. G. 2004) 26. R. et a. et al. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes. the board of directors (or trustees) itself. v. and thus does not submit itself to the Philippine laws.. 111837.. those having any pecuniary interest in the assets.. Ingenieruburo Birkhahn + Nolte. vs. March 27. July 26. (European Resources and Technologies. Subic Bay Metropolitan Authority. G.. et al. NOTES AND COMMENTS: BAR: b. 159586. etc. the foreign corporation is merely prevented from being in a position where it takes the good without accepting the bad. 2004 citing Marshall-Wells Co. 2000) A party is estopped from questioning the capacity of a foreign corporation to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporation and thereafter committed a breach of or sought to renege on its obligations. The primary purpose of the license requirement is to compel a foreign corporation desiring to do business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over them for the regulation of their activities in this country. et a. September 14. G. Without such license. The purpose for requiring foreign firms to obtain license. 1995) warranto proceedings: 1) When the Corporation has offended against a provision or an act for its creation or renewal. No. (European Resources and Technologies. etc.. 1995) c. it cannot institute a suit in the Philippines (Hutchinson Ports Philippines Limited v. R. chiefly in cases where such person has received the benefits of the contract. No. v. No. et al.. foreign corporations not licensed to do business in the Philippines may exercise the right to file an action in Philippine courts on an isolated transaction. might make proper representations with the Securities and Exchange Commission. It must register with the SEC and appoint an agent for service of process. is not enough to support the conclusion that actual dissolution of an entity took place. Ingenieruburo Birkhahn + Nolte. G.. 2) When it has forfeited its privileges and franchises by non-use.R. No. Ingenieruburo Birkhahn + Nolte. Exception or instance where licensing requirement not applied.. Inc. x x x “(Subic Bay Metropolitan Authority. July 26. Inc. G. 46 Phil... (Avon Dale Garments. “One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its existence and capacity. during the three (3) year term. for working out a final settlement of the corporate concerns. the Supreme Court ruled that... However. July 26. G. vs. et al.R.. (New York Marine Managers.R. without more. 1995) BAR: a. The termination of the life of a juridical entity does not by itself cause extinction or diminution of the rights and liabilities of such entity. Inc. Inc. but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts. NLRC. July 20. Three (3) year period after dissolution. 159586. nor those of its owners and creditors. G. acting for and its behalf. including not only the shareholders but likewise the creditors of the corporation. Universal International Group of Taiwan. et al. 2000) The object of requiring a license is not to prevent the foreign corporation from performing single acts. et al.. v. 110910. The rule relating to estoppel is deeply rooted in the axiom of commodatum ex injuria sua non habere debet – no person ought to derive any advantage from his own wrong.. No. culminating in the disposition and distribution of its remaining assets. What act is constitutive of a dissolution of a corporation ? SUGGESTED ANSWER: The mere filing of the Articles of Dissolution with the Securities and Exchange Commission. October 24. there must be a showing that there was indeed an actual closure and cessation of operations. v. 131367. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period. et al. 82407. CA. which has primary and sufficient broad jurisdiction in matters of this nature. vs.. 1995) After contracting with a foreign corporation. August 31.. Grounds for involuntary dissolution of a corporation under quo .. G.R. (European Resources and Technologies. may be permitted to continue as “trustees” by legal implication to complete the corporate liquidation. it is only just that said foreign corporation be not allowed to invoke them in our courts when the need arises..R. (National Sugar Trading Corporation. et al. G. Elser and Co.R. 131680. Court of Appeals. appoint a trustee or a receiver who may act beyond that period. A corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs. et al.. et a.. (Clemente.

privilege or franchises. Ensure full and fair disclosure about securities. e. 2. firm. 8799) Securities Regulation Code ? SUGGESTED ANSWER: The State policy that impelled the enactment of the Securities Regulation Code a. Protect investors. c. What is the cumulative rule ? SUGGESTED ANSWER: One candidate may be given as many votes as the number of directors to be elected multiplied by the number of shares or distribute under the same principle among as many candidates as the voter shall see fit. Minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. and issue opinions and provide guidance on and supervise compliance with such rules. the Corporation Code. f) Impose sanctions for the violation of laws and the rules. regulations and orders. b. both direct and indirect. g) Prepare. approve. privilege or franchise conferred upon it by law. suspend or take over the activities of exchanges. 4) When it misused a right.. in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court. the Financing Company Act and other existing laws. (Sec. Enhance the democratization of wealth. privilege or franchise in contravention of law. PROVIDED: the total number of votes cast shall not exceed the number of shares shown on the books multiplied by the whole numbers of directors to be voted. 209 SCRA 294) 28. b.A. f. No. What are the powers and functions of the Securities and Exchange Commission ? SUGGESTED ANSWER: The Commission shall have the powers and functions provided by the Securities Regulation Code. To establish a socially conscious. suspend. Encourage the widest participation of ownership in enterprises. . 902-A. free market that regulates itself. The Securities Regulation Code (R. association or person in the implementation of its powers and functions under this Code. j) Punish for contempt of the Commission. etc. h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government. advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto. (Philippine National Bank vs. revoke or require amendments to registration statements. corporation. What is the state policy that impelled the enactment of the BAR: 2. g. among others. reject. e) Supervise. clearing agencies and other SROs. or when it has exercised a right. c) Approve. the Commission shall have. the Investment Houses Law. investigate or supervise the activities of persons to ensure compliance. i) Issue cease and desist orders to prevent fraud or injury to the investing public.70 3) When it has committed or omitted an act which amounts to a surrender of its corporate rights. the following powers and functions: a) Have jurisdiction and supervision over all corporations. CFI. monitor. regulations and orders issued pursuant thereto. and registration and licensing applications. Pursuant thereto. regulations and orders. Promote the development of the capital market. d) Regulate. civil or military as well as any private institution. partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government. amend or repeal rules. Presidential Decree No. d. b) Formulate policies and recommendations on issues concerning the Securities market. SRC) NOTES AND COMMENTS: The above discussion may be used to answer the questions What is the principal purpose of laws and regulations governing securities in the Philippines ? and What are the main purposes of the Securities Regulation Code ? BAR: 1.

papers. Rule 1. or associations relations which fall within the jurisdiction of the regular courts ? SUGGESTED ANSWER: These are the civil cases involving the following: a. but case law has fashioned two tests: The FIRST test uses the enumeration in Sec. l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases. and e.) The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area of corporate affairs and management. National Labor Relations Commission. 2) Those between and among stockholders and members. 5. the board of directors. or associations. Lopez. on one hand. partnership. upon any of the grounds provided by law. d. SRC) BAR: 3. respectively. and . or association. trustees. or members of any corporation. to wit: 1) Those between and among stockholders and members. members. or associates. business associates. (Sec. NOTES AND COMMENTS: a. 270 SCRA 613 (1997) likewise citing other cases) Even if the complaint by a corporate officer includes money claims since such claims are actually part of the prerequisite of his position and. after proper notice and hearing the franchise or certificate of registration of corporations. 1. Inc. partnerships. Inc. Lopez. c. subject to the provisions of existing laws. Controversies arising out of intra-corporate. the Securities Regulation Code) (Controversies in the election or appointments of directors. of P. 5 (b) of P. on the other hand. or which are necessary or incidental to the carrying out of. or associates. The holding in Velarde v. 8799. including intra-corporate controversies such as election or appointment of directors. What are the tests to determine whether a controversy is intracorporate or not ? SUGGESTED ANSWER: Sec. partnership. officers or managers of such corporations. 902-A (as amended by R. any or all of them and the corporation. partnerships or associations) applies to corporate officer’s dismissal.A. partnership. or association of which they are stockholders. files and records. 5 (b) of the relationships to determine jurisdiction. 902-A does not define what an intra-corporate controversy is. (Ibid. Interim Rules of Procedure Governing Intracorporate Controversies under R. For a corporate officer’s dismissal is always a corporate act and/or an intra-corporate controversy and that its nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action. R. m) Suspend. 2004 citing Ongkiko v. tax returns. and n) Exercise such other powers as may be provided by law as well as those which may be implied from. 8799) BAR: 5.2 SRC). officers. What are the civil cases involving corporations. No. and between. Derivative suits. trustees. trustees. b. However. or any act of. Devices or schemes employed by. (Velarde citing Dy v. members. officers. partnerships. or revoke. and the corporation. G.71 k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision. amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders. and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it. partnerships or associations. What is the jurisdiction of the SEC over intracorporate controversies ? SUGGESTED ANSWER: SEC has been divested of its jurisdiction over all cases enumerated under Section 5 of Presidential Decree No 902-A was transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court. or managers of corporations. 1998 before the approval of the SRC on July 19. Controversies in the election or appointment of directors. A. the appropriate RTC would have jurisdiction. 5. or associations. Inspection of corporate books.. (Velarde v. partners. January 14. search and seizure of all documents. the express powers granted the Commission to achieve the objectives and purposes of these laws. No. the other doctrines still find application such as the following: Sec. and is in fact a corporate controversy in contemplation of the Corporation Code. (Sec. or managers of corporations. 5 (c). National Labor Relation Commission. or association relations between and among stockholders. 4.D.D. therefore interlinked with his relations with the corporation.1. (Sec. 2000. 153886. partnerships. that SEC has jurisdiction is NOT doctrinal because at the time the case was filed with the RTC on August 18. order the examination. 145 SCRA 211) Thus. No. officers or partners.

to protect or vindicate corporate rights. and intra-corporate remedy is futile or useless. whenever the officials of the corporation refuse to sue. The stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and is stockholders for violation of their fiduciary duties. the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action where the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. supra) b. v. Victoriano. Where corporate directors are guilty of a breach of trust. laws or rules governing the corporation or partnership to obtain the relief he desires. Nature of derivative suit. Supervisory authority of SEC over corporate ends where the property has been completely dissolved. What is a Self Regulatory Organization or SRO ? SUGGESTED ANSWER: An organized Exchange. provided. et al.R. 2) He exerted all reasonable efforts. a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation. August 25.R. 47 cited in First Philippine International Bank. or are the ones to be sued or hold the control of the corporation. v. (Pascual. 90 SCRA 40. 1. supra) SUGGESTED ANSWER: An individual is permitted to institute a derivative suit a. The basis of a stockholder’s suit is always one of equity. and alleges the same with particularity in the complaint. NOTES AND COMMENTS: a. not of mere error of judgment or abuse of discretion. where a stockholder’s properties are being litigated. et al. Requisites of a derivative suit. b. Rule 8. However. registered clearing agency and any organization or association registered as an SRO under the provisions of the Securities . bylaws.i) 8. G. No corporate relation where a corporate officer holds in trust for another person his corporate interests. focuses on the nature of the controversy itself.000. wherein he holds stock in order c. et al. (Sec. 2000) NOTES AND COMMENTS: a. to exhaust all remedies available under the articles of incorporation. 3) No appraisal rights are available for the act or acts complained of. (Pascual. The moist important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. (Pascual. G.1. Court of Appeals. with the corporation as the real party in interest . it cannot prosper without first complying with the legal requirements for its institution. 115849. 1996) BAR: 6. Recent decisions of the Supreme Court consider not only the subject of their controversy but also the status of the parties. (SRC Rule 3. January 24. Thus. No. What is a public company ? SUGGESTED ANSWER: Any corporation a) with a class of equity securities listed on an Exchange or b) with assets in excess of Fifty Million Pesos (P50. his heir became a co-owner of the estate left by him including his corporate interests.. that: 1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed. A stockholder or member may bring an action in the name of a corporation or association. BAR: c. on behalf of the corporation b. to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. as the case may be. and 4) The suit is not a nuisance or harassment suit. there would be no corporate relation where it is alleged that upon the death of the stockholder. 138542. Interim Rules of Procedure Governing Intra-Corporate Controversies under R.. Basis of derivative suit. The SECOND test. et al. Court of Appeals.000. 8799) 7.00) and having two hundred (200) or more holders. No. In such actions. d.. No.. at least two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities.A. (Gamboa v. Explain the concept of a derivative suit. the suing stockholder is regarded as the nominal party.72 3) Those between the corporation and the State but only insofar as its franchise or right to exist as an entity is concerned. In effect.

G. (Securities and Exchange Commission vs. (ii) Depresses their price to induce the sale of a security. What are considered as manipulative practices relative to 11. for the sale or purchase of any such security.73 Regulation Code to enforce compliance with relevant provisions of the Code and rules and regulations adopted thereunder. Marking the close. hype and dump. What are some of the non-exclusive examples of types of prohibited conduct considered as manipulation of stock market prices ? Define each. which have been approved by the Securities and Exchange Commission. which he knew or had reasonable ground to believe was so false or misleading. or course of business which operates or would operate as a fraud or deceit upon any person. squeezing the float. or (iii) By performing similar acts where there is no change in beneficial ownership. Engaging in transactions where both the buy and sell orders are entered at the same time with the same price and quantity by different but colluding parties. practice. Court of Appeals. painting the tape. or commonly controlled company by others. et al. of the same issuer or of a controlling. by their members and/or participants. Nos. boiler room operations and such other similar devices.1 (b) 1. What is a fraudulent transaction ? SUGGESTED ANSWER: The purchase of sale of any securities to engage in any act. or commonly controlled company by others. or (iii) Creates active trading to induce such a purchase or sale through manipulative devices such as marking the close.R. July 21. has or will be entered by or for the same or different parties. any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging. c) To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security. Hype and dump. [SRC Rule 24.1. transaction. fixing or stabilizing the price of such security. a series of transactions in securities that: (i) Raises their price to induce the purchase of a security. (ii) By entering an order or orders for the purchase or sale of such security with the knowledge that a simultaneous order or orders of substantially the same size. either alone or others. [SRC Rule 24.5 (a)] b. and mandated to make and enforce its own rules. time or prize. 1995) securities trading ? SUGGESTED ANSWER: It shall be unlawful for any person acting for himself or through a dealer or broker.5 (b)] c. Engaging in a series of transactions in securities that are reported publicly to give the impression of activity or price movement in a security . unless otherwise allowed by the Securities Regulation Code or by rules of the SEC.1 (b) 1. [SRC Rule 24. Improper matched orders. 106425 & 106431-32. SUGGESTED ANSWER: a. whether of the same or a different class of the same issuer or of a controlling. e) To effect. controlled. d) To make false or misleading statement with respect to any material fact.1 (b) 1. (SRC Rule 24. whether of the same or a different class. (SRC Rule 3.5 (d)] . it is unlike that of the negative idea of negligence in that fraud or bad faith contemplates a state of mind affirmative operating with furtive objectives. b) To effect. Painting the tape.1. Buying and selling securities at the close of the market in an effort to alter the closing price of the security.5 (c)] d. alone or with others. controlled. for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange.. Engaging in buying activity at increasingly higher prices and then selling securities in the market at the higher prices. directly or indirectly: a) To create a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market: (i) By effecting any transaction in such security which involves no change in the beneficial ownership thereof. Fraud here is akin to bad faith which implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.j) 9.1 (b) 1. [SRC Rule 24. arrangement and rewording supplied) BAR: 10.

both of the SRC) OB is subject to penalty imposable upon those who violate any provision of the Securities Regulation Code which is a fine of not less than P50. (Sec. DOP stocks jumped to P30 per share. b. 73. Disseminating false or misleading market information through media. 3. 3. OB was employed in MAS Investment Bank.8. SRC) BAR: SUGGESTED ANSWER: “Prospectus” is the document made by or on behalf of an issuer.1 (b) 1. A person who learns such a fact from any of the foregoing insiders with knowledge that the person from whom he learns the fact is such an insider. (Sec. OB overheard in the course of her work the plans of WIC. Squeezing the float. [SRC Rule 24. 3. Taking advantage of a shortage of securities in the market by controlling the demand side and exploiting market congestion during such shortages in a way as to create artificial prices. as such insider.1 (b) 1. or a person controlling. A director or officer of. (Sec. in connection with her work. One which in addition to being material. (Sec. An insider is a. 63. Wash sales. or d. or both. would be likely to affect the market price of a security to a significant extent on being made generally available b.3 SRC) BAR: 13. including the internet.4 SRC) SUGGESTED ANSWER: a. was able to material information with respect to DOP. she purchased the shares or to whom she sold the shares. that is not generally available. the issuer.000. controlled by. What is a prospectus? 15. [SRC Rule 24. OB is liable because she is an insider.5 (g)] BAR: 12. As such insider she is prohibited to buy or sell shares of stock of the issuer. WIC. [SRC Rule 24. When WIC’s tender offer was announced. (Sec. (Sec.5 (e)] f. what is the measure of such damages ? Explain briefly. or any other means to move the price of a security in a direction that is favorable to a position held or a transaction. By herself and thru associates.1 in relation to Sec. 27.74 e. Ms. she purchased DOP stocks available at the stock exchange priced at P20 per share. The issuer. SUGGESTED ANSWER: Yes. Who is a broker? SUGGESTED ANSWER: “Broker” is a person engaged in the business of buying and selling securities for the account of others. underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the Commission. Engaging in transactions in which there is no genuine change in actual ownership of a security. in this case DOP.8. c.11 SRC) 14. What is a "fact of special significance" ? . A person whose relationship or former relationship o the issuer gives or gave him access to a fact of special significance about the issuer or the security that is not generally available. Thus OB earned a sizeable profit. 3. in the discretion of the court.1 (b) 1.00 nor more than P5 million or imprisonment of not less than seven years nor more than 21 years. fraud. or under common control with. SRC) NOTES AND COMMENTS: a. SRC) OB is liable to any investor from whom. a medical drug company. Exemplary damages may also be awarded in cases of bad faith. malevolence or wantonness in the violation of the Securities Regulation Code.5 (f)] g. Who is a dealer? SUGGESTED ANSWER: “Dealer” means any person who buys and sells securities for his/her own account in the ordinary course of business. 3. One which a reasonable person would consider especially important under the circumstances in determining his course of action in the light of such factors as the BAR: 16. a drug manufacturer. Is OB liable for breach and misuse of confidential or insider information gained from her employment ? Is she also liable for damages to sellers or buyers with whom she traded ? if so. She is liable to damages in an amount not exceeding triple the amount of the transaction plus actual damages. the issuer. retained the Bank to assess whether it is desirable to make a tender offer for DOP Company. (Sec. As an employee of the Bank.

c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. information on the securities. or by any person controlled or supervised by. evidences of indebtedness.1. and acting as an instrumentality of said Government. (Sec. That the Commission may require compliance with the form and content of disclosures the Commission may prescribe. by law. whether written or electronic in character. SUGGESTED ANSWER: The requirement that securities shall not be sold or offered for sale or distribution within the Philippines. e) Any security issued by a bank except its own shares of stock. SUGGESTED ANSWER: These are shares. What are securities ? 18. SRC) SUGGESTED ANSWER: Those that do not require registration either because the law itself exempts them therefrom or the Securities and Exchange Commission finds that the enforcement of the registration requirement is not necessary in the public interest and for the protection of the investors by reason of the amount involved or the limited character of the public offering. add to the foregoing any class of securities if it finds that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the protection of investors. SUGGESTED ANSWER: a) Any security issued or guaranteed by the Government of the Philippines. Prior to such sale. or by any political subdivision or agency thereof. 9. What is meant by the registration requirement for securities ? BAR: 21. trust certificates. in such form and with such substance as the SEC may prescribe. the extent of its difference from information generally available previously and is nature and reliability. province or political subdivision thereof on the basis of reciprocity: Provided. certificates of deposit for a future subscription. certificates of interest or participation in a profit sharing agreement. b) Any security issued or guaranteed by the government or any country with which the Philippines maintains diplomatic relations. Over-the-counter markets.1 SRC) The Commission may. What are exempt securities ? BAR: 22. or by any state. c) Fractional undivided interests in oil.. NOTES AND COMMENTS: a. 3.75 degree of its specificity. d) Any security or its derivatives the sale or transfer of which. (Sec. instrument. contract. What are over-the-counter securities ? These are securities sold without passing through the stock exchange. notes. gas or other mineral rights. bonds. 9. f) Proprietary or nonproprietary membership certificates in corporations. SRC) BAR: 17. and g) Other instruments as may in the future be determined by the Commission.2 SRC) BAR: 20. participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate. Housing and Land Use Regulatory Board. 3. is under the supervision and regulation of the Office of the Insurance Commission. Sec. (1st par. without a registration statement duly filed with and approved by the SEC. certificates of participation. 8. . b) Investment contracts. shall be made available to each prospective purchaser.1. (Sec. Give examples of exempt securities. Markets made or created for the purchase and sale of securities other than on a stock exchange. or the Bureau of Internal Revenue. (Sec. voting trust certificates or similar instruments. d) Derivatives like option and warrants. e) Certificates of assignments. asset-backed securities. by rule or regulation after public hearing.1 SRC) BAR: 19. debentures. Give examples of securities ? SUGGESTED ANSWER: a) Shares of stock.

administrator. or amount of assets under management. (iii) Insurance company. d) The distribution by a corporation. (ii) Registered investment house. (iv) Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions. or its authorized capital increased. and experience in financial and business matters. of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus. to liquidate a bona fide debt. (v) Investment company. or (vi) Such other person as the Commission may by rule determine as qualified buyers.1 SRC) 24. compensation or remuneration is paid or given in connection with the sale or disposition of such securities. l) The sale of securities to any number of the following qualified buyers: (i) Bank. c) An isolated transaction in which any security is sold. subscription or delivery by the owner thereof. and that the security issued and delivered in exchange. knowledge. and only when the purpose for soliciting. when sold. when no expense is incurred. giving or taking of such subscription is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated. or sale by an executor. offered for sale. f) The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property. actively engaged in the business authorized by its articles of incorporation. or no commission. h) Broker’s transactions. or on his account by such representative and such owner or representative not being the underwriter of such security. on the basis of such factors as financial sophistication.76 SUGGESTED ANSWER: Sale of any security in any of the following transactions: a) At any judicial sale. a security pledged in good faith as security for such debt. or mortgagee or any other similar lien holder selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this Code. or by his representative for the owner’s account. What are the grounds for SEC to reject and revoke registration of securities ? SUGGESTED ANSWER: If SEC finds that: BAR: 23. guardian or receiver or trustee in insolvency or bankruptcy. g) The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of the security surrendered in exchange to make such conversion: Provided. b) By or for the account of a pledge holder. if sold at the conversion price. net worth. j) The exchange of securities by the issuer with its existing security holders exclusively. where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale. where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock. or any registered Exchange or other trading market. That the security so surrendered has been registered under this Code or was. e) The sale of capital stock of a corporation to its own stockholders exclusively. executed upon customer’s orders. would at the time of such conversion fall within the class of securities entitled to registration under this Code. i) Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock under the Corporation Code. (Sec. Upon such conversion the par value change shall be deemed the price at which the securities issued and delivered in such exchange are sold. What transactions are exempt ? . 10. such sale or offer for sale subscription or delivery not being made in the course of repeated and successive transactions of a like character by such owner. k) The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during the twelve-month period. exempt from the provision of this Code.

upon plea of guilty. called the expiry date. or (b) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. and other related laws. underwriter. of an offense involving moral turpitude and/or fraud or is enjoined or restrained by the SEC or other competent judicial or administrative body for violations of securities. 13. Otherwise. (v) Has failed to comply with any requirement that the SEC may impose as a condition for registration of the security for which the registration statement has been filed. commodity options and commodity leverage. to buy or sell an underlying security at a predetermined price. dealer or broker known as participating in such offering. or margin contracts. no further offer or sale of any such security shall be made until the same is lifted or set aside by the Commission. ( SRC Rule 11. or any underwriter has been convicted. which can only be extended in accordance with Exchange rules. and by notifying the issuer. including any group or index of any of the foregoing. articles.1. or any order of the SEC of which the issuer has notice in connection with the offering for which a registration statement has been filed. c) inadequate or incomplete in any material respect. director or controlling person of the issuer. which is customarily offset prior to the delivery date. such sale shall be void. (Sec. any officer. but not the obligation. and includes standardized contracts having the indicia of commodities futures. What is a derivative ? SUGGESTED ANSWER: With respect to equity securities a financial instrument. (ii) Has violated any of the provisions of the Securities Regulation Code. 15 SRC numbering and arrangement supplied) 26. What are the grounds for suspension of the registration of securities ? SUGGESTED ANSWER: a.a) 30. rights and interests. What are options ? SUGGESTED ANSWER: These are contracts that give the buyer the right.1. or 2) the sale or offering for sale of the security registered thereunder may work or tend to work a fraud.1. (iv) Has made any false or misleading representation of material facts in any prospectus concerning the issuer or its securities. . in which commodity interests contracts are presently or in the future dealt in. or otherwise. the rules promulgated pursuant thereto. called the exercise or strike price. What is a commodity ? SUGGESTED ANSWER: Commodity means any goods.2. b. The SEC may also suspend the right to sell and offer for sale such security pending further investigation.2) 28.77 (a) The issuer: (i) Has been judicially declared insolvent. the information contained in the registration statement filed is or has become a) misleading. What is a commodity futures contract ? SUGGESTED ANSWER: Commodity futures contract means a contract providing for the making or taking delivery at a prescribed time in the future of a specific quantity and quality of a commodity or the cash value thereof.1. on or before a predetermined date. b) incorrect. by entering an order specifying the grounds for such action.2) 29. (SRC Rule 3. Upon the issuance of any such order and notification to the issuer. (iii) Has been or is engaged or is about to engage in fraudulent transactions. commodities. dealer or broker known as participating in such offering. but does not require any investment of principal in the underlying security. or person performing similar functions.1) 27. The SEC may also suspend upon a refusal of the issuer upon order of the SEC to furnish such further information as may in its judgment be necessary to enable the SEC to ascertain whether the registration of such security should be revoked: 1) If at any time. What are the different kinds of options ? SUGGESTED ANSWER: A call option and a put option.1. SRC arrangement and rewording supplied) 25. services.1. by a competent judicial or administrative body. including options and warrants. or (c) The issuer. whose value depends on the interest in or performance of an underlying security. (Sec. ( SRC Rule 11. underwriter. (SRC Rule 3.

a. (SRC Rule 3. Primary objective of the Bangko Sentral ng Pilipinas. To supervise operations of banks and exercise such regulatory powers as provided in the Central Bank Act and other pertinent laws over the operations of finance companies and nonbank financial institutions performing quasi-banking transactions. To maintain price stability conducive to a balanced and sustainable growth of the economy.1. What is meant by a straddle ? SUGGESTED ANSWER: Straddle involves the purchase of an equal number of put options and call options on the same underlying security at the same strike price and maturity date. ( SRC Rule 25. but not the obligation to buy an underlying security at a predetermined price on or before a predetermined date.78 31. it enjoys fiscal and administrative autonomy. the flow of information between the different parts of its organization which perform each function. ( SRC Rule 30.A. What are the responsibilities of the Bangko Sentral ng Pilipinas ? SUGGESTED ANSWER: a. would likely affect the market price of the securities. While being a government-owned corporation. ( SRC Rule 34. Information defined.1. b.1. To provide policy directions in the areas of money. but not the obligation to sell an underlying security at a predetermined price on or before a predetermined date. The nature of the Bangko Sentral ng Pilipinas. What are call options ? SUGGESTED ANSWER: A contract that gives the buyer the right.1. (SRC Rule 3. or underwriter.a. 7653) (Basics) 1. It is the central monetary authority that functions and operates as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money banking and credit.2) 35.1. What are Chinese Walls ? SUGGESTED ANSWER: The proper segregation of functions within a firm by any Broker Dealer which assumes more than one function whether as a dealer. banking and credit.2. alter and use a corporate seal 2) Enter into contracts 3) Lease or own real and personal property 4) Sell or otherwise dispose of property 5) Sue and be sued 6) Perform all necessary and proper acts NOTES AND COMMENTS: . What are put options ? SUGGESTED ANSWER: A contract that gives the seller the right. ( SRC Rule 34.b.) 32.) 33.b.1-3) c.2-8. although the combination of options is usually bought and sold as a unit. Information: 1) of a specific nature which has not been made public. It shall also promote and maintain stability and convertibility of the peso. Each option may be exercised separately. or which engages in market making transactions to prevent: a.1-3. adviser.2. and 3) which. b. arrangement supplied) NOTES AND COMMENTS: a. BAR: a. Banking Laws (General Terms and Provisions) (i) The New Central Bank Act (R. What is a block sale ? SUGGESTED ANSWER: A block sale shall mean a matched trade that does not go through the automated order matching system of an Exchange trading system but instead has been pre-arranged by and among the Broker Dealer’s clients and is then entered as a done deal directly into the trading system. if it were made public. such as quasi-banks and institutions performing similar functions. and 2) relating to one or more public companies or any securities of a public company. A Broker Dealer shall at all times ensure that its trading functions and back-office settlement functions are properly segregated and shall establish written procedures to ensure compliance with this Rule. Corporate powers of the Bangko Sentral ng Pilipinas 1) Adopt. and b. any conflict of interest which may result.2) 34. c.

the conservator cannot do either. coins shall be legal tender in amounts 1) not exceeding P50. and exercise all powers necessary to restore its viability. What is meant by legal tender ? SUGGESTED ANSWER: Notes and coins issued by the Bangko Sentral ng Pilipinas fully guaranteed by the Government of the Republic of the Philippines and accepted for the payment of all debts. Powers of bank conservator. (Sec. What the said board cannot do . et al. 4.79 7) Acquire and hold such assets in connection with its operations 8) Incur such liabilities in connection with its operations 9) Compromise. and in amounts 2) not exceeding P20. Liquidation court has jurisdiction to adjudicate all disputed claims against the insolvent bank. 2) Use of credit policy a) Use of rediscounts. liabilities. New Central Bank Act) achieve the primary objective of price stability ? SUGGESTED ANSWER: like: BAR: 3.00 for denominations of Twenty-five centavos and above. 60. et al.” Such powers.i. extends only to those which under existing law are deemed to be defective.. it must be pointed out that such powers must be related to the “(preservation of) the assets of the bank. (First Philippine International Bank. (the reorganization of) the management thereof and (the restoration of) its viability.00 for denominations of Ten centavos or less.such as repudiating a contract validly entered into under the doctrine of implied authority . discounts. Who is a conservator ? SUGGESTED ANSWER: The person appointed by the Monetary Board to take charge of the assets.e. . NOTES AND COMMENTS: Coins as legal tender: Unless otherwise fixed by the Monetary Board. Checks not legal tender. In general the Monetary Board shall rely on its moral influence. b. unenforceable or rescissible. however. b) Purchase and sales of foreign exchange. The bank conservator merely takes the place of the bank’s board of directors. While the Central Bank law gives vast and far reaching powers to the conservator of a bank. (Sec. b. d) Determination of the exchange rate policy of the country. 1996) b. reorganize the management thereof. collect all monies and debts due said institution. (Sec. and the management of a bank or a quasi-bank which is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. New Central Bank Act) NOTES AND COMMENTS: a. His authority would be only to bring court actions to assail such contracts. That a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. Provided. is at the option of the creditor. It may also rely on the powers granted it for the management of monetary aggregates 1) Operations in gold and foreign exchange a. voidable. v. New Central Bank Act) BAR: a. both public and private. cannot extend to the post-facto repudiation of perfected transactions otherwise they would infringe against the non-impairment clause of the Constitution.. both public and private. enormous and extensive as they are. The Monetary Board’s order for the liquidation of an insolvent bank shall be implemented through the filing by the Solicitor General for the Central Bank of a petition with the Regional Trial Court. e) Grant and receive loans from foreign banks and other foreign or international entities. 29. condone or release any claim or settled liability as prescribed by Monetary Board 2. loans and advances b) Grant emergency loans and advances 3) Engage in open market operations like purchases and sales of securities. void. Court of Appeals.) Purchase and sales of gold. Said Court shall have jurisdiction to adjudicate all disputed claims against the insolvent bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board. c) Acquisition of inconvertible currencies. 52. Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts. January 24. What are the instruments of Bangko Sentral action in order to a. The power of a conservator to revoke contracts.

as defined under the Revised Penal Code.A. (Ong v. No. 9194) BAR: 1. To ensure compliance with the Anti-Money Laundering Law. 2.. as amended. No. In cases of impeachment. j. . In cases where the money is deposited or invested is the subject matter of the litigation. e.80 The rationale behind judicial liquidation is to prevent multiplicity of actions against the insolvent bank. Inquiry under the Anti-Graft and Corrupt Practices Act into "illegally" or "not legitimately" acquired property. including those perpetrated by terrorists against non-combatant persons and similar targets.A. If so. 5) Within sixty (60) days the Monetary Board shall determine and confirm if the bank is insolvent. it is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court . G. h. 6235. No. 1792) g. d. A. February 1. in accordance with the rules of examination of the BSP. or forbid it from doing business in the Philippines: 1) Examination by Department of Supervision on condition of the bank. the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine any deposit or investment with any banking institution or nonblank financial institution when the examination is made in the course of a periodic or special examination. A. No. close. Furthermore. 1996) c. 112830. What is considered as subject to the Law on Secrecy of Bank Deposits: 1) All deposits of whatever nature with banks or banking institutions in the Philippines. b. No. (ii) Law on Secrecy of Bank Deposits (R. Requirements before Monetary Board can declare bank insolvent. as amended by R. AMLA. R. as amended) be inquired into ? SUGGESTED ANSWER: a. c. Sec.. or the continuance of its business would involve probable loss to creditors or depositors. 2) Examination shows that the bank is insolvent. Court of Appeals. and public interest requires it orders he liquidation of the bank. Upon written permission of the depositor. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank. AMLA. (1st par. 1405. (1st par. 3) The Department of Supervision reports to the Monetary Board its findings in writing. When the examination is made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank.R. 9194) NOTES AND COMMENTS: BAR: a. i. No. Sec.D. 4) The Monetary Board determines the veracity of the report and appoints a receiver to take charge of the bank's assets and liabilities. . 11. Where there is a BIR inquiry into the deposits of a taxpayer who is entering into a compromise with the BIR premised upon financial difficulties to pay. destructive arson and murder. as amended by P. f. 1405. Where the Bureau of Internal Revenue makes an inquiry into the deposits of a deceased depositor for the purpose of determining his gross estate. A. 11. (Sec. Where the examination is made in the course of a special or general examination of a bank and is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity. to obviate the proliferation of litigation and to avoid injustice and arbitrariness. as amended by R. when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity as defined under the AntiMoney Laundering Act or money laundering offense except that no court order is required involving unlawful activities under the Comprehensive Dangerous Drugs Act of 2002 and hijacking under R. The Anti-Money Laundering Council may inquire into or examine any particular deposit or investment with any banking institution or nonblank financial institution upon order of any competent courting case of violation of the Anti-Money laundering Act. Upon order of a competent court in cases of bribery or dereliction of duty of public officials. What are the exceptions or instances when bank deposits may k.

b. 134699. et al.000 only. May the Committee subpoena records of the local banks to determine the extent of Sen. Union discovered the under-coding only a year later and it notified Allied by way of an automatic debiting of the amount of P999. When Union presented the check for clearing through the Philippine Clearing House Corporation. 2. December 23. Union filed a complaint against Allied before the Clearing House for the recovery of the amount plus interest and other damages. c. Court of Appeals. the State shall promote the diffusion of knowledge and information for the promotion of national development and progress for the common good. to this end. its political subdivisions and its instrumentalities are hereby considered as of an absolutely confidential nature and may not be examined. G. No. 2) facilitates transfer of technology. 8293. (Sec.. trademarks and copyrights. Thereafter Union filed a petition with the RTC for the examination of the Account with Allied. (Sec. A. artists and other gifted citizens to their intellectual property and creations.R. inventors. SUGGESTED ANSWER: No. The State shall protect and secure the exclusive rights of scientists. No. 1. The payee deposited the check with Union Bank which credited the amount of P 1 million to the account of Jose. conducted an investigation in aid of legislation on the alleged multimillion bank deposits of Sen. there shall be appropriate NOTES AND COMMENTS below the doctrinal rulings. to 2) liberalize the registration on the transfer of technology. the Intellectual Property Code of the Philippines. Basics) EXCLUDE: Implementing Rules and Regulations GENERAL NOTES AND COMMENTS: Some of the jurisprudence cited were decided upon factual antecedents that occurred prior to the effectivity of R. particularly when beneficial to the people. No. a clearing discrepancy was committed by Union Bank’s clearing staff when the amount of P 1 million was erroneously “undercoded” to P1. On March 21. (Union Bank of the Philippines v.A. 3) attracts foreign investments. If there are no such comments. 8293. A. d. The hearings of the Committee are in aid of legislation. Lacson’s deposits? Explain. Allied refused to accept the charge slip since the transaction was completed per Union Bank’s original instruction and client’s account is now insufficiently funded. inquired or looked into by any person. numbering and arrangement supplied) . The use of intellectual property bears a social function.81 2) including investments in bonds issued by the government of the Philippines. No. R. What is the State policy on intellectual property ? SUGGESTED ANSWER: a. and 4) ensures market access for our products. Intellectual Property Code (R. The State recognizes that an effective intellectual and industrial property system is 1) vital to the development of domestic and creative activity.000. Ping Lacson. 8923. the the doctrinal rulings are still valid under the new law. 2. 2005 a check for P 1 million was drawn against an account with Allied Bank payable to Jose Alvarez. A. It is also the policy of the State to 1) streamline administrative procedures of registering patents. No. The Senate Blue Ribbon Committee is not a competent court hearing cases of bribery or dereliction of duty of public officials. May the account be examined ? SUGGESTED ANSWER: No. and to 3) enhance the enforcement of intellectual property rights in the Philippines. for such periods as provided in the Intellectual Property Code of the Philippines. government official. 8293. No. 1405) 2. its does not fall under any of the exceptions because it should be the “money deposited” itself which should be the subject matter of the litigation.00 from Allied’s account. bureau or office.A. 1999) 3. a public official with various local banks.. 6. The Senate Blue Ribbon Committee acting on a report made by ISAFP Chief Col. Victor Corpuz. If there are any differences between the old laws and the R. R.

to which the Philippines is also a party. 29. Trademarks and Technology Transfer WHILE the new abolished said office and established and organized the Intellectual Property Office. Anything which is contrary to public order or morality. offer. prohibit and prevent any unauthorized person or entity from performing the protected right. and g. Plant varieties or animal breeds or essentially biological process for the production of plants or animals. A. R. What is meant by the “First to File Rule” ? SUGGESTED ANSWER: If two (2) or more persons have made the invention separately and independently of each other.R. R. industrial designs. v. Court of Appeals. What is a patent ? BAR: 6.. Hon.. Methods for treatment of the human and animal body by surgery or therapy and diagnostic methods practices on the human and animal body. involves an inventive step and is industrially applicable shall be patentable. 3. service marks. rules and methods of performing mental sets. 8293. 21. Industrial Designs. R. d. b. Trademarks and Service Marks. Give some non-patentable inventions. Schemes. R. and protection of undisclosed information. or transfer by succession of the patent. (Sec. 2002) BAR 5. f. et al. f. No. and copyrights WHILE new law covers addition. etc. d. No. and to conclude licensing contracts for the same. Former covered only patents. No. The former law’s definition of patentable inventions was expanded under the new law. shall be entitled to benefits to the extent necessary to give effect to any provision of such convention. G. Discoveries. What does the term “intellectual property rights”consist of ? SUGGESTED ANSWER: It consists of a. Former had the Bureau of Patents. geographic indications. (Sec. SUGGESTED ANSWER: a. trademarks. (Sec. b. 8293) SUGGESTED ANSWER: A patent is an exclusive right conferred by law to an inventor to make. playing games or doing business. 8293) 4. scientific theories and mathematical methods. or a process. What are some differences between the Intellectual Property Code of the Philippines and the former intellectual property laws ? SUGGESTED ANSWER: a. 115758.A. This provision shall not apply to micro-organisms and non-biological and microbiological processes. It may relate to a product. c.A. What inventions are patentable ? 7. e Patents. Aesthetic creations. c. or an improvement of the foregoing. treaty or agreement relating to intellectual property rights or the repression of unfair competition. treaty or reciprocal law. SUGGESTED ANSWER: Any technical solution of a problem in any field of human activity which is new. the right to the patent shall belong to the person who filed an application for such invention. Layout-Designs (Topographies) of Integrated Circuits. 8293) 8. The right includes also the assignment. No. c. b. Provisions under this provision shall not preclude Congress to consider the enactment of a law providing sui generis protection of plant varieties and animal breeds and a system of community intellectual rights protection. Kho. (Sec. 8293) . sell or import the product covered by the patent and to restrain. lay-out designs (Topographies) of integrated circuits. No. Protection of Undisclosed Information. 4.R. the earliest priority date. R. use. or where two or more applications are filed for the same invention.A. 3. This provision shall not apply to products and composition for use in any of these methods. geographical Indications. or extends reciprocal rights to nationals of the Philippines by law. (Sec.No. March 19. and programs for computers.82 2. 22. What is the rule on reciprocity relative to intellectual property protection ? SUGGESTED ANSWER: Any person who is a national or who is domiciled or has a real and effective industrial establishment in a country which is a party to any convention. e. to the applicant who has the earliest filing date or. in addition to the rights to which any owner of an intellectual property right is otherwise entitled under the Intellectual Property Code of the Philippines. Copyright and Related Rights.

2 (o) of P.No. Hon. order that the infringing goods. 76. 1988. Ibid. under Sec. 61. (Sec... Court of Appeals et al. and the (b) criminal action for repetition of infringement. without compensation. (Sec. G. No. offering for sale. No. (Smith Kline & French Laboratories. 8293) a. (P & D) has a Certificate of Copyright Registration dated January 20. These units utilize specially printed posters sandwiched between plastic sheets and illuminated with back lights and are marketed under the trade mark ”Poster Ads. etc. 115758.R.) BAR 10.. March 19. Inc. BAR: 17.R. 2001) SUGGESTED ANSWER: Patent infringement is the making. 8293) 15. No. give others a chance to supply the public with the quantity of the patented article and to prevent the building up of patent monopolies. or anyone possessing any right. 76. 115758. 8293) b. 76. (Sec. Kho. title or interest in and to the patented invention.1.83 9.A. the offenders without prejudice to the action for damages. R. 121. (Sec. the court may award by way of damages a sum equivalent to reasonable royalty. If infringement is repeated by the infringer or by anyone in connivance with him after finality of the judgment of the court against the infringer. v. From 1981 to about 1988 P & D employed the services of MIS to manufacture its “Poster Ads. Trade name is the name or designation identifying or distinguishing an enterprise. G. Court of Appeals. 76. to recover from the infringer a. Hon. If the damages are inadequate or cannot be readily ascertained with reasonable certainty.. such damages sustained thereby. Mark is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods. by any patentee.R. The court may.A. or importing a patented product or a product obtained directly or indirectly from a patented process without the authorization of the patentee. 1981.October 23. be criminally liable therefore. (Sec. 121267. or 3) That the patent is contrary to public order or morality.) c.A. (Sec. When may a patent holder be compelled to allow others to license his product ? SUGGESTED ANSWER: The provisions of the Patent Law (now Intellectual Property Code) on compulsory licensing may be proper if the patented product is medicinal in nature.No. etc.D.. What is meant by patent infringement ? BAR 12. . et al. R. v. using. (Sec. No. materials and implements predominantly used in the infringement be disposed of outside the channels of commerce or destroyed.. Ibid.A. 2002) 16. 8293. and therefore necessary for the promotion of public health and safety. the defendant. A civil action before a court of competent jurisdiction may be bought BAR 13. Ltd. et al. 49 (The Intellectual Property Decree) over advertising display units referred to as light boxes. R.5.No. on any of the following grounds: 1) That what was claimed as the invention is not new or patentable.). R. may show the invalidity of the patent. b. G. R. In an action for infringement. in its discretion. plus attorney’s fees and other expenses of litigation. No.3. No. 84. or any claim thereof. whose rights have been infringed. March 19.2.A.” BAR 14. and to secure an injunction for the protection of his rights. 8293) 11. 81 in relation to Sec. in addition to other defenses available to him. 2002) Pearl and Dean (Phils. selling. The remedies for patent infringement are the (a) civil action with an injunction.” The application for registration of trademark was approved on September 12. 2) That the patent does not disclose the invention in a manner sufficiently clear and complete for it to be carried out by any person skilled in the art. v. Court of Appeals. (Kho.

2002) 18. v.). 2001) 19. There is no trademark infringement because the mark “Poster Ads” was able to obtain a trademark certificate only for “stationeries such as letter heads. 2003 citing Kho. envelopes. Prime Spots Marketing Services. 148222. labels. No. Granting that there was a trademark.R . (Kho. Copyright is confined to literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of their creation. No. (Ibid. Upon discovery of such acts of SMI.. Ibid. Inc. Shoemart. Development Group of Companies. There was no unfair competition because there can be no unfair competition under the law on copyrights but applicable to disputes over the use of trademarks. Limitations of copyright. Intellectual Property Code) or as ”original ornamental designs or models for articles of manufacture.D.. (Pearl & Dean (Phil. March 19..) NOTES AND COMMENTS: a. G. et al. (Shangri-La International Hotel Management. etc. Copyrights. Shoemart. the same must be so distinctive or well known as to be associated in the mind of the public. Hon. An infringement within the competence of the regular courts can and should proceed independently from the cancellation case with the Bureau of Patents. The light boxes may not properly be the subject of copyrights which cover only subjects enumerated in the law. August 15. Would the suit prosper ? Explain briefly. in the trade and to that branch of the purchasing public. was set up primarily to sell advertising space in lighted display units located in SMI’s different branches. et al. 2002) b.R.. June 21. v. Inc. supra) c. et al.” (Sec. b. No. R. et al. v. a sister company of SMI.. “Secondary meaning ”means that a word or phrase originally incapable of exclusive appropriation with reference to an article in the market (because it is geographically or otherwise descriptive) might nevertheless have been used for so long and so exclusively by one producer with reference this article that. Court of Appeals.. G.). Shoemart. NOTES AND COMMENTS: The following answer shall be crafted in the light of doctrinal rulings in the case of Pearl & Dean as adjusted to conform to present law. advertising copies. v. etc. et al. March 19. the word or phrase has come to mean that the article was his property. Shoemart. P & D sued for infringement of trademark and copyright.).. Ltd. Court of Appeals. unfair competition and damages. (Pearl & Dean (Phil. (NEMI). 172 (h). Court of Appeals. Inc.84 Sometime in 1991.. Likewise North Edsa Marketing. Incorporated (SMI) engaged the services of EYD Rainbow Corporation to make the light boxes and 300 units were installed at SM Megamall and SM City. 2003) Under present law the light boxes may properly be covered by copyright as “Literary and artistic works” classified as “Drawing or plastic works of a scientific or technical character. Inc. The earlier filing of petition to cancel a mark with the Bureau of Legal Affairs of the Intellectual Property Office shall not constitute a prejudicial question that must be resolved before an action to enforce the rights to the same registered mark may be decided.. The copyright was issued under Sec. G. Hon. Court of Appeals. through its marketing arm. SUGGESTED ANSWER: No. v.). patents and trademarks are completely distinct and separate from one another and the protection afforded by one cannot be used interchangeably to cover items or works that exclusively pertain to the others.. Inc. 115758. Inc..R . Inc. calling cards and newsletters” and not for the specific use on the light boxes. 11580.No. 115758. whether or not registerable as an industrial design. There is no infringement of the patent because there was no showing that a patent was issued over the light boxes.) d. 148222. Inc. et al. 172 (j). and box wraps”. G. v. (Pearl & Dean (Phil. August 15. 49 which includes “Prints. and other works of applied art” (Sec. G. v.. (Ibid. No. 2 (o) of P.) The phrase ”Power Ads” is too generic that it could not fall under the concept of the doctrine of secondary meaning to be able to obtain protection. pictorial illustrations. P & D’s suit will not prosper for the following reasons: a. et al. The copyright certificate entitled “Advertising Display Units” (which depicted the box-type electrical devices) extended only to the technical drawings and not to the box itself. (Ibid. the goods and services carrying the trademark ”Power Ads” as different from others. As it is the words “Power Ads” is so generic that the said trademark could not be distinguished from the goods and services of other entities. et al.No. Trademarks and Technology (now the Intellectual Property Office) so as to afford . R..

v. stock-in-trade. et al. et al. Incorporated v. how would you decide. what arguments would you advance to defeat the foreclosure on the after-acquired property ? If you were the judge. there could be recovery of the deficiency. Thus.168. 1484. (Sec. G. Y sought to foreclose the mortgage on the goods then found in the drugstore. et al. What is unfair competition ? SUGGESTED ANSWER: Unfair competition is the employment by any person of deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals.A. No. 2001) 22. June 21. To secure a debt to Y. SUGGESTED ANSWER: After acquired stocks in trade are not covered by the chattel mortgage. No. while relevant.Court of Appeals. 8392) 7. 1996) BAR: b. 1485. X. Court of Appeals. A person to be entitled of a copyright must be the original creator of the work.. or who shall commit any acts calculated to produce said result. foreclosure would be allowed. they could include stocks subsequently purchased to replenish those which existed at the execution of the mortgage but are not anymore available because they have been sold in the meantime. (c) The Insolvency Law (Act 1956) . labor and judgment without directly copying or evasively imitating the work of another.2. Foreclosure of chattel mortgage on subject of mortgage precludes recovery of deficiency if article foreclosed is article purchased and covered by the chattel mortgage. duplication or imitation is not necessary. Inc. he must have created it by his own skill. is not conclusive. v. executed a chattel mortgage covering the goods contained in the drugstore. the owner of Supreme Drugstore. The deed of chattel mortgage provides that “all goods.A. As judge. 4118) (b) Real Estate Mortgage Law (Act 3135. 2001) the main or essential features of another and confusion and deception is likely to result. G.. v. or his business. 224 SCRA 437) BAR 20. NOTES AND COMMENTS: a. the mortgagee has to send notice to the mortgagor if it decides to convert any of the previous installments made by the mortgagor to the payment for the renewal of the insurance. furniture and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage. Where the provisions of the Chattel Mortgage does not authorize the mortgagee to apply previous payments for the car to the insurer. infringement takes place.. half of which were admittedly acquired after the execution of the chattel mortgage. Court of Appeals. et al. 2140 and 2141 of the New Civil Code) BAR: 1. (Servicewide Specialists. 110597. May 8.. et al.R.85 redress and injunctive writs. Similarity in size.. if there is doubt as to the validity of the copyright. (Shangri-La International Hotel Management.R.No. Court of Appeals.” Upon default by X. (Asia Brewery.. nor is it necessary that the infringing label should suggest an effort to imitate. Test of dominancy requires that if the competing trademark contains 21. Insurance on car covered by chattel mortgage. If you were the lawyer of X. Where stocks in trade are the subject of a chattel mortgage. or services for those of the one having established such goodwill. R. 11580. infringement and the damages caused by such infringement then an injunctive writ does not lie.R. If the chattel mortgage is to secure a loan transaction. 130360. other than one involving a purchase. Special Laws (a) The Chattel Mortgage Law (Act 1508 in relation to Arts. Development Group of Companies. et al. Inc. form and color. August 15. (Chuan v. No. G. as amended by R. Court of Appeals. Ltd.


1. What is suspension of payments ? SUGGESTED ANSWER: The remedy available under the Insolvency law for a natural or juridical person who, having sufficient assets to meet his obligations, foresees the impossibility of meeting them when they fall due, and therefore presents a proposal to pay his obligations on dates later than their due dates. NOTES AND COMMENTS: BAR: a. Procedure for suspension of payments. If natural persons are insolvent, petition should be filed with the Regional Trial Court. 1) Filing of a petition accompanied by an inventory of assets and a detailed schedule of obligations, amounts and their due dates; 2) Issue by the court of an order setting the place and date for meeting of creditors; 3) Publication of the order and service of summons to all creditors listed in the petition; 4) Meeting of creditors and approval of debtor’s proposal by creditors, at least 2/3 in number representing 3/5 of all the liabilities; 5) Objections, if any, by the other creditors; 6) Order of the court to implement the agreement.. BAR: b. Insolvency distinguished from suspension of payments. 1) In insolvency, the liabilities of the debtor are more than his assets WHILE in suspension of payments the assets of the debtor are more than his liabilities; 2) In insolvency, the assets of the debtor are to be converted into cash for distribution among his creditors, WHILE in suspension of payments the debtor is asking for time within which to convert his properties into cash with which to pay his creditors as the obligations fall due. 3) In insolvency the purpose is to obtain discharge from all debts and liability WHILE in suspension of payments the purpose is to delay payment of debts which remain unaffected although a postponement of payments is declared. 2. What is voluntary insolvency ? SUGGESTED ANSWER: A proceeding taken by a debtor, having obligations exceeding P1,000.00 who, with his existing assets cannot meet all of them goes to the court to have himself be declared as an insolvent. NOTES AND COMMENTS: BAR: a. Procedure for voluntary insolvency: 1) Filing of petition accompanied by an inventory of assets and schedule of liabilities; 2) The court issues an order declaring him as an insolvent; 3) Publication of the order, and service of the order on the creditors mentioned in the petition; 4) Creditors meet to elect an assignee, to whom are conveyed all the debtor’s assets; 5) Liquidation and payment of creditors; 6) Composition (agreement between debtor and creditor), if agreed; 7) Order of discharge of the insolvent. NOTES AND COMMENTS:
a. The obligations of an insolvent debtor that survives adjudication of insolvency or claims that could be pursued against a debtor despite his having been pronounced as insolvent. 1) Taxes and assessments due the government, national or local; 2) Obligations arising from embezzlement or fraud; 3) Obligation of any person liable with the insolvent debtor for the same debt, either as solidary co-debtor, surety, guarantor, partner, indorser or otherwise; 4) Alimony or claims for support; and 5) Debts not provable against the estate (such as after incurred obligations) of, or not included in the schedule submitted by, the insolvent debtor. b. Involuntary insolvency distinguished from voluntary insolvency. 1) Involuntary three or more creditors are required WHILE for voluntary one creditor may be sufficient; 2) Involuntary, the creditors must be residents of the Philippines whose credits or demand accrued in the Philippines and none of the creditors has become a creditor by assignment within thirty (30) days prior to the filing of the petition WHILE no such requirements exist for voluntary insolvency;


3) Involuntary, the amount of indebtedness must not be less than P1,000.00 WHILE for voluntary, it must exceed P1,000.00; 4) Involuntary, the petition must be accompanied by a bond, WHILE voluntary does not require a bond

3. What is involuntary insolvency ? SUGGESTED ANSWER: A proceeding filed by three or more creditors whose credits aggregates not less than P1,000.00, or by a corporation or partnership to declare a debtor insolvent because he has committed any one of the acts of insolvency enumerated by law. NOTES AND COMMENTS: BAR: a. Procedure for involuntary insolvency. 1) Filing of petition; 2) Answer of defendant; 3) Trial and order of court adjudging debtor as an insolvent, if supported by the facts; 4) Publication of the order and service of it on all creditors; 5) Election by creditors of an assignee and conveyance of debtor’s assets to him; 6) Liquidation and payment of creditors; 7) Composition; 8) Discharge of the insolvent. b. Acts of insolvency which warrants filing of petition for involuntary insolvency: The debtor: 1) Is departing from the Philippines; 2) Is absent and continued to be absent; 3) Conceals himself from judicial process; 4) Removes or conceals his properties; 5) Allowed his properties to be attached by others; 6) Confessed or allowed judgment to be taken against him; 7) Allowed judgment by default against him; 8) Allowed property to be taken by legal process to give preference to certain creditors; 9) Make assignment, gift or sale; 10) In contemplation of insolvency, made payments or gift to another; 11) Defaulted in payment of obligations for 30 days; 12) Failed after 30 days to surrender money deposited in trust with him; 13) Found to have insufficient properties to satisfy a judgment.

(d) Truth in the Lending Act (R.A. No. 3765), (As amended by the Consumer Act of 1992)
1. What are required to furnished under the Truth in the Lending Act, as amended by the Consumer Act of 1992, to a person to whom credit sales is extended ?
SUGGESTED ANSWER: Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Monetary Board of the Bangko Sentral ng Pilipinas, the following information: 1) the cash price or delivered price of the property or service to be acquired; 2) the amounts, if any, to be credited as down payment and/or trade-in; 3) the difference between the amounts set forth under clauses (1) and (2); 4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; 5) the total amount to be financed; 6) the finance charge expressed in terms of pesos and centavos; and 7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. ; 8) the effective interest rate; 9) the repayment program; and 10)the default or delinquency charges on late payments.

NOTES AND COMMENTS: a. Required to furnished under the Truth in the Lending Act, as amended by the Consumer Act of 1992, to a person to whom consumer loan is extended:
1) the amount of credit extended;


2) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; 3) the total amount to be financed; 4) the amount of finance charge expressed in terms of pesos and centavos; 5) the effective interest rate; 6) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. ; 7) the default or delinquency charges on late payments; and 8) the description of the security. b. Transactions which require the above disclosures: 1) Credit sales; 2) Open consumer credit plan; 3) Consumer loans not open and consumer credit; and 4) Sale of consumer products on installment basis. c. Handling charges not reflected on the promissory notes could not be collected by the bank. Banks are authorized under Central Bank Circular No. 504 to collect handling charges. Section 7 of the same Circular, however, provides that all banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of the Truth in Lending Act and shall make the true and effect cost of borrowing an integral part of every loan contract. (Consolidated Bank and Trust Corporation [Solidbank] vs. Court of Appeals, et al., G.R. No. 91494, July 14, 1995)

(e) Anti-Money Laundering Law (R.A. No, 9160) as amended by R.A. No. 9194
1. What is the offense of money laundering ?
SUGGESTED ANSWER: Money laundering is a crime whereby the proceeds of an unlawful activity as defined in the Anti-Money Laundering Act of 2001, as amended, are transacted, thereby making them appear to have originated from legitimate sources. (1st par.,
Sec. 4, AMLA)

2. What are some of activities considered as unlawful activity under the AMLA ?
SUGGESTED ANSWER: “Unlawful activity refers to any act or omission or series or combination thereof involving or having direct relation to the following: 1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; 2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15 and 16 of Republic Act No. 9165, otherwise known as the Comprehensive Dangerous Drugs Act of 2002; 3) Section 3, paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act; 4) Plunder under Republic Act No. 7080,as amended; 5) Robbery and Extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended; 6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; 7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532; 8) Qualified theft under Article 310 of the Revised Penal Code, as amended; 9) Swindling under Article 315 of the Revised Penal Code, as amended; 10) Smuggling under Republic Act Nos. 455 and 1937; 11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; 12) Hijacking and other violations under Republic Act No. 6235, destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets; 13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000; 14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.” (Par. I, Sec. 3, AMLA)

SUGGESTED ANSWER: Money laundering is committed by: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property;

BAR: 3. How is the offense of money laundering committed ?

The freeze order shall be for a period of twenty(20) days unless extended by the court. 9194) 4.A. the amount involved is not commensurate with the business or financial capacity of the client. AMLA. There is no underlying legal or trade obligation. AMLA. securities dealers. fails to do so. The author submits that the Court of Appeals “freeze order” may be issued only if there is no case filed yet in order to prevent a massive withdrawal of the illegal funds. and in certain cases the Sandiganbayan. NOTES AND COMMENTS: a. No. or 6. Those committed b public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. the client is not properly identified. b-1. performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. any transaction similar or analogous to any of the foregoing. No. may issue a freeze order which shall be effective immediately. A. 5. AMLA) BAR: 6. (Sec. (par. such as banks. as amended by R. (Sec. 9194) Also required to be reported are suspicious transactions with covered institutions regardless of the amounts involved. may then issue an ex-parte TRO for 72 hours. the transaction is in any way related to an unlawful activity or offense under the AntiMoney Laundering Act that is about to be. AMLA. etc. where any of the following circumstances exist: 1.00 within one (1) banking day. 4.A. Court of Appeals “freeze order” issued only if no case filed yet. insurance companies. ? SUGGESTED ANSWER: Transactions in cash or other equivalent monetary instrument involving a total amount in excess of P500. 9194) 5. What court has jurisdiction over money laundering cases ?. No. While the RTCs. 2. (c) Any person knowing that any monetary instrument or property is required under the Anti-Money Laundering Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC). 5. (par. and the proper court has obtained jurisdiction over the subject matter. 3. it may be perceived that the client’s transactions is structured in order to avoid being the subject of reporting requirements under the Anti-Money Laundering Act. b. 3. and conduct the appropriate hearing. taking into account all known circumstances. SUGGESTED ANSWER: The regional trial courts shall have jurisdiction to try all cases on money being or has been committed. Sec. 4. similar financial institutions. upon application ex parte by the Anti-Money Laundering Council and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined under the law. purpose or economic justification. What transactions are required to be reported to the Anti-Money Laundering Council (AMLC) by covered institutions. as amended by R.000. 3. GOOD LUCK ! ADVANCE CONGRATULATIONS ! SEE YOU IN COURT ! . have jurisdiction over money laundering cases. . what court has the authority to issue a freeze order ? SUGGESTED ANSWER: The Court of Appeals. as amended by R. Sec.89 (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity. It is further submitted that once a case is already filed in court.

(Canlas. In essence. The business of a bank is affected with public interest. Canlas accompanied Manosca to the bank when the loan was released.00 to a certain Atty. February 28. (Bank of the Philippine Islands. (Canlas.. Canlas authorized Manosca to mortgage two parcels of land belonging to him and to his wife. G. February 28.000. is the mortgage null and void.00. It turned out that the Bank did not require the impostors to present a single identification card.R. or where it is impossible to determine whose fault or negligence brought about the occurrence of the incident.R. the Bank alleged that Canlas was negligent in entrusting the owner’s TCT to Manosca which provided him with the opportunity to perpetuate the fraud. holding in trust the money of the depositors. et al. To raise capital. prom. The degree of diligence required of banks is more than that of a good father of a family.000. Canlas allowed Manosca to introduce him (Canlas) a Leonardo to the bank employees. Court of Appeals. in keeping with their responsibility to exercise the necessary care and prudence in dealing even on a registered or titled property. February 28. However.A. is chargeable with the consequence arising therefrom. which is applicable here. The mortgage is null and void and the Bank should bear the loss. v.. February 29. v. by the simple expedient of faithfully complying with the requirements for banks to ascertain the identity of the persons transacting with them.00 to the Asian Saving’s Bank. the one who had the last clear opportunity to avoid the impending harm but failed to do so. G.. G. et al.. Canlas and Manosca agreed to do business together. v. Magno and later for P500. 2000) Under the doctrine of last clear chance. Court of Appeals. which bank deposits the bank should guard against loss due to negligence or bad faith. always having in mind the fiduciary nature of their relationship. Later with the help of impostors posing as the spouses Canlas. by reason of which the bank would be denied the protective mantle of the land registration law. the rule is that the antecedent negligence of a person does not preclude recovery of damages caused by the supervening negligence of the latter. Manosca was able to mortgage the parcels of land for P100.R. prom. 2000) Assuming that Canlas was negligent in giving Manosca the opportunity to perpetrate the fraud by entrusting to latter the owner’s copy of the transfer certificates of title of subject parcels of land. Canlas contested foreclosure on the ground of Manosca’s lack of authority to constitute the mortgage. the doctrine of last clear chance is to the effect that where both parties are negligent but the negligent act of one is appreciably later in point of time than that of the other. Furthermore. Under the above circumstances. accorded only to purchasers or mortgagees for value and in good faith. 112392. Canlas then delivered the titles to Manosca. (Canlas. the respondent bank must suffer the resulting loss. the P460.000. after the loan was finally approved. it cannot be denied that the bank had the last clear chance to prevent the fraud. 2000) By the nature of its functions. At that time. et al.000.R. 8791 (Basics) 5. et al.000. R. prom. G. 112160. prom. on two occasions. Magno covering the same parcels of land in question. et al.. No. No.00 was issued in the name of Oscar Motorworks which Canlas admits he owns and operates.00 to serve as Canlas’ investment in the business. Finally. v.90 (ii) General Banking Law of 2000. P500. Canlas agreed to sell the parcels to Manosca for a total consideration of P850.000. and who shall bear the loss? SUGGESTED ANSWER. a manager’s check for P200. et al. The Bank merely relied upon their representatives on the basis of residence certificates bearing signatures which tended to match the signatures affixed on a previous deed of mortgage to a certain Atty. For non-payment of the loan. 112160. a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care. Later.00 check given by Manosca to Canlas as part of the consideration bounced. On the other hand. No. No. No. the Bank foreclosed on the mortgaged property.00 of which is payable within one week and P300. a bank is under obligation to treat the accounts of its depositors “with meticulous care. Stated differently. in dealing with its depositors. Court of Appeals. 112160. The bank did not observe the requisite diligence in ascertaining the identity of the impostors.” As such.000. who had the last fair chance to prevent the impending harm by the exercise of due diligence. 2000) .. Court of Appeals.

00 plus interest.91 6. Proximate cause. The Bank asserts that Napiza should be held liable as an indorser when he affixed his signature at the dorsal side of the check. No Napiza should not be held liable on the basis of his indorsement. February 29. On September 3. common sense. Court of Appeals. and 2) in all instance whether the withdrawal is made by the depositor personally. No. Notably. Jr.R. However. Napiza agreed to deliver to Chan a signed blank withdrawal slip with the understanding that as soon as the check is cleared. G. 2000) It was likewise negligent in allowing withdrawal despite non-presentation of the passbook. On November 20. The interest of justice thus demands looking into the events that led to the encashment of the check. one Gayon. Napiza deposited in his Foreign Currency Deposit Unit (FCDU) Savings Account with the Bank. The passbook further shows that deposits of checks and similar items shall be subject to collection only and credited to the account only upon receipt of the notice of final payment. No. 1984. 1984. prom. 112392.” The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager'’ check. SUGGESTED ANSWER. and that by signing the withdrawal slip.. G. and duly initialed by the Bank’s branch assistant manager Teresita. withdrawal by another person upon the depositor’s written authority duly authenticated.500. February 29.500. 112392. 1987. policy and precedent. Ordinarily Napiza may be held liable as an indorser of the check or even as an accommodation party.” The proximate cause of the withdrawal and eventual loss of the amount of $2. it should suffer the . unbroken by any efficient intervening cause. or in certain exceptional instances where the Bank allows it. using the signed blank withdrawal slip given by Napiza to Chan. 1986. By depositing the check with Bank. a Manager’s check dated August 17. prom. is “that cause.00 on the Bank’s part was its personnel’s negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system.541. 1984.500. in natural and continuous sequence. which is determined by a mixed consideration of logic. the negligence of the Bank’s personnel was the proximate cause of the loss that the Bank sustained. 2000) The Bank was negligent in allowing withdrawal prior to clearance of the check.67 from the depositor’s account.00 and duly endorsed by Napiza on the dorsal side. The owner of the check was a certain Chan whom Napiza accommodated for the purpose of clearing the check. This is so because. which. Is the depositor Napiza liable? Explain briefly. On October 23. produces the injury.R. both of them would go to the Bank to withdraw the amount of the check upon Napiza’s presentation to the Bank of his passbook. is not legal tender. On August 12. Napiza was. (Bank of Philippine Islands v. Court of Appeals. merely designating the Bank as the collecting bank. This is in consonance with the rule that a negotiable instrument such as a check. the Bank received a communication from the foreign bank that the check deposited by Napiza was a counterfeit check. In so doing. The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. in a way. and without which the result would not have occurred. the withdrawal slips shows that the amount was payable to Roman and Agnes. payable to “cash” in the amount of $2. Napiza presented the opportunity for the withdrawal of the amount in question. the Bank sued Napiza praying for the return of the amount of P2. While it is true that Napiza’s having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check. was able to withdraw $2. the Bank assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence. to hold Napiza liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. (Bank of Philippine Islands v. whether a manager’s check or ordinary check. the Banks’ rules which are printed on the depositor’s passbook requires presentation to the Bank of 1) a duly filledup withdrawal slip.

” (Prudential Bank v. prom. always having in mind the fiduciary nature of their relationship. In Simex International (Manila). G.R.770. Leticia later found out that the amount of P35. when Lhuiller redeposited the P11. nevertheless. 183 SCRA 360.93 in her current account or a total deposit of P36. Yes. Is the Bank liable? SUGGESTED ANSWER. or 23 days after she redeposited it. 1988. such as the dishonor of a check without good reason.. March 16. the latter told the former to redeposit it. 125536. Court of Appeals.993. embarrassment and humiliation.00 postdated June 20. the Bank defends by saying that Leticia did not suffer any damage as a result of the dishonor.R. Inc. et al.271. Surprised by the dishonor. The fiduciary nature of relationship between banks and depositors demand the award of moral damages for mistakes committed by the former’s employees that result in dishonor of checks. Court of Appeals. Court of Appeals. prom.00 penalty from her current account for the dishonor of the check. with automatic transfer of funds from the savings account to the current account. Bank is liable for erroneous dishonor of checks. Court of Appeals. No. Responsibility arising from negligence in the performance of every kind of obligation is demandable. 1988. Thus. 367 (1990) and Bank of Philippine Islands v. 2000) 7. v. G. the depositor expects the bank to treat his account with the utmost fidelity. Supreme Court had occasion to stress the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of the former in handling the accounts entrusted to its care. she had P35. 1988. 367 (1990) and Bank of Philippine Islands v. et al. Bank are responsible for their employees’ mistakes in dishonor of checks..500. The point is that as a business affected with public interest and because of the nature of its functions.. No. Inc. et al. Leticia opened a savings and current account with Prudential Bank.” (Prudential Bank v. 125536. No.500. When Lhuiller’s secretary informed Belen of the dishonor. it was cleared on June 27. What are some of the prohibited transactions of a borrower of a bank ? . March 16. G. and as promptly as possible. Leticia then issued a Prudential Bank check in the amount of P11. whether such account consists only of a few hundred pesos or of millions. 183 SCRA 360. “A bank is under obligation to treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos..60. 2000 citing Simex International (Manila). 2000 citing Philippine National Bank v. who endorsed it to Lhuiller. The Bank’s negligence was the result of lack of due care and caution required of managers and employees of a firm engaged in so sensitive and demanding business as banking. she deposited in her savings account a check drawn against PCIB in the amount of P35. On June 21. It dishonored the check issued by Leticia who turned out to have sufficient funds with the Bank.R.60 which she had deposited was credited to her savings account only on June 29. the bank is under obligation to treat the accounts of its depositors with meticulous care. prom. 412-413 (1992) 8. 206 SCRA 408. v. They also offered to make restitution and apologies to Belen and Lhuiller. and the dishonor was an honest mistake and the Bank Manager and the other employees profusely apologized to Leticia for the error.00 check on June 24. et al. Sued for damages.92 resulting damage. down to the last centavo. confident that the bank will deliver it as and to whomever he directs. prom. it caused serious anxiety. A blunder on the part of the bank. Court of Appeals. Leticia was told by the officer-in-charge of the Bank that he had debited P300. The bank must record every single transaction accurately. Court of Appeals. No. 1999) NOTES AND COMMENTS: a. 112392. G. ((Bank of Philippine Islands v. IAC.R. IAC. 126152. It acted in good faith. thus: “In every case. February 29. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit. 1988 in favor of Belen . September 28. While petitioner’s negligence in this case may not have been attended with malice and bad faith. When the latter deposited the check in his account with PCIB. 206 SCRA 408. 412-413 (1992). On June 1. 1998. x x x. it was dishonored for being drawn against insufficient funds. 1988.271.48 in her saving’s account and P776. can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.41.

8791) redemption. Owners of property that has been sold in a foreclosure sale prior to the effectivity of the General banking Law of 2000 shall retain their redemption rights until their expiration. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final. but not after. 128567. In the event of foreclosure by a bank. whether judicially or extrajudicially.2. or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. The right of redemption in relation to a mortgage –understood in the sense of a prerogative to reacquire mortgaged property after registration of the foreclosure sale – exists only in the case of the extrajudicial foreclosure of the mortgage. or even after the foreclosure sale. juridical persons whose property is being sold pursuant to an extrajudicial foreclosure shall have the right to redeem the property in accordance with this provision until.A. 47. R. 55. to redeem the property by paying the amount due under the mortgage deed with interest thereon at the rate specified in the mortgage. hold or convey real property under the following circumstances: 1) Such as shall be mortgaged to it in good faith by way of security for debts. and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. et al. R. There then exists only what is simply known as the equity of redemption. No. whichever is earlier.. September 1. No such right is recognized in a judicial foreclosure except only where the mortgagee is a bank or banking institution. the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate. (Sec. No. (Sec. the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure.A. fee. officer. (Huerta Alba Resort. Acquisition of real estate by way of satisfaction of claims. Distinguish between equity of redemption and the right of . Notwithstanding Act 3135.R. the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. No. Where no right of redemption exists in case of a judicial foreclosure because the mortgagee is not a bank or a banking institution. The period to exercise the right of redemption is within one (1) year from the registration of the sheriff’s certificate of foreclosure sale. SUGGESTED ANSWER: The equity of redemption is different from and should be confused with the right of redemption. but prior to confirmation. renewing. 2000) NOTES AND COMMENTS: a.93 SUGGESTED ANSWER: No borrower of a bank shall: a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank. employee or agent of a bank any gift. prom. b) Furnish false or make representation or suppression of material facts for the purpose of obtaining. Instances when a bank may acquire real estate. However. the foreclosure sale when confirmed by an order of the court shall operate to divest the rights of all parties to the action and to vest their rights in the purchaser. G. Inc. or d) Offer any director. c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation.. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. Right of mortgagor to redeem. in accordance with Rule 68 of the Rules of Court. of any mortgage on real estate which is security for any loan or other credit accommodation granted. IMPT: 9. 8791. increasing a loan or other credit accommodation or extending the period thereof. arrangement supplied) b.A bank may acquire. Court of Appeals. commission. v.

further. 8791) . after said period. unless otherwise provided by the Monetary Board. R. Any other real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board. (Sec. Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: provided. or trust deeds held by it and such as it shall purchase to secure debts due it. however. R. That the total investment in such real estate and improvements thereof. (Sec. Limitation or ceiling on bank investments in real estate. mortgages.94 2) Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings.A. No. or 3) Such as it shall purchase at sales under judgments.A. however. including bank equipment. decrees. 52. 8791) c. That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank’s total investment in real estate. that the bank may. No. provided. shall not exceed fifty percent (50%) of combined capital accounts: provided. continue to hold the property for its own use subject to the limitations on ceilings on investment in real estate. 51.

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