PRE-BAR REVIEW DIVISION

2007 PRE-WEEK REVIEW

NOTES
DOMONDONs CUT AND PASTE
The BAR STAR NOTES
MERCANTILE LAW
VER. 2007.08.13
copyrighted 2007
Prepared by Prof. Abelardo T. Domodo
How o !se he Noes" The!e "ote! i the
form of te#t$al material! ad repre!etati%e re%ie&
'$e!tio! &ere s#e$%&''( #)e#&)e* +( P)o,- Do.o/*o/
,o) he e0$'!s%1e !se o, B&) C&/*%*&es who
&e/*e* h%s 2007 'e$!)es %/ Me)$&/%'e 2&w(
cod$cted by Prim$! )formatio( *eter( )c(( ad
other! he ha! per!oally a$thori+ed.
D$rig the Pre,-ee. from /eptember 10 0 11( 2007(
yo$ do ot aymore ha%e the l$#$ry of time to do a lei!$rely
readig of yo$r boo.! ad ote!. Th$!( yo$ !ho$ld be %ery
!electi%e i the $!e of re%ie& material!. 2Domodo3! *$t
ad Pa!te( The 4ar /tar "ote!5 &ere !pecially prepared to
help yo$ foc$! o the area! that are probable !o$rce! of
'$e!tio! to be gi%e d$rig the 2007 4ar E#amiatio i
6ercatile 7a&. The area! &ere idetified by the a$thor
thro$gh !tati!tical aaly!i! $!ig data from 4ar E#amiatio
'$e!tio! i 6ercatile 7a& gi%e d$rig the period 1813 $p
to 2009. The e!!ece of !elected /$preme *o$rt deci!io!
$p to :ebr$ary 2007 are al!o icl$ded.
) order to ha%e a mo!t effecti%e Pre,-ee. Re%ie&(
yo$ !ho$ld read 2Domodo3! *$t ad Pa!te( The 4ar /tar
"ote!5 i the follo&ig !e'$ece;
1. <o$ !ho$ld fir!t read ad ma!ter the area!
mar.ed ad beca$!e of the high !tati!tical probability
that 70= to 80= of the 2007 4ar E#amiatio i 6ercatile
7a& may be !o$rced from the!e area!. <o$ !ho$ld ote that(
e#cept i %ery i!tace! >$!$ally e$meratio! ad
di!tictio!?( the !$gge!ted a!&er! rarely e#ceed three
!etece!. Thi! i! !o( beca$!e yo$ co$ld 2*@T5 the
!$gge!ted a!&er! ad 2PA/TE5 them a! yo$r a!&er! to
the 4ar A$e!tio!. Bf co$r!e( there may be a eed to adC$!t
the cocept that i! 2PA/TED5 i order to be appropriate to
the re'$iremet! ad fact$al circ$m!tace! of the act$al 4ar
E#amiatio A$e!tio! yo$ &o$ld be a!&erig.
To optimi+e $!e of the read 2Domodo3! *$t ad
Pa!te( The 4ar /tar "ote!(5 it i! !$gge!ted that yo$ co%er the
/@DDE/TED A"/-ER ad the read the '$e!tio. Try
a!&erig the '$e!tio metally before yo$ chec. &hether
yo$r a!&er i! correct or ot. Thi! &o$ld trai yo$ i
aaly+ig '$e!tio! ad form$latig a!&er! '$ic.ly. <o$
&o$ld ot mi!! ay area beca$!e yo$ are forced to read the
ote! &ith a iteracti%e mid. )f yo$ co$ld recollect a great
$mber of the a!&er! to the area! mar.ed ad ( the
yo$ are ready for the 4ar. <o$ !ho$ld adopt thi! method of
readig( &hether it i! yo$r fir!t or th readig.
To facilitate yo$r $der!tadig of the area! mar.ed
ad ( it i! !$gge!ted that yo$ !ho$ld &rite the ote! yo$
ta.e d$rig the Pre,-ee. Re%ie&! yo$ atted directly
oppo!ite the cocept yo$ fid diffic$lty $der!tadig. )f yo$
ited to do a !elf,re%ie& d$rig the Pre,-ee. the yo$ co$ld
aotate the 2Domodo3! *$t ad Pa!te( The 4ar /tar
"ote!5 by &ritig yo$r o& commet! ad ote!.
/ometime!( it i! ea!ier to $der!tad the cocept if it i! i
yo$r o& had&ritig. There may be o eed to highlight the
area! mar.ed ad ( beca$!e all the area! i thi! !ectio
are e'$ally dagero$!.
2. After yo$ ha%e ma!tered the area! mar.ed
ad ( yo$ !ho$ld e#t do a !electi%e readig of the area!
mar.ed ad tho!e that are ot !o mar.ed. )t i! !tati!tically
probable that 10= to 20= of the '$e!tio! may be !o$rced
from the!e area!( e!pecially more !o( the !o,called 2cra+y
'$e!tio!.5 <o$ co$ld if yo$ !o de!ire( highlight certai of
the!e area!( altho$gh it i! ot ad%i!able to !ped a lot of time
here( if yo$ ha%e ot yet ma!tered the area! mar.ed ad
.
DB "BT 6E6BR)EE the !$gge!ted a!&er!. /ome
of the a!&er! &ere p$rpo!ely made to be legthy i order to
!er%e a! e#plaatory de%ice!. Thi! i! !o beca$!e yo$ do ot
ha%e time aymore to refer bac. to yo$r re%ie& material!. )f
yo$ !till co$ld ot $der!tad the cocept! after readig
the!e "ote!( the refer to the Doctrie! ad )ll$!trati%e ca!e!
a! &ell a! to yo$r other re%ie& material!.
The material! are arraged i accordace &ith the bar
e#amiatio co%erage. The act$al bar '$e!tio! may ot be
!o arraged. 7i.e&i!e( the!e "ote! are oly idicati%e of the
area! from &here 4ar '$e!tio! may be !o$rced. The
'$e!tio! !ho& i the!e "ote! may or may ot be e#actly
&orded i the act$al 4ar '$e!tio!.
:ially( the p$rpo!e of 2Domodo3! *$t ad Pa!te(
The 4ar /tar "ote!5 i! ot to teach yo$ 6ercatile 7a& b$t to
pro%ide a !cietifically prepared g$ide o the area! &here
yo$ !ho$ld foc$! d$rig the 2Pre,-ee.5( ot oly to eable
yo$ pa!! the 4ar( b$t al!o to place amog the 2TBP TE".5
WARNIN3"
The!e material! are copyrighted adFor ba!ed o the
&riter3! boo. o D$ide to 6ercatile 7a& ad f$t$re re%i!io!.
)t i! prohibited to reprod$ce ay part of the!e "ote! i ay
form or ay mea!( electroic or mechaical( icl$dig
photocopyig &itho$t the &ritte permi!!io of the a$thor.
The!e material! are a$thori+ed for the $!e oly of 4ar
re%ie&ee! the a$thor ha! per!oally a$thori+ed. @a$thori+ed
$!er! !hall ot be pro!ec$ted b$t SHA22 BE SUB4ECT TO
THE 2AW O5 KARMA SUCH THAT THE6 WI22 NEVER
PASS THE BAR OR WOU2D BE UNHAPP6 IN 2I5E for
!tealig the itellect$al property of the a$thor.
Bly copie! &ith the !igat$re of Prof. Domodo( or
hi! a$thori+ed repre!etati%e ad the corre!podig $mber
o thi! page are co!idered a$thori+ed copie!. Golder! of
a$thori+ed copie! are re'$e!ted ot to led their copie! for
reprod$ctio thro$gh Hero# or other&i!e.
AUTHORI7ED SI3NATURE"
PRIMUS CONTRO2 NO- 8888888888
MERCANTI2E 2AW
9:; CODE O5 COMMERCE
9&; Me)$h&/s &/* Co..e)$%&'
T)&/s&$%o/s - A)%$'es : o <=-
2
:- What is meant by the theory of manifestation in
the perfection of contracts as adopted in the Code of
Commerce ?
/@DDE/TED A"/-ER; A theory i the perfectio of
cotract! &hich recogi+e! that the cotract i! perfected at the
time &he the acceptace i! made by the offeree.
2- What is the theory of cognition in the perfection
of contracts recognized under the Civil Code ?
/@DDE/TED A"/-ER; The cotract i! perfected at
the time the acceptace came to the .o&ledge of the offeror.
=- What is a joint account ?
/@DDE/TED A"/-ER; A Coit acco$t i! a
tra!actio of merchat! &here other merchat! agree to
cotrib$te the amo$t of capital agreed $po( ad participatig
i the fa%orable or $fa%orable re!$lt! thereof i the proportio
they may determie.
>- Distinguish joint account from partnership
/@DDE/TED A"/-ER; The follo&ig are the
di!tictio!;
a. A parter!hip ha! a firm ame -G)7E a Coit acco$t
ha! oe ad i! cod$cted i the ame of the o!te!ible
parter.
b. A parter!hip ha! a C$ridical per!oality ad may !$e
ad be !$ed $der it! firm ame -G)7E a Coit acco$t ha! o
C$ridical per!oality ad ca !$e ad be !$ed oly i the ame
of the o!te!ible parter.
c. A parter!hip ha! a commo f$d -G)7E a Coit
acco$t ha! oe.
d. ) a parter!hip( all geeral parter! ha%e the right of
maagemet -G)7E i a Coit acco$t the o!te!ible parter
maage! it! b$!ie!! operatio!.
e. 7i'$idatio of a parter!hip may( by agreemet( be
etr$!ted to a parter or parter! -G)7E i a Coit acco$t
li'$idatio thereof ca oly be doe by the o!te!ible parter.
9+; 2ee)s o, C)e*% !/*e) he Co*e o,
Co..e)$e 9A)%$'es ?<7 o ?72@ %/$'!s%1e;
:- Wh& is a letter of credit ?
/@DDE/TED A"/-ER; A letter of credit i! oe
&hereby oe per!o re'$e!t! !ome other per!o to ad%ace
moey or gi%e credit to a third per!o( ad promi!e! that he &ill
repay the!e to the per!o ma.ig the ad%acemet( or accept
the bill! dra& $po him!elf for the li.e amo$t. >Bank of
Philippine Islands v. Commissioner of Internal Revenue, D. R. "o.
137002( I$ly 27( 2009?
"BTE/ A"D *B66E"T/;
a. UCP )!'es Ao1e)/ 'ee)s o, $)e*%- /ice letter! of
credit ha%e gaied geeral acceptability i iteratioal trade
tra!actio!( the )teratioal *hamber of *ommerce >)**? ha!
p$bli!hed from time to time $pdate! o the @iform *$!tom! ad
Practice >@*P? for Doc$metary *redit! to !tadardi+e practice! i
the lFc area( the late!t of the re%i!io! beig that i 1883.
There beig o !pecific pro%i!io! &hich go%er the legal
comple#itie! ari!ig from tra!actio! i%ol%ig letter! of credit( ot
oly bet&ee or amog ba.! them!el%e! b$t al!o bet&ee ba.!
ad the !eller or the b$yer( a! the ca!e may be( the applicability of
@*P i! $deiable. >Ibid., Bank of America, NT & A v. Court of
Appeals, et al., D. R. "o. 101381( 10 December 1883( 228 /*RA
317?
Th$!( the ob!er%ace of the @*P i! C$!tified by Article 2 of
the *ode of *ommerce &hich pro%ide! that i the ab!ece of ay
partic$lar pro%i!io i the *ode( commercial tra!actio! !hall be
go%ered by $!age! ad c$!tom! geerally ob!er%ed. >Ibid., citig
Bank of Philippine Islands v, !e Ren" #abric Industries, Inc., 1J9 Phil.
298K 31 /*RA 219 >1870?
b. D)&,@ *e,%/e*- A draft i! a form of bill of e#chage
$!ed maily i tra!actio! bet&ee per!o! phy!ically remote from
each other. it i! a order made by oe per!o( !ay the b$yer of
good!( addre!!ed to a per!o ha%ig i hi! po!!e!!io f$d! of !$ch
b$yer orderig the addre!!ee to pay the p$rcha!e price to the !eller of
the good!. -here the order i! made by oe ba. to aother( it i!
referred to a! a ba. draft. >Bank of Philippine Islands v.
Commissioner of Internal Revenue, D. R. "o. 137002( I$ly 27( 2009?
c. 5o)e%A/ +%'' o, e0$h&/Ae@ *e,%/e*- A ilad
bill of e#chage i! a bill &hich i!( or o it! face p$rport! to be( both
dra& ad payable &ithi the Philippie!. Ay other bill i! a foreig
bill. >/ec. 128( ".).7.?
2- What are the three distinct and independent
contracts in a letter of credit?
3
/@DDE/TED A"/-ER; The three di!tict ad
idepedet cotract! are;
a. The cotract of !ale bet&ee the b$yer ad the
!ellerK
b. The cotract of the b$yer &ith the i!!$ig ba.( ad
c. The letter of credit proper i &hich the ba. promi!e!
to pay the !eller p$r!$at to the term! ad coditio! !tated
therei. >$en% &ua Paper Products Co., Inc. v. Court of Appeals, et
al., 289 /*RA 217?
=- !n letters of credit in ban"ing transactions#
distinguish the liability of a confirming ban" from a
notifying ban"
/@DDE/TED A"/-ER; A cofirmig ba. add! it!
credit to the letter of credit ad therefore i! liable if the opeig
importer fail! to pay the e#porter &hile a otifyig ba. beig
merely oe &ho gi%e! ad%ice a! to the e#i!tece doe! ot
ic$r ay !$ch liability.
>- $% agreed to sell to AC# a &hip and
Merchandise $ro"er# '#()) cubic meters of logs at *'+ per
cubic meter ,-$ After inspecting the logs# CD issued a
purchase order
-n the arrangements made upon instruction of the
consignee# . / 0 Corporation of 1os Angeles# California#
the &2 $an" of 1os Angeles issued an irrevocable letter of
credit available at sight in favor of $% for the total
purchase price of the logs# 0he letter of credit 3as mailed
to ,4 $an" 3ith the instruction 5to for3ard it to the
beneficiary6 0he letter of credit provided that the draft to
be dra3n is on &2 $an" 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 3ith the terms and conditions of the purchase
order
$efore loading on the vessel chartered by AC# the
logs 3ere inspected by customs inspectors and
representatives of the $ureau of ,orestry# 3ho certified to
the good condition and e7portability of the logs After the
loading 3as completed# the Chief Mate of the vessel
issued a mate8s receipt of the cargo 3hich stated that the
logs are in good condition .o3ever# AC refused to issue
the re9uired certification in the letter of credit $ecause of
the absence of the certification# ,4 $an" refused to
advance payment on the letter of credit
a May ,4 $an" be held liable under the letter of
credit? 47plain
b :nder the facts stated above# the seller# $%#
argued that ,4 $an"# 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 Conse9uently# ,4 $an" is liable under the letter of
credit is the argument tenable ? 47plain
/@DDE/TED A"/-ER;
a. "o. -itho$t the certificatio from A*( &hich i! a
coditio i the letter of credit( :E ha! o obligatio to ad%ace
paymet of the letter of credit. >#eati Bank v. Court of Appeals, et
al., 189 /*RA 179?
b. "o. :E 4a. i! merely a otifyig ba. beca$!e
there i! o !ho&ig that it ha! added it! credit to the letter of
credit.
?- -n '; March <==+ 0ransfield and 1uzon .ydro
>1.C? entered into a 0urn"ey Contract 3hereby 0ransfield#
as 0urn"ey Contractor# undertoo" to construct# on a
turn"ey basis# a +) Mega3att po3er station >2R-@4C0?
0o ensure 0ransfield8s compliance 3ith the contracted
target completion date it opened# 3ith AAB $an"# in favor
of 1.C t3o standby letters of credit >&4C:R!0!4&? on ')
March '))) As a result of some problems that beset the
2R-@4C0 completion arbitration 3as resorted to
,oreseeing that 1.C 3ould call on the &4C:R!0!4&
0ransfield advised AAB $an" of the arbitration
proceedings 3ith the 3arning that until resolution of the
arbitration no payment on the &4C:R!0!4& should be
made to 1.C or its representatives other3ise it 3ould be
subject to damages 1.C then demanded from AAB $an"
payment of the &4C:R!0!4& by surrendering the re9uired
drafts and documents re9uired under the 1CC and 3as in
fact paid
4
Did AAB act correctly under the premises ? !s it
liable for damages to 0ransfield ? Reason out your
ans3er
/@DDE/TED A"/-ER; <e!( A"E acted correctly
$der the premi!e!.
The egagemet of A"E 4a. a! the i!!$ace ba. i!
to pay 7G*( the beeficiary of the credit oce the draft ad
re'$ired doc$met! are pre!eted to it.
The !o,called ;idepedece priciple5 a!!$re! 7G*(
the beeficiary( of prompt paymet idepedet of ay breach
i the mai cotract ad precl$de! A"E( the i!!$ig ba. from
determiig &hether the mai cotract i! act$ally
accompli!hed or ot.
@der thi! priciple! i!!$ig ba.!( !$ch a! A"E(
a!!$me o liability or re!po!ibility for the form( !$fficiecy(
acc$racy( ge$iee!!( fal!ificatio or legal effect of ay
doc$met!( or for the geeral adFor partic$lar coditio!
!tip$lated i the doc$met! !$perimpo!ed thereo( or do they
a!!$me ay liability or re!po!ibility for the de!criptio(
'$atity( &eight( '$ality( coditio( pac.ig( deli%ery( %al$e or
e#i!tece of the good! repre!eted by ay doc$met!( or for
the good faith or act! adFor omi!!io!( !ol%ecy( performace(
or !tadig of the co!igor( the carrier!( or the i!$rer! of the
good!( or ay other per!o &hom!oe%er. >Transfield Philippines,
Inc. v. 'u(on &"dro Corporation, et al., D. R. "o. 1J9717( "o%ember
22( 200J citig %ario$! a$thoritie!?
9%; B!'B S&'es 2&w 9A$ =C?2;
:- 5D6 is the sole proprietor of a store engaged
in the business of trading auto spare parts# both 3holesale
and retail &cared by 3hat he perceived as the political
and economic instability besetting country# he decided to
emigrate to Canada 3ith his entire family .e li9uidated all
his assets including his auto spare parts business 5loc"#
stoc" and barrel6 to his compadre for :&*<#())#)))))
3hich he planned to reinvest in Canada
a !s he covered by the provisions of the $ul" &ales
1a3 ?
b !n the affirmative# 3hat must be done by the
parties so as to comply 3ith the la3 ?
c &uppose 5D6 submitted a false statement on the
schedule of his creditors What is the effect of such false
statement to his compadre ?
d What is the right of his creditors# if 5D6 failed to
comply 3ith the procedure steps re9uired by la3 under
9uestion letter >b? hereof ?
/@DDE/TED A"/-ER;
a. <e!. 2H5 i! co%ered by the 4$l. /ale! 7a&. The !ale
of hi! b$!ie!! 2loc.( !toc. ad barrel5 to hi! compadre i!
co!idered a! a !ale! i b$l. $der the 4$l. /ale! Act
beca$!e it i! a;
1? /ale( tra!fer( or di!po!itio i! other tha i
the ordiary co$r!e of b$!ie!!K
2? /ale of all or !$b!tatially all of the b$!ie!!K
ad
3? /ale of all or !$b!tatially all of the fi#t$re!
ad e'$ipmet!.
b. /ice the !ale i! co%ered by the 4$l. /ale! 7a&( 2H5
m$!t comply &ith the follo&ig re'$iremet! i order to ma.e
the !ale %alid;
1? H3! affida%it li!tig all the ame! of all hi!
creditor!( the at$re ad amo$t of credit! d$e themK
2? 2H5( a! the !eller( !ho$ld prepare a
i%etory of the !toc.! to be !old ad iform! all the
creditor! te >10? day! before the !ale or the proCected
!ale i b$l.K ad
3? "o!. 1? L 2? are regi!tered &ith the 4$rea$
of Dome!tic Trade.
c. )f H3! compadre doe! ot ha%e .o&ledge of the
fal!ity of the !ched$le( the !ale i! %alid. Go&e%er( if the
%edee ha! .o&ledge of !$ch fal!ity( the !ale i! %oid beca$!e
he i! i bad faith.
d. The reco$r!e of the creditor! i! to '$e!tio the
%alidity of the !ale from 2H5 to hi! compadre( !o a! to reco%er
&hat &ere !old to hi! compadre.
"BTE/ A"D *B66E"T/;
a. P!)#ose o, B!'B S&'es 2&w- To pre%et !ecret or
fra$d$let !ale of the b$!ie!!( &hich co$ld lead to it! clo!$re( to the
detrimet of the creditor!.
5
2 What are the effects of failure to observe the
re9uirements under the $ul" &ales Act ?
/@DDE/TED A"/-ER;
a. The !ale i! $ll ad %oidK
b. The p$rcha!er hold! the property he bo$ght i tr$!t
for the !ellerK
c. The p$rcha!er i! liable to the !eller3! creditor! for
propertie! he bo$ght ad already di!po!ed of by himK ad
d. The p$rcha!er ha! the right to demad from the
!eller the ret$r of the p$rcha!e price pl$! damage!.
=- What are the instances 3hen the sale#
transfer# mortgage or assignment of stoc" of goods# 3ares#
merchandise# provision# or materials other3ise 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 bul" ?
/@DDE/TED A"/-ER;
a. -he the !ale( tra!fer or di!po!itio i! i the
ordiary co$r!e of b$!ie!!K
b. -he there i! a &ai%er of the pro%i!io! of the 4$l.
/ale! 7a& of all the creditor!K
c. -he the !ale( tra!fer or di!po!itio i! by %irt$e of a
C$dicial order.
BAR" >- 47cel Corporation sold its assets to
Microsoft# !nc# after complying 3ith the re9uirements of
the $ul" &ales 1a3 &ubse9uently# one of the creditors of
47cel Corporation tried to collect the amount due it# but
found out that 47cel Corporation had no more assets left
0he creditor then sued Microsoft# !nc# on the theory that
Microsoft# !nc# is a mere alter ego of 47cel Corporation
Will the suit prosper ? 47plain
/@DDE/TED A"/-ER; The !$it &ill ot pro!per. The
!ale by E#cel *orporatio of it! a!!et! to 6icro!oft( )c. did ot
re!$lt i the tra!fer of it! liabilitie! to 6icro!oft( )c.( or i the
a!!$mptio of !$ch liabilitie! by 6icro!oft( )c. :$rthermore(
there i! othig i the problem &hich !ho&! that there &a! a
merger of co!olidatio( or a agreemet o the part of
6icro!oft( )c.( to a!!$me E#cel *orporatio3! liabilitie!.
?- 0he shares of stoc" of Aldrin# !nc# engaged in
the 3holesale of paper products# is o3ned <))E by @ustin
.e decided to sell all of his shares of stoc" to @ames and
@erome !s this a sale in bul" subject to the $ul" &ales
Act ? 47plain briefly
/@DDE/TED A"/-ER; "o. The tra!actio i! a !ale
of the !hare! of !toc. ad ot of the b$!ie!! &hich &o$ld
re!$lt to detrimet of the creditor!. The b$!ie!! !till coti$e!
ad the creditor! may proceed agai!t the !ame corporatio
&hich o&ed them. There &a! merely a chage i o&er!hip of
the b$!ie!!.
9%%; The W&)eho!se Re$e%#s 2&w 9A$
2:=7 %/ )e'&%o/ o he 3e/e)&' Bo/*e*
W&)eho!se A$@ A$ =DC=;
:- DFB Warehouse# !nc issued five >(? 3arehouse
receipts >9uedans? for sugar to Mia 0herese
Merchandising 3hich 3ere substantially in the form and
contains the terms prescribed for negotiable 3arehouse
receipts by &ection ' of Act Ao '<G+ 0he five >(? 9uedans
3ere subse9uently negotiated and endorsed by Mia
0herese to Ma Regina 3ho used these 9uedans as
security for loans obtained from @oy $an"ing Corporation
in the amount of 2G( million 0he 9uedans 3ere endorsed
by Ma Regina to @oy $an"
:pon failure of Ma Regina to pay @oy $an" the
$an" no3 demanded from DFB Warehouse# !nc the
release to it of the sugar covered by the five >(? 9uedans
DFB refused claiming o3nership because the chec"
payment made by Mia 0herese of the sugar covered by
the five >(? 9uedans bounced After DFB8s claim of
o3nership 3as dismissed# it no3 refuses to release the
sugar until @oy $an" pays storage fees !s DFB justified in
refusing to release the sugar until the storage fees are
paid ?
/@DDE/TED A"/-ER; <e!. A &areho$!ema !hall
ha%e a lie o good! depo!ited for all la&f$l charge! for
!torage ad pre!er%atio of the good! >/ec. 27( -areho$!e
Receipt! 7a&?.
6
A &areho$!ema eed ot deli%er $til the lie i!
!ati!fied >/ec. 31( -areho$!e Receipt! 7a&? ad i accordace
&ith /ec. 28 of the -areho$!e Receipt! 7a&( the
&areho$!ema lo!e! hi! lie $po good! by !$rrederig
po!!e!!io thereof.
) thi! ca!e( H<E3! claim for !torage fee! &a!
icompatible &ith it! claim of o&er!hip hece it co$ld ot
ha%e &ai%ed it! right to !torage fee!. >Philippine National Bank, v.
)ud%e e, )r., et al., D.R. "o. 118231( April 18( 1889?
"BTE/ A"D *B66E"T/;
a. W&)eho!se )e$e%#@ *e,%/e*- A &areho$!e receipt
i! a &ritte ac.o&ledgmet by the &areho$!ema that he ha!
recei%ed good! from the depo!itor ad hold! the !ame i tr$!t for
him.
b. No/-/eAo%&+'e w&)eho!se )e$e%#- *e,%/e*- A
receipt i &hich it i! !tated that the good! recei%ed &ill be deli%ered to
the depo!itor or to ay other !pecified per!o. >/ec. J( The
-areho$!e Receipt! 7a&.?
A o,egotiable receipt !hall ha%e plaily placed $po it!
face by the i!!$ig &areho$!ema( 2o,egotiable5 or 2ot
egotiable.5
@po fail$re to do !o( a holder &ho p$rcha!ed it for %al$e
!$ppo!ig it to be egotiable( may( at hi! optio treat !$ch receipt a!
impo!ig $po the &areho$!ema the !ame liabilitie! he &o$ld ha%e
ic$rred had the receipt bee egotiable. >/ec. 7( The -areho$!e
Receipt! 7a&.?
c. NeAo%&+'e w&)eho!se )e$e%#@ *e,%/e*- A receipt
i &hich it i! !tated that the good! recei%ed &ill be deli%ered to the
bearer or to the order of ay per!o amed i !$ch receipt. >/ec. 1(
The -areho$!e Receipt! 7a&?
2- 2atric" deposited 3ith Warehouse Company
for safe"eeping <)#))) bags of cement Warehouse
Company issued a receipt e7pressly providing that the
goods be delivered to the order of said 2atric"
A month after# 2aolo# one of 2atric"8s creditors
obtained judgment against 2atric" for 2()#))))) Acting
upon a 3rit of e7ecution the sheriff proceeded to levy on
the cement and directed Warehouse Company to deliver to
him the deposited cement
a What advice 3ill you give Warehouse
Company ? 47plain your ans3er briefly
b Assuming that a 3ee" prior to the levy# 2atric"
sold the receipt to Roberto on the basis of 3hich# Roberto
filed a claim 3ith the sheriff Would Roberto# the buyer of
the receipt# have better rights to the cement than 2aolo#
the creditor? 47plain your ans3ers briefly
/@DDE/TED A"/-ER/;
a. ) &o$ld ad%ice the -areho$!e *ompay ot to
deli%er the good! to the !heriff( other&i!e it may be held liable
for co%er!io. )t !ho$ld deli%er oly to Patric.( the per!o
&ho depo!ited the good! ad $po pre!etatio of the
&areho$!e receipt.
b. <e!( beca$!e Roberto &o$ld be a per!o &ho ha!
!tepped ito the !hoe! of Patric. &ho made the depo!it.
"BTE/ A"D *B66E"T/;
a. I/s&/$es whe)e w&)eho!se.e/ +o!/* o)
o+'%A&e* o *e'%1e)- A &areho$!ema( i the ab!ece of !ome
la&f$l e#c$!e pro%ided by Act "o. 2137( The -areho$!e Receipt!
7a&( i! bo$d to deli%er the good! $po a demad made either by the
holder of a receipt for the good! or by the depo!itorK if !$ch demad i!
accompaied &ith;
1? A offer to !ati!fy &areho$!ema3! lieK
2? A offer to !$rreder the receipt( if egotiable(
&ith !$ch idor!emet! a! &o$ld be ece!!ary for the
egotiatio of the receiptK ad
3? A readie!! ad &illige!! to !ig( &he the
good! are deli%ered( a ac.o&ledgmet that they ha%e bee
deli%ered( if !$ch !igat$re i! re'$e!ted by the
&areho$!ema.
) ca!e the &areho$!ema ref$!e! or fail! to deli%er the
good! i compliace &ith a demad by the holder or depo!itor !o
accompaied( the b$rde !hall be $po the &areho$!ema to
e!tabli!h the e#i!tece of a la&f$l e#c$!e for !$ch ref$!al. >/ec. 8(
-R7?
I, he &+o1e &)e /o #)ese/@ he/ he w&)eho!se $o!'*
'eA&''( )e,!se o .&Be *e'%1e)(- These &)e he *e,e/ses &
w&)eho!se.&/ $o!'* !se o E!s%,( h%s RE5USA2 o *e'%1e)-
b. 4!s%,%$&%o/ o, w&)eho!se.&/ %/ .&B%/A
*e'%1e)(- A &areho$!ema i! C$!tified i deli%erig the good! to oe
&ho i!;
1? The per!o la&f$lly etitled to the po!!e!!io of
the good!( or hi! agetK
2? A per!o &ho i! either him!elf etitled to deli%ery
by the term! of the o,egotiable receipt i!!$ed for the
7
good!( or &ho ha! &ritte a$thority from the per!o !o
etitled either idor!ed $po the receipt or &ritte $po
aother paperK or
3? A per!o i po!!e!!io of a egotiable receipt by
the term! of &hich the good! are deli%erable to him or order(
or to the bearer( or &hich ha! bee idor!ed to him or i bla.
by the per!o to &hom deli%ery &a! promi!ed by the term! of
the receipt or by hi! mediate or immediate idor!er. >/ec. 8(
-R7?
The &+o1e .&( +e !se* +( he w&)eho!se.&/ o
*e,e/* h%.se', WH6 HE DE2IVERED-
c. W&)eho!se '%&+'e ,o) $o/1e)s%o/ if he deli%er!
&itho$t a %alid idor!emet the good! co%ered by a egotiable
&areho$!e receipt deli%erable to the depo!itor or hi! order.
d. I/s&/$es whe)e '%&+'e ,o) $o/1e)s%o/ e1e/
w%h %/*o)se.e/ o) &!ho)%(" The &areho$!ema i! al!o liable
e%e &ith idor!emet or &ith a$thority ( he i! li.e&i!e liable( if prior
to deli%ery he had either;
1? bee re'$e!ted( by or o behalf of the
per!o la&f$lly etitled to a right of property or
po!!e!!io i the good!( ot to ma.e !$ch deli%eryK
or
2? Gad iformatio that the deli%ery abo$t to
be made &a! to oe ot la&f$lly etitled to the
po!!e!!io of the good!. >/ec. 10( -R7?
=- 0o guarantee the payment of a loan obtained
from a ban" Raoul pledged ()) bales of tobacco
deposited in a 3arehouse to said ban" and endorsed in
blan" the 3arehouse receipt $efore Raoul could pay for
the loan# the tobacco disappeared from the 3arehouse
Who should bear the loss H the pledgor or the
ban" ? Why ?
/@DDE/TED A"/-ER; The pledgor !ho$ld bear the
lo!!.
-here a &areho$!e receipt i! pledged( the o&er!hip
of the good! remai! &ith the depo!itor or hi! tra!feree. Ay
cotract or real !ec$rity( !$ch a! a pledge( doe! ot re!$lt to
a a!!$mptio of ri!. of lo!! by the creditor..
>- Albert purchased from &ammy <() cavans of
palay on credit Albert deposited the palay in William8s
3arehouse William issued to Albert a negotiable
3arehouse receipt in the name of Albert 0hereafter# Albert
negotiated the receipt to $aldo 3ho purchased the said
receipt for value and in good faith
<? Who has a better right to the deposit# &ammy#
the unpaid vendor# or $aldo# the purchaser of the receipt
for value and in good faith ? Why ?
'? When can the 3arehouseman be obliged to
deliver the palay to Albert ?
/@DDE/TED A"/-ER;
1? 4aldo( the p$rcha!er of the receipt. A! the per!o i
po!!e!!io of a egotiable receipt( by rea!o of Albert3!
egotiatio( 4aldo3! right i! !$perior to that of /ammy &ho i!
ot i a po!!e!!io to pre!et ay egotiable receipt to eable
the &areho$!ema to effect deli%ery.
2? The &areho$!ema ca be obliged to deli%er the
palay to Albert( if 4aldo idor!e! the receipt bac. to him. /ice
Albert i! agai the holder( he co$ld $po !$rreder of the
receipt( demad deli%ery of the palay.
?- A deposited goods 3ith $C Warehouse
Corporation 3hich issued the corresponding 3arehouse
receipt to the order of A A endorsed the 3arehouse
receipt to D 3ho paid for the value of the goods deposited
$efore D could 3ithdra3 the goods# 4 informed $C
Warehouse Corporation that the goods belonged to him
and 3ere ta"en by A 3ithout his consent 4 3ants to get
the goods but D also 3ants to 3ithdra3 the goods
Who has a better right to the goods ? Why ?
/@DDE/TED A"/-ER; D ha! a better right to the
good! beca$!e he i! the holder of the egotiable &areho$!e
receipt &hich &a! d$ly edor!ed for %al$e to him by A the
per!o &ho!e ame appear! o the receipt.
<- &amantha stored hard3are materials in a
bonded 3arehouse of Warren# a licensed 3arehouseman
under the Ieneral $onded Warehouse 1a3 >Act GJ=G# as
amended? Warren issued the corresponding 3arehouse
receipt in the form he ordinarily uses for such purpose in
the course of his business All the essential terms
re9uired under &ection ' of the Warehouse Receipts 1a3
>Act '<G+# as amended? are embodied in the form !n
8
addition# the receipt issued to &amantha contains a
stipulation that Warren 3ould not responsible for the loss
of all or any portion of the hard3are materials covered by
the receipt even if such loss is caused by the negligence
of Warren or his representatives or employees &amantha
endorsed and negotiated the 3arehouse receipt to $ritney#
3ho demanded delivery of the goods Warren could not
deliver because the goods 3ere no3here to be found in
his 3arehouse .e claims that he is not liable because of
the freeKfromKliability clause stipulated in the receipt Do
you agree 3ith Warren8s contention ? 47plain
/@DDE/TED A"/-ER; "o. The 2free,from,liability5
cla$!e i! %oid. The la& re'$ire! the &areho$!ema to
e#erci!e d$e diligece i the care ad c$!tody of the thig!
depo!ited i hi! &areho$!e.
9%%%; P)es%*e/%&' De$)ee ::? o/ T)!s
Re$e%#s
:- .erminio opened a letter of credit 3ith the
$an" of 2hilippine !slands for the importation of certain
e9uipment .e failed to pay and also failed to deliver the
e9uipment despite demand .e no3 assails the
constitutionality of 2D Ao <<(# the 0rust Receipts 1a3 on
the ground that it constitutions imprisonment for nonK
payment of a debt Rule on his contention
/@DDE/TED A"/-ER; *otetio i! bereft of merit.
P.D. "o. 111( i! a declaratio by the legi!lati%e a$thority to
ma.e the act p$i!hable $der it! a$thority to pre!cribe certai
act! a! pericio$! ad iimical to p$blic &elfare $der the
e#erci!e of police po&er. >Tiomico v. Court of Appeals, et al., D.R.
"o. 122138( 6arch J( 1888?
"BTE/ A"D *B66E"T/;
a. T)!s )e$e%#@ *e,%/e*- A tr$!t receipt i! co!idered
a! a !ec$rity tra!actio iteded to aid i fiacig importer! ad
retail dealer! &ho do ot ha%e !$fficiet f$d! or re!o$rce! to fiace
the importatio or p$rcha!e of merchadi!e &ho may ot be able to
ac'$ire credit e#cept thro$gh $tili+atio( a! collateral( of the
merchadi!e imported or p$rcha!ed. The good! are held a! !ec$rity
by the ledig i!tit$tio for the loa obligatio. >"ac$ %!. *o$rt of
Appeal!( et al.( D.R. 108938( 6arch 11( 188J?
A'e)/&%1e *e,%/%%o/" A tr$!t receipt i! a doc$met i
&hich i! e#pre!!ed a !ec$rity tra!actio &here$der the leder(
ha%ig o prior title to the good! o &hich the loa i! to be gi%e ad
ot ha%ig po!!e!!io &hich remai! i the borro&er( led! hi!
moey to the borro&er o !ec$rity of the good! &hich the borro&er i!
pri%ileged to !ell clear of the lie &ith a agreemet to pay all or part
of the proceed! of the !ale to the leder. )t i! a !ec$rity agreemet
p$r!$at to &hich a ba. ac'$ire! a 2!ec$rity itere!t5 i the good!. )t
!ec$re! a idebtede!! ad there ca be o !$ch thig a! !ec$rity
itere!t that !ec$re! o obligatio. >*hig %. *o$rt of Appeal!( et al.(
D.R. "o. 1108JJ( April 27( 2000?
b. N&!)e o, & )!s )e$e%#- A tr$!t receipt parta.e! of
the at$re of a !ec$rity tra!actio. )t co$ld e%er be a mere
additioal or !ide doc$met. Bther&i!e( a party to a tr$!t receipt
agreemet co$ld ea!ily reege o it! obligatio there$der(
$dermiig the importace ad defeatig &ith imp$ity the p$rpo!e
of !$ch a idi!pe!able tool i commercial tra!actio!. >*hig %.
*o$rt of Appeal!( et al.( D.R. "o. 1108JJ( April 27( 2000?
c. P!)#ose o, T)!s Re$e%#s 2&w- )t p$i!he!
di!hoe!ty ad ab$!e of cofidece i the hadlig of moey or
good! to the preC$dice of p$blic order. >Bg %. *o$rt of Appeal!( et
al.( D. R. "o. 118818( April 28( 2003?
d. A$s &/* o.%ss%o/s #e/&'%Fe*- The Tr$!t Receipt!
7a& i! %iolated &hee%er the etr$!tee fail! to;
1? t$r o%er the proceed! of the !ale( or 2?
ret$r the good! co%ered by the tr$!t receipt if the good! are
ot !old. >Bg %. *o$rt of Appeal!( et al.( D. R. "o. 118818(
April 28( 2003? Ret$rig the good! re!$lt! to ab!ece of
crimial liability b$t the etr$!tee i! !till liable for the balace
of &hat he o&e! the etr$!ter.
e. V%o'&%o/ o, T)!s Re$e%#s 2&w %s $)%.%/&' %/
$h&)&$e)- Ret$r of the good! if $!old merely e#tig$i!he! the
etr$!tee3! crimial liability. Ge i! !till ci%illy liable for the $paid loa.
>Vitola %. )4AA( 118 /*RA 1J0?
The mere fail$re to acco$t or ret$r gi%e! ri!e to the crime
&hich i! malum prohibitum. There i! o re'$iremet to pro%e itet to
defra$d. >Bg %. *o$rt of Appeal!( et al.( D. R. "o. 118818( April 28(
2003?
f. T)!ss )e$e%#s &/* *o.es%$ 'ee)s o, $)e*% &)e
$o/)&$s o, &*hes%o/ &/* &/( &.+%A!%%es .!s +e he'*
s)%$'( &A&%/s he +&/B- >/ec$rity 4a. L Tr$!t *ompay %.
*o$rt of Appeal!( et al.( D.R. "o. 111887( "o%ember 27( 2000?
g. Pe)so/s $)%.%/&''( '%&+'e ,o) 1%o'&%o/ %/ $&se o,
$o)#o)&%o/s@ are the officer! or employer! or other per!o!
9
re!po!ible for the offe!e are liable to !$ffer the pealty of
impri!omet.
2- Who is an entrustee for purposes of the
0rust Receipts 1a3 ?
/@DDE/TED A"/-ER; A etr$!tee i! oe ha%ig or
ta.ig po!!e!!io of good!( doc$met! or i!tr$met! $der a
tr$!t receipt tra!actio( ad ay !$cce!!or i itere!t of !$ch
per!o for the p$rpo!e of paymet !pecified i the tr$!t receipt
agreemet. MChin% v. ecretar" of )ustice, et al., D. R. "o. 19J317(
:ebr$ary 9( 2009 citig /ec. 3 >b? of P.D. "o. 111N
=- What are the obligations of an entrustee ?
/@DDE/TED A"/-ER; The etr$!tee i! obliged to;
a. hold the good!( doc$met! or i!tr$met! i
tr$!t for the etr$!ter ad !hall di!po!e of them !trictly i
accordace &ith the term! ad coditio! of the tr$!t receiptK
b. recei%e the proceed! i tr$!t for the etr$!ter
ad t$r o%er the !ame to rthe etr$!ter or a! appear! tr$!t
receiptK
c. i!$re the good! the good! for their total %al$e
agai!t lo!! from fire( theft( pilferage or other ca!$altie!K
d. .eep !aid good! or proceed! thereof &hether i
moey or &hate%er form( !eparate ad capable of idetificatio
a! property of the etr$!terK
e. ret$r the good!( doc$met! or i!tr$met! i
the e%et of o,!ale or $po demad of the etr$!terK ad
f. ob!er%e all other term! ad coditio! of the
tr$!t receipt ot cotrary to the Tr$!t Receipt! 7a&. >Chin% v.
ecretar" of )ustice, et al., D. R. "o. 19J317( :ebr$ary 9(
2009 citig /ec. 8 of P.D. "o. 111?
92; NeAo%&+'e I/s)!.e/s 2&w 9A$ No-
20=:;
:- What is a negotiable instrument ?
/@DDE/TED A"/-ER; A egotiable i!tr$met i! a
&ritte cotract !iged by the ma.er or dra&er &hich cotai!
a $coditioal promi!e or order to pay a !$m certai i
moey to order or to bearer &hich by it! form ad face i!
iteded a! a !$b!tit$te for moey ad pa!!e! from oe had
to aother a! moey( !o a! to gi%e a holder i d$e co$r!e the
right to hold the i!tr$met ad collect the !$m for him!elf.
2- Iive the characteristics of a negotiable
instrument
/@DDE/TED A"/-ER; The characteri!tic! of a
egotiable i!tr$met are;
a. "egotiability. The ability of the i!tr$met to be
tra!ferred from oe had to aother( ad for the holder to
ha%e the right to hold the i!tr$met ad to collect the !$m
certai i moey.
b. Acc$m$latio of !ecodary cotract!. A! the
i!tr$met i! tra!ferred from oe had to aother( cotract!
are etered ito bet&ee tho!e &ho are partie! to each
tra!fer idepedetly of the cotract bet&ee the pre%io$!
ad !$b!e'$et partie!.
"BTE/ A"D *B66E"T/;
a. Ch&)&$e)%s%$s o, /eAo%&+'e #&#e)- The lag$age
of egotiability &hich characteri+e! egotiable paper a! a credit
i!tr$met i! it! freedom to circ$late a! a !$b!tit$te for moey.
>Traders Ro"al Bank v. Court of Appeals, 298 /*RA 11?
=- Distinguish a negotiable document from a
negotiable instrument
/@DDE/TED A"/-ER;
a. /$bCect matter of a egotiable doc$met i! good!
&hile that of a egotiable i!tr$met i! moey.
b. Partie! prior to the holder of a egotiable doc$met
may ot beheld liable &hile the e!!ece of a egotiable i that
liability attache! to prior partie!.
c. There i! eed for otice! of di!hoor i
egotiable i!tr$met to hold prior partie! liable &hile there i!
o cocept of otice! of di!hoor i egotiable doc$met!.
>- What are the re9uisites of a negotiable
instrument ?
/@DDE/TED A"/-ER; A i!tr$met to be
egotiable m$!t coform to the follo&ig re'$iremet!;
a. )t m$!t be i &ritig ad !iged by the ma.er or
dra&erK
10
b. )t m$!t cotai a $coditioal promi!e or order to
pay a !$m certai i moeyK
c. )t m$!t be payable to order to bearerK
d. -here the i!tr$met i! addre!!ed to a dra&ee( he
m$!t be amed or other&i!e idicated therei &ith rea!oable
certaity. >/ec. 1( ".).7.?
ANA26TICA2 STEPS 5OR SO2VIN3 PROB2EMS
INVO2VIN3 NE3OTIABI2IT6 O5 INSTRUMENTS- "BTE;
Th%s &)e& %s o/e o, he .os #o#!'&) &)e&s !/*e)
NeAo%&+'e I/s)!.e/s 2&w- The +&) $&/*%*&e sho!'*
.&se) he &/&'(%$&' se#s"
a. 2ooB ,o) he !AT*+
1) )f *&e*. The date i! prima facie the tr$e date
of the i!tr$met. "egotiability i! ot affected.
2) )f &/e-*&e* o) #os-*&e*. "egotiability ot
affected @"7E// ate,dated or po!t,dated for
fra$d$let p$rpo!e.
3) No *&e. "egotiable character ot affected.
4) )f o date( tr$e date may be i!erted.
a? )f i!tr$met payable at fi#ed period after
date
>1? -rog date i! i!erted
>a? "o effect o i!tr$met( if holder i
d$e co$r!e
>b? )!tr$met i%alid( if ot holder i d$e
co$r!e
b. 2ooB ,o) I,NAT-R* of ma.er >P"? or dra&er >4E?.
1? )f o !igat$re( ot egotiable.
2? )f !iged( egotiable.
c. 2ooB ,o) -NC.N!ITI.NA' PR./I* 9PN; or
-NC.N!ITI.NA' .R!*R 9BE;- )f pre!et( egotiable
1? *oditioal ad ot egotiable( if promi!e or
order deped! $po;
a? A f$t$re e%et &hich may or may ot happe
b? A pa!t e%et $.o& to the partie!
2? *oditioal ad ot egotiable if promi!e or
order to pay o$t of a partic$lar f$d. E#ample;
OPay 4 or order P10(000.00 o$t of my moey i
yo$r had!.O "ot egotiable beca$!e it i!
coditioal beig payable o$t of a partic$lar
f$d ad o other.
3? @coditioal ad egotiable e%e if idicate! a
partic$lar f$d o$t of &hich reimb$r!emet i! to
be made or partic$lar acco$t to be debited.
E#ample; OPay 4 or order P10(000.00 ad
reimb$r!e yo$r!elf o$t of my moey i yo$r
had!.O "egotiable beca$!e there i! o
coditio a! to !o$rce of f$d! oly &ith re!pect
to reimb$r!emet &hich occ$r! after the
i!tr$met i! paid.
J? @coditioal ad egotiable if depedet $po
a f$t$re e%et &hich i! certai to happe e%e if
time of happeig i! ot .o&.
1? @coditioal ad egotiable e%e if !tatemet
of the tra!actio i! gi%e. E#ample; O) promi!e
to pay 4 or order P1(000(000.00 i paymet of
the ho$!e ) bo$ght from him o 6arch 17(
2001.O
9? *oditioal ad ot egotiable beca$!e
'$alified. E#ample; O) promi!e to pay 4 or
order P1(000( 000.00 !$bCect to the term! ad
coditio! of the 6arch 17( 2001 Deed of /ale
for the !ale of hi! ho$!e.O
d. Is he s!. C*RTAIN IN /.N*0 P )f !o( egotiable
1? "ot egotiable( if ot i moey. E#ample; O)
promi!e to pay 4 or order the e'$i%alet of
P10(000.00 i carabao!.O
2? "egotiable e%e if holder ha! electio re'$ire
!omethig to be doe i lie$ of moey.
E#ample; OTo *; Pay to 4 or order P10(000.00
or 10 ca%a! of rice at the optio of the
holder.O
3? )f at the optio of the dra&er( ot egotiable
beca$!e it i! coditioal.
e. Is he %/s)!.e/ #&(&+'e .N !*/AN! o) AT A
#I1*! .R !*T*R/INAB'* #-T-R* TI/* P )f !o(
egotiable.
1? )f ot( ot egotiable.
2? "ot egotiable( if payable o cotigecy.
Gappeig of the e%et doe! ot c$re the
11
defect. E#ample; OPay to 4 or order
P100(000.00( t&o >2? day! after he pa!!e! the
4ar.O "egotiable;
3? Payable o demad ad egotiable &he
e#pre!!ed to be payable o demad( at !ight or
pre!etatio( o time for paymet i! e#pre!!ed
o the i!tr$met( or &he the i!tr$met i!
o%erd$e.
J? Payable at a determiable f$t$re time ad
egotiable if payable at a fi#ed period after date
or !ight( o or before a fi#ed or determiable
f$t$re time !pecified therei( or o or before a
fi#ed period after occ$rrece of a certai e%et
tho$gh happeig be $certai.
f. Is he %/s)!.e/ #&(&+'e T. .R!*R o) B*AR*R
P )f !o( the egotiable. )f ot( ot egotiable.
g. I, he %/s)!.e/ %s &**)esse* o & *)&wee@ %s he
/&.e* o) ohe)w%se %/*%$&e* o/ he %/s)!.e/ w%h
)e&so/&+'e $e)&%/( G )f !o egotiable. )f ot( ot
egotiable.
?- Mi"y brought a motor car payable in
installments from Autocars# !nc for 2(()#))))) .e made
a do3n payment of 2()#))))) and e7ecuted a promissory
note for the balance 0he company subse9uently indorsed
the note to California ,inance Corporation 3hich financed
the purchase 0he promissory note readsL
5,or value received# ! promise to pay
Autocars# !nc or order at its office in Ma"ati City#
the sum of 2())#))))) 3ith interest at t3elve
percent ><'E? per annum# payable in e9ual
installments of 2()#))))) monthly for ten ><)?
months starting -ctober '<# '))(
Manila# &eptember '<# '))(
>&gd? Mi"y
2ay to the order of California ,inance Corp

Autocars# !nc
$yL
>&gd? Manager
$ecause Mi"y defaulted in the payment of his
installments# California ,inance Corporation initiated a
case against her for sum of money Mi"y argued that the
promissory note is merely an assignment of credit# a nonK
negotiable instrument open to all defenses available to the
assignor and# therefore# California ,inance Corporation is
not a holder in due course
a? !s the promissory note a mere assignment of
credit or a negotiable instrument ? Why ?
b? !s the California ,inance Corporation a holder in
due course ? 47plain briefly
/@DDE/TED A"/-ER;
a? The promi!!ory ote i! a egotiable i!tr$met
beca$!e it coform! to the re'$iremet! of a egotiable
i!tr$met. )t i! i &ritig !iged by the ma.er 6i.y( it cotai!
a $coditioal promi!e to pay a !$m certai i moey at a
fi#ed or determiable f$t$re time. The !$m i! a !$m certai
altho$gh it i! payable i i!tallmet! &ith itere!t.
b? *aliforia :iace *orporatio i! a holder i d$e
co$r!e beca$!e it too. the i!tr$met complete ad reg$lar
$po it! face( that it i! ot o%erd$e ad &itho$t otice that it
had bee pre%io$!ly di!hoored( that it too. the i!tr$met i
good faith ad for %al$e( ad that it had o otice of ay
ifirmity i the i!tr$met or defect i A$tocar!( )c.3! title.
<- Discuss the negotiability or nonKnegotiability
of the follo3ing notesL
Manila# &eptember <# '))(
2'#())))
12
! promise to pay 2edro &an @uan or order the
sum of 2'#())))
>&gd? A-41 CA&0R-
/@DDE/TED A"/-ER; )t i! egotiable beca$!e it i!
i &ritig !iged by the ma.er( "oel *a!tro( it cotai! a
$coditioal promi!e to pay a !$m P2(100.00 &hich i! a !$m
certai i moey( it i! payable o demad a! o date of
mat$rity i! !ho&( ad it i! payable to order.

Manila# @une G# '))(
2<)#)))))
,or value received# ! promise to pay &ergio
Dee or order the sum of 2<)#))))) in five >(?
installments# 3ith the first installment payable on
-ctober (# '))( and the other installments on or
before the fifth day of the succeeding month
thereafter
>&gd?
1!0- %!11A
/@DDE/TED A"/-ER; The promi!!ory ote i!
egotiable. )t i! i &ritig ad !iged by the ma.er 7ito Villa. )t
cotai! a $coditioal promi!e to pay /ergio Dee or order(
a !$m certai i moey >altho$gh to be paid i i!tallmet!?( at
a fi#ed ad determiable f$t$re time &ithi fi%e >1? moth! from
Bctober 1( 2003.
7- &tate and e7plain 3hether the follo3ing are
negotiable instruments under the Aegotiable !nstruments
1a3L
>i? 2ostal Money -rderM
>ii? A certificate of time deposit 3hich states
50his is to certify that bearer has deposited in this ban"
the sum of ,-:R 0.-:&AAD 24&-& >2N#)))))? only#
repayable to the depositor ')) days after date6
>iii? 1etters of creditM
>iv? Warehouse receiptsM
>v? 0reasury 3arrants payable from a specific
fund
/@DDE/TED A"/-ER; The !$bCect of po!tal moey
order( a certificate of time depo!it ad letter! of credit i! moey
b$t they are ot egotiable i!tr$met! beca$!e they do ot
bear the &ord! of egotiability 2to order(5 or 2to bearer.5 -hile it
i! tr$e( that &areho$!e receipt! may be egotiable b$t their
!$bCect i! good! ad ot moey. Th$!( they are ot egotiable
i!tr$met!. :ially( trea!$ry &arrat! are ot egotiable
i!tr$met! beca$!e they are coditioal i character( beig
payable o$t of a !pecific f$d.
D- Can a bill of e7change or a promissory note
9ualify as a negotiable instrument ifL
>a? it is not datedM or
>b? the day and the month# but not the year of its
maturity# is givenM or
>c? it is not payable to 5cash6M or
>d? it names t3o alternative dra3ees ?
/@DDE/TED A"/-ER;
>a? <e!. The lac. of a date doe! ot impair the
egotiability of a i!tr$met. )f there i! o date( the tr$e date
may be i!erted.
>b? "o. The i!tr$met i! ot payable at a fi#ed or
determiable f$t$re time.
>c? <e!. The i!tr$met i! payable to bearer beca$!e
the ame of the payee doe! ot p$rport to be the ame of ay
per!o.
>d? "o. The order i! coditioal if addre!!ed to t&o or
more dra&ee! i the alterati%e or i !$cce!!io.
SUMMAR6 O5 VARIOUS SITUATIONS
INVO2VIN3 NE3OTIAB2E INSTRUMENTS- Aother area
that the reader !ho$ld ma!ter; )f the re%ie&ee &o$ld be able to
!ol%e all of the follo&ig problem!( he &o$ld be able to a!&er
ay '$e!tio gi%e &ith re!pect to irreg$lar i!tr$met!.
SUMMAR6 O5 SITUATIONS
a. )complete i!tr$met
1? Deli%ered
13
a? -ith forgery ad alteratio
b? -itho$t forgery ad alteratio
2? "ot deli%ered
a? -ith forgery ad alteratio
b? -itho$t forgery ad alteratio
b. *omplete i!tr$met
1? Deli%ered
a? -ith forgery ad alteratio
b? -itho$t forgery ad alteratio
2? "ot deli%ered
a? -ith forgery ad alteratio
b? -itho$t forgery ad alteratio
INCOMP2ETE INSTRUMENT BUT DE2IVERED-
a. Golder ha! prima facie a$thority to fill $p bla.!
1? /igat$re o bla. paper deli%ered by
!igatory &ith itetio of ma.ig it a
egotiable i!tr$met( prima facie a$thority
to fill it $p for ay amo$t.
2? Party prior to completio bo$d if filled $p
a? ) accordace &ith a$thority
b? -ithi rea!oable time
b. )rre!pecti%e of compliace &ith o. 2? abo%e prior
partie! !till bo$d b$t oly to holder i d$e co$r!e.
c. The r$le! apply &hether the i!tr$met i! a
promi!!ory ote or bill of e#chage( &hether
payable to bearer or order.
I22USTRATIVE PROB2EMS" INCOMP2ETE
B-T DE2IVERED INSTRUMENTS-
C- Meg issued a negotiable promissory note to
1eon authorizing 1eon to fill up the amount in blan" up to
2<)#))))) 1eon ho3ever# filled it up to 2'(#)))))
Could 1eon collect 2'(#))))) from Meg ?
/@DDE/TED A"/-ER; "o( beca$!e the i!tr$met
&a! ot !trictly filled $p i accordace &ith the a$thority gi%e.
&upposing in the above problem# 1eon negotiated
the instrument to Mara 3ho "no3s that MegOs instructions
3as for 1eon to fill it up to 2<)#))))) only Could Mara
collect 2'(#))))) from Meg ?
/@DDE/TED A"/-ER; "o( beca$!e 6ara i! ot a
holder i d$e co$r!e. /he .e& of the i!tr$metQ! ifirmity
&he the i!tr$met &a! egotiated to her. 6eg co$ld
iterpo!e the per!oal defe!e of &at of a$thority.
&upposing further# in the above problem# that Mara
did not "no3 of the lac" of authority# may Mara collect the
2'(#))))) from Meg ?
/@DDE/TED A"/-ER; <e!( beca$!e 6ara i! a
holder i d$e co$r!e( !he ot beig a&are of ay ifirmity i
the i!tr$met at the time !he too. it. /he may th$! eforce it
a! if it had bee filled $p !trictly i accordace &ith the
a$thority gi%e ad &ithi a rea!oable time. There i! li.e&i!e
cocl$!i%e pre!$mptio of deli%ery.
:0- Ana a very busy businessperson does not
have time to sign chec"s one by one &o# she signs
several chec"s in blan" and instructs $eth# her personal
assistant# to safe"eep the chec"s and fill them out 3hen
and as re9uired to pay her accounts as they fall due $eth
fills out one of the chec"s by placing her name as payee#
fills in the amount of 2()#)))))# endorses and delivers
the chec" to Carlos 3ho accepts it in good faith as
payment for goods sold to $eth Ana learns of the
dishonesty foisted upon her by $eth Ana 3as able to
instruct the $an" in time to dishonor the chec" When
Carlos encashes the chec"# it is dishonored
Can Carlos hold Ana liable for the 2()#))))) value
of the chec" ? 47plain briefly
/@DDE/TED A"/-ER; <e!( a!!$mig that the
*arlo! ga%e otice of di!hoor to Aa. Thi! i! a ca!e of a
icomplete i!tr$met b$t deli%ered a! it &a! etr$!ted to
4eth( Aa3! per!oal a!!i!tat. Thi! i! !o beca$!e *arlo! i! a
holder i d$e co$r!e &ho doe! ot ha%e ay .o&ledge of the
e#tet of a$thority gi%e to 4eth( that the chec. i! for the
paymet! of Aa3! acco$t oly.
6oreo%er $der the doctrie of comparati%e
egligece( a! bet&ee Aa ad *arlo!( both iocet partie!(
it &a! the egligece of Aa i etr$!tig the chec. to 4eth
&hich i! the pro#imate ca$!e of the lo!!.
INCOMP2ETE INSTRUMENT N.T DE2IVERED-
14
a. *ompleted ad deli%ered w%h a$thority( %alid.
b. *ompleted ad deli%ered w%ho! a$thority
1? Valid agai!t party &ho!e !igat$re &a!
placed &,e) deli%ery li.e idor!er. Rea!o;
)dor!er &arrat! the i!tr$met i! i all
re!pect &hat it p$rport! to be.
2? "ot %alid agai!t party &ho!e !igat$re &a!
placed +e,o)e deli%ery( if ot a holder i d$e
co$r!e. Rea!o; Deli%ery i! e!!etial to
%alidity. Go&e%er( &ith re!pect to a holder i
d$e co$r!e( there i! prima facie pre!$mptio
of deli%ery &hich may be reb$tted.
c. R$le! apply &hether
1? Promi!!ory ote or bill of e#chage
2? Payable to bearer or order
3? -ith or &itho$t forgery ad material
alteratio.
I22USTRATIVE PROB2EMS" INCOMP2ETE
N.T DE2IVERED INSTRUMENT-
::- 2ocholo signed a blan" chec" and "ept it in
his safe 0his 3as stolen by 4d3in 3ho filled in the
amount and placed a fictitious person as payee signed the
name of the payee and indorsed the same to 2aolo# 2aolo
to 2atric"# 2atric" to &ally# &ally to @eddah# @eddah to
Rhia All of the subse9uent indorsers as 3ell as the holder
3ere all holders in due course
May Rhia proceed against 2ocholo in case of
dishonor by the dra3ee ban" ?
/@DDE/TED A"/-ER; "o( beca$!e there &a! o
%alid deli%ery &hich i! e!!etial to the %alidity of the i!tr$met.
:nder the same set of facts# if 2ocholo as 3ell as
the dra3ee ban" dishonors the chec"# may Rhia proceed
against @eddah ?
/@DDE/TED A"/-ER; <e!( beca$!e Ieddah a! a
idor!er &arrat! that the i!tr$met i! &hat it p$rport! to be
ad if it i! di!hoored ad ece!!ary proceedig! for di!hoor
ta.e( !he !hall pay the holder( Rhia.
:nder the same set of facts# in case of dishonor by
the dra3ee ban" andCor 2ocholo and the other indorsers#
is 4d3in liable ?
/@DDE/TED A"/-ER; <e!( beca$!e he &a!
re!po!ible for the theft( the fillig $p ad !$b!e'$et
egotiatio of the i!tr$met.
&upposing under the same set of facts# that the
dra3ee ban" upon presentation by Rhia encashed the
chec" and 2ocholo no3 sues the ban"# 3hat defenses
may the dra3ee ban" raise against 2ocholo ?
/@DDE/TED A"/-ER;
a. Rhia i! a holder i d$e co$r!e( therefore there i! a
prima facie !ho&ig of deli%ery &hich Pocholo m$!t o& reb$t
&ith proof of o,deli%ery.
b. "egligece o PocholoQ! part &hich re!$lted i the
lo!! of the chec..
c. Dood faith o the part of the ba.. )tQ! obligatio i!
to deli%er o a ge$ie !igat$re of Pocholo. )t i! ot obligated
to .o& the !igat$re of the payee a! i thi! ca!e( the payee
did ot eca!h the chec.( hece o &ay of idetifyig.
d. A! bet&ee t&o iocet partie!( the oe &ho made
po!!ible the lo!! !ho$ld be liable. Gere Pocholo made
po!!ible the lo!! a! he !iged the bla. chec. .o&ig f$lly
&ell that if !tole( it co$ld be egotiated. :$rthermore( Pocholo
!ho$ld ha%e immediately ad%i!ed the ba. to !top paymet.
e. @der the abo%e problem( if the icomplete chec.
&a! deli%ered by Pocholo to Ed&i for !afe.eepig( there i!
%alid deli%ery.
"BTE; The reader !ho$ld !ol%e the problem a! if there
i! a icomplete b$t deli%ered i!tr$met(
:2- Rochelle left her friend and classmate 1ora
inside her car 1ora stole a blan" chec" 3hich she found
in RochelleOs car# forged RochelleOs signature and
encashed the same 3ith the :nion $an" >the dra3eeK
depository? !s the ban" liable despite allegations that
Rochelle 3as negligent ?
/@DDE/TEDA"/-ER; <e!. Rea!o!;
a. @der the circ$m!tace!( Rochelle co$ld ot be
co!idered egliget a! !he co$ld ot ha%e e#pected that 7ora
15
&o$ld remo%e a chec. from her chec.boo.. Ge had o rea!o
to !$!pect that a cla!!mate ad fried &o$ld breach her tr$!t.
b. A ba. i! bo$d to .o& the !igat$re! of it! cliet!
ad if it pay! o a forged chec.( it i! co!idered a! ha%ig paid
o$t of it! o& f$d!.
COMP2ETE AND DE2IVERED INSTRUMENT-
a. -itho$t forgery ad alteratio( all partie! bo$d.
b. -ith forged idor!emet adFor alteratio
1? Brder i!tr$met!
a? Brder promi!!ory ote
>1? Prior partie! /o bo$d. Rea!o;
:orged !igat$re &holly ioperati%e
$le!! e!toppel !et! i( the prior
partie! bo$d.
>2? /$b!e'$et partie! bo$d. Rea!o;
4o$d o &arratie! of idor!er! $le!!
other&i!e !pecified
>a? -hether or ot holder i d$e co$r!e
>b? Bly forged !igat$re i! ioperati%e
b? Brder bill of e#chage
>1? Dra&ee caot charge dra&erQ!
acco$t
>a? )f charged dra&er ha! right to
reco%er
>2? Dra&er ha! o right agai!t collectig
ba.
>3? Dra&ee ca reco%er from collectig
ba.
>J? *ollectig ba. bear! lo!!
>a? *a reco%er from per!o it paid
>1? Payee ca reco%er from
>a? Dra&er
>b? *ollectig ba.
>c? Payee caot reco%er from dra&ee
>9? Dra&er ot liable to the collectig ba.
2? 4earer i!tr$met!
a? 4earer promi!!ory ote
>1? Prior partie! liable
>2? :orged !igatory ot liable to party ot
holder i d$e co$r!e
b? 4earer bill of e#chage
>1? Dra&ee ba. liable
I22USTRATIVE PROB2EM" RI3HTS O5
PARTIES IN #.R,*! INDORSEMENT O5
PROMISSOR6 N.T* PA0AB'* T. .R!*R-
:=- Dennis ma"es a promissory note payable to
the order of Kay# 3ho indorses it to Mic"y &omeho3#
,reddie obtains possession of the note and forging the
signature of Mic"y endorses it to Angelo 3ho then
indorses it to $ea &tate the rights and liabilities of the
parties
/@DDE/TED A"/-ER; 6ic.y &ho!e idor!emet i!
forged ad the partie! prior to him icl$dig the ma.er( Dei!
ad the payee( Ray caot be held liable to the holder 4ea(
&hether or ot !he i! a holder i d$e co$r!e. Rea!o!;
a. A order ote ca be egotiated oly by
idor!emet completed by deli%ery. A forged idor!emet i!
&holly ioperati%e ad doe! ot tra!fer ay right!.
b. "o right to retai the ote( gi%e di!charge therefore(
or eforce paymet co$ld be ac'$ired $der a forged
idor!emet.
c. /ice the predece!!or of the holder obtaied the
ote by fra$d$let ad $la&f$l mea!( the there are o
right! that are tra!ferred.
d. Agelo i! liable to 4ea beca$!e of AgeloQ!
&arratie! a! a geeral idor!er that the i!tr$met i! &hat it
p$rport! to be ad that he !hall pay i ca!e of di!hoor.
I22USTRATIVE PROB2EM" RI3HTS O5
PARTIES IN #.R,*! INDORSEMENT O5 BI'' O5
EHCHAN3E PA6AB2E T. .R!*R.
:>- 0ina issued a chec" to Aellie or order as the
payee 3ith 4astern $an" as the dra3ee ,idel fraudulently
obtains the chec" and forges AellieOs signature ,idel then
deposits it in Daya $an" >Collecting $an"? Western $an"
indorses the chec" to 4astern $an" through the clearing
house ,idel then 3ithdra3s from Daya $an"# the
proceeds of the chec"
16
What are the rights of the parties ?
/@DDE/TED A"/-ER;
a. Dra&erQ! acco$t >TiaQQ!? caot be charged
>debited( ded$cted( !$btracted or red$ced? by the dra&ee
>Ea!ter 4a.?( for the amo$t paid( ad if her acco$t i!
charged( Tia ca reco%er from Ea!ter 4a..
Rea!o; The depo!itory >dra&ee Ea!ter 4a.? o&e!
to the depo!itor >dra&er Tia?( a ab!ol$te ad cotract$al
d$ty to pay the chec. oly to the per!o to &hom made
payable or $po hi! ge$ie idor!emet.
The dra&er a$thori+e! ad direct! the dra&ee to pay
oly to the payee or to the order of the payee ot to aother.
b. Dra&ee >Ea!ter 4a.Q!? defe!e!; Dra&er( Tia i!
precl$ded from rai!ig the defe!e of forgery d$e to e!toppel
o acco$t of egligece( for e#ample( if the payee "ellie
ad%i!ed Tia of the lo!!( b$t !he >Tia? did ot iform Ea!ter
4a..
c. Dra&er >Tia? ha! o right to reco%er from the
collectig ba. >Daya 4a.?. Rea!o!;
1? D$ty of collectig ba. to e#erci!e care i
collectig i! tr$e oly to the p$rported payee.
2? The dra&er doe! ot !$ffer ay damage
ca$!ed by the collectig ba. a! he ca reco%er from
the dra&ee ba. &hich ha! o right to charge the
dra&erQ! acco$t.
d. Dra&ee ba. >Ea!ter 4a.? ca reco%er from the
collectig ba. >Daya 4a.?.
Rea!o; /ice the chec. pa!!ed thro$gh the clearig
ho$!e( the collectig ba. >Daya 4a.? m$!t ha%e idor!ed
the chec. to the dra&ee ba. >Ea!ter 4a.?( therefore it i!
liable o a idor!erQ! &arraty of ge$iee!! ad liability to
pay i ca!e of di!hoor.
e. *ollectig ba. >Daya 4a.? bear! the lo!! b$t it
ca reco%er from the per!o to &hom it paid the chec.( :idel.
f. The payee >"ellie? ca !till reco%er from the
dra&er >Tia?. Rea!o; /he !till retaied her claim a! it &a!
ot e#tig$i!hed.
E#ceptio; The payee >"ellie? caot reco%er if the
chec. &a! impaired thro$gh her fa$lt.
g. The payee >"ellie? ca reco%er from the collectig
ba. >Daya 4a.?.
Rea!o; Po!!e!!io of the forged i!tr$met i!
$la&f$l ad moey collected i! held i tr$!t for rightf$l
o&er!. >"ote; Thi! i! o the a!!$mptio that( the dra&erQ!
acco$t &a! charged by the dra&ee ba.( other&i!e the
dra&er &o$ld be $C$!tly eriched?
h. The payee >"ellie? caot reco%er from the dra&ee
ba. >Ea!ter 4a.?. Rea!o; There i! o pri%ity of cotract.
i. Dra&er >Tia? i! ot liable to the collectig ba.
>Daya 4a.?. Rea!o; There i! o pri%ity of cotract bet&ee
Tia ad Daya 4a..
:?- -n @une <=# '))G# 0riumph 1umber Corporation
opened a current account deposit 3ith &ecurity $an" and
authorized 3ithdra3als on the basis of any of three
signatures of 0riumph8s president# treasurer and general
manager appearing on the specimen signature cards
-n March 'G# '))(# 0riumph discovered that the
door of its office 3as forced open# including that of the
filing cabinet 3here its savings account passboo"# chec"
boo"lets and other ban" documents 3ere "ept 0his 3as
not reported to the police# neither 3as &olid $an" advised
-n the same day of the burglary# 0riumph made three
separate deposits totaling 2G+N#((N<)# and immediately
after said deposits# three >G? 0riumph chec"s totaling
2G))#))))) 3ere successively presented to &olid $an"
for encashment 0hese 3ere given due course
follo3ing the standard ban" procedure for verification of
the chec" signatures and regularity of other particulars of
the said chec"
0riumph no3 claims that due to &olid $an"8s gross
and ine7cusable negligence in determining the forgery of
the dra3er8s signatures# the three chec"s 3hich 3ere all
dra3n against its current account 3ere encashed by
unauthorized persons !t then demanded that &olid $an"
credits bac" its account the value of the chec"s it claimed
3ere 3rongfully encashed Rebuffed in its demand#
0riumph sues &olid $an" Will the suit prosper ?
/@DDE/TED A"/-ER; "o. The lo!! re!$lted from
Tri$mph3! egligece. @der the abo%e circ$m!tace! a
pr$det ad rea!oable ma &o$ld ha%e goe o%er the chec.
boo.let! after the b$rglary ad ha%e di!co%ered that three
17
chec.! &ere mi!!ig. The ba. &o$ld ha%e bee the
immediately ad%i!ed. >/ec$rity 4a. L Tr$!t *ompay %. Tri$mph
7$mber ad *o!tr$ctio *orporatio( D.R. "o. 129989( Ia$ary 21(
1888?
NOTES A"D *B66E"T/; The abo%e cited ca!e &a!
decided a! !ho& abo%e beca$!e of Tri$mph3! fail$re to pro%e
forgery. )t i! the a$thor3! %ie& that had Tri$mph bee able to pro%e
forgery( the ba. &o$ld "BT ha%e bee liable a! !ho& by the
follo&ig di!c$!!io.
a. Che$Bs w%h ,o)Ae* %/*o)se.e/s sho!'* +e
*%,,e)e/%&e* ,)o. $he$Bs +e&)%/A ,o)Ae* s%A/&!)es o, he
*)&we)- >A!!ociated 4a. %. *o$rt of Appeal!( et al.( ad it!
compaio ca!e Philippie "atioal 4a. %. *o$rt of Appeal!( et al.(
212 /*RA 920?
b. E,,e$ o, ,o)Ae* s%A/&!)e- -he a !igat$re i!
forged or made &itho$t a$thority of the per!o &ho!e !igat$re it
p$rport! to be( % %s who''( %/o#e)&%1e@ ad o right to retai the
i!tr$met( or to gi%e a di!charge therefor( or to eforce paymet
agai!t ay party thereto( ca be ac'$ired thro$gh or $der !$ch
!igat$re !/'ess he #&)( &A&%/s who. % %s so!Ah o
e/,o)$e s!$h )%Ah i! precl$ded from !ettig $p the forgery or &at
of a$thority. >/ec. 23( "egotiable )!tr$met! 7a&?
/ec. 23 doe! ot a%oid the i!tr$met b$t oly the forged
!igat$re. Th$!( a forged idor!emet doe! ot operate a! the
payee3! idor!emet.
c. A #e)so/ .&( +e +o!/* !/*e) & ,o)Ae*
s%A/&!)e. if he i! precl$ded from !ettig $p the forgery or &at of
a$thority. Partie! &ho &arrat or admit the ge$iee!! of the
!igat$re i '$e!tio ad tho!e &ho( by their act!( !ilece or
egligece are e!topped from !ettig $p the defe!e of forgery are
precl$ded from $!ig thi! defe!e. )dor!er!( per!o! egotiatig by
deli%er ad acceptor! are &arrator! of the ge$iee!! of the
!igat$re! o the i!tr$met.
) bearer i!tr$met!( the !igat$re of the payee or holder i!
ot ece!!ary to pa!! title to the i!tr$met. Gece( &he the
idor!emet i! a forgery( oly the per!o &ho!e !igat$re i! forged
ca rai!ed the defe!e of forgery e%e agai!t a holder i d$e co$r!e.
>A!!ociated 4a. %. *o$rt of Appeal!( et al.( supra?
d. E,,e$s o, & ,o)Ae* %/*o)se.e/ o/ &/ %/s)!.e/
#&(&+'e o o)*e)-
1? -here the i!tr$met i! payable to order at the
time of the forgery( the !igat$re of the rightf$l holder i!
e!!etial to tra!fer title to the !ame i!tr$met. -he the
holder3! idor!emet i! forged all partie! prior to the forgery
may rai!e the real defe!e of forgery agai!t all partie!
!$b!e'$et thereto.
2? A idor!er of a order i!tr$met &arrat! 2that
the i!tr$met i! ge$ie ad i all re!pect! &hat it p$rport!
to beK that he ha! good title to itK that all prior partie! had
capacity to cotractK ad that the i!tr$met i! at the time of
hi! idor!emet %alid ad !$b!i!tig.5 Ge caot iterpo!e
the defe!e that !igat$re! prior to him are forged.
3? A collectig ba. &here a chec. i! depo!ited ad
&hich idor!e! the chec. $po pre!etmet &ith the dra&ee
ba. i! a geeral idor!er &hich &arrat! the ge$iee!! of
the i!tr$met. /o( e%e if the idor!emet o the chec.
depo!ited by the ba.3! cliet i! forged( the collectig ba. i!
bo$d by it! &arratie! a! a idor!er ad caot !et $p the
defe!e of forgery a! agai!t the dra&ee ba..
/ice a forged idor!emet i! ioperati%e( the
collectig ba. had o right to be paid by the dra&ee ba..
The collectig ba. m$!t ece!!arily ret$r the moey to the
dra&ee ba. beca$!e it &a! paid &rogf$lly.
Thi! liability !cheme operate! &itho$t regard to fa$lt
o the part of the collectigFpre!etig ba.. E%e if it &a!
ot egliget( it &o$ld !till be liable to the dra&ee ba.
beca$!e of hi! idor!emet.
J? The collectig ba. or la!t edor!er geerally
!$ffer! the lo!! beca$!e it ha! the d$ty to a!certai the
ge$iee!! of all prior edor!emet! co!iderig that the
act of pre!etig the chec. for paymet to the dra&ee i! a
a!!ertio that the party ma.ig the pre!etmet had doe it!
d$ty to a!certai the ge$iee!! of the edor!emet!.
1? 6oreo%er( the collectig ba. i! made liable
beca$!e it i! pri%y to the depo!itor &ho egotiated the chec..
The ba. .o&! him( hi! addre!! ad hi!tory beca$!e he i! a
cliet. )t ha! ta.e a ri!. o the depo!it. The ba. i! al!o i
a better po!itio to detect forgery( fra$d or irreg$larity i the
edor!emet.
9? The dra&ee ba. i! ot !imilarly !it$ated a! the
collectig ba. beca$!e the dra&ee ba. ma.e! o &arraty
a! to the ge$iee!! of the edor!emet!. The dra&ee
ba.3! d$ty i! b$t to %erify the ge$iee!! of the dra&er3!
!igat$re ad ot of the edor!emet beca$!e the dra&er i!
it! cliet.
The dra&ee ba. i! $der !trict liability to pay the
chec. to the order of the payee. The dra&er3! i!tr$ctio! are
reflected o the face ad by the term! of the chec..
Paymet $der a forged edor!emet i! ot to the
dra&er3! order. -he the dra&ee ba. pay! a per!o other
18
tha the payee( it doe! ot comply &ith the term! of the
chec. ad %iolate! it! d$ty to charge it! c$!tomer3! >the
dra&er3!? acco$t oly for properly payable item!.
-here the dra&ee ba. did ot pay a holder or other
per!o etitled to recei%e paymet( it ha! o right to
reimb$r!emet from the dra&er.
The geeral r$le the i! that the dra&ee ba. may
ot debit the dra&er3! acco$t ad i! ot etitled to
idemificatio from the dra&er. The ri!. of lo!! m$!t
perforce fall o the dra&ee ba..
7? The chai of liability doe! ot ed &ith the dra&ee
ba.. -hile the dra&ee ba. may ot debit the dra&er3!
acco$t( it may geerally pa!! liability bac. thro$gh the
collectio chai to the party &ho too. from the forger ad. of
co$r!e( to the forger him!elf( if a%ailable.
The dra&ee ba. ca !ee. reimb$r!emet or a
ret$r of the amo$t it paid from the pre!etorFcollectig ba.
or per!o. E%et$ally( the lo!! fall! o the party &ho too. the
chec. from the forger >the collectig ba.?( or o the forger
him!elf. Gece( the dra&ee ba. ca reco%er the amo$t
paid o the chec. bearig the forged edor!emet from the
collectig ba..
8? A dra&ee ba. ha! the d$ty to promptly iform the
pre!etorFcollectig ba. of the forgery $po di!co%ery. )f the
dra&ee ba. delay! i iformig the pre!etorFcollectig ba.
of the forgery( thereby depri%ig !aid pre!etorFcollectig
ba. of the right to reco%er from the forger( the dra&ee ba.
i! deemed egliget ad ca o loger reco%er from the
pre!etorFcollectig ba..
8? )f the dra&ee ba. ca pro%e a fail$re by the
c$!tomerFdra&er to e#erci!e ordiary care that !$b!tatially
cotrib$ted to the ma.ig of the forged !igat$re( the dra&er
i! precl$ded from a!!ertig the forgery a! a defe!e.
)f at the !ame time the dra&ee ba. &a! al!o
egliget to the poit of !$b!tatially cotrib$tig to the lo!!(
the !$ch lo!! from the forgery ca be apportioed bet&ee
the egliget dra&er ad the egliget ba.. >A!!ociated
4a.( supra?
e. E,,e$s whe)e he *)&we)s s%A/&!)e w&s ,o)Ae*-
The dra&er ca reco%er from the dra&ee ba.. "o dra&ee ba. ha!
the right to pay a forged chec.. )f it doe!( it !hall ha%e to recredit the
amo$t of the chec. to the amo$t of the dra&er. The liability chai
ed! &ith the dra&ee ba. &ho!e re!po!ibility it i! to .o& the
dra&er3! !igat$re !ice the latter i! it! c$!tomer. >A!!ociated 4a.(
supra?
f. R&%o/&'e ,o) +&/Bs '%&+%'%( %, % #&(s o/ & ,o)Ae*
s%A/&!)e- )f paymet i! made the dra&ee caot charge the
dra&er3! acco$t. The traditioal C$!tificatio for the re!$lt i! that the
dra&ee i! i a !$perior po!itio to detect forgery beca$!e he ha! the
ma.er3! !igat$re ad i! e#pected to .o& ad compare it. The r$le
ha! a healthy ca$tioary effect o ba.! by eco$ragig care i the
compari!o of the !igat$re! agai!t tho!e o the !igat$re card!
they ha%e o file. 6oreo%er( the %ery opport$ity of the dra&ee to
i!$re ad to di!trib$te the co!t amog it! c$!tomer! &ho $!e chec.!
ma.e! the dra&ee a ideal party to !pread the ri!. to i!$race.
>amsun% Construction Compan" Philippines, Inc., v. #ar *ast Bank
and Trust Compan", et al., D. R. "o. 128011( A$g$!t 13( 200J?
g. B&/B '%&+%'%( &&$hes e1e/ %, /o /eA'%Ae/- The
ba.3! liability attache! e%e if it e#ert! d$e diligece ad care i
pre%etig !$ch fa$lty di!charge. :orgerie! ofte decei%e the eye of
the mo!t ca$tio$! e#pert!( ad &he a ba. ha! bee !o decei%ed( it
i! a har!h r$le &hich compel! it to !$ffer altho$gh o oe ha! !$ffered
by it! beig decei%ed. The forgery may be !o bear li.e the ge$ie a!
to defy detectio by the depo!itor him!elf( ad yet the ba. i! liable to
the depo!itor if it pay! the chec.. .>amsun% Construction Compan"
Philippines, Inc., v. #ar *ast Bank and Trust Compan", et al., D. R.
"o. 128011( A$g$!t 13( 200J citig %ario$! a$thoritie!?
)f a lo!!( &hich m$!t be bore be by oe or t&o iocet
per!o!( ca be traced to the eglect or fa$lt of either( !$ch lo!!
&o$ld be bore by the egliget party( e%e if iocet of itetioal
fra$d. >PNB v. National Cit" Bank of Ne2 0ork, 93 Phil. 711 >1839?
The ba. i! !o !it$ated that it &o$ld ha%e bee the la!t b$l&ar. i the
detectio of the forgery.
I22USTRATIVE PROB2EM" RI3HTS O5
PARTIES IN #.R,*! INDORSEMENT O5
PROMISSOR6 N.T* PA6AB2E TO B*AR*R. OR O5
B*AR*R BI'' O5 EHCHAN3E-
:<- Aini ma"es a promissory note payable to
bearer 0he bearer negotiates the note to Amboy by mere
delivery thence to Raymond# thence to $unny# thence to
Katrina 0he instrument 3as lost and Ieorge 3ho found
the note placed a signature purporting that of Ka"trina and
negotiates the note to 1ina by mere delivery such that 1ina
is a holder in due course
May 1ina proceed against Aini# Raymond# $unny
and Katrina ?
19
/@DDE/TED A"/-ER; <e!. Rea!o; :orged
idor!emet i! ot ece!!ary to the title of the holder( 7ia(
beca$!e the i!tr$met i! a bearer i!tr$met that pa!!e! title
by mere deli%ery.
&upposing 1ina is not a holder in due course may
prior parties be held liable ?
/@DDE/TED A"/-ER; <e!( b$t ot agai!t "ellie
&ho!e !igat$re &a! forged. Rea!o; E!toppel.
I22USTRATIVE PROB2EM" RI3HTS O5
PARTIES IN COMP2ETE AND DE2IVERED
INSTRUMENT BUT MATERIA226 A2TERED-
:7- -n <' Aovember <==N# Cabilzo issued a
postdated 'N Aovember <==N Metroban" Chec"# payable to
5CA&.6 in the amount of 2<#))))) and paid to Mar9uez
as his sales commission -n due date the chec"# 3hich
3as no3 altered to 2=<#))))) 3as presented to Westban"
for payment# 3hich in turn indorsed the chec" to
Metroban" for appropriate clearing Metroban" cleared
the chec" for encashment in accordance 3ith the
2hilippine Clearing .ouse Corporation >2C.C? Rules
Westban" then paid the same# obtained reimbursement
from Metroban" 3hich proceeded to debit Cabilzo8s
account
When he discovered this# Cabilzo sued Metroban"
claiming that it 3as negligent in debiting his account on
the basis of encashment of the altered chec" !s
Metroban" liable ?
/@DDE/TED A"/-ER; <e!. )t i! clear that it &a!
thro$gh 6etroba.3! egligece that the eca!hmet of the
altered chec. too. place( ad that *abil+o &a! etirely
iocet i the proceedig!. @der the doctrie of e'$itable
e!toppel &he oe of t&o iocet per!o!( each g$iltle!! of
ay itetioal or moral &rog( m$!t !$ffer a lo!!( it m$!t be
bore by the oe &ho!e erroeo$! cod$ct( either by omi!!io
or commi!!io &a! the ca$!e of iC$ry.
6etroba. co$ld ot rely o -e!tba.3! idor!emet to
e#c$lpate it!elf. That i! a matter bet&ee the t&o ba.!( &hich
doe! ot cocer the highe!t degree of fidelity it o&e! to it!
cliet!. 6etroba. !ho$ld ot rely o the C$dgmet of other
ba.! o occa!io! &here it! cliet!3 moey &ere i%ol%ed( o
matter ho& !mall or !$b!tatial the amo$t at !ta.e.
>/etropolitan Bank and Trust Compan" v. Cabil(o, D. R. "o. 11JJ98(
December 9( 2009?
"BTE/ A"D *B66E"T/;
a. M&e)%&' &'e)&%o/- A alteratio i! !aid to be material
if it alter! the effect of the i!tr$met. )t mea! a $a$thori+ed
chage i a i!tr$met that p$rport! to modify i ay re!pect the
obligatio of a party or a $a$thori+ed additio of &ord! or $mber!
or other chage to a icomplete i!tr$met relatig to he obligatio
of a party. ) other &ord!( a material alteratio i! oe &hich chage!
the item! &hich are re'$ired to be stated under ection 3 of the
Ne%otiable Instruments 'a2. 4Philippine National Bank v. Court of
Appeals, et al., 219 /*RA J81?
b. E0&.#'es o, .&e)%&' &'e)&%o/" Ay of the follo&ig
alteratio &hich chage!;
1? The dateK
2? The !$m payable( either for pricipal or itere!tK
3? The time or place of paymetK
J? The $mber or relatio! of the partie!K
1? The medi$m or c$rrecy i &hich paymet i! to be
madeK
9? Br &hich add! a place of paymet &here o place
of paymet i! !pecified( or ay other chage or additio &hich
alter! the effect of the i!tr$met i ay re!pect i! a material
alteratio. >/ec. 121( ".).7.?
c. E,,e$ o, &'e)&%o/ o, %/s)!.e/- -here a
egotiable i!tr$met i! materially altered &itho$t the a!!et of all
partie! liable thereo( it i! a%oided( e#cept a! agai!t a party &ho ha!
him!elf made( a$thori+ed( ad a!!eted to the alteratio ad
!$b!e'$et idor!er!.
4$t &he the i!tr$met ha! bee materially altered ad i! i
the had! of a holder i d$e co$r!e ot a party to the alteratio( he
may eforce the paymet thereof accordig to it! origial teor.
>".).7.( /ec.12J?
d. 2>-ho!) )!'e *e'ee* s%/$e :CD0- @der /ectio J >c? of
*.4. *irc$lar "o. 180( item! bearig a forged edor!emet !hall be
ret$red &ithi t&ety,fo$r >2J? ho$r! after di!co%ery of the forgery
b$t i o e%et beyod the period fi#ed or pro%ided by la& for filig of
a legal actio by the ret$rig ba..
The *etral 4a. *irc$lar &a! i force for all ba.! $til I$e
1880 &he the Philippie *learig Go$!e *orporatio >P*G*? &a!
!et $p ad commeced operatio!. /ectio 23 of the P*G* R$le!
deleted the re'$iremet that item! bearig a forged edor!emet
!ho$ld be ret$red &ithi t&ety,fo$r >2J? ho$r!. >A!!ociated 4a. %.
20
*o$rt of Appeal!( et al.( ad it! compaio ca!e Philippie "atioal
4a. %. *o$rt of Appeal!( et al.( 212 /*RA 920?
:D- -n August G<# '));# @ulio demanded from
$2! the payment of 2';+#;='() representing the
aggregate value of three chec"s payable to him or his
order but 3hich 3ere credited to Annabelle8s account 3ith
$2!# 3ithout his "no3ledge and endorsement
Conse9uently# $2! froze another account of Annabelle# not
the account in 3hich @ulio8s chec"s 3ere erroneously
credited# since this account 3as already closed or had
insufficient balances !t is from Annabelle8s account that
@ulio 3as paid 0hus# Annabelle sued $2! demanding for
the return of the 2';+#;='() and damages
!s the court correct in a3arding the return to
Annabelle of the amount debited# and in a3arding
damages in her favor ?
/@DDE/TED A"/-ER; The co$rt erred i orderig
the ret$r b$t &a! correct i a&ardig damage!.
)t i! clear that there &a! o tra!fer of o&er!hip of the
chec. to Aabelle beca$!e of the lac. of idor!emet. Brder
i!tr$met! are to be tra!ferred oly by edor!emet co$pled
&ith deli%ery. Th$!( Aabelle &a! ot etitled to the chec. a!
o&er!hip did ot flo& to her beca$!e of the lac. of
idor!emet.
-hile it i! tr$e that 4P) made a mi!ta.e i creditig
Aabelle3! acco$t( ad it &arrated 2All prior edor!emet!
adFor lac. of edor!emet! g$arateed(5 a! the collectig
ba. it had the right to debit Aabelle3! other acco$t
beca$!e it had the right of !et,off.
Aabelle ha! a right to damage! beca$!e had 4P)
adhered to the diligece e#pected of oe egaged i the
ba.ig b$!ie!! it &o$ld ha%e a%oided the icidet ad the
damage! !$ffered by Aabelle. Thi! i! !o e%e if 4P)3!
egligece &a! ot atteded &ith malice ad bad faith. >Bank
of Philippine Islands, v. Court of Appeals, et al., D.R. "o. 139202(
Ia$ary 21( 2007?
:C- ,ord 2hilippines# !nc issued various crossK
chec"s dra3n against C!0!$AAK# AA# 3ith the
Commissioner of !nternal Revenue !t appears that Rivera
,ord8s Ieneral 1edger Accountant# prepared chec"s for
payment to the $!R !nstead# ho3ever# of delivering the
same to the payee# Rivera passed on the chec"s to Castro
3ho 3as a proKmanager of the &an Andres $ranch of
2C!$ !n connivance 3ith Dulay# 2C!$8s Asst Manager at
its Meralco $ranch# Castro himself subse9uently opened a
Chec"ing Account in a name of a fictitious person
denominated as 5Reynaldo Reyes6 in the Meralco $ranch
of 2C!$an" 3here Dulay 3or"s as Asst Manager 0hus# the
syndicate succeeded in encashing the chec"s and
appropriating the value
As a result of the $!R did not receive the ta7
payment# and ,ord 3as forced to pay the ta7 ane3 ,ord
filed suit to recover from the dra3ee C!0!$AAK# AA and
the collecting ban" 2C!$an" the value of the chec"s
.as ,ord the right to recover from the collecting
ban" and the dra3ee ban" the value of the chec"s
intended as payment to the Commissioner of !nternal
Revenue
/@DDE/TED A"/-ER; <e!. :ord co$ld reco%er
agai!t *)T)4A"R( ".A.( the dra&ee ba.( ad P*)4a.( the
collectig ba.. Go&e%er( :ord i! g$ilty of cotrib$tory
egligece &hich co$ld !er%e to limit the liability of the t&o
ba.!.
P*)4a.( the collectig ba.( i! liable beca$!e it!
employee! &ere able to perpetrate the !cam i the apparet
co$r!e of their employmet. A ba. holdig o$t it! officer! ad
aget! a! &orthy of cofidece &ill ot be permitted to !hir. it!
re!po!ibilitie! for fra$d committed by the!e employee! e%e
tho$gh o beefit accr$ed to the ba. therefrom.
:$rthermore( /ec. 131 of *4 *irc$lar "o. 180( /erie! of 1877
pro%ide! that ay theft affectig item! i tra!it for clearig
!hall be to the acco$t of the !edig ba. i thi! ca!e(
P*)4a..
*)T)4A"R( ".A.( the dra&ee ba.( i! liable beca$!e it
did ot di!co%er the irreg$larity !ea!oably co!tit$tig
egligece i it! d$ty to perform &hich &a! ic$mbet $po it(
&hich i! to e!$re that the amo$t of the chec.! !ho$ld be
paid oly to it! de!igated payee.
:ord i! g$ilty of cotrib$tory egligece &hich &o$ld
mitigate the ba.3! liability. )t failed a! the depo!itor to
e#amie it! pa!!boo.( !tatemet! of acco$t( ad cacelled
21
chec.! ad to gi%e otice &ithi a rea!oable time >or a!
re'$ired by !tat$te? of ay di!crepacy &hich it may i the
e#erci!e of d$e care ad diligece fid therei. >P*)4 %. *o$rt
of Appeal!( et al.( D.R. "o!. 121J13( 121J78 L 12870J( Ia$ary 28(
2001?
"BTE/ A"D *B66E"T/;
a. 5o)Ae)( $o..%e* +( *)&we)-#&(o)s
$o/,%*e/%&' e.#'o(ee *oes /o &!o.&%$&''( )es!' o
+&/Bs &+so'!%o/- The mere fact that the forgery &a! committed
by a dra&er,payor3! cofidetial employee or aget( &ho by %irt$e of
hi! po!itio had $$!$al facilitie! for perpetratig the fra$d ad
impo!ig the forged paper $po the ba.( doe! ot etitle the ba. to
!hift the lo!! to the dra&er,payor( i the ab!ece of !ome
circ$m!tace rai!ig e!toppel agai!t the dra&er. the r$le li.e&i!e
applie! to chec.! fra$d$letly egotiated or di%erted by the
cofidetial employee! &ho hold them i their po!!e!!io. >P*)4 %.
*o$rt of Appeal!( et al.( D.R. "o!. 121J13( 121J78 L 12870J(
Ia$ary 28( 2001?
The bare fact that the forgery &a! committed by a employee
of the party &ho!e !igat$re &a! forged doe! ot ece!!arily imply
that !$ch party3! egligece &a! the ca$!e for the forgery. Employer!
do ot po!!e!! the preterat$ral gift of cogitio a! to the e%il that
may l$r. &ithi the heart! ad mid! of their employee!. >amsun%
Construction Compan" Philippines, Inc. v. #ar *ast Bank and Trust
Compan", et al., D. R. "o. 128011( A$g$!t 13( 200J?
b. Re'&%o/sh%# +ewee/ #&(ee &/* $o''e$%/A +&/B-
The relatio!hip bet&ee the payee or holder of commercial paper
ad the ba. to &hich it i! !et for collectio i!( i the ab!ece of
agreemet to the cotrary( that of pricipal ad aget. A ba. &hich
recei%e! !$ch paper for collectio i! the aget of the payee or holder.
>P*)4 %. *o$rt of Appeal!( et al.( D.R. "o!. 121J13( 121J78 L
12870J( Ia$ary 28( 2001?
20- A chec" 3ith serial number +KG;;;K''GKG# dated
August +# '))( in the amount of 2=+#;())) 3as issued by
PAP to PDP Mar"eting dra3n against D4 $an" the chec"
clearly sho3s the name of PAP printed on its face -n
August <<# '))(# PDP Mar"eting a client of PRP $an"
deposited the 9uestioned chec" in its savings account in
said ban" !n turn# PRP $an" deposited the chec" 3ith PFP
$an" 3hich# in turn sent the chec" to D4 $an" for
clearing
D4 $an" cleared the chec" as good and thereafter#
PFP $an" credited PRP $an"8s account for the amount
stated in the chec" .o3ever# on August G)# '))(# D4
$an" returned the chec" to PFP $an" and debited its
account for the amount covered by the chec" because
there 3as a 5material alternation6 of the chec"8s number
PFP $an" in turn debited PRP $an"8s account# and sent the
chec" bac" to D4 $an" D4 $an" ho3ever returned the
chec" to PFP $an"
PRP $an" could not debit PDP Mar"eting8s account
3hich 3as already closed Was the alteration of the serial
number of the chec" a material alteration affecting the
negotiability of the chec" ?
/@DDE/TED A"/-ER; "o( the alteratio of the !erial
$mber i! immaterial or iocet alteratio.
The aforemetioed alteratio did ot chage the
relatio! bet&ee the partie!. the ame of the dra&er ad the
dra&ee &ere ot altered. The iteded payee &a! the !ame.
The !$m of moey d$e to the payee remaied the !ame.
A iocet alteratio >geerally( chage! o item!
other tha tho!e re'$ired to be !tated $der /ec. 1( ".).7.? ad
!poliatio >alteratio! doe by a !trager? &ill ot a%oid the
i!tr$met( b$t the holder may eforce it oly accordig to it!
origial teor. >Vit$g cited i Philippine National Bank v. Court of
Appeals, et al.( 219 /*RA J81K International Corporate Bank, Inc. v.
Court of Appeals, et al., D. R. "o. 128810( /eptember 1( 2009 ?
"BTE/ A"D *B66E"T/;
a. The s&'&)( $he$B o, & Ao1e)/.e/ o,,%$e) o)
e.#'o(ee *oes /o +e'o/A o h%. +e,o)e % %s #h(s%$&''(
*e'%1e)e* o h%.- @til that time the chec. belog! to the
go%ermet.
@der /ec. 19 of the "egotiable )!tr$met! 7a&( e%ery
cotract o a egotiable i!tr$met i! icomplete ad re%ocable $til
deli%ery of the i!tr$met for the p$rpo!e of gi%ig effect thereto. A!
ordiarily $der!tood( *e'%1e)( mea! the tra!fer of the po!!e!!io
of the i!tr$met by the ma.er or dra&er &ith itet to tra!fer title to
the payee ad recogi+e him a! the holder thereof. >De la Victoria %!.
4$rgo!( et al.( 2J1 /*RA 37J?
COMP2ETE BUT N.T DE2IVERED INSTRUMENT-
a. Deli%ery complete! the cotract
1? 4et&ee immediate ad remote partie!
2? Deli%ery effect$al
b. )f $der a$thority
22
1? To a holder i d$e co$r!e
a? Valid deli%ery pre!$med
b? Prior partie! bo$d
2? )f deli%ery coditioal
a? Prior partie! ot bo$d
2:- A ,rancisco Realty and Development
Corporation >A,RDC? represented by its president Adelia
as 3ell as .erby Commercial and Construction
Corporation >.CCC? represented by its president @aime
entered into a contract 3ith I&!& for the construction of
housing units and land development I&!& partially paid
on the contract the amount of 2())#))))) @aime
discovered that from the I&!& payment Adelia had
received and signed seven chec"s of various dates and
amounts dra3n against !$AA and payable to .CCC for
completed and delivered 3or" under the contract Adelia
forged @aime8s signature 3ithout his "no3ledge or
consent# at the dorsal portion of the said chec"s to ma"e it
appear that .CCC had indorsed the chec"s# and then
deposited the chec"s in her !$AA savings account Adelia
no3 claims that she 3as authorized to sign @aime8s name
on the chec" by virtue of a Certification e7ecuted by @aime
in her favor giving her authority to collect all the
receivables of .CCC from I&!&# including the 9uestioned
chec"s Will the defense prosper ?
/@DDE/TED A"/-ER; "o. -here ay per!o i!
$der obligatio to idor!e i a repre!etati%e capacity( he may
idor!e i !$ch term! a! to egati%e per!oal liability. A
aget( &he !o !igig( !ho$ld idicate that he i! merely
!igig i behalf of the pricipal ad m$!t di!clo!e the ame of
hi! pricipalK other&i!e he !hall be held per!oally liable.
E%e a!!$mig that Adelia &a! a$thori+ed by G*** to
!ig Iaime3! ame( !till( Adelia( did ot idor!e the i!tr$met
i accordace &ith la&. )!tead of !igig Iaime3! ame(
Adelia !ho$ld ha%e !iged her o& ame ad e#pre!!ly
idicated that !he &a! !igig a! a aget of G***.
>:raci!co %. *o$rt of Appeal!( et al.( D.R. "o. 119320(
"o%ember 28( 1888?
22- $rad @olie ma"es a promissory note payable
to bearer and delivers the same to Angelina 2itt Angelina
2itt# ho3ever# endorses it to D in this mannerL
52ayable to D &ignedL Angelina6
1ater# D# 3ithout endorsing the promissory note#
transfers and delivers the same to Michael 0he note is
subse9uently dishonored by $rad @olie May Michael
proceed against $rad @olie for the note ?
/@DDE/TED A"/-ER; <e!. The character of the
ote beig a bearer i!tr$met i! ot affected by the !pecial
idor!emet made by Agelia Pitt. The ote remaied a
bearer i!tr$met ad may be egotiated by merely deli%ery(
a! it &a! egotiated to 6ichael( &ho became the holder.
6ichael beig the holder may therefore proceed agai!t the
i!!$er of the ote( 4rad Iolie.
2=- 0he DFB $an" is 3illing to lend to your client
the sum of 2<#())#))))) payable in five >(? years 3ith
interest at <'E per annum secured only by a surety bond
&uppose the ban" re9uires your client to secure the
signature of a person 3ho is 3ellK"no3n to it before your
client8s promissory note can be accepted# 3hat do you call
that person and 3hat are his liabilities ?
/@DDE/TED A"/-ER; Ge i! a accommodatio
party ad he i! liable o the i!tr$met.
"BTE/ A"D *B66E"T/;
a. A$$o..o*&%o/ #&)(- Be &ho ha! !iged the
i!tr$met a! ma.er( dra&er( acceptor( or idor!er( &itho$t recei%ig
%al$e therefor( ad for the p$rpo!e of ledig hi! ame to !ome other
per!o. /$ch a per!o i! liable o the i!tr$met to a holder for
%al$e( ot&ith!tadig !$ch holder( at the time of ta.ig the
i!tr$met .e& him to be oly a accommodatio party. >/ec. 28(
".).7.?
b. A.+%A!o!s /eAo%&+'e %/s)!.e/s- -here a
egotiable i!tr$met i! !o ambig$o$! that there i! do$bt &hether it i!
a bill or a ote( the holder may treat it either a! a bill of e#chage or a
promi!!ory ote at hi! electio.
2>- &usan applied for a loan of 2<))#))))) 3ith
$:R $an" $y 3ay of accommodation# &usan8s sister#
23
Amalia# e7ecuted a promissory note in favor of $:R $an"
When &usan defaulted $:R $an" sued Amalia# despite its
"no3ledge that Amalia received no part of the loan
May Amalia be held liable ? 47plain
/@DDE/TED A"/-ER; <e!. /he i! a
accommodatio party. /he liable to 4@R 4a. &hich i! a
holder for %al$e( de!pite .o&ledge by the 4a. that Vilma
&a! oly a accommodatio party.
"BTE/ A"D *B66E"T/;
A fir!t party i! ot a accommodatio party if he ha! a
b$!ie!! arragemet &ith a !ecod party &ho &o$ld led moey to a
third party thro$gh the fir!t party &ho!e ame &o$ld appear i the
promi!!ory ote a! the leder. The fir!t party &o$ld the immediately
idor!e the ote to the !ecod party. Rea!o; The fir!t party &o$ld
appear a! a payee i the promi!!ory ote ad thereafter he &o$ld be
a edor!er for the beefit of the !ecod party a! a re!$lt of their
b$!ie!! arragemet ad ot i fa%or the borro&er.
2?- Alpha# 2hi and -mega signed a promissory
note in favor of Rho statingL 5We promise to pay Rho on
December G<# '))N the sum of 2(#)))))6 3hen the note
fell due# Rho sued 2hi and -mega 3ho put up the defense
that Rho should have impleaded Alpha is the defense
valid ? Why ?
/@DDE/TED A"/-ER; The defe!e i! ot %alid. A!
&orded( the liability of Alpha( Phi ad Bmega o the ote i!
Coit. Rho co$ld proceed agai!t ay of them idi%id$ally.
2<- -n various occasions Remedios# a sariKsari
store o3ner purchased from Monrico Mart various
merchandise# and paid for them 3ith chec"s issued by
Arturo and signed at the bac" by Remedios When
presented for payment these chec"s 3ere dishonored
because the dra3erO8 account 3as already closed $oth
Arturo and Remedios 3ere ac9uitted of estafa May
Remedios be held liable for the amount of the chec"s ?
/@DDE/TED A"/-ER; <e!. -here a !igat$re i!
!o placed $po a egotiable i!tr$met that it i! ot clear i
&hat capacity the per!o ma.ig the !ame iteded to !ig(
!he i! deemed to be a idor!er.
Th$!( a! a idor!er( Remedio! egage! that $po d$e
pre!etmet( the chec.! are to be accepted or paid( or both(
a! the ca!e may be ad if di!hoored ad the ece!!ary
proceedig! are ta.e( !he &ill pay the amo$t thereof to the
holder 6orico 6art. >apiera v. Court of Appeals, et al.( D.R. "o.
128827( /eptember 1J( 1888?
"BTE/ A"D *B66E"T/;
a. Che$B- A bill of e#chage dra& o a ba. payable o
demad. 4Bataan Ci%ar and Ci%arette #actor", Inc. vs. Court of
Appeals, et al. 230 /*RA 9J3K /oran vs. Court of Appeals, et al.( 230
/*RA 788?
b. Che$B distin%uished from +%'' o, e0$h&/Ae- A
chec.( a! di!tig$i!hed from a ordiary bill of e#chage( i! !$ppo!ed
to be dra& agai!t a pre%io$! depo!it of f$d! for it i! ordiarily
iteded for immediate paymet. A ba. i! $der o obligatio to
ma.e part paymet o a chec. $p to oly the amo$t of the dra&er3!
f$d. >6ora( !$pra?
There i! a elemet of certaity or a!!$race i a ordiary
chec. that it &ill be paid $po pre!etatio that i! &hy it i! percei%ed
a! a !$b!tit$te for c$rrecy i commercial ad fiacial tra!actio!.
>Ta %!. *o$rt of Appeal!( et al.( 238 /*RA 310?
27- A foreign chec" in the amount of *+#())))
3as dra3n against a : & $an" in favor of 4va# the other
of Melva# a local ban" employee !n accordance 3ith the
ban"8s policy to accommodate its employees to receive
the chec"8s value 3ithout 3aiting clearing Melva 3as
re9uested to endorse the chec"# but another ban"
employee 3rote 5up to 2<+#()))) only6 0he 3hole
amount 3as paid but 3hen the chec" 3as presented to the
foreign dra3ee ban" it 3as dishonored 3ith the notation
54AD !RR4I6 or irregular endorsement
Are Melva and 4va liable# as a result of their
indorsement# for reimbursement of the amount of the
chec" less salary deductions made from Melva8s salary
from the ban" ?
/@DDE/TED A"/-ER; "o. The liabilitie! of E%a ad
6el%a o their geeral idor!emet caot be $!ed by the
party that itrod$ced the defect( i thi! ca!e the ba.( &hich
'$alifiedly edor!ed the !ame to hold prior edor!er! liable o
the i!tr$met beca$!e it re!$lt! i the ab!$rd !it$atio
&hereby a !$b!e'$et party may reder a i!tr$met $!ele!!
ad i$tile ad let iocet partie! bear the lo!! &hile he
24
him!elf get! a&ay !cot,free. >,on(ales v. Ri(al Commercial
Bankin% Corporation, D. R. "o. 11928J( "o%ember 28( 2009?
2D- -n @uly <G# '))N# 0ocino 2roducts
Corporation >02C?# a firm engaged in the manufacture of
longganisa# engaged one of its suppliers Mr $ A $oy# to
deliver (#))) "ilos of carabeef# starting -ctober '))N 02C
issued t3o >'? crossed postdated chec"s both dated
March '<# '))( Chec" no <'GN( in the amount of
2'))#))))) and chec" no J=<)<< in the amount of
2'()#)))))# in payment of the (#))) "ilos of carabeef
Relying on Mr $oy8s representation that he 3ould
complete delivery 3ithin three months from December
'))N# 02C agreed to purchase an additional +#))) "ilos of
carabeef despite Mr $oy8s failure to deliver Again 02C
issued t3o >'? postdated crossed chec"s# chec" no
N(;+J= amounting to 2NG)#))))) payable on March (#
'))(# and chec" no <)<<<' amounting to 2NG)#)))))
payable on March +# '))(
Mr $oy sold all the four chec"s at a discount to
!ndian ,ore7# !nc As a result of Mr $oy8s failure to deliver
the meat# 02C issued stop order payments on all the four
chec"s on March <# '))(
Could !ndian ,ore7# !nc recover from 02C# the
value of the four chec"s ? Why ?
/@DDE/TED A"/-ER; "o( beca$!e )dia :ore#(
)c. i! ot a holder i d$e co$r!e. The cro!!ig of the chec.!
!ho$ld ha%e p$t )dia o i'$iry ad $po it de%ol%e! the d$ty
to a!certai 6r. 4oy3! title to the chec. or hi! po!!e!!io.
:ailig i thi! re!pect( )dia i! g$ilty of gro!! egligece ad
a! !$ch i! ot a holder i d$e co$r!e.
)t co$ld reco%er from 6r. 4oy( it! immediate idor!er.
"BTE/ A"D *B66E"T/;
a. K%/*s o, $he$Bs- There are differet .id! of chec.!
amog &hich are; 6emorad$m chec.( ca!hier3! chec.( tra%eller3!
chec. ad cro!!ed chec..
2C. What is a crossed chec" ?
/@DDE/TED A"/-ER; A chec. i! a bill of e#chage
dra& o a ba. payable o demad..
*ro!!ed chec. i! oe &here t&o parallel lie! are
dra& acro!! it! face or acro!! a corer thereof. )t may be
cro!!ed geerally or !pecially. a chec. i! cro!!ed !pecially
&he the ame of a partic$lar ba.er or a compay i! &ritte
bet&ee the parallel lie! dra&. )t i! cro!!ed geerally &he
oly the &ord! 2ad compay5 are &ritte or othig i! &ritte
bet&ee the parallel lie!. )t may be i!!$ed !o that
pre!etmet ca be made oly by a ba..
=0- What are the effects of crossing a chec" ?
/@DDE/TED A"/-ER;
a. The chec. may not be eca!hed b$t oly depo!ited
i the ba.K
b. The chec. may be egotiated onl" once , to oe
&ho ha! a acco$t &ith a ba.K ad
c. The act of cro!!ig the chec. !er%e! a! a 2arnin% to
the holder that the chec. ha! bee i!!$ed for a definite
purpose( !o that the holder m$!t i'$ire if he ha! recei%ed the
chec. p$r!$at to that p$rpo!e. Bther&i!e !tated the holder i!
ot a holder i d$e co$r!e. >Bataan Ci%ar and Ci%arette #actor",
Inc. vs. Court of Appeals, et al., 230 /*RA 9J3?
d. The cro!!ed chec. caot be pre!eted for
paymet( b$t it ca oly be depo!ited ad the dra&ee ba.
may oly pay to aother ba. i the payee3! or idor!er3!
acco$t. >Citibank, N.A., etc., v. abeniano, D.R."o. 119132(
Bctober 19( 2009?
=:- Who is a holder in due course ?
/@DDE/TED A"/-ER; /ec. 12 of the "egotiable
)!tr$met! 7a& !tate! that a holder i d$e co$r!e i! a holder
&ho ha! ta.e the i!tr$met $der the follo&ig coditio!;
a. That it i! complete ad reg$lar $po it! faceK
b. That he became a holder of it before it &a!
o%erd$e( ad &itho$t otice that it had bee pre%io$!ly
di!hoored if !$ch &a! the factK
c. That he too. it i good faith ad for %al$eK
J. That at the time it &a! egotiated to him he had o
otice of ay ifirmity i the i!tr$met or defect i the title of
the per!o egotiatig it
/ec. 18 of the !ame la& f$rther !tate! that e%ery
holder i! deemed prima facie a holder i d$e co$r!e. Go&e%er(
25
&he it i! !ho& that the title of ay per!o &ho ha!
egotiated the i!tr$met &a! defecti%e( the b$rde i! o the
holder to pro%e that he or !ome other per!o $der &hom he
claim!( ac'$ired the title a! holder i d$e co$r!e.
=2- What are the "inds of defenses against the
validity of a negotiable instrument ?
/@DDE/TED A"/-ER; The defe!e! that may be
rai!ed agai!t a egotiable i!tr$met are;
a. The real( legal or ab!ol$te defe!e!. The!e
defe!e! attache! to the i!tr$met ad i! a%ailable agai!t
the &hole &orld icl$dig a holder i d$e co$r!e.
b. The per!oal or e'$itable defe!e!. Thi! i!
agreemet or cod$ct &hich reder! the eforcemet of the
i!tr$met ie'$itable. The!e defe!e! are a%ailable oly
agai!t a per!o &ho i! ot a holder i d$e co$r!e.
==- Iive e7amples of real# legal or absolute
defenses 3hich are available against the 3hole 3orld
including a holder in due course
/@DDE/TED A"/-ER;
a. Dlarig alteratio
b. :orgery
c. -at of deli%ery of icomplete i!tr$met
d. :ra$d amo$tig to forgery
e. 6iority
f. :ra$d in factum or fra$d in esse contractus
g. -at of a$thority of aget
h. )!aity &itho$t co$rt appoited g$ardia
i. Void cotract
C. )llegality of the cotract or i!tr$met by !tat$te
=>- Iive e7amples of personal or e9uitable
defenses that are available against any person other than
a holder in due course
/@DDE/TED A"/-ER;
a. Ab!ece or fail$re of co!ideratio
b. -at of deli%ery of a complete i!tr$met
c. :ra$d i id$cemet
d. 6i!ta.e
e. "egotiatio amo$tig to fra$d
f. :ilig of &rog date or bla.! cotrary to a$thority
g. Ac'$i!itio of i!tr$met by force( d$re!! or fear( by
$la&f$l mea!( or for illegal co!ideratio( i breach of faith
h. 7ac. of aget3! a$thority &here he ha! apparet
a$thority
"BTE/ A"D *B66E"T/;
a. P)es!.#%o/ o, $o/s%*e)&%o/- 2E%ery egotiable
i!tr$met i! deemed prima facie to ha%e bee i!!$ed for a %al$able
co!ideratio( ad e%ery per!o &ho!e !igat$re appear! thereo to
ha%e become a party thereto for %al$e.5 >/ec. 2J( ")7?
b. A+se/$e o, $o/s%*e)&%o/ &1&%'&+'e o/'( &A&%/s
/o ho'*e) %/ *!e $o!)se- 2Ab!ece or fail$re of co!ideratio i!
a matter of defe!e a! agai!t ay per!o ot a holder i d$e
co$r!eSK ad partial fail$re of co!ideratio i! a defe!e pro tanto(
&hether the fail$re i! a a!certaied ad li'$idated amo$t or
other&i!e.5 >/ec. 28( ")7?
=?- !s one 3ho is not a holder in due course
precluded from recovering on the instrument ?
/@DDE/TED A"/-ER; "o. )t doe! ot follo& that
beca$!e a holder i! ot a holder i d$e co$r!e( for ha%ig
ta.e the i!tr$met &ith otice that the !ame &a! for depo!it
oly to the acco$t of the payee( he &o$ld be altogether
precl$ded from reco%erig o the i!tr$met. The "egotiable
)!tr$met! 7a& doe! ot pro%ide that a holder ot i d$e
co$r!e ca ot reco%er o the i!tr$met.
The di!ad%atage of a holder &ho i! ot a holder i d$e
co$r!e i! that the i!tr$met i! !$bCect to defe!e! a! if it &ere
o,egotiable. >4ataa *igar ad *igarette :actory( )c. %!. *o$rt
of Appeal!( et al.( 230 /*RA 9J3? Be !$ch defe!e i! ab!ece
or fail$re of co!ideratio. >Atri$m 6aagemet *orp. %. *o$rt of
Appeal!( et al.( D.R. "o!. 108J81 L 12178J( :ebr$ary 28( 2001?
=<- 2o 2ress issued in favor of @ose a
postdated crossed chec"# in payment of ne3sprint 3hich
@ose promised to deliver @ose sold and negotiated the
chec" to 47cel# !nc# at a discount 47cel did not as" @ose
the purpose of crossing the chec" &ince @ose failed to
deliver the ne3sprint# 2 ordered the dra3ee ban" to stop
payment on the chec"
4fforts of 47cel to collect from 2o failed 47cel
3ants to "no3 from you as counselL
26
<? Whether as second indorser and holder of the
crossed chec"# is it a holder in due course ?
'? Whether 2o8s defense of lac" of consideration as
against @ose is also available as against 47cel ?
/@DDE/TED A"/-ER;
1? "o. The i!tr$met i! a cro!!ed chec. ad E#cel
did ot ta.e it for the p$rpo!e for &hich the chec. &a! i!!$ed(
i.e. paymet of e&!prit. /ice( E#cel did ot i'$ire a! to
the p$rpo!e it i! ot a holder i d$e co$r!e( ha%ig p$t o
g$ard by the at$re of the i!tr$met beig a cro!!ed chec..
2? <e!. E#cel ot beig a holder i d$e co$r!e i!
!$bCect to the per!oal defe!e of ab!ece or lac. of
co!ideratio &hich Po may rai!e agai!t Io!e. >Atri$m
6aagemet *orp. %. *o$rt of Appeal!( et al.( D.R. "o!. 108J81 L
12178J( :ebr$ary 28( 2001?
"BTE/ A"D *B66E"T/;
a. C&sh%e)s $he$B- )t i! a primary obligatio of the
i!!$ig ba. ad accepted i ad%ace by it! mere i!!$ace ad( by
it! pec$liar character ad geeral $!e i the commercial &orld i!
regarded !$b!tatially to be a! good a! the moey &hich it
repre!et!. >Ta %!. *o$rt of Appeal!( et al.( 238 /*RA 310?
=7- Can a payee in a promissory note be a
5holder in due course6 3ithin the meaning of the
Aegotiable !nstruments 1a3 >Act Ao ')G<? ? 47plain your
ans3er
/@DDE/TED A"/-ER; "o. A payee i! a immediate
party i relatio to the ma.er ad i! !$bCect to all defe!e!( real
or per!oal( a%ailable to the ma.er of the promi!!ory ote.
=D- 4va issued to !melda a chec" in the amount
of 2()#))))) postKdated &eptember G)# '))N# as security
for a diamond ring to be sold on commission -n
&eptember <(# '))N# !melda# negotiated the chec" to M0
!nvestment 3hich paid the amount of 2N)#))))) to her
4va failed to sell the ring# so she returned it to
!melda on &eptember <=# '))N :nable to retrieve her
chec"# 4va 3ithdre3 her funds from the dra3ee ban"
0hus# 3hen M0 !nvestment presented the chec" for
payment# the dra3ee ban" dishonored it 1ater on# 3hen
M0 !nvestment sued her# 4va raised the defense of
absence of consideration# the chec" having been issued
merely as security for the ring that she could not sell
Does 4va have a valid defense ?
/@DDE/TED A"/-ER; "o.
Rea!o!;
a. Ab!ece or lac. of co!ideratio i! ot a%ailable a!
a defe!e agai!t a holder i d$e co$r!e. 6T )%e!tmet i! a
holder i d$e co$r!e a! it too. the i!tr$met complete ad
reg$lar $po it! faceK that it became a holder of it before the
i!tr$met became o%erd$e( ad &itho$t otice that it had
bee pre%io$!ly di!hoored if !$ch &a! the factK that it too. the
i!tr$met i good faith ad for %al$eK ad that at the time the
&a! egotiated to it( it had o otice of ay ifirmity i the
i!tr$met or defect i the title of )melda( the per!o
egotiatig it.
b. That the chec. &a! i!!$ed merely a! a !ec$rity i!
ot a gro$d for di!chargig a i!tr$met i the had! of a
holder i d$e co$r!e. >tate Investment v. Court of Appeals, et al.(
D.R. "o. 101193( Ia$ary 11( 1883?
"BTE/ A"D *B66E"T/;
a. P)es!.#%o/ o, $o/s%*e)&%o/- ) the ab!ece of
e%idece to the cotrary it i! pre!$med that a chec. &a! i!!$ed for
%al$able co!ideratio. >'ee v. Court of Appeals, et al., D. R. "o.
1J1J88( Ia$ary 17( 2001K T" v. People, D. R. "o. 1J8271(
/eptember 27( 200J( J38 /*RA 220?
b. V&'!&+'e $o/s%*e)&%o/ may co!i!t either i !ome
right( itJere!t( profit or beefit accr$ig to the party &ho ma.e! the
cotract( or !ome forbearace( detrimet( lo!! or !ome re!po!ibility(
to act( or labor( or !er%ice gi%e( !$ffered or $derta.e by the other
!ide. )t i! a obligatio do( or ot to do i fa%or of the party &ho
ma.e! the cotract( !$ch a! the ma.er or idor!er. >'ee v. Court of
Appeals, et al., D. R. "o. 1J1J88( Ia$ary 17( 2001K T" v. People, D.
R. "o. 1J8271( /eptember 27( 200J( J38 /*RA 220?
c. No &ss%A/.e/ o, ,!/*s whe/ $&sh%e)s s $he$Bs
&)e #!)$h&se* ,)o. &/ %/so'1e/ +&/B - Thi! i! !o beca$!e
there are o more f$d! that may be a!!iged by a i!ol%et ba..
>/iranda v. Philippine !eposit Insurance Corporation, et al., D .R. "o.
19833J( /eptember 8( 2009?
=C- -n April '(# '))(# %icente invested in C!,C# a
9uasiKban"ing institution engaged in money mar"et
operations# the amount of 2())#))))) to mature after one
month 3ith interest at the rate of ')(E for G' days :pon
27
maturity C!,C issued a chec" of 2(<N#G=)=N in favor of
%icente representing the proceeds of his matured
investment plus interest When the chec" 3as deposited#
$2! dishonored it 3ith the annotations 5&ubject to
!nvestigation#6 and too" custody of the chec" pending
investigation of several counterfeit chec"s dra3n against
C!,C8s chec"ing account to trace the perpetrators of the
forgery
C!,C no3 asserts that since $2! accepted the
chec"# it becomes primarily liable for its payment
Conse9uently# 3hen $2! offset the value of the chec"
against its losses from the forged chec"s the chec" 3as
deemed paid ,urthermore C!,C anchors its arguments of
payment on &4c <G+ of the Aegotiable !nstruments 1a3
3hich states that# 5Where a dra3ee to 3hom a bill is
delivered for acceptance destroys the same# or refuses
3ithin t3entyKfour hours after such delivery or such other
period as the holder may allo3# to return the bill accepted
or nonKaccepted to the holder# he 3ill be deemed to have
accepted the same6 Was there effective payment to
%icente ?
/@DDE/TED A"/-ER; "o. )t i! clear that a moey
mar.et tra!actio i! oe of loa( &hich !ho$ld ha%e bee paid
for i ca!h. The deli%ery of a chec. prod$ce! oly paymet
&he it ha! bee eca!hed or &he thro$gh the fa$lt of the
creditor it ha! bee impaired. A chec. i! merely a !$b!tit$te for
moey. >*eb$ )teratioal :iace *orporatio %. *o$rt of Appeal!(
et al.( D.R. "o. 123031( Bctober 12( 1888?
>0- When is notice of dishonor not re5uired to be
given to dra3er?
/@DDE/TED A"/-ER;
a. -here the dra&er ad the dra&ee are the !ame
per!oK
b. -he the dra&ee i! a fictitio$! per!o or a per!o
ot ha%ig capacity to cotractK
c. -he the dra&er i! the per!o to &hom the
i!tr$met i! pre!eted for paymetK
d. -here the dra&er ha! o right to e#pect or re'$ire
that the dra&ee or acceptor &ill hoor the i!tr$metK
e. -here the dra&er ha! co$termaded paymet.
>/ec. 11J( ".).7.?
"BTE/ A"D *B66E"T/;
a. No%$e o, *%sho/o)- The term deote! that a chec.
ha! bee pre!eted for paymet ad &a! !$b!e'$etly di!hoored by
the dra&ee ba.. Thi! mea! that the chec. m$!t ece!!arily be d$e
ad demadable beca$!e oly a chec. that ha! become d$e ca be
pre!eted for paymet ad !$b!e'$etly di!hoored. >!ico v. Court
of Appeals, et al., :ebr$ary 28( 2001?
b. Pos*&e* $he$B $&//o +e *%sho/o)e* if it &a!
pre!eted for paymet before it! d$e date. . >!ico v. Court of
Appeals, et al., :ebr$ary 28( 2001?
c( No%$e o, *%sho/o) o +e %/ w)%%/A- The otice of
di!hoor of a chec. may be !et to the dra&er or ma.er by the
dra&ee ba.( the holder of the chec.( or the offeded party either by
per!oal deli%ery or by regi!tered mail. >Ri%or v. People, D. R. "o.
1JJ887( "o%ember 17( 200J citigia v. People, D. R. "o. 1J8981(
April 28( 200J( J28 /*RA 209?
>:- Iemma dre3 a chec" on &eptember <G# '))<
0he holder presented the chec" to the dra3ee ban" only
on March (# '))( 0he ban" dishonored the chec" on the
same date After dishonor by the dra3ee ban"# the holder
gave a formal notice of dishonor to Iemma through a
letter dated April '+# '))(
<? What is meant by 5unreasonable time6 as
applied to presentment ?
'? !s Iemma liable to the holder ?
/@DDE/TED A"/-ER;
1? A! applied to pre!etmet for paymet( 2rea!oable
time5 i! meat ot more tha !i# >9? moth! from date of the
i!!$e of the chec.. Ay period beyod !i# >9? moth! i!
co!idered 2$rea!oable time5 ad the chec. become! !tale.
2? "o( for the follo&ig rea!o!;
a? The chec. i! already !tale ha%ig bee
pre!eted for paymet oly o 6arch 1( 2001( &hich i!
beyod !i# >9? moth! from the i!!$e of the chec. o
/eptember 13( 2001. /he co$ld ot be held liable
beca$!e the !ame &a! ot pre!eted &ithi a
rea!oable period of time.
b? A! the dra&er &ho i! !ecodarily liable
Demma i! di!charged beca$!e of the fail$re to gi%e
28
otice of di!hoor &ithi thirty >30? day! from di!hoor.
)t i! ot !ho& that the holder ad Demma re!ided i
the !ame place hece( the period to gi%e otice of
di!hoor m$!t be the !ame time that otice &o$ld
reach Demma if !et by mail. >#ar *ast Realt"
Investment, Inc., v. Court of Appeals, et al., 199 /*RA 219?
>2- 5D6 issued a chec" to 5F6 dra3n against
A$C $an" When 5F presented the chec" for payment#
A$C $an" for reasons "no3n to it refused encashment
despite the sufficiency of funds Assuming that there 3as
no valid reason for the ban"8s refusal# may 5F6 the payeeK
holder sue the ban" ?
/@DDE/TED A"/-ER; "o. 2<5( the payee,holder
!ho$ld i!tead !$e 2H5 the dra&er &ho might i t$r !$e the
ba.. "o pri%ity of cotract e#i!t! bet&ee the dra&ee,ba.
ad the payee( 5<.5 >6illaneuva v. Nite, D.R."o. 1J8211( I$ly 21(
2009?
>=- 2A is the holder of a negotiable promissory
note 3ithin the meaning of the Aegotiable !nstruments 1a3
>Act ')G<? 0he note 3as originally issued by R2 to D1 as
payee D1 indorsed the note to 2A for goods bought by
D1 0he note mentions the place of payment on the
specified maturity date as the office of the corporate
secretary of 2D $an" during ban"ing hours -n maturity
date# R2 3as at the aforesaid office ready to pay the note
but 2A did not sho3 up What 2A later did 3as to sue D1
for the face value of the note# plus interests and costs
Will the suit prosper ? 47plain
/@DDE/TED A"/-ER; <e!( b$t oly &ith re!pect to
the face %al$e of the ote. The fail$re of P" to !ho& $p at the
!pecified place of paymet o the !pecified mat$rity date i!
tatamo$t to &ai%er of hi! right to reco%er the itere!t d$e
after the mat$rity date of the ote ad co!t! of collectio.
>>- May the provisions of the Civil Code on
common carriers be applied in determining liability of
ban"s on negotiable instruments ?
/@DDE/TED A"/-ER; <e!( if oly to empha!i+e the
fact that ba.ig i!tit$tio! ha%e the d$ty to e#erci!e the
highe!t degree of diligece &he tra!actig &ith the p$blic.
) the at$re of their b$!ie!!( they are re'$ired to ob!er%e the
highe!t !tadard! of itegrity ad performace( ad $tmo!t
a!!id$o$!e!! a! &ell. Molidbank Corporation7 /etro8politan Bank
and Trust Compan" v. pouses Tan, D. R. "o. 1973J9( April 2( 2007
citig ime9 )teratioal 4/anila? %. *o$rt of Appeal!( D. R. "o.
88013( 18 6arch 1880( 183 /*RA 390N
"BTE/ A"D *B66E"T/;
a. P)o1%s%o/s o, he C%1%' Co*e o/ $o..o/
$&))%e)s &##'%e* o +&/Bs- Article! 1733( 1739( ad 1719 that
ma.e referece to the .id of diligece a ba. !ho$ld perform. 7i.e a
commo carrier &ho!e b$!ie!! i! al!o imb$ed &ith p$blic itere!t( a
ba. !ho$ld e#erci!e e#traordiary diligece to egate it! liability.
>olidbank Corporation7 /etropolitan Bank and Trust Compan" v.
pouses Tan, D. R. "o. 1973J9( April 2( 2007
The doctrie of la!t clear chace >commoly $!ed i
tra!portatio la&! i%ol%ig commo carrier!? to a ba.ig
tra!actio &here it adC$dged the ba. re!po!ible for the
eca!hmet of a forged chec.. The degree of diligece re'$ired of
ba.! i! more tha that of a good father of a family i .eepig &ith
their re!po!ibility to e#erci!e the ece!!ary care ad pr$dece i
hadlig their cliet!3 moey. MIbid., citig Canlas v. Asian avin%s
Bank, et al., 383 Phil. 311K 329 /*RA J11 >2000?( !ee al!o Bank of
Philippine Islands v. Court of Appeals, D. R. "o. 102383( 29
"o%ember 1882( 219 /*RA 11N
9=; I/s!)&/$e Co*e 9P-D- :><0;
:- May a member of the Moro !slamic 1iberation
,ront >M!1,? or its brea"a3ay group# Abu &ayyaf# be
insured 3ith a company licensed to do business under the
!nsurance Code of the 2hilippines >2D Ao <N;)? ?
/@DDE/TED A"/-ER; <e!. -hat i! prohibited to be
i!$red i! a p$blic eemy &hich i! defied a! a citi+e or
atioal of a co$try &ith &hich the Philippie! i! at &ar. There
i! o !ho&ig i the problem that the member of the 6)7: or
Abu a""af i! a citi+e or atioal of a co$try &ith &hich the
Philippie! i! at &ar.
2- $D has a ban" deposit of half a million pesos
&ince the limit of the insurance coverage of the 2hilippine
Deposit !nsurance Corporation Act >RA Ao G(=<? is only
one tenth of $D8s deposit# he 3ould li"e some protection
29
for the e7cess by ta"ing out an insurance against all ris"s
or contingencies of loss arising from any unsound or
unsafe ban"ing practices including unforeseen adverse
effects of the continuing crisis involving the ban"ing and
financial sector in the Asian region Does $C have an
insurable interest 3ithin the meaning of the !nsurance
Code of the 2hilippines >2D <N;)? ?
/@DDE/TED A"/-ER; <e!. 4D ha! a i!$rable
itere!t i hi! o& ba. depo!it! beca$!e the cotemplated
peril might re!$lt to the lo!! of the !aid ba. depo!it!. ) !hort(
he !tad! to be damaged to the e#tet of the depo!it ot
co%ered by the depo!it i!$race.
=- @eremiah 3as a most valued employee of
,ortune Manufacturing Corporation for the past t3enty
years .e 3as insured by his employer 3ith itself as the
beneficiary A company o3ned house at Dasmarinas
%illage 3as furnished for his use 3hich 3as insured 3ith
the o3ner as the beneficiary $oth of the policies 3ere up
to December G<# '))+
-n @une <(# '))+ @eremiah retired from the
company As part of his retirement pac"age# the title of the
house at Dasmarinas %illage 3as transferred to @eremiahOs
name -n @uly N# '))+# the house 3as burned resulting to
@eremiahOs death
Who could recover on the insurance policies ?
47plain
/@DDE/TED A"/-ER; "obody co$ld reco%er o the
i!$race policy co%erig the ho$!e.
:ort$e co$ld ot reco%er o the policy co%erig the
ho$!e beca$!e it did ot ha%e ay i!$rable itere!t at the
time of the lo!! o I$ly J(2007. Thi! i! !o beca$!e the
o&er!hip &a! already tra!ferred to Ieremiah. Go&e%er there
i! o !ho&ig i the problem of ay chage i the i!$race i
Ieremiah3! fa%or !o hi! heir! co$ld ot al!o reco%er o the
policy.
:ort$e co$ld reco%er o the policy co%erig
IeremiahQ! life beca$!e i!$rable itere!t o life eed ot e#i!t
at the time of the death.
"BTE/ A"D *B66E"T/;
a. I/s!)&+'e %/e)es i! re'$ired for a per!o &ho i!$re!
the life of aother- E%ery per!o ha! a i!$rable itere!t i the life
ad health;
1? Bf him!elf( of hi! !po$!e ad of hi! childreK
2? Bf ay per!o o &hom he deped! &holly or i
part for ed$catio or !$pport( or i &hom he ha! a pec$iary
itere!tK
3? Bf ay per!o $der a legal obligatio to him for
he paymet of moey( or re!pectig property or !er%ice( of
&hich death or ille!! might delay or pre%et the
performaceK ad
J? Bf ay per!o $po &ho!e life ay e!tate or
itere!t %e!ted i him deped!. >/ec. 10( )!$race *ode?
b. P!)#ose ,o) )eI!%)e.e/ o, %/s!)&+'e %/e)es %/
'%,e- To remo%e the temptatio of i!$rig a per!oQ! life ad the
.illig him to reco%er the i!$race proceed!.
c. I/s!)&+'e %/e)es %/ '%,e sho!'* e0%s at the time
of ta.ig ad "BT ece!!arily at the time of death.
d. I/s!)&+'e %/e)es %/ #)o#e)( %s re'$ired for a
per!o &ho !ec$re! property i!$race- E%ery itere!t i property(
&hether real or per!oal( or ay relatio thereto or liability i re!pect
thereof of !$ch at$re that a cotemplated peril might directly damify
the i!$red. >/ec. 13( )!$race *ode?
e. I/s!)&+'e %/e)es %/ #)o#e)( .!s e0%s at the
time of ta.ig A"D at the time of lo!!.
f. I/s!)&+'e %/e)es %/ '%,e distin%uished from
%/s!)&+'e %/e)es %/ #)o#e)(-
1? ) i!$rable itere!t i life m$!t e#i!t at the time of ta.ig
ad eed ot e#i!t at the time of death -G)7E i!$rable itere!t i
property m$!t e#i!t both at the time of ta.ig ad time of lo!!.
2? The beeficiary eed ot ha%e a i!$rable itere!t i the
life of the i!$red -G)7E the beeficiary i property i!$race !ho$ld
ha%e a i!$rable itere!t i the property i!$red both at the time of
i!$race ad at the time of lo!!.
>- @Q# o3ner of a condominium unit# insured the
same against fire 3ith DFB !nsurance Co# and made the
loss payable to his brother# M1Q !n case of loss by fire of
the said condominium unit# 3ho may recover on the fire
insurance policy ? &tate the reason>s? for your ans3er
/@DDE/TED A"/-ER; "obody. 67A caot
reco%er altho$gh he &a! amed the beeficiary beca$!e he
had o i!$rable itere!t i the property at the time of the lo!!.
30
"either co$ld IA the o&er reco%er beca$!e he i! ot the
amed beeficiary.
"BTE/ A"D *B66E"T/; @P 7a& *eter !$gge!t! the
follo&ig a!&er; 2IA ca reco%er o the fire i!$race policy for the
lo!! of the !aid codomii$m $it. Ge had i!$rable itere!t a!
o&er,i!$red. A! beeficiary i the fire i!$race policy( 67A
caot reco%er o the fire i!$race policy. :or the beeficiary to
reco%er o the fire or property i!$race policy( it i! re'$ired that he
m$!t ha%e i!$rable itere!t i the property i!$red. ) thi! ca!e(
67A doe! ot ha%e i!$rable itere!t i the codomii$m $it.5
?- -n &eptember <# '))N# Marion insured her
o3n life naming her boyfriend @effrey as her irrevocable
beneficiary 0he insurance companyOs physician
conducted a physical e7amination but 3as not able to
detect the fact that Marion 3as already in the advance
stage of cancer !n good faith Marion did not disclose the
fact that she previously consulted an oncologist because
after the medical consultation# numerous fortune tellers
predicted that she 3ill not die of cancer -n &eptember '#
'))( 3hile Marion 3as on her 3ay to attend 2reKWee"
Revie3 classes for the $ar she 3as run over by a
bulldozer 3hich caused her death on the spot @effrey
no3 claims the life insurance proceeds Decide
/@DDE/TED A"/-ER; Ieffrey co$ld ot reco%er.
There &a! cocealmet( &hich i! a eglect to comm$icate
that &hich a party .o&! ad o$ght to comm$icate. The
matter cocealed &a! material ad rele%at to the appro%al
ad i!!$ace of the policy( it ha%ig probable ad rea!oable
ifl$ece $po the i!$rer3! formig a e!timate of the
di!ad%atage! of the propo!ed cotract.
Dood faith i! ot a defe!e to cocealmet( a!
materiality of the iformatio &ithheld doe! ot deped o the
!tate of mid of the i!$red or o the act$al or phy!ical
e%et! &hich e!$e.
)t i! !ettled that the i!$red eed ot die of the di!ea!e
he had failed to di!clo!e to the i!$rer. )t i! !$fficiet that the
o,di!clo!$re mi!led the i!$rer i formig hi! e!timate! o
the ri!.! of the propo!ed i!$race policy or i ma.ig
i'$irie!. >unlife Assurance Compan" of Canada vs. Court of
Appeals, et al., 2J1 /*RA 298?
) the abo%e problem( the icote!tability cla$!e doe!
ot fid applicatio beca$!e the t&o year period ha! ot yet
lap!ed.
&upposing under the above set of facts that the
insurance 3as secured on August G<# '))G# 3ould your
ans3er be the same ?
/@DDE/TED A"/-ER; "o. /ice the policy i! t&o
year! old( the icote!tability cla$!e ha! already !et i &hich
defeat! the cocealmet.
Would it ma"e any difference in your ans3ers to the
above if Marion 3as married to ,rancis ? What about if it
3as @effrey 3ho 3as married to Daniela ?
/@DDE/TED A"/-ER; @der the abo%e
circ$m!tace! if 6ario ad Ieffrey &ere married to per!o!
other tha them!el%e!( the there co$ld be o reco%ery o the
i!$race policy of 6ario. Ieffrey co$ld ot be a doee
beca$!e of the illicit relatio!hip hece caot be a
beeficiary i life i!$race.
"BTE/ A"D *B66E"T/;
a. Co/$e&'.e/ *e,%/e*- A eglect to comm$icate that
&hich a party .o&! ad o$ght to comm$icate. >/ec. 29( )!$race
*ode?
"ote that if the party doe! ot .o& he i! !ic.( there i! o
cocealmet.
<- Define incontestability clause
/@DDE/TED A"/-ER; -here a policy of life
i!$race made payable o the death of the i!$red !hall ha%e
bee i force d$rig the lifetime of the i!$red for a period of
t&o year! from the date of it! i!!$e or it! la!t rei!tatemet( the
i!$rer caot pro%e that the policy i! %oid ab initio or i!
re!cidable by rea!o of the fra$d$let cocealmet or
mi!repre!etatio! of the i!$red or hi! aget. >2d par.( /ec.
J8( )!$race *ode?
7- -n @anuary =# <==<# 2hilAm 1ife !nsurance
received an application for life insurance from ,lorence an
application for life insurance dated December <;# <==)# in
the amount of 2<))#))))) 3hich designated her sister#
4liza# as principal beneficiary &ince the insurance 3as
nonKmedical# 2hilAm 1ife !nsurance did not re9uire a
medical e7amination and on ,ebruary <<# <==< issued a
31
policy on the sole basis of the application !n April# '))(
2hilAm 1ife received a claim from 4liza 3hich declared
that ,lorence died of acute pneumonia on &eptember <)#
'))N
2hilAm 1ife !nsurance denied the claim and refused
to pay on the ground of fraud because its investigator
reported on the basis of intervie3s 3ith 3itnesses that
,lorence had long died before the insurance policy 3as
issued .o3ever# the investigator 3as not presented
4liza on the other hand presented the municipal health
officer 3ho issued the death certificate# and 3ho li"e3ise
testified that he ministered to the ailing ,lorence t3o days
immediately prior to her death
0he Court ruled that there 3as no fraud 0his is so
because# death certificates and notes by a municipal
health officer in the regular performance of his duties# are
prima facie evidence of the facts therein stated
,urthermore the dulyKregistered death certificate is
considered a public document and the entries found
therein are presumed correct unless there is positive
evidence to the contrary !s 4liza entitled to her claim of
interest at double the legal rate because of delay in the
payment of her claim ?
/@DDE/TED A"/-ER; Eli+a i! etitled to legal
itere!t oly ad ot the 2J= !he claim!. :ra$d beig the
gro$d i%o.ed by PhilAm 7ife )!$race for ref$!ig to hoor
the claim( there i! o $rea!oable delay.
"BTE/ A"D *B66E"T/;
a. U/*e) Se$%o/ 2>2 o, he I/s!)&/$e Co*e@ he
)e,!s&' o, he %/s!)e) o #&( & '%,e %/s!)&/$e $'&%. w%h%/
he #e)%o* #)es$)%+e* w%'' e/%'e he +e/e,%$%&)( o $o''e$
%/e)es o/ he #)o$ee*s 2at the rate of t&ice the ceilig
pre!cribed by the 6oetary 4oard5 for the d$ratio of the delay(
$le!! the ref$!al to pay i! ba!ed o the gro$d that the claim i!
fra$d$let. >Philippine American 'ife Insurance Compan" v. Court of
Appeals, et al., D.R. "o. 129223( "o%ember 11( 2000K #inman
,eneral Assurance Corp. v. Court of Appeals, et al., D.R. "o.
138737( I$ly 12( 2001?
D- &unKMoon !nsurance issued a 2ersonal
Accident 2olicy to .enry Dy 3ith a face value of
2())#))))) A provision in the policy states that 5the
company shall not be liable in respect of bodily injury
conse9uent upon the insured person attempting to commit
suicide or 3illfully e7posing himself to needless peril
e7cept n an attempt to save human life6 &i7 months later
.enry Dy died of a bullet 3ound in his head !nvestigation
sho3ed that one evening .enry 3as in a happy mood
although he 3as not drun" .e 3as playing 3ith his
handgun from 3hich he had previously removed its
magazine .e pointed the gun at his sister 3ho got
scared he assured her it 3as not loaded .e then pointed
the gun at his temple and pulled the trigger 0he gun fired
and .enry slumped dead on the floor
.enry8s 3ife $everly# as the designated beneficiary#
sought to collect under the policy &unKMoon !nsurance
rejected her claim on the ground that the death of .enry
3as not accidental $everly sued the insurer
Decide Discuss fully
/@DDE/TED A"/-ER; 4e%erly ca reco%er. )t i!
clear that Gery did ot commit !$icide. The fact that Gery
remo%ed the maga+ie At the mo!t Gery &a! egliget i ot
!eeig to it that the g$ &a! ot loaded. There i! o !ho&ig i
the problem that egligece i! a e#cepted ri!.. >un Insurance
v. Court of Appeals, et al., 211 /*RA 11J?
"BTE/ A"D *B66E"T/;
a. De&h +( s!%$%*e )e$o1e)&+'e +! &,e) #o'%$( h&s
+e$o.e %/$o/es&+'e- The i!$rer i a life i!$race cotract
!hall be liable i ca!e of !$icide by the i!$red committed after the
policy ha! bee i force for a period of t&o year! from the date of it!
i!!$e or it! la!t rei!tatemet( $le!! the policy pro%ide! a !horter
period; pro%ided( ho&e%er( that !$icide committed i a !tate of
i!aity !hall ma.e the i!$rer liable regardle!! of the date of the
commi!!io of the !$icide. >/ec. 180,A( )!$race *ode?
b. K%''e)-+e/e,%$%&)( $&//o )e$o1e)- A beeficiary &ho
participate! i .illig the i!$red( &hether a! acce!!ory( accomplice or
pricipal( caot reco%er from the death of the i!$red by rea!o of
p$blic policy. The eare!t of .i of the i!$red( if ot di!'$alified(
!hall recei%e the i!$race proceed!. >/ec. 12( )!$race *ode?
E0$e#%o/s o) %/s&/$es whe)e B%''e)-+e/e,%$%&)(
$o!'* )e$o1e)"
1? -here the .illig i! accidetalK
2? -here the .illig i! i !elf,defe!eK ad
3? -here the beeficiary &a! i!ae at the time of
the .illig.
32
c. Be/e,%$%&)( $&//o )e$o1e) whe)e %/s!)e*
'&w,!''( e0e$!e*-
C- @uan de la Cruz 3as issued 2olicy Ao JJJ of
the Midland 1ife !nsurance Co on a 3hole life plan for
2')#)))))# on August <=# '))< @uan de la Cruz is
married to Cynthia 3ith 3hom he has three legitimate
children .e# ho3ever# designated 2urita# his commonKla3
3ife# as the revocable beneficiary @uan de la Cruz
referred to 2urita in his application and policy as the legal
3ife
0hree years later# @uan de la Cruz died 2urita filed
her claim for the proceeds of the policy as the designated
beneficiary therein 0he 3ido3# Cynthia# also filed a claim
as the legal 3ife 0o 3hom should the proceeds of the
insurance policy be a3arded ?
/@DDE/TED A"/-ER; The proceed! of the
i!$race policy to the e!tate of I$a de la *r$+.
P$rita( the commo,la& &ife( i! di!'$alified to be a
beeficiary of I$a de la *r$+ beca$!e !he i! a prohibited
doee beca$!e of their illicit relatio.
"BTE/ A"D *B66E"T/;
a. The $o/$e# o, #)oh%+%e* *o/ees- Per!o! &ho
are di!'$alified $der the pro%i!io! of the *i%il *ode from beig
de!igated a! doee! are al!o prohibited to be beeficiarie! of a life
i!$race cotract. Amog !$ch per!o! are the follo&ig;
1? Per!o! g$ilty of ad$ltery or coc$biage co$ld
ot ta.e a life i!$race ad ame the other a! a beeficiary.
2? Per!o! fo$d g$ilty of ad$ltery ad coc$biage
co$ld ot ta.e a life i!$race ad ame the other a! a
beeficiary i co!ideratio of the ad$ltery or coc$biage a!
the ca!e may be.
3? Per!o &ho ta.e! a i!$race policy o hi! o&
life ad by the rea!o of the office of a p$blic officer
de!igate! a! the beeficiary !$ch p$blic officer( hi! &ife(
a!cedat!( or de!cedat!.
:0- I-F: applied for credit facilities and
accommodations 3ith Rizal $an" As security for its credit
facilities 3ith Rizal $an"# I-F: e7ecuted t3o real estate
mortgages and t3o chattel mortgages in favor of Rizal
$an"# 3ith 3ere registered 3ith the Registry of Deeds
:nder the four mortgages# I-F: committed itself to
insure the mortgaged property 3ith M!C-# an insurance
company approved by Rizal $an"# and subse9uently to
endorse and deliver the insurance policies to Rizal $an"
Alchester# M!C-8s under3riter# from 3hom I-F: secured
the insurance prepared the indorsements but it turned out
that the endorsements do not bear the signature of any
officer of I-F:
Who could recover on the insurance claim ?
/@DDE/TED A"/-ER; Ri+al 4a. co$ld reco%er $p
to the e#tet of it! itere!t o the mortgage.
-hile it i! !ettled that a mortgagor ad a mortgagee
ha%e !eparate ad di!tict i!$rable itere!t! i the !ame
mortgaged property( !$ch that each oe of them may i!$re
the !ame property for hi! o& !ole beefit( the itetio of the
partie! !ho$ld go%er. ) the ca!e at bar the edor!emet!
made i fa%or of Ri+al 4a.( clearly idicate that Ri+al 4a. i!
tr$ly the etity for &ho!e beefit the policie! &ere clearly
iteded. >Ri(al Commercial Bankin% Corporation, et al., v. Court of
Appeals, et al., and companion cases. 288 /*RA 1282?
::- What is double insurance ?
/@DDE/TED A"/-ER; A do$ble i!$race e#i!t!
&here the !ame per!o or property i! i!$red by !e%eral
i!$rer! !eparately i re!pect of the !ame !$bCect ad itere!t.
>,ea%onia v. Court of Appeals, et al., 2J1 /*RA 112( 19J?
"BTE/ A"D *B66E"T/;
a. E0&.#'e whe)e he)e %s /o *o!+'e %/s!)&/$e-
The i!$rable itere!t! of a mortgagor ad a mortgagee o the
mortgaged policy are !eparate ad di!tict hece there i! o do$ble
i!$race if the mortgagor ad the mortgagee ta.e o$t !eparate
i!$race!.
:2- What is coKinsurance ?
/@DDE/TED A"/-ER; -here a i!$red i!$re!
hi! property for le!! tha it! %al$e( he i! deemed to ha%e acted
a! a co,i!$rer &ith the i!$rer $p to the e#tet of the
deficiecy. ) !$ch a ca!e( &here there i! lo!! or damage( the
i!$rer !hall be liable oly for !$ch proportio of the lo!! or
damage that the amo$t of i!$race bear! to the de!igated
percetage of the f$ll %al$e of the property i!$red.
33
:or e#ample( property %al$ed a! P1(000(000.00 &a!
i!$red oly for P700(000.00. ) !$ch a ca!e there i! co,
i!$race by the i!$red $p to the e#tet of 30=. ) ca!e of
lo!! there co$ld oly be 70= reco%ery of the damage or lo!!.
:=- What is reinsurance ?
/@DDE/TED A"/-ER; Thi! i! a !it$atio &here the
i!$rer proc$re! a third party( called the rei!$rer( to i!$re him
agai!t the liability by rea!o of !$ch origial i!$race.
4a!ically( a rei!$race i! a i!$race agai!t liability &hich
the origial i!$rer may ic$r i fa%or of the origial i!$red.
:>- @ulie and Alma formed a business
partnership :nder the business name 2ino &hop# the
partnership engaged in a sale of construction materials
@ulie insured the stoc"s in trade of 2ino &hop 3ith WIC
!nsurance Company for 2G()#))))) &ubse9uently# she
again got an insurance contract 3ith R&! for 2<#)))#)))))
and then from 4!C for 2'))#))))) A fire of un"no3n
origin gutted the store of the partnership @ulie filed her
claims 3ith the three insurance companies .o3ever# her
claims 3ere denied separately for breach of policy
condition 3hich re9uired the insurer to give notice of any
insurance effected covering the stoc"s in trade @ulie 3ent
to court and contended that she should not be blamed for
the omission# alleging that the insurance agents for WIC#
R&! and 4!C "ne3 of the e7istence of the additional
insurance coverages and that she 3as not informed about
the re9uirement that such other or additional insurance
should be stated in the policy
<? !s the contention of @ulie tenable ? 47plain
'? May she recover on her fire insurance policies ?
47plain
/@DDE/TED A"/-ER;
1? "o. )t i! I$lie3! d$ty a! the i!$red to di!clo!e the
other i!$race! co%erig the !ame !$bCect matter of the
i!$race beig applied for. >Ne2 'ife *nterprises, et al., v.
Court of Appeals, et al.( D.R. "o. 8J071( 6arch 31( 1882?
2? "o. I$lie3! fail$re to di!clo!e the other i!$race! i!
co!idered a! %iolatio of a &arraty. >Ibid.?
"BTE/ A"D *B66E"T/;
a. Ohe) %/s!)&/$e #)oh%+%%o/ $'&!se- A i!$race
policy cotai! the follo&ig cla$!e; 2The i!$red !hall gi%e otice to
the *ompay of ay i!$race or i!$race! already effected( or
&hich may !$b!e'$etly be effected co%erig ay of the property or
propertie! hereby i!$red $le!! !$ch otice be gi%e ad the
partic$lar! be !tated therei before the occ$rrece of the lo!!
other&i!e all beefit! $der the policy !hall be deemed forfeited.5
The coditio i! a pro%i!io &hich i%ariably appear! i fire
i!$race policie! ad i! iteded to pre%et a icrea!e i the moral
ha+ard. )t i! commoly .o& a! the additioal or 2other i!$race55
cla$!e ad ha! bee $pheld a! %alid ad a! a &arraty that o other
i!$race e#i!t!.
b. E,,e$ o, 1%o'&%o/- The %iolatio of the 2other
i!$race5 cla$!e &o$ld a%oid the policy. E0$e#%o/" The other
i!$race m$!t be $po the !ame !$bCect matter( the !ame itere!t
therei( ad the !ame ri!.. There i! o %iolatio &here the mortgagor
ad the mortgagee too. !eparate i!$race!( i %iolatio of the 2other
i!$race cla$!e5 beca$!e their i!$rable itere!t i! differet.
>,ea%onia vs. Court of Appeals, et al., D.R. "o. 11JJ27( :ebr$ary 9(
1881?
:?- 1ara obtained a loan of 2())#))))) from
Angelina and as security she mortgaged her house 3orth
2+()#))))) to Angelina 1ara insured the house against
fire for 2+()#))))) 3ith Croft !nsurance 3ith the policy
stating that any other insurances shall be declared
other3ise all benefits under the policy shall be forfeited
Angelina li"e3ise insured the house# also against fire 3ith
Raider !nsurance in the amount of 2())#))) 0he
insurance policy also contained an 5other insurance6
clause $oth 1ara and Angelina did not advise their
respective insurers of the e7istence of the other
insurances
While both of the insurance policies 3ere in force
the house 3as burned
a? $oth insurance companies no3 disclaim
responsibility because of the violation of the 5other
insurance clause6 Could they legally do so ?
b? !n case# both 1ara and Angelina could recover#
ho3 much 3ould be the e7tent of their respective liabilities
?
34
c? Could 1ara refuse to pay her obligation of
2())#))))) considering that the house 3as already
burned ? Reason out your ans3ers
/@DDE/TED A"/-ER/;
a. "o. There i! o %iolatio of the other i!$race
cla$!e &here the mortgagor ad the mortgagee too. !eparate
i!$race!( beca$!e their i!$rable itere!t i! differet.
>Deagoia %!. *o$rt of Appeal!( et al.( 2J1 /*RA 112?
b. 7ara co$ld reco%er P710(000.00 ad Agelia(
P100(000.00( the e#tet of their re!pecti%e i!$rable itere!t!.
:or rea!o! !ee abo%e.
c. "o. Raider )!$race ta.e! the place of Agelia. )
other &ord! it i! !$brogated to the itere!t of Agelia.
"BTE/ A"D *B66E"T/;
a. I/s!)&+'e %/ .o)A&Ae* #)o#e)%es- The
mortgagor ha! a i!$rable itere!t i the f$ll %al$e of the mortgaged
property irre!pecti%e of the amo$t for &hich it i! mortgaged.
The mortgagee ha! a i!$rable itere!t oly $p to the e#tet
of the credit he ha! grated to the mortgagor.
b. Mo)A&Ae* #)o#e)%es- The mortgagor ad the
mortgagee ha%e each a idepedet i!$rable itere!t o the
property ad both itere!t! may be co%ered by oe policy or each
may ta.e o$t a !eparate policy co%erig hi! itere!t( &ither at the
!ame time or at !eparate time!.
The mortgagor3! i!$rable itere!t co%er! the f$ll %al$e of the
mortgaged property( e%e tho$gh the mortgage debt i! e'$i%alet to
the f$ll %al$e of the property(
The mortgagee3! i!$rable itere!t i! to the e#tet of the debt(
!ice the property i! relied $po a! !ec$rity thereof( ad i i!$rig he
i! ot i!$rig the property b$t hi! itere!t or lie thereo. Gi!
i!$rable itere!t i! prima facie the %al$e mortgaged ad e#ted! oly
to the amo$t of the debt( ot e#ceedig the %al$e of the mortgaged
property( Th$!( !eparate i!$race! co%erig differet i!$rable
itere!t! may be obtaied by the mortgagor ad the mortgagee( ad
thi! &o$ld ot %iolate the 2other i!$race5 cla$!e i the policy.
>Deagoia %!. *o$rt of Appeal!( et al.( 2J1 /*RA 112?
c. E,,e$ o, $h&/Ae o, %/e)es %/ #)o#e)(- Ay
chage $accompaied by a chage i i!$race !$!ped! the
i!$race $til the itere!t i the thig ad the i!$race i! %e!ted i
the !ame per!o. >/ec. 20( )!$race *ode?
d. S!+)oA&%o/- )f the plaitiff3! property ha! bee
i!$red( ad he ha! recei%ed idemity from the i!$race compay
for the iC$ry or lo!! ari!ig o$r of the &rog or breach of cotract
complaied of( the i!$race compay !hall be !$brogated to the
right! of the i!$red agai!t the &rogdoer or the per!o &ho
%iolated he cotract. >Article 2207( *i%il *ode?
The right of !$brogatio i! ot depedet $po( or doe! it
gro& o$t of( ay pri%ity of cotract or $po &ritte a!!igmet of
claim. )t accr$e! !imply $po paymet of the i!$race claim by the
i!$rer. >Coast2ise 'i%htera%e Corporation vs. Court of Appeals, et
al., 2J1 /*RA 789?
:<- Irepalife and D$2 entered into a contract of
group life insurance 3ith Irepalife agreeing to insure the
lives of eligible housing loan mortgagors of D$2 -n
Aovember <<# '))N# Dr 1euterio# a housing debtor of D$2#
applied for membership in the group life insurance plan
!n his application Dr 1euterio stated that he never had
high blood pressure# cancer# etc# and that to the best of
his "no3ledge# he 3as in good health
0hus# on Aovember <(# '))N# Irepalife issued the
certificate on Dr 1euterio8s insurance coverage to the
e7tent of his D$2 mortage indebtedness of 2J;#'))))
0he policy state that upon receipt of proof of debtor8s
death during the terms of the insurance# a death benefit in
the amount of 2J;#))))) shall be paid !n the event of the
debtor8s death before his indebtedness 3ith 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# if there is any shall
then be paid to the beneficiaryCies designated by the
debtor !n August ;# '))(# Dr 1euterio died due to
6massive cerebral hemorrhage6 D$2 submitted a claim#
on the 5mortgage redemption insurance6 but it 3as denied
by Irepalife on the ground of nonKdisclosure that Dr
1euterio 3as suffering from hypertension# the cause of his
death
As a result of the nonKpayment insurance claim#
3hich 3ould have resulted to a full payment of the
mortgage debt to D$2# D$2 then foreclosed on the
property
:pon being sued by Dr 1euterio8s heirs for the
insurance proceeds Irepalife no3 raises# the defense of
concealment of Dr 1euterio8s being hypertensive# and no
35
sho3ing of the e7act amount of Dr 1euterio8s outstanding
indebtedness to D$2 at the time of his death
Could Dr 1euterio8s heirs recover ? &tate your
reasons
/@DDE/TED A"/-ER; <e!. *ocealmet of the
!tate of health of the i!$red mortgagor a! ba!i! for ref$!ig
paymet of i!$race claim! !ho$ld be e!tabli!hed by
!$fficiet proof of the real !tate of health of the i!$red.
The i!$race ta.e &a! a life i!$race policy &hich
i! a %al$ed policy. @le!! the itere!t of the per!o i!$red i!
!$!ceptible of e#act pec$iary e!timatio( the mea!$re of
idemity $der a policy of i!$race $po life or health i! the
!$m fi#ed i the policy( i thi! ca!e P89(200.00.
/ice D4P ha! already foreclo!ed o the re!idetial lot
i !ati!factio of Dr. 7e$terio3! o$t!tadig loa( the i!$race
proceed! !hall i$re to the beefit of the heir! of Dr. 7e$terio.
D4P !ho$ld ot $C$!tly erich it!elf by collectig the i!$race
proceed! after it ha! foreclo!ed the property. >,reat Pacific
'ife Assurance Corporation v. Court of Appeals, et al., D.R. "o.
113888( Bctober 13( 1888?
"BTE/ A"D *B66E"T/;
a. I/s!)&+'e %/e)es %/ .o)A&Ae* #)o#e)%es %/
.o)A&Ae )e*e.#%o/ %/s!)&/$e- The ratioale of a gro$p
i!$race policy of mortgagor!( other&i!e .o& a! the 2mortgage
redemptio i!$race(5 i! a de%ice for the protectio of both the
mortgagee ad the mortgagor.
B the part of the mortgagee( it ha! to eter ito !$ch form of
cotract !o that i the e%et of the $e#pected demi!e of the
mortgagor d$rig the !$b!i!tece of the mortgage debt( the proceed!
from !$ch i!$race &ill be applied to the paymet of the mortgage
debt( thereby relie%ig the heir! of the mortgagor from payig the
obligatio.
) a !imilar %ei( ample protectio i! gi%e to the mortgagor
!o that i the e%et of hi! death( the mortgage obligatio &ill be
e#tig$i!hed by the applicatio of the i!$race proceed! to the
mortgage idebtede!!.
*o!e'$etly( &here the mortgagor pay! the i!$race
premi$m $der the gro$p i!$race policy( ma.ig the lo!! payable to
the mortgagee( the i!$race i! o the mortgagor3! itere!t( ad the
mortgagor coti$e! to be a party to the cotract. ) thi! type of
i!$race( the mortgagee i! !imply a appoitee of the i!$race
f$d( !$ch lo!! 0 payable cla$!e doe! ot ma.e the mortgagee a
party to the cotract.
Thi! co$ld be !ee from the pro%i!io! of /ectio 8 of the
)!$race *ode( &hich read!; 2@le!! the policy pro%ide!( &here a
mortgagor of property effect! i!$race i hi! o& ame pro%idig
that the lo!! !hall be payable to the mortgagee( or a!!ig! a policy of
i!$race to a mortgagee( the i!$race i! deemed to be $po the
itere!t of the mortgagor( &ho doe! ot cea!e to be a party to the
origial cotract( ad ay act of hi!( prior to the lo!!( &hich &o$ld
other&i!e a%oid the i!$race( &ill ha%e the !ame effect( altho$gh the
property i! ) the had! of the mortgagee( b$t ay act &hich( $der
the cotract of i!$race( i! to be performed by the mortgagor( may
be performed by the mortgagee therei amed( &ith the !ame effect
a! if it had bee performed by the mortgagor.5 >,reat Pacific 'ife
Assurance Corporation v. Court of Appeals, et al., D.R. "o. 113888(
Bctober 13( 1888
:7- What damages may be recovered in marine
insurance :
/@DDE/TED A"/-ER; Reco%ery co$ld be made
oly if the damage &a! ca$!ed by peril! of the !ea /o +(
peril! of the !hip. Defect! of the !hip are peril! of the !hip.
:D- A marine insurance policy on a cargo states
that 5the insurer shall be liable for losses incident to perils
of the sea6 During the voyage# sea3ater entered the
compartment 3here the cargo 3as stored due to the
defective drainpipe of the ship the insured filed an action
on the policy for recovery of the damages caused to the
cargo May the insured recover damages ?
/@DDE/TED A"/-ER; "o. The lo!! &a! ca$!ed by
peril! of the !hip ad ot of the !ea. Thi! i! !o beca$!e the
defecti%e draipipe i! attrib$table to the coditio of the !hip.
:C- What is meant by actual total loss in marine
insurance ?
/@DDE/TED A"/-ER; A act$al total lo!! for
i!$race p$rpo!e! i! ca$!ed by;
a. A total de!tr$ctio of the thig i!$redK
b. The irretrie%able lo!! of thig by !i.ig or by beig
bro.e $pK
c. Ay damage to the thig &hich reder! it %al$ele!!
to the o&er for the p$rpo!e for &hich he held itK or
36
d. Ay other e%et &hich effecti%ely depri%e! the o&er
of the po!!e!!io( at the port of de!tiatio( of the thig
i!$red. >/ec. 130( )!$race *ode?
20- An insurance company issued a marine
insurance policy covering a shipment by sea from Mindoro
to $atangas of <#))) pieces of Mindoro garden stones
against 5total loss only6 0he stones 3ere loaded in t3o
lighters# the first 3ith ;)) pieces and the second 3ith N))
pieces $ecause of rough seas# damage 3as caused the
second lighter resulting in the loss of G'( out of the N))
pieces 0he o3ner of the shipment filed claims against the
insurance company on the ground of constructive total
loss inasmuch as more than threeKfourths >GCN? of the value
of the stones had been lost in one of the lighters
!s the insurance company liable under its policy ?
/@DDE/TED A"/-ER; "o. There i! o co!tr$cti%e
total lo!! beca$!e the three,fo$rth! lo!! i! to be comp$ted o
the &hole !hipmet of 1(000 !toe! &hich are co%ered by the
!igle policy co%erage. >.riental Assurance Corporation v. Court of
Appeals, et al.( 200 /*RA J18?
"BTE/ A"D *B66E"T/;
a. Co/s)!$%1e o&' 'oss %/ .&)%/e %/s!)&/$e- Be
&hich gi%e! to a per!o a right to abado. >/ec. 131( )!$race
*ode?
b. I/s&/$es whe)e he)e %s & $o/s)!$%1e o&' 'oss
o, he h%/A %/s!)e* wh%$h wo!'* e/%'e &/ %/s!)e* o
&+&/*o/ %/ .&)%/e %/s!)&/$e"
1? )f more tha three,fo$rth! of it! %al$e i!
act$ally lo!t or &o$ld ha%e to be e#peded to reco%er it
from the perilK
2? )f it i! iC$red to !$ch a e#tet a! to red$ce
it! %al$e more tha three,fo$rth!K
3? )f the thig i!$red( i! a !hip ad the
cotemplated %oyage caot be la&f$lly performed
&itho$t ic$rrig either a e#pe!e to the i!$red of
more tha three,fo$rth! the %al$e of the thig
abadoed or a ri!. &hich a pr$det ma &o$ld ot
ta.e $der the circ$m!tace!K or
J? )f the thig i!$red( beig cargo or
freightage( ad the %oyage caot be performed or
aother !hip proc$red by the ma!ter( &ithi a
rea!oable time ad &ith rea!oable diligece( to
for&ard the cargo( &itho$t ic$rrig the li.e e#pe!e or
ri!.. 4$t freightage caot i ay ca!e be abadoed
$le!! the !hip i! al!o abadoed. >/ec. 138( )!$race
*ode?
c. 9U;#o/ &/ &$!&' o&' 'oss@ & #e)so/ %/s!)e* %s
e/%'e* o #&(.e/ w%ho! /o%$e o, &+&/*o/.e/- >/ec.
131( )!$race *ode?
2:- RC Corporation purchased rice from
0hailand# 3hich it intended to sell locally Due to stormy
3eather# the ship carrying the rice became submerged in
sea 3ater# and 3ith it the rice cargo When the cargo
arrived in Manila# RC filed a claim for total loss 3ith the
insurer# because the rice 3as no longer fit for human
consumption Admittedly the rice could still be used as
animal feed
!s RC8s claim for total loss justifiable ? 47plain
/@DDE/TED A"/-ER; <e!. The rice &a! imported
to be !old for h$ma co!$mptio. )t i! o& fit oly for aimal
feed.
*omplete phy!ical de!tr$ctio of the !$bCect matter i!
ot e!!etial to co!tit$te act$al total lo!!. /$ch a lo!! may
e#i!t &here the form ad !pecie of the thig i! de!troyed(
altho$gh the material! of &hich it co!i!ted !till e#i!t( a! &here
the cargo by the proce!! of decompo!itio or other chemical
agecy o loger remai! the !ame .id of thig a! before.
>Pan /ala"an Insurance Corporation v. Court of Appeals, et al., D.R.
"o. 81070( /eptember 1( 1881 citig %ario$! ca!e!?
22- 0he general rule provided in &ec ++ of the
!nsurance Code is that not3ithstanding any agreement to
the contrary# no policy or contract of insurance issued by
an insurance company is valid and binding until the
premium thereof has been paid
Are there any e7ceptions to the rule ? 47plain your
ans3er briefly
/@DDE/TED A"/-ER; The follo&ig are the
i!tace! &here the opaymet of the premi$m doe! ot
reder the i!$race cotract or policy i%alid;
37
a. ) ca!e of a life or id$!trial life policy &hee%er the
grace period pro%i!io applie!.
b. 2Ay ac.o&ledgmet i a policy or cotract of
i!$race of the receipt of premi$m i! cocl$!i%e e%idece of
it! paymet( !o far a! to ma.e the policy bidig(
ot&ith!tadig ay !tip$latio therei that it !hall ot be
bidig $til premi$m i! act$ally paid.5 >/ec. 78( )!$race *ode?
c. /ectio 77 may ot apply if the partie! ha%e agreed
to the paymet i i!tallmet! of the premi$m! ad partial
paymet ha! bee made at the time of the lo!!. >/akati
Tuscan" Condominium Corporation v. Court of Appeals, et al.( 211
/*RA J93?
d. E!toppel. The i!$rer may grat credit e#te!io for
the paymet of premi$m ad if thi! ha! bee the co!i!tet
practice( the i!$rer co$ld ot ta.e ref$ge i the o,paymet
of the premi$m. >-PCB ,eneral Insurance Co., v. /asa%ana
Telamart, D.R. "o. 137172( April J( 2001?
2=- !n '))( Antonio obtained a fire insurance from
American .ome Assurance Company the stoc" in trade of
his business# Moonlight 4nterprises 0he insurance 3as
due to e7pire on '( March <==) -n ( April '))(# Antonio
issued a chec" in the amount of 2'#=JG() to American8s
agent @ames as payment for the rene3al of the policy !n
turn# @ames delivered to Antonio Rene3al Certificate Ao
)))==)N+
-n ; April '))(# Moonlight 4nterprises 3as
completely razed by fire 3ith a total estimated loss of
bet3een 2 N million to 2 ( million 0he chec" 3as dra3n
against a Manila ban" and deposited in American8s
Cagayan de -ro ban" account 0he corresponding official
receipt 3as issued on <) April '))( &ubse9uently# a ne3
insurance policy# 2olicy Ao ');KN'GNN=JK+ # 3as issued#
3hereby American undertoo" to indemnify Antonio for
any damage or loss arising from fire up to 2'))#))))) for
the period '( March '))( to '( March '));
Antonio then filed an insurance claim 3ith
American and four other coKinsurers# namelyL 2ioneer#
2rudential# ,ilipino and Domestic American denied the
claim raising the issue that there 3as no e7isting
insurance contract as a result of nonKpayment of the
premium !t also contends that assuming the e7istence of
a contract# that Antonio violated several provisions of the
contract# among others# failure to notify American of any
insurance already effected to cover the insured goods
Could Antonio recover ?
/@DDE/TED A"/-ER; <e!. There &a! paymet.
The ree&al certificate i!!$ed to Atoio cotaied the
ac.o&ledgmet that the premi$m had bee paid. The chec.
dra& by Atoio i America3! fa%or ad deli%ered to it! aget
&a! hoored &he pre!eted ad America forth&ith i!!$ed
it! official receipt. /ectio 309 of the )!$race *ode pro%ide!
that ay i!$race compay &hich deli%er! a policy or cotract
of i!$race to a i!$race aget or bro.er !hall be deemed
to ha%e a$thori+ed !$ch aget or bro.er to recei%e o it! behalf
paymet! of premi$m!.
/ec. 78 of the !ame *ode e#plicitly pro%ide!( 2A
ac.o&ledgmet i a policy or cotract of i!$race of the
receipt of premi$m i! cocl$!i%e e%idece of it! paymet( !o
far a! to ma.e the policy bidig( ot&ith!tadig ay
!tip$latio therei that it !hall ot be bidig $til the premi$m
i! act$ally paid.5
/ectio. 78 e!tabli!he! a legal fictio of paymet ad
!ho$ld be iterpreted a! a e#ceptio to /ectio 77. >American
&ome Assurance Compan" v. Chua( D.R. "o. 130JJ21( I$e 28(
1888?
2>- !n <==J# 2rimitivo 3as insured 3ith $, 1ifeman
!nsurance Corporation for 2')#))))) -n -ctober ')#
'))N# he applied for an additional insurance coverage of
2()#))))) .is 3ife paid 2'#)+()) as premiums to the
agent 3ho issued a receipt indicating that the amount 3as
merely a 5deposit6 0he application form 3as lost# so
2rimitivo accomplished another one -n Aovember <#
'))N# he under3ent a physical e7amination 3hich he
passed
As is the procedure# all of 2rimitivo8s papers 3ere
then sent to the Manila office of $, 1ifeman !nsurance
Corporation 3hich received the papers on Aovember '+#
'))N -n December '# '))N# the insurer then approved the
policy and issued the corresponding policy not "no3ing
that in the meantime# 2rimitivo dro3ned and died on
Aovember '(# '))N
38
0he insurer no3 disclaims liability on the additional
2()#))))) coverage because of failure to comply 3ith the
follo3ing re9uisites stated in the application form for the
perfection of the contract of insuranceL 50here shall be no
contract of insurance unless and until a policy is issued
on this application and that the said policy shall not ta"e
effect until the premium has been paid and the policy
delivered to and accepted by meCus in person 3hile !CWe#
amCare in good health6
!s 2rimitivo8s beneficiary entitled to the proceeds
additional 2()#))))) additional insurance 3hich amounts
to 2<()#))))) in vie3 of a triple indemnity rider on the
policy? 47plain briefly
/@DDE/TED A"/-ER. Primiti%o3! beeficiary i! ot
etitled to the i!$race proceed! for the follo&ig rea!o!;
a. The filig of the i!$race applicatio( paymet of
the premi$m( ad !$bmi!!io to the i!$rer( &ere all !$bCect to
the acceptace of the i!$rer. There &a! o acceptace by
the i!$race a! of the date &he Primiti%o died o "o%ember
21( 1887.
The coditio! impo!ed by the i!$rer for the protectio
of the cotract i! ot a pote!tati%e or fac$ltati%e coditio( b$t
i! a !$!pe!i%e oe &hereby the ac'$i!itio of right! deped!
$po the happeig of a e%et &hich co!tit$te! the
coditio. ) thi! ca!e( the !$!pe!i%e coditio &a! the policy
m$!t ha%e bee deli%ered ad accepted by the applicat &hile
he i! i good health. There &a! o,f$lfillmet of the
coditio( ho&e%er( ia!m$ch a! the applicat &a! already
dead at the time the policy &a! i!!$ed. Gece( the o,
f$lfillmet of the coditio re!$lted i the o,perfectio of the
cotract.
b? A cotract of i!$race( li.e other cotract!( m$!t be
a!!eted to by both partie! either i per!o or by their aget!.
/o log a! a applicatio for i!$race ha! ot bee either
accepted or reCected( it i! merely a offer or propo!al to ma.e a
cotract. The cotract( to be bidig from the date of
applicatio( m$!t ha%e bee a completed cotract( oe that
lea%e! othig to be doe( othig to be completed( othig to
be pa!!ed $po( or determied( before it !hall ta.e effect.
There ca be o cotract of i!$race $le!! the mid! of the
partie! ha%e et i agreemet.
c? The i!$rer caot be held for gro!! egligece. )t
!ho$ld be oted that a applicatio i! a mere offer &hich
re'$ire! the o%ert act of the i!$rer for it to ripe ito a
cotract. Delay i actig o the applicatio doe! ot co!tit$te
acceptace e%e tho$gh the i!$red ha! for&arded hi! fir!t
premi$m &ith hi! applicatio. The corporatio may ot be
peali+ed for the delay i the proce!!ig of the applicatio
paper!. >Pere( v. Court of Appeals, et al., D.R. "o. 11238(
Ia$ary 28( 2000?
"BTE/ A"D *B66E"T/K
a. Whe/ %/s!)&/$e $o/)&$ #e),e$e*- *otract of
i!$race i! perfected &here there i! a offer to be co%ered ad the
i!$race ha! accepted the offer ab!ol$tely.
b. ReI!%s%es ,o) & $o/)&$ o, %/s!)&/$e- )!$race
i! a cotract &hereby( for a !tip$lated co!ideratio( oe party
$derta.e! to compe!ate the other for lo!! o a !pecified !$bCect by
!pecified peril!.
A cotract( o the other had( i! a meetig of the mid!
bet&ee t&o per!o! &hereby oe bid! him!elf( &ith re!pect to the
other to gi%e !omethig or to reder !ome !er%ice.
@der Article 1318 of the *i%il *ode( there i! o cotract
$le!! the follo&ig re'$i!ite! coc$r;
>1? *o!et of the cotractig partie!K
>2? BbCect certai &hich i! the !$bCect matter of the
cotractK
>3? *a$!e of the obligatio &hich i! e!tabli!hed.
*o!et m$!t be maife!ted by the meetig of the offer ad the
acceptace $po the thig ad the ca$!e &hich are to co!tit$te the
cotract. The offer m$!t be certai ad the acceptace ab!ol$te.
>Pere( v. Court of Appeals, et al.( D.R. "o. 11238( Ia$ary 28( 2000?
2?- Aame instances 3hen an insured is entitled to a
return of the premium paid
/@DDE/TED A"/-ER; The i!$red i! etitled to a
ret$r of the premi$m paid i the follo&ig i!tace!;
a. To the &hole premi$m( if o part of the i!$red3!
itere!t i the thig i!$red be e#po!ed to ay of the peril!
agreed $po.
b. -here the i!$race i! made for a defiite period of
time ad the i!$red !$rreder! hi! policy( he !hall be etitled
to !$ch portio of the premi$m corre!podig to the $e#pired
time at a pro rata rate( $le!! a !hort period rate ha! bee
agreed $po ad appear! o the face of the policy( after
39
ded$ctig from the &hole premi$m ay claim for lo!! or
damage $der the policy &hich ha! pre%io$!ly accr$ed.
c. -he the cotract i! %oidable o acco$t of the
fra$d or mi!repre!etatio of the i!$rer or of hi! aget or o
acco$t of fact! the e#i!tece of &hich the i!$red &a!
igorat &itho$t hi! fa$ltK or &he( by ay defa$lt of the
i!$red other tha act$al fra$d( the i!$rer e%er ic$rred ay
liability $der the policy.
d. ) ca!e of o%er i!$race by !e%eral i!$rer!( the
i!$red i! etitled to a ratable ret$r of the premi$m(
proportioed to the amo$t by &hich the aggregate !$m
i!$red i all the policie! e#ceed! the i!$rable %al$e of the
thig at ri!..
2<- A collision bet3een a truc" driven by Iuillermo
o3ned by the Aational ,ood Authority >A,A? and a public
utility 0amara3 ,D o3ned and operated by %ictor resulted
to the death of five persons and injury to ten others# all of
3hom 3ere passengers of the ,D &everal cases 3ere filed
against Iuillermo# A,A and I&!&# A,A8s insurer of the
truc" for death and injuries# %ictor as 3ell as his insurer !t
3as found that Iuillermo8s negligence 3as he pro7imate
cause of the accident A,A# Iuillermo# I&!& and the
insurer of the ,D 3ere re9uired to pay jointly and severally
the heirs of the deceased passengers
May the insurer be impleaded directly by the
victims or their heirs ? !f so# could they be held solidarily
liable ? 47plain your ans3ers
/@DDE/TED A"/-ER; <e!. )t i! o& e!tabli!hed
that the iC$red or the heir! of the %ictim! of a %ehic$lar
accidet may !$e directly the i!$rer of the %ehicle. Thi! i! !o
beca$!e commo carrier! are re'$ired to !ec$re the
*omp$l!ory 6otor Vehicle 7iability )!$race >*6V7)?.
Altho$gh the %ictim! or their heir! may proceed directly
agai!t the i!$rer for idemity( the third party liability i! oly
$p to the e#tet of the i!$race policy ad tho!e re'$ired by
la&.
-hile it i! tr$e that &here the i!$race cotract
pro%ide! for idemity agai!t liability to third per!o!( ad
!$ch third per!o! ca directly !$e the i!$rer( the direct
liability of the idemity cotract! agai!t third party liability
doe! ot mea that the i!$rer ca be held liable in solidum
&ith the i!$red adFor the other partie! fo$d at fa$lt.
Thi! i! !o beca$!e the liability of the i!$rer i! ba!ed o
cotractK that of the i!$red carrier or %ehicle o&er i! ba!ed
$po tort. The liability of the i!$rer therefore( beig primary( i!
ot depedet o the reco%ery of C$dgmet from the C$dgmet
i!$red. >,overnment ervice Insurance "stem v. Court of
Appeals, et al., D.R. "o. 101J38( I$e 21( 1888?
27- What is no fault insurance and 3hat is the
proof re9uired in these cases ?
/@DDE/TED A"/-ER; "o eed to pro%e fa$lt or
egligece of ay .id i order of reco%er. Proof! of lo!! !hall
be !$fficiet to !$b!tatiate the claim( amog &hich icl$de
a. Police report of accidetK
b. Death certificate ad e%idece !$fficiet to e!tabli!h
the proper payeeK or medical report ad e%idece of medical or
ho!pital di!b$r!emet i re!pect of &hich ref$d i! claimed.
>/ec. 378( )!$race *ode?
2D- What are the conditions for the availment of
a no fault insurance ?
/@DDE/TED A"/-ER;
a. Bly for claim! for death or iC$ry of ay pa!!eger
or third party. )t doe! ot icl$de property damageK
b. Total idemity i re!pect of oe per!o !hall ot
e#ceed P1(000.00K
c. *laim may be made agai!t oe motor %ehicle oly.
) the ca!e of a occ$pat if a %ehicle( claim !hall lie
agai!t the i!$rer of the %ehicle i &hich the occ$pat i!
ridig( mo$tig or di!mo$tig from. ) ay other ca!e( claim
!hall be agai!t the i!$rer of the directly offedig %ehicle. )
all ca!e!( the right of the party payig the claim to reco%er
agai!t the o&er of the %ehicle re!po!ible for the accidet
!hall be maitaied. >/ec. 378( )!$race *ode?
2C- While driving his car along 4D&A# Cesar
sides3iped Roberto# causing injuries to the latter Roberto sued
Cesar and the third party liability insurer for damages andCor
insurance proceeds 0he insurance company moved to dismiss
the complaint contending that the liability of Cesar has not yet
been determined 3ith finality
40
a? !s the contention of the insurer correct ? 47plain
b? May the insurer be held liable 3ith Cesar ?
/@DDE/TED A"/-ER;
a? "o. The i!$rer i! ot correct. There i! o eed to &ait
for a determiatio of *e!ar3! liability &ith fiality. -here a
i!$race policy i!$re! directly agai!t liability( the i!$rer3! liability
accr$e! immediately $po the occ$rrece of the iC$ry or e%et $po
&hich the liability deped!. >/hafer %. I$dge( etc.( et al.( D.R. 7,
788J8( "o%ember 1J( 1888?
b? "o. The i!$rer caot be held !olidarily liable &ith *e!ar
beca$!e it! liability i! ba!ed o cotract &hile that of *e!ar i! ba!ed
o tort. >vda. de /a%lana, et al., v. &on. Consolacion, et al., D.R. "o.
90109( A$g$!t 9( 1882?
=0- D 3as riding in a suburban utility vehicle
>&:%? covered by a comprehensive motor vehicle liability
insurance >CM%1!? under3ritten by ,ast 2ay !nsurance
Company 3hen it collided 3ith a speeding bus o3ned by
RM 0ravel# !nc 0he collision resulted in serious injuries to
DM F# a passenger of the bus# and B# a pedestrian 3aiting
for a ride at the scene of the collision the police report
established that the bus 3as the offending vehicle 0he
bus had a CM%1! policy issued by Dragon !nsurance
Corporation# D# F and B jointly sued RM 0ravel and Dragon
!nsurance for indemnity under the !nsurance Code of the
2hilippines >2D <N;)? 0he lo3er court applied the 5noK
fault6 indemnity policy of the statute# dismissed the suit
against RM 0ravel# and ordered Dragon !nsurance to pay
indemnity to all three plaintiffs Do you agree 3ith the
court8s judgment ? 47plain
/@DDE/TED A"/-ER; "o. The co$rt !ho$ld ot
ha%e applied the o,fa$lt idemity policy( di!mi!!ed the !$it
agai!t R6 Tra%el ad ordered Drago )!$race to pay
idemity for the follo&ig rea!o!;
a. )t doe! ot appear from the fact! that H( < ad E
cho!e to a%ail of the 2o,fa$lt5 idemity cla$!e.
b. The ca!e agai!t R6 Tra%el )!$race !ho$ld ot be
di!mi!!ed to eable the partie! to reco%er agai!t it ay
damage! &hich may ot ha%e bee co%ered by the i!$race
policy i!!$ed by Drago.
=:- Robin insured his building against fire 3ith
4,I Assurance 0he insurance policy contained the usual
stipulation that any action or suit must be filed 3ithin one
year after the rejection of the claim
After his building burned do3n# Robin filed his
claim for fire loss 3ith 4,I -n ,ebruary 'J# '))G# 4,I
denied Robin8s claim -n April G# '))N# Robin sought
reconsideration of the denial# but 4,I reiterated its
position -n March ')# '))(# Robin commenced action
against 4,I
&hould Robin8s action be given due course ?
47plain
/@DDE/TED A"/-ER; "o. The pre!cripti%e period
of oe >1? year from reCectio of claim !tated i policy for filig
!$it i! ot !$!peded by a re'$e!t for reco!ideratio of claim
deial. >un Insurance v. Court of Appeals, et al., D.R. "o.
887J1( 6arch 13( 1881? 6ore tha oe year had lap!ed &he
the !$it &a! filed oly o 6arch 20( 2001 de!pite the deial
ha%ig ta.e place o :ebr$ary 28( 2003.
=2- @oseph Chua bought and imported from 0aipei
() metric tons of Dicalcium 2hospate# ,eed Irade 0hese
3ere contained in <#'() bags shipped to the 2hilippines
and insured by ,irst !nsurance Co# against all ris"s at the
port of origin under a Marine 2olicy 3ith the notation#
5Claim# if any# payable in :& Currency at Manila#6 and
stamped at the lo3er left side of the policy as 5Claim
Agent#6 &mith# $ell and Co
As a result of damages suffered# @oseph brought
suit against &mith# $ell as a result of its refusal to pay
claiming to be a mere settling or claim agent because it
has not even ta"en part in the contract of insurance May
&mith# $ell be held liable ? 47plain
/@DDE/TED A"/-ER; "o. A! a !ettlig aget
actig &ithi the !cope of it! a$thority( /mith( 4ell caot be
held per!oally liable adFor !olidarily liable for the obligatio!
of it! di!clo!ed pricipal merely beca$!e there i! allegedly a
eed for a !peedy !ettlemet of the claim.
/mith( 4ell co$ld ot be held liable beca$!e there i! o
pri%ity of cotract bet&ee it ad Io!eph( the i!$red.
41
There i! !olidary liability oly &he the obligatio
e#pre!!ly !o !tate! or &he the la& or the at$re of the
obligatio re'$ire! !olidarity. :$rthermore( /ec. 180 of the
)!$race *ode clarifie! the role of the re!idet aget of a
foreig i!$race compay to be merely the repre!etati%e
ta!.ed to recei%e legal proce!!e! o behalf of it! pricipal ad
ot to a!&er per!oally for ay i!$race claim!. >mith, Bell
& Co., Inc. v. Court of Appeals, et al., 297 /*RA 130?
==- What 3arranties are implied in marine
insurance ?
/@DDE/TED A"/-ER; The follo&ig are the implied
&arratie! i marie i!$race;
a. That the !hip i! !ea&orthy to ma.e the %oyage
adFor to ta.e i certai cargoe!K
b. That the !hip !hall ot de%iate from the %oyage
i!$redK
c. That the !hip !hall carry the ece!!ary doc$met! to
!ho& atioality or e$trality ad that it &ill ot carry doc$met
&hich &ill ca!t rea!oable !$!picio thereoK
d. That the !hip !hall ot carry cotrabad( e!pecially if
it i! ma.ig a %oyage thro$gh belligeret &ater!.
"BTE/ A"D *B66E"T/;
a. W&))&/(@ *e,%/e*- A &arraty i! a !tatemet or
promi!e !et forth i the policy or by referece icorporated therei(
the $tr$th or o,f$lfillmet of &hich i ay re!pect ad &itho$t
referece to &hether the i!$rer &a! i fact preC$diced by !$ch $tr$th
or o,f$lfillmet( reder! the policy %oidable by the i!$rer.
>Prudential ,uarantee and Assurance, Inc. v. Trans8Asia hippin%
'ines, Inc., D. R ."o. 111880( I$e 20( 2009( ad compaio ca!e?
b. B)e&$h .!s +e #)o1e* o 1o%* #o'%$(- The
%iolatio of a material &arraty( or other material pro%i!io of a policy
o the part of either party etitle! the other to re!cid. Go&e%er( the
breach m$!t be d$ly !ho& by the party allegig the !ame.
There may be &ai%er of the right to re!cid o the ba!i! of
the breach if the premi$m &a! accepted for t&o co!ec$ti%e year!.
>Prudential ,uarantee and Assurance, Inc. v. Trans8Asia hippin%
'ines, Inc., D. R ."o. 111880( I$e 20( 2009( ad compaio ca!e?
=>- Distinguish one from the otherL
concealment# representation and 3arranty as used in
insurance
/@DDE/TED A"/-ER;
a. )cl$!io i cotract; The fact! $o/$e&'e* are ot
part of the cotractK )e#)ese/&%o/s are mere collateral
id$cemet! to the cotractK tho!e w&))&/e* are part of the
cotract.
b. "at$re of !tatemet!; Co/$e&'.e/t i! eglect to
comm$icateK )e#)ese/&%o/s oral or &ritte !tatemetK
w&))&/%es may be e#pre!! or implied.
c. E#tet; The fact! $o/$e&'e* m$!t be materialK !o
al!o &ith )e#)ese/&%o/s( &hile w&))&/%es are cocl$!i%ely
pre!$med material.
d. *o!e'$ece!; Co/$e&'.e/ %itiate! the cotract
ad etitle! the i!$rer to re!cid( e%e if the death or lo!! &a!
die to a ca$!e ot at all related to the cocealed matterK if the
)e#)ese/&%o/ i! fal!e o a material poit( the iC$red party i!
etitled to re!cid from the time &he the repre!etatio
become! fal!eK $po breach of a w&))&/( the i!$rer ha! the
right to re!cid.
=?- -n March <G# '))N# Rizal &urety / !nsurance
Company issued ,ire !nsurance 2olicy Ao N(+'+ in favor
of 0rans3orld Knitting Mills# !nc for 2 <#())#))))) 3hich
amount 3as increased to 2<#())#))))) for the period
August <N# '))N to March <G# '))( 0he coverage of the
policy reads# included among others those# 5777 contained
andCor stored during the coverage of this 2olicy in the
premises occupied by them forming part of the buildings
situated 3ithin o3n Compound 7776
-n @anuary <'# '))(# fire bro"e out in the
compound of 0rans3orld !t razed the middle portion of its
fourKspan building and partly gutted the left and right
sections thereof A t3oKstorey building that 3as behind
the fourKspan building 3here fun and amusement
machines and spare parts 3ere stored# 3as also destroyed
by the fire Rizal no3 refuses to pay contending that the
fire insurance policy covered only the contents of the fourK
span building# and not the damage caused on the t3oK
storey anne7 building
!s the contention correct ?
/@DDE/TED A"/-ER; "o. Ri+al i! liable for the
damage ca$!ed o the t&o,!torey b$ildig.
42
The t&o !torey,b$ildig &a! already e#i!tig &he the
fire! i!$race policy cotract &a! etered ito. Ri+al !ho$ld
ha%e !pecifically e#cl$ded !aid t&o,!torey b$ildig from the
co%erage of the fire i!$race if mided to e#cl$de the !ame(
b$t it did ot. )t &et o to pro%ide !$ch fire i!$race policy
&hich co%er! the prod$ct!( ra& material! ad !$pplie! !tored
2i the premi!e!5 of Tra!&orld &hich &a! a itegral part of
the fo$r,!pa b$ildig. >Ri(al uret" & Insurance Compan" v.
Court of Appeals, et al., I$ly 18( 2000?
"BTE/ A"D *B66E"T/;
a. I/e)#)e&%o/ o, %/s!)&/$e $o/)&$s- A !tip$latio
a! to the co%erage of the fire i!$race policy &hich ha! created
do$bt !ho$ld be re!ol%ed agai!t the i!$rer &ho!e la&yer or
maager! &o$ld ha%e drafted the fire i!$race policy. Thi! i! i
accord &ith the pro%i!io! of Article 1377 of the "e& *i%il *ode &hich
pro%ide! that( 2The iterpretatio of ob!c$re &ord! or !tip$latio! i a
cotract !hall ot fa%or the party &ho ca$!ed the ob!c$rity.5 >Ri(al
uret" & Insurance Compan" v. Court of Appeals, et al., I$ly 18(
2000?
=<- .1 insured his brand ne3 car 3ith 2
!nsurance Company for comprehensive coverage 3herein
the insurance company undertoo" to indemnify him
against loss or damage to the car >a? by accidental
collision 777 >b? by fire# e7ternal e7plosion# burglary# or
theft# and >c? malicious act
After a month# the car 3as carnapped 3hile par"ed
in the par"ing space in front of the !ntercontinental .otel
in Ma"ati .18s 3ife 3ho 3as driving said car before it 3as
carnapped reported immediately the incident to various
government agencies in compliance 3ith the insurance
re9uirements
$ecause the car could not be recovered# .1 filed a
claim for the loss of the car 3ith the insurance company
but it 3as denied on the ground that his 3ife 3ho 3as
driving the car 3hen it 3as carnapped 3as in possession
of an e7pired driver8s license# a violation of the
5authorized driver6 clause of the insurance company
May the insurance company be held liable to
indemnify .1 for the loss of the insured vehicle ? 47plain
/@DDE/TED A"/-ER; <e!. The lo!! of the car by
theft i! a co%ered lo!!. )t i! immaterial that G73! &ife &a!
dri%ig the car &ith a e#pired dri%er3! lice!e at the time it &a!
carapped. >Perla Compania de e%uros v. Court of Appeals, et al.,
208 /*RA J87?
=7- D Company procured a group accident
insurance policy for its construction employees variously
assigned to its provincial infrastructure projects F
!nsurance Company under3rote the coverage# the
premiums of 3hich 3ere paid for entirely by D Company
3ithout any employee contributions While the policy 3as
in effect# five of the covered employees perished at sea on
their 3ay to their provincial assignments 0heir 3ives sued
F !nsurance Company for payment of death benefits under
the policy While the suit 3as pending# the 3ives signed a
po3er of attorney designating an D Company e7ecutive #
2@# as their authorized representative to enter into a
settlement 3ith the insurance company When a
settlement 3as reached# 2@ instructed the insurance
company to issue the settlement chec" to the order of D
Company# 3hich 3ill underta"e the payment to the
individual claimants of their respective shares 2@
misappropriated the settlement amount and the 3ives
pursued their case against F !nsurance Company Will the
suit prosper ? 47plain
/@DDE/TED A"/-ER; <e!. )t i! the !tadard
practice i the gro$p i!$race b$!ie!! that the employer,
employee policyholder i! the aget of the i!$rer. /ice H
*ompay( thro$gh it! e#ec$ti%e PI( acted a! aget of the <
)!$race *ompay( it i! bo$d by the cod$ct of it! aget.
"BTE/ A"D *B66E"T/;
a. 2%&+%'%%es o/ $o/)&$ o, s!)e(sh%#- /ectio 179 of
the )!$race *ode pro%ide! that the liability of the !$rety of !$retie!
!hall be Coit ad !e%eral &ith the obligor ad !hall be limited to the
amo$t of the bod. )t i! determied !trictly by the term! of the
cotract of !$rety!hip i relatio to the pricipal cotract bet&ee the
obligor ad the obligee. >Republic v. Court of Appeals, et al., D.R. "o.
103073( 6arch 13( 2001?
Ph%'%##%/e De#os% I/s!)&/$e Co)#o)&%o/
A$ 9R-A- =?C:;@ &s &.e/*e* +( P-D- No- :C=7
&/* R-A- No- 7>00
43
:- .orace maintains a 2<)#))))) savings account#
a 2')#))))) chec"ing account# a 2G)#))))) money
mar"et placement and a 2N)#))))) trust fund in a medium
size commercial ban"
&tate 3hich of the four accounts are deemed
insured by the 2hilippine Deposit !nsurance Corporation
/@DDE/TED A"/-ER; The P10(000.00 !a%ig!
acco$t ad the P20(000.00 chec.ig acco$t are deemed
i!$red by the Philippie Depo!it )!$race *orporatio.
9>; T)&/s#o)&%o/ 2&ws
9&; Co..o/ C&))%e)s 9New C%1%' Co*e@
A)s- :7=2 o :7<<;
9+; Co..e)$%&' Co/)&$s ,o)
T)&/s#o)&%o/ O1e)'&/* 9Co*e o, Co..e)$e
A)s- =>C o =7C;
:- Define a common carrier
/@DDE/TED A"/-ER; A per!o( corporatio( firm
or a!!ociatio egaged i the b$!ie!! of carryig BR
tra!portig pa!!eger! or good! or both( by lad( &ater of air
for compe!atio( offerig it! !er%ice! to the p$blic. >Art.
1732( *i%il *ode?
)t i! ot ece!!ary for a tra!port compay to ha%e a
certificate of p$blic co%eiece ad ece!!ity before it co$ld
be co!idered a! a commo carrier. >!e ,u(man v. Court of
Appeals, et al., 198 /*RA 912?
"BTE/ A"D *B66E"T/;
a. No *%s%/$%o/ +ewee/ #)%/$%#&' +!s%/ess &/*
s%*e'%/e o,,e)%/A o, se)1%$e o #!+'%$- Art. 1732 of the *i%il
*ode ma.e! o di!tictio bet&ee oe &ho!e pricipal b$!ie!!
acti%ity i! the carryig of per!o! or good! or both( ad oe &ho doe!
!$ch carryig oly a! a acillary acti%ity >i local idiom( a! 2a
!idelie5? )t caref$lly a%oid! ma.ig ay di!tictio bet&ee a per!o
or eterpri!e offerig tra!portatio !er%ice o a reg$lar or !ched$led
ba!i! ad oe offerig !$ch !er%ice o a occa!ioal( epi!odic or
$!ched$led ba!i!. "either doe! it di!tig$i!h bet&ee a carrier
offerig it! !er%ice! to the 2geeral p$blic(5 i.e.( the geeral
comm$ity or pop$latio( ad oe &ho offer! !er%ice! or !olicit!
b$!ie!! oly from a arro& !egmet of the geeral pop$latio.
>'oadstar hippin% Co., Inc. v. Court of Appeals, et al., D.R. "o.
131921( /eptember 28( 1888?
b. C!so.s +)oBe) %s & $o..o/ $&))%e)- )t i!
co!idered a! !$ch e%e if it! pricipal f$ctio i! to prepare the
correct c$!tom! declaratio ad proper !hippig doc$met! a!
re'$ired by la& if it $derta.e! to deli%er the good! for pec$iary
co!ideratio. "o di!tictio i! made bet&ee oe &ho!e pricipal
b$!ie!! acti%ity i! the carryig of good! ad oe &ho doe! !$ch
carryig oly a! a acillary acti%ity. )t !ho$ld e#erci!e e#traordiary
diligece i the care of good!. >A .#. anche( Brokera%e, Inc. v. Court
of Appeals, et al., D. R. "o. 1J7078( December 21( 200J citig !e
,u(man v. Court of Appeals, 198 /*RA 912( 917 >1888?
c. Co..o/ $&))%e) $e&ses o +e $o..o/ $&))%e) if
chartered ad become! a pri%ate carrier.
2- Christine charters a vessel o3ned and operated
by &tar &hipping Co# a common carrier# for the purpose of
transporting t3o generators to Cebu &tar &hipping8s
employees negligently sto3ed the t3o generators by
failing to properly lash and secure them in the vessel8s
hold During the trip# a strong 3ind hits the vessel# causing
severe damages to the generators 3hich slid in the hold
and hit each other
When sued for damages &tar &hipping cites a
stipulation in the charter agreement e7empting the
company from liability for loss or damage a rising from the
negligence of its agents Christine countered by stating
that the aforementioned stipulation is against public policy
and therefore# null and void
!s the stipulation valid ? Would you hold the
shipping company liable ?
/@DDE/TED A"/-ER; <e!. The !tip$latio i! %alid(
hece the !hippig compay i! ot liable.
The prohibitio agai!t e#emptig a carrier from liability
a! a re!$lt of the act! or omi!!io! of it! employee! i!
applicable oly to commo carrier!. A commo carrier
$derta.ig to carry a !pecial cargo or chartered to a !pecial
per!o become! a pri%ate carrier hece ot !$bCect to the
abo%e prohibitio. >&ome Insurance Co., v. American
teamship A%encies, 23 /*RA 2J?
44
=- 1oadstar received# from a single consignee# on
board its MC% Chero"ee la3anit hard3ood# tile 3ood
assemblies and apitong mouldings 3ith a total value of
2;#);+#<+J))# and insured for the same amount 3ith M!C
against various ris"s# including 5total loss by total loss of
the vessel6 !t li"e3ise carried passengers 0he vessel# in
turn 3as insured by 2IA! for 2N million -n ') Aovember
<=JN# the vessel san" off 1imasa3a !sland# allegedly as a
result of a typhoon# resulting to total loss of the vessel and
the cargo 4vidence sho3s that the 3ind condition in the
area 3here the vessel san" 3as moderate 0he consignee
made a claim 3ith 1oadstar 3hich 3as ignored M!C then
paid the consignee and the latter signed a subrogation
receipt
M!C then filed suit against both 1oadstar and 2IA!
1oadstar raises the defense that it is not a common carrier
because it does not have a C2CA# that there 3as only one
shipper consignee for a special cargo
!t li"e3ise posits the application of the 5limited
liability6 theory# and that the claim 3as barred by
prescription Rule on the contentions
/@DDE/TED A"/-ER; 7oad!tar i! a commo
carrier. )t i! ot ece!!ary that the carrier be i!!$ed a
certificate of p$blic co%eiece( ad thi! p$blic character i!
ot altered by the fact that the carriage of the good! i
'$e!tio &a! periodic( occa!ioal( epi!odic or $!ched$led.
The record! do ot di!clo!e that 6FV *hero.ee o the
date i '$e!tio( $dertoo. to carry a !pecial cargo or &a!
chartered to a !pecial per!o oly. There &a! o charter party.
:$rther( the bare fact that the %e!!el &a! carryig a partic$lar
type of cargo for oe !hipper( &hich appear! to be p$rely
coicidetal( i! ot rea!o eo$gh to co%ert the %e!!el from a
commo carrier to a pri%ate carrier( e!pecially &here( a! i thi!
ca!e( it &a! !ho& that the %e!!el &a! al!o carryig
pa!!eger!.
The doctrie of limited liability doe! ot apply &here
there &a! egligece o the part of the %e!!el o&er or aget.
7oad!tar &a! at fa$lt or egliget i ot maitaiig a
!ea&orthy %e!!el ad i ha%ig allo&ed it! %e!!el to !ail
de!pite .o&ledge of a approachig typhoo. ) ay e%et( it
did ot !i. beca$!e of ay !torm that may be deemed a!
force ma;eure( ia!m$ch a! the &id coditio i the area
&here it !a. &a! determied to be moderate.
Pre!criptio ha! ot yet !et i. "either the *i%il *ode
or the *ode of *ommerce !tate! a !pecific period o the
matter( hece the *BD/A &hich pro%ide! for a oe,year period
of limitatio o claim! for lo!! of( or damage to( cargoe!
!$!taied d$rig tra!it( may be applied !$ppletorily to the
ca!e at bar. >'oadstar hippin% Co., Inc. v. Court of Appeals, et al.,
D.R. "o. 131921( /eptember 28( 1888?

>- What do you understand by a 5bill of lading6 ?
/@DDE/TED A"/-ER; A &ritte ac.o&ledgmet
of the receipt of good! ad a agreemet to tra!port ad to
deli%er them at a !pecified place to a per!o amed therei or
o hi! order.
?- 47plain the t3oKfold character of a 5bill of
lading6
/@DDE/TED A"/-ER;
a. )t i! a receipt of the good! !hippedK ad
b. )t i! a cotract by &hich three partie!( amely( the
!hipper( the carrier ad the co!igee $derta.e !pecific
re!po!ibilitie! ad a!!$me !tip$lated obligatio!. >$en% &ua
Paper Products Co., Inc. v. Court of Appeals, et al., 289 /*RA 217?
Bce deli%ered ad accepted it co!tit$te! a cotract of
carriage e%e tho$gh ot !iged. REA/B"; There i! act$al
ad co!tr$cti%e otice of the cotet! gi%ig ri!e to the
pre!$mptio that the !ame &a! a perfected ad bidig
cotract.
"BTE/ A"D *B66E"T/;
a. N&!)e o, & +%'' o, '&*%/A &/* %/e)#)e&%o/ - The
bill of ladig defie! the right! ad liabilitie! of the partie! i referece
to the cotract of carriage. /tip$latio! therei are %alid ad bidig i
the ab!ece of ay !ho&ig that the !ame are cotrary to la&( moral!(
c$!tom!( p$blic order ad p$blic policy. -here the term! of the
cotract are clear ad lea%e o do$bt $po the itetio of the
cotractig partie!( the literal meaig of the !tip$latio! !hall cotrol.
>Provident Insurance Corporation v. Court of Appeals, et al., D. R. "o.
118030( Ia$ary 11( 200J?
b. A +%'' o, '&*%/A %s & $o/)&$ o, &*hes%o/ +! o/$e
&$$e#e* % %s +%/*%/A- *otract! of adhe!io are ot i%alid per
!e. REA/B"; Be &ho adhere! to the cotract i! free to reCect it
45
etirelyK if he adhere! he gi%e! hi! co!et. >Telen%tan Brothers &
ons, Inc. vs. Court of Appeals( 239 /*RA 917?
Bb!c$ritie! ad ambig$itie! i the re!tricti%e pro%i!io! of
cotract! of adhe!io !trictly iterpreted b$t ot $rea!oably agai!t
the drafter thereof &he C$!tified i the light of the operati%e fact! ad
!$rro$dig circ$m!tace!. >Philippine Airlines, Inc., v. Court of
Appeals( 211 /*RA J8?
A bill of ladig i! i the at$re of a cotract of adhe!io &here
oe of the partie! impo!e! a ready,made form of cotract &hich the
other party may accept or reCect( b$t &hich the latter caot modify.
Be party prepare! the !tip$latio i the cotract &hile the other party
merely affi#e! hi! !igat$re or hi! 2adhe!io5 thereto( gi%ig o room
for egotiatio ad depri%ig the latter of the opport$ity to bargai o
e'$al footig. "e%erthele!!( the!e type! of cotract! ha%e bee
declared a! bidig a! ordiary cotract!( the rea!o beig that the
party &ho adhere! to the cotract i! fee to reCect it etirely. >Provident
Insurance Corporation v. Court of Appeals, et al., D. R. "o. 118030(
Ia$ary 11( 200J citig Philippine Commercial International Bank v.
Court of Appeals, 321 Phil. 188K 211 /*RA 288 >1889?
<- What are the three "inds of stipulations made
in bills of lading regarding liability ?
/@DDE/TED A"/-ER/;
The fir!t i! oe e#emptig the carrier from ay ad all
liability for lo!! or damage occa!ioed by it! o& egligece.
The !ecod i! oe pro%idig for a $'$alified
limitatio of !$ch liability to a agreed %al$atio.
The third i! oe limitig the liability of the carrier to a
agreed %al$atio $le!! the !hipper declare! a higher %al$e
ad pay! a higher rate of freight. Accordig to a almo!t
$iform &eight of a$thority( the fir!t ad !ecod .id! of
!tip$latio! are i%alid a! beig cotrary to p$blic policy( b$t
the third i! %alid ad eforceable. >'oadstar hippin% Co., Inc. v.
Court of Appeals, et al.( D.R. "o. 131921( /eptember 28( 1888?
*B66E"T/ A"D "BTE/;
a. S%#!'&%o/s $o/s%*e)e* !/)e&so/&+'e@ !/E!s
&/* $o/)&)( o #!+'%$ #o'%$("
1? That the good! are tra!ported at the ri!. of the
o&er or !hipperK
2? That the commo carrier &ill ot be liable for ay
lo!!( de!tr$ctio( or deterioratio of the good!K
3? That the commo carrier eed ot ob!er%e ay
diligece i the c$!tody of the good!K
J? That the commo carrier !hall e#erci!e a degree
of diligece le!! tha that of a good father of a family( or of a
ma of ordiary pr$dece i the %igilace o%er the mo%able!
tra!portedK
1? That the commo carrier !hall ot be re!po!ible
for the act! or omi!!io! of hi! or it! employee!K
9? that the commo carrier3! liability for act!
committed by thie%e!( or of robber! &ho do ot act &ith gra%e
or irre!i!tible threat( %iolece or force( i! di!pe!ed &ith or
dimii!hedK
7? that the commo carrier i! ot re!po!ible for the
lo!!( de!tr$ctio( or deterioratio of good! o acco$t of the
defecti%e coditio of the car( %ehicle( !hip( airplae or other
e'$ipmet $!ed i the cotract of carriage. >Art. 17J1( *i%il
*ode?
b. A$$e#&/$e +( he $o/s%A/ee o, he +%'' o, '&*%/A
+%/*s % o he e).s wh%$h %/$'!*es #&(.e/ of dem$rrage
charge! for the fail$re to di!charge the cotaieri+ed !hipmet
beyod the grace period allo&ed by the tariff r$le!. >$en% &ua Paper
Products Co., Inc. v. Court of Appeals, et al.( 289 /*RA 217?
c. De.!))&Ae *e,%/e*- A allo&ace or compe!atio
for the delay or detetio of a %e!!el. )t i! the tr$e mea!$re of
damage! i all ca!e! of mere detetio( for that allo&ace ha!
referece to the !hipQ! e#pe!e!( &ear ad tear ad commo
employmet. >$en% &ua Paper Products Co., Inc. v. Court of Appeals,
et al., 289 /*RA 217?
d. A 'ee) o, $)e*% &/* & +%'' o, '&*%/A &)e
se#&)&e $o/)&$s- Gece( the cotract of carriage a! !tip$lated
i the bill of ladig m$!t be treated idepedetly of the cotract of
!ale bet&ee the !eller ad the b$yer ad he cotract for the i!!$ace
of a letter of credit bet&ee the b$yer ad the i!!$ig ba.. >$en%
&ua Paper Products Co., Inc. v. Court of Appeals, et al., 289 /*RA
217?
7- 2agKasa &ales# !nc entered into a contract to
transport molasses from Aegros to Manila 3ith Coast3ise
1ighterage Corporation# using the latter8s dumb barges
:pon reaching Manila $ay 3hile approaching 2ier <=# one
of the barges struc" an un"no3n sun"en object causing
damage to the barge and the molasses !t turned out that
the patron employed by Coast3ise 3as not licensed
Was Coast3ise 1ighterage transformed into a
private carrier by virtue of the contract of affreightment
46
3ith 2agKAsa ? What degree of diligence should
Coast3ise observe ? Reasons
/@DDE/TED A"/-ER; "o( ad it !ho$ld ob!er%e
e#traordiary diligece. :or rea!o!( !ee 7oad!tar ca!e( o. 3
abo%e.
"BTE/ A"D *B66E"T/;
a. B)e&$h o, *!( +( & $o..o/ $&))%e)- The
fail$re of a commo carrier to maitai i !ea&orthy coditio the
%e!!el i%ol%ed i a cotract of carriage i! a clear breach of it! d$ty
pre!cribed i Article 1711 of the *i%il *ode( &hich pro%ide! that( 2A
commo carrier i! bo$d to carry the pa!!eger! !afely a! far a!
h$ma care ad fore!ight ca pro%ide( $!ig the $tmo!t diligece of
%ery ca$tio$! per!o!( &ith a d$e regard for all the circ$m!tace!.5
A commo carrier( i allo&ig it! $!ea&orthy %e!!el to lea%e
the port of origi ad $derta.e the cotracted %oyage( &ith f$ll
a&aree!! that it &a! e#po!ed to peril! of the !ea( deliberately
di!regarded it! !olem d$ty to e#erci!e e#traordiary diligece ad
ob%io$!ly acted &ith bad faith ad i a &ato ad carele!! maer(
th$! ma.ig it liable for moral ad e#emplary damage!.
-here the delay i a cotracted %oyage i! ic$rred after the
commecemet of !$ch %oyage( Article 298 of the *ode of
*ommerce( ot Article 1198 of the *i%il *ode applie!. >Trans8Asia
hippin% 'ines, Inc. v. Court of Appeals, et al., 21J /*RA 290?
A)%$'e <CD o, he Co*e o, Co..e)$e )e&*s; 2) ca!e
a %oyage already beg$ !ho$ld be iterr$pted( the pa!!eger! !hall
be obliged to pay the fare i proportio to the di!tace co%ered(
&itho$t right to reco%er for lo!!e! ad damage! if the iterr$ptio i!
d$e to fort$ito$! e%et or force maCe$re( b$t &ith a right to idemity
if the iterr$ptio !ho$ld ha%e bee ca$!ed by the captai e#cl$!i%ely.
)f the iterr$ptio !ho$ld be ca$!ed by the di!ability of the %e!!el ad
a pa!!eger !ho$ld agree to a&ait the repair!( he may ot be re'$ired
to pay ay icrea!ed price of pa!!age( b$t hi! li%ig e#pe!e! d$rig
the !tay !hall be for hi! o& acco$t.5 A)%$'e ::<C o, he C%1%'
Co*e !tate! i part( 2Tho!e obliged to deli%er or do !omethig ic$r
i delay from the time the obligee C$dicially or e#traC$dicially demad!
from them the f$lfillmet of their obligatio.5
b. No &+so'!e o+'%A&%o/ o/ he #&) o, & $&))%e) o
&$$e# & $&)Ao- Go&e%er( &here a commo carrier accept! a
cargo for !hipmet for %al$able co!ideratio( it ta.e! the ri!. of
deli%erig it i good coditio a! &he it &a! loaded. E%e if the fact
of improper pac.ig i! .o& to the carrier or it! per!oel( or
apparet $po ob!er%atio b$t it accept! the good! ot&ith!tadig
!$ch coditio( it i! ot relie%ed of liability for lo!! or iC$ry re!$ltig
therefrom. >Philippine Airlines, Inc. v. Court of Appeals, et al. 111
/*RA J8?
c. DeA)ee o, $&)e- A commo carrier i! obliged to
tra!port it! pa!!eger! to their de!tiatio! &ith the $tmo!t diligece
of a %ery ca$tio$! per!o. -here the %e!!el3! cre& too. a calc$lated
ri!. &he it proceeded de!pite the typhoo bre&ig !ome&here i the
geeral directio to &hich the %e!!el &a! goig( the !i.ig of the
%e!!el &a! d$e to gro!! egligece. The %e!!el too. a greater ri!.
&he( i!tead of droppig achor i or at the periphery of the Port of
*alapa( or ret$rig to the port of 6aila &hich i! earer( proceeded
o it! %oyage o the a!!$mptio that it &ill be able to beat ad race
&ith the typhoo ad reach it! de!tiatio before it. >ulpicio 'ines,
Inc., vs. Court of Appeals, et al., 2J9 /*RA 379?
d. E0)&o)*%/&)( *%'%Ae/$e i! that e#treme mea!$re of
care ad ca$tio &hich per!o! of $$!$al pr$dece ad
circ$m!pectio $!e for !ec$rig ad pre!er%ig their o& property
ad right!. >Republic, et al., v. 'oren(o hippin% Corporation, D. R.
"o. 113193( :ebr$ary 7( 2001?
e. R&%o/&'e ,o) e0)&o)*%/&)( *%'%Ae/$e- The e#actig
!tadard of e#traordiary diligece i! impo!ed o commo carrier! i!
iteded to tilt the !cale! i fa%or of the !hipper &ho i! at the mercy of
the commo carrier( oce the good! ha%e bee lodged for !hipmet.
>Republic, et al., v. 'oren(o hippin% Corporation, D. R. "o. 113193(
:ebr$ary 7( 2001?
f. Whe/ *!( s&)s- The mere proof of deli%ery of
good! i good order to a carrier ad the !$b!e'$et arri%al of the
!ame good! at the place of de!tiatio i bad order ma.e! for a
prima facie ca!e agai!t the carrier.
)t follo&! that the pre!$mptio of egligece that attache! to
commo carrier!( oce the good! it tra!port! are lo!t( de!troyed or
deteriorated. Thi! pre!$mptio ca be o%ercome oly by proof of the
e#erci!e of e#traordiary diligece.
The carrier ha! ot e#erci!ed thi! b$rde if the patro of it!
%e!!el i! $lice!ed. The carrier caot !afely claim to ha%e
e#erci!ed e#traordiary diligece( by placig a per!o &ho!e
a%igatioal !.ill! are '$e!tioable at the helm of the %e!!el( &hich
e%et$ally met the accidet. )t may al!o logically( follo& that a per!o
&itho$t lice!e to a%igate( lac.! ot C$!t the !.ill to do !o( b$t al!o
the $tmo!t familiarity &ith the $!$al ad !afe ro$te! ta.e by
!ea!oed ad legally a$thori+ed oe!. Gad the patro bee lice!ed.
he co$ld be pre!$med to ha%e both the !.ill ad the .o&ledge that
&o$ld ha%e pre%eted the accidet. >Coast2ise 'i%htera%e
Corporation vs. Court of Appeals, et al., 2J1 /*RA 789?
g. Whe/ *!( e/*s- The e#traordiary re!po!ibility of
the commo carrier la!t! $til act$al or co!tr$cti%e deli%ery of the
47
cargoe! to the co!igee or to the per!o &ho ha! a right to recei%e
them. >/acam, etc., v. Court of Appeals, et al., D.R. "o. 12112J(
A$g$!t 21( 1888?
h. P)o0%.&e $&!se- That &hich( i at$ral ad
coti$o$! !e'$ece( $bro.e by ay efficiet iter%eig ca$!e(
prod$ce! iC$ry ad &itho$t &hich the re!$lt &o$ld ot ha%e occ$rred.
>abena Bel%ian <orld Airlines v. Court of Appeals, et al., supra?
i. T)&/sh%#.e/ i! the act of ta.ig cargo o$t of oe !hip
ad loadig it i aother. )t i! immaterial &hether or ot the !ame
per!o( firm or etity o&! the t&o >2? %e!!el!. >/a%ellan v. Court of
Appeals, et al., 201 /*RA 102?
D- !n a court case involving claims for damages
arising from death and injury of bus passengers# counsel
for the bus operator files a demurrer to evidence arguing
that the complaint should be dismissed because the
plaintiffs did not submit any evidence that the operator or
its employees 3ere negligent !f you 3ere the judge#
3ould you dismiss the complaint ?
/@DDE/TED A"/-ER; "o. ) ca!e of death of or
iC$rie! to pa!!eger!( commo carrier! are pre!$med to ha%e
bee at fa$lt or to ha%e acted egligetly( $le!! they pro%e
that they ob!er%ed e#traordiary diligece. /ice o e%idece
&a! pre!eted to o%ercome thi! pre!$mptio the ca!e !ho$ld
ot be di!mi!!ed ad the b$! operator !ho$ld o& be re'$ired
to pre!et it! e%idece.
"BTE/ A"D *B66E"T/;
a. No ,%/*%/A o, /eA'%Ae/$e /ee*e*- -he the
good! !hipped either are lo!t or arri%ed i damaged coditio( a
pre!$mptio ari!e! agai!t the carrier of it! fail$re to ob!er%e that
re'$i!ite diligece( ad there eed ot be a e#pre!! fidig of
egligece to hold it liable. >*astern hippin% 'ines, Inc. vs. Court of
Appeals, et al., 23J /*RA 78?
) a cotract of carriage( it i! pre!$med that the commo
carrier &a! at fa$lt or &a! egliget &he a pa!!eger die! or i!
iC$red. @le!! the pre!$mptio i! reb$tted( the co$rt eed ot e%e
ma.e a e#pre!! fidig of fa$lt or egligece o the part of the
commo carrier. .Thi! !tat$tory pre!$mptio may oly be o%ercome
by e%idece that the carrier e#erci!ed e#traordiary diligece a!
pre!cribed i Article! 1733 ad 1711 of the *i%il *ode. >Bali2a%
Transit, Inc. v. Court of Appeals, et al.( 219 /*RA 7J9?
b. 5&!' o) /eA'%Ae/$e *e,%/e*- :a$lt or egligece
co!i!t! i the omi!!io of that diligece &hich i! demaded by the
at$re of a obligatio ad corre!pod! &ith the circ$m!tace! of the
per!o( of the time ad place.
c. Whe/ 'oss o$$!)s $o..o/ $&))%e) #)es!.e*
o +e & ,&!' o) %s /eA'%Ae/- ) ca!e of lo!! of good! i
tra!it( the commo carrier i! pre!$med $der the la& to ha%e
bee at fa$lt or egliget. >Republic, et al., v. 'oren(o hippin%
Corporation, D. R. "o. 113193( :ebr$ary 7( 2001? REA/B";
*ommo carrier! i the carriage of good! are bo$d to
ob!er%e ot C$!t the d$e diligece of a good father of a family
b$t that of 2e#traordiary5 care i the %igilace o%er the good!.
Thi! r$le remai! ba!ically $chaged e%e &he the cotract
i! breach by tort or altho$gh o,cotradictory priciple! o
'$a!i,delict may the be a!!imilated a! al!o formig part of the
go%erig la&. >abena Bel%ian <orld Airlines v. Court of Appeals,
et al., 211 /*RA 38?
C- As a general rule common carriers are
responsible for the loss# destruction# or deterioration of
the goods !n 3hat instances are common carriers not
liable ?
/@DDE/TED A"/-ER; *ommo carrier! are ot
liable &here the lo!!( de!tr$ctio or deterioratio &a! ca$!ed
by;
a. :lood( !torm( earth'$a.e( lightig( or other at$ral
di!a!ter or calamityK
b. Act of the p$blic eemy i &ar( &hether iteratioal
or ci%ilK
c. Act or omi!!io of the !hipper or o&er of the good!K
d. The character of the good! or defect! i the
pac.agig or i the cotaier!K
e. Brder or act of competet p$blic a$thority. >Art.
173J( *i%il *ode?
"BTE/ A"D *B66E"T/;
a. 5%)e /o /&!)&'- :ire may ot be co!idered a at$ral
di!a!ter or calamity !ice it almo!t al&ay! ari!e! from !ome act of
ma or by h$ma mea!. )t caot be a Act of Dod $le!! ca$!ed
by lightig or a at$ral di!a!ter or ca!$alty ot attrib$table to h$ma
agecy. >Philippine &ome Assurance Corp. v. Court of Appeals, et al.,
217 /*RA J98?
b. C&))%e) %s '%&+'e ,o) *e,e$%1e #&$B%/A if improper
pac.ig i! .o& to the carrier or hi! employee! or i! apparet $po
ordiary ob!er%atio( b$t he e%erthele!! accept! the !ame &itho$t
48
prote!t or e#ceptio ot&ith!tadig !$ch coditio. >A .#. anche(
Brokera%e, Inc. v. Court of Appeals, et al., D. R. "o. 1J7078(
December 21( 200J
c. C&))%e) %s '%&+'e ,o) *e,e$%1e #&$B%/A if improper
pac.ig i! .o& to the carrier or hi! employee! or i! apparet $po
ordiary ob!er%atio( b$t he e%erthele!! accept! the !ame &itho$t
prote!t or e#ceptio ot&ith!tadig !$ch coditio. >A .#. anche(
Brokera%e, Inc. v. Court of Appeals, et al., D. R. "o. 1J7078(
December 21( 200J
:0- Martin shipped an e7pensive video e9uipment
to a friend in Cebu Martin had bought the e9uipment from
.ong Kong for :&* (#))))) the e9uipment 3as shipped
through MC& 1apuK1apu under a bill of lading 3hich
contained the follo3ing provision in big bold lettersL
The '%.% o, he $&))%e)s '%&+%'%( ,o) &/( 'oss
o) *&.&Ae o $&)Ao sh&'' +e P200-00 )eA&)*'ess o,
he &$!&' 1&'!e o, s!$h$&)Ao@ whehe) *e$'&)e* +(
%s sh%##e) o) ohe)w%se-
0he cargo 3as totally damaged before reaching
Cebu Martin claimed for the value of his cargo# *(#)))))
or 2''(#))))) instead of just 2')))) as per the limitation
on the bill of lading
!s there any legal basis for Martin8s claim ?
/@DDE/TED A"/-ER; "oe. A !tip$latio i the bill
of ladig limitig the carrier3! liability $le!! the !hipper
declare! a higher %al$e ad a higher rate of freight i! %alid ad
eforceable.
There beig o !ho&ig that 6arti declared a higher
%al$e of the %ideo e'$ipmet ad had paid a higher rate of
freight( he i! bo$d o the !tip$latio i the bill of ladig limitig
liability.
"BTE/ A"D *B66E"T/;
a. S%#!'&%o/ '%.%%/A '%&+%'%( 1&'%*- A !tip$latio that
the commo carrier3! liability i! limited to the %al$e of the good!
appearig i the bill of ladig( $le!! the !hipper or o&er
declare! a greater %al$e( i! bidig. >Art. 17J8( *i%il *ode?
A cotract fi#ig the !$m that may be reco%ered by the
o&er or !hipper for the lo!!( de!tr$ctio( or deterioratio of
the good! i! %alid( if it i! rea!oable ad C$!t $der the
circ$m!tace!( ad ha! bee fairly ad freely agreed $po. >Art.
1710( *i%il *ode?
b. C)%e)%& o *ee).%/e )e&so/&+'e/ess- The fact
that the commo carrier ha! o competitor alog the lie or ro$te( or a
part thereof( to &hich the cotract refer! !hall be ta.e ito
co!ideratio o the '$e!tio of &hether or ot a !tip$latio limitig
the commo carrier3! liability i! rea!oable( C$!t ad i co!oace
&ith p$blic policy.5 >Art. 1711( *i%il *ode?
::- ,ive >(? coils of steel arrived in the
2hilippines on board vessel already damaged When they
3ere loaded# there 3as notation on the bill of lading 5metal
envelopes rust stained and slightly dented6 0he letter of
credit indicated that a higher valuation of the cargo has
been declared by the shipper ,urthermore# there 3as no
notice of loss filed 3ithin the threeKday period provided
under the Carriage of Ioods by &ea Act
!s the carrier liable and to 3hat e7tent?
/@DDE/TED A"/-ER; The carrier i! liable $p to the
e#tet of the lo!! that co$ld be pro%ed by the cargo o&er.
The carrier co$ld ot claim e#emptio from liability d$e
to deficiecy of pac.ig beca$!e it accepted the cargo i that
coditio.
There co$ld be reco%ery $p to the e#tet of damage
pro%e beca$!e there i! o !tip$latio o the bill of ladig
limitig liability. The otatio o the bill of ladig i! ot
!$fficiet to limit liability.
:ially( the three day otice i! di!pe!able !o log a!
the claim i! filed &ithi the oe year pre!cripti%e period.
>Bel%ian Charterin% and hippin% N.6., et al., v. Phil. #irst Insurance
Co., Inc., D. R. "o. 1J3133( I$e 1( 2002?
:2- .arold just arrived from &ingapore .e
immediately proceeded to Manila Aorth .arbor 3here he
boarded a boat bound for Cebu City .e loaded on the
same boat t3o bali"bayan bo7es full of goodies for
PpasalubongP to his relatives 4ach of the bo7es
contained goods 3orth 2<(#))))) 0he shipping agent
issued to him a bill of lading for the t3o bo7es When he
claimed the bo7es at the Cebu City terminal of the
shipping lines he discovered that they 3ere forcibly
opened and 3ere emptied of their contents ,orth3ith he
49
demanded that he be paid the value of the goods and that
the fare he paid for them be returned 0he shipping line
pointed to him the provision on the bill of lading limiting
liability to only 2()))) per bo7 .arold claimed that the
letters 3ere so small that they could barely be read# as a
matter of fact he did not read them because of poor
eyesight .e li"e3ise claimed that he is not bound by the
conditions since he did not sign the same# and that it
3ould be unfair for the shipping line to disclaim
responsibility 3hen it is very clear that the loss occurred
3hile in its custody
!f you are consulted by .arold# 3hat advice shall
you give him ?
/@DDE/TED A"/-ER; Ge !ho$ld try to !ettle the
ca!e co!iderig that the !hippig lieQ! cotetio! are
correct.
The !tip$latio i the bill of ladig limitig the commo
carrier3! liability to the %al$e of good! appearig i the bill(
$le!! the !hipper or o&er declare! a greater %al$e( i! %alid
ad bidig. >Art. 17J8( *i%il *ode?
REA/B"; The limitatio of the carrier3! liability i!
!actioed by the freedom of the cotractig partie! to
e!tabli!h !$ch !tip$latio!( cla$!e!( term!( or coditio! a!
they may be deemed co%eiet( pro%ided they are ot
cotrary to la&( moral!( good c$!tom! ad p$blic policy.
>Philippine Airlines, Inc., v. Court of Appeals, et al., 211 /*RA
J8?
The !tip$latio i! %alid e%e if the !hipper ha! ot read
or !iged the !tip$latio.
"BTE/ A"D *B66E"T/;
a. I/s&/$e whe)e sh%##e) $o!'* $o''e$ h%Ahe)
1&'!e- The /$preme *o$rt ha! ca$tioed agai!t blid reliace o
adhe!io cotract! &here the fact! ad circ$m!tace! &arrat that
they !ho$ld be di!regarded.
A commo carrier i! e!topped from blamig a pa!!eger for
ot declarig the %al$e of the cargo !hipped ad &hich &o$ld ha%e
other&i!e etitled her to reco%er a higher amo$t of damage! &here
!he had bee effecti%ely pre%eted from doig !o $po the ad%ice of
the carrier3! per!oel for rea!o! be!t .o& to them!el%e!.
>Philippine Airlines, Inc., v. Court of Appeals, et al., 211 /*RA J8?
b. Sh%##e) $o!'* $o''e$ h%Ahe) 1&'!e *es#%e
'%.%&%o/ o/ he +%'' o, '&*%/A $le!! a higher freight paymet i!
made( &here the %al$e of the article! are !pecifically declared o the
face of the bill of ladig e%e if o higher freight paymet &a! made.
c. Whe)e %.e'( ,%'%/A o, ,o).&' $'&%. *%s#e/se*
w%h- -here the fail$re to file the formal claim &ithi the pre!cripti%e
period cotemplated i the air &aybill &a! largely d$e to the carrier3!
o& doig( the co!e'$ece of &hich caot ( i all faire!!( be
attrib$ted to the pa!!eger( the !ame i! to be di!pe!ed &ith. Th$!( it
&a! ot the pa!!eger3! fa$lt that the letter of demad for damage!
co$ld oly be filed( after moth! of e#a!peratig follo&,$p of the
claim. )f there &a! ay fail$re to file the formal claim &ithi the
pre!cripti%e period( thi! &a! largely beca$!e of the carrier3! o&
doig( the co!e'$ece! of &hich caot( i all faire!!( be attrib$ted
to the pa!!eger.
E%e if the claim for damage! &a! coditioed o the timely
filig of a formal claim( $der Article 1189 of the *i%il *ode >The
coditio !hall be deemed f$lfilled &he the obligor %ol$tarily
pre%et! it! f$lfillmet.?( that coditio &a! deemed f$lfilled
co!iderig that the collecti%e actio of the carrier3! per!oel i
to!!ig aro$d the claim ad lea%ig it $re!ol%ed for a idefiite
period of time &a! tatamo$t to 2%ol$tarily pre%etig it!
f$lfillmet.5 B gro$d! of e'$ity( the filig of the baggage freight
claim( &hich !$fficietly iformed the carrier of the damage !$!taied
by the cargo( co!tit$ted !$b!tatial compliace &ith the re'$iremet
of the cotract for the filig of a formal claim. >Philippine Airlines,
Inc., v. Court of Appeals, et al.( 211 /*RA J8?
d. B%'' o, '&*%/A .&( #)o1%*e #e)%o* w%h%/ wh%$h o
,%'e $'&%.s- A bill of ladig may pro%ide for a period &ithi to file
claim! for damage!( e.g. 2J ho$r! from deli%ery( &hich agreemet
&o$ld be a sine 5ua non for the accr$al of the right of actio to
reco%er damage! from the carrier. >Provident Insurance Corporation v.
Court of Appeals, et al., D. R. "o. 118030( Ia$ary 11( 200J?
e. R&%o/&'e ,o) '%.%%/A #e)%o* o ,%'e $'&%.s- /$ch a
re'$iremet i! ot a empty formali!m. )t ha! a defiite p$rpo!e( i.e.
to afford the carrier or depo!itary a rea!oable opport$ity ad
facilitie! to chec. the %alidity of the claim! &hile the fact! are !till
fre!h i the mid! of the per!o! &ho too. part i the tra!actio ad
the doc$met! are !till a%ailable. >Provident Insurance Corporation v.
Court of Appeals, et al., D. R. "o. 118030( Ia$ary 11( 200J citig
Consun;i v. /anila Port ervice, 110 Phil. 231 >1890??
d. C&))%e)s '%&+%'%( ,o) &$!&'@ .o)&' &/* e0e.#'&)(
*&.&Aes &/* &o)/e(s ,ees- The $e#plaied ca$!e of
damage to the cargo co!tit$te! gro!! carele!!e!! or egligece
&hich by it!elf C$!tifie! the a&ard of damage!. The $profe!!ioal
idifferece of the carrier3! per!oel de!pite f$ll ad act$al
.o&ledge of the damage to the cargo( C$!t to be e#c$lpated from
50
liability o p$re techicality ad b$rea$cratic !$bterf$ge( !mac.! of
&illf$l mi!cod$ct ad i!e!iti%ity to their c$!tomer3! plight
tatamo$t to bad faith ad reder! $'$e!tioable the carrier3!
liability for damage!. >Philippine Airlines, Inc. v. Court of Appeals, et
al.( 211 /*RA J8?
:=- 2asahero# a paying passenger# boarded a
%ictory 1iner bus bound for -longapo .e chose a seat at
the front near the bus driver 2asahero told the bus driver
that he had valuable items in his bag 3hich 3as placed
near his feet &ince he had not slept 'N hours# he
re9uested the driver to "eep an eye on the bag should be
doze off during the trip
a While 2asahero 3as asleep# another passenger
too" the bag a3ay and alighted at Iuagua# 2ampanga is
%ictory 1iner liable to 2asahero ? 47plain
b &upposing that t3o armed men staged a holdKup
3hile the bus 3as speeding along the Aorth 47press3ay
-ne of them pointed a gun a 2asahero and stole not only
his bag# but his 3allet as 3ell !s %ictory 1iner liable to
2asahero ? 47plain
c 0here have been incidents of un"no3n persons
thro3ing stones at passing vehicles from the overpasses
in the Aorth 47press3ay While the bus 3as traversing the
superhigh3ay# a stone hurled from the &to Domingo
overpass smashed the front 3indshield and hit 2asahero
in the face 2asahero lost an eye and suffered other
injuries Can 2asahero hold the bus company liable for
damages ? 47plain-
/@DDE/TED A"/-ER/;
a. <e!( beca$!e the re!po!ibility of commo carrier!
i the ca!e of lo!! or damage to had carried baggage i!
go%ered by the r$le o ece!!ary depo!it!.
b. "o. The hold,$p i! a force ma;eure $der the r$le
o ece!!ary depo!it!( .beca$!e of the $!e of arm! hece the
b$! compay &o$ld ot be liable.
c. <e!. Victory 7ier did ot e#erci!e $tmo!t diligece.
*o!iderig the fore .o&ledge of !toe,thro&ig icidet!( it
!ho$ld ha%e $derta.e the ece!!ary preca$tio! to a%oid
iC$ry to it! payig pa!!eger!( li.e Pa!ahero.
"BTE/ A"D *B6E"T/;
a. A$ o, h%e, whe/ ,o)$e .&Ee!)e- The act of a thief
or robber( &ho ha! etered the hotel i! ot deemed force ma;eure,
$le!! it i! doe &ith the $!e of arm! or thro$gh a irre!i!tible force.
>Art. 2001( *i%il *ode?
b. I, so/e h)ow%/A %so'&e* /o '%&+%'%(- )f there i! o
!ho&ig that the !toe thro&ig icidet pre%io$!ly happeed !o a! to
impo!e a a obligatio o the part of the per!oel of the b$!
compay to &ar the pa!!eger! ad to ta.e the ece!!ary
preca$tio( !$ch !toe thro&ig &o$ld co!tit$te fort$ito$! e%et
egatig liability o the part of the b$! compay. After all the b$!
compay i! ot a i!$rer. >Pilapil v. Court of Appeals, et al., 180
/*RA 3J9?
:>- !n going home# Aoe boarded a ,iera
passenger jeepney driven by Ieminiano and o3ned by
Cecilia -n the 3ay the jeepney pic"ed up an old 3oman
passenger so Aoe offered his seat and he proceeded to
hung or stood on the left rear carriage of the jeepney
,urther along the route the jeepney stopped at the right
shoulder of the road to pic" up other passengers
&uddenly a cargo truc" driven by $ienvenido and o3ned
by 1arry hit the rear end portion of the jeepney causing
Aoe to fall and lost his leg
Rule on the follo3ing defenses raised by 1arry to
negate liability for the damages caused to Aoe
a 0hat before the cargo truc" 3as dispatched
for the trip# it 3as properly chec"ed by a mechanic and
found to be in good conditionM that he chec" $ienvenido8s
driver8s licenseM that he rode together 3ith $ienvenido on
his first t3o trips to determine his competence# that he
hired a mechanic to continuously chec" the condition of
the cargo truc"M that he e7ercised the diligence of a good
father of a family in the selection and supervision of
$ienvenido and maintaining his cargo truc" road3orthy
and in good operating condition .o3ever# no records
3ere submitted to support the defenses
/@DDE/TED A"/-ER; All of the abo%e &ere
di!regarded beca$!e of fail$re to !$pport the !ame &ith
e%idece.
A! 4ie%eido3! employer( 7arry i! primarily ad !olidarily liable
for the '$a!i,delict committed by the former. 7arry i! pre!$med
to be egliget i the !electio ad !$per%i!io of hi!
51
employee by operatio of la& ad may be relie%ed of
re!po!ibility for the egliget act! of hi! dri%er( &ho at the time
&a! actig &ithi the !cope of hi! a!!iged ta!.( oly if he ca
!ho& that he ob!er%ed all the diligece of a good father of a
family to pre%et damage!. >*stacion v. Bernardo, etc., et al.,
D. R. "o. 1JJ723( :ebr$ary 27( 2009?
b .e further contends that if any damages be
a3arded to Aoe# it should be mitigated by his contributory
negligence
/@DDE/TED A"/-ER; The cotetio i! &ith merit.
To hold a per!o a! ha%ig cotrib$ted to hi! iC$rie! it
m$!t be !ho& that he performed a act that bro$ght abo$t hi!
iC$rie!( a! i the ca!e of "oe3! act of !tadig o the left rear
carrier portio of the Ceepey( i di!regard of !ig! of a
impedig dager to health ad body beca$!e !$ch act
!ho&ed hi! lac. of ordiary care ad fore!ight that !$ch act
co$ld ca$!e him harm or p$t hi! life i dager. >*stacion v.
Bernardo, etc., et al., D. R. "o. 1JJ723( :ebr$ary 27( 2009?
c 0hat Ieminiano and Cecilia should also be
liable and share in the payment for damages caused to
Aoe
/@DDE/TED A"/-ER; The defe!e i! meritorio$!.
Dri%er Demiiao &a! egliget i allo&ig "oe to
!tad o the Ceepey3! rear portio i di!regard of the 7ad
Tra!portatio *ode &hich prohibit! !$ch act. 4y !$ch act
Demiiao failed to ob!er%e that degree of care( preca$tio
ad %igilace that the circ$m!tace! C$!tly demad ad thi!
created $d$e ri!. &hich re!$lted to the iC$rie! !$ffered by
"oe.
/ice Demiiao i! egliget there ari!e! a
pre!$mptio of egligece o the part of hi! employer( *ecilia(
&hich &a! ot reb$tted by the latter. Gece( both Demiiao
ad *ecilia are al!o liable to "oe. >*stacion v. Bernardo, etc., et
al., D. R. "o. 1JJ723( :ebr$ary 27( 2009?
:?- ,or a cargo of machinery shipped from
abroad to a sugar central in Dumaguete# Aegros -riental#
the $ill of 1ading >$C1? stipulated 50o &hipper8s -rder#6
3ith notice of arrival to be addressed to the Central 0he
cargo arrived at its destination and 3as released to the
Central 3ithout surrender of the $C1 on the basis of the
latter8s underta"ing to hold the carrier free and harmless
from any liability
&ubse9uently# a $an" to 3hom the central 3as
indebted claimed the cargo and presented the original of
the $C1 stating that the Central had failed to settle its
obligations 3ith the $an"
Was there misdelivery by the carrier to the sugar
central considering the nonKsurrender of the $C1 ? Why ?
/@DDE/TED A"/-ER; <e!. Dood! co%ered by a
4F7 are to be deli%ered oly to the holder thereof $po
!$rredered of the origial 4F7. /ice the 4F7 i! 2To /hipper3!
Brder5( it m$!t be idor!ed by the !hipper i fa%or of the
*etral. /ice thi! &a! ot doe b$t the good! &ere
deli%ered( there i! mi!deli%ery of the good!.
:<- &am boarded a passenger bus Another
passenger# 4d# brought a gallon of gasoline placed in a
plastic bag into the same bus 3here &am 3as riding 0he
gasoline ignited and e7ploded causing injury to &am 3ho
filed a civil suit for damages against the bus company
claiming that 4d should have been subjected to inspection
by the conductor
0he bus company disclaimed liability resulting from
the e7plosion contending that it 3as una3are of the
contents of the plastic bag and invo"ing the right of 4d to
privacy
&hould the bus company be held liable for damages
A?
/@DDE/TED A"/-ER; <e!( for breach of the
cotract of carriage. The b$! compay i! pre!$med to ha%e
bee at fa$lt $le!! it ob!er%ed e#traordiary diligece. )t i!
bo$d to carry /am !afely a! far a! h$ma care ad fore!ight
pro%ide. )t i! clear that the ga!olie !ho$ld ha%e !melled
co!iderig that it &a! placed oly i a pla!tic bag ad &o$ld
ha%e bee oticed by the b$! compay employee! ad .ept i
a !afe place.
"BTE/ A"D *B66E"T/; ) a 1882 4ar '$e!tio &ith
!imilar fact$al atecedet! @.P. 7a& *eter !$gge!t! that i o%erlad
tra!portatio the commo carrier i! ot bo$d or empo&ered to
ma.e a e#amiatio of the cotet! of pac.age! or bag!( partic$larly
tho!e hadcarried by pa!!eger!. Tr$e( b$t ordiary diligece( ot
52
e%e e#traordiary diligece( co$ld ha%e re!$lted to the di!co%ery of
the ga!olie.
a. D!( o, $o..o/ $&))%e)- A commo carrier i! bo$d
to carry the pa!!eger! !afely a! far a! h$ma care ad fore!ight ca
pro%ide( $!ig the $tmo!t diligece of %ery ca$tio$! per!o!( &ith a
d$e regard for all the circ$m!tace!. >Art. 1711( *i%il *ode?
b. P)es!.#%o/ o, ,&!'- ) ca!e of death of or iC$rie! to
pa!!eger!( commo carrier! are pre!$med to ha%e bee at fa$lt or
to ha%e acted egligetly( $le!! they pro%e that they ob!er%ed
e#traordiary diligece a! pre!cribed i article! 1733 ad 1711. >Art.
1719( *i%il *ode?
c. DeA)ee o, $&)e- *ommo carrier!( from the at$re of
their b$!ie!! ad for rea!o! of p$blic policy( are bo$d to ob!er%e
e#traordiary diligece i the %igilace o%er the good! ad for the
!afety of the pa!!eger! tra!ported by them( accordig to all the
circ$m!tace! of each ca!e. >1
!t
par.( Art. 1733( *i%il *ode?
!f it 3ere an airline company involved in the above
problem# 3ould your ans3er be the same ? 47plain your
ans3er briefly
/@DDE/TED A"/-ER; <e!. The !ame rea!o!
&o$ld be ad%aced a! i the abo%e a!&er.
:$rthermore( i the ca!e of air carrier!( it i! ot la&f$l to
carry flammable material! i pa!!eger aircraft( ad airlie
compaie! may ope ad i%e!tigate !$!picio$! pac.age! ad
cargoe!. >Rep. Act "o. 9231?
:7- &uppose 5A8 3as riding on an airplane of a
common carrier 3hen the accident happened and 5A6
suffered serious injuries !n an action by 5A6 against the
common carrier# the latter claimed thatL ><? there 3as a
stipulation in the tic"et issued to 5A6 absolutely e7empting
the carrier from liability from the passenger8s death or
injuries and notices 3ere posted by the common carrier
dispensing 3ith the e7traordinary diligence of the carrierM
and >'? 5A6 3as given a discount on his plane fare thereby
reducing the liability of the common carrier 3ith respect to
5A6 in particular
a Are those defenses valid ?
b What are the defenses available to any common
carrier to limit or e7empt it from liability ?
/@DDE/TED A"/-ER;
a. "o. The defe!e! are cotrary to la& beca$!e they
egate the e#traordiary diligece re'$ired of commo
carrier!.
b. The follo&ig are;
1? Bb!er%ace of e#traordiary diligece.
2? :lood( !torm( earth'$a.e( lightig( or other
at$ral di!a!ter or calamityK
3? Act of the p$blic eemy i &ar( &hether
iteratioal or ci%ilK
J? Act or omi!!io of the !hipper or o&er of
the good!K
1? The character of the good! or defect! i the
pac.agig or i the cotaier!K
9? Brder or act of competet p$blic a$thority.
>Art. 173J( *i%il *ode?
"BTE/ A"D *B66E"T/;
a. DeA)ee o, *%'%Ae/$e $&//o +e )e*!$e* +(
)e*!$e* ,&)e- 2-he a pa!!eger i! carried grat$ito$!ly( a
!tip$latio limitig the commo carrier3! liability for egligece i!
%alid( b$t ot for &ilf$l act! or gro!! egligece.
The red$ctio of fare doe! ot C$!tify ay limitatio of the
commo carrier3! liability. >Art. 1718( *i%il *ode?
9$; M&)%%.e Co..e)$e 9Co*e o,
Co..e)$e@ A)s- ?7= o 7=<J &'so A)s- ?D0-?D>
o, Co*e o, Co..e)$e@ &s s!#e)se*e* +( R-A-
<:0<J A)s- D0< o D>? o, he Co*e o,
Co..e)$e;J P&)&A)&#h < o, Se$%o/ = o,
C&))%&Ae o, 3oo*s +( Se& A$ 9Co.- A$ <?;
:- -n December <=# <=J+# motor tan"er M0 %ector
left 1imay# $ataan enroute for Masbate loaded 3ith
petroleum products shipped by Calte7 -n December ')#
<=J+# the passenger ship M% Dona 2az o3ned and
operated by &ulpicio 1ines# !nc# left the port of 0acloban
headed for Manila 3ith a complement of (= cre3 and <#N=G
manifested passengers
-n December ')# <=J+ the t3o vessels collided in
the open sea All the cre3 members of Dona 2az died# and
of the estimated N#))) passengers >unmanifested?# only 'N
53
survived 03o survived from M0 %ector 0he issues are
3hether Calte7# !nc# the charterer of M0 %ector is liable to
the passengers# and 3hether &ulpicio 1ines is the one
liable for the passengers
/@DDE/TED A"/-ER; "o. *alte# a! the charterer
ha! o liability for damage! $der Philippie 6aritime la&!. )t
!ho$ld be /$lpicio 7ie! &ho !ho$ld be liable for the death of
the pa!!eger!.
The re!pecti%e right! ad d$tie! of a !hipper ad the
carrier deped! ot o &hether the carrier i! p$blic or pri%ate
b$t o &hether the cotract of carriage i! a bill of ladig or
e'$i%alet !hippig doc$met! o the oe had( or a charter
party or !imilar cotract o the other.
*alte# ad Vector etered ito a cotract of
affreightmet( al!o .o& a! a %oyage charter. )f the charter i!
a cotract of affreightmet( &hich lea%e! the geeral o&er i
po!!e!!io of the !hip a! o&er for the %oyage( the right! ad
the re!po!ibilitie! of o&er!hip re!t o the o&er. The
charterer i! free from liability to third per!o! i re!pect of the
!hip. >Calte9 4Philippines=, Inc. v. ulpicio 'ines, Inc., et al.(
D.R. "o. 131199( /eptember 30( 1888?
B the other had( /$lpicio 7ie! beig a commo
carrier i! liable for act$al ad compe!atory damage! $der
Article 2209 i relatio to Article 179J of the *i%il *ode for
death! of it! pa!!eger! ca$!ed by the breach of the cotract
of carriage( &hich ha! bee icrea!ed to P10(000.00.
The geeral r$le i! that moral damage! are ot
reco%ered i culpa contractual e#cept &he the pre!ece of
bad faith &a! pro%e. Go&e%er( i breach of cotract of
carriage( moral damage! may be reco%ered &he it re!$lt! i
the death of a pa!!eger.
Article 2232 of the *i%il *ode gi%e! the *o$rt the
di!cretio to grat e#emplary damage! i breach of cotract
&he the defedat acted i a &ato( fra$d$let ad rec.le!!
maer. The /$preme *o$rt too. C$dicial otice of the
dreadf$l reg$larity &ith &hich grie%o$! 6aritime di!a!ter! occ$r
i o$r &ater! &ith ma!!i%e lo!! of life. Be of the ed! of la&
ad p$blic policy( of !pecial importace i a archipelagic !tate
li.e the Philippie!( i! the !afe ad reliable carriage of people
ad good! by !ea. To achie%e thi! ed( a i!tr$met may be
$!ed &hich i! the grat of e#emplary damage! by the *o$rt.
>ulpicio 'ines, Inc., vs. Court of Appeals, et al., 2J9 /*RA 288?
"BTE/ A"D *B66E"T/;
a. Ch&)e) #&)(@ *e,%/e*- A charter party i! a cotract by
&hich a etire !hip( or !ome pricipal part thereof( i! let by the o&er
to aother per!o for a !pecified time or $!e. >Calte9 4Philippines=,
Inc. v. ulpicio 'ines, Inc., et al., D.R. "o. 131199( /eptember 30(
1888?
b. K%/*s o, $h&)e) #&)( &A)ee.e/-
1? Demi!e or bareboat. The charterer ma! the
%e!!el &ith hi! o& people ad become!( i effect( the o&er
for the %oyage of !er%ice !tip$lated( !$bCect to liability for
damage! ca$!ed by egligece.
2? Time charter(
3? Voyage charter. The partie! ito a %oyage charter
retai! the character of the %e!!el a! a commo carrier.
A charter party agreemet doe! ot t$r a commo
carrier ito a pri%ate oe. >Calte9 4Philippines=, Inc. v. ulpicio
'ines, Inc., et al., D.R. "o. 131199( /eptember 30( 1888?
c. Co/)&$ o, &,,)e%Ah.e/@ *e,%/e*- A cotract of
affreightmet i! oe by &hich the o&er of a! !hip or other %e!!el let!
the &hole or part of her to a merchat or other per!o for the
co%eyace of good!( o a partic$lar %oyage( i co!ideratio of the
paymet of freight. >Calte9 4Philippines=, Inc. v. ulpicio 'ines, Inc., et
al., D.R. "o. 131199( /eptember 30( 1888?
d. K%/*s o, $o/)&$ o, &,,)e%Ah.e/- A cotract of
affreightmet may be either
1? T%.e $h&)e)( &herei the lea!ed %e!!el i!
lea!ed to the charterer for a fi#ed period of time( or
2? Vo(&Ae $h&)e)( &herei the !hip i! lea!ed for
a !igle %oyage.
) both ca!e!( the charter party pro%ide! for the hire
of the %e!!el oly( either for a determiate period of time or
for a !igle or co!ec$ti%e %oyage( the !hip o&er to !$pply
the !hip3! !tore( pay for the &age! of the ma!ter of the cre&(
defray the e#pe!e! for the maiteace of the !hip.
e. D%s%/$%o/ +ewee/ wo B%/*s o, $h&)e)
#&)%es 9%-e- +&)e+o& o) *e.%se; &/* $o/)&$ o,
&,,)e%Ah.e/ 91o(&Ae $h&)e);
1? *otrol of %e!!el. @der demi!e or bareboat( the
charterer &ill geerally be regarded a! the o&er for the
%oyage or !er%ice !tip$lated. The charterer ma! the %e!!el
&ith hi! o& people ad become! the o&er pro hac vice.
The o&er m$!t completely ad e#cl$!i%ely reli'$i!h
54
po!!e!!io( commad ad a%igatio to the charterer. @der
a cotract of affreightmet( the geeral o&er retai!
po!!e!!io( commad ad a%igatio of the !hip( the
charterer merely ha%ig $!e of the !pace i the %e!!el i
ret$r for hi! paymet of the charter hire.
2? 7iability. @der demi!e or bareboat charter( the
charterer i! liable to other! for damage!. @der a cotract of
affreightmet(( the o&er remai! a! carrier ad m$!t a!&er
for ay breach of d$ty a! to the care( loadig ad $loadig
of the cargo.
Altho$gh a charter party may tra!form a commo
carrier ito a pri%ate oe( the !ame ho&e%er i! ot tr$e i a
cotract of affreightmet o acco$t of the di!tictio!
bet&ee the t&o. >Coast2ise 'i%htera%e Corporation v,.
Court of Appeals, et al.( 2J1 /*RA 709?
f. 7o/es o, %.e %/ $o''%s%o/"
1? :ir!t Eoe( &hich co%er! all the time $p to the
momet &he the ri!. of colli!io begi!.
2? /ecod Eoe( &hich co%er! the time bet&ee the
momet &he the ri!. of colli!io begi! ad the momet
&he it become! a practical certaity.
3? Third Eoe( &hich co%er! the time &he the
colli!io i! certai ad the time of impact.
2- What does general average or gross average
include ?
/@DDE/TED A"/-ER; Deeral or gro!! a%erage
icl$de! all damage! ad e#pe!e! &hich are deliberately
ca$!ed i order to !a%e the %e!!el( it! cargo( or both at the
!ame time( from a real ad .o& ri!..
-here the formalitie! pre!cribed $der Article! 813 ad
81J of the *ode of *ommerce i order to ic$r the e#pe!e!
ad ca$!e the damage corre!podig to gro!! a%erage &ere
ot complied &ith the carrier caot claim for cotrib$tio from
the co!igee! for additioal freight ad !al%age charge!.
>Philippine &ome Assurance Corp. v. Court of Appeals, et al., 217
/*RA 9J8?
=- M% &uper,ast# a passengerKcargo vessel o3ned
by &, &hipping Company plying the interKisland routes#
3as on its 3ay to Bamboanga City from the Manila port
3hen it accidentally# and 3ithout fault or negligence of
anyone on the ship# hit a huge floating object 0he
accident caused damage to the vessel and loss of an
accompanying crated cargo of passenger 2R !n order to
lighten the vessel and save it from sin"ing and in order to
avoid ris" of damage to or loss of the rest of the shipped
items >none of 3hich 3as located on the dec"?# some had
to be jettisoned &, &hipping had the vessel repaired at its
port of destination &, &hipping thereafter filed a
complaint demanding all the other cargo o3ners to share
in the total repair costs incurred by the company and in
the value of the lost and jettisoned cargoes !n ans3er to
the complaint# the shippers8 sole contention 3as that#
under the Code of Commerce# each damaged party should
bear its or o3n damage and those that did not suffer any
loss or damage 3ere not obligated to ma"e any
contribution in favor of those 3ho did !s the shippers8
contention valid ? 47plain
/@DDE/TED A"/-ER; "o. Ietti!o of cargoe! i
order the !a%e the %e!!el co!tit$te geeral a%erage. The
o&er! of the cargo !a%ed a! &ell a! the o&er! of the %e!!el
!ho$ld cotrib$te to the %al$e of the cargo Cetti!oed.
/: /hippig i! ot etitled to
cotrib$tioFreimb$r!emet from the !hipper! for the co!t of
repair! o the %e!!el.
>- What is meant by the doctrine of limited
liability or real and hypothecary nature of maritime la3 ?
/@DDE/TED A"/-ER; The liability of the !hip o&er
or !hip aget ari!ig from the operatio of a !hip >i the
tra!portatio of good! ad pa!!eger!? i! cofied to the
%e!!el( e'$ipmet( ad freight( or i!$race( if ay( !o that if
!hip o&er or !hip aget abado! the !hip( e'$ipmet ad
freight( a! &ell a! i!$race( hi! liability &o$ld be e#tig$i!hed(
C$!t a! &ell if the %e!!el &o$ld totally !i. or be a total lo!!(
ad there i! o i!$race.
?- When are the instances 3here the doctrine of
limited liability or real and hypothecary nature of maritime
la3 does not find any application ?
/@DDE/TED A"/-ER; The doctrie of limited
liability doe! ot apply;
a. -he death( iC$ry or damage !$!taied i!
attrib$table to the fa$lt or egligece of the !hip o&er or to
55
the coc$rrig fa$lt or egligece of the !hip o&er or !hip
aget ad the captai >patro? of the %e!!el.K
b. ) ca!e the %oyage i! ot maritime( b$t oly i a bay(
ri%er( la.e or g$lfK
c. ) ca!e of the e#pe!e! for e'$ippig( repairig or
pro%i!ioig the %e!!elK
d. ) ca!e the %e!!el i! ot a commo( b$t !pecial
carrier.
e. -here the %e!!el i! i!$redK ad
f. ) -or.me3! *ompe!atio claim!. >/onarch
Insurance Co., Inc., et al. v. Court of Appeals, et al., D.R. "o. 82731
ad compaio ca!e!( I$e 8( 2000?
"BTE/ A"D *B66E"T/;
a. P)o1%s%o/s o/ #)%/$%#'e o, '%.%e* '%&+%'%(. The
priciple of limited liability i! e$ciated i the follo&ig pro%i!io! of
the *ode of *ommerce;
Art. 187. The !hip aget !hall al!o be ci%illy liable for the
idemitie! i fa%or of third per!o! &hich may ari!e from the cod$ct
of the captai i the care of good! &hich he loaded o the %e!!elK b$t
he may e#empt him!elf therefrom by abadoig the %e!!el &ith all
the e'$ipmet! ad the freight it may ha%e eared d$rig the %oyage.
Art. 180. The co,o&er! of a %e!!el !hall be ci%illy liable i
the proportio of their itere!t! i the commo f$d for the re!$lt! of
the act! of the captai referred to i Art. 187. Each co,o&er may
e#empt him!elf from hi! liability by the abadomet( before a otary(
of the part of the %e!!el belogig to him.
Art. 837. The ci%il liability ic$rred by !hipo&er! i the ca!e
pre!cribed i thi! !ectio( !hall be $der!tood a! limited to the %al$e
of the %e!!el &ith all it! app$rteace! ad the freightage !er%ed
d$rig the %oyage. >cited i /onarch Insurance Co. Inc., et al., v.
Court of Appeals, et al.( D.R. "o. 82731K Allied ,uarantee Insurance
Co. v. Court of Appeals( D.R. "o. 8J897, *5uitable Insurance Corp. v.
Court of Appeals, etc., et al., D.R. "o. 81178( I$e 8( 2000?
b. P)%/$%#'e o, '%.%e* '%&+%'%( &##'%es ON26 %, he
$&#&%/ %s & ,&!' %/ 'o&*%/A Aoo*s- Article 187 !pea.! oly of
!it$atio! &here the fa$lt or egligece i! committed !olely by the
captai. ) ca!e! &here the !hip o&er i! li.e&i!e to be blamed(
Article 187 doe! ot apply. /$ch a !it$atio &ill be co%ered by the
pro%i!io! of the *i%il *ode o commo carrier!.
A fidig that a fort$ito$! e%et &a! the !ole ca$!e of the lo!!
of the %e!!el &o$ld ab!ol%e the !hipo&er from ay ad all liability
p$r!$at to Article 173J>1? of the *i%il *ode &hich pro%ide! i part
that commo carrier! are re!po!ible for the lo!!( de!tr$ctio( or
deterioratio of the good! they carry( $le!! the !ame i! d$e to flood(
!torm( earth'$a.e( lightig( or other at$ral di!a!ter or calamity.
c. 2%.%e* '%&+%'%( DOES NOT &##'( whe)e $&#&%/s
,&!' %s /o o/ 'o&*%/A Aoo*s- B the other had( a fidig that
the %e!!el !a. by rea!o of fa$lt adFor egligece of the !hipo&er(
the !hip captai ad cre& of the %e!!el &o$ld reder iapplicable the
r$le o limited liability. >/onarch Insurance Co., Inc., et al., v. Court
of Appeals, et al.( D.R. "o. 82731K Allied ,uarantee Insurance Co., v.
Court of Appeals( D.R. "o. 8J897K *5uitable Insurance Corporatio %.
*o$rt of Appeal!( etc.( et al.( D.R. "o. 81178( I$e 8( 2000?
<- D &hipping Company spent almost a fortune
in refitting and repairing its lu7ury passenger vessel# the
M% Marina# 3hich plied the interKisland routes of the
company from 1a :nion in the north to Davao City in the
south 0he M% Marina met an untimely fate during its postK
repair voyage !t san" off the coast of Bambales 3hile en
route to 1a :nion from Manila 0he investigation sho3ed
that the captain alone 3as negligently 0here 3ere no
casualties in that disaster# ,aced 3ith a claim for payment
of the refitting and repair# D &hipping Company asserted
e7emption from liability on the basis of the hypothecary or
limited liability rule under Article (J+ of the Code of
Commerce !s D &hipping Company8s assertion valid ?
47plain
/@DDE/TED A"/-ER; "o. The cocept of the
hypothecary or limited liability r$le fid! applicatio to liability
for lo!! or damage or good! ad ot for e#pe!e! of refittig(
repairig( e'$ippig or pro%i!ioig the %e!!el.
7- MC% 2 Aboitiz 3as advised by the @apanese
Meteorological Center that it 3as safe to travel to its
destination While at sea# the vessel received a report of a
typhoon moving 3ithin its general path 0o avoid the
typhoon# the vessel changed its course !t 3as still at the
fringe of the typhoon 3hen the hull lea"ed 3hich caused
the vessel to sin" together 3ith all its cargoes 0he
captain and his cre3 3ere saved
!n the Marine 2rotest that 3as filed the captain
stated that the 3ind force 3as at <) to <( "nots at the time
the ship foundered and described the 3eather as
56
5moderate breeze# small 3aves# becoming longer# fairly
fre9uent 3hite horses6
A subse9uent investigation conducted by the $oard
of Marine !n9uiry >$M!?# e7onerated the captain and cre3
of any administrative liability and declared the vessel
sea3orthy and concluded that the sin"ing 3as due to the
vessel8s e7posure to the approaching typhoon
0he insurance company acting as the subrogee of
the cargo o3ners claimed for the loss caused by the
sin"ing 0he vessel o3ner defended by see"ing refuge
under the limited liability doctrine
May the insurance company recover ?
/@DDE/TED A"/-ER; <e!. The i!$race
compay may reco%er beca$!e the %e!!el o&er caot
i%o.e the limited liability doctrie.
:or the limited liability doctrie to apply( the %e!!el
o&er m$!t !ho& that it e#erci!ed e#traordiary diligece i
the tra!port of the good!. The %e!!el o&er ha! the b$rde
of pro%ig that the $!ea&orthie!! of the %e!!el &a! ot d$e
to it! fa$lt or egligece. The fact! do o !ho& compliace
&ith the b$rde. The !i.ig &a! ot d$e to the typhoo b$t
d$e to the $!ea&orthy coditio of the %e!!el. The &eather
&a! moderate &he the %e!!el !a..
The 46) fidig! do ot bid the co$rt. :$rthermore(
46) e#oeratio of the %e!!el3! officer! ad cre& merely
cocer! their admii!trati%e liabilitie!. )t doe! ot i ay &ay
operate to ab!ol%e the commo carrier from the ci%il liabilitie!
ari!ig from it! fail$re to e#erci!e e#traordiary diligece( the
determiatio of &hich properly belog! to the co$rt!. >Aboiti(
hippin% Corporation v. Ne2 India Assurance Compan", 'td., D.R.
"o. 119878( 6ay 2( 2009?
"BTE/ A"D *B66E"T/;
&- 2%.%e* '%&+%'%( .&( +e w&%1e*- 4eefit! of limited
liability are !$bCect to &ai%er !$ch a! &he the air carrier failed to
rai!e timely obCectio! d$rig the trial &he '$e!tio! ad a!&er!
regardig the act$al claim! ad damage! !$!taied by the
pa!!eger! &ere a!.ed. >British Air2a"s v. Court of Appeals, 281
/*RA J10?
D- < 03o vessels coming from opposite
directions collided 3ith each other due to fault imputable
to both What are the liabilities of the t3o vessels 3ith
respect to the damage caused to them and their cargoes ?
47plain
' !f it cannot be determined 3hich of the t3o
vessels 3as at fault resulting in the collision# 3hich party
should bear the damage caused to the vessels and the
cargoes# 47plain
G Which party should bear the damage to the
vessels and the cargoes if the cause of the collision 3as a
fortuitous event ? 47plain
/@DDE/TED A"/-ER;
1. /ice both of them are fa$lt the each m$!t bear it!
o& damage.
2. -here fa$lt i! e!tabli!hed b$t it caot be
determied &hich of the t&o %e!!el! &a! at fa$lt( the doctrie
of i!cr$table fa$lt fid! applicatio ad both !hall be deemed
to be at fa$lt. *o!e'$etly( each %e!!el !hall bear their
re!pecti%e damage!.
3. "obody. The carrier i! ot liable if the ca$!e i! a
fort$ito$! e%et !ice it i! ot a i!$rer of lo!! or damage.
C- A severe typhoon 3as raging 3hen the vessel
&& Masdaam collided 3ith MC% 2rincess !t is conceded
that the typhoon 3as the major cause of collision#
although there 3as a very strong possibility that it could
not have been avoided if the captain of the && Masdaam
3as not drun" and the captain of the MC% 2rincess 3as not
asleep at the tie of collisions
Who should bear the damages to the vessels and
their cargoes ?
/@DDE/TED A"/-ER; The !hipo&er! !hall each
bear their re!pecti%e lo!! of their %e!!el!. :or the lo!!e! ad
damage! !$ffered by their cargoe!( both !hipo&er! are
!olidarily liable. *olli!io ca$!ed by !torm re!$lt! to both
%e!!el! bearig o& lo!!. Thi! de!pite both of the captai!
&ere egliget.
:0- RC imported computer motherboards from
the :nited &tates and had them shipped to Manila aboard
an oceanKgoing cargo ship o3ned by $C &hipping
Company When the cargo arrived at the Manila seaport
and delivered to RC# the crate appeared intactM but upon
57
inspection of the contents# RC discovered that the items
inside had all been badly damaged .e did not file any
notice of damage or anything 3ith anyone# least of all 3ith
$C &hipping Company What he did 3as to proceed
directly to your office to consult you about 3hether he
should have given a notice of damage and ho3 long a time
he had to initiate a suit under the provisions of the
Carriage of Ioods by &ea Act >CA ;(? What 3ould your
advice be ?
/@DDE/TED A"/-ER; ) &o$ld ad%ice R* to file &ith
4* /hippig *ompay a otice of damage &ithi three day!
from di!co%ery of damage( together &ith hi! claim. )f 4*
/hippig doe! ot pay hi! claim R* !ho$ld file !$it agai!t 4*
/hippig *ompay to reco%er the %al$e of the damage &ithi
oe >1? year from deli%ery.
"BTE/ A"D *B66E"T/;
a. P)es$)%#%1e #e)%o* ,o) 'os o) *&.&Ae* $&)Aoes
!/*e) he C&))%&Ae o, 3oo*s +( Se& A$ %s o/e 9:; (e&)
,)o. *e'%1e)( o) whe/ sho!'* +e *e'%1e)e*- ) ay e%et the
carrier ad the !hip !hall be di!charged from all liability i re!pect of
lo!! or damaged $le!! !$it i! bro$ght &ithi oe year after deli%ery
of the good! or the date &he the good! !ho$ld ha%e bee deli%ered;
pro%ided( that( if a otice of lo!! or damage( either apparet or
cocealed( i! ot gi%e a! pro%ided( that fact !hall ot affect or
preC$dice the right of the !hipper to brig !$it &ithi oe year after the
deli%ery of the good! or the date &he the good! !ho$ld ha%e bee
deli%ered. >/ec. 3 M9N( *BD/A?
::- A local consignee sought to enforce
judicially a claim against the carrier for loss of a shipment
f drums of lubricating oil from @apan under the Carriage of
Ioods by &ea Act >C-I&A? after the carrier had rejected
its demand the carrier pleaded in its Ans3er the
affirmative defense of prescription under the provisions of
said Act inasmuch as the suit 3as brought by the
consignee after one ><? year from delivery of the goods !n
turn# the consignee contended# that the period of
prescription 3as suspended by the 3ritten e7trajudicial
demand it had made against the carrier 3ithin the oneKyear
period# pursuant to Article <<(( of the Civil Code providing
that the prescription of actions is interrupted 3hen there is
a 3ritten e7tra judicial demand by the creditors
a .as the action# in fact# prescribed ? Why ?
b !f the consignee8s action 3ere predicated on
misdelivery or conversion of the goods# 3ould your
ans3er be the same ? 47plain briefly
/@DDE/TED A"/-ER;
a. <e!. The oe >1? year period pro%ided $der the
*BD/A i! ot iterr$pted by the &ritte e#traC$dicial demad
a! pro%ided $der the *i%il *ode. The pro%i!io! of the *i%il
*ode relati%e to !$!pe!io of pre!cripti%e period! fid
applicatio oly to pre!cripti%e period! $der the !aid *ode(
ad ot to pre!cripti%e period! pro%ided for i !pecial la&!
$le!! !pecially pro%ided for. >Dole Phil. )c.( %. 6aritime
*ompay( 1J8 /*RA 118? The *BD/A doe! ot pro%ide for
the applicatio of thi! pro%i!io of the *i%il *ode.
b. "o. The a!&er &o$ld ot be the !ame beca$!e
the pro%i!io! of *BD/A relati%e to the pre!cripti%e period
doe! ot apply. )!tead the pro%i!io! of the *i%il *ode o
pre!criptio icl$dig tho!e o !$!pe!io of the pre!cripti%e
period !ho$ld be applied. >An% v. Compania /aritima( 133 /*RA
900?
:2- 1avine entered into a contract 3ith Mitsui#
through Meister# to transport ladies 3ear from Manila to
,rance 3ith transhipment at 0ai3an &omeho3 or the
other# the goods 3ere not loaded at 0ai3an on time hence
3hen the goods arrived in ,rance they arrived PoffK
seasonP and 1avine 3as paid only for oneKhalf of the value
by its buyer
!s 1avineOs claim covered by the one year
prescriptive period under the Carriage of Ioods by &ea
Act considering the PlossP in value ?
/@DDE/TED A"/-ER; "o. )t !hall be co%ered by
the *i%il *ode pro%i!io! pro%idig for a te >10? year
pre!cripti%e period.
Deterioratio i %al$e of good! a! a re!$lt of delayed
deli%ery i! ot Olo!! or damageO cotemplated $der the
*arriage of Dood! by /ea Act >*BD/A?.
Q7o!!O refer! to the deterioratio or di!appearace of
good!. The deterioratio or di!appearace or de!tr$ctio of
good! m$!t be ca$!ed by the carrierQ! breach of cotract a! i
damage &hile i tra!it. Th$!( the lo!! or damage m$!t refer
58
to mi!hadlig of the cargo ad ot to the carrierQ! geeral
liability $der it! cotract of carriage.
The fact that the ladie! &ear became Ooff,!ea!oO i!
ot 2lo!! or damage5 therefore ot !$bCect to the pre!cripti%e
period of oe year $der the *BD/A. The pre!cripti%e period
therefore i! te >10? year! $der the *i%il *ode. >/itsui ...$.
'ines, 'td., v. Court of Appeals, et al., 287 /*RA 399?
:=- 0he consignee of a shipment of drilling
e9uipment from Aor3ay filed suit against the carrier for
loss under the Carriage of Ioods by &ea Act >C-I&A?
after the carrier had rejected its demand 0he carrier
pleaded prescription under the provisions of said Act
inasmuch as the suit 3as brought by the consignee after
one ><? year from delivery of the goods !n turn# the
consignee contended that the period of prescription 3as
suspended by the 3ritten e7trajudicial demand it had
made against the carrier 3ithin the oneKyear period#
pursuant to Article <<(( of the Civil Code providing that
the prescription of actions is interrupted 3hen there is a
3ritten e7trajudicial demand by the creditors
.as the action prescribed ? Why ?
/@DDE/TED A"/-ER; <e!. The oe year period
$der *BD/A i! ot iterr$pted by the &ritte e#traC$dicial
demad. The pro%i!io! of Article 1111 of the *i%il *ode o
iterr$ptio of the pre!cripti%e period applie! oly to the
period! pro%ided for $der the *i%il *ode( ot $der !pecial
la&! li.e the DBD/A. >!ole Phil. Inc. v, /aritime Compan", 1J8
/*RA 118?
!f the consignee8s action 3ere predicated on
misdelivery or conversion of the goods# 3ould your
ans3er be the same ? 47plain briefly
/@DDE/TED A"/-ER; "o. Thi! time the pro%i!io!
of the *i%il *ode o iterr$ptio of the pre!cripti%e period &ill
apply. >An% v. Compania /aritima( 133 /*RA 900?
:>- 0he 2hilippine !nternational &hipping
Corporation >2!&C? 3as granted guaranty
accommodations by Aational !nvestment and Development
Corporation to finance the ac9uisition of seven >+? oceanK
going vessels subject to the terms and conditions set forth
in the Iuaranty Agreements As security for the guaranty
accommodations# 2!&C e7ecuted in favor of 2A$CA!DC
Chattel Mortgages over the seven vessels
1ater# prior to the recording of the Chattel
Mortgages# one of the vessels# MC% Asean 1iberty needed
repair and conversion 2!&C entered into a Contract
Agreement 3ith .ong"ong :nited Doc"yards# 1td to do
the job at a contract price of .K*'#'))#))))) 0o cover
the contract price# 2!&C opened a standby letter of credit
3ith China $an"ing Corporation >C$C? for the amount of
:&*(N(#))))) in favor of Citiban" A promissory note
3as e7ecuted for the amount by 2!&C in favor of Citiban"
2!&C defaulted in its obligation under the
promissory note# the costs of repair 3ere debited against
C$C and remitted to Citiban"
When 2!&C failed to settle its obligation 3ith 2A$#
si7 of the mortgaged vessels 3ere auctioned and sold to
A!DC as the highest bidder 2!&C instituted before the R0C
an action for the annulment of the foreclosure sale
C$C filed suit in the amount of :&*'N'#''()) for
the &tandby 1etter of Credit in favor of Citiban" !t insists
that its claim is a preferred maritime lien 3hich is superior
to 2A$CADC8s mortgage lien Rule on C$C8s contention of
having a maritime lien
/@DDE/TED A"/-ERK <e!( *4* ha! a preferred
maritime lie.
The maritime lie o%er the %e!!el 6FV 2A!ea 7iberty5
aro!e or &a! co!tit$ted at the time Gog.og @ited
Drydoc.!( 7td. made repair! o the !aid %e!!el o credit. A!
!$ch( the date of the cotract for the repair ad co%er!io of
6FV 2A!ea 7iberty(5 a maritime lie had already bee attached
to the !aid %e!!el. -he *itiba. ad%aced the amo$t of
@/T2J2(221.00 for the p$rpo!e of payig off P)/*3! debt to
Gog.og @ited Doc.yard!( 7td.( it ac'$ired the e#i!tig
maritime lie o%er the %e!!el. -he *4* hoored it! cotract
of g$aratee &ith *itiba.( it li.e&i!e ac'$ired by !$brogatio
the maritime lie that &a! already e#i!tig o%er the %e!!el 6FV
2A!ea 7iberty.5 Th$!( &he *4* cho!e to e#erci!e it! right to
the maritime lie d$rig the proceedig! i the trial co$rt( it &a!
act$ally eforcig a pri%ilege that attached to the !hip before
the mortgage to P"4F")D*.
59
*4*3! maritime lie ha! priority o%er the !aid mortgage
lie. P$r!$at to /ectio 17 of the /hip 6ortgage Decree of
1878( a 2preferred mortgage lie !hall ha%e priority o%er all
claim! agai!t the %e!!el5 e#cept( amog other!( 2maritime
lie! ari!ig prior i time to the recordig of the preferred
mortgage.5 4Philippine National Bank7National Investment
!evelopment Corporation v. Court of Appeals, et al., D.R. "o. 128991(
A$g$!t 8( 2000?
"BTE/ A"D *B66E"T/K
a. M&)%%.e 2%e/@ /&!)e. A maritime lie 2co!tit$te! a
pre!et right of property i the !hip( a C$! i re( to be after&ard
eforced i admiralty by proce!! i rem. :rom the momet the claim
or pri%ilege attache!( it i! ichoate( ad &he carried ito effect by
legal proce!!( by a proceedig in rem( it relate! bac. to the period
&he it fir!t attached.5 >Philippine National Bank7National Investment
!evelopment Corporation v. Court of Appeals, et al., D.R. "o. 128991(
A$g$!t 8( 2000?
b. M&)%%.e '%e/@ whe/ % e0%ss- The applicable la& o
the matter i! Pre!idetial Decree "o. 1121( other&i!e .o& a! the
/hip 6ortgage Decree of 1878. /ectio! 17 ad 21 of the !aid
Pre!idetial Decree pro%ide! a! follo&!; 2/ec. 17- P)e,e))e*
2%e/s@ P)%o)%%es@ Ohe) 2%e/s 0 >a? @po the !ale of ay
mortgaged %e!!el i ay e#tra,C$dicial !ale or by order of a di!trict
co$rt of the Philippie! i ay !$it i rem i admiralty for the
eforcemet of a preferred mortgage lie thereo( all pre,e#i!tig
claim! o the %e!!el( icl$dig ay po!!e!!ory commo,la& lie of
&hich a lieor i! depri%ed $der the pro%i!io! of /ectio 19 of thi!
Decree( !hall be held termiated ad !hall thereafter attach( i li.e
amo$t ad i accordace &ith the prioritie! e!tabli!hed herei to the
proceed! of the !ale.
The preferred mortgage lie !hall ha%e priority o%er all claim!
i the order !tated;
>1? e#pe!e! ad fee! allo&ed ad co!t! ta#ed by
the co$rt ad ta#e! d$e to the go%ermetK
>2? cre&3! &age!K
>3? geeral a%erageK
>J? !al%ageK icl$dig cotract !al%ageK >1?
maritime lie! ari!ig prior i time to the recordig of the
preferred mortgageK ad
>9? damage! ari!ig o$t of tortK ad
>7? preferred mortgage regi!tered prior i time.
>b? )f the proceed! of the !ale !ho$ld ot be !$fficiet to pay
all creditor! icl$ded i oe $mber or grade( the re!id$e !hall be
di%ided amog them pro rata. All credit! ot paid( &hether f$lly or
partially !hall !$b!i!t a! ordiary credit! eforceable by per!oal
actio agai!t the debtor. The record of C$dicial !ale or !ale by p$blic
a$ctio !hall be recorded i the Record of Tra!fer! L Ec$mbrace!
of Ve!!el! i the port of doc$metatio.5 >Arragemet !$pplied?
U/ec. 21. M&)%%.e 2%e/ ,o) Ne$ess&)%esJ #e)so/s
e/%'e* o s!$h '%e/. Ay per!o f$ri!hig repair!( !$pplie!(
to&age( $!e of dry doc. or maritime rail&ay( or other ece!!arie! to
ay %e!!el( &hether foreig or dome!ticK $po the order of the o&er(
!hall ha%e a maritime lie o the %e!!el( &hich may be eforced by
!$it i rem( ad it !hall be ece!!ary to allege or pro%e that credit &a!
gi%e to the %e!!el.5 4Ibid.=
c. I/e)#)e&%o/. The pro%i!io! of o$r /hip 6ortgage
Decree of 1878 &ere pattered '$ite clo!ely after the @./. /hip
6ortgage Act of 1820.30. /igificatly( the :ederal 6aritime 7ie Act
of the @ited /tate!( li.e o$r /hip 6ortgage Decree of 1878( pro%ide!
that 2ay per!o f$ri!hig repair!( !$pplie!( to&age( $!e of drydoc.(
or marie rail&ay( or other ece!!arie!( to ay foreig or dome!tic
%e!!el( o the order of the o&er of !$ch %e!!el( or of a per!o
a$thori+ed by the o&er ha! a maritime lie o the %e!!el( &hich may
be eforced by !$it i rem.5 4eig of foreig origi( the pro%i!io of
the /hip 6ortgage Decree of 1878 may th$! be co!tr$ed &ith the aid
of foreig C$ri!pr$dece from &hich they are deied e#cept i!ofar a!
they coflict &ith e#i!tig la&! or are ico!i!tet &ith local c$!tom!
ad i!tit$tio!.
Tho!e &ho pro%ide credit to a ma!ter of a %e!!el for the
p$rpo!e of di!chargig a maritime lie al!o ac'$ire a lie o%er the
!aid %e!!el. @der America C$ri!pr$dece( 2f$ri!hig moey to a
ma!ter i good faith to obtai repair! or !$pplie! or to remo%e lie!( i
order to for&ard the %oyage of the %e!!el( rai!e! a lie C$!t a! tho$gh
the thig! >for &hich? moey &a! obtaied to pay for had bee
f$ri!hed by the leder.5 7i.e&i!e( 2>a? ad%ace! to di!charge
maritime lie! create a lie o the %e!!el( ad oe ad%acig moey
to di!charge a %alid lie get! a lie of e'$al digity &ith the oe
di!charged. 4Ibid.=
d. P)e,e)e/$e. @der the!e pro%i!io!( ay per!o
f$ri!hig repair!( !$pplie!( or other ece!!arie! to a %e!!el o credit
&ill ha%e a maritime lie o the !aid %e!!el. /$ch maritime lie( if it
aro!e prior to the recordig of a preferred mortgage lie( !hall ha%e
priority o%er the !aid mortgage lie. 4Ibid.=
e. S!+)oA&%o/. 4y defiitio( !$brogatio i! the tra!fer
of all the right! of the creditor to a third per!o( &ho !$b!tit$te! him i
all hi! right!. Article 2097 of the "e& *i%il *ode pro%ide! that 2the
g$arator &ho pay! i! !$brogated by %irt$e thereof to all the right!
&hich the creditor had agai!t the debtor. 4Ibid.=
60
9*; P!+'%$ Se)1%$e A$ 9Co.- A$ :><;@ &s
&.e/*e*
:- What are the re9uisites for the issuance of a
certificate of public convenience >C2C? ? Alternatively#
3hat re9uirements must be met before a certificate of
public convenience may be granted under the 2ublic
&ervice Act ?
/@DDE/TED A"/-ER;
a? The applicat m$!t be a citi+e of the Philippie!(
or a corporatio or co,parter!hip( a!!ociatio( or Coit !toc.
compay co!tit$ted ad orgai+ed $der the la&! of the
Philippie!( at lea!t !i#ty percet$m >90=? of it! !toc. or paid,
$p capital m$!t belog etirely to citi+e! of the Philippie!K
b? The applicat m$!t be fiacially capable of
$derta.ig the propo!ed !er%ice ad meetig the
re!po!ibilitie! icidet to it! operatioK ad
c? The applicat m$!t pro%e that the operatio of the
p$blic !er%ice propo!ed ad the a$thori+atio to do b$!ie!!
&ill promote the p$blic itere!t i a proper ad !$itable maer
>$ilusan% /a"o -no 7abor *eter %!. Darcia( Ir.( 238 /*RA 389?. )
!hort( proof of p$blic ece!!ity.
"BTE/ A"D *B66E"T/;
a. 2eA%s'&%1e ,)&/$h%se o o#e)&e E&%-&'&% %.+!e*
w%h #!+'%$ %/e)es &/* %/1o'1es &/ e0e)$%se o, #o'%$e
#owe)- The familiar r$le i! that la&! &hich grat the right to e#erci!e
a part of the police po&er of the !tate are to be co!tr$ed !trictly ad
ay do$bt m$!t be re!ol%ed agai!t the grat. The legi!lat$re i!
regarded a! the g$ardia of !ociety( ad therefore i! ot pre!$med to
di!able it!elf or abado the di!charge of it! d$ty. Th$!( co$rt! do ot
a!!$me that the legi!lat$re iteded to part a&ay &ith it! po&er to
reg$late p$blic moral!.
The pre!$mptio i! ifl$eced by co!tit$tioal
co!ideratio!. *o!tit$tio! are &idely $der!tood to &ithhold from
legi!lat$re! ay a$thority to bargai a&ay their police po&er for the
po&er to protect the p$blic itere!t i! beyod abegatio. 4!el /ar v.
Philippine Amusement and ,amin% Corporation, et al., D.R. "o.
138288( "o%ember 28( 2000 ad compaio ca!e?
2- When can the 1and 0ransportation ,ranchising
and Regulatory $oard e7ercise its po3er to suspend or
revo"e a certificate of public convenience ?
/@DDE/TED A"/-ER; The follo&ig are !ome of
the i!tace!;
a. -he the operator fail! to pro%ide a !er%ice that i!
!afe( proper or ade'$ate.
b. -he the operator ref$!e! to reder ay !er%ice
&hich ca be rea!oably demaded ad f$ri!hed. >/ec. 18
MaN( P$blic /er%ice Act?
=- Robert is a holder of a certificate of public
convenience to operate a ta7icab service in Manila and
suburbs -ne evening# one of his ta7icab units 3as
boarded by three >G? robbers as they escaped after staging
a holdKup $ecause of said incident# the 1and
0ransportation ,ranchising and Regulatory $oard revo"ed
the certificate of public convenience of Robert on the
ground that said operator failed to render safe# proper and
ade9uate service as re9uired under &ection <= >a? of the
2ublic &ervice Act
Was the revocation of the certificate of public
convenience of Robert justified ? 47plain >
/@DDE/TED A"/-ER; "o. A !igle hold,$p
icidet( &hich i! ot related at all i the maer by &hich
Robert operate! hi! certificate of p$blic co%eiece( !ho$ld
ot be co!tr$ed a! rederig !er%ice that i! $!afe(
iade'$ate ad improper. >/ansanal v. Ause;o( 19J /*RA 39?
>- 0he City of Manila passed an ordinance
banning provincial buses from the city 0he ordinance is
challenged as invalid under the 2ublic &ervice Act by D
3ho had a certificate of public convenience to operate
autoKtruc"s 3ith fi7ed routes from certain to3ns in
$ulacan and Rizal to Manila and 3ithin Manila ,irstly# he
claimed that the ordinance 3as null and void because#
among other things# it in effect amends his certificate of
public convenience# a thing 3hich only the 1and
0ransportation ,ranchising and Regulatory $oard >10,R$?
can do under &ection <; of the 2ublic &ervice Act :nder
said section# the Commission is empo3ered to amend#
modify or revo"e a certificate of public convenience after
notice and hearing &econdly# he contended that even if
the ordinance 3as valid# it is only the 10,R$ 3hich can
61
re9uire compliance 3ith its provisions under &ection <+ >j?
of said Act and since the implementation of the ordinance
3as 3ithout sanction or approval of the Commission# its
enforcement 3as unauthorized and illegal
<? May the reliance of D on &ection <; >m? of the
2ublic &ervice Act be sustained ? 47plain
'? Was D correct in his contention that under
&ection <+ >j? of the 2ublic &ervice Act it is only the
Commission 3hich can re9uire compliance 3ith the
provisions of the ordinance ?
/@DDE/TED A"/-ER;
1? "o. The po&er of the 7T:R4 $der /ectio 19 >m?
of the P$blic /er%ice Act i! !$bordiate to the a$thority of the
*ity of 6aila $der /ectio 18 >hh? of it! re%i!ed charter( to
!$perited( reg$late or cotrol the !treet! of the *ity of
6aila. >'a%man v. Cit" of /anila( 17 /*RA 178?
2? "o. The po&er! coferred by la& $po the 7T:R4
&ere ot de!iged to dey or !$per!ede the reg$latory po&er
of the local go%ermet $it! o%er motor traffic i the !treet!
!$bCect to their cotrol.
?- 0he $atong $a"al Corporation filed 3ith the
$oard of 4nergy an application for a Certificate of 2ublic
Convenience for the purpose of supplying electric po3er
and lights to the factory and its employees living 3ithin the
compound 0he application 3as opposed by the $ulacan
4lectric Corporation# contending that the $atong $a"al
Corporation has not secured a franchise to operate and
maintain an electric plant
!s the opposition8s contention correct ?
/@DDE/TED A"/-ER; "o. A legi!lati%e frachi!e
ot re'$ired for a etity to operate a! a !$pplier of electric
po&er ad light to it! o& factory ad it! employee! li%ig i
the compo$d pro%ided that it doe! ot ma.e a offer of
!er%ice to the p$blic i geeral.
<- 240R-A is a petroleum company 3hich o3ns
the largest# most modern comple7 refinery in the
2hilippines !t is also the country8s biggest combined
retail and 3holesale mar"et of refined petroleum products
&ection + of RA Ao GJ+# the 2etroleum Act of <=N=#
provides thatL 52etroleum operation a public utility K
4verything relating to the e7ploration for and e7ploitation
of petroleum 3hich may consist naturally or belo3 the
surface of the earth# and everything relating to the
manufacture# refining# storage# or transportation by
special methods of petroleum# as provided for in this Act#
is hereby declared to be of public utility6
!s 240R-A a public utility ? Why?
/@DDE/TED A"/-ER; "o. A 2p$blic $tility5 $der the
*o!tit$tio ad the P$blic /er%ice Act i! oe orgai+ed 2for
hire or compe!atio5 to !er%e the p$blic( &hich i! gi%e the
right to demad it! !er%ice. PETRB" i! ot egaged i oil
refiig for hire ad compe!atio to proce!! the oil of other
partie!.
7i.e&i!e( the acti%itie! co!idered a! 2p$blic $tility5
$der /ectio 7 of R.A. "o. 387 refer oly to petrole$m &hich
i! idigeo$! to the Philippie!. Gece( the refiig of
petrole$m prod$ct! !o$rced from abroad a! i! doe by
PETRB" i! ot &ithi the cotemplatio of the la&. >Ba%atsin%
v. Committee on Privati(ation( 2J1 /*RA 33J?
7- WWW Communications# !nc# is an eKcommerce
company 3hose present business activity is limited to
providing its clients 3ith all types of information
technology hard3are !t plans to reKfocus its corporate
direction of gradually converting itself into a full
convergence organization 0o3ards this objective# the
company has been aggressively ac9uiring
telecommunications businesses and broadcast media
enterprises# and consolidating their corporate structures
0he ultimate plan is to have only t3o organizationsL one to
o3n the facilities of the combined business and to develop
and produce content materials# and another to operate the
facilities and provide mass media and commercial
telecommunications services WWW Communications 3ill
be the flagship entity 3hich 3ill o3n the facilities and
provide the services WWW Communications see"s your
professional advice on 3hether or not its reorganized
business activity 3ould be considered a public utility
re9uiring a franchise or certificate or any other form of
62
authorization from the government What 3ill be your
advice ? 47plain
/@DDE/TED A"/-ER; The reorgai+ed b$!ie!!
acti%ity of --- *omm$icatio! &o$ld ot be co!idered a!
a p$blic $tility re'$irig a frachi!e.
-hat co!tit$te! a p$blic $tility i! ot their o&er!hip
b$t their $!e to !er%e the p$blic. -hile a frachi!e i! eeded
to operate the!e facilitie! to !er%e the p$blic( they do ot by
them!el%e! co!tit$te a p$blic $tility.
The *o!tit$tio( i o $certai term!( re'$ire! a
frachi!e for the operatio of a p$blic $tility. Go&e%er( it doe!
ot re'$ire a frachi!e before oe ca o& the facilitie!
eeded to operate a p$blic $tility !o log a! it doe! ot operate
them to !er%e the p$blic.
) la&( there i! a clear di!tictio bet&ee the
2operatio5 of a p$blic $tility ad the Oo&er!hipO of the facilitie!
ad e'$ipmet $!ed to !er%e the p$blic.
The right to operate a p$blic $tility may e#i!t
idepedetly ad !eparately from the o&er!hip of the
facilitie! thereof. Be ca o& !aid facilitie! &itho$t operatig
them a! a p$blic $tility or co%er!ely( oe may operate a p$blic
$tility &itho$t o&ig the facilitie! $!ed to !er%e the p$blic. The
de%otio of property to !er%e the p$blic may be doe by the
o&er or by the per!o i cotrol thereof &ho may ot
ece!!arily be the o&er thereof.
The dichotomy bet&ee the operatio of a p$blic $tility
ad the o&er!hip of the facilitie! $!ed to !er%e the p$blic ca
be %ery &ell appreciated &he &e co!ider the tra!portatio
id$!try. Efrachi!ed airlie ad !hippig compaie! may
lea!e their aircraft ad %e!!el! i!tead of o&ig them
them!el%e!. >Tatad, et al., v. ,arcia, )r., et al., 2J3 /*RA J39?
"BTE/ A"D *B66E"T/;
a. B!%'*-o#e)&e-)&/s,e) 9BOT;- Be &here the
cotractor $derta.e! the co!tr$ctio ad fiacig of a
ifra!tr$ct$re facility( ad operate! ad maitai! the !ame. The
cotractor operate! the facility for a fi#ed period d$rig &hich it may
reco%er it! e#pe!e! ad i%e!tmet i the proCect pl$! a rea!oable
rate of ret$r thereo. After the e#piratio of the agreed term( the
cotractor tra!fer! the o&er!hip ad operatio of the proCect to the
go%ermet. The o&er of the ifra!tr$ct$re facility m$!t comply &ith
the citi+e!hip re'$iremet of the *o!tit$tio o the operatio of a
p$blic $tility. >Tatad, et al., v. ,arcia,. )r., et al.( 2J3 /*RA J39?
b. B!%'*-&/*-)&/s,e) 9BT;- The cotractor $derta.e!
the co!tr$ctio ad fiacig of the facility( b$t after completio( the
o&er!hip ad operatio thereof are t$red o%er to the go%ermet.
The go%ermet( i t$r( !hall pay the cotractor the total i%e!tmet
o the proCect i additio to a rea!oable rate of ret$r. Thi!
arragemet may be employed i the co!tr$ctio of ay
ifra!tr$ct$re proCect icl$dig critical facilitie! &hich for !ec$rity or
!trategic rea!o!( m$!t be operated directly by the go%ermet.
:ilipio o&er!hip i! ot re'$ired. >Tatad, et al., v. ,arcia, )r., et al.,
2J3 /*RA J39?
c. D%s%/$%o/s +ewee/ BOT &/* BT"
a. 4BT cotractor operate!K 4T go%ermet
operate!.
b. 4BT compliace &ith citi+e!hip re'$iremetK 4T
o.
d. V&'!e-&**e* se)1%$es 9VAS; s!$h &s SMS@ &)e
*e)eA!'&e* +! N&%o/&' Te'e$o..!/%$&%o/s Co..%ss%o/
9NTC; s%'' h&s E!)%s*%$%o/ o1e) SMS o,,e)%/As@ %/$'!*%/A
I!es%o/s o, )&es &/* $!so.e) $o.#'&%/s- There i! a
implicit recogitio that VA/ i! ot !trictly a p$blic !er%ice offerig i
the &ay that %oice,to,%oice lie! are( for e#ample( b$t merely
!$pplemetary to the ba!ic !er%ice!.
D- !s an international gate3ay facility >!I,? a
telephone system G
/@DDE/TED A"/-ER; "o. )t i! ot. A )D: !y!tem
&hich &o$ld mediate bet&ee a dome!tic telephoe !y!tem
ad the tra!mittig ad carryig facilitie! of a iteratioal
carrier. )t &ill permit me!!age! origiatig from a per!o $!ig
P7DT3! dome!tic telephoe !y!tem to eter the tra!mittig
ad carryig facilitie! of a iteratioal carrier ad a! &ell
allo& me!!age! icomig from abroad thro$gh the
iteratioal carrier3! carryig facilitie! to eter the dome!tic
!y!tem. >Philippine 'on% !istance Telephone Compan" v. NTC, et
al., 2J1 /*RA J89?
"BTE/ A"D *B66E"T/;
a. Te'e$o..!/%$&%o/s- *omm$icatio o%er di!tace
ma.ig o limitig referece to the mea! or mode of !$ch
comm$icatio.
-he the !tat$tory te#t !pea.! of 2me!!age!5( there !ho$ld
be o di!tictio bet&ee %oice or oral ad data or (o,%oice
me!!age! or tra!mi!!io!. Voice me!!age! do ot tra%el %ia &ire!
>cable! &hether !$bmarie or $dergro$d or( aerial? or ay other
63
media 5ua %oice >i.e.( a! !o$d &a%e!?K %oice tra!mi!!io!( e#actly
li.e data >or o,%oice? me!!age!( tra%el i the form of electroic
imp$l!e! thro$gh cable! >or ay other media? ad are !imply
co%erted at the poit of receptio or de!tiatio ito other form!
%i!$ally or a$dibly perceptible by h$ma beig! >Philippine 'on%
!istance Telephone Compan" v. NTC, et al., 2J1 /*RA J89?
C- What is the effect of failure to get approval of
sale or mortgage of franchise ?
/@DDE/TED A"/-ER ;) operatig a tr$c. &itho$t
the tra!fer thereof ha%ig bee appro%ed by the P$blic
/er%ice *ommi!!io >o& 7T:R4?( the tra!feree acted merely
a! aget of the regi!tered o&er ad !ho$ld be re!po!ible to
him >the regi!tered o&er? for ay damage! he may ca$!e the
latter thro$gh hi! egligece. 4>0? Transit Co., Inc. vs. N'RC, et
al.( D.R. 88181,89( Ia$ary 27( 188J? REA/B"; /ice a
frachi!e i! per!oal i at$re ay tra!fer or lea!e thereof
!ho$ld be otified to the P$blic /er%ice *ommi!!io >7T:R4?
!o that the latter may ta.e proper !afeg$ard! to protect the
itere!t of the p$blic.
Bf co$r!e it follo&! that if there are ay damage
ca$!ed to the geeral p$blic the regi!tered o&er i! directly
a!&erable ad ot the $regi!tered tra!feree.
:0- 2epay# a holder of a certificate of public
convenience# failed to register the complete number of
units re9uired by her certificate .o3ever# she tried to
justify such failure by the accidents that allegedly befell
her# claiming that she 3as so shoc"ed and burdened by
the successive accidents and misfortunes that she did not
"no3 3hat she 3as doing# she 3as confused and thro3n
off tangent momentarily# although she al3ays had the
money and financial ability to buy ne3 truc"s or repair the
destroyed ones Are the reasons given by 2epay
sufficient grounds to e7cuse her from completing her units
? 47plain
/@DDE/TED A"/-ER; "o. Pepay co$ld ha%e
$derta.e the regi!tratio of the complete $mber of $it!
thro$gh her a$thori+ed repre!etati%e!. >&alili v. &erras, 10
/*RA 798?
::- Antonio 3as granted a Certificate of 2ublic
Convenience >C2C? in '))) to operate a ferry bet3een
Mindoro and $atangas using the motor vessel 5M% 1otus6
.e stopped operations in '))G due to unserviceability of
the vessel
!n '))(# $asilio 3as granted a C2C for the same
route After a fe3 months# he discovered that Carlos 3as
operating on his route under Antonio8s C2C because
$asilio filed a complaint for illegal operations 3ith the
Maritime !ndustry Authority# Antonio and Carlos jointly
filed an application for sale and transfer of Antonio8s C2C
and substitution of the vessel 5M% 1otus6 3ith another
o3ned by Carlos
&hould Antonio8s and Carlos8 joint application be
approved ? Iive your reasons
/@DDE/TED A"/-ER; "o. The Coit applicatio
!ho$ld be di!appro%ed. The $!er%iceability of the %e!!el
co%ered by the certificate redered ieffecti%e the certificate
it!elf( ad the holder may ot legally tra!fer the !ame to
aother. >Cohon v. Court of Appeals, et al., 188 /*RA 718?
9e; The W&)s&w Co/1e/%o/ o, :C2C
92%.%e* o he C&))%e)s 2%&+%'%(;
:- What is the Warsa3 Convention ?
/@DDE/TED A"/-ER; )t i! aother ame for the
*o%etio for the @ificatio of *ertai R$le! Relatig to
)teratioal *arriage by Air( a! ameded by the Gag$e
Protocol of 1811( the 6otreal Agreemet of 1899( the
D$atemala Protocol of 1871 ad the 6otreal Protocol! of
1871?.
)t ha! the force ad effect of la& i the co$try beig a
treaty commitmet a!!$med by the Philippie Do%ermet. )t
deie! to the carrier a%ailmet of the pro%i!io! &hich e#cl$de
or limit hi! liability( if the damage i! ca$!ed by hi! &illf$l
mi!cod$ct or by !$ch defa$lt o hi! part i! co!idered to be
e'$i%alet to damage ca$!ed by ay aget of the carrier actig
&ithi the !cope of hi! employmet. >abena Bel%ian <orld
Airlines v. Court of Appeals, et al., 211 /*RA 38?
"BTE/ A"D *B66E"T/;
64
a. Re$oA/%%o/ o, he W&)s&w Co/1e/%o/ *oes
/o #)e$'!*e he o#e)&%o/ o, he C%1%' Co*e &/* ohe)
#e)%/e/ '&ws i the determiatio of the e#tet of liability of the
commo carrier. The -ar!a& *o%etio( beig a treaty to &hich the
Philippie! i! a !igatory( i! m$ch a part of Philippie la& a! the *i%il
*ode( *ode of *ommerce( ad other m$icipal !pecial la&!. The
pro%i!io! therei cotaied !pecifically o the limitatio of carrier3!
liability( are operati%e i the Philippie! b$t oly i appropriate
!it$atio!. The -ar!a& *o%etio doe! ot operate a! a e#cl$!i%e
e$meratio of the i!tace! &he a carrier !hall be liable for breach
of cotract or a! a ab!ol$te limit of the e#tet of liability. >Philippine
Airlines, Inc. v. Court of Appeals, et al.(211 /*RA J8?
The -ar!a& *o%etio doe! ot operate a! a e#cl$!i%e
e$meratio of the i!tace! for declarig a carrier liable for breach
of cotract of carriage or a ab!ol$te limit of the e#tet of that liability,
it m$!t ot be co!tr$ed to precl$de the operatio of the *i%il *ode
ad pertiet la&!. >Philippine Airlines, Inc., v. Court of Appeals( 217
/*RA 33?
b. W&)s&w Co/1e/%o/ .&( +e %A/o)e*- -ithi o$r
C$ri!dictio( the -ar!a& *o%etio ca be applied( or igored(
depedig o the pec$liar fact! pre!eted by each ca!e. >-nited
Airlines v. -", 318 /*RA 179?
2- Rolando# on a special mission to purchase
firearms for the 2hilippine &enate# purchased a round trip
tic"et from Aorth3est for his travel to Chicago# :&A and
bac" to Manila After purchasing firearms and on the 3ay
bac" to Manila Rolando chec"edKin and presented before
Aorth3est representatives t3o identical baggage 3hich
3ere re9uired to be opened and supporting documents
3ere presented Rolando then sealed the baggage and a
Aorth3est representative placed a red tag on the baggage
3ith firearms 3ith the mar"ing 5C-A0A!A& ,!R4ARM&6
:pon arrival at Manila# it 3as found out that one baggage
3as missing# and 3hen it finally arrived the firearms 3ere
missing
Aorth3est no3 claims that under the Warsa3
Convention and the contract of carriage its liability is
limited only to :&*=)+ per pound or :&*') per "ilo or a
total of :&*;N))) Rule on the claim of limited liability
/@DDE/TED A"/-ER; *laim &itho$t merit. The
-ar!a& *o%etio doe! ot operate a! a e#cl$!i%e
e$meratio of the i!tace! of a airlie3! liability( or a! a
ab!ol$te limit of the e#tet of that liability. The co%etio3!
pro%i!io! do ot 2reg$late or e#cl$de liability for other
breache! of cotract by the carrier5 or mi!cod$ct of it! officer!
ad employee!( or for !ome partic$lar or e#ceptioal type of
damage. >North2est Airlines, Inc., v. Court of Appeals, et al., and
companion case, 28J /*RA J08?
"BTE/ A"D *B66E"T/;
a. O+'%A&%o/s o, $&))%e) %/ $o/,%).e* ,'%Ahs- -he
a airlie i!!$e! a tic.et to a pa!!eger cofirmed for a partic$lar
flight o a certai date( a cotract of carriage ari!e!. The pa!!eger
ha! e%ery right to e#pect that he be tra!ported o that flight ad o
that date ad it become! the carrier3! obligatio to carry him ad hi!
l$ggage !afely to the agreed de!tiatio. )f the pa!!eger i! ot
tra!ported or if i the proce!! of tra!portig he doe! or i! iC$red the
carrier may be held liable for a breach of cotract of carriage. Th$!( a
commo carrier i! bo$d to carry it! pa!!eger! !afely a! far a!
h$ma care ad fore!ight ca pro%ided( $!ig the $tmo!t diligece of
%ery ca$tio$! per!o!( &ith d$e regard for all the circ$m!tace!.
>)apan Airlines v. Asuncion, et al., D. R. "o. 191730( Ia$ary 28(
2001?
?- Co)#o)&%o/ 2&w
:- May Congress# by la3# create a private
corporation ? Reason out briefly
/@DDE/TED A"/-ER; *ogre!! caot eact a la&
creatig a pri%ate corporatio. The *o!tit$tio emphatically
prohibit! the creatio of pri%ate corporatio! e#cept by a
geeral la& applicable to all citi+e!. >#eliciano, etc. v.
Commission on Audit, etc., D. R. "o. 1J7J02( Ia$ary 1J(
200J citig National !evelopment Compan" v. Philippine
6eterans Bank, D. R. "o. 8J132,33( 10 December 1880(
182/*RA 217?
The p$rpo!e of thi! co!tit$tioal prohibitio i! to ba
pri%ate corporatio! created by !pecial charter!( &hich
hi!torically ga%e certai idi%id$al!( familie! or gro$p! !pecial
pri%ilege! deied to other citi+e!. >#eliciano, etc. v. Commission
on Audit, etc., D. R. "o. 1J7J02( Ia$ary 1J( 200J citig 4era!?
"BTE/ A"D *B66E"T/;
a. Two $'&sses o, $o)#o)&%o/s )e$oA/%Fe* !/*e)
he Co/s%!%o/"
65
1? Pri%ate corporatio! created $der a
geeral la&.
2? Do%ermet,o&ed or cotrolled
corporatio! created by !pecial charter!. . >#eliciano,
etc. v. Commission on Audit, etc., D. R. "o. 1J7J02( Ia$ary
1J( 200J?
b. Co/s%!%o/&' +&s%s ,o) $'&ss%,%$&%o/- 2The
*ogre!! !hall ot( e#cept by geeral la&( pro%ide for the
formatio( orgai+atio( or reg$latio of pri%ate corporatio!.
Do%ermet,o&ed or cotrolled corporatio! may be created
or e!tabli!hed by !pecial charter! i the itere!t of the commo
good ad !$bCect to the te!t of ecoomic %iability.5 >/ec. 19(
Article H))( 1887 *o!tit$tio?
9&; The Co)#o)&%o/ Co*e 9BP B'A- <D;
:- As a result of perennial business losses a
corporation8s net 3orth has been 3iped out !n fact# it is
no3 in negative territory Aonetheless# the stoc"holders
did not li"e to give upL
CreditorKban"s# ho3ever# do not share the
confidence of the stoc"holders and refuse to grant more
loans
a What tools are available to the stoc"holders to
replenish capital ?
b Assuming that the corporation continues to
operate even 3ith depleted capital 3ould the stoc"holders
or the managers be solidarily liable for the obligations
incurred by the corporation ? 47plain
/@DDE/TED A"/-ER; The !toc.holder! may re!ort
to the follo&ig;
a. )crea!e the capital !toc. of the corporatio( thereby
if$!ig additioal f$d!.
b. )!!$e a call for the paymet of $paid !$b!criptio!
if there are ay.
c. )f the !toc.holder! do ot &at to dil$te their !hare!
thro$gh icrea!e i capital !toc.( they co$ld gi%e ad%ace! to
the corporatio.
2- An educational corporation sued t3o radio
broadcasters for libel because of malicious imputations
against the school !s it entitled to moral damages as a
corporation ?
/@DDE/TED A"/-ER; <e!. Article 2218 >7? of the
*i%il *ode &hich e#pre!!ly a$thori+e! the reco%ery of moral
damage! i ca!e! of libel( !lader( or ay other form of
defamatio doe! ot di!tig$i!h &hether the plaitiff i! a
at$ral or C$ridical per!o. >#ilipinas Broadcastin% Net2ork, Inc. v.
A%o /edical and *ducational Center8Bicol Christian Colle%e of
/edicine 4A/*C8BCC/, et al. D. R. "o. 1J188J( Ia$ary 17( 2001?
"BTE/ A"D *B66E"T/;
a. 3e/e)&''( $o)#o)&%o/ /o e/%'e* o *&.&Aes-
A C$ridical per!o i! geerally ot etitled to moral damage! beca$!e(
$li.e a at$ral per!o( it caot e#periece phy!ical !$fferig or
!$ch !etimet! a! &o$ded feelig!( !erio$! a#iety( metal ag$i!h
or moral !hoc.. The !tatemet i /ambulao 'umber Co. v. PNB, et
al., 130 Phil. 399K 22 /*RA 318 >1893? that 2a corporatio may ha%e
a good rep$tatio &hich( if be!mirched( may al!o be a good gro$d
for the a&ard of moral damage!5 i! a obiter dictum. The a&ard of
moral damage! to A/*C8BCC/ &a! ot premi!ed $po the
/ambulao obiter b$t $po Article 2218 >7? of the *i%il *ode &hich
doe! ot ma.e a di!tictio &hether the plaitiff i! a C$ridical or at$ral
per!o to be etitled to damage!. >#ilipinas Broadcastin% Net2ork,
Inc. v. A%o /edical and *ducational Center8Bicol Christian Colle%e of
/edicine 4A/*C8BCC/, et al. D. R. "o. 1J188J( Ia$ary 17( 2001
citig People v. /anero, )r., D. R. "o!. 89883,81( 28 Ia$ary 1883(
218 /*RA 81?
=- As a result of perennial business losses a
corporation8s net 3orth has been 3iped out !n fact# it is
no3 in negative territory Aonetheless# the stoc"holders
did not li"e to give upL
CreditorKban"s# ho3ever# do not share the
confidence of the stoc"holders and refuse to grant more
loans
Assuming that the corporation continues to operate
even 3ith depleted capital 3ould the stoc"holders or the
managers be solidarily liable for the obligations incurred
by the corporation ? 47plain
/@DDE/TED A"/-ER; "o. The corporatio ha! a
per!oality di!tict ad !eparate from that of it! !toc.holder! or
maager!. Go&e%er( &here the corporatio i! already
i!ol%et all it! a!!et! are co!idered held i tr$!t by it!
66
director! ad officer! for the beefit of creditor!( hece they
may be held liable for egligece or mi!maagemet.
"BTE/ A"D *B66E"T/;
a. Co)#o)&e ,%$%o/- R$dimetary i! the r$le that a
corporatio i! i%e!ted by la& &ith a per!oality di!tict ad !eparate
from it! !toc.holder! or member!. ) the !ame %ei( a corporatio by
legal fictio ad co%eiece i! a etity !hielded by a protecti%e
matle ad imb$ed &ith a character alie to the per!o! compri!ig it.
)t may ot geerally be held liable for that of the per!o! compo!ig
it. )t may ot be held liable for the per!oal idebtede!! of it!
!toc.holder! of tho!e of the etitie! coected &ith it. >'im v. Court of
Appeals, et al., D.R. "o. 12J711( Ia$ary 2J( 2000?
b. P!)#ose o, $o)#o)&e ,%$%o/- *orporate
per!oality i! a !hield agai!t the per!oal liability of officer! or the
per!oal idebtede!! of the !toc.holder!. >!.R. CAT6 "stems, Inc.
v. Ramos, etc., A. 6. "o. P 0 01 0 2031( December 8( 2001?
P!)#ose o, $o)#o)&e se-!#- The cocept of
corporatio! &a! e%ol%ed to ma.e po!!ible the aggregatio ad
a!!emblig of h$ge amo$t! of capital $po &hich big b$!ie!!
deped!. it al!o ha! the ad%atage of o,depedece o the li%e!
of tho!e &ho compo!e it e%e a! it eCoy! certai right! ad cod$ct!
acti%itie! of at$ral per!o!. >Re"noso, I6 v. Court of Appeals, et al.,
D.R. "o!. 11912J,21( "o%ember 22( 2000?
c. The K)!s ,!/* doctrie co!ider! $paid
!$b!cribed capital a! a tr$!t f$d for the paymet of the debt! of
the corporatio( to &hich the creditor! may loo. for !ati!factio. @til
the li'$idatio of the corporatio( o part of the !$b!cribed capital
may be ret$red or relea!ed to the !toc.holder >e#cept i the
redemptio of redeemable !hare!? &itho$t %iolatig thi! priciple.
Th$!( di%ided! m$!t e%er impair the !$b!cribed capitalK
!$b!criptio commitmet! caot be codoed or remittedK or a the
corporatio b$y it! o& !hare! $!ig the !$b!cribed capital a! the
co!ideratio therefore. >National Telecommunications Commission
v. Court of Appeals, et al., D.R. "o. 127837( I$ly 28( 1888?
Aother %ariatio of the 2tr$!t f$d5 doctrie po!it! that ay
di!trib$tio of corporate a!!et! a! a co!e'$ece of corporate
li'$idatio are co!idered a! held i tr$!t by the recipiet !toc.holder
for the beefit of the creditor! of the corporatio.
>- ,ifteen individuals formed a private
corporation pursuant to the provisions of the Corporation
Code of the 2hilippines >$atas 2ambansa $lg ;J?
!ncorporator Mr 1eon 3as elected director and president
H general manager 2art of his emolument is a Mercedes
$enz# 3hich the corporation o3ns After a fe3 years# Mr
1eon lost his corporate positions but he refused to return
the motor vehicle claiming that as a stoc"holder 3ith a
substantial e9uity share# he o3ns that portion of the
corporate assets no3 in his possession !s the contention
of Mr 1eon valid ? 47plain
/@DDE/TED A"/-ER; "o. The corporatio ha! a
per!oality di!tict ad !eparate from that of it! !toc.holder!.
*o!e'$etly( corporate property !$ch a! the 6ercede! 4e+
i! ot property of ay !toc.holder !$ch a! 6r. 7eo.
"BTE/ A"D *B66E"T/;
a. Co)#o)&e #)o#e)( /o ow/e* +( so$Bho'*e)s-
The di!tictio bet&ee the title of a corporatio( ad the itere!t of it!
member! or !toc.holder! i the property of the corporatio i! familiar
ad &ell,!ettled. The o&er!hip of that property i! i the corporatio(
ad ot i the holder! of !hare! of it! !toc.. The itere!t of each
!toc.holder co!i!t! i the right to a proportioate part of the profit!
&hee%er di%ided! are declared by the corporatio( d$rig it!
e#i!tece( $der it! charter( ad to a li.e proportio of the property
remaiig( $po the termiatio or di!!ol$tio of the corporatio after
paymet of it! debt!. >/obilia Products, Inc. v. -me(a2a, D. R. "o.
1J8317( 6arch J( 2001 ad it! compaio ca!e?
b. Co)#o)&e so$Bho'*e)s o/'( h&1e %/$ho&e
)%Ah o1e) $o)#o)&e &sses- *orporate a!!et! belog to the
corporatio ad !toc.holder! ha%e o claim o them a! o&er!( b$t
ha%e merely a ichoate right to the !ame !ho$ld ay remai $po
the di!!ol$tio of the corporatio after all the corporate creditor! ha%e
bee paid. >!.R. CAT6 "stems, Inc. v. Ramos, etc., A. 6. "o. P 0
01 0 2031( December 8( 2001?
?- A# $ and C are shareholders of DFB Company
A has an unpaid subscription of 2<))#))))) $8s shares
are fully paid up# 3hile C o3ns only nominal but fully paid
up shares and is a director and officer DFB Corporation
becomes insolvent# and it is established that the
insolvency is the result of fraudulent practices 3ithin the
company !f you 3ere counsel for a creditor of DFB
Company# 3ould you advise legal action against A# $ and
C ?
/@DDE/TED A"/-ER;
a. A actio may be i!tit$ted agai!t A $p to the
e#tet of hi! $paid !$b!criptio( &hich he i! !$ppo!ed to hold
67
i tr$!t for the beefit of corporate creditor!. A3! liability i!
limited oly $p to hi! $paid !$b!criptio.
b. There i! o ca$!e of actio agai!t 4 beca$!e he
ha! f$lly paid $p hi! !$b!criptio. A corporatio ha! a
per!oality !eparate ad di!tict from that of the !toc.holder!(
hece corporate liabilitie! co$ld ot be collected agai!t
!toc.holder!.
c. *( a! director( may be held liable Coitly ad
!e%erally &ith the corporatio beca$!e it appear! i the
problem that there &ere fra$d$let practice! i directig
corporate affair!.
<- What are the tests of corporate nationality ?
/@DDE/TED A"/-ER; The te!t! are the atioality
theory ad the theory of icorporatio. @der the atioality
theory the citi+e!hip of the !toc.holder! determie!
atioality irre!pecti%e of the place of icorporatio. @der the
theory of icorporatio( the place of icorporatio determie!
atioality irre!pecti%e of atioality of !toc.holder!.
7- What is the nationality of a corporation
organized and incorporated under the la3s of a foreign
country# but o3ned <))E by ,ilipinos ?
/@DDE/TED A"/-ER; @der the cotrol te!t( the
atioality of the corporatio !$bCect of the problem( i! :ilipio.
"BTE/ A"D *B66E"T/;
a. A'%e/ .&( +e e'e$e* o Bo&)* o, D%)e$o)s o, &
#&)%&''( /&%o/&'%Fe* $o)#o)&%o/ #)o1%*e* he e'e$%o/
*oes /o e0$ee* he%) &''ow&+'e #&)%$%#&%o/ %/ he $&#%&'
so$B-
D- A corporation 3as created by special la3 1ater#
the la3 creating it 3as declared invalid May such
corporation claim to be a de facto corporation ?
/@DDE/TED A"/-ER; <e! from the time the la&
became effecti%e $p to the declaratio of it! i%alid. *ertai
legal act! flo&ed prior to the i%alidatig of the la& &hich
!ho$ld ha%e recogitio.
"BTE/ A"D *B66E"T/;
a. A $o)#o)&%o/ &$I!%)es E!)%*%$&' #e)so/&'%(
h)o!Ah S&e $o/se/- )t i! a ba!ic po!t$late that before a
corporatio
C- When is the veil of corporate fiction
pierced ?
/@DDE/TED A"/-ER; The follo&ig &ere the
i!tace! &here the /$preme *o$rt r$led that the %eil of
corporatio fictio may be pierced;
a. -he the corporate fictio i! $!ed to defeat p$blic
co%eiece( C$!tify &rog( protect fra$d( or defed crime or
&he a corporatio i! the mere alter ego or b$!ie!! cod$it of
a per!o. >Pamplona Plantation, Inc. v. Tin%hil, et al., D.R. "o.
118121( :ebr$ary 3( 2001 citig %ario$! ca!e!? To di!regard the
!eparate C$ridical per!oality of a corporatio( the &rog,doig
m$!t be clearly ad co%icigly( e!tabli!hed. )t caot be
pre!$med. > 0u, et al vs. N'RC, et al., D.R.. "o!. 111810,11( I$e
19( 1881?
b. -he the fictio i! $!ed a! a mea! of perpetratig
a fra$d or a illegal act or a! a %ehicle for the e%a!io of a
e#i!tig obligatio( the circ$m%etio of !tat$te!( the
achie%emet or perfectio of a moopoly or geerally the
perpetratio of .a%ery or crime( the %eil &ith &hich the la&
co%er! ad i!olate! the corporatio from the member! or
!toc.holder! &ho compo!ed it &ill be lifted to allo& for it!
co!ideratio merely a! a aggregatio of idi%id$al!.
c. To a%oid a C$dgmet creditK to a%oid icl$!io of
corporate a!!et! a! part of the e!tate of a decedetK to a%oid
liability ari!ig from debtK &he made $!e a! a !hield to
perpetrate fra$d adFor cof$!e legitimate i!!$e!K or to
promote $fair obCecti%e! or other&i!e to !hield them. >#irst
Philippine International Bank, et al., v. Court of Appeals( D.R. "o.
1118J8( Ia$ary 2J( 1889( citig %ario$! ca!e!?
d. -he the corporate fictio i! $!ed a! a !hield to
f$rther a ed !$b%er!i%e of C$!ticeK or for p$rpo!e! that co$ld
ot ha%e bee iteded by the la& that created itK or to defeat
p$blic co%eiece( C$!tify &rog( protect fra$d( or defed
crimeK or to perpet$ate deceptioK or a! a alter ego( adC$ct or
b$!ie!! cod$it for the !ole beefit of the !toc.holder!. >ARB
Construction Co. Inc., et al., v. Court of Appeals, et al.,, D.R. "o.
12911J( 6ay 31( 2000?
68
e. T&o etitie! caot be deemed !eparate ad di!tict
&here there i! a !ho&ig that oe i! merely the coti$atio of
the other( a! &here the !ecod corporatio merely coti$ed
the operatio! of the fir!t corporatio $der the !ame o&er!(
the !ame b$!ie!! %et$re( at the !ame addre!!( ad e%e
coti$ed to hire the !ame employee!. >Avon !ale ,arments,
Inc. vs. N'RC, et al., D.R. "o. 117832( I$ly 20( 1881?
f. -here badge! of fra$d e#i!t( &here p$blic
co%eiece i! defeatedK &here a &rog i! !o$ght to be
C$!tified( the corporate fictio or the otio of legal etity !ho$ld
come to a$ght. >'im v. Court of Appeals, et al.( D.R. "o. 12J711(
Ia$ary 2J( 2000?
g. Piercig the %eil of corporate fictio i! &arrated(
ho&e%er( oly i ca!e! &he the !eparate legal etity i! $!ed
to defeat p$blic co%eiece( C$!tify &rog( protect fra$d( or
defed crime( !$ch that i the ca!e of t&o corporatio!( the la&
&ill regard the corporatio! a! merged ito oe. >6elarde v.
'ope(, Inc. D. R. "o. 113889( Ia$ary 1J( 200J citig Tan Boon Bee
& Co., Inc. v. )arenao, 193 /*RA 201 >1888? ad 0utivo ons
hard2are Co. v. Court of Ta9 Appeals, 1 /*RA 190 >1891?
"BTE/ A"D *B66E"T/;
a. The priciple re'$irig the #%e)$%/A o, he $o)#o)&e
1e%' madate! co$rt! to !ee thro$gh the protecti%e !hro$d that
di!tig$i!he! oe corporatio from a !eemigly !eparate oe. -he
the otio of !eparate legal etity !ho$ld be !et a!ide ad the fact$al
tr$th $pheld( the corporate character i! ot ece!!arily abrogated. )t
coti$e! for other legitimate obCecti%e!. The %eil i! pierced oly i
certai i!tace! i order to promote !$b!tatial C$!tice >Pamplona
Plantation, Inc. v. Tin%hil, et al., D.R. "o. 118121( :ebr$ary 3( 2001?
ad to th&art the fra$d$let ad illegal !cheme! of tho!e &ho $!e the
corporate per!oality a! a !hield for $derta.ig certai pro!cribed
acti%itie!. >6elarde v. 'ope(, Inc. D. R. "o. 113889( Ia$ary 1J( 200J
citig #rancisco /otors Corporation v. Court of Appeals, 308 /*RA 72
>1888?
:0- Mr Doggie o3ns =)E of the shares of the
capital stoc" of AA!MA1 Corporation -n one occasion#
AA!MA1 Corporation# represented by Mr Doggie as
2resident and Ieneral Manager# e7ecuted a contract to
sell a subdivision lot in favor of Mr Co3 ,or failure of
AA!MA1 Corporation to develop the subdivision# Mr Co3
filed an action for rescission and damages against
AA!MA1 Corporation and Mr Doggie
Will the action prosper ?
/@DDE/TED A"/-ER; The actio &ill pro!per
agai!t A")6A7 *orporatio beca$!e it i! the real party i
itere!t. 6r. Doggie merely acted i repre!etatio of the
corporatio &hich ha! a per!oality di!tict ad !eparate from
6r. Doggie.
The fact that 6r. Doggie o&! 80= of the !hare! of
A")6A7 *orporatio i! of o momet. 6ere o&er!hip by a
!igle !toc.holder or by aother corporatio of all or early all
of the capital !toc. of a corporatio i! ot of it!elf !$fficiet
gro$d for di!regardig the !eparate corporate per!oality.
>unio v. N'RC( 127 /*RA 380(387,388 cited i antos v. N'RC, et
al., D.R. "o. 101988( 6arch 13( 1889K 'im v. Court of Appeals, et al.(
D.R. "o. 12J711( Ia$ary 2J( 2000?
"BTE/ A"D *B66E"T/;
a. Me)e .&Eo)%( ow/e)sh%# o, so$Bs o, &
$o)#o)&%o/ %s /o #e) se & $&!se ,o) #%e)$%/A he $o)#o)&e
1e%'- There m$!t be e%idece that the corporate etity &a! $!ed to
commit fra$d or to do &rog( that the corporate etity &a! merely a
farce ad that it &a! $!ed a! a alter ego( b$!ie!! cod$it or
i!tr$metality of a per!o or aother etity or that piercig the
corporate fictio i! ece!!ary to achie%e C$!tice or e'$ity. >Republic v.
andi%anba"an, etc.( D.R. "o. 128909( December J( 2000?
6ere o&er!hip of a !igle or !mall gro$p of !toc.holder! of
early all of the capital !toc. of the corporatio i! ot( &itho$t more(
!$fficiet to di!regard the fictio of !eparate per!oality. >-nion Bank
of the Philippines v. ps. .n%, et al, D. R. "o. 1123J7( I$e 21(
2009?
::- 2laintiffs filed a collection action against 5D6
Corporation :pon e7ecution of the court8s decision# 5D6
Corporation 3as found to be 3ithout assets 0hereafter
plaintiffs filed an action against its present and past
stoc"holder 5F6 corporation 3hich o3ned substantially all
of the stoc"s of 5D6 Corporation 0he t3o corporations
have the same board of directors and 5F6 Corporation
financed the operations of 5D6 Corporation May 5F6
Corporation be held liable for the debts of 5D6 Corporation
? Why ?
/@DDE/TED A"/-ER; <e!. 2H5 ad 2<5 *orporatio
!ho$ld be treated a! oe. )t i! clear that there i! complete
domiatio by 2<5 of 2H5( ot oly of the fiace!( b$t of policy
69
ad b$!ie!! practice. Thi! i! e%idet from the fact that 2<5
o&ed !$b!tatially all the !toc.! of 2H5( ad that they ha%e the
!ame board of director!( &hich determie! policy.
"BTE/ A"D *B66E"T/;
a. Tess %/ *ee).%/%/A whehe) o #%e)$e 1e%' o,
$o)#o)&e #e)so/&'%(-
1? *otrol( ot mere maCority or complete !toc. cotrol( b$t
complete domiatio( ot oly of the fiace!( b$t of policy ad
b$!ie!! practice i re!pect to the tra!actio attac.ed !o that the
corporate etity a! to thi! tra!actio had at the time o !eparate
mid( &ill or e#i!tece of it! o&K
2? /$ch cotrol m$!t ha%e bee $!ed by the defedat to
commit fra$d or &rog( to perpet$ate the %iolatio of a !tat$tory or
other po!iti%e legal d$ty( or di!hoe!t ad $C$!t act i cotra%etio
of plaitiff3! legal rightK
3? The afore!aid cotrol ad breach of d$ty m$!t pro#imately
pre%et 2piercig the corporate %eil.5
J? The afore!aid cotrol ad breach of d$ty m$!t pro#imately
ca$!e the iC$ry or $C$!t lo!! complaied of. >6elarde v. 'ope(, Inc.
D. R. "o. 113889( Ia$ary 1J( 200J citig &eirs of Ramon !urano,
r., v. -", 3JJ /*RA 238 >2000?
6oreo%er( to di!regard the !eparate C$ridical per!oality of a
corporatio( the &rog,doig m$!t be clearly ad co%icigly
e!tabli!hed. )t caot be pre!$med. >'im v. Court of Appeals, et al.,
D.R. "o. 12J711( Ia$ary 2J( 2000?
1? The defe!e of !eparatee!! &ill be di!regarded &here
the b$!ie!! affair! of a !$b!idiary corporatio are !o cotrolled by
the mother corporatio to the e#tet that it become! a i!tr$met or
aget of it! paret. 4$t e%e &he there i! domiace o%er the
affair! of the !$b!idiary( the doctrie of piercig the %eil of corporate
fictio applie! oly &he !$ch fictio i! $!ed to defeat p$blic
co%eiece( C$!tify &rog( protect fra$d or defed crime. >Re"noso,
I6 v. Court of Appeals, et al., D.R. "o!. 11912J,21( "o%ember 22(
2000?
b. Me)e'( %/e)'o$B%/A *%)e$o)&e *oes /o E!s%,(
#%e)$%/A- The e#i!tece of iterloc.ig director!( corporate officer!
ad !hareholder! i! ot eo$gh C$!tificatio to pierce the %eil of
corporate fictio i the ab!ece of fra$d or other p$blic policy
co!ideratio!. >6elarde v. 'ope(, Inc. D. R. "o. 113889( Ia$ary 1J(
200J?
:2- What is the effect of a change in corporate
name ?
/@DDE/TED A"/-ER; )t doe! ot ma.e a e&
corporatio( &hether effected by a !pecial act or $der a
geeral la&( it ha! o effect o the idetity of the corporatio(
or o it! property( right!( or liabilitie!. >Avon !ale ,arments, Inc.
vs. N'RC, et al., D.R. "o. 117832( I$ly 20( 1881?
:=- Define an ultra vires act
/@DDE/TED A"/-ER; )t i! a act &hich refer! to
a. oe &hich i! ot &ithi the corporate po&er!
coferred by the *orporatio *ode or article! of icorporatio
b. or ot ece!!ary or icidetal i the e#erci!e of the
po&er! !o coferred. >'ope( Realt", Inc., et al., vs. #ontecha, et
al.( D.R. "o. 79801( A$g$!t 11( 1881?
Pro%idig grat$ity pay for it! employee! i! oe of the
e#pre!! po&er! of the corporatio $der the *orporatio
*ode. >)bid.?
"BTE/ A"D *B66E"T/;
a. Co/seI!e/$es o, ultra vires &$s- A act of a
corporatio &hich i! either illegal or o$t!ide of e#pre!!( implied or
icidetal po&er! a! !o pro%ided by la& or the charter &o$ld be %oid
$der Article 1 of the *i%il *ode.
The act i! ot !$!ceptible to ratificatio( ad a $a$thori+ed
act >if &ithi corporate po&er!? of the board or a corporate officer(
&o$ld oly be $eforceable coformably &ith Article 1J03 of the
*i%il *ode. >Rural Bank of /ilaor, Camarines ur v. .cfemia, et al.,
D.R. "o. 137989( :ebr$ary 8( 2000?
:>- What is capital ? .o3 is it differentiated 3ith
subscribed capital and stoc" dividends ? What is meant
by the 5trust fund doctrine6 ?
/@DDE/TED A"/-ER; C&#%&' refer! to the %al$e of
the property or a!!et! of a corporatio.
The s!+s$)%+e* $&#%&' i! the total amo$t of the
capital that per!o! >!$b!criber! or !hareholder!? ha%e agreed
to ta.e ad pay for( &hich eed ot ece!!arily be( ad ca be
more tha( the par %al$e of the !hare!. ) fie( it i! the amo$t
that the corporatio recei%e!( icl$!i%e of the premi$m! if ay(
i co!ideratio of the origial i!!$ace of the !hare!.
) the ca!e of so$B *%1%*e/*s( it i! the amo$t that
the corporatio tra!fer! from it! !$rpl$! profit acco$t to it!
capital acco$t. )t i! the !ame amo$t that ca loo!ely be
termed a! the 2tr$!t f$d5 of the corporatio.
70
The K)!s ,!/* doctrie co!ider! $paid !$b!cribed
capital a! a tr$!t f$d for the paymet of the debt! of the
corporatio( to &hich the creditor! may loo. for !ati!factio.
@til the li'$idatio of the corporatio( o part of the
!$b!cribed capital may be ret$red or relea!ed to the
!toc.holder >e#cept i the redemptio of redeemable !hare!?
&itho$t %iolatig thi! priciple. Th$!( di%ided! m$!t e%er
impair the !$b!cribed capitalK !$b!criptio commitmet! caot
be codoed or remittedK or a the corporatio b$y it! o&
!hare! $!ig the !$b!cribed capital a! the co!ideratio
therefore. >National Telecommunications Commission v. Court of
Appeals, et al.( D.R. "o. 127837( I$ly 28( 1888?
Aother %ariatio of the 2tr$!t f$d5 doctrie po!it! that
ay di!trib$tio of corporate a!!et! a! a co!e'$ece of
corporate li'$idatio are co!idered a! held i tr$!t by the
recipiet !toc.holder for the beefit of the creditor! of the
corporatio.
:?- &tate the rights of a stoc"holder
/@DDE/TED A"/-ER;
a. To %ote( icl$dig the right to appoit a pro#yK
b. To !hare i the profit! of the corporatio icl$dig
the right to declare !toc. di%ided!( b$t a $paid !$b!criber
doe! ot ha%e a right to !toc. di%ided!K
c. To a proportioate !hare i the a!!et! of the
corporatio $po li'$idatioK
d. The right of apprai!alK
e. The preempti%e right to !hare!K
f. To i!pect corporate boo.! ad record!K
g. To elect director! ad to be elected a! !$chK
h. /$ch other right! a! may cotract$ally be grated to
the !toc.holder! by the corporatio or by !pecial la&.
"BTE/ A"D *B66E"T/;
a. So$Bho'*e)s o, !/#&%* s!+s$)%#%o/s h&1e &''
he &+o1e )%Ahs o, so$Bho'*e)s %/$'!*%/A )%Ah o 1oe-
Go&e%er( if already declared deli'$et( ad the call for the $paid
!$b!criptio i! i!!$ed &ith the e#piratio of the deli'$et !$b!criber
lo!e! all of the abo%e right!.
b( So$Bho'*e)s )%Ah o 1oe- Be of the right! of a
!toc.holder i! the right to participate i the cotrol ad maagemet
of the corporatio that i! e#erci!ed thro$gh hi! %ote. The right to %ote
i! a right iheret i ad icidetal to the o&er!hip of corporate !toc.
ad a! !$ch i! a property right. The !toc.holder caot be depri%ed
of the right to %ote hi! !toc. or may the right be e!!etially impaired(
either by the legi!lat$re or by the corporatio( &itho$t hi! co!et(
thro$gh amedig the charter( or the by,la&!. >Castillo, et al., v.
Balin%hasa", et al., D. R. "o. 110879( Bctober 18( 200J citig
:letcher?
:<- Co)#o)&e .e)Ae)s &Be e,,e$ &,e) SEC
&##)o1&'- >Associated Bank v. Court of Appeals, et al., D.R. "o.
123783( I$e 28( 1888?
:7- What is meant by the doctrine of corporate
opportunity ?
/@DDE/TED A"/-ER; *orporatio co$ld prohibit by
r$le! electio of director of competitor beca$!e !$ch director
might be pri%y to b$!ie!! !ecret! that may be pa!!ed o to
the competitor.
"BTE/ A"D *B66E"T/;
a. D%s'o(&'( o, *%)e$o)- -here a director by %irt$e
of hi! office( ac'$ire! for him!elf a b$!ie!! opport$ity &hich !ho$ld
belog to the corporatio thereby obtaiig profit! to corporatio3!
preC$dice. PE"A7T<; Director m$!t acco$t to the corporatio for
!$ch profit! by ref$dig the !ame e%e if he ri!.ed hi! o& f$d! i
the %et$re. -GE" "B RE:@"D; )f the act i! ratified by 2F3 %ote of
o$t!tadig capital !toc..
:D- Who is an 5independent director6 ?
/@DDE/TED A"/-ER; A idepedet director
mea! a per!o &ho( apart from hi! fee! ad !hareholdig!( i
idepedet of maagemet ad free from ay b$!ie!! or
other relatio!hip &hich co$ld( or co$ld rea!oably be
percei%ed to( materially iterfere &ith hi! e#erci!e of
idepedet C$dgmet i carryig o$r hi! re!po!ibilitie! a! a
director i ay corporatio re'$ired to ma.e periodic report! to
the /E*. >/R* R$le 38.1?
"BTE/ A"D *B66E"T/;
a. A/ %/*e#e/*e/ *%)e$o) %/$'!*es &.o/A ohe)s
& #e)so/ who"
1? )! ot a director or officer of the corporatio or of
it! related compaie! or ay of it! !$b!tatial !hareholder!
>other tha a! a idepedet director of ay of the
foregoig?K
71
2? )! ot a !$b!tatial !hareholder of the corporatio
or it! related compaie! or ay of it! !$b!tatial !hareholder!K
3? )! ot a relati%e of ay director( officer or
!$b!tatial !hareholder of the corporatio( ay of it! related
compaie! or ay of it! !$b!tatial !hareholder!. :or thi!
p$rpo!e( relati%e! icl$de! !po$!e( paret( child( brother(
!i!ter( ad the !po$!e of !$ch child( brother or !i!terK
J? )! ot actig a! a omiee or repre!etati%e of
ay director or !$b!tatial !hareholder of the corporatio( ay
of it! related compaie! or ay of it! !$b!tatial !hareholder!K
1? Ga! ot bee employed i ay e#ec$ti%e capacity
by that p$blic compay( ay of it! related compaie! or by
ay of it! !$b!tatial !hareholder! &ithi the la!t fi%e >1?
year!K
9? )! ot retaied a! profe!!ioal ad%i!er( by that
p$blic compay( ay of it! related compaie! or ay of it!
!$b!tatial !hareholder! &ithi the la!t fi%e >1? year!K
7? )! ot retaied a! profe!!ioal ad%i!er( by that
p$blic compay( ay of it! related compaie! or by ay of it!
!$b!tatial !hareholder!( either per!oally or thro$gh hi! firmK
or
8? Ga! ot egaged ad doe! ot egage i ay
tra!actio &ith the corporatio or &ith ay of it! related
compaie! or &ith ay of it! !$b!tatial !hareholder!(
&hether by him!elf or &ith other per!o! or thro$gh a firm of
&hich he i! a parter or a compay of &hich he i! a director
or !$b!tatial !hareholder( other tha tra!actio! &hich are
cod$cted at arm! legth ad are immaterial. >/R* R$le
38.1?
:C- 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 ?
/@DDE/TED A"/-ER;
a. Appro%al by a maCority of the 4oard of Director!K
b. /aid appro%al i! ratified by t&o,third! of the
!toc.holder! repre!etig the o$t!tadig capital !toc.K
c. -ritte otice of the propo!ed i%e!tmet ad the
date( time ad place of the !toc.holder!Q meetig at &hich
!$ch propo!al &ill be ta.e $p m$!t be !et to each
!toc.holder. >/ec. J2( *orporatio *ode?
)f the i%e!tmet i! i accord &ith the pricipal
p$rpo!e! oly the appro%al of the 4oard of Director! i!
re'$ired.
20- -n August ;# <==+# the Court of Appeals
resolved to deny due course to a 2etition for Certiorari
filed by $A &avings $an"# on the ground that 5the
Certification on antiKforum shopping incorporated in the
petition 3as signed not by the duly authorized
representative of the petitioner as re9uired under &upreme
Court Circular Ao 'JK=<# but by its counsel# in
contravention of said circular 7 7 76
A Motion for Reconsideration 3as subse9uently
filed by $A &avings $an" 3hich attached a Corporate
&ecretary8s Certificate# dated August <N# <==+ 3hich
sho3ed that a May '<# <==+ Resolution authorized its
la3yers to represent it in any action or proceeding before
any court# tribunal or agencyM and to sign# e7ecute and
deliver the Certificate of AonKforum &hopping# among
others
May the corporate la3yers e7ecute the Certificate
of AonKforum shopping ? 47plain briefly
/@DDE/TED A"/-ER; <e!. The 4oard Re!ol$tio
&a! !$fficiet to %e!t !$ch per!o! &ith the a$thority to bid
the corporatio ad &a! !pecific eo$gh a! to the act! they
&ere empo&ered to do. >BA avin%s Bank v. ia, et al.( D.R. "o.
13121J( I$ly 27( 2000?
"BTE/ A"D *B66E"T/;
a. A $o)#o)&%o/ &$s h)o!Ah %s +o&)*@ o,,%$e)s o)
&Ae/s- A corporatio e#erci!e! the po&er! e#pre!!ly coferred o
it by the *orporatio *ode ad tho!e that are implied by or are
icidetal to it! e#i!tece( thro$gh it! board of director! adFor it! d$ly
a$thori+ed officer! ad aget!. Phy!ical act!( li.e !igig of
doc$met!( ca be performed oly by at$ral per!o! d$ly a$thori+ed
for the p$rpo!e by corporate byla&! or by !pecific act of the board of
director!.
All act! &ithi the po&er! of a corporatio may be performed
by aget! of it! !electioK ad e#cept !o far a! limitatio! or
re!trictio! &hich may be impo!ed by !pecial charter( by,la&( or
!tat$tory pro%i!io!( the !ame geeral priciple! of la& &hich go%er
the relatio of agecy for a at$ral per!o go%er the officer or aget
of a corporatio( of &hate%er !tat$! or ra.( i re!pect to hi! po&er to
act for the corporatioK ad aget! oce appoited( or member!
actig i their !tead( are !$bCect to the !ame r$le!( liabilitie! ad
icapacitie! a! are aget! of idi%id$al! ad pri%ate per!o!. >4A
/a%ig! 4a. %. /ia( et al.( D.R. "o. 13121J( I$ly 27( 2000?
72
b. Co)#o)&e o,,%$e)s .&( +%/* he $o)#o)&%o/-
*orporate officer! may act o !$ch matter! a! may be a$thori+ed
either e#pre!!ly by the 4yla&! or 4oard Re!ol$tio! or impliedly a!
!$ch a! by geeral practice or policy or a! are implied by e#pre!!
po&er!. -he officer! are allo&ed to act i partic$lar ca!e!( their
act! coformably there&ith ca bid the compay. Gece( a
corporate officer etr$!ted &ith geeral maagemet ad cotrol of
the b$!ie!! ha! the implied a$thority to act or cotract for the
corporatio &hich may be ece!!ary or appropriate to cod$ct the
ordiary b$!ie!!. >R$ral 4a. of 6ilaor( *amarie! /$r %. Bcfemia(
et al.( D.R. "o. 137989( :ebr$ary 8( 2000?
c. Co)#o)&%o/ .&( +e eso##e* %/ I!es%o/%/A
o,,%$e)s &!ho)%( o e/e) %/o )&/s&$%o/s- )t i! a familiar
doctrie that if a corporatio .o&igly permit! oe of it! officer!( or
ay other aget ( to act &ithi the !cope of a apparet a$thority( it
hold! him o$t to the p$blic a! po!!e!!ig the po&er to do tho!e act!(
ad th$!( the corporatio &ill( a! agai!t ayoe &ho ha! i good faith
dealt &ith it thro$gh !$ch aget( be e!topped from deyig the aget3!
a$thority. >'apulapu #oundation, Inc., et al., v. Court of Appeals, et
al., D. R. "o. 129009( Ia$ary 28( 200J citig oler v. Court of
Appeals, 318 /*RA 17 >2001?
d. So!)$e o, &!ho)%( o +%/* $o)#o)&%o/- The
a$thority of certai idi%id$al! to bid the corporatio i! geerally
deri%ed from la&( corporate by,la&! or a$thori+atio from the board(
either e#pre!!ly or impliedly( by habit( c$!tom or ac'$ie!cece i the
geeral co$r!e of b$!ie!!. >People@s Aircar%o and <arehousin%
Corporation, Inc. v. Court of Appeals, 287 /*RA 170?
e. Whe/ &$s o, $o)#o)&e o,,%$e)s DO NOT +%/*
he $o)#o)&%o/- )f the act of corporate officer! come! &ithi
corporate po&er! b$t it i! ot doe &itho$t ay e#pre!! or implied
a$thority therefor from the by,la&!( board re!ol$tio! or corporate
practice!( !$ch a act doe! ot bid the corporatio. >Rural Bank of
/ilaor, Camarines ur v. .cfemia, et al., D.R. "o. 137989( :ebr$ary
8( 2000?
Thi! i! !pecially tr$e &here the party &ith &hom the corporate
officer cotract i! a&are of the latter3! limit! of po&er!( i &hich ca!e
a! far a! the corporatio i! cocered( the $a$thori+ed act i!
declared %oid $der Article 1888 of the *i%il *ode( altho$gh
!$!ceptible to ratificatio by the corporate pricipal. Thi! i! !o
beca$!e ay per!o dealig &ith corporate board! ad officer! may
be !aid to be charged &ith the .o&ledge that the latter ca oly act
&ithi their re!pecti%e limit! of po&er( ad he i! p$t to otice
accordigly. Th$!( it &o$ld geerally behoo%e !$ch a per!o to loo.
ito the e#tet of the a$thority of corporate aget! !ice the o$!
&o$ld ordiarily be &ith him. >Ibid.?
K/ow'e*Ae +( &Ae/s o, he $o)#o)&%o/ +%/*s
$o)#o)&%o/- )t i! tr$e that .o&ledge of fact! ac'$ired or
po!!e!!ed by a officer or aget of the corporatio i the co$r!e of hi!
employmet( ad i relatio to matter! &ithi the !cope of hi!
a$thority( i! otice to the corporatio( &hether he comm$icate! !$ch
.o&ledge or ot. >Carrascoso, )r. v. Court of Appeals, et al., D. R.
6o.123972( December 1J( 2001 ad compaio ca!e? Go&e%er( the
!elf,!er%ig ad $corroborated !tatemet of a corporate ad%er!ary to
the effect that he ad%i!ed !e%eral corporate director! of a partic$lar
tra!actio doe! ot bid the corporatoio. >Ibid.?
f. Whe/ UNAUTHORI7ED &$s o, $o)#o)&e
o,,%$e)s BIND he $o)#o)&%o/-
1? I, )&%,%e*. The 4oard( actig &ithi it!
competece( may ratify the $a$thori+ed act of the corporate
officer. >Rural Bank of /ilaor, Camarines ur v. .cfemia, et
al., D.R. "o. 137989( :ebr$ary 8( 2000?
A actio of the board of director! d$rig a meetig(
&hich &a! illegal for lac. of otice( may be ratified either
e#pre!!ly( by the actio of the director! i a !$b!e'$et legal
meetig( or impliedly by the corporatio3! !$b!e'$et co$r!e
of cod$ct. >'ope( Realt", Inc., et al. vs. #ontencha, et al.(
D.R. "o. 79801( A$g$!t 11( 1881?
2? U/*e) eso##e'. /o( too( a corporatio may be
held i e!toppel from deyig a! agai!t iocet third
per!o! the a$thority of it! officer! or aget! &ho ha%e bee
clothed by it &ith o!te!ible or apparet a$thority. >Rural
Bank of /ilaor, Camarines ur v. .cfemia, et al.( D.R. "o.
137989( :ebr$ary 8( 2000?
A corporatio may be held to be i e!toppel from
deyig a! agai!t third per!o! the a$thority of it! officer! or
aget! &ho ha%e bee clothed by it &ith o!te!ible or
apparet a$thority. >&"dro Resources Contractors
Corporation v. National Irri%ation Administration, D. R. "o.
190211( "o%ember 10( 200J?
) both of the abo%e i!tace! the act m$!t ot be a ultra
vires act. ) order to be ratified or eforceable $der e!toppel( the
$a$thori+ed act of the corporate officer m$!t be &ithi the a$thori+ed
corporate po&er!. Bther&i!e( the act if ultra vires &o$ld be %oid a
ot be the !o$rce of ay right! ad obligatio!. Bf co$r!e( damage!
may be a&arded to the aggrie%ed party if the corporatio or the
corporate officer mi!led the other party ito belie%ig that the act i! a
%alid corporate act. Do ot forget that there i! a di!tictio bet&ee a
%alid corporate act b$t the officer i! ot a$thori+ed to bid the
corporatio( from oe &here the act i! ot a %alid corporate act( ad
73
either i! the officer a$thori+ed to bid the corporatio. ) the la!t
i!tace( there i! o corporate liability.
20 LA- 526 3as removed as director and 5R6 3as
removed as director and corporate secretary of Aephro
526 and 5R6 3ere incorporators of Aephro but 9uestioned
the plan of the other stoc"holders to enter into a joint
venture 3ith the $utuan Doctors8 .ospital and Clinic
2:- !n 3hat instances may corporate director#
trustee or officer be held personally liable to the
corporation ?
/@DDE/TED A"/-ER;
a. -he he &illf$lly ad .o&ig %ote! for or
a!!et! to patetly $la&f$l act! of the corporatioK
b. -he he i! g$ilty of gro!! egligece or bad
faith i directig the affair! of the corporatio(
c. -he he ac'$ire! ay per!oal or pec$iary
itere!t i coflict &ith hi! d$ty a! !$ch director or tr$!tee( >/ec.
31( *orp. *ode? or
d. -he he i! i coflict &ith the itere!t of the
corporatio re!$ltig i damage! to the corporatio( it!
!toc.holder! or other per!o!K
e. -he he co!et! to the i!!$ace of &atered
!toc.! or &ho( ha%ig .o&ledge thereof( doe! ot forth&ith
file &ith the corporate !ecretary hi! &ritte obCectio theretoK
f. -he he agree! to hold him!elf per!oally ad
!olidarily liable &ith the corporatioK or
g. -he he i! made( by a !pecific pro%i!io of la&(
to per!oally a!&er for the corporate actio. >#C0 Construction
,roup, Inc., et al. v. Court of Appeals, et al., D. R. "o. 123318(
:ebr$ary 1( 2000 citig Tramat /ercantile, Inc. et al., v. Court of
Appeals, et al., 238 /*RA 1J?
"BTE/ A"D *B66E"T/;
a. Whe/ $o)#o)&e o,,%$e)s '%&+'e- The geeral
r$le i! that officer! of a corporatio are ot per!oally liable for their
official act! $le!! it i! !ho& that they ha%e e#ceeded their a$thority.
>ARB Construction Co., Inc., et al., v. Court of Appeals, et al., D. R.
"o. 12911J( 6ay 31( 2000? Thi! i! !o beca$!e the corporatio ha! a
!eparate legal per!oality of it! o&. >Cara% v. National 'abor
Relations Commission, et al., D. R. "o. 1J7180( April 2( 2007?
b. Me&/%/A o, +&* ,&%h o ho'* & *%)e$o)@
)!see o) o,,%$e) #e)so/&''( '%&+'e- 4ad faith i! e%er
pre!$med. 4ad faith doe! ot coote bad C$dgmet or egligece.
4ad faith import! a di!hoe!t p$rpo!e or !ome moral obli'$ity
ad co!cio$! doig of a &rog( >#ilipinas Port ervices, Inc., etc., v.
,o, et al., D. R "o. 191889( 6arch 19( 2007? a breach of a .o&
d$ty thro$gh !ome ill moti%e or itere!t. bad faith parta.e! of the
at$re of fra$d. >Ibid., citig Philippine tock *9chan%e v .Court of
Appeals, D. R. "o. 121J98( Bctober 27( 1887( 281 /*RA 232K Cara%
v. National 'abor Relations Commission, et al., D. R. "o. 1J7180(
April 2( 2007?
c. B&* ,&%h *oes /o &)%se &!o.&%$&''( E!s
+e$&!se & $o)#o)&%o/ ,&%'s o $o.#'( w%h he /o%$e
)eI!%)e.e/ o, '&+o) '&ws o/ $o.#&/( $'os!)e o) *%s.%ss&'
o, e.#'o(ees- The fail$re to gi%e otice i! ot a $la&f$l act
beca$!e the la& doe! ot defie !$ch fail$re a! $la&f$l. /$ch fail$re
to gi%e otice i! a %iolatio of proced$ral d$e proce!! b$t doe! ot
amo$t to a $la&f$l or crimial act. /$ch proced$ral defect i!
called illegal di!mi!!al beca$!e it fail! to comply &ith madatory
proced$ral re'$iremet!( b$t it i! ot illegal i the !e!e that it
co!tit$te! a $la&f$l or crimial act. >Cara% v. National 'abor
Relations Commission, et al., D. R. "o. 1J7180( April 2( 2007?
d. P&e/'( !/'&w,!' &$s are tho!e declared
$la&f$l by la& &hich impo!e! pealtie! for commi!!io of
!$ch $la&f$l act!. There m$!t be a la& declarig the act
$la&f$l ad peali+ig the act. >Cara% v. National 'abor
Relations Commission, et al., D. R. "o. 1J7180( April 2( 2007?
e. D%)e$o)s &/*Mo) o,,%$e)s /o '%&+'e %, he
$&!se o, 'osses %s .e)e'( e))o) %/ +!s%/ess E!*A.e/@ /o
&.o!/%/A o +&* ,&%h o) /eA'%Ae/$e- >#ilipinas Port ervices,
Inc., etc., v. ,o, et al., D. R "o. 191889( 6arch 19( 2007 citig Board
of 'i5uidators v. &eirs of /a9imo /. $ala2, et al., D. R. "o. 7, 18801(
A$g$!t 11( 1897( 20 /*RA 887?
22 Are contracts entered into by a corporation
3ith its directors# trustees# or officers valid ?
/@DDE/TED A"/-ER; The geeral r$le i! that a
cotract etered ito by a corporatio &ith it! director!(
tr$!tee!( or officer! i! %oidable at corporatioQ! optio.
"BTE/ A"D *B66E"T/;
a. The ,o''ow%/A &)e he %/s&/$es whe)e s!$h
$o/)&$s e/e)e* +( & $o)#o)&%o/ w%h %s *%)e$o)s@
)!sees@ o) o,,%$e)s &)e 1&'%*;
74
1? That the pre!ece of !$ch director or tr$!tee i the board
meetig i &hich the cotract &a! appro%ed &a! ot ece!!ary to
co!tit$te a '$or$m for !$ch meetigK
2? That the %ote of !$ch director or tr$!tee &a! ot ece!!ary
for the appro%al of the cotractK
3? That the cotract i! fair ad rea!oable $der the
circ$m!tace!K ad
J? That i the ca!e of a officer( the cotract ha! bee
pre%io$!ly a$thori+ed by the board. >/ec. 32( *orporatio *ode?
-here ay of the fir!t t&o coditio! i! ab!et( i the ca!e of
a cotract &ith a director or tr$!tee( !$ch cotract may be ratified by
the %ote of t&o,third! >2F3? of the !toc. o$t!tadig( or of t&o,third!
>2F3? of the !toc.holder! pre!et i a meetig called for the p$rpo!e;
Pro%ided( That f$ll di!clo!$re of the ad%er!e itere!t of the tr$!tee or
director i%ol%ed i! made at !$ch meetig( pro%ided f$rther that the
cotract i! fair ad rea!oable $der the circ$m!tace!. >Ibid.?
22-A- What is the governing body of a
corporation ? Why ?
/@DDE/TED A"/-ER; The go%erig body of a
corporatio i! it! board of director!.
@le!! other&i!e pro%ided i the *orporatio *ode( the
corporate po&er! of all corporatio! formed $der the
*orporatio *ode !hall be e#erci!ed( all b$!ie!! cod$cted
ad all property of the corporatio !hall be cotrolled ad held
by a board of director!. >/ec. 23( *orporatio *ode?
The raison d@etre behid the cocetratio i the board
of director! of cotrol o%er corporate po&er! of corporate
b$!ie!! ad of appoitmet of corporate officer! ad
maager! i! efficiecy i ay large orgai+atio. /toc.holder!
are too $mero$!( !cattered ad $familiar &ith the b$!ie!!
of a corporatio to cod$ct it! b$!ie!! directly( Ad !o the
pla of corporate orgai+atio i! for the !toc.holder! to choo!e
the director! &ho !hall cotrol ad !$per%i!e the cod$ct of
corporate b$!ie!!. >#ilipinas Port ervices, Inc., etc., v. ,o, et al.,
D. R "o. 191889( 6arch 19( 2007?
"BTE/ A"D *B66E"T/;
a. So'e &!ho)%( o, +o&)* o, *%)e$o)s- -ith the
e#ceptio oly of !ome po&er! e#pre!!ly grated by la& to
!toc.holder! >or member!( i ca!e of o,!toc. corporatio!?( the
board of director! >or tr$!tee!( i ca!e of o,!toc. corporatio!? ha!
the !ole a$thority to determie policie!( eter ito cotract!( ad
cod$ct the ordiary b$!ie!! of the corporatio &ithi the !cope of
it! charter( i.e. it! article! of icorporatio( by,la&! ad rele%at
pro%i!io! of la&. Verily( the a$thority of the board of director! i!
re!tricted to the 6aagemet of the reg$lar b$!ie!! affair! of the
corporatio( $le!! more e#te!i%e po&er i! e#pre!!ly coferred.
>#ilipinas Port ervices, Inc., etc., v. ,o, et al., D. R "o. 191889(
6arch 19( 2007?
b. Co!)s +e)e, o, &!ho)%( o s!+s%!e %s
E!*A.e/ w%h h& o, he +o&)* o, *%)e$o)s- A$e!tio! of
policy or of maagemet are left !olely to the hoe!t deci!io
of the board a! the b$!ie!! maager of the corporatio ad
the co$rt i! &itho$t a$thority to !$b!tit$te it! C$dgmet for that
of the board( ad a! log a! it act! i good faith ad i the
e#erci!e of hoe!t C$dgmet i the itere!t of the corporatio(
it! order! are ot re%ie&able by the co$rt!. >Philippine tock
*9chan%e, Inc. v. Court of Appeals, D. R. "o. 121J98( Bctober 27(
1887( 281 /*RA 232 cited i #ilipinas Port ervices, Inc., etc., v. ,o,
et al., D. R "o. 191889( 6arch 19( 2007?
2=- 5D6 is the stoc"holder of almost all the
stoc"holdings in DFB Corporation DFB o3ns a parcel of
land 3hich 5W6 claiming to have been authorized by 5D6
has offered to various parties the sale of the DFB property
5$6 acting on the representations of 5W6 made an offer to
buy the land 3hich 5W6 for3arded the offer to to 5D#6 3ho
accepted 5 !s the corporation bound by 5D8s6 acceptance ?
/@DDE/TED A"/-ER; "o. A corporatio i! a
C$ridical per!o !eparate ad di!tict from it! member! or
!toc.holder! ad i! ot affected by the per!oal right!(
obligatio! ad tra!actio! of the latter. A corporatio may
cotract oly thro$gh it! 4oard of Director!.
-hile 5D5 o&! almo!t of the !hare! of !toc. of H<E(
the property of the corporatio i! ot the property of a
!toc.holder. The corporate 4oard of Director! !ho$ld a$thori+e
the party &ho !ho$ld egotiate for it for !$ch egotiatio! to be
bidig $po the corporatio. >'iton;ua, et al., v. *ternit
Corporation, et al., D. R. "o. 1JJ801( I$e 8( 2009?
2=-A- What is the nature of an e7ecutive
committee ?
/@DDE/TED A"/-ER; The e#ec$ti%e committee i!
a! po&erf$l a! the board of director! ad i effect actig for
the board it!elf. )t !ho$ld be di!tig$i!hed from the other
75
committee! &hich are &ithi the competecy of the board to
create at ay time ad &ho!e actio! re'$ire ratificatio ad
cofirmatio by the board. >#ilipinas Port ervices, Inc., etc., v.
,o, et al., D. R "o. 191889( 6arch 19( 2007?
"BTE/ A"D *B66E"T/;
a. The e0e$!%1e $o..%ee- The by,la&! of a
corporatio may create a e#ec$ti%e committee( compo!ed of ot
le!! tha three member! of the board( to be appoited by the board.
/aid committee may act( by maCority %ote of all it! member! o !$ch
!pecific matter! &ithi the competece of the board( a! may be
delegated to it i the by,la&! or o a maCority %ote of the board(
e#cept &ith re!pect to;
1? appro%al of ay actio for &hich !hareholder!3
appro%al i! al!o re'$iredK
2? the fillig of %acacie! i the boardK
3? the amedmet or repeal of by,la&! or the adoptio
of e& by,la&!K
J? the amedmet or repeal of ay re!ol$tio of the
board &hich by it! e#pre!! term! i! ot !o amedable or
repealableK ad
1? a di!trib$tio of ca!h di%ided! to the !hareholder!.
>/ec. 31( *orporatio *ode( arragemet !$pplied?
b. S!#)e.e Co!) *%* /o )!'e &s %''eA&' o)
!/'&w,!' he $)e&%o/ +( he +o&)* o, *%)e$o)s o, &/
e0e$!%1e $o..%ee /ow%hs&/*%/A he s%'e/$e %/ he +(-
'&ws- There &ere t&o rea!o! ad%aced by the /$preme *o$rt for
ot !o r$lig;
1? There i! ab!ece of !ho&ig of a! to the tr$e at$re
ad f$ctio! of !aid e#ec$ti%e committee co!iderig that the
2e#ec$ti%e committee5 referred to i /ectio 31 of the
*orporatio *ode i! a! po&erf$l a! the board of director! ad
i effect actig for the board it!elf( a! di!tig$i!hed from other
committee! &hich are &ithi the competecy of the board to
create at ay time ad &ho!e actio! re'$ire ratificatio ad
cofirmatio by the board.
2? the board of director! ha! the po&er to create
po!itio! ot pro%ided for i the by,la&! !ice the board i! the
corporatio3! go%erig body( $pholdig thereby the po&er of
the board to e#erci!e it! prerogati%e! i maagig the b$!ie!!
affair! of the corporatio. >#ilipinas Port ervices, Inc., etc., v.
,o, et al., D. R "o. 191889( 6arch 19( 2007?
c. RTC h&s he *%s$)e%o/ o A)&/ o) *e/( &/
&##'%$&%o/ ,o) he $)e&%o/ o, & .&/&Ae.e/ $o..%ee.
Thi! &a! part of the former po&er! of the /E*( $der P. D ."o. 802,A(
&hich &ere tra!ferred to the RT* thro$gh Rep. Act "o. 8788.
>Punon%ba"an v. Punon%ba"an, )r., D. R. "o. 117971( I$e 20( 2009?
2>- Dico is the registered o3ner of 2roprietary
-3nership Certificate >2-C? Ao );;J in the Cebu Country
Club &ubse9uently# he resigned as proprietary member of
said club# 3hich resignation 3as duly entered in the
minutes of the meeting of the Club8s $oard of Directors
Dico then transferred the D-C to Iarcia
!n a case filed by the spouses Atinon against Dico#
the prevailing spouses levied on the D-C and a schedule
for public auction 3as set Iarcia then claimed that the
D-C 3as his .e further alleged that Dico is the manager
of his >Iarcia8s? business# and that the D-C 3as merely
used by Dico in order to assist him in entertaining clients
Who has a better right to the D-C# the spouses
Atinon or Iarcia? 47plain
/@DDE/TED A"/-ER; The !po$!e! Atio ha%e a
better right. The tra!fer &a! ot recorded i the corporate
boo.!( hece it doe! ot bid other partie!. >,arcia v. )omoaud,
et al., D.R. "o. 133898( Ia$ary 29( 2000?
"BTE/ A"D *B66E"T/;
a. The o#e)&%1e &$ wh%$h *ee).%/es ow/e)sh%# o,
sh&)es o, so$Bs- The tra!fer of !hare! of !toc.! i corporate
boo.! re'$ire idor!emet o the !hare!. )f ot !o idor!ed(
pre!$mptio i! that per!o &ho!e ame appear! thereo i! the o&er.
>Ra(on v. Intermediate Appellate Court, 207 /*RA 23J?
b. ReI!%)e.e/s ,o) he %ss!&/$e o, & ,o).&'
$e)%,%$&e o, so$B-
1? The certificate! m$!t be !iged by the pre!idet or %ice,
pre!idet( co$ter!iged by the !ecretary or a!!i!tat !ecretary( ad
!ealed &ith the !eal of the corporatio. A mere type&ritte !tatemet
ad%i!ig a !toc.holder of the e#tet of hi! o&er!hip i a corporatio
&itho$t '$alificatio adFor a$theticatio caot be co!idered a! a
formal certificate of !toc..
2? Deli%ery of the certificate i! a e!!etial elemet of it!
i!!$ace. Gece( there i! o i!!$ace of a !toc. certificate &here it i!
e%er detached from the !toc. boo.! altho$gh bla.! therei are
properly filled $p of the per!o &ho!e ame i! i!erted therei ha! o
cotrol o%er the boo.! of the compay.
3? The par %al$e( a! to par %al$e !hare!( or the f$ll
!$b!criptio a! to o par %al$e !hare!( m$!t fir!t be f$lly paid.
76
J? The origial certificate m$!t be !$rredered &here the
per!o re'$e!tig the i!!$ace of a certificate i! a tra!feree from a
!toc.holder. >Biton% v. Court of Appeals, et al., 281 /*RA 103?
/toc. i!!$ed &itho$t a$thority ad i %iolatio of la& i! %oid
ad cofer! o right! o the per!o to &hom it i! i!!$ed ad !$bCect!
him to o liabilitie!. -here there i! a iheret lac. of po&er i the
corporatio to i!!$e the !toc.( either the corporatio or the per!o
to &hom the !toc. i! i!!$ed i! e!topped to '$e!tio it! %alidity !ice
a e!toppel caot operate to create !toc. &hich $der the la&
caot ha%e e#i!tece. >Biton% v. Court of Appeals, et al.( 281 /*RA
103?
c. ReI!%)e.e/s ,o) 1&'%* )&/s,e) o, so$Bs"
1? There m$!t be a deli%er of the !toc. certificateK
2? The certificate m$!t be edor!ed by the o&er or hi!
attorey,i,fact or other per!o! legally a$thori+ed to ma.e the
tra!ferK ad
3? To be %alid agai!t third partie!( the tra!fer m$!t be
recorded i the boo.! of the corporatio.
The r$le i! that the edor!emet of the certificate of !toc. by
the o&er or hi! attorey,i,fact or ay other per!o legally a$thori+ed
to ma.e the tra!fer !hall be !$fficiet to effect the tra!fer of !hare!
oly if the !ame i! co$pled &ith deli%ery. The deli%ery of the !toc.
certificate d$ly edor!ed by the o&er i! the operati%e act of tra!fer
of !hare! from the la&f$l o&er to the e& tra!feree. >Biton%, v.
Court of Appeals, et al., 281 /*RA 103?
d. Re&so/ wh( &&$h.e/ #)e1&%'s o1e)
!/)e$o)*e* )&/s,e)- /ec. 93 of the *orporatio *ode i! e#plicit
i it! pro%i!io! that 2"o tra!fer( ho&e%er( !hall be %alid( e#cept a!
bet&ee the partie!( $til the tra!fer i! recorded i the boo.! of the
corporatio !ho&ig the ame! of the partie! to the tra!actio( the
date of the tra!fer( the $mber of the certificate or certificate! ad
the $mber of !hare! tra!ferred.5
The tr$e meaig of the lag$age i!( ad the ob%io$!
itetio of the legi!lat$re i $!ig it &a!( that all tra!fer! of !hare!
!ho$ld be etered( a! here re'$ired( o the boo.! of the corporatio.
Ad it i! e'$ally clear that all tra!fer! of !hare! be !o etered are
i%alid a! to attachig or e#ec$tio creditor! of the a!!igor!( a! &ell
a! to the corporatio ad to !$b!e'$et p$rcha!er! i good faith( ad(
ideed( a! to all per!o! itere!ted( e#cept the partie! to !$ch
tra!fer!. All tra!fer! ot !o etered o the boo.! of the corporatio
are ab!ol$tely %oidK ot beca$!e they are &itho$t otice or fra$d$let
i la& or fact( b$t beca$!e they are made !o %oid by !tat$te. >,arcia
v. )omouad, et al., D.R. "o. 133898( Ia$ary 29( 2000 citig -son v.
!iosomito?
2>- Distinguish cash dividends from stoc"
dividends
/@DDE/TED A"/-ER;
a. *a!h di%ided! &ithdra& a!!et! from the
corporatio i the form of ca!h >moey? ad ear ca!h -G)7E
!toc. di%ided! do otK
b. ) ca!h di%ided!( moey i! recei%ed by the
!toc.holder! -G)7E i !toc. di%ided! !hare! of !toc. of the
corporatio are recei%edK
c. *a!h di%ided! may be declared by the 4oard aloe
-G)7E !toc. di%ided declaratio re'$ire! the appro%al of at
lea!t t&o,third! >2F3? of the o$t!tadig capital !toc. etitled to
%ote.
"BTE/ A"D *B66E"T/;
a. S%.%'&)%%es +ewee/ $&sh *%1%*e/*s &/* so$B
*%1%*e/*s"
1? 4oth m$!t be declared from $re!tricted !$rpl$!.
2? 4oth m$!t be declared by the 4oard of Director!.
b. D%1%*e/* *e$'&)&%o/ .&( +e )e1oBe* if the !ame
&a! irreg$larly declared( !$ch a! &he the !ame i! %iolati%e of the
tr$!t f$d doctrie.
Bther&i!e it ca o loger be re%o.ed oce the right thereto
ha! already %e!ted i the !toc.holder!. /tated other&i!e( re%ocatio
may be had prior to the declaratio of ca!h di%ided! ad for !toc.
di%ided! prior to the i!!$ace.
2?- 1itton Mills# !nc >1itton? entered into an
agreement 3ith 4mpire &ales 2hilippines Corporation# as
local agent of Ielhaar :niform Company >Ielhaar?# a
corporation organized under the la3s of the :nited &tates#
3hereby 1itton agreed to supply Ielhaar +#++) dozens of
soccer jerseys Considering this single transaction# is
Ielhaar doing business in the 2hilippines?
/@DDE/TED A"/-ER; <e!. )t i! ot really the fact
that there i! oly a !igle act doe that i! material to the
co!ideratio of &hether a foreig corporatio i! doig
b$!ie!! i the Philippie!. -here a !igle act or tra!actio
of a foreig corporatio i! ot merely icidetal or ca!$al b$t i!
of !$ch character a! di!tictly to idicate a p$rpo!e o the part
of the foreig corporatio to do other b$!ie!! i the !tate(
!$ch act &ill be co!idered a! co!tit$tig doig b$!ie!!.
77
Delhaar3! act i p$rcha!ig !occer Cer!ey! to be &ithi
the ordiary co$r!e of b$!ie!! of the compay co!iderig
that it &a! egaged i the ma$fact$re of $iform!. The act!
oted abo%e are of !$ch a character a! to idicate a p$rpo!e
to do b$!ie!!. >'itton /ills, Inc. v. Court of Appeals, et al., D.R.
"o. 8J880( 6ay 11( 1889?
"BTE/ A"D *B66E"T/;
a. Do%/A +!s%/ess- There i! o geeral r$le or go%erig
priciple Klaid do& a! to &hat co!tit$te! 2doig5 or 2egagig i5 or
2tra!actig5 b$!ie!! i the Philippie!.
Each ca!e m$!t be C$dged i the light of it! pec$liar
circ$m!tace!. Th$!( it ha! ofte bee held that a !igle act or
tra!actio may be co!idered a! 2doig b$!ie!!5 &he a
corporatio perform! act! for &hich it &a! created or e#erci!e! !ome
of the f$ctio! for &hich it &a! orgai+ed. The amo$t or %ol$me of
the b$!ie!! i! of o momet( for e%e a !ig$lar act caot be
merely icidetal or ca!$al if it idicate! the foreig corporatio3!
itetio to do b$!ie!!. >&utchinson Ports Philippines 'imited v.
ubic Ba" /etropolitan authorit", et al.( D.R. "o. 131397( A$g$!t 31(
2000?
E0&.#'es"
1? A foreig corporatio performig act! p$r!$at to it!
primary p$rpo!e ad f$ctio! a! regioalFarea head'$arter! for it!
home office i! clearly doig b$!ie!! i thi! co$try. >,eor% ,rot;ahn
,/B& & Co. vs. Isnani, et al.( 231 /*RA 219?
2? Participatig i the biddig proce!! co!tit$te! 2doig
b$!ie!!5 beca$!e it !ho&! the foreig corporatio3! itetio to
egage i b$!ie!! here. The biddig for the coce!!io cotract i!
b$t a e#erci!e of the corporatio3! rea!o for creatio or e#i!tece.
Th$!( it ha! bee held that 2a foreig compay i%ited to bid for )4RD
ad AD4 iteratioal proCect! i the Philippie! &ill be co!idered a!
doig b$!ie!! i the Philippie! for &hich a lice!e i! re'$ired.5 )
thi! regard( it i! the performace by a foreig corporatio of the act!
for &hich it &a! created( regardle!! of %ol$me of b$!ie!!( that
determie! &hether a foreig corporatio eed! a lice!e or ot.
>&utchinson Ports Philippines 'imited v. ubic Ba" /etropolitan
Authorit", et al.( D.R. "o. 131397( A$g$!t 31( 2000?
2<- -n '( May <==(# a R1ease and Development
Agreement8 3as e7ecuted by :!I and &$MA under 3hich
:!I shall lease from petitioner &$MA the $inictican Iolf
Course and appurtenant facilities thereto to be
transformed into a 3orld class <JKhole golf course# golf
clubCresort# commercial tourism and residential center
0he contract in pertinent part contains preKtermination
clauses -n + March <==+# &$MA sent a letter to :!I
declaring the latter in default of its contractual obligations
to &$MA under &ection ''< of the lease and Development
Agreement and re9uired it to sho3 cause 3hy &$MA
should not preKterminate the agreement :!I then paid
the rental arrearages but the other obligations remained
unsatisfied
-n J &eptember <==+# a letter of preKtermination
3as served by &$MA re9uiring :!I to vacate the
premises -n <' &eptember <==+# &$MA served the
formal notice of closure of &ubic $ay Iolf Course and
too" over possession of the subject premises -n even
date# :!I filed a complaint against &$MA for 5!njunction
and Damages6 3ith prayer for a 3rit of temporary
restraining order and 3rit of preliminary injunction
Does :!I have the capacity to sue?
/@DDE/TED A"/-ERK <e!. /46A i! e!topped from
'$e!tioig the capacity to !$e of @)D. ) eterig ito the
7DA &ith @)D( /46A effecti%ely recogi+ed it! per!oality ad
capacity to i!tit$te the !$it before the trial co$rt.
)t i! commo ploy of defa$ltig local compaie! &hich
are !$ed by $lice!ed foreig compaie! ot egaged i
b$!ie!! i the Philippie! to i%o.e lac. of capacity to !$e.
>ubic Ba" /etropolitan Authorit", et al., v. -niversal International
,roup of Tai2an, et al.( D.R. "o. 131980( /eptember 1J( 2000?
Thi! doctrie of e!toppel &a! iitiated a! early a! 182J
i A!ia 4a.ig *orporatio %. /tadard Prod$ct! ad
reiterated i Deorg DrotCoh D64G %. )!ai ad
*omm$icatio 6aterial! ad De!ig %. *A.
"BTE/ A"D *B66E"T/K
a. 3e/e)&' )!'e" U/'%$e/se* ,o)e%A/ /o/-)es%*e/
$o)#o)&%o/s $&//o ,%'e s!%s i the Philippie!. /ectio 133 of
the *orporatio *ode !pecifically pro%ide! that( "o foreig
corporatio tra!actig b$!ie!! i the Philippie! &itho$t a lice!e(
or it! !$cce!!or! or a!!ig!( !hall be permitted to maitai or
iter%ee i ay actio( !$it or proceedig i ay co$rt or
admii!trati%e agecy of the Philippie!( b$t !$ch corporatio may be
!$ed or proceeded agai!t before Philippie co$rt! or admii!trati%e
trib$al! o ay %alid ca$!e of actio recogi+ed $der Philippie
la&!.
78
Re&so/" A corporatio ha! legal !tat$! oly &ithi the !tate
or territory i &hich it &a! orgai+ed. :or thi! rea!o( a corporatio
orgai+ed i aother co$try ha! o per!oality to file !$it! i the
Philippie! $le!! it ac'$ire! a lice!e from the /E* ad appoit a
aget for !er%ice of proce!!. -itho$t !$ch lice!e it caot i!tit$te
!$it i the Philippie!. >*uropean Resources and Technolo%ies, Inc.,
et a., v. In%enieruburo Birkhahn A Nolte, etc.( et al.( D. R. 118189( I$ly
29( 200J citig ubic Ba" /etropolitan Authorit", et al., v. -niversal
International ,roup of Tai2an, et al.( D.R. "o. 131980( /eptember 1J(
2000?
b. Howe1e)@ ,o)e%A/ $o)#o)&%o/s /o '%$e/se* o *o
b$!ie!! i the Philippie! may e#erci!e the right to file a actio i
Philippie co$rt! o a i!olated tra!actio. >Ne2 0ork /arine
/ana%ers, Inc. vs. Court of Appeals, D.R. 111837( Bctober 2J( 1881?
c. The #!)#ose ,o) )eI!%)%/A ,o)e%A/ ,%).s o o+&%/
'%$e/se- The primary p$rpo!e of the lice!e re'$iremet i! to compel
a foreig corporatio de!irig to do b$!ie!! &ithi the Philippie! to
!$bmit it!elf to the C$ri!dictio of the co$rt! of the !tate ad to eable
the go%ermet to e#erci!e C$ri!dictio o%er them for the reg$latio of
their acti%itie! i thi! co$try.
)f a foreig corporatio operate! a b$!ie!! i the Philippie!
&itho$t a lice!e( ad th$! doe! ot !$bmit it!elf to the Philippie
la&!( it i! oly C$!t that !aid foreig corporatio be ot allo&ed to
i%o.e them i o$r co$rt! &he the eed ari!e!. )t m$!t regi!ter &ith
the /E* ad appoit a aget for !er%ice of proce!!. -itho$t !$ch
lice!e( it caot i!tit$te a !$it i the Philippie! >&utchinson Ports
Philippines 'imited v. ubic Ba" /etropolitan Authorit", et al.( D.R. "o.
131397( A$g$!t 31( 2000?
The obCect of re'$irig a lice!e i! ot to pre%et the foreig
corporatio from performig !igle act!( b$t to pre%et it from
ac'$irig domicile for the p$rpo!e of b$!ie!! &itho$t ta.ig the !tep!
ece!!ary to reder it ameable to !$it! i the local co$rt!.
>*uropean Resources and Technolo%ies, Inc., et a., v. In%enieruburo
Birkhahn A Nolte, etc.( et al.( D. R. 118189( I$ly 29( 200J citig
/arshall8<ells Co. v. *lser and Co., J9 Phil.70 >182J? ) other &ord!(
the foreig corporatio i! merely pre%eted from beig i a po!itio
&here it ta.e! the good &itho$t acceptig the bad. >*uropean
Resources and Technolo%ies, Inc., et a., v. In%enieruburo Birkhahn A
Nolte, etc.( et al.( D. R. 118189( I$ly 29( 200J?
d. E0$e#%o/ o) %/s&/$e whe)e '%$e/s%/A
)eI!%)e.e/ /o &##'%e*- Re'$iremet for foreig corporatio! to
!ec$re lice!e &a! e%er iteded to fa%or dome!tic corporatio! &ho
eter ito !olitary tra!actio! &ith $&ary foreig firm! ad the
rep$diate their obligatio! !imply beca$!e the latter are ot lice!ed
to do b$!ie!! i thi! co$try. >National u%ar Tradin% Corporation, et
al., vs. Court of Appeals, et al., D.R. "o. 110810( I$ly 17( 1881?
After cotractig &ith a foreig corporatio( a dome!tic firm i!
e!topped from deyig the former3! capacity to !$e. Gece( i 6errill
7ych :$t$re! %. *A( the /$preme *o$rt r$led that( 2Be &ho ha!
dealt &ith a corporatio of foreig origi a! a corporate etity i!
e!topped to dey it! e#i!tece ad capacity. The priciple &ill be
applied to pre%et a per!o cotractig &ith a foreig corporatio
from later ta.ig ad%atage of it! ocompliace &ith the !tat$te!(
chiefly i ca!e! &here !$ch per!o ha! recei%ed the beefit! of the
cotract. # # # 2>ubic Ba" /etropolitan Authorit", et al., v. -niversal
International ,roup of Tai2an, et al.( D.R. "o. 131980( /eptember 1J(
2000?
A party i! e!topped from '$e!tioig the capacity of a foreig
corporatio to i!tit$te a actio i o$r co$rt! &here it had obtaied
beefit! from it! dealig! &ith !$ch foreig corporatio ad thereafter
committed a breach of or !o$ght to reege o it! obligatio!. The r$le
relatig to e!toppel i! deeply rooted i the a#iom of commodatum e9
in;uria sua non habere debet B o per!o o$ght to deri%e ay
ad%atage from hi! o& &rog. >*uropean Resources and
Technolo%ies, Inc., et a., v. In%enieruburo Birkhahn A Nolte, etc.( et al.(
D. R. 118189( I$ly 29( 200J?
27- What act is constitutive of a dissolution of a
corporation ?
/@DDE/TED A"/-ER; The mere filig of the Article!
of Di!!ol$tio &ith the /ec$ritie! ad E#chage *ommi!!io(
&itho$t more( i! ot eo$gh to !$pport the cocl$!io that
act$al di!!ol$tio of a etity too. place. :or e#ample( there
m$!t be a !ho&ig that there &a! ideed a act$al clo!$re ad
ce!!atio of operatio!. >Avon !ale ,arments, Inc., vs. N'RC, et
al., D.R. "o. 117832( I$ly 20( 1881?
"BTE/ A"D *B66E"T/;
a. Th)ee 9=; (e&) #e)%o* &,e) *%sso'!%o/- A
corporatio coti$e! to be a body corporate for three >3? year! after
it! di!!ol$tio for p$rpo!e! of pro!ec$tig ad defedig !$it! by ad
agai!t it ad for eablig it to !ettle ad clo!e it! affair!( c$lmiatig
i the di!po!itio ad di!trib$tio of it! remaiig a!!et!. )t may(
d$rig the three >3? year term( appoit a tr$!tee or a recei%er &ho
may act beyod that period.
The termiatio of the life of a C$ridical etity doe! ot by
it!elf ca$!e e#tictio or dimi$tio of the right! ad liabilitie! of !$ch
etity.( or tho!e of it! o&er! ad creditor!.
79
)f the three,year e#teded life ha! e#pired &itho$t a tr$!tee or
recei%er ha%ig bee e#pre!!ly de!igated by the corporatio &ithi
that period(( the board of director! >or tr$!tee!? it!elf( may be
permitted to coti$e a! 2tr$!tee!5 by legal implicatio to complete
the corporate li'$idatio. /till i the ab!ece of a board of director!
or tr$!tee!( tho!e ha%ig ay pec$iary itere!t i the a!!et!(
icl$dig ot oly the !hareholder! b$t li.e&i!e the creditor! of the
corporatio( actig for ad it! behalf( might ma.e proper
repre!etatio! &ith the /ec$ritie! ad E#chage *ommi!!io( &hich
ha! primary ad !$fficiet broad C$ri!dictio i matter! of thi! at$re(
for &or.ig o$t a fial !ettlemet of the corporate cocer!.
>Clemente, et al., vs. Court of Appeals, et al., D.R. "o. 82J07( 6arch
27( 1881?
b. 3)o!/*s ,o) %/1o'!/&)( *%sso'!%o/ o, &
$o)#o)&%o/ !/*e) 9uo 3arranto #)o$ee*%/As"
1? -he the *orporatio ha! offeded agai!t a pro%i!io or
a act for it! creatio or ree&alK
2? -he it ha! forfeited it! pri%ilege! ad frachi!e! by o,
$!eK
3? -he it ha! committed or omitted a act &hich amo$t!
to a !$rreder of it! corporate right!( pri%ilege or frachi!e!K
J? -he it mi!$!ed a right( pri%ilege or frachi!e coferred
$po it by la&( or &he it ha! e#erci!ed a right( pri%ilege or frachi!e
i cotra%etio of la&. 4Philippine National Bank vs. C#I, etc.( 208
/*RA 28J?
2D- What is the cumulative rule ?
/@DDE/TED A"/-ER; Be cadidate may be
gi%e a! may %ote! a! the $mber of director! to be elected
m$ltiplied by the $mber of !hare! or di!trib$te $der the !ame
priciple amog a! may cadidate! a! the %oter !hall !ee fit(
PRBV)DED; the total $mber of %ote! ca!t !hall ot e#ceed
the $mber of !hare! !ho& o the boo.! m$ltiplied by the
&hole $mber! of director! to be %oted.
+- The Se$!)%%es ReA!'&%o/ Co*e 9R-A-
No- D7CC;
:- What is the state policy that impelled the
enactment of the &ecurities Regulation Code ?
/@DDE/TED A"/-ER; The /tate policy that
impelled the eactmet of the /ec$ritie! Reg$latio *ode
a. To e!tabli!h a !ocially co!cio$!( free mar.et that
reg$late! it!elf(
b. Eco$rage the &ide!t participatio of o&er!hip i
eterpri!e!(
c. Ehace the democrati+atio of &ealth(
d. Promote the de%elopmet of the capital mar.et(
e. Protect i%e!tor!(
f. E!$re f$ll ad fair di!clo!$re abo$t !ec$ritie!(
g. 6iimi+e if ot totally elimiate i!ider tradig ad
other fra$d$let or maip$lati%e de%ice! ad practice! &hich
create di!tortio! i the free mar.et. >/ec. 2( /R*?
"BTE/ A"D *B66E"T/; The abo%e di!c$!!io may be
$!ed to a!&er the '$e!tio! What is the principal purpose of la3s
and regulations governing securities in the 2hilippines ? ad
What are the main purposes of the &ecurities Regulation Code ?
'- What are the po3ers and functions of the
&ecurities and 47change Commission ?
/@DDE/TED A"/-ER; The *ommi!!io !hall ha%e
the po&er! ad f$ctio! pro%ided by the /ec$ritie! Reg$latio
*ode( Pre!idetial Decree "o. 802,A( the *orporatio *ode(
the )%e!tmet Go$!e! 7a&( the :iacig *ompay Act ad
other e#i!tig la&!. P$r!$at thereto( the *ommi!!io !hall
ha%e( amog other!( the follo&ig po&er! ad f$ctio!;
a? Ga%e C$ri!dictio ad !$per%i!io o%er all
corporatio!( parter!hip! or a!!ociatio! &ho are the
gratee! of primary frachi!e! adFor a lice!e or permit
i!!$ed by the Do%ermet.
b? :orm$late policie! ad recommedatio! o i!!$e!
cocerig the /ec$ritie! mar.et( ad%i!e *ogre!! ad other
go%ermet agecie! o all a!pect! of the !ec$ritie! mar.et
ad propo!e legi!latio ad amedmet! theretoK
c? Appro%e( reCect( !$!ped( re%o.e or re'$ire
amedmet! to regi!tratio !tatemet!( ad regi!tratio ad
lice!ig applicatio!K
d? Reg$late( i%e!tigate or !$per%i!e the acti%itie! of
per!o! to e!$re compliaceK
e? /$per%i!e( moitor( !$!ped or ta.e o%er the
acti%itie! of e#chage!( clearig agecie! ad other /RB!K
f? )mpo!e !actio! for the %iolatio of la&! ad the
r$le!( reg$latio! ad order! i!!$ed p$r!$at theretoK
80
g? Prepare( appro%e( amed or repeal r$le!(
reg$latio! ad order!( ad i!!$e opiio! ad pro%ide
g$idace o ad !$per%i!e compliace &ith !$ch r$le!(
reg$latio! ad order!K
h? Eli!t the aid ad !$pport of adFor dep$ti+e ay
ad all eforcemet agecie! of the Do%ermet( ci%il or
military a! &ell a! ay pri%ate i!tit$tio( corporatio( firm(
a!!ociatio or per!o i the implemetatio of it! po&er! ad
f$ctio! $der thi! *odeK
i? )!!$e cea!e ad de!i!t order! to pre%et fra$d or
iC$ry to the i%e!tig p$blicK
C? P$i!h for cotempt of the *ommi!!io( both direct
ad idirect( i accordace &ith the pertiet pro%i!io! of ad
pealtie! pre!cribed by the R$le! of *o$rtK
.? *ompel the officer! of ay regi!tered corporatio or
a!!ociatio to call meetig! of !toc.holder! or member!
thereof $der it! !$per%i!ioK
l? )!!$e subpoena duces tecum ad !$mmo
&ite!!e! to appear i ay proceedig! of the *ommi!!io
ad i appropriate ca!e!( order the e#amiatio( !earch ad
!ei+$re of all doc$met!( paper!( file! ad record!( ta# ret$r!(
ad boo.! of acco$t! of ay etity or per!o $der
i%e!tigatio a! may be ece!!ary for the proper di!po!itio of
the ca!e! before it( !$bCect to the pro%i!io! of e#i!tig la&!K
m? /$!ped( or re%o.e( after proper otice ad hearig
the frachi!e or certificate of regi!tratio of corporatio!(
parter!hip! or a!!ociatio!( $po ay of the gro$d!
pro%ided by la&K ad
? E#erci!e !$ch other po&er! a! may be pro%ided by
la& a! &ell a! tho!e &hich may be implied from( or &hich are
ece!!ary or icidetal to the carryig o$t of( the e#pre!!
po&er! grated the *ommi!!io to achie%e the obCecti%e! ad
p$rpo!e! of the!e la&!. >/ec. 1.1( /R*?
=- What is the jurisdiction of the &4C over
intracorporate controversies ?
/@DDE/TED A"/-ER; /E* ha! bee di%e!ted of it!
C$ri!dictio o%er all ca!e! e$merated $der /ectio 1 of
Pre!idetial Decree "o 802,A &a! tra!ferred to the *o$rt! of
geeral C$ri!dictio or the appropriate Regioal Trial *o$rt.
>/ec. 1.2 /R*?( icl$dig itra,corporate cotro%er!ie! !$ch a!
electio or appoitmet of director!( tr$!tee!( officer!( or
maager! of corporatio!( parter!hip!( or a!!ociatio!.
"BTE/ A"D *B66E"T/;
a. The ho'*%/A %/ %elarde v 1opez# !nc# h& SEC
h&s E!)%s*%$%o/ %s NOT *o$)%/&' +e$&!se & he %.e he
$&se w&s ,%'e* w%h he RTC o/ A!A!s :D@ :CCD +e,o)e he
&##)o1&' o, he SRC o/ 4!'( :C@ 2000- Go&e%er( the other
doctrie! !till fid applicatio !$ch a! the follo&ig; /ec. 1 >c?( of P.D.
802,A >a! ameded by R. A. 8788( the /ec$ritie! Reg$latio *ode?
>*otro%er!ie! i the electio or appoitmet! of director!( tr$!tee!(
officer! or maager! of !$ch corporatio!( parter!hip! or
a!!ociatio!? applie! to corporate officer3! di!mi!!al. :or a corporate
officer3! di!mi!!al i! al&ay! a corporate act adFor a itra,corporate
cotro%er!y ad that it! at$re i! ot altered by the rea!o or &i!dom
&hich the 4oard of Director! may ha%e i ta.ig !$ch actio.
>6elarde v. 'ope(, Inc. D. R. "o. 113889( Ia$ary 1J( 200J citig
.n%kiko v. National 'abor Relation Commission, 270 /*RA 913
>1887? li.e&i!e citig other ca!e!?
E%e if the complait by a corporate officer icl$de! moey
claim! !ice !$ch claim! are act$ally part of the prere'$i!ite of hi!
po!itio ad( therefore iterli.ed &ith hi! relatio! &ith the
corporatio. >Ibid.? The '$e!tio of rem$eratio i%ol%ig a per!o
&ho i! ot a mere employee b$t a !toc.holder ad officer of the
corporatio i! ot a !imple labor problem b$t a matter that come!
&ithi the area of corporate affair! ad maagemet( ad i! i fact a
corporate cotro%er!y i cotemplatio of the *orporatio *ode.
>6elarde citig !" v. National 'abor Relations Commission, 1J1 /*RA
211? Th$!( the appropriate RT* &o$ld ha%e C$ri!dictio.
>- What are the civil cases involving
corporations# partnerships# or associations relations
3hich fall 3ithin the jurisdiction of the regular courts ?
/@DDE/TED A"/-ER; The!e are the ci%il ca!e!
i%ol%ig the follo&ig;
a. De%ice! or !cheme! employed by( or ay act of( the
board of director!( b$!ie!! a!!ociate!( officer! or parter!(
amo$tig to fra$d or mi!repre!etatio &hich may be
detrimetal to the itere!t of the p$blic adFor of the
!toc.holder!( parter!( or member! of ay corporatio(
parter!hip( or a!!ociatioK
b. *otro%er!ie! ari!ig o$t of itra,corporate(
parter!hip( or a!!ociatio relatio! bet&ee ad amog
!toc.holder!( member!( or a!!ociate!K ad bet&ee( ay or all
81
of them ad the corporatio( parter!hip( or a!!ociatio of
&hich they are !toc.holder!( member!( or a!!ociate!(
re!pecti%elyK
c. *otro%er!ie! i the electio or appoitmet of
director!( tr$!tee!( officer!( or maager! of corporatio!(
parter!hip!( or a!!ociatio!K
d. Deri%ati%e !$it!K ad
e. )!pectio of corporate boo.!. >/ec. 1( R$le 1( )terim
R$le! of Proced$re Do%erig )tracorporate *otro%er!ie! $der R.
A. "o. 8788?
"BTE/ A"D *B66E"T/;
a. RTC h&s he #owe) o $)e&e & .&/&Ae.e/
$o..%ee- RT* ha! the di!cretio to grat or dey a applicatio
for the creatio of a maagemet committee. Thi! &a! part of the
former po&er! of the /E*( $der P. D ."o. 802,A( &hich &ere
tra!ferred to the RT* thro$gh Rep. Act "o. 8788. >Punon%ba"an v.
Punon%ba"an, )r., D. R. "o. 117971( I$e 20( 2009?
?- What are the tests to determine 3hether a
controversy is intracorporate or not ?
/@DDE/TED A"/-ER; /ec. 1 >b? of P.D. "o. 802,A
doe! ot defie &hat a itra,corporate cotro%er!y i!( b$t
ca!e la& ha! fa!hioed t&o te!t!;
The 5IRST te!t $!e! the e$meratio i /ec. 1 >b? of
the relatio!hip! to determie C$ri!dictio( to &it;
1? Tho!e bet&ee ad amog !toc.holder! ad
member!K
2? Tho!e bet&ee ad amog !toc.holder! ad
member!( o oe had( ad the corporatio( o the
other hadK ad
3? Tho!e bet&ee the corporatio ad the
/tate b$t oly i!ofar a! it! frachi!e or right to e#i!t a!
a etity i! cocered.
The SECOND te!t( foc$!e! o the at$re of the
cotro%er!y it!elf. Recet deci!io! of the /$preme *o$rt
co!ider ot oly the !$bCect of their cotro%er!y b$t al!o the
!tat$! of the partie!. 4Pascual, et al., v. Court of Appeals, et al., D.
R. "o. 1381J2( A$g$!t 21( 2000?
"BTE/ A"D *B66E"T/;
a. No $o)#o)&e )e'&%o/ &here a corporate officer hold!
i tr$!t for aother per!o hi! corporate itere!t!. Th$!( &here a
!toc.holder3! propertie! are beig litigated( there &o$ld be o
corporate relatio &here it i! alleged that $po the death of the
!toc.holder( hi! heir became a co,o&er of the e!tate left by him
icl$dig hi! corporate itere!t!. >Pascual, supra?
b. S!#e)1%so)( &!ho)%( o, SEC o1e) $o)#o)&e
e/*s &here the property ha! bee completely di!!ol%ed. 4Pascual,
supra=
<- 47plain the concept of a derivative suit
/@DDE/TED A"/-ER; A idi%id$al i! permitted to
i!tit$te a deri%ati%e !$it
a. o behalf of the corporatio
b. &herei he hold! !toc. i order
c. to protect or %idicate corporate right!(
d. 2henever the officials of the corporation refuse to
sue, or are the oe! to be !$ed or hold the cotrol of the
corporatio.
) !$ch actio!( the !$ig !toc.holder i! regarded a! the
omial party( 2ith the corporation as the real part" in interest.
>,amboa v. 6ictoriano( 80 /*RA J0( J7 cited i #irst Philippine
International Bank, et al., v. Court of Appeals, et al., D. R. "o. 1118J8(
Ia$ary 2J( 1889K #ilipinas Port ervices, Inc., etc., et al., v. ,o, et
al., D. R. "o. 191889( 6arch 19( 2007?
"BTE/ A"D *B66E"T/;
a. A'e)/&%1e *e,%/%%o/- A deri%ati%e actio i! a !$it
by a !toc.holderFmember to eforce a corporate ca$!e of actio. MR.
/. "maco Corporation v. antos, J97 /*RA 312 >2001?N
b. N&!)e o, *e)%1&%1e s!%- -here corporate
director! are g$ilty of a breach of tr$!t( ot of mere error of C$dgmet
or ab$!e of di!cretio( ad itra,corporate remedy i! f$tile or $!ele!!(
a !toc.holder may i!tit$te a !$it i behalf of him!elf ad other
!toc.holder! ad for the beefit of the corporatio( to brig abo$t a
redre!! of the &rog iflicted directly $po the corporatio ad
idirectly $po the !toc.holder!.
The !toc.holder3! right to i!tit$te a deri%ati%e !$it i! ot ba!ed
o ay e#pre!! pro%i!io of the *orporatio *ode b$t i! impliedly
recogi+ed &he the la& ma.e! corporate director! or officer! liable
for damage! !$ffered by the corporatio ad i! !toc.holder! for
%iolatio of their fid$ciary d$tie!.
) effect( the !$it i! a actio for !pecific performace of a
obligatio o&ed by the corporatio to the !toc.holder! to a!!i!t it!
right! of actio &here the corporatio ha! bee p$t i defa$lt by the
&rogf$l ref$!al of the director! or maagemet to ma.e !$itable
mea!$re! for it! protectio.
82
c. B&s%s o, *e)%1&%1e s!%- The ba!i! of a
!toc.holder3! !$it i! al&ay! oe of e'$ity. Go&e%er( it caot pro!per
&itho$t fir!t complyig &ith the legal re'$iremet! for it! i!tit$tio(
The moi!t importat of the!e i! the boa fide o&er!hip by a
!toc.holder of a !toc. i hi! o& right at the time of the tra!actio
complaied of &hich i%e!t! him &ith !tadig to i!tit$te a deri%ati%e
actio for the beefit of the corporatio.
d. P!)#ose o, * *e)%1&%1e s!%- To allo& the
!toc.holderFmember to eforce right! &hich are deri%ati%e
>!ecodary? i at$re. R. /. "maco Corporation v. antos, J97
/*RA 312 >2001?N
7- What are the re9uisites of a derivative suit ?
/@DDE/TED A"/-ER; A !toc.holder or member may
brig a actio i the ame of a corporatio or a!!ociatio( a!
the ca!e may be( pro%ided( that;
a. Ge &a! a !toc.holder or member at the time the
act! or tra!actio! !$bCect of the actio occ$rred ad at the
time the actio &a! filedK MThe $mber of !hare! ot beig material
>#ilipinas Port ervices, Inc., etc., et al., v. ,o, et al., D. R. "o.
191889( 6arch 19( 2007 citig an /i%uel Corporation, etc., v. $han,
D. R. "o. 81338( A$g$!t 11( 1888( 179 /*RA JJ7( J92?N
b. Ge e#erted all rea!oable effort!( ad allege!
the !ame &ith partic$larity i the complait( to e#ha$!t all
remedie! a%ailable $der the article! of icorporatio( by,la&!(
la&! or r$le! go%erig the corporatio or parter!hip to obtai
the relief he de!ire!K MGa! made a demad o the board of director!
for the appropriate relief b$t the latter ha! failed or ref$!ed to heed i!
plea >#ilipinas Port ervices, Inc., etc., et al., v. ,o, et al., D. R. "o.
191889( 6arch 19( 2007 citig an /i%uel Corporation, etc., v. $han,
D. R. "o. 81338( A$g$!t 11( 1888( 179 /*RA JJ7( J92?N
c. "o apprai!al right! are a%ailable for the act or
act! complaied ofK ad
d. The !$it i! ot a $i!ace or hara!!met !$it.
>/ec. 1( R$le 8( )terim R$le! of Proced$re Do%erig )tra,
*orporate *otro%er!ie! $der R. A. "o. 8788?
e. The ca$!e of actio act$ally de%ol%e! o the
corporatio( the &rogdoig or harm ha%ig bee( or beig
ca$!ed to the corporatio ad ot to the partic$lar !toc.holder
brigig the !$it. >#ilipinas Port ervices, Inc., etc., et al., v. ,o, et
al., D. R. "o. 191889( 6arch 19( 2007 citig an /i%uel Corporation,
etc., v. $han, D. R. "o. 81338( A$g$!t 11( 1888( 179 /*RA JJ7( J92?N
7-A- Does the approval by the &ecurities and
47change Commission >&4C? of the Rehabilitation 2lan
and the appointment of a receiver submitted by a
petitioner for rehabilitation impair a secured creditors8 lien
over the mortgage properties ?
/@DDE/TED A"/-ER; "o. The la& pro%ide! that
2$po appoitmet of a maagemet committee( rehabilitatio
recei%er( board or body p$r!$at to thi! Decree( all actio! for
claim! agai!t corporatio!( parter!hip! or a!!ociatio! $der
maagemet or recei%er!hip pedig before ay co$rt(
trib$al( board or body !hall be !$!peded.5 M/ec. 9 >c?( Pre!.
Decree "o. 802,AN
The creditor3! preferred !tat$! o%er the $!ec$red
creditor! relati%e to the mortgage i! retaied( it i! the
eforcemet of !$ch preferece that i! !$!peded.
>/etropolitan Bank & Trust Compan" v. AB &oldin%s, Inc., et al., D.
R. "o. 199187( :ebr$ary 27( 2007?
"BTE/ A"D *B66E"T/;
a. A##)o1&' o, he Reh&+%'%&%o/ P'&/ &/* he
&##o%/.e/ o, & )eh&+%'%&%o/ )e$e%1e) .e)e'( s!s#e/*
he $'&%.s &A&%/s he $o)#o)&%o/ so!Ah o +e
)eh&+%'%&e*- The loa agreemet! bet&ee the corporatio !o$ght
to be rehabilitated ad it! creditor! ha%e ot bee !et a!ide ad the
!ec$red creditor! may !till eforce their preferece o%er the a!!et! of
the corporatio !o$ght to be rehabilitated. They may !till eforce
their preferetial lie &he the a!!et! of the corporatio &ill be
li'$idated. *o!iderig that the pro%i!io! of the loa agreemet are
merely !$!peded( there i! o impairmet of cotract! !pecifically the
lie i the mortgaged propertie!. >/etropolitan Bank & Trust
Compan" v. AB &oldin%s, Inc., et al., D. R. "o. 199187( :ebr$ary 27(
2007?
b. R&%o/&'e ,o) he s!s#e/s%o/ o, $'&%.s
&A&%/s he $o)#o)&%o/ so!Ah o +e )eh&+%'%&e*- Thi!
arragemet pro%ided by la& i! iteded to gi%e the recei%er a
chace to rehabilitate the corporatio if there !ho$ld !till be a
po!!ibility for doig !o( &itho$t beig $ece!!arily di!t$rbed
by the creditor!3 actio agai!t the di!tre!!ed corporatio.
Go&e%er( i the e%et that rehabilitatio i! o loger fea!ible
ad the claim! agai!t the di!tre!!ed corporatio &o$ld
e%et$ally ha%e to be !ettled( the !ec$red creditor! !hall eCoy
preferece o%er the $!ec$red creditor!. >Ri(al Commercial
Bankin% Corporation v. Intermediate Appellate Court, D. R. "o.
7J811m December 8( 1888( 320 /*RA 278 cited i /etropolitan
83
Bank & Trust Compan" v. AB &oldin%s, Inc., et al., D. R. "o.
199187( :ebr$ary 27( 2007?
7 L B- What is the purpose of corporate
rehabilitation proceedings ? 47plain briefly
/@DDE/TED A"/-ER; The p$rpo!e of rehabilitatio
proceedig! i! to eable the compay to gai e& lea!e o lie
ad thereby allo&! creditor! to be paid their claim! from it!
earig!. M/etropolitan Bank & Trust Compan" v. AB &oldin%s,
Inc., et al., D. R. "o. 199187( :ebr$ary 27( 2007 citig Rubber2orld
4Phils.=, Inc. v. National 'abor Relations Commission, D. R. "o.
129773( April 1J(1888( 301 /*RA 721N
"BTE/ A"D *B66E"T/;
a. Reh&+%'%&%o/ *oes /o $o/e.#'&e
*%sso'!%o/ o, he *%s)esse* $o)#o)&%o/- Rehabilitatio
cotemplate! a coti$ace of corporate life ad acti%itie! i a effort
to re!tore ad rei!tate the fiacially di!tre!!ed corporatio to it!
former po!itio of !$cce!!f$l operatio ad !ol%ecy. >/etropolitan
Bank & Trust Compan" v. AB &oldin%s, Inc., et al., D. R. "o.
199187( :ebr$ary 27( 2007 citig Rub" Industrial Corporation v. Court
of Appeals, D. R. "o!. 12J181,87( Ia$ary 20( 1888( 28J /*RA JJ1?
Thi! i! i co!oace &ith the /tate3! obCecti%e to promote a &ider
ad more meaigf$l e'$itable di!trib$tio of &ealth to protect
i%e!tmet! ad the p$blic. >Ibid., citig P. D. 802,A( a! ameded
(fir!t 5-herea!5 cla$!e?
Appro%al of the Rehabilitatio Pla i! i f$rtherace of the
ratioale behid P.D. "o. 802,A( a! ameded &hich i! 2to effect a
fea!ible ad %iable rehabilitatio5 >Ibid., citig Ri(al Commercial
Bankin% Corporation v. Intermediate Appellate Court, D. R. "o.
7J181( /eptember 1J(1882( 213 /*RA 830?of ailig corporatio!
&hich affect the p$blic &elfare.
D- What is a public company ?
/@DDE/TED A"/-ER; Ay corporatio
a? &ith a cla!! of e'$ity !ec$ritie! li!ted o a
E#chage or
b? &ith a!!et! i e#ce!! of :ifty 6illio Pe!o!
>P10(000(000.00? ad ha%ig t&o h$dred >200? or more
holder!( at lea!t t&o h$dred >200? of &hich are holdig at
lea!t oe h$dred >100? !hare! of a cla!! of it! e'$ity
!ec$ritie!. >/R* R$le 3.1.i?
C- What is a &elf Regulatory -rganization or &R- ?
/@DDE/TED A"/-ER; A orgai+ed E#chage(
regi!tered clearig agecy ad ay orgai+atio or a!!ociatio
regi!tered a! a /RB $der the pro%i!io! of the /ec$ritie!
Reg$latio *ode to eforce compliace &ith rele%at
pro%i!io! of the *ode ad r$le! ad reg$latio! adopted
there$der( ad madated to ma.e ad eforce it! o& r$le!(
&hich ha%e bee appro%ed by the /ec$ritie! ad E#chage
*ommi!!io( by their member! adFor participat!. >/R* R$le
3.1.C?
:0- What is a fraudulent transaction ?
/@DDE/TED A"/-ER; The p$rcha!e of !ale of ay
!ec$ritie! to egage i ay act( tra!actio( practice( or co$r!e
of b$!ie!! &hich operate! or &o$ld operate a! a fra$d or
deceit $po ay per!o.
:ra$d here i! a.i to bad faith &hich implie! a
co!cio$! ad itetioal de!ig to do a &rogf$l act for a
di!hoe!t p$rpo!e or moral obli'$ityK it i! $li.e that of the
egati%e idea of egligece i that fra$d or bad faith
cotemplate! a !tate of mid affirmati%e operatig &ith f$rti%e
obCecti%e!. >ecurities and *9chan%e Commission vs. Court of
Appeals, et al., D.R. "o!. 109J21 L 109J31,32( I$ly 21( 1881?
::- What are considered as manipulative
practices relative to securities trading ?
/@DDE/TED A"/-ER; )t !hall be $la&f$l for ay
per!o actig for him!elf or thro$gh a dealer or bro.er( directly
or idirectly;
a? To create a fal!e or mi!leadig appearace of acti%e
tradig i ay li!ted !ec$rity traded i a E#chage or ay
other tradig mar.et;
>i? 4y effectig ay tra!actio i !$ch !ec$rity
&hich i%ol%e! o chage i the beeficial o&er!hip
thereofK
>ii? 4y eterig a order or order! for the
p$rcha!e or !ale of !$ch !ec$rity &ith the .o&ledge
that a !im$ltaeo$! order or order! of !$b!tatially the
!ame !i+e( time or pri+e( for the !ale or p$rcha!e of ay
!$ch !ec$rity( ha! or &ill be etered by or for the !ame
or differet partie!K or
>iii? 4y performig !imilar act! &here there i! o
chage i beeficial o&er!hip.
84
b? To effect( aloe or &ith other!( a !erie! of
tra!actio! i !ec$ritie! that;
>i? Rai!e! their price to id$ce the p$rcha!e of
a !ec$rity( &hether of the !ame or a differet cla!! of
the !ame i!!$er or of a cotrollig( cotrolled( or
commoly cotrolled compay by other!K
>ii? Depre!!e! their price to id$ce the !ale of a
!ec$rity( &hether of the !ame or a differet cla!!( of the
!ame i!!$er or of a cotrollig( cotrolled( or commoly
cotrolled compay by other!K or
>iii? *reate! acti%e tradig to id$ce !$ch a
p$rcha!e or !ale thro$gh maip$lati%e de%ice! !$ch a!
mar.ig the clo!e( paitig the tape( !'$ee+ig the
float( hype ad d$mp( boiler room operatio! ad !$ch
other !imilar de%ice!.
c? To circ$late or di!!emiate iformatio that the price
of ay !ec$rity li!ted i a E#chage &ill or i! li.ely to ri!e or
fall beca$!e of maip$lati%e mar.et operatio! of ay oe or
more per!o! cod$cted for the p$rpo!e of rai!ig or
depre!!ig the price of the !ec$rity for the p$rpo!e of id$cig
the p$rcha!e or !ale of !$ch !ec$rity.
d? To ma.e fal!e or mi!leadig !tatemet &ith re!pect
to ay material fact( &hich he .e& or had rea!oable gro$d
to belie%e &a! !o fal!e or mi!leadig( for the p$rpo!e of
id$cig the p$rcha!e or !ale of ay !ec$rity li!ted or traded i
a E#chage.
e? To effect( either aloe or other!( ay !erie! of
tra!actio! for the p$rcha!e adFor !ale of ay !ec$rity traded
i a E#chage for the p$rpo!e of peggig( fi#ig or !tabili+ig
the price of !$ch !ec$rityK $le!! other&i!e allo&ed by the
/ec$ritie! Reg$latio *ode or by r$le! of the /E*. >/R* R$le
2J.1( arragemet ad re&ordig !$pplied?
:2- What are some of the nonKe7clusive
e7amples of types of prohibited conduct considered
as manipulation of stoc" mar"et prices ? Define
each
/@DDE/TED A"/-ER;
a. P&%/%/A he &#e. Egagig i a !erie! of
tra!actio! i !ec$ritie! that are reported p$blicly to gi%e the
impre!!io of acti%ity or price mo%emet i a !ec$rity. M/R*
R$le 2J.1 >b? 1.1 >a?N
b. M&)B%/A he $'ose. 4$yig ad !ellig !ec$ritie! at
the clo!e of the mar.et i a effort to alter the clo!ig price of
the !ec$rity. M/R* R$le 2J.1 >b? 1.1 >b?N
c. I.#)o#e) .&$he* o)*e)s. Egagig i
tra!actio! &here both the b$y ad !ell order! are etered at
the !ame time &ith the !ame price ad '$atity by differet b$t
coll$dig partie!. M/R* R$le 2J.1 >b? 1.1 >c?N
d. H(#e &/* *!.#. Egagig i b$yig acti%ity at
icrea!igly higher price! ad the !ellig !ec$ritie! i the
mar.et at the higher price!. M/R* R$le 2J.1 >b? 1.1 >d?N
e. W&sh s&'es- Egagig i tra!actio! i &hich there
i! o ge$ie chage i act$al o&er!hip of a !ec$rity. M/R*
R$le 2J.1 >b? 1.1 >e?N
f. SI!eeF%/A he ,'o&- Ta.ig ad%atage of a
!hortage of !ec$ritie! i the mar.et by cotrollig the demad
!ide ad e#ploitig mar.et coge!tio d$rig !$ch !hortage! i
a &ay a! to create artificial price!. M/R* R$le 2J.1 >b? 1.1 >f?N
g. D%sse.%/&%/A ,&'se o) .%s'e&*%/A .&)Be
%/,o).&%o/ h)o!Ah .e*%&( icl$dig the iteret( or ay
other mea! to mo%e the price of a !ec$rity i a directio that
i! fa%orable to a po!itio held or a tra!actio. M/R* R$le 2J.1
>b? 1.1 >g?N
:=- Ms -$ 3as employed in MA& !nvestment
$an" W!C# a medical drug company# retained the $an" to
assess 3hether it is desirable to ma"e a tender offer for
D-2 Company# a drug manufacturer -$ overheard in the
course of her 3or" the plans of W!C $y herself and thru
associates# she purchased D-2 stoc"s available at the
stoc" e7change priced at 2') per share When W!C8s
tender offer 3as announced# D-2 stoc"s jumped to 2G)
per share 0hus -$ earned a sizeable profit
!s -$ liable for breach and misuse of confidential
or insider information gained from her employment ? !s
she also liable for damages to sellers or buyers 3ith 3hom
she traded ? if so# 3hat is the measure of such damages ?
47plain briefly
/@DDE/TED A"/-ER; <e!. B4 i! liable beca$!e
!he i! a i!ider. A! a employee of the 4a.( i coectio
85
&ith her &or.( &a! able to material iformatio &ith re!pect to
DBP( the i!!$er( that i! ot geerally a%ailable. A! !$ch i!ider
!he i! prohibited to b$y or !ell !hare! of !toc. of the i!!$er( i
thi! ca!e DBP. >/ec. 27.1 i relatio to /ec. 3.8( both of the /R*?
B4 i! !$bCect to pealty impo!able $po tho!e &ho %iolate ay
pro%i!io of the /ec$ritie! Reg$latio *ode &hich i! a fie of
ot le!! tha P10(000.00 or more tha P1 millio or
impri!omet of ot le!! tha !e%e year! or more tha 21
year!( or both( i the di!cretio of the co$rt. >/ec. 73( /R*?
B4 i! liable to ay i%e!tor from &hom( a! !$ch i!ider(
!he p$rcha!ed the !hare! or to &hom !he !old the !hare!.
/he i! liable to damage! i a amo$t ot e#ceedig
triple the amo$t of the tra!actio pl$! act$al damage!.
E#emplary damage! may al!o be a&arded i ca!e! of bad
faith( fra$d( male%olece or &atoe!! i the %iolatio of the
/ec$ritie! Reg$latio *ode. >/ec. 93( /R*?
:>2- Who is an insider ?
/@DDE/TED A"/-ER;
a. The i!!$erK
b. A director or officer of( or a per!o cotrollig(
cotrolled by( or $der commo cotrol &ith( the i!!$er(
c. A per!o &ho!e relatio!hip or former relatio!hip o
the i!!$er gi%e! or ga%e him acce!! to a fact of !pecial
!igificace abo$t the i!!$er or the !ec$rity that i! ot
geerally a%ailable( or
d. A per!o &ho lear! !$ch a fact from ay of the
foregoig i!ider! &ith .o&ledge that the per!o from &hom
he lear! the fact i! !$ch a i!ider. >/ec. 3.8( /R*?
:?- What is a prospectus?
/@DDE/TED A"/-ER; 2Pro!pect$!5 i! the
doc$met made by or o behalf of a i!!$er( $der&riter or
dealer to !ell or offer !ec$ritie! for !ale to the p$blic thro$gh a
regi!tratio !tatemet filed &ith the *ommi!!io. >/ec. 3.11
/R*?
:<- Who is a bro"er?
/@DDE/TED A"/-ER; 24ro.er5 i! a per!o
egaged i the b$!ie!! of b$yig ad !ellig !ec$ritie! for the
acco$t of other!. >/ec. 3.3 /R*?
:7- Who is a dealer?
/@DDE/TED A"/-ER; 2Dealer5 mea! ay per!o
&ho b$y! ad !ell! !ec$ritie! for hi!Fher o& acco$t i the
ordiary co$r!e of b$!ie!!. >/ec. 3.J /R*?
:D- What is a Pfact of special significanceP ?
/@DDE/TED A"/-ER;
a. Be &hich i additio to beig material( &o$ld be
li.ely to affect the mar.et price of a !ec$rity to a !igificat
e#tet o beig made geerally a%ailable
b. Be &hich a rea!oable per!o &o$ld co!ider
e!pecially importat $der the circ$m!tace! i determiig
hi! co$r!e of actio i the light of !$ch factor! a! the degree of
it! !pecificity( the e#tet of it! differece from iformatio
geerally a%ailable pre%io$!ly ad i! at$re ad reliability.
:C- What are securities ?
/@DDE/TED A"/-ER; The!e are !hare!(
participatio or itere!t! i a corporatio or i a commercial
eterpri!e or profit,ma.ig %et$re ad e%ideced by a
certificate( cotract( i!tr$met( &hether &ritte or electroic i
character. >1
!t
par.( /ec. 3.1( /R*?
20- Iive e7amples of securities ?
/@DDE/TED A"/-ER;
a? /hare! of !toc.( bod!( debet$re!( ote!(
e%idece! of idebtede!!( a!!et,bac.ed !ec$ritie!K
b? )%e!tmet cotract!( certificate! of itere!t or
participatio i a profit !harig agreemet( certificate! of
depo!it for a f$t$re !$b!criptioK
c? :ractioal $di%ided itere!t! i oil( ga! or other
mieral right!K
d? Deri%ati%e! li.e optio ad &arrat!K
e? *ertificate! of a!!igmet!( certificate! of
participatio( tr$!t certificate!( %otig tr$!t certificate! or !imilar
i!tr$met!K
f? Proprietary or oproprietary member!hip
certificate! i corporatio!K ad
g? Bther i!tr$met! a! may i the f$t$re be
determied by the *ommi!!io. >/ec. 3.1 /R*?
86
2:- What are overKtheKcounter securities ?
The!e are !ec$ritie! !old &itho$t pa!!ig thro$gh the
!toc. e#chage.
"BTE/ A"D *B66E"T/;
a. O1e)-he-$o!/e) .&)Bes- 6ar.et! made or created
for the p$rcha!e ad !ale of !ec$ritie! other tha o a !toc.
e#chage.
22- What is meant by the registration
re9uirement for securities ?
/@DDE/TED A"/-ER; The re'$iremet that
!ec$ritie! !hall ot be !old or offered for !ale or di!trib$tio
&ithi the Philippie!( &itho$t a regi!tratio !tatemet d$ly filed
&ith ad appro%ed by the /E*. Prior to !$ch !ale( iformatio
o the !ec$ritie!( i !$ch form ad &ith !$ch !$b!tace a! the
/E* may pre!cribe( !hall be made a%ailable to each
pro!pecti%e p$rcha!er. >/ec. 8.1( /R*?

2=- What are e7empt securities ?
/@DDE/TED A"/-ER; Tho!e that do ot re'$ire
regi!tratio either beca$!e the la& it!elf e#empt! them
therefrom or the /ec$ritie! ad E#chage *ommi!!io fid!
that the eforcemet of the regi!tratio re'$iremet i! ot
ece!!ary i the p$blic itere!t ad for the protectio of the
i%e!tor! by rea!o of the amo$t i%ol%ed or the limited
character of the p$blic offerig.
2>- Iive e7amples of e7empt securities
/@DDE/TED A"/-ER;
a? Ay !ec$rity i!!$ed or g$arateed by the
Do%ermet of the Philippie!( or by ay political !$bdi%i!io
or agecy thereof( or by ay per!o cotrolled or !$per%i!ed
by( ad actig a! a i!tr$metality of !aid Do%ermet.
b? Ay !ec$rity i!!$ed or g$arateed by the
go%ermet or ay co$try &ith &hich the Philippie!
maitai! diplomatic relatio!( or by ay !tate( pro%ice or
political !$bdi%i!io thereof o the ba!i! of reciprocity;
Provided( That the *ommi!!io may re'$ire compliace &ith
the form ad cotet of di!clo!$re! the *ommi!!io may
pre!cribe.
c? *ertificate! i!!$ed by a recei%er or by a tr$!tee i
ba.r$ptcy d$ly appro%ed by the proper adC$dicatory body.
d? Ay !ec$rity or it! deri%ati%e! the !ale or tra!fer of
&hich( by la&( i! $der the !$per%i!io ad reg$latio of the
Bffice of the )!$race *ommi!!io( Go$!ig ad 7ad @!e
Reg$latory 4oard( or the 4$rea$ of )teral Re%e$e.
e? Ay !ec$rity i!!$ed by a ba. e#cept it! o& !hare!
of !toc.. >/ec. 8.1 /R*?
The *ommi!!io may( by r$le or reg$latio after p$blic
hearig( add to the foregoig ay cla!! of !ec$ritie! if it fid!
that the eforcemet of thi! *ode &ith re!pect to !$ch
!ec$ritie! i! ot ece!!ary i the p$blic itere!t ad for the
protectio of i%e!tor!. >/ec. 8.2 /R*?
2?- What transactions are e7empt ?
/@DDE/TED A"/-ER; /ale of ay !ec$rity i ay of
the follo&ig tra!actio!;
a? At ay C$dicial !ale( or !ale by a e#ec$tor(
admii!trator( g$ardia or recei%er or tr$!tee i i!ol%ecy or
ba.r$ptcy.
b? 4y or for the acco$t of a pledge holder( or
mortgagee or ay other !imilar lie holder !ellig or offerig for
!ale or deli%ery i the ordiary co$r!e of b$!ie!! ad ot for
the p$rpo!e of a%oidig the pro%i!io! of thi! *ode( to li'$idate
a bona fide debt( a !ec$rity pledged i good faith a! !ec$rity
for !$ch debt.
c? A i!olated tra!actio i &hich ay !ec$rity i! !old(
offered for !ale( !$b!criptio or deli%ery by the o&er thereof(
or by hi! repre!etati%e for the o&er3! acco$t( !$ch !ale or
offer for !ale !$b!criptio or deli%ery ot beig made i the
co$r!e of repeated ad !$cce!!i%e tra!actio! of a li.e
character by !$ch o&er( or o hi! acco$t by !$ch
repre!etati%e ad !$ch o&er or repre!etati%e ot beig the
$der&riter of !$ch !ec$rity.
d? The di!trib$tio by a corporatio( acti%ely egaged
i the b$!ie!! a$thori+ed by it! article! of icorporatio( of
!ec$ritie! to it! !toc.holder! or other !ec$rity holder! a! a
!toc. di%ided or other di!trib$tio o$t of !$rpl$!.
e? The !ale of capital !toc. of a corporatio to it! o&
!toc.holder! e#cl$!i%ely( &here o commi!!io or other
87
rem$eratio i! paid or gi%e directly or idirectly i coectio
&ith the !ale of !$ch capital !toc..
f? The i!!$ace of bod! or ote! !ec$red by
mortgage $po real e!tate or tagible per!oal property( &here
the etire mortgage together &ith all the bod! or ote!
!ec$red thereby are !old to a !igle p$rcha!er at a !igle !ale.
g? The i!!$e ad deli%ery of ay !ec$rity i e#chage
for ay other !ec$rity of the !ame i!!$er p$r!$at to a right of
co%er!io etitlig the holder of the !ec$rity !$rredered i
e#chage to ma.e !$ch co%er!io; Provided( That the
!ec$rity !o !$rredered ha! bee regi!tered $der thi! *ode
or &a!( &he !old( e#empt from the pro%i!io of thi! *ode( ad
that the !ec$rity i!!$ed ad deli%ered i e#chage( if !old at
the co%er!io price( &o$ld at the time of !$ch co%er!io fall
&ithi the cla!! of !ec$ritie! etitled to regi!tratio $der thi!
*ode. @po !$ch co%er!io the par %al$e chage !hall be
deemed the price at &hich the !ec$ritie! i!!$ed ad deli%ered
i !$ch e#chage are !old.
h? 4ro.er3! tra!actio!( e#ec$ted $po c$!tomer3!
order!( or ay regi!tered E#chage or other tradig mar.et.
i? /$b!criptio! for !hare! of the capital !toc. of a
corporatio prior to the icorporatio thereof or i p$r!$ace of
a icrea!e i it! a$thori+ed capital !toc. $der the
*orporatio *ode( &he o e#pe!e i! ic$rred( or o
commi!!io( compe!atio or rem$eratio i! paid or gi%e i
coectio &ith the !ale or di!po!itio of !$ch !ec$ritie!( ad
oly &he the p$rpo!e for !olicitig( gi%ig or ta.ig of !$ch
!$b!criptio i! to comply &ith the re'$iremet! of !$ch la& a!
to the percetage of the capital !toc. of a corporatio &hich
!ho$ld be !$b!cribed before it ca be regi!tered ad d$ly
icorporated( or it! a$thori+ed capital icrea!ed.
C? The e#chage of !ec$ritie! by the i!!$er &ith it!
e#i!tig !ec$rity holder! e#cl$!i%ely( &here o
commi!!io or other rem$eratio i! paid or gi%e
directly or idirectly for !olicitig !$ch e#chage.
.? The !ale of !ec$ritie! by a i!!$er to fe&er tha
t&ety >20? per!o! i the Philippie! d$rig the t&el%e,moth
period.
l? The !ale of !ec$ritie! to ay $mber of the follo&ig
'$alified b$yer!;
>i? 4a.K
>ii? Regi!tered i%e!tmet ho$!eK
>iii? )!$race compayK
>i%? Pe!io f$d or retiremet pla maitaied
by the Do%ermet of the Philippie! or ay political
!$bdi%i!io thereof or maaged by a ba. or other per!o!
a$thori+ed by the 4ag.o /etral to egage i tr$!t f$ctio!.
>%? )%e!tmet compayK or
>%i? /$ch other per!o a! the *ommi!!io may
by r$le determie a! '$alified b$yer!( o the ba!i! of !$ch
factor! a! fiacial !ophi!ticatio( et &orth( .o&ledge( ad
e#periece i fiacial ad b$!ie!! matter!( or amo$t of
a!!et! $der maagemet. >/ec. 10.1 /R*?

2<- What are the grounds for &4C to reject and
revo"e registration of securities ?
/@DDE/TED A"/-ER; )f /E* fid! that;
>a? The i!!$er;
>i? Ga! bee C$dicially declared i!ol%etK
>ii? Ga! %iolated ay of the pro%i!io! of the
/ec$ritie! Reg$latio *ode( the r$le! prom$lgated
p$r!$at thereto( or ay order of the /E* of &hich the
i!!$er ha! otice i coectio &ith the offerig for
&hich a regi!tratio !tatemet ha! bee filedK
>iii? Ga! bee or i! egaged or i! abo$t to
egage i fra$d$let tra!actio!K
>i%? Ga! made ay fal!e or mi!leadig
repre!etatio of material fact! i ay pro!pect$!
cocerig the i!!$er or it! !ec$ritie!K
>%? Ga! failed to comply &ith ay re'$iremet
that the /E* may impo!e a! a coditio for regi!tratio
of the !ec$rity for &hich the regi!tratio !tatemet ha!
bee filedK or
>b? The regi!tratio !tatemet i! o it! face icomplete
or iacc$rate i ay material re!pect or icl$de! ay $tr$e
!tatemet of a material fact or omit! to !tate a material fact
re'$ired to be !tated therei or ece!!ary to ma.e the
!tatemet! therei ot mi!leadigK or
>c? The i!!$er( ay officer( director or cotrollig per!o
of the i!!$er( or per!o performig !imilar f$ctio!( or ay
$der&riter ha! bee co%icted( by a competet C$dicial or
admii!trati%e body( $po plea of g$ilty( or other&i!e( of a
88
offe!e i%ol%ig moral t$rpit$de adFor fra$d or i! eCoied or
re!traied by the /E* or other competet C$dicial or
admii!trati%e body for %iolatio! of !ec$ritie!( commoditie!(
ad other related la&!. >/ec. 13( /R* arragemet ad re&ordig
!$pplied?

27- What are the grounds for suspension of the
registration of securities ?
/@DDE/TED A"/-ER;
a. The /E* may al!o !$!ped the right to !ell ad
offer for !ale !$ch !ec$rity pedig f$rther i%e!tigatio( by
eterig a order !pecifyig the gro$d! for !$ch actio( ad
by otifyig the i!!$er( $der&riter( dealer or bro.er .o& a!
participatig i !$ch offerig.
b. The /E* may al!o !$!ped $po a ref$!al of the
i!!$er $po order of the /E* to f$ri!h !$ch f$rther
iformatio a! may i it! C$dgmet be ece!!ary to eable the
/E* to a!certai &hether the regi!tratio of !$ch !ec$rity
!ho$ld be re%o.ed;
1? )f at ay time( the iformatio cotaied i
the regi!tratio !tatemet filed i! or ha! become
a? mi!leadig(
b? icorrect(
c? iade'$ate or icomplete i ay
material re!pect( or
2? the !ale or offerig for !ale of the !ec$rity
regi!tered there$der may &or. or ted to &or. a fra$d(
@po the i!!$ace of ay !$ch order ad otificatio to
the i!!$er( $der&riter( dealer or bro.er .o& a! participatig
i !$ch offerig( o f$rther offer or !ale of ay !$ch !ec$rity
!hall be made $til the !ame i! lifted or !et a!ide by the
*ommi!!io. Bther&i!e( !$ch !ale !hall be %oid. >/ec. 11 /R*
$mberig ad arragemet !$pplied?
2D- What is a commodity futures contract ?
/@DDE/TED A"/-ER; *ommodity f$t$re! cotract
mea! a cotract pro%idig for the ma.ig or ta.ig deli%ery at
a pre!cribed time i the f$t$re of a !pecific '$atity ad '$ality
of a commodity or the ca!h %al$e thereof( &hich i! c$!tomarily
off!et prior to the deli%ery date( ad icl$de! !tadardi+ed
cotract! ha%ig the idicia of commoditie! f$t$re!( commodity
optio! ad commodity le%erage( or margi cotract!. > /R*
R$le 11.1.1?
2C- What is a commodity ?
/@DDE/TED A"/-ER; *ommodity mea! ay
good!( article!( !er%ice!( right! ad itere!t!( icl$dig ay
gro$p or ide# of ay of the foregoig( i &hich commodity
itere!t! cotract! are pre!etly or i the f$t$re dealt i.
> /R* R$le 11.1.2?
=0- What is a derivative ?
/@DDE/TED A"/-ER; -ith re!pect to e'$ity
!ec$ritie! a fiacial i!tr$met( icl$dig optio! ad
&arrat!( &ho!e %al$e deped! o the itere!t i or
performace of a $derlyig !ec$rity( b$t doe! ot re'$ire
ay i%e!tmet of pricipal i the $derlyig !ec$rity. >/R*
R$le 3.1.1.2?
=:- What are options ?
/@DDE/TED A"/-ER; The!e are cotract! that gi%e
the b$yer the right( b$t ot the obligatio( to b$y or !ell a
$derlyig !ec$rity at a predetermied price( called the
e#erci!e or !tri.e price( o or before a predetermied date(
called the e#piry date( &hich ca oly be e#teded i
accordace &ith E#chage r$le!. >/R* R$le 3.1.1.2.a?
=2- What are the different "inds of options ?
/@DDE/TED A"/-ER; A call optio ad a p$t
optio.
==- What are call options ?
/@DDE/TED A"/-ER; A cotract that gi%e! the
b$yer the right( b$t ot the obligatio to b$y a $derlyig
!ec$rity at a predetermied price o or before a predetermied
date. >/R* R$le 3.1.1.2.a.b.?
=>- What are put options ?
/@DDE/TED A"/-ER; A cotract that gi%e! the !eller
the right( b$t ot the obligatio to !ell a $derlyig !ec$rity at
a predetermied price o or before a predetermied date.
>/R* R$le 3.1.1.2.a.b.?
89
=?- What is meant by a straddle ?
/@DDE/TED A"/-ER; /traddle i%ol%e! the
p$rcha!e of a e'$al $mber of p$t optio! ad call optio!
o the !ame $derlyig !ec$rity at the !ame !tri.e price ad
mat$rity date. Each optio may be e#erci!ed !eparately(
altho$gh the combiatio of optio! i! $!$ally bo$ght ad !old
a! a $it. > /R* R$le 21.1.2?
=<- What is a bloc" sale ?
/@DDE/TED A"/-ER; A bloc. !ale !hall mea a
matched trade that doe! ot go thro$gh the a$tomated order
matchig !y!tem of a E#chage tradig !y!tem b$t i!tead
ha! bee pre,arraged by ad amog the 4ro.er Dealer3!
cliet! ad i! the etered a! a doe deal directly ito the
tradig !y!tem. > /R* R$le 30.2,8.2?
=7- What are Chinese Walls ?
/@DDE/TED A"/-ER; The proper !egregatio of
f$ctio! &ithi a firm by ay 4ro.er Dealer &hich a!!$me!
more tha oe f$ctio &hether a! a dealer( ad%i!er( or
$der&riter( or &hich egage! i mar.et ma.ig tra!actio! to
pre%et;
a. the flo& of iformatio bet&ee the differet part! of
it! orgai+atio &hich perform each f$ctioK ad
b. ay coflict of itere!t &hich may re!$lt.
A 4ro.er Dealer !hall at all time! e!$re that it! tradig
f$ctio! ad bac.,office !ettlemet f$ctio! are properly
!egregated ad !hall e!tabli!h &ritte proced$re! to e!$re
compliace &ith thi! R$le. > /R* R$le 3J.1,3( arragemet
!$pplied?
"BTE/ A"D *B66E"T/;
a. I/,o).&%o/ *e,%/e*. )formatio;
1? of a !pecific at$re &hich ha! ot bee made
p$blicK ad
2? relatig to oe or more p$blic compaie! or ay
!ec$ritie! of a p$blic compayK ad
3? &hich( if it &ere made p$blic( &o$ld li.ely affect
the mar.et price of the !ec$ritie!. > /R* R$le 3J.1,3?
$- B&/B%/A 2&ws 93e/e)&' Te).s &/*
P)o1%s%o/s;
9%; The New Ce/)&' B&/B A$ 9R-A-
7<?=; 9B&s%$s;
:- What are the responsibilities of the $ang"o
&entral ng 2ilipinas ?
/@DDE/TED A"/-ER;
a. To pro%ide policy directio! i the area! of moey(
ba.ig ad credit.
b. To !$per%i!e operatio! of ba.! ad e#erci!e !$ch
reg$latory po&er! a! pro%ided i the *etral 4a. Act ad
other pertiet la&! o%er the operatio! of fiace compaie!
ad o,ba. fiacial i!tit$tio! performig '$a!i,ba.ig
tra!actio!( !$ch a! '$a!i,ba.! ad i!tit$tio! performig
!imilar f$ctio!.
2- What is the primary objective of the $ang"o
&entral ng 2ilipinas?
/@DDE/TED A"/-ER;
a. To maitai price !tability cod$ci%e to a balaced
ad !$!taiable gro&th of the ecoomy.
b. )t !hall al!o promote ad maitai !tability ad
co%ertibility of the pe!o.
"BTE/ A"D *B66E"T/;
a. The /&!)e o, he $ang"o &entral ng 2ilipinas )t
i! the cetral moetary a$thority that f$ctio! ad operate! a! a
idepedet ad acco$table body corporate i the di!charge of it!
madated re!po!ibilitie! cocerig moey ba.ig ad credit.
-hile beig a go%ermet,o&ed corporatio( it eCoy! fi!cal
ad admii!trati%e a$toomy.
b. Co)#o)&e #owe)s o, he $ang"o &entral ng
2ilipinas
1? Adopt( alter ad $!e a corporate !eal
2? Eter ito cotract!
3? 7ea!e or o& real ad per!oal property
J? /ell or other&i!e di!po!e of property
1? /$e ad be !$ed
9? Perform all ece!!ary ad proper act!
90
7? Ac'$ire ad hold !$ch a!!et! i coectio &ith
it! operatio!
8? )c$r !$ch liabilitie! i coectio &ith it!
operatio!
8? *ompromi!e( codoe or relea!e ay claim or
!ettled liability a! pre!cribed by 6oetary 4oard
=- What is meant by legal tender ?
/@DDE/TED A"/-ER; "ote! ad coi! i!!$ed by
the Ban%ko entral n% Pilipinas f$lly g$arateed by the
Do%ermet of the Rep$blic of the Philippie! ad accepted
for the paymet of all debt!( both p$blic ad pri%ate.
>- !n 3hat amounts may coins be accepted as
legal tender ?
/@DDE/TED A"/-ER; Be tho$!ad pe!o!
>P1(000.00? for deomiatio! of 1, Pi!o( 1 0 Pi!o ad 10 0
Pi!o coi!K ad Be h$dred pe!o! >P100.00? for
deomiatio! of 1 !etimo( 1 0 !etimo( 10 0!etimo( ad
21 0!etimo coi!. >4/P *irc$lar "o. 137( !erie! of 2009(
i!!$ed I$ly 18( 2009?
?- Are chec"s legal tender ? When is payment
by chec" considered as e7tinguishing an obligation ?
/@DDE/TED A"/-ER; *hec.! repre!etig demad
depo!it! do ot ha%e legal teder po&er ad their acceptace i the
paymet of debt!( both p$blic ad pri%ate( i! at the optio of the
creditor( Pro%ided( ho&e%er( That a chec. &hich ha! bee cleared ad
credited to the acco$t of the creditor !hall be e'$i%alet to a deli%ery
to the creditor of ca!h i a amo$t e'$al to the amo$t credited to
hi! acco$t. >/ec. 90( "e& *etral 4a. Act?
"BTE/ A"D *B66E"T/;
a. Che$B whehe) o)*%/&)( o) .&/&Ae)s $he$B %s
/o 'eA&' e/*e)- A egotiable i!tr$met i! oly a !$b!tit$te for
moey ad ot moey( hece the deli%ery of !$ch a i!tr$met
doe! ot( by it!elf( operate a! paymet.
A offer of a chec. i paymet of a debt i! ot a %alid teder
of paymet ad may be ref$!ed receipt by the oblige or creditor.
6ere deli%ery of chec.! doe! ot di!charge the obligatio $der a
teder of paymet. The obligatio i! ot e#tig$i!hed ad remai!
!$!peded $til the paymet by commercial doc$met i! act$ally
reali+ed. >Citibank, N.A., etc., v .abeniano, D. R. "o. 119132(
Bctober 19( 2009?
<- What are the instruments of $ang"o &entral
action in order to achieve the primary objective of price
stability ?
/@DDE/TED A"/-ER;
a. ) geeral the 6oetary 4oard !hall rely o it! moral
ifl$ece.
b. )t may al!o rely o the po&er! grated it for the
maagemet of moetary aggregate! li.e;
1? Bperatio! i gold ad foreig e#chage
a.? P$rcha!e ad !ale! of goldK
b? P$rcha!e ad !ale! of foreig
e#chageK
c? Ac'$i!itio of ico%ertible
c$rrecie!K
d? Determiatio of the e#chage rate
policy of the co$tryK
e? Drat ad recei%e loa! from foreig
ba.! ad other foreig or iteratioal etitie!K
2? @!e of credit policy
a? @!e of redi!co$t!( di!co$t!( loa!
ad ad%ace!
b? Drat emergecy loa! ad
ad%ace!
3? Egage i ope mar.et operatio! li.e
p$rcha!e! ad !ale! of !ec$ritie!.
7- Who is a conservator ?
/@DDE/TED A"/-ER; The per!o appoited by the
6oetary 4oard to ta.e charge of the a!!et!( liabilitie!( ad the
maagemet of a ba. or a '$a!i,ba. &hich i! i a !tate of
coti$ig iability or $&illige!! to maitai a coditio of
li'$idity deemed ade'$ate to protect the itere!t of depo!itor!
ad creditor!( reorgai+e the maagemet thereof( collect all
moie! ad debt! d$e !aid i!tit$tio( ad e#erci!e all po&er!
ece!!ary to re!tore it! %iability. >/ec. 28( "e& *etral 4a. Act?
"BTE/ A"D *B66E"T/;
a. Powe)s o, +&/B $o/se)1&o)- -hile the *etral
4a. la& gi%e! %a!t ad far reachig po&er! to the co!er%ator of a
ba.( it m$!t be poited o$t that !$ch po&er! m$!t be related to the
2>pre!er%atio of? the a!!et! of the ba.( >the reorgai+atio of? the
maagemet thereof ad >the re!toratio of? it! %iability.5 /$ch
po&er!( eormo$! ad e#te!i%e a! they are( caot e#ted to the
91
post8facto rep$diatio of perfected tra!actio! other&i!e they &o$ld
ifrige agai!t the o,impairmet cla$!e of the *o!tit$tio.
The ba. co!er%ator merely ta.e! the place of the ba.3!
board of director!. -hat the !aid board caot do , !$ch a!
rep$diatig a cotract %alidly etered ito $der the doctrie of
implied a$thority , the co!er%ator caot do either. Gi! a$thority
&o$ld be oly to brig co$rt actio! to a!!ail !$ch cotract!. The
po&er of a co!er%ator to re%o.e cotract!( e#ted! oly to tho!e
&hich $der e#i!tig la& are deemed to be defecti%e, i.e. %oid(
%oidable( $eforceable or re!ci!!ible. >#irst Philippine International
Bank, et al., v. Court of Appeals, et al.( Ia$ary 2J( 1889?
b. 2%I!%*&%o/ $o!) h&s E!)%s*%$%o/ o &*E!*%$&e
&'' *%s#!e* $'&%.s &A&%/s he %/so'1e/ +&/B- The 6oetary
4oard3! order for the li'$idatio of a i!ol%et ba. !hall be
implemeted thro$gh the filig by the /olicitor Deeral for the *etral
4a. of a petitio &ith the Regioal Trial *o$rt. /aid *o$rt !hall ha%e
C$ri!dictio to adC$dicate all di!p$ted claim! agai!t the i!ol%et ba.
ad eforce idi%id$al liabilitie! of the !toc.holder! ad do all that i!
ece!!ary to pre!er%e the a!!et! of !$ch i!tit$tio ad to implemet
the li'$idatio pla appro%ed by the 6oetary 4oard.
The ratioale behid C$dicial li'$idatio i! to pre%et
m$ltiplicity of actio! agai!t the i!ol%et ba.. )t i! a pragmatic
arragemet de!iged to e!tabli!h d$e proce!! ad orderlie!! i the
li'$idatio of the ba.( to ob%iate the proliferatio of litigatio ad to
a%oid iC$!tice ad arbitrarie!!. :$rthermore( it i! ot ece!!ary that
a claim be iitially di!p$ted i a co$rt or agecy before it i! filed &ith
the li'$idatio co$rt. >.n% v. Court of Appeals( D.R. "o. 112830(
:ebr$ary 1( 1889?

D- When a ban" is placed under a receiver# may it
collect interest on loans granted prior to the receivership?
Does it cease to do business ?
/@DDE/TED A"/-ER; <e!( it may collect the
itere!t!. The recei%er i! i fact obliged to collect debt! o&ig
to the ba.( &hich debt! form part of the a!!et! of the ba.
"o the ba. coti$e! it! b$!ie!!. -he a ba. i!
placed $der recei%er!hip( it &o$ld ot oly be able to do e&
b$!ie!!( that i!( to grat e& loa! or to accept e& depo!it!.
>ps. A%uilar v. The /anila Bankin% Corporation, D. R. "o. 117811(
/eptember 18( 2009?
C- What are the substantial differences in the
procedure for involuntary dissolution and li9uidation of a
corporation under the Corporation Code and that ofa
ban"ing corporation under the Ae3 Central ban" Act ?
/@DDE/TED A"/-ER;
a. @der the *orporatio *ode( the /E* may di!!ol%e
a corporatio( $po the filig of a %erified complait ad after
proper otice ad hearig( o gro$d! pro%ided by e#i!tig
la&!( r$le! ad reg$latio! -G)7E the 6oetary 4oard may
!$mmarily ad &itho$t eed for prior hearig forbid the
ba.ig corporatio from doig b$!ie!! i the Philippie!.
b. The /E* i!!$e! a order of !$!pe!io both to the
corporatio ad the 4)R( the 4)R i!!$e! a ta# clearace ad
the /E* i!!$e! the fial order of di!!ol$tio -G)7E i the ca!e
of a ba.ig corporatio the PD)* i! appoited a! recei%er
&ho o& file! &ith the proper RT* &itho$t a re'$iremet of
proper otice a petitio for a!!i!tace i the li'$idatio of the
ba. There i! o re'$iremet for ta# clearace.
c. ) ca!e of i%ol$tary di!!ol$tio the /E* may
proceed &ith the di!!ol$tio( b$t the corporatio i! allo&ed
coti$e a! a corporate body for three year! ad it may
$derta.e it! o& li'$idatio -G)7E i the ca!e of ba.! it i!
the PD)* it i! the PD)* that $derta.e! the li'$idatio. >In Re+
Petition for Assistance in the 'i5uidation of the Rural Bank of Bokod
4Ben%uet= Inc., P!IC v. Bureau of Internal Revenue, D. R. "o.
118291( December 18( 2009?
9%%; 2&w o/ Se$)e$( o, B&/B
De#os%s 9R-A- :>0?@ &s &.e/*e*;
:. What accounts are considered subject to the
protection provided under the 1a3 on &ecrecy of $an"
Deposits ?
/@DDE/TED A"/-ER;
a. All depo!it! of &hate%er at$re &ith ba.! or ba.ig
i!tit$tio! i the Philippie!(
b. icl$dig i%e!tmet! i bod! i!!$ed by the
go%ermet of the Philippie!( it! political !$bdi%i!io! ad it!
i!tr$metalitie! are hereby co!idered a! of a ab!ol$tely
cofidetial at$re ad may ot be e#amied( i'$ired or
loo.ed ito by ay per!o( go%ermet official( b$rea$ or
office. >/ec. 2( R. A. "o. 1J01?
92
c. All foreig c$rrecy depo!it! a$thori+ed $der
Rep$blic Act "o. 9J29( a! ameded by /ec. 8( Pre!idetial
Decree "o!. 12J9( ad 1031( a! &ell a! foreig c$rrecy
depo!it! a$thori+ed $der Pre!idetial Decree "o. 103J are
co!idered ab!ol$tely cofidetial i at$re ad may ot be
i'$ired ito( e#cept &here the di!clo!$re i! allo&ed $po
&ritte permi!!io of the depo!itor. >/ec. 8( Rep$blic Act "o.
9J29( a! ameded?
"BTE/ A"D *B66E"T/;
a. 5o)e%A/ $!))e/$( *e#os%s e/%'e* o #)oe$%o/-
Depo!it! mea f$d! i foreig c$rrecie! &hich are accepted ad
held by a off!hore ba.ig $it i the reg$lar co$r!e of b$!ie!!(
&ith the obligatio to ret$r a e'$i%alet amo$t to the o&er
thereof( &ith or &itho$t itere!t. >China Bankin% Corporation v. Court
of Appeals, et al., D. R ."o. 1J0987( December 18( 2009?
2- What are the e7ceptions or instances 3hen
ban" deposits may be in9uired into ?
/@DDE/TED A"/-ER;
a. -here the e#amiatio i! made i the co$r!e of a
!pecial or geeral e#amiatio of a ba. ad i! !pecifically
a$thori+ed by the 6oetary 4oard after beig !ati!fied that
there i! rea!oable gro$d to belie%e that a ba. fra$d or
!erio$! irreg$larity ha! bee or i! beig committed ad that it i!
ece!!ary to loo. ito the depo!it to e!tabli!h !$ch fra$d or
irreg$larityK
b. -he the e#amiatio i! made by a idepedet
a$ditor hired by the ba. to cod$ct it! reg$lar a$dit pro%ided
that the e#amiatio i! for a$dit p$rpo!e! oly ad the re!$lt!
thereof !hall be for the e#cl$!i%e $!e of the ba.K
c. @po &ritte permi!!io of the depo!itorK
d. ) ca!e! of impeachmet(
e. @po order of a competet co$rt i ca!e! of bribery
or derelictio of d$ty of p$blic official!K
f. ) ca!e! &here the moey i! depo!ited or i%e!ted i!
the !$bCect matter of the litigatio. >/ec. 2( R.A. "o. 1J01( a!
ameded by P.D. "o. 1782?
g. -here the 4$rea$ of )teral Re%e$e ma.e! a
i'$iry ito the depo!it! of a decea!ed depo!itor for the
p$rpo!e of determiig hi! gro!! e!tateK
h. -here there i! a 4)R i'$iry ito the depo!it! of a
ta#payer &ho i! eterig ito a compromi!e &ith the 4)R
premi!ed $po fiacial diffic$ltie! to pay.
i. )'$iry $der the Ati,Draft ad *orr$pt Practice! Act
ito OillegallyO or Oot legitimatelyO ac'$ired property.
C. The Ati,6oey 7a$derig *o$cil may i'$ire ito
or e#amie ay partic$lar depo!it or i%e!tmet &ith ay
ba.ig i!tit$tio or obla. fiacial i!tit$tio $po order
of ay competet co$rtig ca!e of %iolatio of the Ati,6oey
la$derig Act( &he it ha! bee e!tabli!hed that there i!
probable ca$!e that the depo!it! or i%e!tmet! are related to
a $la&f$l acti%ity a! defied $der the Ati,6oey
7a$derig Act or moey la$derig offe!e e#cept that o
co$rt order i! re'$ired i%ol%ig $la&f$l acti%itie! $der the
*omprehe!i%e Dagero$! Dr$g! Act of 2002 ad hiCac.ig
$der R. A. "o. 9231K de!tr$cti%e ar!o ad m$rder( a! defied
$der the Re%i!ed Peal *ode( a! ameded( icl$dig tho!e
perpetrated by terrori!t! agai!t o,combatat per!o! ad
!imilar target!. >1
!t
par.( /ec. 11( A67A( a! ameded by R. A. "o.
818J?
.. To e!$re compliace &ith the Ati,6oey
7a$derig 7a&( the 4ag.o /etral g Pilipia! >4/P? may
i'$ire ito or e#amie ay depo!it or i%e!tmet &ith ay
ba.ig i!tit$tio or obla. fiacial i!tit$tio &he the
e#amiatio i! made i the co$r!e of a periodic or !pecial
e#amiatio( i accordace &ith the r$le! of e#amiatio of the
4/P. . >1
!t
par.( /ec. 11( A67A( a! ameded by R. A. "o. 818J?
=- -n March '<# '))( a chec" for 2 < million 3as
dra3n against an account 3ith Allied $an" payable to
@ose Alvarez 0he payee deposited the chec" 3ith :nion
$an" 3hich credited the amount of 2 < million to the
account of @ose When :nion presented the chec" for
clearing through the 2hilippine Clearing .ouse
Corporation# a clearing discrepancy 3as committed by
:nion $an"8s clearing staff 3hen the amount of 2 < million
3as erroneously 5underKcoded6 to 2<#))) only
:nion discovered the underKcoding only a year
later and it notified Allied by 3ay of an automatic debiting
of the amount of 2===#))))) from Allied8s account Allied
refused to accept the charge slip since the transaction 3as
93
completed per :nion $an"8s original instruction and
client8s account is no3 insufficiently funded
:nion filed a complaint against Allied before the
Clearing .ouse for the recovery of the amount plus
interest and other damages 0hereafter :nion filed a
petition 3ith the R0C for the e7amination of the Account
3ith Allied
May the account be e7amined ?
/@DDE/TED A"/-ER; "o( it! doe! ot fall $der
ay of the e#ceptio! beca$!e it !ho$ld be the 2moey
depo!ited5 it!elf &hich !ho$ld be the !$bCect matter of the
litigatio. >-nion Bank of the Philippines v. Court of Appeals, et al.,
D.R. "o. 13J988( December 23( 1888?
=- 0he &enate $lue Ribbon Committee acting on a
report made by Atty 5A6# conducted an investigation in aid
of legislation on the alleged multimillion ban" deposits of
&3apang# a public official 3ith various local ban"s
May the Committee subpoena records of the local
ban"s to determine the e7tent of &3apang8s deposits?
47plain-
/@DDE/TED A"/-ER; "o. The /eate 4l$e
Ribbo *ommittee i! ot a competet co$rt hearig ca!e! of
bribery or derelictio of d$ty of p$blic official!. The hearig! of
the *ommittee are i aid of legi!latio ad ot for ay p$rpo!e.
/&apag3! depo!it ha! othig to do &ith the i%e!tigatio.
>- 5A6 a foreigner 3as charged 3ith rape and
subse9uently sentenced to serve imprisonment and to pay
civil damages .is dollar deposit under the 47panded
,oreign Currency Deposit &ystem 3as garnished by the
victim but the ban" refused to release the same invo"ing
the secrecy of ban" deposits !s ban" correct ? 47plain
/@DDE/TED A"/-ER; "o. )t &o$ld be $thi.able(
that the '$e!tioed la& e#emptig foreig c$rrecy depo!it!
from attachmet( gari!hmet( or ay other order or proce!! of
ay co$rt( legi!lati%e body( go%ermet agecy or ay
admii!trati%e body &hat!oe%er &o$ld be $!ed a! a de%ice by
a acc$!ed for &rogdoig( ad i !o doig( ac'$ittig the
g$ilty at the e#pe!e of the iocet. >alvacion v. Central Bank
of the Philippines, 3J3 Phil. 138K 278 /*RA 27 >1887?K *strada v.
!esierto, D. R. "o. 119190(8 December 200J( JJ1 /*RA 911( 972?
?- Margaret opened a dollar account in her
name depositing various dollar chec"s 3ith her and @ose#
her father# as coKpayees @ose sued Margaret to account
for the funds :pon application from @ose# the court issued
am order to re9uire the ban" to sho3 the records of
Margaret8s accounts 0he ban" refused an in9uiry into the
ban" balances as @ose is not the depositor neither 3as
there any sho3ing of an authority from @ose !s the ban"
correct ?
/@DDE/TED A"/-ER; "o. A! the o&er of the
f$d! Io!e i! etitled to a hearig o the &hereabo$t! of the!e
f$d!.
The /$preme *o$rt rederig a limited pro hac vice
r$lig allo&ed for the i'$iry i the light of the di!ticti%e
circ$m!tace! attedat to the ca!e. *learly it &a! ot the
itet of the legi!lat$re &he it eacted the la& o !ecrecy
foreig c$rrecy depo!it! to perpet$ate iC$!tice. The
allo&ace of the i'$iry &o$ld be i accord &ith the r$dimet!
of fair play( the $pholdig of faire!! i o$r C$dicial !y!tem ad
&o$ld be a a%oidace of delay ad time,&a!tef$l ad
circ$ito$! &ay of admii!terig C$!tice. >China Bankin%
Corporation v. Court of Appeals, et al., D. R ."o. 1J0987( December
18( 2009?
"BTE/ A"D *B66E"T/K
a. 2ro hac vice @ *e,%/e* - 2### for thi! t$r( for thi!
partic$lar occa!io5 oly. >China Bankin% Corporation v. Court of
Appeals, et al., D. R ."o. 1J0987( December 18( 2009( citig %ario$!
ca!e!? ) !hort( the /$preme *o$rt i! !ayig that the doctrie
e$ciated i China fid! applicatio i thi! ca!e oly ad i! ot to
!er%e a! a precedet.
b. De#os%o)@ *e,%/e*- A depo!itor i ba. depo!it! i! oe
&ho pay! moey ito the ba. i the $!$al co$r!e of b$!ie!!( to be
placed to hi! credit ad !$bCect to hi! chec. or the beeficiary of the
f$d! held by the ba. a! tr$!tee. >China Bankin% Corporation v.
Court of Appeals, et al., D. R ."o. 1J0987( December 18( 2009?
9%%; 3e/e)&' B&/B%/A 2&w o, 2000@
R-A- No- D7C: 9B&s%$s;
:- Canlas and Manosca agreed to do business
together 0o raise capital# Canlas authorized Manosca to
94
mortgage t3o parcels of land belonging to him and to his
3ife#
1ater# Canlas agreed to sell the parcels to Manosca
for a total consideration of 2J()#)))))# 2())#))))) of
3hich is payable 3ithin one 3ee" and 2G))#))))) to
serve as Canlas8 investment in the business Canlas then
delivered the titles to Manosca .o3ever# the 2N;)#)))))
chec" given by Manosca to Canlas as part of the
consideration bounced
1ater 3ith the help of impostors posing as the
spouses Canlas# Manosca 3as able to mortgage the
parcels of land for 2<))#))))) to a certain Atty Magno
and later for 2())#))))) to the Asian &aving8s $an" !t
turned out that the $an" did not re9uire the impostors to
present a single identification card 0he $an" merely
relied upon their representatives on the basis of residence
certificates bearing signatures 3hich tended to match the
signatures affi7ed on a previous deed of mortgage to a
certain Atty Magno covering the same parcels of land in
9uestion
,or nonKpayment of the loan# the $an" foreclosed
on the mortgaged property Canlas contested foreclosure
on the ground of Manosca8s lac" of authority to constitute
the mortgage -n the other hand# the $an" alleged that
Canlas 3as negligent in entrusting the o3ner8s 0C0 to
Manosca 3hich provided him 3ith the opportunity to
perpetuate the fraud ,urthermore# on t3o occasions#
Canlas allo3ed Manosca to introduce him >Canlas? a
1eonardo to the ban" employees ,inally# after the loan
3as finally approved# Canlas accompanied Manosca to the
ban" 3hen the loan 3as released At that time# a
manager8s chec" for 2'))#))))) 3as issued in the name
of -scar Motor3or"s 3hich Canlas admits he o3ns and
operates
:nder the above circumstances# is the mortgage
null and void# and 3ho shall bear the loss?
/@DDE/TED A"/-ERK The mortgage i! $ll ad
%oid ad the 4a. !ho$ld bear the lo!!.
The ba. did ot ob!er%e the re'$i!ite diligece i
a!certaiig the idetity of the impo!tor!. The degree of
diligece re'$ired of ba.! i! more tha that of a good father
of a familyK i .eepig &ith their re!po!ibility to e#erci!e the
ece!!ary care ad pr$dece i dealig e%e o a regi!tered
or titled property. The b$!ie!! of a ba. i! affected &ith
p$blic itere!t( holdig i tr$!t the moey of the depo!itor!(
&hich ba. depo!it! the ba. !ho$ld g$ard agai!t lo!! d$e to
egligece or bad faith( by rea!o of &hich the ba. &o$ld be
deied the protecti%e matle of the lad regi!tratio la&(
accorded oly to p$rcha!er! or mortgagee! for %al$e ad i
good faith. >Canlas, et al., v. Court of Appeals, et al.( D.R. "o.
112190( :ebr$ary 28( 2000?
A!!$mig that *ala! &a! egliget i gi%ig 6ao!ca
the opport$ity to perpetrate the fra$d by etr$!tig to latter
the o&er3! copy of the tra!fer certificate! of title of !$bCect
parcel! of lad( it caot be deied that the ba. had the la!t
clear chace to pre%et the fra$d( by the !imple e#pediet of
faithf$lly complyig &ith the re'$iremet! for ba.! to
a!certai the idetity of the per!o! tra!actig &ith them.
>Canlas, et al., v. Court of Appeals, et al., D.R. "o. 112190( prom.
:ebr$ary 28( 2000?
@der the doctrie of la!t clear chace( &hich i!
applicable here( the re!podet ba. m$!t !$ffer the re!$ltig
lo!!. ) e!!ece( the doctrie of la!t clear chace i! to the
effect that &here both partie! are egliget b$t the egliget
act of oe i! appreciably later i poit of time tha that of the
other( or &here it i! impo!!ible to determie &ho!e fa$lt or
egligece bro$ght abo$t the occ$rrece of the icidet( the
oe &ho had the la!t clear opport$ity to a%oid the impedig
harm b$t failed to do !o( i! chargeable &ith the co!e'$ece
ari!ig therefrom. /tated differetly( the r$le i! that the
atecedet egligece of a per!o doe! ot precl$de reco%ery
of damage! ca$!ed by the !$per%eig egligece of the
latter( &ho had the la!t fair chace to pre%et the impedig
harm by the e#erci!e of d$e diligece. >Canlas, et al., v. Court of
Appeals, et al., D.R. "o. 112190( :ebr$ary 28( 2000?
4y the at$re of it! f$ctio!( a ba. i! $der obligatio
to treat the acco$t! of it! depo!itor! 2&ith metic$lo$! care(
al&ay! ha%ig i mid the fid$ciary at$re of their relatio!hip.5
A! !$ch( i dealig &ith it! depo!itor!( a ba. !ho$ld e#erci!e
it! f$ctio! ot oly &ith the diligece of a good father of a
family b$t it !ho$ld do !o &ith the highe!t degree of care.
>Bank of the Philippine Islands, v. Court of Appeals, D.R. "o. 112382(
:ebr$ary 28( 2000?
95
2- -n &eptember G# <=J+# Aapiza deposited in his
,oreign Currency Deposit :nit >,CD:? &avings Account
3ith the $an"# a Manager8s chec" dated August <+# <=JN#
payable to 5cash6 in the amount of *'#()))) and duly
endorsed by Aapiza on the dorsal side 0he o3ner of the
chec" 3as a certain Chan 3hom Aapiza accommodated
for the purpose of clearing the chec" Aapiza agreed to
deliver to Chan a signed blan" 3ithdra3al slip 3ith the
understanding that as soon as the chec" is cleared# both
of them 3ould go to the $an" to 3ithdra3 the amount of
the chec" upon Aapiza8s presentation to the $an" of his
passboo" 0his is so because# the $an"s8 rules 3hich are
printed on the depositor8s passboo" re9uires presentation
to the $an" of <? a duly filledKup 3ithdra3al slip# and '?
in all instance 3hether the 3ithdra3al is made by the
depositor personally# or in certain e7ceptional instances
3here the $an" allo3s it# 3ithdra3al by another person
upon the depositor8s 3ritten authority duly authenticated
0he passboo" further sho3s that deposits of chec"s and
similar items shall be subject to collection only and
credited to the account only upon receipt of the notice of
final payment
-n -ctober 'G# <=JN# one Iayon# @r# using the
signed blan" 3ithdra3al slip given by Aapiza to Chan# 3as
able to 3ithdra3 *'#(N<;+ from the depositor8s account
Aotably# the 3ithdra3al slips sho3s that the amount 3as
payable to Roman and Agnes# and duly initialed by the
$an"8s branch assistant manager 0eresita
-n Aovember ')# <=JN# the $an" received a
communication from the foreign ban" that the chec"
deposited by Aapiza 3as a counterfeit chec" -n August
<'# <=J;# the $an" sued Aapiza praying for the return of
the amount of 2'#()))) plus interest 0he $an" asserts
that Aapiza should be held liable as an indorser 3hen he
affi7ed his signature at the dorsal side of the chec"# and
that by signing the 3ithdra3al slip# Aapiza presented the
opportunity for the 3ithdra3al of the amount in 9uestion
!s the depositor Aapiza liable? 47plain briefly
/@DDE/TED A"/-ERK "o "api+a !ho$ld ot be
held liable o the ba!i! of hi! idor!emet.
Brdiarily "api+a may be held liable a! a idor!er of
the chec. or e%e a! a accommodatio party. Go&e%er( to
hold "api+a liable for the amo$t of the chec. he depo!ited by
the !trict applicatio of the la& ad &itho$t co!iderig the
attedig circ$m!tace! i the ca!e &o$ld re!$lt i a iC$!tice
ad i the ero!io of the p$blic tr$!t i the ba.ig !y!tem.
The itere!t of C$!tice th$! demad! loo.ig ito the e%et!
that led to the eca!hmet of the chec.. >Bank of Philippine
Islands v. Court of Appeals( D.R. "o. 112382( :ebr$ary 28( 2000?
The 4a. &a! egliget i allo&ig &ithdra&al prior to
clearace of the chec.. 4y depo!itig the chec. &ith 4a.(
"api+a &a!( i a &ay( merely de!igatig the 4a. a! the
collectig ba.. Thi! i! i co!oace &ith the r$le that a
egotiable i!tr$met !$ch a! a chec.( &hether a maager3!
chec. or ordiary chec.( i! ot legal teder. The collectig
ba. or la!t edor!er geerally !$ffer! the lo!! beca$!e it ha!
the d$ty to a!certai the ge$iee!! of all prior edor!emet!
co!iderig that the act of pre!etig the chec. for paymet to
the dra&ee i! a a!!ertio that the party ma.ig the
pre!etmet ha! doe it! d$ty to a!certai the ge$iee!! of
the edor!emet!.5 The r$le fid! more meaig i thi! ca!e
&here the chec. i%ol%ed i! dra& o a foreig ba. ad
therefore collectio i! more diffic$lt tha &he the dra&ee ba.
i! a local oe e%e tho$gh the chec. i '$e!tio i! a maagerQ3
chec.. >Bank of Philippine Islands v. Court of Appeals( D.R. "o.
112382( :ebr$ary 28( 2000? )t &a! li.e&i!e egliget i allo&ig
&ithdra&al de!pite o,pre!etatio of the pa!!boo..
-hile it i! tr$e that "api+a3! ha%ig !iged a bla.
&ithdra&al !lip !et i motio the e%et! that re!$lted i the
&ithdra&al ad eca!hmet of the co$terfeit chec.( the
egligece of the 4a.3! per!oel &a! the pro#imate ca$!e
of the lo!! that the 4a. !$!taied. Pro#imate ca$!e( &hich i!
determied by a mi#ed co!ideratio of logic( commo !e!e(
policy ad precedet( i! 2that ca$!e( &hich( i at$ral ad
coti$o$! !e'$ece( $bro.e by ay efficiet iter%eig
ca$!e( prod$ce! the iC$ry( ad &itho$t &hich the re!$lt &o$ld
ot ha%e occ$rred.5 The pro#imate ca$!e of the &ithdra&al
ad e%et$al lo!! of the amo$t of T2(100.00 o the 4a.3!
part &a! it! per!oel3! egligece i allo&ig !$ch &ithdra&al
i di!regard of it! o& r$le! ad the clearig re'$iremet i the
ba.ig !y!tem. ) !o doig( the 4a. a!!$med the ri!. of
96
ic$rrig a lo!! o acco$t of a forged or co$terfeit foreig
chec. ad hece( it !ho$ld !$ffer the re!$ltig damage. >Bank
of Philippine Islands v. Court of Appeals, D.R. "o. 112382( :ebr$ary
28( 2000?
=- 1eticia opened a savings and current account
3ith 2rudential $an"# 3ith automatic transfer of funds
from the savings account to the current account -n @une
<# <=JJ# she deposited in her savings account a chec"
dra3n against 2C!$ in the amount of 2G(#'+<;) -n @une
'<# <=JJ# she had 2G(#==GNJ in her saving8s account and
2++;=G in her current account or a total deposit of
2G;#++)N< 1eticia then issued a 2rudential $an" chec"
in the amount of 2<<#()))) postdated @une ')# <=JJ in
favor of $elen # 3ho endorsed it to 1huiller When the
latter deposited the chec" in his account 3ith 2C!$# it 3as
dishonored for being dra3n against insufficient funds
When 1huiller8s secretary informed $elen of the dishonor#
the latter told the former to redeposit it
&urprised by the dishonor# 1eticia 3as told by the
officerKinKcharge of the $an" that he had debited 2G))))
penalty from her current account for the dishonor of the
chec" 1eticia later found out that the amount of
2G(#'+<;) 3hich she had deposited 3as credited to her
savings account only on @une '=# <==J# or 'G days after
she redeposited it 0hus# 3hen 1huiller redeposited the
2<<#()))) chec" on @une 'N# <=JJ# it 3as cleared on @une
'+# <=JJ
&ued for damages# the $an" defends by saying that
1eticia did not suffer any damage as a result of the
dishonor !t acted in good faith# and the dishonor 3as an
honest mista"e and the $an" Manager and the other
employees profusely apologized to 1eticia for the error
0hey also offered to ma"e restitution and apologies to
$elen and 1huiller
!s the $an" liable?
/@DDE/TED A"/-ERK <e!. )t di!hoored the
chec. i!!$ed by 7eticia &ho t$red o$t to ha%e !$fficiet f$d!
&ith the 4a.. The 4a.3! egligece &a! the re!$lt of lac. of
d$e care ad ca$tio re'$ired of maager! ad employee! of
a firm egaged i !o !e!iti%e ad demadig b$!ie!! a!
ba.ig.
2A ba. i! $der obligatio to treat the acco$t! of it!
depo!itor! &ith metic$lo$! care &hether !$ch acco$t co!i!t!
oly of a fe& h$dred pe!o! or of millio! of pe!o!.
Re!po!ibility ari!ig from egligece i the performace of
e%ery .id of obligatio i! demadable. -hile petitioer3!
egligece i thi! ca!e may ot ha%e bee atteded &ith
malice ad bad faith( e%erthele!!( it ca$!ed !erio$! a#iety(
embarra!!met ad h$miliatio.5 >Prudential Bank v. Court of
Appeals, et al.( D.R. "o. 121139( 6arch 19( 2000 citig Philippie
"atioal 4a. %. *o$rt of Appeal!( D.R. "o. 129112( /eptember 28(
1888?
"BTE/ A"D *B66E"T/;
a. B&/B %s '%&+'e ,o) e))o/eo!s *%sho/o) o, $he$Bs-
4a. are re!po!ible for their employee!3 mi!ta.e! i di!hoor of
chec.!. The fid$ciary at$re of relatio!hip bet&ee ba.! ad
depo!itor! demad the a&ard of moral damage! for mi!ta.e!
committed by the former3! employee! that re!$lt i di!hoor of
chec.!.
) /ime# )teratioal >6aila?( )c. %. *o$rt of Appeal!( 183
/*RA 390( 397 >1880? ad 4a. of Philippie )!lad! %. )A*( et al.(
209 /*RA J08( J12,J13 >1882?( /$preme *o$rt had occa!io to
!tre!! the fid$ciary at$re of the relatio!hip bet&ee a ba. ad it!
depo!itor! ad the e#tet of diligece e#pected of the former i
hadlig the acco$t! etr$!ted to it! care( th$!; 2) e%ery ca!e( the
depo!itor e#pect! the ba. to treat hi! acco$t &ith the $tmo!t fidelity(
&hether !$ch acco$t co!i!t! oly of a fe& h$dred pe!o! or of
millio!. The ba. m$!t record e%ery !igle tra!actio acc$rately(
do& to the la!t ceta%o( ad a! promptly a! po!!ible. Thi! ha! to be
doe if the acco$t i! to reflect at ay gi%e time the amo$t of
moey the depo!itor ca di!po!e of a! he !ee! fit( cofidet that the
ba. &ill deli%er it a! ad to &home%er he direct!. A bl$der o the
part of the ba.( !$ch a! the di!hoor of a chec. &itho$t good rea!o(
ca ca$!e the depo!itor ot a little embarra!!met if ot al!o fiacial
lo!! ad perhap! e%e ci%il ad crimial litigatio.
The poit i! that a! a b$!ie!! affected &ith p$blic itere!t
ad beca$!e of the at$re of it! f$ctio!( the ba. i! $der obligatio
to treat the acco$t! of it! depo!itor! &ith metic$lo$! care( al&ay!
ha%ig i mid the fid$ciary at$re of their relatio!hip. # # #.5
>Prudential Bank v. Court of Appeals, et al., D.R. "o. 121139( 6arch
19( 2000 citig /ime# )teratioal >6aila?( )c. %. *o$rt of Appeal!(
183 /*RA 390( 397 >1880? ad 4a. of Philippie )!lad! %. )A*( et
al.( 209 /*RA J08( J12,J13 >1882?
97
>- What are some of the prohibited transactions of
a borro3er of a ban" ?
/@DDE/TED A"/-ER;
"o borro&er of a ba. !hall;
a? :ra$d$letly o%er%al$e property offered a! !ec$rity
for a loa or other credit accommodatio from the ba.K
b? :$ri!h fal!e or ma.e repre!etatio or !$ppre!!io
of material fact! for the p$rpo!e of obtaiig( ree&ig(
icrea!ig a loa or other credit accommodatio or e#tedig
the period thereofK
c? Attempt to defra$d the !aid ba. i the e%et of a
co$rt actio to reco%er a loa or other credit accommodatioK
or
d? Bffer ay director( officer( employee or aget of a
ba. ay gift( fee( commi!!io( or ay other form of
compe!atio i order to ifl$ece !$ch per!o! ito
appro%ig a loa or other credit accommodatio applicatio.
>/ec. 11.2( R.A. "o. 8781?
?- Distinguish bet3een e9uity of redemption and
the right of redemption
/@DDE/TED A"/-ER; The e'$ity of redemptio i!
differet from ad !ho$ld be cof$!ed &ith the right of
redemptio.
The right of redemptio i relatio to a mortgage 0
$der!tood i the !e!e of a prerogati%e to reac'$ire
mortgaged property after regi!tratio of the foreclo!$re !ale 0
e#i!t! oly i the ca!e of the e#traC$dicial foreclo!$re of the
mortgage. "o !$ch right i! recogi+ed i a C$dicial foreclo!$re
e#cept oly &here the mortgagee i! a ba. or ba.ig
i!tit$tio. The period to e#erci!e the right of redemptio i!
&ithi oe >1? year from the regi!tratio of the !heriff3!
certificate of foreclo!$re !ale.
-here o right of redemptio e#i!t! i ca!e of a C$dicial
foreclo!$re beca$!e the mortgagee i! ot a ba. or a ba.ig
i!tit$tio( the foreclo!$re !ale &he cofirmed by a order of
the co$rt !hall operate to di%e!t the right! of all partie! to the
actio ad to %e!t their right! i the p$rcha!er. There the
e#i!t! oly &hat i! !imply .o& a! the e'$ity of redemptio.
Thi! i! !imply the right of the defedat mortgagor to
e#tig$i!h the mortgage ad retai o&er!hip of the property
by payig the !ec$red debt &ithi the 80,day period after the
C$dgmet become! fial( i accordace &ith R$le 98 of the
R$le! of *o$rt( or e%e after the foreclo!$re !ale( b$t prior to
cofirmatio. >&uerta Alba Resort, Inc. v. Court of Appeals, et al.,
D.R. "o. 128197( /eptember 1( 2000?
"BTE/ A"D *B66E"T/;
a. R%Ah o, .o)A&Ao) o )e*ee.- ) the e%et of
foreclo!$re by a ba.( &hether C$dicially or e#traC$dicially( of ay
mortgage o real e!tate &hich i! !ec$rity for ay loa or other credit
accommodatio grated( the mortgagor or debtor &ho!e real property
ha! bee !old for the f$ll or partial paymet of hi! obligatio !hall
ha%e the right &ithi oe year after the !ale of the real e!tate( to
redeem the property by payig the amo$t d$e $der the mortgage
deed &ith itere!t thereo at the rate !pecified i the mortgage( ad
all the co!t! ad e#pe!e! ic$rred by the ba. or i!tit$tio from the
!ale ad c$!tody of !aid property le!! the icome deri%ed therefrom.
Go&e%er( the p$rcha!er at the a$ctio !ale cocered
&hether i a C$dicial or e#traC$dicial foreclo!$re !hall ha%e the right to
eter $po ad ta.e po!!e!!io of !$ch property immediately after
the date of the cofirmatio of the a$ctio !ale ad admii!ter the
!ame i accordace &ith la&.
Ay petitio i co$rt to eCoi or re!trai the cod$ct of
foreclo!$re proceedig! i!tit$ted p$r!$at to thi! pro%i!io !hall be
gi%e d$e co$r!e oly $po the filig by the petitioer of a bod i a
amo$t fi#ed by the co$rt coditioed that he &ill pay all the damage!
&hich the ba. may !$ffer by the eCoiig or the re!trait of the
foreclo!$re proceedig.
"ot&ith!tadig Act 3131( C$ridical per!o! &ho!e property i!
beig !old p$r!$at to a e#traC$dicial foreclo!$re !hall ha%e the right
to redeem the property i accordace &ith thi! pro%i!io $til( b$t ot
after( the regi!tratio of the certificate of foreclo!$re !ale &ith the
applicable Regi!ter of Deed! &hich i o ca!e !hall be more tha
three >3? moth! after foreclo!$re( &hiche%er i! earlier. B&er! of
property that ha! bee !old i a foreclo!$re !ale prior to the effecti%ity
of the Deeral ba.ig 7a& of 2000 !hall retai their redemptio
right! $til their e#piratio. >/ec. J7( R.A. "o. 8781( arragemet
!$pplied?
b. I/s&/$es whe/ & +&/B .&( &$I!%)e )e&' es&e-
A$I!%s%%o/ o, )e&' es&e +( w&( o, s&%s,&$%o/ o, $'&%.s--
A ba. may ac'$ire( hold or co%ey real property $der the follo&ig
circ$m!tace!;
1? /$ch a! !hall be mortgaged to it i good faith by
&ay of !ec$rity for debt!K
2? /$ch a! !hall be co%eyed to it i !ati!factio of
debt! pre%io$!ly cotracted i the co$r!e of it! dealig!K or
98
3? /$ch a! it !hall p$rcha!e at !ale! $der
C$dgmet!( decree!( mortgage!( or tr$!t deed! held by it ad
!$ch a! it !hall p$rcha!e to !ec$re debt! d$e it.
Ay other real property ac'$ired or held $der the
circ$m!tace! e$merated i the abo%e paragraph !hall be di!po!ed
of by the ba. &ithi a period of fi%e >1? year! or a! may be
pre!cribed by the 6oetary 4oardK pro%ided( ho&e%er( that the ba.
may( after !aid period( coti$e to hold the property for it! o& $!e
!$bCect to the limitatio! o ceilig! o i%e!tmet i real e!tate.
>/ec. 12( R.A. "o. 8781?
c. 2%.%&%o/ o) $e%'%/A o/ +&/B %/1es.e/s %/ )e&'
es&e- Ay ba. may ac'$ire real e!tate a! !hall be ece!!ary for
it! o& $!e i the cod$ct of it! b$!ie!!; pro%ided( ho&e%er( That the
total i%e!tmet i !$ch real e!tate ad impro%emet! thereof(
icl$dig ba. e'$ipmet( !hall ot e#ceed fifty percet >10=? of
combied capital acco$t!; pro%ided( f$rther( That the e'$ity
i%e!tmet of a ba. i aother corporatio egaged primarily i real
e!tate !hall be co!idered a! part of the ba.3! total i%e!tmet i
real e!tate( $le!! other&i!e pro%ided by the 6oetary 4oard. >/ec.
11( R.A. "o. 8781?
<- I/e''e$!&' P)o#e)( Co*e 9R-A- No- DC2=@
B&s%$s;
EHC2UDE" I.#'e.e/%/A R!'es &/*
ReA!'&%o/s
DE"ERA7 "BTE/ A"D *B66E"T/; /ome of the
C$ri!pr$dece cited &ere decided $po fact$al atecedet!
that occ$rred prior to the effecti%ity of R. A. "o. 8283( the
)tellect$al Property *ode of the Philippie!. )f there are ay
differece! bet&ee the old la&! ad the R. A. "o. 8283( there
!hall be appropriate "BTE/ A"D *B66E"T/ belo& the
doctrial r$lig!. )f there are o !$ch commet!( the the
doctrial r$lig! are !till %alid $der the e& la&.
:- What is the &tate policy on intellectual
property ?
/@DDE/TED A"/-ER;
a. The /tate recogi+e! that a effecti%e itellect$al
ad id$!trial property !y!tem i!
1? %ital to the de%elopmet of dome!tic ad
creati%e acti%ity(
2? facilitate! tra!fer of techology(
3? attract! foreig i%e!tmet!( ad
J? e!$re! mar.et acce!! for o$r prod$ct!.
b. The /tate !hall protect ad !ec$re the e#cl$!i%e
right! of !cieti!t!( i%etor!( arti!t! ad other gifted citi+e! to
their itellect$al property ad creatio!( partic$larly &he
beeficial to the people( for !$ch period! a! pro%ided i the
)tellect$al Property *ode of the Philippie!.
c. The $!e of itellect$al property bear! a !ocial
f$ctio. to thi! ed( the /tate !hall promote the diff$!io of
.o&ledge ad iformatio for the promotio of atioal
de%elopmet ad progre!! for the commo good.
d. )t i! al!o the policy of the /tate to
1? !treamlie admii!trati%e proced$re! of
regi!terig patet!( trademar.! ad copyright!( to
2? liberali+e the regi!tratio o the tra!fer of
techology( ad to
3? ehace the eforcemet of itellect$al
property right! i the Philippie!. >/ec. 2( R. A. "o.
8283( $mberig ad arragemet !$pplied?
2- Wh& &)e so.e *%,,e)e/$es +ewee/ he
I/e''e$!&' P)o#e)( Co*e o, he Ph%'%##%/es &/* he ,o).e)
%/e''e$!&' #)o#e)( '&ws G
/@DDE/TED A"/-ER;
a. :ormer co%ered oly patet!( trademar.!( ad
copyright! -G)7E e& la& co%er! additio( !er%ice mar.!(
geographic idicatio!( id$!trial de!ig!( lay,o$t de!ig!
>Topographie!? of itegrated circ$it!K ad protectio of
$di!clo!ed iformatio.
b. :ormer had the 4$rea$ of Patet!( Trademar.! ad
Techology Tra!fer -G)7E the e& aboli!hed !aid office ad
e!tabli!hed ad orgai+ed the )tellect$al Property Bffice.
c. The former la&3! defiitio of patetable i%etio!
&a! e#paded $der the e& la&.
=- What is the rule on reciprocity relative to
intellectual property protection ?
/@DDE/TED A"/-ER;
Ay per!o &ho i! a atioal or &ho i! domiciled or ha!
a real ad effecti%e id$!trial e!tabli!hmet i a co$try &hich
99
i! a party to ay co%etio( treaty or agreemet relatig to
itellect$al property right! or the repre!!io of $fair
competitio( to &hich the Philippie! i! al!o a party( or e#ted!
reciprocal right! to atioal! of the Philippie! by la&( !hall be
etitled to beefit! to the e#tet ece!!ary to gi%e effect to ay
pro%i!io of !$ch co%etio( treaty or reciprocal la&( i
additio to the right! to &hich ay o&er of a itellect$al
property right i! other&i!e etitled $der the )tellect$al
Property *ode of the Philippie!. >/ec. 3( R.A. "o. 8283?
>- What does the term 5intellectual property
rights6consist of ?
/@DDE/TED A"/-ER; )t co!i!t! of
a. *opyright ad Related Right!K
b. Trademar.! ad /er%ice 6ar.!K
c. geographical )dicatio!K
d. )d$!trial De!ig!K
e Patet!K
f. 7ayo$t,De!ig! >Topographie!? of )tegrated
*irc$it!K ad
g. Protectio of @di!clo!ed )formatio. >/ec. J( R.A.
"o. 8283?
?- What is a patent ?
/@DDE/TED A"/-ER; A patet i! a e#cl$!i%e right
coferred by la& to a i%etor to ma.e( $!e( offer( !ell or
import the prod$ct co%ered by the patet ad to re!trai(
prohibit ad pre%et ay $a$thori+ed per!o or etity from
performig the protected right. The right icl$de! al!o the
a!!igmet( or tra!fer by !$cce!!io of the patet( ad to
cocl$de lice!ig cotract! for the !ame.
<- What inventions are patentable ?
/@DDE/TED A"/-ER; Ay techical !ol$tio of a
problem i ay field of h$ma acti%ity &hich i! e&( i%ol%e! a
i%eti%e !tep ad i! id$!trially applicable !hall be patetable.
)t may relate to a prod$ct( or a proce!!( or a impro%emet of
the foregoig. >/ec. 21( R. A. "o. 8283K $ho, etc., v. &on. Court of
Appeals, et al., D. R. "o. 111718( 6arch 18( 2002=
7- Iive some nonKpatentable inventions
/@DDE/TED A"/-ER;
a. Di!co%erie!( !cietific theorie! ad mathematical
method!K
b. /cheme!( r$le! ad method! of performig metal
!et!( playig game! or doig b$!ie!!( ad program! for
comp$ter!K
c. 6ethod! for treatmet of the h$ma ad aimal
body by !$rgery or therapy ad diago!tic method! practice!
o the h$ma ad aimal body. Thi! pro%i!io !hall ot apply
to prod$ct! ad compo!itio for $!e i ay of the!e method!K
d. Plat %arietie! or aimal breed! or e!!etially
biological proce!! for the prod$ctio of plat! or aimal!. Thi!
pro%i!io !hall ot apply to micro,orgai!m! ad o,biological
ad microbiological proce!!e!. Pro%i!io! $der thi! pro%i!io
!hall ot precl$de *ogre!! to co!ider the eactmet of a la&
pro%idig !$i geeri! protectio of plat %arietie! ad aimal
breed! ad a !y!tem of comm$ity itellect$al right!
protectioK
e. Ae!thetic creatio!K
f. Aythig &hich i! cotrary to p$blic order or morality.
>/ec. 22( R.A."o. 8283?
D- What is meant by the 5,irst to ,ile Rule6 ?
/@DDE/TED A"/-ER; )f t&o >2? or more per!o!
ha%e made the i%etio !eparately ad idepedetly of each
other( the right to the patet !hall belog to the per!o &ho
filed a applicatio for !$ch i%etio( or &here t&o or more
applicatio! are filed for the !ame i%etio( to the applicat
&ho ha! the earlie!t filig date or( the earlie!t priority date.
>/ec. 28(R.R. "o. 8283?
C- When may a patent holder be compelled to allo3
others to license his product ?
/@DDE/TED A"/-ER; The pro%i!io! of the Patet
7a& >o& )tellect$al Property *ode? o comp$l!ory lice!ig
may be proper if the pateted prod$ct i! medicial i at$re(
ad therefore ece!!ary for the promotio of p$blic health ad
!afety( gi%e other! a chace to !$pply the p$blic &ith the
'$atity of the pateted article ad to pre%et the b$ildig $p
of patet moopolie!. 4mith $line & #rench 'aboratories, 'td.. v.
Court of Appeals et al., D.R. "o. 121297(Bctober 23( 2001?
100
:0- What is meant by patent infringement ?
/@DDE/TED A"/-ER; Patet ifrigemet i! the
ma.ig( $!ig( offerig for !ale( !ellig( or importig a pateted
prod$ct or a prod$ct obtaied directly or idirectly from a
pateted proce!! &itho$t the a$thori+atio of the patetee.
>/ec. 79( R.A. "o. 8283?
::- The remedie! for patet ifrigemet are the >a?
ci%il actio &ith a iC$ctio( ad the >b? crimial actio for
repetitio of ifrigemet.
:2- A ci%il actio before a co$rt of competet
C$ri!dictio may be bo$ght by ay patetee( or ayoe
po!!e!!ig ay right( title or itere!t i ad to the pateted
i%etio( &ho!e right! ha%e bee ifriged( to reco%er from
the ifriger
a. !$ch damage! !$!taied thereby( pl$! attorey3!
fee! ad other e#pe!e! of litigatio( ad to !ec$re a
iC$ctio for the protectio of hi! right!. >/ec. 79.2( R.A. "o.
8283?
b. )f the damage! are iade'$ate or caot be readily
a!certaied &ith rea!oable certaity( the co$rt may a&ard by
&ay of damage! a !$m e'$i%alet to rea!oable royalty. >/ec.
79.3( Ibid.?
c. The co$rt may( i it! di!cretio( order that the
ifrigig good!( material! ad implemet! predomiatly $!ed
i the ifrigemet be di!po!ed of o$t!ide the chael! of
commerce or de!troyed( &itho$t compe!atio. >/ec. 79.1(
Ibid.?
:=- )f ifrigemet i! repeated by the ifriger or by
ayoe i coi%ace &ith him after fiality of the C$dgmet of
the co$rt agai!t the ifriger( the offeder! &itho$t preC$dice
to the actio for damage!( be crimially liable therefore. >/ec.
8J( R.A. "o. 8283?
:>- ) a actio for ifrigemet( the defedat(
a. i additio to other defe!e! a%ailable to him(
b. may !ho& the i%alidity of the patet( or ay claim thereof(
o ay of the follo&ig gro$d!;
1? That &hat &a! claimed a! the i%etio i! ot e& or
patetableK
2? That the patet doe! ot di!clo!e the i%etio i a
maer !$fficietly clear ad complete for it to be
carried o$t by ay per!o !.illed i the artK or
3? That the patet i! cotrary to p$blic order or morality.
>/ec. 81 i relatio to /ec. 91( R.A."o. 8283?
:?- 6ar. i! ay %i!ible !ig capable of di!tig$i!hig
the good! >trademar.? or !er%ice! >!er%ice mar.? of a
eterpri!e ad !hall icl$de a !tamped or mar.ed cotaier of
good!. 4/ec. 121.1( R.A. "o. 8283K $ho, etc., v. &on. Court of
Appeals, et al., ,.R.No. 33CDCE, /arch 3F, GHHG=
:<- Trade ame i! the ame or de!igatio idetifyig
or di!tig$i!hig a eterpri!e. 4$ho, etc., v. &on. Court of
Appeals, et al., ,.R.No. 33CDCE, /arch 3F, GHHG=
:7- 2earl and Dean >2hils?# !nc >2 / D? has a
Certificate of Copyright Registration dated @anuary ')#
<=J<# under &ec ' >o? of 2D Ao N= >0he !ntellectual
2roperty Decree? over advertising display units referred to
as light bo7es 0hese units utilize specially printed
posters sand3iched bet3een plastic sheets and
illuminated 3ith bac" lights and are mar"eted under the
trade mar" 62oster Ads6 0he application for registration
of trademar" 3as approved on &eptember <'# <=JJ ,rom
<=J< to about <=JJ 2 / D employed the services of M!& to
manufacture its 52oster Ads6
&ometime in <==<# &hoemart# !ncorporated >&M!?
engaged the services of 4FD Rainbo3 Corporation to
ma"e the light bo7es and G)) units 3ere installed at &M
Megamall and &M City 1i"e3ise Aorth 4dsa Mar"eting#
!nc >A4M!?# a sister company of &M!# through its mar"eting
arm# 2rime &pots Mar"eting &ervices# 3as set up primarily
to sell advertising space in lighted display units located in
&M!8s different branches
:pon discovery of such acts of &M!# 2 / D sued for
infringement of trademar" and copyright# unfair
competition and damages Would the suit prosper ?
47plain briefly
101
"BTE/ A"D *B66E"T/; The follo&ig a!&er !hall
be crafted i the light of doctrial r$lig! i the ca!e of Pearl &
!ean a! adC$!ted to coform to pre!et la&.
/@DDE/TED A"/-ER; "o. P L D3! !$it &ill ot
pro!per for the follo&ig rea!o!;
a. The light bo#e! may ot properly be the !$bCect of
copyright! &hich co%er oly !$bCect! e$merated i the la&.
The copyright &a! i!!$ed $der /ec. 2 >o? of P.D. "o. J8 &hich
icl$de! 2Prit!( pictorial ill$!tratio!( ad%erti!ig copie!( label!(
ad bo# &rap!5. The copyright certificate etitled 2Ad%erti!ig
Di!play @it!5 >&hich depicted the bo#,type electrical de%ice!?
e#teded oly to the techical dra&ig! ad ot to the bo#
it!elf. >Pearl & !ean 4Phil.=, Inc. v. hoemart, Inc., et al., D. R. "o.
1J8222( A$g$!t 11( 2003? @der pre!et la& the light bo#e! may
properly be co%ered by copyright a! 27iterary ad arti!tic &or.!5
cla!!ified a! 2Dra&ig or pla!tic &or.! of a !cietific or
techical character.5 >/ec. 172 >C?( )tellect$al Property *ode?
or a! 5origial orametal de!ig! or model! for article! of
ma$fact$re( &hether or ot regi!terable a! a id$!trial
de!ig( ad other &or.! of applied art5 >/ec. 172 >h?( Ibid.?.
b. There i! o trademar. ifrigemet beca$!e the
mar. 2Po!ter Ad!5 &a! able to obtai a trademar. certificate
oly for 2!tatioerie! !$ch a! letter head!( e%elope!( callig
card! ad e&!letter!5 ad ot for the !pecific $!e o the light
bo#e!. >Pearl & !ean 4Phil.=, Inc. v. hoemart, Inc., et al., supra?
c. There i! o ifrigemet of the patet beca$!e
there &a! o !ho&ig that a patet &a! i!!$ed o%er the light
bo#e!. >Ibid.?
d. There &a! o $fair competitio beca$!e there ca be o
$fair competitio $der the la& o copyright! b$t applicable to
di!p$te! o%er the $!e of trademar.!. Dratig that there &a! a
trademar.( the !ame m$!t be !o di!ticti%e or &ell .o& a! to be
a!!ociated i the mid of the p$blic( the good! ad !er%ice! carryig
the trademar. 5Po&er Ad!5 a! differet from other!. A! it i! the &ord!
2Po&er Ad!5 i! !o geeric that the !aid trademar. co$ld ot be
di!tig$i!hed from the good! ad !er%ice! of other etitie!. >Ibid.?
The phra!e 5Po&er Ad!5 i! too geeric that it co$ld ot
fall $der the cocept of the doctrie of !ecodary meaig to
be able to obtai protectio. 2/ecodary meaig 5mea! that
a &ord or phra!e origially icapable of e#cl$!i%e appropriatio
&ith referece to a article i the mar.et >beca$!e it i!
geographically or other&i!e de!cripti%e? might e%erthele!!
ha%e bee $!ed for !o log ad !o e#cl$!i%ely by oe
prod$cer &ith referece thi! article that( i the trade ad to that
brach of the p$rcha!ig p$blic( the &ord or phra!e ha! come
to mea that the article &a! hi! property. >Ibid.?
"BTE/ A"D *B66E"T/;
a. 2%.%&%o/s o, $o#()%Ah@ *opyright i! cofied to
literary ad arti!tic &or.! &hich are origial itellect$al creatio! i
the literary ad arti!tic domai protected from the momet of their
creatio. 4$ho, etc., v. &on. Court of Appeals, et al., D.R ."o. 111718(
6arch 18( 2002?
b. Co#()%Ahs@ #&e/s &/* )&*e.&)Bs &)e
$o.#'ee'( *%s%/$ &/* se#&)&e ,)o. o/e &/ohe) ad the
protectio afforded by oe caot be $!ed iterchageably to co%er
item! or &or.! that e#cl$!i%ely pertai to the other!. >Pearl & !ean
4Phil.=, Inc. v. hoemart, Inc., et al., D. R. "o. 1J8222( A$g$!t 11(
2003 citig $ho, etc., v. &on. Court of Appeals, et al., D.R ."o.
111718( 6arch 18( 2002?
:D- !t appears that DIC! 3as issued on May G<#
<=JG# by the then $ureau of 2atents# 0rademar"s and
0echnology 0ransfer >$2000? a certificate of registration#
pursuant to &ecs ' and N of Rep Act Ao <;;# covering the
5&hangriK1a6 mar" and 5&6 logo &ince then# DIC! started
using the said mar" and logo in its restaurant business
-n the other hand# since <=+( and up to the
present# the 5&hangriK1a6 mar" and 5&6 logo have been
used consistently and continuously by all the Kuo" Iroup
in all &hangriK1a hotels and companies in their
paraphernalia 3orldK3ide 0he mar" and logo is registered
in the patent offices of different countries around the
3orld
.o3ever# the &hangriK1a hotels did not operate any
establishment in the 2hilippines until <=J+ or <=JJ# but
they have advertised abroad e7tensively since <=+' in
magazines 3idely circulated in the 3orld including the
2hilippines 0hey too# maintained reservations and
boo"ing agents in airline companies# hotel reservations
and boo"ing agents in airline companies# hotel
organizations# tour operators# tour promotion
organizations# and in other allied fields in the 2hilippines
0he Kuo" Iroup started operations in the 2hilippines
sometime in <=J+ or <=JJ under the name &hangriK1a
102
!nternational .otel Management# 1td >&1!.M? using both
the mar" and the logo
DIC! sued &1!.M for infringement and damages#
claiming that a prior registrant it had the right to use the
mar" and logo -n the other hand &1!.M defended by
claiming that it o3ns the mar" and the logo# being entitled
to protection under the 2aris Convention 0he mar" and
logo being internationally 3ellK"no3n Will the suit
prosper ?
/@DDE/TED A"/-ER; "o. -hile the defe!e of
protectio $der the Pari! *o%etio i! $a%ailig beca$!e
the !aid right &a! recogi+ed oly $po the effecti%ity of the
)tellect$al Property *ode( !till /7)G6 caot be held g$ilty of
ifrigemet.
The la& i force at the time of the cotro%er!y &a!
Rep. Act "o. 199( ameded >&hich &a! i effect $p to
December 31( 1887( before the )tellect$al Property *ode?(
re'$ire! that before a trademar. ca be regi!tered( it m$!t
ha%e bee act$ally $!ed i commerce ad !er%ice for ot le!!
tha t&o moth! i the Philippie! prior to regi!tratio( &hich
mar. m$!t ot ha%e bee appropriated by aother.
DD*) &a! ot '$alified to regi!ter beca$!e it i! either
the o&er of the trademar. or ha%e $!ed it for at lea!t t&o
moth! i the Philippie!. /7)G6 ha! pre%io$!ly appropriated
the trademar. altho$gh it &a! $!ed oly iteratioally.
>han%ri8'a International &otel /ana%ement, 'td., et al., v.
!evelopers ,roup of Companies, Inc., D.R. "o. 118838( 6arch 31(
2009?
May &1!.M bring suit for the cancellation of DIC!8s
registration on the basis of the 2aris Convention ?
Reason out your ans3er
/@DDE/TED A"/-ER; "o. /7)G6 ha! ot !ho&
that it ha! $!ed the mar. i the Philippie! for at lea!t t&o
moth!. The pro%i!io! of the )tellect$al Property *ode o
the applicatio of the Pari! *o%etio too. effect oly after
December 31( 1887.
WARNIN3" )f the problem i! dated a! i the abo%e
problem the the !$gge!ted a!&er i! correct. )f the e%et! i
the problem i! !ho& to ha%e ta.e place after December 31(
1887 the apply the )tellect$al Property *ode. The
cocl$!io &o$ld !till be the !ame( that the !$it for
ifrigemet agai!t /7)G6 &o$ld ot pro!per( b$t the rea!o!
&o$ld be differet. Go&e%er( /7)G6 co$ld i%o.e the Pari!
*o%etio.
"BTE/ A"D *B66E"T/;
&- The #)ese/ I/e''e$!&' P)o#e)( Co*e h&s
*%s#e/se* w%h he )eI!%)e.e/ of prior act$al $!e at the time of
regi!tratio.
+- The #)ese/ I/e''e$!&' P)o#e)( Co*e shows
o+se)1&/$e &/* $o.#'%&/$e w%h he P&)%s Co/1e/%o/ by
icorporatig the rele%at portio! of the *o%etio !$ch that
per!o! &ho may '$e!tio a mar. >that i!( oppo!e regi!tratio(
petitio for the cacellatio thereof( !$e for $fair competitio? icl$de
per!o! &ho!e iteratioally &ell,.o& mar.( &hether or ot
regi!tered i! idetical &ith or cof$!igly !imilar to or co!tit$te! a
tra!latio of a mar. that i! !o$ght to be regi!tered or i! act$ally
regi!tered. Mhan%ri8'a International &otel /ana%ement, 'td., et al.,
v. !evelopers ,roup of Companies, Inc., D.R. "o. 118838( 6arch 31(
2009 citig /ec!. 123 >3? ad 131(3( )tellect$al Property *ode( R. A.
"o. 8283N
:C- The earlier filig of petitio to cacel a mar. &ith
the 4$rea$ of 7egal Affair! of the )tellect$al Property Bffice
!hall ot co!tit$te a preC$dicial '$e!tio that m$!t be
re!ol%ed before a actio to eforce the right! to the !ame
regi!tered mar. may be decided. 4han%ri8'a International &otel
/ana%ement, 'td., et al. v. Court of Appeals, et al., ,.R. No. 33CEHI
!evelopment ,roup of Companies, Inc. v. Court of Appeals, et al.,
)une G3, GHH3=
20- A ifrigemet &ithi the competece of the
reg$lar co$rt! ca ad !ho$ld proceed idepedetly from the
cacellatio ca!e &ith the 4$rea$ of Patet!( Trademar.! ad
Techology >o& the )tellect$al Property Bffice? !o a! to
afford redre!! ad iC$cti%e &rit!. 4han%ri8'a International &otel
/ana%ement, 'td., et al. v. Court of Appeals, et al., ,.R. No. 33CEHI
!evelopment ,roup of Companies, Inc. v. Court of Appeals, et al.,
)une G3, GHH3=
2:- The earlier filig of petitio to cacel a mar. &ith
the 4$rea$ of 7egal Affair! of the )tellect$al Property Bffice
!hall ot co!tit$te a preC$dicial '$e!tio that m$!t be
re!ol%ed before a actio to eforce the right! to the !ame
regi!tered mar. may be decided. 4han%ri8'a International &otel
/ana%ement, 'td., et al. v. Court of Appeals, et al., ,.R. No. 33CEHI
103
!evelopment ,roup of Companies, Inc. v. Court of Appeals, et al.,
)une G3, GHH3=
22- A ifrigemet &ithi the competece of the
reg$lar co$rt! ca ad !ho$ld proceed idepedetly from the
cacellatio ca!e &ith the 4$rea$ of Patet!( Trademar.! ad
Techology >o& the )tellect$al Property Bffice? !o a! to
afford redre!! ad iC$cti%e &rit!. 4han%ri8'a International &otel
/ana%ement, 'td., et al. v. Court of Appeals, et al., ,.R. No. 33CEHI
!evelopment ,roup of Companies, Inc. v. Court of Appeals, et al.,
)une G3, GHH3=
2=- Tes o, *o.%/&/$( )eI!%)es that if the
competig trademar. cotai! the mai or e!!etial feat$re! of
aother ad cof$!io ad deceptio i! li.ely to re!$lt(
ifrigemet ta.e! place. d$plicatio or imitatio i! ot
ece!!aryK or i! it ece!!ary that the ifrigig label !ho$ld
!$gge!t a effort to imitate. /imilarity i !i+e( form ad color(
&hile rele%at( i! ot cocl$!i%e. 4Asia Bre2er", Inc. v. Court of
Appeals, et al., GGJ CRA JKD=
2>- A per!o to be etitled of a copyright m$!t be the
origial creator of the &or.( he m$!t ha%e created it by hi! o&
!.ill( labor ad C$dgmet &itho$t directly copyig or e%a!i%ely
imitatig the &or. of aother. Th$!( if there i! do$bt a! to the
%alidity of the copyright( ifrigemet ad the damage! ca$!ed
by !$ch ifrigemet the a iC$cti%e &rit doe! ot lie.
4Chuan v. Court of Appeals, et al., ,.R.No. 3KHKLH, Au%ust 3C, GHH3=
2?- What is unfair competition ?
/@DDE/TED A"/-ER; @fair competitio i! the
employmet by ay per!o of deceptio or ay other mea!
cotrary to good faith by &hich he !hall pa!! off the good!
ma$fact$red by him or i &hich he deal!( or hi! b$!ie!!( or
!er%ice! for tho!e of the aother &ho ha! e!tabli!hed !$ch
good&ill( or &ho !hall commit ay act! calc$lated to prod$ce
!aid re!$lt >/ec. 198.2( )tellect$al Property *ode of the Philippie!?
to decei%e the p$blic or defra$d a competitor.
"BTE/ A"D *B66E"T/;
a. A$s $o/s%!%/A !/,&%) $o.#e%%o/ !/*e)
he I/e''e$!&' P)o#e)( Co*e o, he Ph%'%##%/es"
198.2 Ay per!o &ho !hall employ deceptio or ay
other mea! cotrary to good faith by &hich he !hall pa!! off the
good! ma$fact$red by him or i &hich he deal!( or hi! b$!ie!!( or
!er%ice! for tho!e of the oe ha%ig e!tabli!hed !$ch good&ill( or &ho
!hall commit ay act! calc$lated to prod$ce !aid re!$lt( !hall be g$ilty
of $fair competitio ( ad !hall be !$bCect to a actio therefor.
198.3 ) partic$lar( ad &itho$t i ay&ay limitig the !cope
of protectio agai!t $fair competitio( the follo&ig !hall be deemed
g$ilty of $fair competitio;
>a? Ay per!o &ho i! !ellig hi! food! ad gi%e! them(
the geeral appearace of good! of aother ma$fact$rer or
dealer( either a! to the good! them!el%e! or i the &rappig of
the pac.age! i &hich they are cotaied( or the de%ice! or
&ord! thereo( or i ay other feat$re of their appearace(
&hich they are li.ely to ifl$ece p$rcha!er! to belie%e that the
good! offered are tho!e of a ma$fact$rer or dealer( other tha
the act$al ma$fact$rer or dealer( or &ho other&i!e clothe! the
good! &ith !$ch appearace a! !hall decei%e the p$blic ad
defra$d aother of i! legitimate trade( or ay !$b!e'$et
%edor of !$ch good! or ay aget of ay %edor egaged i
!ellig !$ch good! &ith a li.e p$rpo!eK
>b? Ay per!o &ho by ay artifice( or de%ice( or &ho
employ! ay other mea! calc$lated to id$ce the fal!e belief
that !$ch per!o i! offerig the !er%ice! of aother &ho ha!
idetified !$ch !er%ice! i the mid of the p$bicK or
>c? Ay per!o &ho !hall ma.e ay fal!e !tatemet i
the co$r!e of trade or &ho !hall commit ay other act cotrary
to good faith of a at$re calc$lated to di!credit the good!(
b$!ie!! or !er%ice! of aother.5 >/ec. 198( )tellect$al
Property *ode of the Philippie!?
b. E'e.e/s o, !/,&%) $o.#e%%o/ !/*e) A)%$'e
:DC 9:; o, he Re1%se* Pe/&' Co*e-
1? That the offeder gi%e! hi! good! the geeral
appearace of the good! of aother ma$fact$rer or dealerK
2? That the geeral appearace i! !ho& i the >a?
good! them!el%e!( or i the >b? &rappig of their pac.age!( or
i the >c? de%ice or &ord! therei( or i >J? ay other feat$re of
their appearaceK
3? That the offeder offer! to !ell or !ell! tho!e good! or
gi%e! other per!o! a chace or opport$ity to do the !ame
&ith a li.e p$rpo!eK ad
J? That there i! act$al itet to decei%e the p$blic or
defra$d a competitor. >on" Computer *ntertainment, Inc. v.
uper%reen, Incorporated, D. R. "o. 191823( 6arch 22( 2007
104
citig NBI8/icrosoft Corporation v. &2an%, D. R. "o. 1J70J3(
I$e 21( 2001( J90 /*RA J28( JJJ,JJ1?
2<-A- &upergreen# !nc is engaged in the
reproduction and distribution of counterfeit 62lay&tation6
soft3are# consoles and accessories in violation of &ony
Computer8s !ntellectual property rights !t does its
reproduction activities in Cavite City 3hile it sells the
counterfeit items in Mandaluyong City and other places
3ithin Metro Manila 0he A$! applied for search 3arrants
3ith the R0C of Manila on the basis of 3hich it raided
&upergreen8s premises in Cavite City and 2arana9ue City
A$! 3as able to seize a replicating machine and several
units of counterfeit 52lay&tation6 consoles# joy pads#
housing labels and game soft3are
&upergreen no3 see"s a 9uashal of the 3arrants
and the return of the seized items on the grounds improper
venue and that the 3arrants 3ere served outside the
territorial jurisdiction of the issuing court
/@DDE/TED A"/-ER; "o. /$pergree3! imitatio
of the geeral appearace of /oy3! good! &a! allegedly doe
i *a%ite( ad !old i 6adal$y$og *ity. The alleged act!
&o$ld co!tit$te a tra!itory or coti$ig offe!e.
Th$!( $der the )tellect$al Property *ode of the
Philippie! ad the Re%i!ed Peal *ode( /oy may apply for a
!earch &arrat i ay co$rt &here ay elemet of the alleged
offe!e &a! committed( icl$dig ay co$rt &ithi the "atioal
*apital Regio >6aila?.
"BTE/ A"D *B66E"T/;
a. ReA%o/&' T)%&' Co!)s h&1e E!)%s*%$%o/ o1e)
%/e''e$!&' #)o#e)( )%Ahs 1%o'&%o/s- The )tellect$al Property
*ode of the Philippie! i! a !pecial la& that cofer! C$ri!dictio o%er
%iolatio! of itellect$al property right! to the Regioal Trial *o$rt!
&hich !ho$ld pre%ail o%er R. A. "o. 7981( &hich i! a geeral la&
Mamson v. !a2a", J3J /*RA 912 >200J?N o C$ri!dictio of co$rt!.
b. Iss!&/$e o, se&)$h w&))&/s %/ s#e$%&'
$)%.%/&' $&ses +( he ReA%o/&' T)%&' Co!)s o, M&/%'& &/*
N!eFo/ C%(- The E#ec$ti%e I$dge! ad( &hee%er they are o
official lea%e of ab!ece or are ot phy!ically pre!et i the !tatio(
the Vice,E#ec$ti%e I$dge! of the RT*! of 6aila ad A$e+o *ity
!hall ha%e a$thority to act o applicatio! filed by the "atioal 4$rea$
of )%e!tigatio >"4)?( the Philippie "atioal Police >P"P? ad the
Ati,*rime Ta!. :orce >A*TA:?( of !earch &arrat! i%ol%ig heio$!
crime!( illegal gamblig( illegal po!!e!!io of firearm! ad
amm$itio! a! &ell a! %iolatio! of the *omprehe!i%e Dagero$!
Dr$g! Act of 2002( the )tellect$al Property *ode( the Ati,6oey
7a$derig Act of 2001( the Tariff ad *$!tom! *ode( a! ameded(
ad other rele%at la&! that may hereafter be eacted by *ogre!!(
ad icl$ded herei by the /$preme *o$rt. # # # >/ec. 12( A.6. "o.
03,8,02,/*?
7- S#e$%&' 2&ws
9&; The Ch&e' Mo)A&Ae 2&w 9A$ :?0D
%/ )e'&%o/ o A)s- :>D>@ :>D?@ 2:>0 &/* 2:>: o,
he New C%1%' Co*e;
BAR" :- 0o secure a debt to F# D# the o3ner of
&upreme Drugstore# e7ecuted a chattel mortgage covering
the goods contained in the drugstore 0he deed of chattel
mortgage provides that 5all goods# stoc"KinKtrade# furniture
and fi7tures hereafter purchased by the mortgagor shall be
included in and covered by the mortgage6
:pon default by D# F sought to foreclose the
mortgage on the goods then found in the drugstore# half of
3hich 3ere admittedly ac9uired after the e7ecution of the
chattel mortgage
!f you 3ere the la3yer of D# 3hat arguments 3ould
you advance to defeat the foreclosure on the afterK
ac9uired property ? !f you 3ere the judge# ho3 3ould you
decide
/@DDE/TED A"/-ER; After ac'$ired !toc.! i trade
are ot co%ered by the chattel mortgage.
A! C$dge( foreclo!$re &o$ld be allo&ed. -here !toc.!
i trade are the !$bCect of a chattel mortgage( they co$ld
icl$de !toc.! !$b!e'$etly p$rcha!ed to replei!h tho!e
&hich e#i!ted at the e#ec$tio of the mortgage b$t are ot
aymore a%ailable beca$!e they ha%e bee !old i the
meatime.
"BTE/ A"D *B66E"T/;
a. I/s!)&/$e o/ $&) $o1e)e* +( $h&e' .o)A&Ae-
-here the pro%i!io! of the *hattel 6ortgage doe! ot a$thori+e the
mortgagee to apply pre%io$! paymet! for the car to the i!$rer( the
105
mortgagee ha! to !ed otice to the mortgagor if it decide! to co%ert
ay of the pre%io$! i!tallmet! made by the mortgagor to the
paymet for the ree&al of the i!$race. >ervice2ide pecialists,
Incorporated v. Court of Appeals, et al., D.R. "o. 110187( 6ay 8(
1889?
2- What is the nature of a chattel mortgage
contract ?
/@DDE/TED A"/-ER; A cotract of chattel
mortgage i! i the at$re of a coditioal !ale of per!oal
property gi%e a! a !ec$rity for the paymet of a debt( or the
performace of !ome other obligatio !pecified therei( the
coditio beig that the !ale !hall be %oid $po the !eller
payig to the p$rcha!er a !$m of moey or doig !ome other
act amed. )f the coditio i! performed accordig to it! term!(
the mortgage ad !ale immediately become! %oid( ad the
mortgagee i! thereby di%erted of title. >/a%na #inancial ervices
,roup, Inc. v. Colarina, D. R. "o. 118931( December 8( 2001?
"BTE/ A"D *B66E"T/;
a. 5o)e$'os!)e o, $h&e' .o)A&Ae- :oreclo!$re
i! oe of the remedie! a%ailable to a mortgagee i ca!e of o,
paymet of a chattel mortgage by &hich he !$bCect! the mortgaged
property to the !ati!factio of the obligatio to !ec$re that for &hich
the mortgage &a! gi%e. >/a%na #inancial ervices ,roup, Inc. v.
Colarina, D. R. "o. 118931( December 8( 2001?
b. K%/*s o, ,o)e$'os!)e- :oreclo!$re may be effected
either C$dicially or e#traC$dicially( that i!( by ordiary actio or by
foreclo!$re $der the po&er of !ale cotaied i the mortgage. )t may
be effected by the $!$al method!( icl$dig !ale of good! at p$blic
a$ctio. E#traC$dicial foreclo!$re i! attaied by ca$!ig the
mortgaged property to be !ei+ed by the !heriff( a! aget of the
mortgagee( ad ha%e it !old at p$blic a$ctio i the maer
pre!cribed by /ectio 1J of Act "o. 1108( or the *hattel 6ortgage
7a&. >/a%na #inancial ervices ,roup, Inc. v. Colarina, D. R. "o.
118931( December 8( 2001?
c. Whe/ ,o)e$'os!)e %s *ee.e* o h&1e &Be/
#'&$e- )t ha! bee deemed that there ha! bee foreclo!$re of the
property &he all the proceedig! of the foreclo!$re icl$dig the !ale
of the property at p$blic a$ctio( ha%e bee accompli!hed. ) !hort(
act$al foreclo!$re of the property i! re'$ired. -hile the foregoig i!
the geeral r$le( it ha! bee held that o act$al foreclo!$re i! ot
ece!!ary &here the mortgaged property i! already i the phy!ical
po!!e!!io of the mortgagee( &ho ha! per!i!tetly ad co!i!tetly
a%o&ed that it elect! the remedy of foreclo!$re. >/a%na #inancial
ervices ,roup, Inc. v. Colarina, D. R. "o. 118931( December 8(
2001?
d. No #e)so/&' /o%$e o .o)A&Ao) %s )eI!%)e*
%/ e0)&E!*%$%&' ,o)e$'os!)e s&'e- >Philippine National Bank v.
Rabat, 3JJ/*RA 709?
e. 5o)e$'os!)e o, $h&e' .o)A&Ae o/ s!+Ee$ o,
.o)A&Ae precl$de! reco%ery of deficiecy if article foreclo!ed i!
article p$rcha!ed ad co%ered by the chattel mortgage.
)f the chattel mortgage i! to !ec$re a loa tra!actio( other
tha oe i%ol%ig a p$rcha!e( there co$ld be reco%ery of the
deficiecy.
9+; Re&' Es&e Mo)A&Ae 2&w 9A$ =:=?@
&s &.e/*e* +( R-A- >::D;
:- Adelina borro3ed 2 <( million from Renato#
payable 3ithin one year at <JE per annum# and secured by
a Real 4state mortgage over a parcel of land 3ith
improvements covered by 0C0 Ao R0KNG+'G
1ater on @uly <# <==' Adelina received from Renato
the amount of 2<()#))))) 5as additional loan against
mortgaged property 0C0 AoR0KNG+'G6 -n &eptember (#
<=='# Adelina li"e3ise received from Renato# the amount
of 2())#))))) 5as additional loan from mortgaged
property 0C0 R0KNG+'G6
!s 0C0 Ao R0KNG+'G also bound for the the
2<()#))))) and 2())#))))) additional loans?
/@DDE/TED A"/-ER; "o. There i! o !tip$latio
that the mortgaged realty !ho$ld al!o !ec$re f$t$re loa! ad
ad%acemet!. A obligatio i! ot !ec$red by a mortgage
$le!! it come! fairly &ithi the term! of the mortgage cotract.
) order to co!tit$te a legal mortgage( it m$!t be
e#ec$ted i a p$blic doc$met( be!ide! beig recorded. A
pro%i!io i a pri%ate doc$met( !$ch a! the ac.o&ledgmet!
for the P110(000.00 ad the P100(00 loa!( altho$gh
deomiatig the agreemet a! oe of mortgage( caot be
co!idered a! it i! ot !$!ceptible of i!criptio i the property
mortgage. A mortgage i legal form i! ot co!tit$ted by a
pri%ate doc$met( e%e if !$ch mortgage be accompaied &ith
deli%ery of po!!e!!io of the mortgaged property. >pouses
Cu"co v. pouses Cu"co, D.R. "o. 198739( April 18( 2009?
106
"BTE/ A"D *B66E"T/;
&- ReI!%)e.e/s ,o) )e&' es&e .o)A&Ae- 4y
e#pre!! pro%i!io of /ectio 127 of Act "o. J89( a mortgage affectig
lad( &hether regi!tered $der !aid Act or ot regi!tered at all( i! ot
deemed to be !$fficiet i la& or may it be effecti%e to ec$mber or
bid lad $le!! made !$b!tatially i the form therei pre!cribed. )t
i! re'$ired( amog other thig!( that the doc$met be !iged by the
mortgagor e#ec$tig the !ame( i the pre!ece of t&o &ite!!e!( ad
ac.o&ledged a! hi! free act ad deed before a otary p$blic. A
mortgage co!tit$ted by mea! of a pri%ate doc$met ob%io$!ly doe!
ot comply &ith !$ch legal re'$iremet!. >pouses Cu"co v.
pouses Cu"co, D.R. "o. 198739( April 18( 2009?
2### The o&er of regi!tered lad may mortgage or lea!e it
by e#ec$tig the deed i a form !$fficiet i la&. /$ch deed of
mortgage or lea!e ad all i!tr$met! &hich a!!ig( e#ted(
di!charge or other&i!e deal &ith the mortgage or lea!e !hall be
regi!tered( ad !hall ta.e effect $po the title oly from time of
regi!tratio.5 >2
d
!etece( 1
!t
par.( Property Regi!tratio Decree(
Pre!. Decree "o. 1128?
Regi!tratio i! ot re'$ired to bid partie! i a mortgage
i%ol%ig $regi!tered lad. )t i! oly re'$ired to bid partie!. >/ec.
113m Property Regi!tratio Decree( Pre!. Decree "o.1128?
+- P)o#e)( ReA%s)&%o/ De$)ee 9P)es- De$)ee No-
:?2C; h&s /o )e#e&'e* A$ No- >C<- The repealig cla$!e of Pre!.
Decree "o. 1128 read! a! follo&!; 2All la&!( decree! order!( r$le!
ad reg$latio!( or part! thereof( i coflict or ico!i!tet &ith ay of
the pro%i!io! of thi! Decree are hereby repealed or modified
accordigly.5 >/ec.120( Pre!. Decree "o. 1128?
2- What is meant by a dragnet clause ?
/@DDE/TED A"/-ER; A draget cla$!e( al!o .o&
a! the 2bla.et mortgage cla$!e5 pro%ide! that the amo$t!
amed a! co!ideratio i a cotract of mortgage may !tad
a! !ec$rity if from the fo$r corer! of the i!tr$met the itet
to !ec$re f$t$re ad other idebtede!! ca be gathered.
)t operate! a! a co%eiece ad accommodatio to
the borro&er a! it ma.e! a%ailable additioal f$d! &itho$t
their ha%ig to e#ec$te additioal !ec$rity doc$met!( thereby
!a%ig time( tra%el( loa clo!ig co!t!( co!t! of e#tra legal
!er%ice!( recordig fee!( et cetera. >pouses Cu"co v. pouses
Cu"co, D.R. "o. 198739( April 18( 2009 citig -nion Bank of the
Philippines v. Court of Appeals, D. R. "o. 19J810( /eptember 30(
2001( J71 /*RA 711(718?
!s a dragnet clause recognized in the
2hilippines ?
/@DDE/TED A"/-ER; <e!( !$bCect to certai
coditio!.
-hile a real e!tate mortgage may e#ceptioally !ec$re
f$t$re loa! or ad%acemet!( the!e f$t$re debit! m$!t be
!$fficietly de!cribed i the mortgage cotract. A obligatio i!
ot !ec$red by a mortgage $le!! it come! fairly &ithi the
term! of the mortgage cotract. Mpouses Cu"co v. pouses
Cu"co, D.R. "o. 198739( April 18( 2009 citig Philippine Bank of
Communications v. Court of Appeals, 323 Phil. 187( 313K 213 /*RA
2J1( 21J >1889?N
9$; The I/so'1e/$( 2&w 9A$ :C?<;
:- What is suspension of payments ?
/@DDE/TED A"/-ER; The remedy a%ailable $der
the )!ol%ecy la& for a at$ral or C$ridical per!o &ho( ha%ig
!$fficiet a!!et! to meet hi! obligatio!( fore!ee! the
impo!!ibility of meetig them &he they fall d$e( ad therefore
pre!et! a propo!al to pay hi! obligatio! o date! later tha
their d$e date!.
"BTE/ A"D *B66E"T/;
BAR" a. P)o$e*!)e ,o) s!s#e/s%o/ o, #&(.e/s- )f
at$ral per!o! are i!ol%et( petitio !ho$ld be filed &ith the
Regioal Trial *o$rt.
1? :ilig of a petitio accompaied by a i%etory of
a!!et! ad a detailed !ched$le of obligatio!( amo$t! ad
their d$e date!K
2? )!!$e by the co$rt of a order !ettig the place ad
date for meetig of creditor!K
3? P$blicatio of the order ad !er%ice of !$mmo! to
all creditor! li!ted i the petitioK
J? 6eetig of creditor! ad appro%al of debtor3!
propo!al by creditor!( at lea!t 2F3 i $mber repre!etig 3F1
of all the liabilitie!K
1? BbCectio!( if ay( by the other creditor!K
9? Brder of the co$rt to implemet the agreemet..
b. I/so'1e/$( *%s%/A!%she* ,)o. s!s#e/s%o/ o,
#&(.e/s-
107
1? ) i!ol%ecy( the liabilitie! of the debtor are more
tha hi! a!!et! -G)7E i !$!pe!io of paymet! the a!!et!
of the debtor are more tha hi! liabilitie!K
2? ) i!ol%ecy( the a!!et! of the debtor are to be
co%erted ito ca!h for di!trib$tio amog hi! creditor!( -G)7E
i !$!pe!io of paymet! the debtor i! a!.ig for time &ithi
&hich to co%ert hi! propertie! ito ca!h &ith &hich to pay hi!
creditor! a! the obligatio! fall d$e.
3? ) i!ol%ecy the p$rpo!e i! to obtai di!charge
from all debt! ad liability -G)7E i !$!pe!io of paymet!
the p$rpo!e i! to delay paymet of debt! &hich remai
$affected altho$gh a po!tpoemet of paymet! i! declared.
2- What is voluntary insolvency ?
/@DDE/TED A"/-ER; A proceedig ta.e by a
debtor( ha%ig obligatio! e#ceedig P1(000.00 &ho( &ith hi!
e#i!tig a!!et! caot meet all of them goe! to the co$rt to
ha%e him!elf be declared a! a i!ol%et.
"BTE/ A"D *B66E"T/;
a. P)o$e*!)e ,o) 1o'!/&)( %/so'1e/$("
1? :ilig of petitio accompaied by a i%etory of
a!!et! ad !ched$le of liabilitie!K
2? The co$rt i!!$e! a order declarig him a! a
i!ol%etK
3? P$blicatio of the order( ad !er%ice of the order o
the creditor! metioed i the petitioK
J? *reditor! meet to elect a a!!igee( to &hom are
co%eyed all the debtor3! a!!et!K
1? 7i'$idatio ad paymet of creditor!K
9? *ompo!itio >agreemet bet&ee debtor ad
creditor?( if agreedK
7? Brder of di!charge of the i!ol%et.
"BTE/ A"D *B66E"T/ ;
a. The o+'%A&%o/s o, &/ %/so'1e/ *e+o) h&
s!)1%1es &*E!*%$&%o/ o, %/so'1e/$( o) $'&%.s h& $o!'* +e
#!)s!e* &A&%/s & *e+o) *es#%e h%s h&1%/A +ee/
#)o/o!/$e* &s %/so'1e/-
1? Ta#e! ad a!!e!!met! d$e the go%ermet(
atioal or localK
2? Bbligatio! ari!ig from embe++lemet or fra$dK
3? Bbligatio of ay per!o liable &ith the i!ol%et
debtor for the !ame debt( either a! !olidary co,debtor( !$rety(
g$arator( parter( idor!er or other&i!eK
J? Alimoy or claim! for !$pportK ad
1? Debt! ot pro%able agai!t the e!tate >!$ch a!
after ic$rred obligatio!? of( or ot icl$ded i the !ched$le
!$bmitted by( the i!ol%et debtor.
b. I/1o'!/&)( %/so'1e/$( *%s%/A!%she* ,)o.
1o'!/&)( %/so'1e/$(-
1? )%ol$tary three or more creditor! are re'$ired
-G)7E for %ol$tary oe creditor may be !$fficietK
2? )%ol$tary( the creditor! m$!t be re!idet! of the
Philippie! &ho!e credit! or demad accr$ed i the
Philippie! ad oe of the creditor! ha! become a creditor
by a!!igmet &ithi thirty >30? day! prior to the filig of the
petitio -G)7E o !$ch re'$iremet! e#i!t for %ol$tary
i!ol%ecyK
3? )%ol$tary( the amo$t of idebtede!! m$!t ot
be le!! tha P1(000.00 -G)7E for %ol$tary( it m$!t e#ceed
P1(000.00K
J? )%ol$tary( the petitio m$!t be accompaied by
a bod( -G)7E %ol$tary doe! ot re'$ire a bod
=- What is involuntary insolvency ?
/@DDE/TED A"/-ER; A proceedig filed by three or
more creditor! &ho!e credit! aggregate! ot le!! tha
P1(000.00( or by a corporatio or parter!hip to declare a
debtor i!ol%et beca$!e he ha! committed ay oe of the
act! of i!ol%ecy e$merated by la&.
"BTE/ A"D *B66E"T/;
BAR" a. P)o$e*!)e ,o) %/1o'!/&)( %/so'1e/$(-
1? :ilig of petitioK
2? A!&er of defedatK
3? Trial ad order of co$rt adC$dgig debtor a! a i!ol%et( if
!$pported by the fact!K
J? P$blicatio of the order ad !er%ice of it o all creditor!K
1? Electio by creditor! of a a!!igee ad co%eyace of
debtor3! a!!et! to himK
9? 7i'$idatio ad paymet of creditor!K
7? *ompo!itioK
8? Di!charge of the i!ol%et.
b. A$s o, %/so'1e/$( wh%$h w&))&/s ,%'%/A o,
#e%%o/ ,o) %/1o'!/&)( %/so'1e/$(" The debtor;
1? )! departig from the Philippie!K
108
2? )! ab!et ad coti$ed to be ab!etK
3? *oceal! him!elf from C$dicial proce!!K
J? Remo%e! or coceal! hi! propertie!K
1? Allo&ed hi! propertie! to be attached by other!K
9? *ofe!!ed or allo&ed C$dgmet to be ta.e
agai!t himK
7? Allo&ed C$dgmet by defa$lt agai!t himK
8? Allo&ed property to be ta.e by legal proce!! to
gi%e preferece to certai creditor!K
8? 6a.e a!!igmet( gift or !aleK
10? ) cotemplatio of i!ol%ecy( made paymet! or
gift to aotherK
11? Defa$lted i paymet of obligatio! for 30 day!K
12? :ailed after 30 day! to !$rreder moey depo!ited
i tr$!t &ith himK
13? :o$d to ha%e i!$fficiet propertie! to !ati!fy a
C$dgmet.
9*; T)!h %/ he 2e/*%/A A$ 9R-A- No-
=7<?;@
9As &.e/*e* +( he Co/s!.e) A$ o,
:CC2;
:- What are re9uired to furnished under the
0ruth in the 1ending Act# as amended by the Consumer Act
of <=='# to a person to 3hom credit sales is e7tended ?
/@DDE/TED A"/-ER; Ay creditor !hall f$ri!h to
each per!o to &hom credit i! e#teded( prior to the
co!$mmatio of the tra!actio( a clear !tatemet i &ritig
!ettig forth( to the e#tet applicable ad i accordace &ith
r$le! ad reg$latio! pre!cribed by the 6oetary 4oard of the
Ban%ko entral n% Pilipinas( the follo&ig iformatio;
1? the ca!h price or deli%ered price of the property or
!er%ice to be ac'$iredK
2? the amo$t!( if ay( to be credited a! do& paymet
adFor trade,iK
3? the differece bet&ee the amo$t! !et forth $der
cla$!e! >1? ad >2?K
J? the charge!( idi%id$ally itemi+ed( &hich are paid or
to be paid by !$ch per!o i coectio &ith the tra!actio
b$t &hich are ot icidet to the e#te!io of creditK
1? the total amo$t to be fiacedK
9? the fiace charge e#pre!!ed i term! of pe!o! ad
ceta%o!K ad
7? the percetage that the fiace charge bear! to the
total amo$t to be fiaced e#pre!!ed a! a !imple a$al rate
o the o$t!tadig $paid balace of the obligatio. K
8? the effecti%e itere!t rateK
8? the repaymet programK ad
10?the defa$lt or deli'$ecy charge! o late paymet!.
"BTE/ A"D *B66E"T/;
a. ReI!%)e* o ,!)/%she* !/*e) he T)!h %/ he
2e/*%/A A$@ &s &.e/*e* +( he Co/s!.e) A$ o, :CC2@ o
& #e)so/ o who. $o/s!.e) 'o&/ %s e0e/*e*"
1? the amo$t of credit e#tededK
2? the charge!( idi%id$ally itemi+ed( &hich are paid
or to be paid by !$ch per!o i coectio &ith the
tra!actio b$t &hich are ot icidet to the e#te!io of
creditK
3? the total amo$t to be fiacedK
J? the amo$t of fiace charge e#pre!!ed i term!
of pe!o! ad ceta%o!K
1? the effecti%e itere!t rateK
9? the percetage that the fiace charge bear! to
the total amo$t to be fiaced e#pre!!ed a! a !imple a$al
rate o the o$t!tadig $paid balace of the obligatio. K
7? the defa$lt or deli'$ecy charge! o late
paymet!K ad
8? the de!criptio of the !ec$rity.
b. T)&/s&$%o/s wh%$h )eI!%)e he &+o1e
*%s$'os!)es"
1? *redit !ale!K
2? Bpe co!$mer credit plaK
3? *o!$mer loa! ot ope ad co!$mer creditK
ad
J? /ale of co!$mer prod$ct! o i!tallmet ba!i!.
c. H&/*'%/A $h&)Aes /o )e,'e$e* o/ he #)o.%sso)(
/oes $o!'* /o +e $o''e$e* +( he +&/B- 4a.! are
a$thori+ed $der *etral 4a. *irc$lar "o. 10J to collect hadlig
charge!. /ectio 7 of the !ame *irc$lar( ho&e%er( pro%ide! that all
ba.! ad o,ba. fiacial itermediarie! a$thori+ed to egage i
'$a!i,ba.ig f$ctio! are re'$ired to !trictly adhere to the
pro%i!io! of the Tr$th i 7edig Act ad !hall ma.e the tr$e ad
effect co!t of borro&ig a itegral part of e%ery loa cotract.
>Consolidated Bank and Trust Corporation MolidbankN vs. Court of
Appeals, et al., D.R. "o. 81J8J( I$ly 1J( 1881?
109
3OOD 2UCK O
ADVANCE
CON3RATU2ATIONS O
SEE 6OU IN COURT O
110