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PRE-WEEK
COMMERCIAL
LAW
NEGOTIABLE INSTRUMENTS
1. A check, drawn against the Philippine National Bank, was issued payable to the order
of X Co. The drawee bank, however, refused to accept the check on the ground that the
checks serial number was altered. Is the alteration of the serial number a material
alteration under Section 125 of the Negotiable Instruments Law?
No. An alteration is said to be material if it affects the effect of the instrument or one
which changes the items which are required to be stated under Section 1 of the Negotiable
Instrument Law. It means an unauthorized change in an instrument that purports to modify in
any respect the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party.
An alteration of a checks serial number does not alter the relations between the parties
as the names of the drawer, drawee and the intended payee and the sum of money due
remained unchanged. The drawee bank therefore cannot refuse to accept the check on the
ground that the serial number was altered, the same being an immaterial or innocent one.
(Philippine National Bank vs. Court of Appeals, 256 SCRA 491)
2. S purchased grocery items from Monico Mart and paid such with check issued by X.
Upon payment, S signed the check at the back without indicating as to how she could be
bound thereby. In what capacity can S be held liable by signing the check?
S signed the check as an indorser. Section 17f of the Negotiable Instruments Law
provides that where a signature is so placed upon the instrument that it is not clear in what
capacity the person making the same intended to sign, he is deemed an indorser. (Sapiera vs.
Court of Appeals, 314 SCRA 370)
3. The Province of Tarlac issued a check payable to the order of the Concepcion
Emergency Hospital or its Chief. Fausto Pangilinan, a retired administrative officer and
cashier of the payee hospital, forged the signature of the chief of the payee hospital and
was able to collect the amount of the check from the Associated Bank, the collecting
bank. Having known of the forgery, the drawer asked the PNB, drawee bank to restore to
its current account the amount of the check it had debited. The PNB, in turn asked
reimbursement from the Associated Bank. Who bears the loss of the forged
indorsements: the drawer, the drawee, or the collecting bank?
The Associated Bank, as the last indorser, suffers the loss because it has the duty to
ascertain the genuineness of all prior indorsements. (Sec. 66, Negotiable Instruments Law) The
collecting bank is privy to the depositor who deposited the check and is in a better position to
detect forgery, fraud or irregularity in the indorsement. Hence, the drawee bank must restore the
amount it had debited from the current account of the drawer, subject to the right of recovering
from the collecting bank.
However, the Province of Tarlac was also negligent in allowing the retired hospital
cashier to receive the check for the payee hospital without ascertaining why said cashier was
collecting the check in addition to the hospitals real cashier, thereby contributing also to the loss
of the amount of the check. Therefore, it can recover only fifty percent of the amount of the
check from the PNB. The latter may then recover the same amount from the Associated Bank.
(Associated Bank vs. Court of Appeals, 252 SCRA 620)
COMMERCIAL LAW
CORPORATION LAW
1. Restaurant Services Corporation (RSC) owned and operated a restaurant named Las
Conchas. David and Rose Tan are members of the Board of Directors and Officers of the
RSC. RSC shut down the business and terminated the employees of the restaurant. RSC
became inexistent. The employees filed a complaint for payment of separation pay and
13th month pay in the Labor Arbiter against Las Conchas and spouses Tan. The Labor
Arbiter ruled in favor of employees. On appeal, spouses Tan contended that they should
not be liable because they acted in the performance of their duties and in good faith.
Rule on the contention.
The contention is untenable. Although as a rule, the officers and members of a
corporation are not personally liable for acts done in the performance of their duties, this rule
admits of exceptions, one of which is when the employer corporation is no longer existing and is
unable to satisfy the judgment in favor of the employee, the officers should be held liable for
acting on behalf of the corporation. (Restaurante Las Conchas vs. Llego, GR 119085,
September 9, 1999)
2. M2M Realty Development Corporation employed Ambo Boses as pump operator of the
water pump in the Rancho Estates Phase I. However, two years later, M2M ceded its
rights to the water system to the Homeowners Association of the Subdivision. Ambo
filed a complaint with Labor Arbiter for wage differentials, separation pay against M2M
Realty and its Vice-President Vicente Santos. The Labor Arbiter held M2M and Santos
solidarily liable. Is the decision correct? When can an officer of the corporation be made
solidarily liable with corporation?
No. A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporation agents, are not theirs but
the direct accountabilities of the corporation they represent.
Solidary liability arise only in the following cases:
1. Section 31 of the Corporation Code;
2. Section 65 of the Corporation Code;
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unnecessary because the corporate fiction of EPTI is pierced because it was used to hide
ill-gotten wealth. Can the shares of stock of other stockholders be properly made
subject of sequestration?
No. But even if the corporate fiction of EPTI is disregarded, other stockholders cannot
be divested of their shares of stock unless in a proper forum they have shown to have
committed some wrongdoing in acquiring them. A corporation is a collection of individuals and
the idea of its being a legal entity apart from its members is a fiction of law introduced for
convenience in conducting business. When fiction is used to justify wrong, or protect fraud or
defend crime, the law will disregard the existence of corporation as distinct legal entity and view
it merely as association of persons. In this case, only defendants are accused of wrongdoing in
acquiring shares of stock, thus their identified shares of stock should be subject of claims of
government. (Republic vs. Sandiganbayan, 266 SCRA 515)
7. Eriks Pte, Ltd, a non-resident foreign corporation, not licensed to do business in the
Philippines engaged in manufacture and sale of elements used in sealing pumps, valves,
and pipes for industrial purposes, Delfin Mendoza, doing business under Delemen EB
Control Center ordered and received from Eriks Ltd. on 18 different times in one year the
needed equipment. For non-payment of this equipment, Eriks Ltd wanted to sue
Mendoza. Can Eriks Ltd. sue Mendoza in the Philippine courts?
No. The series of transactions could not have been isolated or casual transaction that
would enable Eriks Pte. Ltd. to sue in our courts. What is determinative of doing business is not
really the number or the quantity of the transactions, but more importantly, the intention of an
entity to continue the body of its business in the country. The number and quantity are merely
evidence of such intention. Accordingly, Erik Ltd is incapacitated to maintain an action against
Mendoza.
8. Define isolated transaction.
It is a transaction or series of transaction set apart from the common business of a
foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the
purpose and object of the business organization. Whether a foreign corporation is doing
business does not necessarily depend upon the frequency of its transaction but more upon the
nature and character of the transactions. (Eriks Pte. Ltd. vs CA, 267 SCRA 567)
9. X Company and Y Company agreed that the former shall acquire the assets of the
latter by virtue of Deed of Assignment upon the condition that a new corporation will be
organized as assignee. Z Company was organized with an authorized capital stock of
P60 million, P20 million of which was subscribed. When Z Company applied for
exemption from the coverage of wage order, it was denied by the Board for noncompliance with the guidelines to be considered distressed employer. According to the
Board, the losses did not impair its paid-up capital by at least 25%. It computed paid-up
capital by including the value of assets by including the value of assets transferred by Y
Company and the loans and advances extended by X Company to Z Company, thus
arriving to a conclusion that the actual paid up capital was P64 million. Is the board
correct?
No. By express provision of Sec 13 of Corporation Code, at least 25% of the authorized
capital stock must be subscribed and at least 25% of the total subscriptions must be paid upon
subscription. In this case, since the authorized capital stock is P60 million and total
subscriptions is P20 million, at least 25% of this amount must be paid, thus P5 million was paidup. (MCI-Nacusip Local Chapter v National Wages and Productivity Commission 269 SCRA
173)
10. Itec International Inc. (Itec) is a foreign corporation not licensed to do business in the
Philippines. It entered into a Representative Agreement with Aspac Multi-Trade, Inc.,
(Aspac) a local electronics firm, as its exclusive representative in the Philippines for
the sale of Itec products on a commission basis. Later, Itec terminated said contract
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alleging violations of agreement on the part of Aspac. It then filed an action for the
issuance of writ of preliminary injunction to enjoin further business transactions for
which the court granted. Aspac contended that Itec has no legal personality to sue , as it
is a foreign corporation doing business in the Philippines without the required BOI
authority and SEC license. Is the contention tenable?
No. The general rule is that before a corporation can transact business in this country, it
must first obtain license to transact in the Philippines and certificate from appropriate
government agency. Otherwise, it shall not be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of the Philippines, but it may be sued on
any valid cause of action recognized under Philippine laws.
In this case, the facts show that Itec is deemed to have been engaged in or doing
business in the Philippines because its agreement with Aspac indicates that Itecs purpose is to
bring about a situation among its customers and the general public that they are dealing directly
with Itec and that Itec is actively engaging in business in the country. However, despite the fact
that Itec is doing business in the Philippines, Aspac is estopped to challenge its (Itec)
personality after having acknowledged the same by entering into a contract with it.
One who has dealt with a foreign corporation is estopped to deny its corporate existence
and capacity. The principle will be applied to prevent a person contracting with a foreign
corporation from later taking advantage of its non-compliance with the statutes where such
person has received the benefits of the contract. (Communication Materials & Design, Inc. v
CA 260 SCRA 673)
TRANSPORTATION LAWS
1. On May 31, 1994, A and B boarded Northwest Airlines in Chicago, USA bound for
Philippines. Upon arrival, they found that their baggages were missing. On June 3,
1994, they recovered their baggages and discovered that some of its contents were
destroyed and soiled. Northwest Airlines admitted that because of the weight and
balance restrictions, the baggages were loaded in another Northwest Airlines
Flight which arrived on June 4 1994.
Is the airline company guilty of willful misconduct to warrant the awarding of
moral and exemplary damages to A and B?
Northwest Airlines, Inc. is not guilty of willful misconduct. For willful misconduct to exist,
there must be a showing that the acts complained of were impelled by an intention to violate
laws or were in persistent disregard to ones rights. It must be evidenced by a flagrantly or
shamefully wrong or improper conduct. No malice or bad faith may be imputed to an airline
where, due to weight and balance restrictions, it transported a passengers baggage on another
plane. Said act was done as a safety measure. At most, it is liable only for actual damages.
(Tan v. Northwest Airlines 327 SCRA 263).
2. ABC applied for a Certificate of Public Convenience & Necessity (CPC) with Civil
Aeronautics Board (CAB). It was issued a Temporary Operating Permit while its
application is being heard by CAB.
XYZ filed an Opposition to the application on the ground that CAB has no
jurisdiction to hear the petitioners application until the latter has first obtained a
franchise to operate from Congress.
Can CAB issue the CPC or Temporary Operating Permit to a domestic air transport
who does not possess a legislative franchise to operate as such?
Yes. The CAB has jurisdiction to hear the application and power to issue the Temporary
Operating Permit. RA 776 states in partxx The CAB shall have the power to issue, deny,
amend, revise, alter, modify, cancel or revoke, in whole or in part, upon petitioner-complaint or
upon its own initiative, any Temporary Operating Permit or Certificate of Public Convenience
and Necessityxx. Nothing in the said law negates the power of the CAB to issue the permit
before the completion of the applicants evidence. Assuming arguendo that a legislative
franchise is prerequisite to the issuance of a permit, the absence of the same does not affect
the jurisdiction of the CAB to hear the application, but tolls only upon the ultimate issuance of
the requested permit. (PAL v. Civil Aeronautics Board 270 SCRA 538.)
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COMMERCIAL LAW
Art. 680 of the Code of Commerce, which provides that A charterer who does not complete the
full cargo he bound himself to ship shall pay the freightage of the amount he fails to ship, if the
captain does not take other freight to complete the load of the vessel, in which the first charterer
shall pay the difference, should there be any. (National Food Authority v. CA 311 SCRA 700;
Aug. 4, 1999)
6. What is a charter party? Does a charter party transform a common carrier into a
private one?
A charter party is a contract by which an entire ship or some principal part thereof is let
by the owner to another person for a specified period of time or use. The charterer is treated as
owner pro hac vice of the vessel. In such a case, a common carrier becomes a private carrier.
(Planters Products Jose v. CA 226 SCRA 476)
INSURANCE
1. AB Supplies Dept. of Hongkong contracted XY to manufacture and supply various
steel pipes and fittings. XY insured the pipes and fittings against all risk with SS
Surety and CH Insurance Co. When the goods reached Hongkong, it was discovered that
a substantial portion thereof was damaged. XY filed a claim against the insurance
company but the latter refused to pay because the insurance surveyors report allegedly
showed the damage is a factory defect.
a: Can damage due to factory defect be recovered?
b: If the action was filed more than two years from the unloading of the goods, can
XY still recover from the insurance companies?
a.
COMMERCIAL LAW
3. A reinsurance treaty was entered into between Avon Insurance and Worldwide Surety
through an international insurance broker . Y Cotton Mills filed against Avon to collect
therein alleged percentage liability under contract treaties between Avon and Worldwide
Surety. Avon claim that Philippine courts cannot assert jurisdiction over them since it is a
foreign reinsurance company not doing business in the Philippines. Decide.
Avon contention should be sustained. The reinsurance treaties between the ABC
Insurance and the Worldwide Insurance were made through an international broker and not
through any entity or means remotely connected with the Philippines . There is authority to the
effect that a reinsurance company is not doing business in a certain state merely because the
property or lives which are insured by the original insurer company are located in that state. The
reason for this is that a contract of reinsurance is generally a separate and distinct arrangement
from the original contract of insurance, whose contracted risk is insured in the reinsurance
agreement. Hence, the original insured has generally no interest in the contract of reinsurance.
There is no showing that Avon had performed any act in the country that would place it
within the sphere of courts jurisdiction. (Avon Insurance Company v. CA 278 SCRA 312)
4. JC imported tons of dicalcium phosphate from CG of Taiwan on board SS ABC. The
shipment was insured against all risk SBs name is stamped on the policy as a claim
agent. When the entire cargo was unloaded, it was found out that 600 of the 1250 bags
were damaged and empty. In this regard, JB filed with SB a formal statement of claim
with proof if loss and a demand for settlement of the corresponding value of the loss. SB
denied liability contending that it is merely a settling or claim agent of FIC and as such
agent, it is not personally liable under the policy in which it has not even taken part of .
Rule on the contention.
SB, undisputedly a settling agent acting within the scope of the authority cannot be held
personally liable and/or solidarily liable for the obligation of its disclosed principal merely
because it is allegedly a need for a speedy settlement of the claim of JC. In the leading case of
Salonga v. Warner, Barnes and Co., Ltd. the Supreme Court ruled that the defendant is a
settlement and adjustment agent of the foreign insurance company and that as such agent it
has the authority to settle all the losses and claims that may arise under the policies that may be
issued by or in behalf of said company in accordance with the instructions it may receive from
time to time from its principal, but we disagree with counsel in his contention that as such
adjustment and settlement agent, the defendant has assumed personal liability under said
policies, and therefore, can be sued in its own rights. An adjustment and settlement agent is
no different from any other agent from the viewpoint of his responsibility, for he also act in a
representative capacity . Whenever, he adjusts or settles a claim , he does it in behalf of his
principal, and his action is binding not upon himself but upon his principal. And here again, the
ordinary rule of agency applies.
The only involvement of SB in the subject contract of insurance was having its name
stamped at the bottom left portion of the policy claim as claim agent. Without anything else to
back it up, such stamp cannot even be deemed by the remotest interpretation to mean that SB
participated in the preparation of said contract. (Smith Bell & Co., v CA 267 SCRA 530)
5. a) What does insurable interest in property consist of?
b) Does the buyer of goods, after the perfection of the contract and before delivery of
the article bought have insurable interest in the goods?
a) Insurable interest in property is any interest therein, or liability in respect thereof and it may
consist in an existing interest, an inchoate interest founded on an existing interest or an
expectancy coupled with an existing interest. (Sec 14, ICP)
b) Yes. A buyer of goods has an insurable interest in the goods purchased after perfection of
the contract and before delivery of the goods. The shipping arrangement is immaterial in
determining whether the vendee has an insurable interest or not in the goods in transit. The
perfected contract of sale, even without delivery, vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of insurance. In general, a person
has an insurable interest in the property, if he derives pecuniary benefit or advantage or
would suffer pecuniary loss, damage or prejudice by its destruction whether he has or has
COMMERCIAL LAW
not any title in or liens upon, or possession of the property. (Filipino Merchants Insurance
Co. v CA 179 SCRA 638)
6.Discuss briefly the insurable interest of mortgagor and mortgagee in property
mortgaged.
6
Both the mortgagor and the mortgagee have insurable interests in property mortgaged,
and these interests are separate and distinct from each other. The mortgagor has an insurable
interest equal to the value of the mortgaged property. The reason is that the loss or destruction
of the property insured will not relieved the mortgagor of his duty to pay the principal obligation
guaranteed by the mortgagee. On the other hand, the insurable interest of the mortgagee is
limited to the extent secured by the mortgage. Consequently, he could not recover upon the
insurance an amount in excess of the mortgage credit. When the mortgage credit is discharged,
the insurance as to him terminates. (San Miguel Brewery v. La Union & Rock Co., 40 Phil 674)
7.Suppose that mortgagee A insures the interest in the house of B, mortgagor and
obligor, for P100,000, it being the debt of B to A. The insurance company is X Ins. Before
the loss, A releases B from his obligation. Then the house is burned. May A collect from
X Insurance and will X Ins be subrogated to the rights of A against B? Reasons.
No. A cannot collect from X Insurance. By releasing his claim against B, he ceases to have an
insurable interest in the house insured. Moreover, by doing so he destroyed the right of X Ins to
be subrogated to the rights of A against B. X Insurance will lose the right of subrogation. (PAL v.
Heald Lumber Co. GR No L-11498, August 16, 1957)
WAREHOUSE RECEIPTS LAW
1. A warehouseman deposited his merchandise in his own warehouse, issued a receipt
therefor and negotiated it by endorsement. The receipt recited that the goods were
deposited por orden of the depositor, but contained no statement that the goods were
to be delivered to the bearer of the receipt or to a specified person. It was in the form of a
negotiable warehouse receipt and was not marked non-negotiable or not negotiable.
What is the effect of the words por orden?
The term por orden makes the warehouse receipt a negotiable one. (See Bank of the
Philippine Islands vs. Mer-ridge, 47 Phil. 57)
2. B stole the goods of X and thereafter stored them in As warehouse. A issued a
negotiable receipt to the order of B. B then endorsed the receipt and delivered it to C, a
purchaser for value and without notice. Under Section 9 of the Warehouse Receipts
Law, C is entitled to the possession of the goods. Should X notify A that the goods were
stolen from him and should not be delivered to the holder if the receipt but despite such
notice, A delivered said goods to C, is A liable to X? Reasons.
Yes. The liability of A is for misdelivery. Despite the good faith and lack of notice of the
third persons, C, and of his having given value for the receipt, he acquires no title to the goods
by the negotiation of the receipt to him. The owner of the goods would still be able to claim them
from the warehouseman.
3. A, a warehouseman, issues a negotiable receipt to B or his order for goods stolen by B
from X. B negotiates the receipt to C, a holder for value without notice. A then delivers
the goods to X, the real owner, without requiring the receipt to be surrendered and
without, of course, canceling the same. Is A liable to C for failure to deliver the goods to
the latter? Reasons.
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No. This is so because the negotiation of the receipt to C will not transfer the right to the
possession of the goods to C as C acquired merely the title of B in the goods which is nothing
as he stole the goods. (See Section 41, WRL)
4. Y steals a warehouse receipt issued to B or his order. He (Y) then endorses the receipt
to C, by forging the signature of B. C is a purchaser for value, without notice. Can C
enforce the receipt against A, the warehouseman? Reasons.
No C, acquires rights on the receipt. A purchaser of a forged warehouse receipt,
however innocent, acquires no rights thereunder against the warehouseman. (Annotations 38
ALR 1206). Note: The answer would have been the opposite if the warehouse receipt in the
problem had been deliverable to bearer, thus necessitating no endorsement.
5. On January 10, 1965, X sold and transferred to Y a non-negotiable receipt. On January
11, 1965 Y notified A, the warehouseman, of the transfer of the receipt to him. But on
January 9, 1965, a writ of execution was validly served on X, attaching among others the
goods covered by the receipt. On that same day (Jan. 9), the warehouseman was served
with a notice of levy.
a. Who was a better title to the goods?
b. If Y notified A on January 12, 1965 and the writ was properly served in January
11, 1965, who was better title to the goods?
In both cases, the writ of execution will defeat the title of Y, even if Y is a purchaser in
good faith for value. Prior to the notification of the warehouseman by the transferor or
transferee of a non-negotiable receipt, the title of the transferee to the goods and the right to
acquire the obligation of the warehouseman may be defeated by the levy of an attachment or
execution upon the goods by the creditor of the transferor x x x. (See Sec 42, WRL)
CHATTEL MORTGAGE LAW
1. May a building built in anothers land be the object if chattel Mortgage?
No. A building though vested on a land belonging to another is an immovable unless the
same is merely superimposed on the soil or is sold for immediate demolition. Consequently, a
chattel mortgage over a building whether or not erected on a land belonging to another is void.
(Associated Insurance & Surety Co. vs. Iya, L-10837, May 30, 1958.) However, based on
estoppel, the parties may stipulate to treat the house built on anothers land as a movable
property, and such stipulation made in a chattel mortgage shall bind the parties, but not as far
as third persons are concerned. (See Navarro vs. Pineda, L-18456, Nov. 30, 1963; Makati
Leasing & Finance Corp. vs. Wearever Textile Mills, Inc., 122 SCRA 296)
2. Briefly discuss the effect of assignment of notes secured by chattel mortgage.
A chattel mortgage and the debt secured thereby are so integrated that the notes
evidencing the debt cannot be assigned away by the mortgagee while retaining the mortgage,
and foreclosure of the mortgage by one party and suits on the notes by another cannot be
countenanced. (Bachrach Motor Co. vs. Esteva, 67 Phil. 16.) But where by special agreement,
the notes secured by a chattel mortgage are to be transferred without assignment of the
mortgage itself, the mortgage ceases to exist because there is no debt to which it can be
attached. (Bachrach Motor vs. Esteva, 59 Phil 490.)
3. What are formal requisites of a chattel mortgage?
The following are the requisites for the form of the contract of chattel mortgage:
1. It must substantially be in accordance with the form set forth in Section 5 of the
Chattel Mortgage Law;
2. It must be signed by the mortgagor;
3. It must be signed by at least two witnesses;
4. It must contain an affidavit of good faith; and
5. It must also contain a certificate of oath. (Sec. 5, CML)
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A conveyance or transfer fraudulent made in violation of the Bulk Sales Law is null and
void (Sec 4, BSL) while a conveyance or transfer in fraud of creditors under Art. 1381-1389 of
the New Civil Code is rescissible and is valid until set aside by a competent court.
3. What is a sale or transfer in bulk?
A sale or transfer in bulk in contemplation of the Bulk Sales Law is any sale, transfer,
mortgage or assignment of (a) stock of goods, wares, merchandise, provisions, or materials
otherwise than in the ordinary course of trade and the regular prosecution of the business of
the vendor, mortgagor, transferor, or (b) all, or substantially all of the business or trade therefore
conducted by the vendor, mortgagor, transferor or assignor, or all, or substantially all, of the
fixtures and equipment used in and about the business of the vendor, mortgagor, transferor, or
assignor. (Sec. 2, BSL)
4. What sales or transfer are not covered by the provisions of the Bulk Sales Law?
The following are not covered by the Bulk Sales Law:
1. If the sale or transfer in bulk is made by one who produces and delivers a written
waiver by creditors of the provisions of the Bulk Sales Law. (Sc. 2, BSL)
2. If the sale or transfer is made by an executor, administrator, receiver, assignee in
insolvency or public officer acting under judicial process. (Sec. 8, BSL)
3. If the sale of stock is made by a manufacturer by reason of nature of the latters
business. (Cooney s. Sweat, 133 Ga. 511)
4. If the sale refers to properties exempt from attachment or execution under Section 12
of Rule 39 of the New Rules of Court;
5. In the case of a sale of a foundry shop. (People vs. Wong Szu Tung, CA-G.R. No
9776-R, March 26, 1954.)
6. In case of a sale of the entire business to a corporation which has been organized to
take over and conduct the enterprise. (24 Am. Jur. 360.) But this ruling is
questionable as a corporation has a distinct personality from its stockholders.
TRUST RECEIPTS
1. In what form must a trust receipt be constituted? What must a trust receipt
substantially contain?
A trust receipt need not be in a particular form. (Sec. 5, PD 115)
But it must substantially contain the following:
1) A description of the goods, documents or instruments subject of the trust receipts;
2) The total invoice value of the goods and the amount of the draft to be paid by the entrustee;
3) An undertaking or a commitment of the entrustee:
a) to hold in trust for the entruster the goods, documents or instruments therein described;
b) to dispose of them in the manner provided for in the trust receipt; and
c) to turn over the proceeds of the sale of the goods, documents or instruments to the
entruster to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return the goods, documents or instruments in the event of their non-sale
within the period specified therein. (Sec. 5, PD 115)
2. What is the extent of the validity of the entrusters
purchaser for value and in good faith? against creditors?
1) Against purchaser for value and in good faith of the goods, documents and
instrument covered by the trust receipts, the purchaser is free from the entrusters
security interests. (Sec. 11, PD 115)
2) As against creditors - the entrusters security interest in the goods, documents and
instruments covered by the trust receipt is valid as against all creditors of the
entrustee for the duration of the trust receipt agreement. (Sec. 12, PD 115)
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3. Mr. X executed a trust receipt agreement in favor of Allied Banking Corp. covering
certain construction materials. He agreed to sell said materials for cash with the
obligation to remit to the bank the proceeds of the sale and/or turn over the goods if not
sold. Failing to comply with his obligation, he was charged with estafa under the RPC in
relation to the Trust Receipt Law. Mr. X contended that he could not be held liable solely
on the trust receipts, the same being an additional or side agreement to the principal
contract of loan. Is the contention of Mr. X meritorious?
No. Mr. X could be held liable on the basis of the trust receipt, as such is not merely an
additional or side agreement to the principal contract of loan but partakes the nature of a
security transaction. It is intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased. If it is otherwise, a party to a trust receipt agreement could
easily renege on its obligations thereunder.
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normal manner; and (d) the obligor must be free from any participation in the aggravation of the
injury resulting to the creditor. (Yobido vs. Court of Appeals , 281 SCRA 1)
A common carrier may not be absolved from liability in case of force majuere or
fortuitous event alone. The common carrier must still prove that it was not negligent in causing
the death or injury resulting from an accident. (Yobido vs. Court of Appeals, 281 SCRA 1.)
Even if the corporate fiction of a juridical entity is disregarded, still private individuals
cannot be divested of their shares of stock unless, in a proper forum, they have been shown to
have committed some wrongdoing in acquiring them. (Republic vs. Sandiganbayan, 266 SCRA
515.)
The test to determine whether a foreign company is doing business in the Philippines
seems to be whether a foreign corporation is continuing the body or substance of the business
or enterprise for which it was organized or whether it has substantially retired from it and turned
it over to another. (Eriks Pte., Ltd. vs. Court of Appeals, 267 SCRA 567.)
Redeemable shares are shares usually preferred, which by their terms are redeemable
at a fixed date, or at the option of either issuing corporate, or the stockholder, or both at a
certain redemption price. Redemption may not be made where the corporation is insolvent or if
such redemption will cause insolvency or inability of the corporation to meet its debts as they
mature. (Republic Planters Bank vs. Agana, Sr., 269 SCRA 1.)
Stockholders who are actively engaged in the management or operation of the business
ad affairs of a close corporation shall be personally liable for corporate torts unless the
corporation has obtained reasonable adequate liability insurance. (Naguiat vs. National Labor
Relations Commission, 269 SCRA 564.)
A bill of lading serves two functions: First, it is a receipt for the goods shipped. Second, it
is a contract by which three parties, namely, the shipper, the carrier, and the consignee
undertake specific responsibilities and assume stipulated obligations. (Keng Hua Paper
Products Co., Inc. vs. Court of Appeals, 286 SCRA 257.)
A bill of lading delivered and accepted constitutes the contract of carriage even though
not signed, because the acceptance of a paper containing the terms of a proposed contract
generally constitutes an acceptance of the contract and of all its terms and conditions of which
the acceptor has actual or constructive notice.( Keng Hua Paper Products Co., Inc. vs. Court of
Appeals, 286 SCRA 257.)
In a letter of credit, there are three distinct and independent contracts: (1)the contract of
sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and
(3) the letter of credit proper in which bank promises to pay the seller pursuant to the terms and
conditions stated therein.( Keng Hua Paper products Co., Inc. vs. Court of Appeals, 286 SCRA
257.)
When an airline submits for summary judgment the matter of its liability only to the
maximum allowed in Section 22(2) of the Warsaw convention, it is deemed to hypothetically
admit arguendo that the articles claimed were lost but does not waive the presentation of
evidence that is not in fact liable for the alleged loss. (Northwest Airlines, inc. vs. Court of
Appeals, 284 SCRA 408.)
The Warsaw Convention should be deemed a limit of liability only in those cases where
the cause of the death or injury to person, or destruction to or attended by any willful
misconduct, bad faith, recklessness, or otherwise improper conduct on the part of any official or
employee for which the carrier is responsible, and there is otherwise no special or extraordinary
form of resulting injury. (Northwest Airline, Inc. vs. Court of Appeals, 284 SCRA 408.)
In determining the amount of compensatory damages in branch of contract involving
misplaced luggage, it is vital that the claimant satisfactorily prove during the trial the existence of
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the factual basis of the damages and its causal connection to defendants acts. (British Airways
vs. Court of Appeals, 285 SCRA 450.)
A corporate officers act, for the illegal dismissal of the private respondent, as such
officer cannot result in his private liability. (Cebu Filveneer Corporation vs. National Labor
Relations Commission, 286 SCRA 556.)
Mere ownership by single stockholder or by another corporation of all nearly all of the
capital stock of a corporation is not itself sufficient ground for disregarding the separate
corporate personality. (Asionics Philippines, Inc. vs. National Labor Relations Commission, 290
SCRA 164)
Where there is nothing on record to indicate that the President and majority stockholder
of a corporation had acted in bad faith or with malice in carrying out the retrenchment program
of the company, he cannot be held solidarily and personally liable with the corporation. (Asionics
Philippines, Inc. vs. National Labor Relations Commission, 290 SCRA 164.)
The doctrine of piercing the veil of corporate fiction applies only when such corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. (Union
Bank of the Philippines vs. Court of Appeals, 290 SCRA 198).
The suit against certain shareholders cannot ipso facto be a suit against the
unimpleaded corporation itself without violating the fundamental principle that a corporation has
a legal personality distinct and separate from its stockholders. (Presidential Commission on
Good Government vs. Sandiganbayan 290 SCRA 639.)
A mere typewritten statement advising a stockholder of the extent of his ownership of the
corporation without qualification and/or authentication cannot be considered as a formal
certificate of stock.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may ensure the same
property of his own sole benefit. The intentions of the parties has shown by their
contemporaneous acts, must be given due consideration in order to better serve interest justice
and equity. (Rizal Commercial Banking Corporation vs. Court of Appeals, 289 SCRA 292.)
Failure of a payee to encash a check after more ten (10) years undoubtedly resulted in
the impairment of the check through his unreasonable and unexplained delay. (Papa vs. A.U.
Valencia and Co., Inc., 284 SCRA 643. )
Where the delay in a contracted voyage is incurred after the commencement of such
voyage, Article 698 of the Code of Commerce not Article 1169 of the Civil Code applies. (Trans
Asia Shipping, Inc. vs. Court of Appeals (245 SCRA 260)
Where the chattel mortgage does not authorize the mortgagee to apply previous
payments for the car to the insurance, the mortgagee has to send notice to the mortgagor of it
decides to convert any of the installments made by the latter for the renewal of the insurance.
(Servicewide Specialists, Incorporated vs. Court of Appeals 256 SCRA 649)
As a rule, general or gross averages include all damages and expenses which are
deliberately caused in order to save the vessel, its cargo, or both at the same time, from a real
and known risk. (Philippine Home Assurance Corporation vs. Court of Appeals 257 SCRA 468)
Sec. 384 of the Insurance Code states: Any person having any claim upon the policy
issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance
company concerned a written notice of claim setting forth the nature, extent and duration of the
injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within
six months from date of the accident, otherwise, the claim shall be deemed waived. Action or
suit for recovery of damage due to loss or injury must be brought, in proper cases, with the
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Commissioner or the courts within one year from denial of the claim, otherwise, the claimants
right of action shall prescribe. (Vda. De Gabriel vs. CA, 264 SCRA 137)
An alteration is said to be material if it alters the effects of the instrument. Alteration is
an unauthorized change in an instrument that purports to modify in any respect the obligation of
a party or an unauthorized addition of words or numbers or other charge to an incomplete
instrument relating to the obligation of a party. (Philippine National Bank vs. Court of Appeals
256 SCRA 491)
Warsaw Convention is as much a part of Philippine law as the Civil Code, Code of
Commerce and other municipal special laws, and the provisions therein contained, specifically
on the limitation of carriers liability, are in operation in the Philippines but only in appropriate
situation. (Philippine Airlines vs. CA 255 SCRA 48)
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Over-all Chairperson
Over-all Vice Chair/VC-Academics
Vice Chair Secretariat
Subject Chairpersons
JOSE PANGANIBAN JR.,
JUBERT JAY ANDRION,
ZULEIKA LOPEZ,
ERIC RECALDE,
MARICRIS PAHATE,
NICEFORO AVILA JR.,
VERONICA LLADOC,
DERELA DEVERA,
Political Law
Labor Law
Civil Law
Taxation Law
Criminal Law
Commercial Law
Remedial Law
Legal Ethics and Forms
Chairperson
EDP
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