Mercantile Law

MUST READ CASES (MERCANTILE LAW)

SPECIAL COMMERCIAL LAWS
Letters of Credit

1. Reliance Commodities, Inc. Vs. Daewoo Industrial Co. Ltd., 228 SCRA 545 (1993)
Where there was a meeting of the minds between the buyer and the seller regarding the
sale of foundry pig iron to be paid for under a letter of credit, the failure of the buyer to
open the letter of credit did not prevent the perfection of the contract and neither did such
failure extinguish the contract. The opening of the letter of credit was not a condition
precedent for the birth of obligation of the buyer to purchase the foundry pig iron from
the seller. Where the buyer fails to open the letter of credit, as stipulated, the seller or
exporter is entitled to claim damages for such breach. Damages for failure to open the
letter of credit may include the loss of profit which the seller would have reasonably
made had the transaction been carried out
2. Rodzssen Supply Company, Inc. vs. Far East Bank and Trust Company, 357 SCRA
618 (2001)
An issuing bank which paid the beneficiary of an expired letter of credit can recover
payment from the applicant which obtained the goods from the beneficiary to prevent
unjust enrichment.
3. Transfield Philippines, Inc. vs. Luzon Hydro Corp. 443 SCRA 307 (2004)
Where the applicant entered into a Turnkey contract whereby it undertook to construct,
on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station, the
performance of which is secured by a standby letter of credit, the resort to arbitration by
the applicant/ contractor to arbitration to determine if the latter is guilty of delay does not
preclude the beneficiary to draw on the letter of credit upon its issuance of a certification
of default because whether or not the issuance of certification of default amounted to
fraud was not raised in the lower court and the parties did not stipulate that all dispute
regarding delay should first be settled through arbitration before the beneficiary would be
allowed to call upon the letter of credit. If the drawing upon the letter of credit was
wrongful due to the non-existence of the fact of default, the right of the applicant to seek
indemnification for damages it suffered would not normally be foreclosed pursuant to
general principle of law.
4. MWSS vs. Hon. Daway, 432 SCRA 559 (2004)
The stay order issued by the rehabilitation court pursuant to the Interim Rules of
Corporate Rehabilitation does not apply to the beneficiary of the letter of credit against
the banks that issued it because the prohibition on the enforcement of claims against the
debtor, guarantors or sureties of the debtors does not extend to the claims against the

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issuing bank in a letter of credit. Letters of credit are primary obligations and not
accessory contracts and while they are security arrangements, they are not thereby
converted into contracts of guaranty.
5. Metrobank v.
Ley Construction and Development Corporation, G.R. No.
185590, December 03, 2014
The legal rights of the Bank and the correlative legal duty of LCDC have not been
sufficiently established by the Bank in view of the failure of the Banks evidence to show
the provisions and conditions that govern its legal relationship with LCDC, particularly
the absence of the provisions and conditions supposedly printed at the back of the
Application and Agreement for Commercial Letter of Credit. Even assuming arguendo
that there was no impropriety in the negotiation of the Letter of Credit and the Banks
cause of action was simply for the collection of what it paid under said Letter of Credit,
the Bank did not discharge its burden to prove every element of its cause of action against
LCDC.
6. Bank of the Philippine Islands vs. De Reny Fabric Industries, Inc. 35 SCRA 253
(1970)
A buyer who applied for a letter of credit to pay for imported dyestuffs must reimburse
the issuing bank which paid the beneficiary, even if the shipment contained colored
chalks. Banks are not required to investigate if the contract underlying the letter of credit
has been fulfilled or not because in a transaction involving letter of credit, banks deal
only with documents and not with goods.
7. Bank of America vs. Court of Appeals, 228 SCRA 357 (1993)
When the notifying bank entered into a discounting arrangement with the beneficiary, it
acts independently as a negotiating bank. As such, the negotiating bank has a right to
recourse against the issuer bank and until reimbursement is obtained, the beneficiary, as
the drawer of the draft, continues to assume a contingent liability thereon.
8. LBP vs. Monets Export and Manufacturing Corp., 452 SCRA 173 (2005)
The issuing bank is not liable for damages even if the shipment did not conform to the
specifications of the applicant. Under the independence principle, the obligation of the
issuing bank to pay the beneficiary arises once the latter is able to submit the stipulated
documents under the letter of credit. Hence, the bank is not liable for damages even if
the shipment did not conform to the specifications of the applicant.
9. Philippine National Bank vs. San Miguel Corporation, G.R. No. 186063, January 15,
2014.
Where the trial court rendered a decision finding the buyer solely liable to pay the seller
and omitted by inadvertence to insert in its decision the phrase without prejudice to the
decision that will be made against the issuing bank, the bank can not evade
responsibility based on this ground. The seller which is entitled to draw on the credit line

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of the buyer from a bank against the presentation of sales invoices and official receipts of
the purchases and which obtained a court judgment solely against the buyer even though
the suit is against the bank and the buyer may still enforce the liability of the same bank
under a letter of credit issued to secure the credit line. The so-called "independence
principle" in a letter of credit assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from
determining whether the main contract is actually accomplished or not.
10. Transfield Philippines, Inc. vs. Luzon Hydro Corp. 443 SCRA 307 (2004)
The fraud exception principle is an exception to the independence principle. The
untruthfulness of a certificate accompanying a demand for payment under a standby letter
of credit may qualify as fraud sufficient to support an injunction against payment. The
remedy for fraudulent abuse is an injunction. However, injunction should not be granted
unless: (a) there is a clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and not only fraud under the main agreement;
and (c) irreparable injury might follow if injunction is not granted or the recovery of
damages would be seriously damaged.
11. Feati Bank & Trust Company vs. Court of Appeals, 196 SCRA 576 (1991)
When the letter of credit required the submission of a certification that the
applicant/buyer has approved the goods prior to shipment, the unjust refusal of the
applicant/buyer to issue said certification is not sufficient to compel the bank to pay the
beneficiary thereof. Under the doctrine of strict compliance, the documents tendered must
strictly conform to the terms of the letter of credit, otherwise, the bank which accepts a
faulty tender, acts on its own risks and may not be able to recover from the
applicant/buyer.
Trust Receipts Law
12. Metropolitan Bank & Trust Company vs. Tonda, 338 SCRA 254 (2000)
Compensation shall not be proper when one of the debts consists in civil liability arising
from a penal offense; moreover, any compromise relating to the civil liability does not
automatically extinguish the criminal liability of the accused. The mere failure of the
entrustee to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal
offense that causes prejudice not only to another, but more to the public interest.
13. Lee vs. Court of Appeals, 375 SCRA 579 (2002)
A trust receipt is a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral of the merchandise imported or purchased. Under a letter of
credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with
the trust receipt as a security for the loan; hence, the transaction involves a loan feature

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represented by a letter of credit, and a security feature which is in the covering trust
receipt which secures an indebtedness.
14. Colinares vs. Court of Appeals, 339 SCRA 609 (2000)
The transaction is a simple loan when the goods subject of the agreement had been
purchased and delivered to the supposed entrustee prior to the execution of the trust
receipt agreement. The acquisition of ownership over the goods before the execution of
the trust receipt agreement makes the contract a simple loan, regardless of the
denomination of the contract.
15. Consolidated Bank & Trust Corp. vs. Court of Appeals, 356 SCRA 671 (2001)
Respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale;
it needed the oil for its own operations. More importantly, at no time did title over the oil
pass to petitioner bank, but directly to respondent Corporation to which the oil was
directly delivered long before the trust receipt was executed; thus, the contract executed
by the parties is a simple loan and not a trust receipt agreement.
16. Prudential Bank vs. National Labor Relations Commission, 251 SCRA 412 (1995)
The security interest of the entruster pursuant to the written terms of a trust receipt shall
be valid as against all creditors of the entrustee for the duration of the trust receipt
agreement, including among others, the laborers of the entrustee. The only exception to
the rule is when the properties are in the hands of an innocent purchaser for value and in
good faith.
17. Pilipinas Bank vs. Ong, 387 SCRA 37 (2002)
Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust
receipt to the entruster or to return the goods, if they were not disposed of, shall constitute
the crime of estafa. However, what is being punished by law is the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of another regardless of
whether the latter is the owner. No dishonesty nor abuse of confidence can be attributed to
the entrustee if the latter failed to comply with its obligation upon maturity of the trust
receipt due to serious liquidity problems and after it was placed under the control of the
management committee created by SEC which took custody of the entrustees assets,
including lumbers subject of the trust receipt. Clearly, it was the management committee
which could settle the entrustees obligations. The mala prohibita nature of the offense
notwithstanding, the entrustees intent to misuse or misappropriate the goods or their
proceeds has not been established based on the circumstances.
Also, the Memorandum of Agreement between the parties did not only reschedule the
entrustees debts, but more importantly, it provided principal conditions which are
incompatible with the trust agreement. Hence, the MOA novated and effectively
extinguished the entrustees obligation under the trust receipt agreement.
18. Anthony L. Ng vs. People of the Philippines, G.R. No. 173905, April 23, 2010

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When the goods subject of the transaction, such as chemicals and metal plates, were not
intended for sale or resale but for use in the fabrication of steel communication towers,
the agreement cannot be considered a trust receipt transaction but a simple loan. P.D. No.
115 punishes the entrustee for his failure to deliver the price of the sale, or if the goods
are not sold, to return them to the entruster, which, in the present case, is absent and
could not have been complied with; therefore, the liability of the entrustee is only civil in
nature.
19. Land Bank of the Philippines vs. Perez, G.R. No. 166884, June 13, 2012
Under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails
to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster;
or (2) when the entrustee fails to return the goods under trust, if they are not disposed of
in accordance with the terms of the trust receipts. When both parties know that the
entrustee could not have complied with the obligations under the trust receipt without his
fault, as when the goods subject of the agreement were not intended for sale or resale, the
transaction cannot be considered a trust receipt but a simple loan, where the liability is
limited to the payment of the purchase price.
20. Hur Tin Yang vs. People of the Philippines, G.R. No. 195117, August 14, 2013
When both parties entered into an agreement knowing fully well that the return of the
goods subject of the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation
to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the bank the amount spent
for the purchase of the goods.
21. Vintola vs. Insular Bank of Asia and America, 150 SCRA 140 (1987)
A trust receipt transaction is a security agreement, pursuant to which the entruster
acquires a security interest in the goods, which are released to the possession of the
entrustee who binds himself to hold the goods in trust for the entruster and to sell or
otherwise dispose of the goods or to return them in case of non-sale. The return of the
goods to the entruster however, does not relieve the entrustee of the obligation to pay the
loan because the entruster is not the factual owner of the goods and merely holds them as
owner in the artificial concept for the purpose of giving stronger security for the loan.
22. Rosario Textile Mills Corp. vs. Home Bankers Savings and Trust Company, 462
SCRA 88 (2005)
Where the entrustee tendered the return of the articles to the entrustee because they did
not meet its manufacturing requirements but the latter refused to accept and as a
consequence, the entruster stored them in its warehouse which was, however, gutted by
fire, the entrustees obligation was not extinguished despite the tender and its invocation
of the principle of res perit domino. Under the Trust Receipts law, the loss of the goods

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under trust receipt regardless of the cause and the period or time it occurred, does not
extinguish the civil obligation of the entrustee. A trust receipt has two features, the loan
and security features. The loan is brought about by the fact that the entruster financed the
importation or purchase of the goods under TR. Until and unless this loan is paid, the
obligation to pay subsists. The principle of res perit domino will not apply if under the
trust receipt, the bank is made to appear as the owner, it was but an artificial expedient,
more of legal fiction than fact, for if it were really so, it could dispose of the goods in any
manner that it wants, which it cannot do, just to give consistency with the purpose of the
trust receipt of giving a stronger security for the loan obtained by the importer. To
consider the bank as the true owner from the inception of the transaction would be to
disregard the loan feature thereof.
23. Ong vs. Court of Appeals, 401 SCRA 649 (2003)
Recognizing the impossibility of imposing the penalty of imprisonment on a corporation,
it was provided that if the entrustee is a corporation, the penalty shall be imposed upon
the directors, officers, employees or other officials or persons responsible for the offense.
However, the person signing the trust receipt for the corporation is not solidarily liable
with the entrustee-corporation for the civil liability arising from the criminal offense
unless he personally bound himself under a separate contract of surety or guaranty.
24. Alfredo Ching vs. Secretary of Justice, 481 SCRA 609 (2006)
The fact that the officer who signed the trust receipt on behalf of the entrusteecorporation signed in his official capacity without receiving the goods as he had never
taken possession of such nor committing dishonesty and abuse of confidence in
transacting with the entrustor, is immaterial. The law specifically makes the director,
officer, employee or any person responsible criminally liable precisely for the reason that
a corporation, being a juridical entity, cannot be the subject of the penalty of
imprisonment.
25. South City Homes, Inc. vs. BA Finance Corporation, 371 SCRA 603 (2001)
When the entrustee defaults on his obligation, the entruster has the discretion to avail of
remedies which it deems best to protect its right. The law uses the word may in
granting to the entruster the right to cancel the trust and take possession of the goods;
hence, the option is given to the entruster.
26. Sarmiento vs. Court of Appeals, 394 SCRA 315 (2002)
A civil case filed by the entruster against the entrustees based on the failure of the latter
to comply with their obligation under the Trust Receipt agreement is proper because this
breach of obligation is separate and distinct from any criminal liability for misuse and/or
misappropriation of goods or proceeds realized from the sale of goods released under the
trust receipts. Being based on an obligation ex contractu and not ex delicto, the civil
action may proceed independently of the criminal proceedings instituted against the
entrustees regardless of the result of the latter.

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27. Landl & Company vs. Metropolitan Bank, 435 SCRA 639 (2004)
As provided under Section 7, P.D. No. 115, in the event of default of the entrustee, the
entruster may cancel the trust and take possession of the goods subject of the trust or of
the proceeds realized therefrom at any time; the entruster may, not less than five days
after serving or sending of notice of intention to sell, proceed with the sale of the goods at
public or private sale where the entrustee shall receive any surplus but shall be liable to
the entruster for any deficiency. This is by reason of the fact that the initial repossession
by the bank of the goods subject of the trust receipt did not result in the full satisfaction
of the entrustees loan obligation.
Banking Laws
28. Teodoro Baas vs. Asia Pacific Finance Corporation, G.R. No. 128703, October 18,
2000
Transactions involving purchase of receivables at a discount, well within the purview of
investing, reinvesting or trading in securities, which as investment company is authorized
to perform, does not constitute a violation of the General Banking Act. In this case, the
funds supposedly lent have not been shown to have been obtained from the public by way
of deposits, hence, it cannot be said that the investment company was engaged in
banking.
29. PNB v. Sps. Tajonera, G.R. No. 195889, 24 September 2014
Being a banking institution, PNB owes it to the respondents to observe the high standards
of integrity and performance in all its transactions because its business is imbued with
public interest. The high standards are also necessary to ensure public confidence in the
banking system, for, according to Philippine National Bank v. Pike, "[t]he stability of
banks largely depends on the confidence of the people in the honesty and efficiency of
banks." Thus, PNB was duty bound to comply with the terms and stipulations under its
credit agreements with the respondents, specifically the release of the amount of the
additional loan in its entirety, lest it erodes public confidence. Yet, PNB failed in this
regard.
30. Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No. 138569,
September 11, 2003
Banks must exercise a high degree of diligence in insuring that they return the passbook
only to the depositor or his authorized representative. The tellers should know that the
rules on savings account provide that any person in possession of the passbook is
presumptively its owner. By the teller giving the passbook to the wrong person, thereby
facilitating unauthorized withdrawals by that person, and for failing to return the
passbook to the authorized representative of the depositor, the Bank presumptively failed
to observe such high degree of diligence in safeguarding the passbook and in insuring its
return to the party authorized to receive the same. However, the Banks liability is

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mitigated by the depositors contributory negligence in allowing a withdrawal slip signed

by its authorized signatories to fall into the hands of an impostor.
31. Citibank, N.A. vs. Spouses Luis & Carmelita Cabamongan, G.R. No. 146918, May 2,
2006
Allowing the pretermination of the account despite noticing discrepancies in the signature
and photograph of the person claiming to be the depositor, accompanied by the failure to
surrender the original certificate of time deposit, amounted to negligence on the part of
the bank. A bank that fails to exercise the degree of diligence required of it becomes
liable for damages.
32. Comsavings Bank vs. Spouses Danilo and Estrella Capistrano, G.R. No. 170942,
August 28, 2013
A banking institution serving as an originating bank for the Unified Home Lending
Program (UHLP) of the Government owes a duty to observe the highest degree of
diligence and a high standard of integrity and performance in all its transactions with its
clients because its business is imbued with public interest.
33. Land Bank of the Philippines vs. Emmanuel Oate, G.R. No. 192371, January 15,
2014
As a business affected with public interest and by reason of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. A bank that mismanages
the trust accounts of its client cannot benefit from the inaccuracies of the reports resulting
therefrom; it cannot impute the consequence of its negligence to the client which resulted
to miscrediting of funds.
34. Ileana Macalinao vs. Bank of the Philippine Islands, G.R. No. 175490, September 17,
2009
When the stipulation on the interest rate is void, it is as if there was no express contract
thereon; hence, courts may reduce the interest rate as reason and equity demand, which
would depend on the circumstances of each case. In the present case, the fact that
petitioner made partial payments makes the stipulated penalty charge of 3% per month or
36% per annum, in addition to regular interests, iniquitous and unconscionable.
35. Heirs of Estelita Burgos-Lipat namely: Alan B. Lipat and Alfredo B. Lipat, Jr. vs.
Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et. al., G.R. No.
185644, March 2, 2010
Section 78 of the General Banking Act requires payment of the amount fixed by the court
in the order of execution, with interest thereon at the rate specified in the mortgage
contract, which shall be applied for the one-year period reckoned from the date of
registration of the certificate of sale. Nonetheless, when the period to exercise the right of
redemption was effectively extended beyond one year, it is only fair and just to require

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the payment of 12% interest per annum beyond the one-year period up to the date of
consignment of the redemption price with the RTC.
36. Advocates for Truth in Lending vs. BSP, G.R. No. 192986, January 15, 2013
The CB Circular No. 905 merely suspended the effectivity of the Usury Law, thereby
allowing the parties to freely stipulate on the rate of interest. Nonetheless, the lifting of
the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
37. Jose C. Go vs. BSP, G.R. No. 178429, October 23, 2009
The law on DOSRI transactions imposes three restrictions: a) the approval requirement,
which refers to the written approval of the majority of the banks board of directors,
excluding the director concerned; b) the reportorial requirement, which mandates that the
approval should be entered upon the records of the corporation, and a copy of the entry
be transmitted to the appropriate supervising department; and c) the ceiling requirement,
which limits the amount of credit accommodations to an amount equivalent to the
respective outstanding deposits and book value of the paid-in capital contribution in the
bank. Failure to observe the three requirements constitutes commission of three separate
and different offenses.
38. Hilario P. Soriano vs. People of the Philippines, et. al., G.R. No. 162336, February 1,
2010
The rule on DOSRI transactions covers loans by a bank director or officer which are
made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or
agent of others. The bank officers act of indirectly securing a fraudulent loan
application by using the name of an unsuspecting person and without prior compliance
with the requirements of the law would make the officer liable not only for violation of
the law on DOSRI transactions but also for estafa through falsification of commercial
documents
The New Central Bank Act (R.A. No. 7653)
39. Ana Maria Koruga vs. Teodoro Arcenas, Jr., G.R. No. 168332/ G.R. No. 169053,
June 19, 2009
The Monetary Board, is vested with exclusive authority to assess, evaluate and determine
the condition of any bank, and finding such condition to be one of insolvency, or that its
continuance in business would involve a probable loss to its depositors or creditors,
forbid bank or non-bank financial institution to do business in the Philippines; and shall
designate an official of the BSP or other competent person as receiver to immediately
take charge of its assets and liabilities. When the complaint filed by a stockholder of the
bank pertains to the alleged unsafe and unsound banking practices, the authority to
determine the existence of such is with the Monetary Board.

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40. BSP Monetary Board vs. Hon. Antonio-Valenzuela, G.R. No. 184778, October 2,
2009
The actions of the Monetary Board under Sec. 29 and 30 of RA 7653, which pertain to
the power to appoint a conservator or a receiver for a bank, may not be restrained or set
aside by the court except on petition for certiorari on the ground that the action taken was
in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction. Hence, the issuance by the RTC of writs of preliminary injunction
is an unwarranted interference with the powers of the Monetary Board.
41. Central Bank of the Philippines vs. Court of Appeals, G.R. No. 88353, May 8, 1992
The following requisites must be present before the order of conservatorship may be set
aside by a court: 1) The appropriate pleading must be filed by the stockholders of record
representing the majority of the capital stock of the bank in the proper court; 2) Said
pleading must be filed within ten (10) days from receipt of notice by said majority
stockholders of the order placing the bank under conservatorship; and 3) There must be
convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith.
42. Philippine International Bank vs. Court of Appeals, G.R. No. 115849, January 24,
1996
The authority of the conservator under the Central Bank Law is limited to acts of
administration; the conservator merely takes the place of the banks board of directors
and as such, the former cannot perform acts the latter cannot do. Hence, the conservator
cannot revoke a contract of sale of a property acquired by the bank entered into by a bank
officer even though the price agreed upon is no longer reflective of the fair market value
of the property by reason of its appreciation of value over time.

43. Rural Bank of San Miguel vs. Monetary Board, G.R. No. 150886, February 16, 2007
Under R.A. No. 265, an examination is required to be made before the Monetary Board
could issue a closure order; however, under R.A. No. 7653, prior notice and hearing are
no longer required and a report made by the head of the supervising and examining
department suffices for a bank to be closed and placed under receivership. The purpose
of the law is to make the closure of the bank summary and expeditious for the protection
of the public interest
44. Abacus Real Estate Development Center, Inc. vs. Manila Banking Corp., G.R. No.
162270, April 06, 2005
When a bank is placed under receivership, the appointed receiver is tasked to take charge
of the banks assets and properties and the scope of the receivers power is limited to acts
of administration. The receivers act of approving the exclusive option to purchase
granted by the banks president is beyond the authority of the former and as such, it
cannot be considered a valid approval.

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45. Alfeo D. Vivas, vs. Monetary Board and PDIC, G.R. No. 191424, August 7, 2013
The Monetary Board may forbid a bank from doing business and place it under
receivership without prior notice and hearing it the MB finds that a bank: (a) is unable to
pay its liabilities as they become due in the ordinary course of business; (b) has
insufficient realizable assets to meet liabilities; (c) cannot continue in business without
involving probable losses to its depositors and creditors; and (d) has willfully violated a
cease and desist order of the Monetary Board for acts or transactions which are
considered unsafe and unsound banking practices and other acts or transactions
constituting fraud or dissipation of the assets of the institution.
46. ]Jerry Ong vs. Court of Appeals, G.R. No. 112830, February 1, 1996
The court shall have jurisdiction in the same proceedings to adjudicate disputed claims
against the bank and enforce individual liabilities of the stockholders and do all that is
necessary to preserve the assets of such institution and to implement the liquidation plan
approved by the Monetary Board. Hence, all claims against the insolvent bank should be
filed in the liquidation proceeding and it is not necessary that a claim be initially disputed
in a court or agency before it is filed with the liquidation court.
47. Domingo Manalo vs. Court of Appeals, G.R. No. 141297, October 8, 2001
The rule that all claims against a bank must be filed in the liquidation proceedings does
not apply to actions filed by the bank itself for the preservation of its assets and
protection of its property, such as a petition for the issuance of a Writ of Possession
instituted by the bank itself. Moreover, a bank ordered closed by the Monetary Board
retains its personality which can sue and be sued through its liquidator.
48. Leticia G. Miranda vs. Philippine Deposit Insurance Corporation, G.R. No. 169334,
September 8, 2006
As a rule, bank deposits are not preferred credits. However, when the deposits covered
by a cashiers check were purchased from a bank at the time when it was already
insolvent, the purchase is entitled to preference in the assets of the bank upon its
liquidation by reason of the fraud in the transaction.
49. Oate vs. Abrogar, G.R. No. 107303, February 23, 1995
In a case where the money paid by an insurance company for treasury bills was deposited
in a bank account, the examination of the said bank account is prohibited under R.A. No.
1405 by reason of the fact that the subject matter of the action filed by the insurance
company against the seller of the treasury bills is the failure to deliver the treasury bills,
not the money deposited.
50. Intengan vs. Court of Appeals, G.R. No. 128996, February 15, 2002
When the account subject of the complaint is in the foreign currency, such complaint
filed for violation of R.A. No. 1405 did not toll the running of the prescriptive period to

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file the appropriate complaint for violation of R.A. No. 6426. The Law on Secrecy of
Bank Deposits (R.A. No. 1405) covers deposits under the Philippine Currency; a separate
and distinct law governs deposits under the foreign currency (R.A. No. 6426).
51. Ejercito vs. Sandiganbayan, G.R. Nos. 157294-95, November 30, 2006
The deposits covered by the law on secrecy of bank deposits should not be limited to
those creating a creditor-debtor relationship; the law must be broad enough to include
deposits of whatever nature which banks may use for authorized loans to third persons.
R.A. No. 1405 extends to funds invested such as those placed in a trust account which the
bank may use for loans and similar transactions.
52. Mellon Bank, N.A. vs. Magsino, G.R. No. 71479, October 18, 1990
One of the exceptions under R.A. No. 1405 is when a court order is issued for the
disclosure of bank deposits in a case where the money deposited is the subject matter of
litigation. When the subject matter is the money the bank transmitted by mistake, an
inquiry to the whereabouts of the amount extends to whatever concealed by being held or
recorded in the name of the persons other than the one responsible for the illegal
acquisition.
53. Marquez vs. Desierto, G.R. No. 135882, June 27, 2001
In a case for violation of the Anti-Graft and Corrupt Practices Act, the Ombudsman can
only examine bank accounts upon compliance with the following requisites: there is a
pending case before a court of competent jurisdiction; the account must be clearly
identified, and the inspection must be limited to the subject matter of the pending case;
the bank personnel and the account holder must be informed of the examination; and such
examination must be limited to the account identified in the pending case. If there is no
pending case yet but only an investigation by the Ombudsman, any order for the
examination of the bank account is premature.
54. PCIB vs. Court of Appeals, G.R. No. 84526, January 28, 1991)
The law on secrecy of bank deposits cannot be used to preclude the bank deposits from
being garnished for the satisfaction of a judgment. There is no violation of R.A. No.
1405 because the disclosure is purely incidental to the execution process and it was not
the intention of the legislature to place bank deposits beyond the reach of the judgment
creditor.
55. Salvacion vs. Central Bank of the Philippines, G.R. No. 94723, August 21, 1997)
A foreign transient who raped a minor, escaped and was made liable for damages to the
victim cannot invoke the exemption from court process of foreign currency deposits
under R.A. No. 6426. The garnishment of his foreign currency deposit should be allowed
by reason of equity and to prevent injustice; moreover, the purpose of the law is to
encourage foreign currency deposits and not to benefit a wrongdoer.

Mercantile Law

56. Republic of the Philippines vs. Glasgow Credit and Collection Services, Inc., G.R.
No. 170281, January 18, 2008
Since the account of Glasgow in CSBI was (1) covered by several suspicious transaction
reports and (2) placed under the control of the trial court upon the issuance of the writ of
preliminary injunction, the conditions provided in Section 12(a) of RA 9160, as amended,
were satisfied. A criminal conviction for an unlawful activity is not a prerequisite for the
institution of a civil forfeiture proceeding. A finding of guilt for an unlawful activity is
not an essential element of civil forfeiture.
57. Republic of the Philippines vs. Cabrini Green & Ross, Inc., G.R. No. 154522, May 5,
2006
The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the
Court of Appeals over the extension of freeze orders. It is solely the CA which has the
authority to issue a freeze order as well as to extend its effectivity; it also has the
exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC
vis--vis accounts and deposits related to money-laundering activities
58. Ret. Lt. Gen. Jacinto Ligot, et. al. vs. Republic of the Philippines, G.R. No. 176944,
March 6, 2013
The primary objective of a freeze order is to temporarily preserve monetary instruments
or property that are in any way related to an unlawful activity or money laundering, by
preventing the owner from utilizing them during the duration of the freeze order. The
effectivity of the freeze order was limited to a period not exceeding six months, which
may be extended by the CA should it become completely necessary. Nonetheless, when
the Republic has not offered any explanation why it took six years before a civil
forfeiture case was filed in court, it can only be concluded that the continued extension of
the freeze order beyond the six-month period violated the partys right to due process.
Negotiable Instruments Law

59. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust
Company, G.R. No. 97753, August 10, 1992
When the documents provide that the amounts deposited shall be repayable to the
depositor, such instrument is negotiable because it is payable to the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him, but the amounts are to be repayable to the
bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment.
60. Traders Royal Bank vs. Court of Appeals, Filriters Guaranty Assurance
Corporation and Central Bank of the Philippines, G.R. No. 93397, March 3, 1997

Mercantile Law

The language of negotiability which characterizes a negotiable paper as a credit

instrument is its freedom to circulate as a substitute for money. The freedom of
negotiability is the touchstone relating to the protection of holders in due course and is
the foundation for the protection which the law thrown around a holder in due course.
This freedom in negotiability is totally absent in a certificate of indebtedness which
merely acknowledges to pay a sum of money to a specified persons or entity. Since a
certificate of indebtedness which is not payable to order or bearer but is payable to a
specific person is not negotiable, the assignee takes it subject to the defect in the title of
the assignor. Thus, when the person who signed the deed of assignment was not
authorized by the board of directors, the assignor had no title to convey to the assignee.
61. Hongkong & Shanghai Banking Corporation v. CIR, G.R. Nos. 166018 & 167728,
04 June 2014
The electronic messages are not signed by the investor-clients as supposed drawers of a
bill of exchange; they do not contain an unconditional order to pay a sum certain in
money as the payment is supposed to come from a specific fund or account of the
investor-clients; and, they are not payable to order or bearer but to a specifically
designated third party. Thus, the electronic messages are not bills of exchange. As there
was no bill of exchange or order for the payment drawn abroad and made payable here in
the Philippines, there could have been no acceptance or payment that will trigger the
imposition of the DST under Section 181 of the Tax Code.
62. Philippine National Bank vs. Erlando T. Rodriguez and Norma Rodriguez, G.R. No.
170325, September 26, 2008
Under the fictitious payee rule, a check made expressly payable to a non-fictitious and
existing person is not necessarily an order instrument if the payee is not the intended
recipient of the proceeds of the check. There is, however, a commercial bad faith
exception to this rule which provides that a showing of commercial bad faith on the part
of the drawee bank, or any transferee of the check for that matter, will work to strip it of
this defense.
63. People Of The Philippines Vs. Gilbert Reyes Wagas. G.R. No. 157943, September 4,
2013
Under the Negotiable Instruments Law, a check made payable to cash is payable to the
bearer and could be negotiated by mere delivery without the need of an indorsement.
However, the drawer of the post-dated check cannot be liable for estafa to the person who
did not acquire the instrument directly from drawer but through negotiation of another by
mere delivery. This is because the drawer did not use the check to defraud the
holder/private complainant.
64. Prudential Bank v. Commissioner of Internal Revenue (CIR) G.R. No. 180390, July
27, 2011

Mercantile Law

A certificate of deposit is defined as a written acknowledgement by a bank of the receipt

of a sum of money on deposit which the bank promise to pay to the depositor or the order
of the depositor or to some other person or his order whereby the relation of debtor and
creditor between the bank and the depositor is created. A document to be considered a
certificate of deposit need not be in a specific form. Thus, a passbook of an interestearning deposit account issued by a bank is a certificate of deposit drawing interest
because it is considered a written acknowledgment by a bank that it has accepted a
deposit of a sum of money from a depositor. Thus, it is subject to documentary stamp tax.
65. Ting Ting Pua vs. Spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, G.R.
No. 198660, October 23, 2013
The 17 original checks, completed and delivered to petitioner, are sufficient by
themselves to prove the existence of the loan obligation of the respondents to petitioner.
Sec. 16 of the NIL provides that when an instrument is no longer in the possession of the
person who signed it and it is complete in its terms "a valid and intentional delivery by
him is presumed until the contrary is proved.
66. Patrimonio v. Gutierrez, G.R. No. 187769, 04 June 2014
While under the law, the one in possession had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e., subsequent transfer or
negotiation) once the check is completed. In other words, only the authority to complete
the check is presumed. Further, the law used the term "prima facie" to underscore the fact
that the authority which the law accords to a holder is a presumption juris tantum only;
hence, subject to contrary proof. Thus, evidence that there was no authority or that the
authority granted has been exceeded may be presented by the maker in order to avoid
liability under the instrument.
In the present case, no evidence is on record that the one to whom the check was
delivered ever secured prior approval from the petitioner to fill up the blank or to use the
check. In his testimony, petitioner asserted that he never authorized nor approved the
filling up of the blank checks.
67. San Miguel Corporation vs. Puzon, Jr. G.R. No. 167567, 22 September 2010
If the post-dated check was given to the payee in payment of an obligation, the purpose
of giving effect to the instrument is evident, thus title or ownership the check was
transferred to the payee. However, if the PDC was not given as payment, then there was
no intent to give effect to the instrument and ownership was not transferred. The evidence
proves that the check was accepted, not as payment, but in accordance with the policy of
the payee to cover the transaction (purchase of beer products) and in the meantime the
drawer was to pay for the transaction by some other means other than the check. This
being so, title to the check did not transfer to the payee; it remained with the drawer. The
second element of the felony of theft was therefore not established. Hence, there is no
probable cause for theft.

Mercantile Law

68. Equitable Banking Corporation vs Special Steel Products, June 13, 2012
The fact that a person, other than the named payee of the crossed check, was presenting it
for deposit should have put the bank on guard. It should have verified if the payee
authorized the holder to present the same in its behalf or indorsed it to him. The banks
reliance on the holders assurance that he had good title to the three checks constitutes
gross negligence even though the holder was related to the majority stockholder of the
payee. While the check was not delivered to the payee, the suit may still prosper because
the payee did not assert a right based on the undelivered check but on quasi-delict.
69. Westmont Bank (formerly Associated Banking Corp.) vs. Eugene Ong, G.R. No.
132560, January 30, 2002
As a general rule, a bank or corporation who has obtained possession of a check upon an
unauthorized or forged indorsement of the payees signature and who collects the amount
of the check from the drawee, is liable for the proceeds thereof to the payee or other
owner, notwithstanding that the amount has been paid to the person from whom the
check was obtained. The theory of the rule is that the possession of the check on the
forged or unauthorized indorsement is wrongful and when the money had been collected
on the check, the proceeds are held for the rightful owners who may recover them. The
payee ought to be allowed to recover directly from the collecting bank, regardless of
whether the check was delivered to the payee or not.
70. Ramon K. Ilusorio vs. Hon. Court of Appeals, G.R. No. 139130, November 27, 2002
It is a rule that when a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative and no right to retain
the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party, can be acquired through or under such signature. However, the rule does provide
for an exception, namely: "unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority." In the instant case, it
is the exception that applies as the petitioner is precluded from setting up the forgery,
assuming there is forgery, due to his own negligence in entrusting to his secretary his
credit cards and checkbook including the verification of his statements of account.
71. Philippine National Bank vs. FF Cruz and Company, G.R. No. 173259, July 25, 2011
As between a bank and its depositor, where the banks negligence is the proximate cause
of the loss and the depositor is guilty of contributory negligence, the greater proportion of
the loss shall be borne by the bank. The bank was negligent because it did not properly
verify the genuineness of the signatures in the applications for managers checks while
the depositor was negligent because it clothed its accountant/bookkeeper with apparent
authority to transact business with the Bank and it did not examine its monthly statement
of account and report the discrepancy to the Bank. The court allocated the damages
between the bank and the depositor on a 60-40 ratio.

Mercantile Law

72. Philippine Commercial International Bank vs. Balmaceda,G.R. No. 158143,

September 21, 2011
While its manager forged the signature of the authorized signatories of clients in the
application for managers checks and forged the signatures of the payees thereof, the
drawee bank also failed to exercise the highest degree of diligence required of banks in
the case at bar. It allowed its manager to encash the Managers checks that were plainly
crossed checks. A crossed check is one where two parallel lines are drawn across its face
or across its corner. Based on jurisprudence, the crossing of a check has the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the check
may be negotiated only once to the one who has an account with the bank; and (c) the
act of crossing the check serves as a warning to the holder that the check has been issued
for a definite purpose and he must inquire if he received the check pursuant to this
purpose; otherwise, he is not a holder in due course. In other words, the crossing of a
check is a warning that the check should be deposited only in the account of the payee.
When a check is crossed, it is the duty of the collecting bank to ascertain that the check is
only deposited to the payees account.
73. Town Saving and Loan Bank, Inc. vs. Court of Appeals, 223 SCRA 459, 1993
When a married couple signed a promissory note in favor of a bank to enable the sister of
the husband to obtain a loan, they are considered as accommodation parties who are
liable for the payment of said loan.
74. Gonzales vs Phillippine Commercial and International Bank, GR No. 180257,
February 23, 2011
While a maker who signed a promissory note for the benefit of his co-maker (who
received the loan proceeds) is considered an accommodation party, he is, nevertheless,
entitled to a written notice on the default and the outstanding obligation of the party
accommodated. There being no such written notice, the Bank is grossly negligent in
terminating the credit line of the accommodation party for the unpaid interest dues from
the loans of the party accommodated and in dishonoring a check drawn against such
credit line.
75. Juanita Salas vs. Hon. Court of Appeals and First Finance & Leasing Corporation,
G.R. No. 76788 January 22, 1990
A holder in due course holds the instrument free from any defect of title of prior parties,
and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set
up against respondent the defense of nullity of the contract of sale between her and VMS.
76. Atrium Management Corporation vs. Court of Appeals, et al., G.R. No. 109491,
February 28, 2001

Mercantile Law

Where cashiers checks were issued merely as financial assistance to the payee with
instruction that the checks were strictly endorsed for payees account only and not to be
further negotiated, the party in whose favor the checks were negotiated could not qualify
as a holder in due course. However, it does not follow as a legal proposition that simply
because the holder was not a holder in due course for having taken the checks with notice
that the same were for deposit only to the account of another that it was altogether
precluded from recovering on the instrument. The Negotiable Instruments Law does not
provide that a holder not in due course cannot recover on the instrument. The
disadvantage of the holder in not being a holder in due course is that the instrument is
subject to defense as if it were non-negotiable. One such defense is absence or failure of
consideration (the defense raised by the drawer since the checks had no consideration and
was issued merely as a form of financial assistance to the payee).
77. Samsung Construction Company Philippines, Inc. vs. Far East Bank and Trust
Company and Court Of Appeals, G.R. NO. 129015, August 13, 2004
If a bank pays a forged check, it must be considered as paying out of its funds and cannot
charge the amount so paid to the account of the depositor. A bank is liable, irrespective of
its good faith, in paying a forged check.
78. Maria Tuazon vs. Heirs of Bartolome Ramos, 463 SCRA 408, 2005
After an instrument is dishonored by non-payment, indorsers cease to be merely
secondarily liable; they become principal debtors whose liability becomes identical to
that of the original obligor.The holder of the negotiable instrument need not even proceed
against the drawer before suing the indorser.
79. Allied Banking Corporation vs. Bank of the Philippine Islands, GR. 188363,
February 27, 2013
The collecting bank which accepted a post-dated check for deposit and sent it for clearing
and the drawee bank which cleared and honored the check are both liable to the drawer
for the entire face value of the check.
80. Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641 (2000)
In depositing the check in his name, the depositor did not become the out-right owner of
the amount stated therein. By depositing the check with the bank, the depositor was, in a
way, merely designating the bank as the collecting bank. This is in consonance with the
rule that a negotiable instrument, such as a check, whether a managers check or ordinary
check, is not legal tender. As such, after receiving the deposit, under its own rules, the
bank shall credit the amount to the depositors account or infuse value thereon only after
the drawee bank shall have paid the amount of the check or the check has been cleared
for deposit. The depositors contention that after the lapse of the 35-day period the
amount of a deposited check could be withdrawn even in the absence of a clearance
thereon, otherwise it could take a long time before a depositor could make a withdrawal

Mercantile Law

is untenable. Said practice amounts to a disregard of the clearance requirement of the

banking system.
81. Anamer Salazar vs. JY Brothers Marketing Corporation, GR no. 171998, October
20, 2010
While Section 119 of the Negotiable Instruments Law in relation to Article 1231 of the
Civil Code provides that one of the modes of discharging a negotiable instrument is by
any other act which will discharge a simple contract for the payment of money, such as
novation, the acceptance by the holder of another check which replaced the dishonored
bank check did not result to novation. There are only two ways which indicate the
presence of novation and thereby produce the effect of extinguishing an obligation by
another which substitutes the same. First, novation must be explicitly stated and declared
in unequivocal terms as novation is never presumed. Secondly, the old and the new
obligations must be incompatible on every point. In the instant case, there was no
express agreement that the holders acceptance of the replacement check will discharge
the drawer and endorser from liability. Neither is there incompatibility because both
checks were given precisely to terminate a single obligation arising from the same
transaction.
82. The International Corporate Bank, Inc. vs. Court of Appeals and Philippine
National Bank, G.R. NO. 129910, September 5, 2006
Alterations of the serial numbers do not constitute material alterations on the checks.
Since there were no material alterations on the checks, respondent as drawee bank has no
right to dishonor them and return them to petitioner, the collecting bank.
Insurance Law

83. Philippine Health Care Providers, Inc., vs. Commissioner of Internal Revenue, G.R.
No. 167330, September 18, 2009
One test in order to determine whether one is engaged in insurance business is whether
the assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are
merely incidental to its business. If these are the principal objectives, the business is that
of insurance. But if they are merely incidental and service is the principal purpose, then
the business is not insurance. In this case, Health Maintenance Organizations (HMOs) are
not insurance business
84. Fortune Medicare Inc. vs Amorin. G.R. No. 195872, March 12, 2014
For purposes of determining the liability of a health care provider to its members, a health
care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the

Mercantile Law

same to the extent agreed upon under the contract. Limitations as to liability must be
distinctly specified and clearly reflected in the extent of coverage which the company
voluntary assume, otherwise, any ambiguity arising therein shall be construed in favor of
the member. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract - the insurer. This is
equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as standard charges must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations
the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider. Thus, if the member,
while on vacation, underwent a procedure in the USA, the standard charges referred to in
the contract should mean standard charges in USA and not the cost had the procedure
been conducted in the Philippines.
85. Philamcare Health System vs. Court of Appeals, 379 SCRA 356, 2002
Every person has an insurable interest in the life and health of: 1.) Himself, or his spouse
and of his children; 2.) Any person: (a) on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest; (b) under legal obligation to
him for the payment of money, respecting property or service, of which death or illness
might delay or prevent the performance; and (c) upon whom whose life any estate or
interest vested in him depends.
86. Alpha Insurance and Surety Co. vs. Castor, GR No. 198174, September 2, 2013
Contracts of insurance, like other contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense. Accordingly, in interpreting the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given their meaning as understood in
common speech. A contract of insurance is a contract of adhesion. So, when the terms of
the insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation.
87. Heirs Of Loreto c. Maramag vs. Eva Verna De Guzman Maramag, et al., G.R. No.
181132, June 5, 2009
The only persons entitled to claim the insurance proceeds are either the insured, if still
alive; or the beneficiary, if the insured is already deceased, upon the maturation of the
policy. The exception to this rule is a situation where the insurance contract was intended
to benefit third persons who are not parties to the same in the form of favorable
stipulations or indemnity. In such a case, third parties may directly sue and claim from
the insurer. Because no legal proscription exists in naming as beneficiaries the children of
illicit relationships by the insured, the shares of Eva in the insurance proceeds, whether
forfeited by the court in view of the prohibition on donations under Article 739 of the
Civil Code or by the insurers themselves for reasons based on the insurance contracts,

Mercantile Law

must be awarded to the said illegitimate children, the designated beneficiaries, to the
exclusion of heirs.
88. Country Bankers Insurance Corporation vs. Antonio Lagman, G.R. No. 165487,
July 13, 2011
Section 177 of the Insurance Code states that the surety is entitled to payment of the
premium as soon as the contract of suretyship or bond is perfected and delivered to the
obligor. No contract of suretyship or bonding shall be valid and binding unless and until
the premium therefor has been paid, except where the obligee has accepted the bond, in
which case the bond becomes valid and enforceable irrespective of whether or not the
premium has been paid by the obligor to the surety. A continuing bond, as in this case
where there is no fixed expiration date, may be cancelled only by the obligee, which is
the NFA, by the Insurance Commissioner, and by the court. By law and by the specific
contract involved in this case, the effectivity of the bond required for the obtention of a
license to engage in the business of receiving rice for storage is determined not alone by
the payment of premiums but principally by the Administrator of the NFA.
89. First Lepanto-Taisho Insurance Corporation vs Chevron Philippines, GR No.
177839, January 18, 2012
The extent of the suretys liability is determined by the language of the suretyship
contract or bond itself. It can not be extended by implications beyond the terms of the
contract. Having accepted the bond, the creditor is bound by the recital in the surety bond
that the terms and conditions of its distributorship contract be reduced in writing or at the
very least communicated in writing to the surety. Such non-compliance by the creditor
impacts not on the validity or legality of the surety contract but on the creditors right to
demand performance.
90. The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc., G.R. No. 156302,
April 7, 2009
The liability of the insured carrier or vehicle owner is based on tort, in accordance with
the provisions of the Civil Code; while that of the insurer arises from contract,
particularly, the insurance policy. The third-party liability of the insurer is only up to the
extent of the insurance policy and that required by law; and it cannot be held solidarily
liable for anything beyond that amount.
91. Jewel Villacorta vs. The Insurance Commission, et al., G.R. No. 54171. October 28,
1980
The main purpose of the authorized driver clause is that a person other than the insured
owner, who drives the car on the insureds order, such as his regular driver, or with his
permission, such as a friend or member of the family or the employees of a car service or
repair shop must be duly licensed drivers and have no disqualification to drive a motor
vehicle. The mere happenstance that the employee(s) of the shop owner diverts the use of
the car to his own illicit or unauthorized purpose in violation of the trust reposed in the

Mercantile Law

shop by the insured car owner does not mean that the authorized driver clause has been
violated such as to bar recovery, provided that such employee is duly qualified to drive
under a valid drivers license. It is the theft clause, not the authorized driver clause that
applies.
92. Perla Compania De Seguros, Inc., vs. Hon. Constante A. Ancheta, Presiding Judge
of the Court of First Instance of Camarines Norte, Branch III, et al., G.R. No. L49699, August 8, 1988
From a reading Section 378, the following rules on claims under the no fault indemnity
provision, where proof of fault or negligence is not necessary for payment of any claim
for death or injury to a passenger or a third party, are established: 1.) A claim may be
made against one motor vehicle only. 2.) If the victim is an occupant of a vehicle, the
claim shall lie against the insurer of the vehicle in which he is riding, mounting or
dismounting from. 3.) In any other case (i.e. if the victim is not an occupant of a vehicle),
the claim shall lie against the insurer of the directly offending vehicle. 4.) In all cases, the
right of the party paying the claim to recover against the owner of the vehicle responsible
for the accident shall be maintained.
93. Lalican vs. Insular Life Assurance Company Ltd, 597 SCRA 159, 2009)
The existence of an insurance interest gives a person the legal right to insure the subject
matter of the policy of insurance. Section 19 of the Insurance Code states that an interest
in the life or health of a person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
94. Spouses Nilo Cha and Stella Uy Cha vs. Court of Appeals, G.R. No. 124520. August
18, 1997
A non-life insurance policy such as the fire insurance policy taken by spouses Cha over
their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist at the time the insurance takes effect and at the time the loss occurs.
The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon
which he has no insurable interest and collecting the proceeds of said policy in case of
loss of the property. In such a case, the contract of insurance is a mere wager which is
void under Section 25 of the Insurance Code.
95. Malayan Insurance Company vs. PAP Co. (PHIL. BRANCH). G.R. No. 200784,
August 07, 2013
With the transfer of the location of the subject properties, without notice and without the
insurers consent, after the renewal of the policy, the insured clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the
Insurance Code provides that a neglect to communicate that which a party knows and
ought to communicate, is called a concealment.

Mercantile Law

Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance. Moreover, under Section 168 of the Insurance Code, the
insurer is entitled to rescind the insurance contract in case of an alteration in the use or
condition of the thing insured. Section 168 of the Insurance Code provides, as follows:
An alteration in the use or condition of a thing insured from that to which it is limited by
the policy made without the consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

96. Armando Geagonia vs. Court of Appeals, et al., G.R. No. 114427, February 6, 1995
A double insurance exists where the same person is insured by several insurers separately
in respect of the same subject and interest. Since, the insurable interests of a mortgagor
and a mortgagee on the mortgaged property are distinct and separate, the two policies of
the PFIC do not cover the same interest as that covered by the policy of the private
respondent, no double insurance exists.
97. Great Pacific Life vs. Court of Appeals, 316 SCRA 677, 1999
Where a mortgagor pays insurance premium under group insurance policy (Mortgage
Redemption Insurance), making loss payable to mortgagee, the insurance is on
mortgagors interest, and mortgagor continues to be a party to the contract. In this type of
policy insurance, mortgagee is simply an appointee of the insurance fund, such losspayable clause does not make mortgagee a party to the contract
98. Malayan Insurance Co., Inc., vs. Philippine First Insurance Co., Inc. and Reputable
Forwarder Services, Inc., G.R. No. 184300, July 11, 2012
By the express provision of Section 93 of the Insurance Code, double insurance exists
where the same person is insured by several insurers separately in respect to the same
subject and interest. The requisites in order for double insurance to arise are as follows: 1.)
The person insured is the same; 2.) Two or more insurers insuring separately; 3.) There is
identity of subject matter; 4.) There is identity of interest insured; and 5.) There is
identity of the risk or peril insured against. In the present case, even though the two
insurance policies were issued over the same goods and cover the same risk, there arises
no double insurance since they were issued to two different persons/entities having
distinct insurable interests. Necessarily, over insurance by double insurance cannot
likewise exist.
99. Malayan Insurance Co., Inc. vs. Gregoria Cruz Arnaldo, in her capacity as the
Insurance Commissioner, et al., G.R. No. L-67835, October 12, 1987
For a valid cancellation of the policy, the following requisites must concur: 1) There must
be prior notice of cancellation to the insured; 2) The notice must be based on the
occurrence, after the effective date of the policy, of one or more of the grounds
mentioned; 3) The notice must be (a) in writing, (b) mailed, or delivered to the named

Mercantile Law

insured, (c) at the address shown in the policy; 4) It must state (a) which of the grounds
mentioned in Section 64 is relied upon and (b) that upon written request of the insured,
the insurer will furnish the facts on which the cancellation is based. MICO claims it
cancelled the policy in question for non-payment of premium. However, there is no proof
that the notice, assuming it complied with the other requisites, was actually mailed to and
received by Pinca.
100.
Pacific Timber Export Corporation vs. Court of Appeals, et al., G.R. No. L38613, February 25, 1982
The non-payment of premium on the cover note is no cause for Pacific to lose what is due
it as if there had been payment of premium, for non-payment by it was not chargeable
against its fault. Had all the logs been lost during the loading operations, but after the
issuance of the cover note, liability on the note would have already arisen even before
payment of premium. This is how the cover note as a "binder" should legally operate
otherwise, it would serve no practical purpose in the realm of commerce, and is supported
by the doctrine that where a policy is delivered without requiring payment of the
premium, the presumption is that a credit was intended and policy is valid.
101.

American Homes Assurance vs. Antonio Chua, G.R. 130421, June 28, 1999

Section 78 of the Insurance Code explicitly provides that an acknowledgment in a policy

or contract of insurance of the receipt of premium is conclusive evidence of its payment,
so far as to make the policy binding, notwithstanding any stipulation therein that it shall
not be binding until the premium is actually paid. This Section establishes a legal fiction
of payment and should be interpreted as an exception to Section 77.
102.
Ucpb General Insurance Co. Inc., vs. Masagana Telemart, Inc., G.R. No.
137172, April 4, 2001
Section 77 of the Insurance Code of 1978 provides that an insurer is entitled to payment
of the premium as soon as the thing insured is exposed to the peril insured against. The
first exception is provided by Section 77 itself, and that is, in case of a life or industrial
life policy whenever the grace period provision applies. The second is that covered by
Section 78 of the Insurance Code, which provides that any acknowledgment in a policy
or contract of insurance of the receipt of premium is conclusive evidence of its payment,
so far as to make the policy binding, notwithstanding any stipulation therein that it shall
not be binding until premium is actually paid. A third exception was laid down in Makati
Tuscany Condominium Corporation vs. Court of Appeals, wherein the Court ruled that
Section 77 may not apply if the parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of loss. Tuscany has also
provided a fourth exception, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that if the insurer has granted the insured a
credit term for the payment of the premium and loss occurs before the expiration of the
term, recovery on the policy should be allowed even though the premium is paid after the

Mercantile Law

loss but within the credit term. Moreover, as a fifth exception, estoppel bars it from
taking refuge under said Section, since Masagana relied in good faith on such practice.
103.
Jose Marques and Maxilite Technologies, Inc., vs. Far East Bank And Trust
Company, et al., G.R. No. 171379, January 10, 2011
FEBTC is estopped from claiming that the insurance premium has been unpaid. FEBTC
induced Maxilite and Marques to believe that the insurance premium has in fact been
debited from Maxilites account. However, FEBTC failed to do so. FEBTCs conduct
clearly constitutes gross negligence in handling Maxilites and Marques accounts. As a
consequence, FEBTC must be held liable for damages pursuant to Article 2176 of the
Civil Code.
104.
South Sea Surety and Insurance Company Inc. v. CA, G.R. No. 102253 June
2, 1995
An insurer which delivers to an insurance agent or insurance broker an insurance policy
shall be deemed to have authorized such agent to receive on its behalf payment of any
premium which is due on such policy.
105.
Great Pacific Life Insurance Corporation vs. Court of Appeals, et al., G.R.
No. L-57308, April 23, 1990
Great Pacific should have informed Cortez of the deadline for paying the first premium
before or at least upon delivery of the policy to him, so he could have complied with what
was needful and would not have been misled into believing that his life and his family
were protected by the policy, when actually they were not. And, if the premium paid by
Cortez was unacceptable for being late, it was the company's duty to return it. By
accepting his premiums without giving him the corresponding protection, Great Pacific
acted in bad faith and since his policy was in fact inoperative or ineffectual from the
beginning, the company was never at risk, hence, it is not entitled to keep the premium.
106.
Ng Gan Zee vs. Asian Crusader Life Assurance Corporation, G.R. No. L30685, May 30, 1983
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assurer,
but he designedly and intentionally withholds the same. In the absence of evidence that
the insured had sufficient medical knowledge as to enable him to distinguish between
"peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of
the stomach, " should be construed as an expression made in good faith of his belief as to
the nature of his ailment and operation.
107.
Sunlife Assurance Company of Canada vs. The Court of Appeals, et al., G.R.
No. 105135, June 22, 1995
Where the insured is specifically required to disclose to the insurer matters relating to his
health, the insured's failure to disclose the fact that he was hospitalized for two weeks

Mercantile Law

prior to filing his application for insurance, raises grave doubts about his bona fides.
Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the proposed contract or in making his
inquiries.
108.

Emilio Tan vs. The Court of Appeals, G.R. No. 48049. June 29, 1989

By virtue of the incontestability clause, the insurer has two years from the date of
issuance of the insurance contract or of its last reinstatement within which to contest the
policy, whether or not, the insured still lives within such period. After two years, the
defenses of concealment or misrepresentation, no matter how patent or well founded, no
longer lie. Considering that the insured died before the two-year period had lapsed, PhilAm Insurance is not, therefore, barred from proving that the policy is void ab initio by
reason of the insureds fraudulent concealment or misrepresentation.
109.
Manila Bankers Life Insurance Corporation vs. Cresencia p. Aban, G.R. No.
175666, July 29, 2013
The "Incontestability Clause" under Section 48 of the Insurance Code provides that an
insurer is given two years from the effectivity of a life insurance contract and while the
insured is alive to discover or prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent.
After the two-year period lapses, or when the insured dies within the period, the insurer
must make good on the policy, even though the policy was obtained by fraud,
concealment, or misrepresentation.
110.

Florendo vs. Philam Plans, GR. No 186983, February 22, 2012

The incontestability clause precludes the insurer from disowning liability under the
policy it issued on the ground of concealment or misrepresentation regarding the health
of the insured after a year of its issuance. Since insured died on the 11th month following
the issuance of his plan, the incontestability period has not yet set in. Consequently, the
insurer was not barred from questioning the beneficiarys entitlement to the benefits of
the pension plan.
111.
Summit Guaranty And Insurance Company, Inc. vs. Hon. Jose C. De
Guzman, in his capacity as Presiding Judge of Branch III, CFI of Tarlac, et al., G.R.
No. L- 50997, June 30, 1987
There is absolutely nothing in the law which mandates that the two periods prescribed in
Section 384 of the Insurance Codethat is, the six-month period for filing the notice of
claim and the one-year period for bringing an action or suit must always concur. On the
contrary, it is very clear that the one-year period is only required in proper cases. The
one-year period should instead be counted from the date of rejection by the insurer as this
is the time when the cause of action accrues. Since in the case at hand, there has yet been

Mercantile Law

no accrual of cause of action, prescription has not yet set in. This is because, before such
final rejection, there was no real necessity for bringing suit.
112.

H.H. Hollero v. GSIS, G.R. No. 152334, 24 September 2014

The prescriptive period for the insureds action for indemnity should be reckoned from
the "final rejection" of the claim. "Final rejection" simply means denial by the insurer of
the claims of the insured and not the rejection or denial by the insurer of the insureds
motion or request for reconsideration. A perusal of the letter dated April 26, 1990 shows
that the GSIS denied Hollero Constructions indemnity claims. The same conclusion
obtains for the letter dated June 21, 1990 denying Hollero Constructions indemnity
claim. Holler's causes of action for indemnity respectively accrued from its receipt of the
letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in
the first instance. Consequently, given that it allowed more than twelve (12) months to
lapse before filing the necessary complaint before the RTC on September 27, 1991, its
causes of action had already prescribed.
113.
Malayan Insurance Co., Inc., vs. Rodelio Alberto, et al., G.R. No. 194320,
February 1, 2012
The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. When it is not disputed that the insurance company indeed paid, then
there is valid subrogation in its favor.
114.
Loadstar Shipping Company v. Malayan Insurance Company, G.R. No.
185565, November 26, 2014
Under the Code of Commerce, if the goods are delivered but arrived at the destination in
damaged condition, the remedies to be pursued by the consignee depend on the extent of
damage on the goods. If the effect of damage on the goods consisted merely of
diminution in value, the carrier is bound to pay only the difference between its price on
that day and its depreciated value as provided under Article 364. Malayan, as the insurer
of PASAR, neither stated nor proved that the goods are rendered useless or unfit for the
purpose intended by PASAR due to contamination with seawater. Hence, there is no
basis for the goods rejection under Article 365 of the Code of Commerce. Clearly, it is
erroneous for Malayan to reimburse PASAR as though the latter suffered from total loss
of goods in the absence of proof that PASAR sustained such kind of loss.
115.
Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc.,
G.R. No. 174116, September 11, 2009
The insurer, upon happening of the risk "insured" against and after payment to the
insured, is subrogated to the rights and cause of action of the latter. As such, the insurer
has the right to seek reimbursement for all the expenses paid. However, in a contract of
carriage involving the shipment of knock-down auto parts of Nissan motor vehicles
which were allegedly lost and destroyed, the insurer was not properly subrogated because
of the non-presentation of any marine insurance policy. The submission of a marine risk

Mercantile Law

note instead of the insurance policy doesn't satisfy the requirement for subrogation. The
marine risk note is not an insurance policy. It is only an acknowledgment or declaration
of the insurer confirming the specific shipment covered by its marine open policy, the
evaluation of the cargo and the chargeable premium.
116.
Asian Terminals Inc. vs. First Lepanto Taisho Corporation, G.R. No. 185964,
16 June 2014
The shipment received by the ATI from the vessel of COCSCO was found to have
sustained loss and damages. An arrastre operators duty is to take good care of the goods
and to turn them over to the party entitled to their possession. It must prove that the losses
were not due to its negligence or to that of its employees. The Court held that ATI failed
to discharge its burden of proof. ATI blamed COSCO but when the damages were
discovered, the goods were already in ATIs custody for two weeks. Witnesses also
testified that the shipment was left in an open area exposed to the elements, thieves and
vandals.
Transportation Laws
117.
1988

Pedro De Guzman vs. Court of Appeals, G. R. No. L-47822, 22 December

Article 1732 makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom as "a sideline"). It also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does it distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population.
118.
Philippine American General Insurance Company vs. Pks Shipping
Company, G.R. No. 149038, 9 April 2003
Much of the distinction between a common or public carrier and a private or special
carrier lies in the character of the business, such that if the undertaking is an isolated
transaction, not a part of the business or occupation, and the carrier does not hold itself
out to carry the goods for the general public or to a limited clientele, although involving
the carriage of goods for a fee, the person or corporation providing such service could
very well be just a private carrier.
119.

Spouses Perena vs Spouses Nicolas, GR No. 157917, August 29, 2012

Persons engaged in the business of transporting students from their respective residences
to their school and back are considered common carrier. Despite catering to a limited
clientele, they operated as a common carrier because they held themselves out as a ready

Mercantile Law

transportation indiscriminately to the students of a particular school living within or near

where they operated the service and for a fee.
120.
Unsworth Transport International (Phils.) vs. Court of Appeals ,G.R. No.
166250, 26 July 2010
A freight forwarders liability is limited to damages arising from its own negligence,
including negligence in choosing the carrier; however, where the forwarder contracts to
deliver goods to their destination instead of merely arranging for their transportation, it
becomes liable as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the transport, even though
the forwarder does not carry the merchandise itself.
121.
Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation, GR
No. 179446, January 10, 2011
A customs broker whose services were engaged for the release and withdrawal of the
cargoes from the pier and their subsequent delivery to the consignees warehouse and the
owner of the delivery truck whom the customs broker contracted to transport the cargoes
to the warehouse are both common carriers. The latter is considered a common carrier in
the absence of indication that it solely and exclusively rendered services to the customs
broker. Thus, when the truck failed to deliver one of the cargoes, both the broker and
owner of the truck are liable. Being both common carriers, they are mandated from the
nature of their business and for reasons of public policy, to observe the extraordinary
diligence in the vigilance over the goods transported by them according to all the
circumstances of such case. Thus, in case of loss of the goods, the common carrier is
presumed to have been at fault or to have acted negligently.
122.
Westwind Shipping Corporation vs. UCPB General Insurance Co., GR no.
2002289, November 25, 2013
The arrastre operator is likewise liable. The functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the establishment of the consignee
or shipper and the ships tackle. Being the custodian of the goods discharged from a
vessel, an arrastre operators duty is to take good care of the goods and to turn them over
to the party entitled to their possession. While it is true that an arrastre operator and a
carrier may not be held solidarily liable at all times, the facts of these cases show that
apart from the stevedores of the arrastre operator being directly in charge of the physical
unloading of the cargo, its foreman picked the cable sling that was used to hoist the
packages for transfer to the dock. Moreover, the fact that the packages were unloaded
with the same sling unharmed is telling of the inadequate care with which the stevedore
handled and discharged the cargo.
123.
Unknown Owner Of The Vessel M/V China Joy vs. Asian Terminals Inc. G.R.
No. 195661, 11 March 2015

Mercantile Law

The functions of an arrastre operator involve the handling of cargo deposited on the
wharf or between the establishment of the consignee or shipper and the ships tackle.
Being the custodian of the goods discharged from a vessel, an arrastre operators duty is
to take good care of the goods and to turn them over to the party entitled to their
possession. The legal relationship between an arrastre operator and a consignee is akin to
that between a warehouseman and a depositor. As to both the nature of the functions and
the place of their performance, an arrastre operators services are clearly not maritime in
character.
In Insurance Company of North America v. Asian Terminals, Inc., the Court explained
that the liabilities of the arrastre operator for losses and damages are set forth in the
contract for cargo handling services it had executed with the PPA. Corollarily then, the
rights of an arrastre operator to be paid for damages it sustains from handling cargoes do
not likewise spring from contracts of carriage. However, in the instant petition, the
contending parties make no references at all to any provisions in the contract for cargo
handling services ATI had executed with the PPA. Notwithstanding the above, the
petitioners cannot evade liability for the damage caused to ATIs unloader in view of
Article 2176 of the New Civil Code.
124.

R Transport Corporation vs. Pante, GR No. 162104, September 15, 2009

When a bus hit a tree and house due to the fast and reckless driving of the bus driver
resulting in injury to one of its passengers, the bus owner is liable and such liability does
not cease even upon proof that he exercised all the diligence of a good father of family in
the selection and supervision of its employees.
125.
Asian Terminals, Inc vs. Simon Enterprises, Inc. GR No. 177116, February
27, 2013
Though it is true that common carriers are presumed to have been at fault or to have acted
negligently if the goods transported by them are lost, destroyed, or deteriorated, and that
the common carrier must prove that it exercised extraordinary diligence in order to
overcome the presumption, the plaintiff must still, before the burden is shifted to the
defendant, prove that the subject shipment suffered actual shortage. This can only be
done if the weight of the shipment at the port of origin and its subsequent weight at the
port of arrival have been proven by a preponderance of evidence, and it can be seen that
the former weight is considerably greater than the latter weight, taking into consideration
the exceptions provided in Article 1734 of the Civil Code.
126.
Equitable Leasing Corporation vs. Lucita Suyom et al., G.R. No. 143360, 5
September 2002
In an action based on quasi delict, the registered owner of a motor vehicle is solidarily
liable for the injuries and damages caused by the negligence of the driver, in spite of the
fact that the vehicle may have already been the subject of an unregistered Deed of Sale in
favor of another person. Unless registered with the Land Transportation Office, the sale --

Mercantile Law

while valid and binding between the parties -- does not affect third parties, especially the
victims of accidents involving the said transport equipment.
127.
William Tiu, doing business under the name and style of D Rough Riders,
vs. Pedro A. Arriesgado, G.R. No. 138060, 1 September 2004
The principle of last clear chance only applies in a suit between the owners and drivers of
two colliding vehicles. It does not arise where a passenger demands responsibility from
the carrier to enforce its contractual obligations, for it would be inequitable to exempt the
negligent driver and its owner on the ground that the other driver was likewise guilty of
negligence.
128.
Spouses Cesar & Suthira Zalamea vs. Court of Appeals, G.R. No. 104235
November 18, 1993
When an airline issues a ticket to a passenger confirmed on a particular flight, on a
certain date, a contract of carriage arises, and the passenger has every right to expect that
he would fly on that flight and on that date. If he does not, then the carrier opens itself to
a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it
took the risk of having to deprive some passengers of their seats in case all of them would
show up for the check in. For the indignity and inconvenience of being refused a
confirmed seat on the last minute, said passenger is entitled to an award of moral
damages.
129.
Cathay Pacific Airways, Ltd., vs. Spouses Daniel Vazquez And Maria Luisa
Madrigal Vazquez, G.R. No. 150843, March 14, 2003
Spouses Vazquez had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their boarding
passes. They clearly waived their priority or preference when they asked that other
passengers be given the upgrade. It should not have been imposed on them over their
vehement objection. By insisting on the upgrade, Cathay breached its contract of
carriage with Spouses Vazquez.
130.
Heirs of Josemaria Ochoa vs. G&S Transport Corporation, March 19,2011
as affirmed in the July 16, 2012 decision
In a contract of carriage, it is presumed that the common carrier is at fault or is negligent
when a passenger dies or is injured. In fact, there is even no need for the court to make an
express finding of fault or negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier exercised extraordinary
diligence. Unfortunately, the common carrier miserably failed to overcome this
presumption as the accident which led to the passengers death was due to the reckless
driving and gross negligence of its driver.
131.
2004

Victory Liner, Inc. vs. Rosalito Gammad, G.R. No. 159636, November 25,

Mercantile Law

A common carrier is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due
regard to all the circumstances. In a contract of carriage, it is presumed that the common
carrier was at fault or was negligent when a passenger dies or is injured. Unless the
presumption is rebutted, the court need not even make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be
overcome by evidence that the carrier exercised extraordinary diligence.
132.

Antonia Maranan vs. Pascual Perez, et al, G.R. No. L-22272, June 26, 1967

The basis of the carrier's liability for assaults on passengers committed by its drivers rests
either on (1) the doctrine of respondeat superior or (2) the principle that it is the carrier's
implied duty to transport the passenger safely. Under the first, which is the minority view,
the carrier is liable only when the act of the employee is within the scope of his authority
and duty. It is not sufficient that the act be within the course of employment only. Under
the second view, upheld by the majority and also by the later cases, it is enough that the
assault happens within the course of the employee's duty. It is no defense for the carrier
that the act was done in excess of authority or in disobedience of the carrier's orders.The
carrier's liability here is absolute in the sense that it practically secures the passengers
from assaults committed by its own employees. As can be gleaned from Art. 1759, the
Civil Code of the Philippines evidently follows the rule based on the second view. At
least three very cogent reasons underlie this rule: (1) the special undertaking of the carrier
requires that it furnish its passenger that full measure of protection afforded by the
exercise of the high degree of care prescribed by the law, inter alia from violence and
insults at the hands of strangers and other passengers, but above all, from the acts of the
carrier's own servants charged with the passenger's safety; (2) said liability of the carrier
for the servant's violation of duty to passengers, is the result of the formers confiding in
the servant's hands the performance of his contract to safely transport the passenger,
delegating therewith the duty of protecting the passenger with the utmost care prescribed
by law; and (3) as between the carrier and the passenger, the former must bear the risk of
wrongful acts or negligence of the carrier's employees against passengers, since it, and
not the passengers, has power to select and remove them.
133.

Jose Pilapil vs. Hon. Court of Appeals, G.R. No. 52159, 22 December 1989

A tort committed by a stranger which causes injury to a passenger does not accord the
latter a cause of action against the carrier. The negligence for which a common carrier is
held responsible is the negligent omission by the carrier's employees to prevent the tort
from being committed when the same could have been foreseen and prevented by them.
134.

Alberta Yobido vs. Court of Appeals, G.R. No. 113003, 17 October 1997

A fortuitous event is possessed of the following characteristics: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) it must be impossible to foresee the
event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to

Mercantile Law

avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner; and (d) the obligor must be free from any participation
in the aggravation of the injury resulting to the creditor. Under the circumstances of this
case, the explosion of the new tire may not be considered a fortuitous event. There are
human factors involved in the situation. The fact that the tire was new did not imply that
it was entirely free from manufacturing defects or that it was properly mounted on the
vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand
name noted for quality, resulting in the conclusion that it could not explode within five
days use.
135.

Fortune Express, Inc. vs. Court of Appeals, G.R. No. 119756, 18 March 1999

Despite the report of Philippine Constabulary agent Generalao that the Maranaos were
going to attack its buses, Fortune took no steps to safeguard the lives and properties of its
passengers. The seizure of the bus of the Fortune was foreseeable and, therefore, was not
a fortuitous event which would exempt petitioner from liability.
136.
Loadstar Shipping Co., Inc. vs. Court of Appeals, G.R. No. 131621, 28
September 1999
Loadstar was at fault or negligent in not maintaining a seaworthy vessel and in having
allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it
did not sink because of any storm that may be deemed as force majeure, inasmuch as the
wind condition in the area where it sank was determined to be moderate. Since it was
remiss in the performance of its duties, Loadstar cannot hide behind the limited liability
doctrine to escape responsibility for the loss of the vessel and its cargo.
137.
Smith Bell Dodwell Shipping Agency Corporation vs. Catalino Borja, G.R.
No. 143008. June 10, 2002
Negligence is conduct that creates undue risk of harm to another. It is the failure to
observe that degree of care, precaution and vigilance that the circumstances justly
demand, whereby that other person suffers injury. Petitioners vessel was carrying
chemical cargoalkyl benzene and methyl methacrylate monomer. While knowing that
their vessel was carrying dangerous inflammable chemicals, its officers and crew failed
to take all the necessary precautions to prevent an accident. Petitioner was, therefore,
negligent.
138.
1992

Aniceto Saludo, Jr. vs. Hon. Court of Appeals, G.R. No. 95536, March 23,

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a
special contract, a carrier is not an insurer against delay in transportation of goods. When
a common carrier undertakes to convey goods, the law implies a contract that they shall
be delivered at destination within a reasonable time, in the absence, of any agreement as
to the time of delivery. But where a carrier has made an express contract to transport and
deliver property within a specified time, it is bound to fulfill its contract and is liable for

Mercantile Law

any delay, no matter from what cause it may have arisen. This result logically follows
from the well-settled rule that where the law creates a duty or charge, and the party is
disabled from performing it without any default in himself, and has no remedy over, then
the law will excuse him, but where the party by his own contract creates a duty or charge
upon himself, he is bound to make it good notwithstanding any accident or delay by
inevitable necessity because he might have provided against it by contract. Whether or
not there has been such an undertaking on the part of the carrier to be determined from
the circumstances surrounding the case and by application of the ordinary rules for the
interpretation of contracts.
139.
Virgines Calvo doing business under the name and style Transorient
Container Terminal Services, Inc. vs. Ucpb General Insurance Co., Inc., G.R. No.
148496,
19
March
2002
The rule is that if the improper packing or, in this case, the defect/s in the container, is/are
known to the carrier or his employees or apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception notwithstanding such
condition, he is not relieved of liability for damage resulting therefrom. In this case,
Calvo accepted the cargo without exception despite the apparent defects in some of the
container vans. Hence, for failure of Calvo to prove that she exercised extraordinary
diligence in the carriage of goods in this case or that she is exempt from liability, the
presumption of negligence as provided under Art. 1735 holds.
140.
Provident Insurance Corp., vs. Court of Appeals, G.R. No. 118030, January
15, 2004
The bill of lading defines the rights and liabilities of the parties in reference to the
contract of carriage. Stipulations therein are valid and binding in the absence of any
showing that the same are contrary to law, morals, customs, public order and public
policy. Where the terms of the contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of the stipulations shall control. In light of the
foregoing, there can be no question about the validity and enforceability of Stipulation
No. 7 in the bill of lading. The twenty-four hour requirement under the said stipulation is,
by agreement of the contracting parties, a sine qua non for the accrual of the right of
action to recover damages against the carrier.
141.
1998

Keng Hua Paper Products Co., Inc. vs. Court of Appeals, 286 SCRA 257,

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. 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.

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142.
Aboitiz Shipping Corporation vs. Insurance Company of North America,
G.R. No. 168402, August 6, 2008
Under the Code of Commerce, the notice of claim must be made within twenty four (24)
hours from receipt of the cargo if the damage is not apparent from the outside of the
package. For damages that are visible from the outside of the package, the claim must be
made immediately. Provisions specifying a time to give notice of damage to common
carriers are ordinarily to be given a reasonable and practical, rather than a strict
construction. Understandably, when the goods were delivered, the necessary clearance
had to be made before the package was opened. Upon opening and discovery of the
damaged condition of the goods, a report to this effect had to pass through the proper
channels before it could be finalized and endorsed by the institution to the claims
department of the shipping company. The call to Aboitiz was made two days from
delivery, a reasonable period considering that the goods could not have corroded instantly
overnight such that it could only have sustained the damage during transit. Moreover,
Aboitiz was able to immediately inspect the damage while the matter was still fresh. In
so doing, the main objective of the prescribed time period was fulfilled. Thus, there was
substantial compliance with the notice requirement in this case.
143.
Ucpb General Insurance Co., Inc., vs. Aboitiz Shipping Corporation, et. al.,
G.R. No. 168433, February 10, 2009
The Court has construed the 24-hour claim requirement as a condition precedent to the
accrual of a right of action against a carrier for loss of, or damage to, the goods. The
shipper or consignee must allege and prove the fulfillment of the condition. Otherwise,
no right of action against the carrier can accrue in favor of the shipper or consignee.
144.
Philam Insurance Company vs. Heung A Shipping Corporation, G.R. No.
187701 &G.R. No. 187812, 23 July 2014
Common carriers, as a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is, unless they prove
that they exercised extraordinary diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that they
observed such diligence. As the carrier of the subject shipment, HEUNG-A was bound to
exercise extraordinary diligence in conveying the same and its slot charter agreement
with DONGNAMA did not divest it of such characterization nor relieve it of any
accountability for the shipment. However, the liability of HEUNG-A is limited to $500
per package or pallet because in case of the shippers failure to declare the value of the
goods in the bill of lading, Section 4, paragraph 5 of the COGSA provides that neither the
carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package.

Mercantile Law

145.
Oceaneering Contractrors (Phils), Inc. v. Nestor Barreto, doing business as
NNB Lighterage , GR No. 184215, February 9, 2011
Where the agreement executed by the parties was a time charter where the possession and
control of the barge was retained by the owner, the latter is, therefore, a common carrier
legally charged with extraordinary diligence in the vigilance over the goods transported
by him. The sinking of the vessel created a presumption of negligence and/or
unseaworthiness which the barge owner failed to overcome and gave rise to his liability
for the charterer lost cargo despite the latters failure to insure the same.
146.
Caltex Philippines, Inc. vs. Sulpicio Lines, Inc., et. al., G.R. No. 131166,
September 30, 1999
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 time or use; a contract of
affreightment is one by which the owner of a ship or other vessel lets the whole or part
of her to a merchant or other person for the conveyance of goods, on a particular voyage,
in consideration of the payment of freight. A contract of affreightment may be
either time charter, wherein the leased vessel is leased to the charterer for a fixed period
of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases,
the charter-party provides for the hire of the vessel only, either for a determinate period
of time or for a single or consecutive voyage, the ship owner to supply the ships store,
pay for the wages of the master of the crew, and defray the expenses for the maintenance
of the ship. Under a demise or bareboat charter on the other hand, the charterer mans
the vessel with his own people and becomes, in effect, the owner for the voyage or
service stipulated, subject to liability for damages caused by negligence. If the charter is a
contract of affreightment, which leaves the general owner in possession of the ship as
owner for the voyage, the rights and the responsibilities of ownership rest on the
owner. The charterer is free from liability to third persons in respect of the ship. It is only
when the charter includes both the vessel and its crew, as in a bareboat or demise that a
common carrier becomes private, at least insofar as the particular voyage covering the
charter-party is concerned.
147.
Chua Yek Hong vs. Intermediate Appellate Court, G.R. No. 74811, 30
September 1988
The term "ship agent" as used in the foregoing provision is broad enough to include the
ship owner. Pursuant to said provision, therefore, both the ship owner and ship agent are
civilly and directly liable for the indemnities in favor of third persons, which may arise
from the conduct of the captain in the care of goods transported, as well as for the safety
of passengers transported. However, under the same Article, this direct liability is
moderated and limited by the ship agent's or ship owner's right of abandonment of the
vessel and earned freight. The most fundamental effect of abandonment is the cessation
of the responsibility of the ship agent/owner. The ship owner's or agent's liability is
merely co-extensive with his interest in the vessel such that a total loss thereof results in

Mercantile Law

its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule.
The total destruction of the vessel extinguishes maritime liens as there is no longer any
res to which it can attach.
148.

Dela Torre vs. Court of Appeals, GR No. 160088, July 13, 2011

The LIMITED LIABILITY RULE cannot be availed of by the charterers/sub-charterer in

order to escape from their liability. The Code of Commerce is clear on which indemnities
may be confined or restricted to the value of the vessel and these are the indemnities in
favor of third persons which may arise from the conduct of the captain in the care of the
goods which he loaded on the vessel. Thus, what is contemplated is the liability to third
persons who may have dealt with the SHIPOWNER, the AGENT or even the
CHARTERER in case of demise or bareboat charter.
The Charterer cannot use the said Rule because it does not completely and absolutely step
into the shoes of the shipowner or even the ship agent because there remains conflicting
rights between the former and the real shipowner as derived from their charter agreement.
Therefore, even if the contract is for a bareboat or demise charter where possession, free
administration and even navigation are temporarily surrendered to the charterer,
dominion over the vessel remains with the shipowner. Ergo, the charterer or the subcharterer, whose rights cannot rise above that of the former, can never set up the Limited
Liability Rule against the very owner of the vessel.
149.
National Development Company vs. The Court of Appeals, G.R. No. L-49469,
August 19, 1988
The law of the country to which the goods are to be transported governs the liability of
the common carrier in case of their loss, destruction or deterioration (Article 1753, Civil
Code). Thus, the rule was specifically laid down that for cargoes transported from Japan
to the Philippines, the liability of the carrier is governed primarily by the Civil Code and
in all matters not regulated by said Code, the rights and obligations of common carrier
shall be governed by the Code of Commerce and by special laws (Article 1766, Civil
Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to
the provision of the Civil Code.

150.
Loadstar Shipping Co., Inc., vs. Court of Appeals, G.R. No. 131621
September 28, 1999
Inasmuch as neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) which
provides for a one-year period of limitation on claims for loss of, or damage to, cargoes
sustained during transit may be applied suppletorily to the case at bar. This one-year
prescriptive period also applies to the insurer of the goods.

Mercantile Law

151.

Wallem Philippines Shipping vs SR Farms, GR No. 161849, July 9, 2010

Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three
days of delivery. Under the same provision, however, a failure to file a notice of claim
within three days will not bar recovery if a suit is nonetheless filed within one year from
delivery of the goods or from the date when the goods should have been delivered. The
filing of an amended pleading does not retroact to the date of the filing of the original. It
is true that, as an exception, an amendment which merely supplements and amplifies
facts originally alleged in the complaint relates back to the commencement of the action
and is not barred by the statute of limitations which expired after the service of the
original complaint. The exception, however, would not apply to the party impleaded for
the first time after the service of the amended complaint. In this case, petitioner was not
impleaded as a defendant in the original complaint filed on March 11, 1993. It was only
on June 7, 1993 that the Amended Complaint, impleading petitioner as defendant, was
filed. Considering this circumstances, clearly, the suit against the petitioner was filed
beyond the prescriptive period of the filing of claims as provided in the COGSA.
152.
2013

Asian Terminals Inc., v. Philam Insurance Co. G.R. NO. 181262 , July 24,

In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or the
date when the goods should have been delivered: Provided, That if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this section, that fact
shall not affect or prejudice the right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should have been delivered.
153.
1998

Mitsui O.S.K. Lines Ltd. vs. Court of Appeals, G.R. No. 119571, March 11,

The one-year period of limitation is designed to meet the exigencies of maritime hazards.
In a case where the goods shipped were neither lost nor damaged in transit but were, on
the contrary, delivered in port to someone who claimed to be entitled thereto, the
situation is different, and the special need for the short period of limitation in cases of
loss or damage caused by maritime perils does not obtain.
154.
New World International Development Corporation vs NYK-FilJapan
Shipping Corporation, GR No. 171468, August 24, 2011
Notwithstanding the fact that the case was filed beyond the one-year prescriptive period
provided under the COGSA, the suit (against the insurer) will not be dismissed if the
delay was not due to the claimants fault. Had the insurer processed and examined the
claim promptly, the claimant or the insurer itself, as subrogee, could have taken the
judicial action on time. By making an unreasonable demand for an itemized list of
damages which caused delay, the insurer should bear the loss with interest,

Mercantile Law

155.
Insurance Company of North America vs. Asian Terminals, Inc. GR No.
180784, February 15, 2012
The term carriage of goods covers the period from the time when the goods are loaded
to the time when they are discharged from the ship; thus, it can be inferred that the period
of time when the goods have been discharged from the ship and given to the custody of
the arrastre operator is not covered by the COGSA. Under the COGSA, the carrier and
the ship may put up the defense of prescription if the action for damages is not brought
within one year after delivery of the goods or the date when the goods should have been
delivered. However, the COGSA does not mention than an arrastre operator may invoke
the prescriptive period; hence, it does not cover the arrastre operator. The arrastre
operators responsibility and liability for losses and damages are set forth in the contract
for cargo handling services executed between the Philippine Ports Authority and Marina
Port Services.
156.

Lhuillier vs British Airways, G.R. No. 171092, March 15, 2010

Under Article 28 (1) of the Warsaw Convention, the plaintiff may bring the action for
damages before: 1) the court where carrier is domiciled; 2) the court where the carrier has
its principal place of business; 3) the court where the carrier has an establishment by
which the contract has been made; or 4) the court of the place of destination. In this case,
it is not disputed that respondent is a British corporation domiciled in London, United
Kingdom with London as its principal place of business. Hence, under the first and
second jurisdictional rules, the petitioner may bring her case before the courts of London
in the United Kingdom. In the passenger ticket and baggage check presented by both the
petitioner and respondent, it appears that the ticket was issued in Rome,
Italy. Consequently, under the third jurisdictional rule, the petitioner has the option to
bring her case before the courts of Rome in Italy. Finally, both the petitioner and
respondent aver that the place of destination is Rome, Italy, which is properly designated
given the routing presented in the said passenger ticket and baggage check. Accordingly,
petitioner may bring her action before the courts of Rome, Italy. Thus, the RTC of
Makati correctly ruled that it does not have jurisdiction over the case filed by the
petitioner even though it was based on tort and not on breach of contract.
157.
1996

Philippine Airlines Inc. vs. Court of Appeals, G.R. No. 119706, March 14,

While the Warsaw Convention has the force and effect of law in the Philippines, being a
treaty commitment by the government and as a signatory thereto, the same does not
operate as an exclusive enumeration of the instances when a carrier shall be liable for
breach of contract or as an absolute limit of the extent of liability, nor does it preclude the
operation of the Civil Code or other pertinent laws. The acceptance in due course by PAL
of Mejias cargo as packed and its advice against the need for declaration of its actual
value operated as an assurance to Mejia that in fact there was no need for such a
declaration. Mejia can hardly be faulted for relying on the representations of PALs own

Mercantile Law

personnel. In other words, Mejia could and would have complied with the conditions
stated in the air waybill, i.e., declaration of a higher value and payment of supplemental
transportation charges, entitling her to recovery of damages beyond the stipulated limit of
US$20 per kilogram of cargo in the event of loss or damage, had she not been effectively
prevented from doing so upon the advice of PALs personnel for reasons best known to
themselves. Even if the claim for damages was conditioned on the timely filing of a
formal claim, under Article 1186 of the Civil Code that condition was deemed fulfilled,
considering that the collective action of PALs personnel in tossing around the claim and
leaving it unresolved for an indefinite period of time was tantamount to voluntarily
preventing its fulfillment. On grounds of equity, the filing of the baggage freight claim,
which sufficiently informed PAL of the damage sustained by private respondents cargo,
constituted substantial compliance with the requirement in the contract for the filing of a
formal claim.
158.
Philippine Airlines Inc. vs. Hon. Adriano Savillo, et. al., G.R. No. 149547,
July 4, 2008
Article 19 of the Warsaw Convention provides for liability on the part of a carrier for
damages occasioned by delay in the transportation by air of passengers, baggage or
goods. Article 24 excludes other remedies by further providing that (1) in the cases
covered by articles 18 and 19, any action for damages, however founded, can only be
brought subject to the conditions and limits set out in this convention. Therefore, a
claim covered by the Warsaw Convention can no longer be recovered under local law, if
the statute of limitations of two years has already lapsed. Nevertheless, the Court notes
that jurisprudence in the Philippines and the United States also recognizes that the
Warsaw Convention does not exclusively regulate the relationship between passenger
and carrier on an international flight. The Court finds that the present case is
substantially similar to cases in which the damages sought were considered to be outside
the coverage of the Warsaw Convention.
Corporation Law

159.

Benny Hung vs BPI Finance Corporation . G.R. No. 182398, 20 July 2010

When the corporation (BB Sportswear, Inc.) which the plaintiff erroneously impleaded in
a collection case was not the party to the actionable agreement and turned out to be not
registered with the Securities and Exchange Commission, the judgment may still be
enforced against the corporation (BB Footwear, Inc.) which filed the answer and
participated in the proceedings, as well as its controlling shareholder who signed the
actionable agreement in his personal capacity and as a single proprietorship doing
business under the trade name and style of BB Sportswear Enterprises.

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160.
Sappari K. Sawadjaanvs. the Honorable Court of Appeals, the Civil Service
Commission and Al-amanah Investment Bank of the Philippines, G.R. No. 141735,
June 8, 2005
By its failure to submit its by-laws on time, the AIIBP may be considered a de facto
corporation whose right to exercise corporate powers may not be inquired into
collaterally in any private suit to which such corporation may be a party. A corporation
which has failed to file its by-laws within the prescribed period does not ipso facto lose
its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of
Registration of Corporations, details the procedures and remedies that may be availed of
before an order of revocation can be issued. There is no showing that such a procedure
has been initiated in this case.
161.
Reynaldo M. Lozano vs. Hon. Eliezer R. De los Santos, Presiding Judge,
RTC, Br. 58, Angeles City; and Antonio Anda, G.R. No. 125221, June 19, 1997
The plan of the parties to consolidate their respective jeepney drivers' and operators'
associations into a single common association, if not yet approved by the SEC, neither
had its officers and members submitted their articles of consolidation in accordance with
Sections 78 and 79 of the Corporation Code, is a mere proposal to form a unified
association. Any dispute arising out of the election of officers of said unified association
is therefore not an intra-corporate dispute.
162.
Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448,
3 November 1999
Under the law on estoppel, those acting on behalf of a corporation and those benefited by
it, knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation.
However, having reaped the benefits of the contract entered into by persons with whom
he previously had an existing relationship, he is deemed to be part of said association and
is covered by the scope of the doctrine of corporation by estoppel.
163.
International Express Travel & Tour Services, Inc. vs. Hon. Court of
Appeals, Henri Kahn, Philippine Football Federation, G.R. No. 119002, October 19,
2000
When the petitioner is not trying to escape liability from the contract but rather the one
claiming from the contract, the doctrine of corporation by estoppel is not applicable. This
doctrine applies to a third party only when he tries to escape liability on a contract from
which he has benefited on the irrelevant ground of defective incorporation.
164.

Macasaet vs. Francisco, GR No. 156759, June 5, 2013

Corporation by estoppel results when a corporation represented itself to the public as

such despite its not being incorporated. A corporation by estoppel may be impleaded as a

Mercantile Law

party defendant considering that it possesses attributes of a juridical person, otherwise, it

cannot be held liable for damages and injuries it may inflict to other persons.
165.
Engr. Ranulfo C. Feliciano, in his capacity as General Manager of the Leyte
Metropolitan Water District (LMWD), Tacloban City vs. Commission on Audit,
Chairman CELSO D. GANGAN, Commissioners Raul C. Flores and Emmanuel M.
Dalman, and Regional Director of COA Region VIII, G.R. No. 147402, 14 January
2004
Congress can not enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general
law. If the corporation is private, it must necessarily exist under a general law.
166.
Dante V. Liban, Reynaldo M. Bernardo and Salvador M. Viari vs. Richard J.
Gordon, G. R. No. 175352, January 18, 2011
Although the Philippine National Red Cross was created by a special charter, it can not
be considered a government-owned and controlled corporation in the absence of the
essential elements of ownership and control by the government. It does not have
government assets and does not receive any appropriation from the Philippine Congress.
It is a non-profit, donor-funded, voluntary organization, whose mission is to bring timely,
effective and compassionate humanitarian assistance for the most vulnerable without
consideration of nationality, race, religion, gender, social status or political affiliation.
This does not mean however that the charter of PNRC is unconstitutional. PNRC has a
sui generis status. Although it is neither a subdivision, agency, or instrumentality of the
government, nor a government-owned or -controlled corporation or a subsidiary thereof,
so much so that Gordon was correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does not ipso facto imply
that the PNRC is a private corporation within the contemplation of the provision of the
Constitution, that must be organized under the Corporation Code. The PNRC enjoys a
special status as an important ally and auxiliary of the government in the humanitarian
field in accordance with its commitments under international law. This Court cannot all
of a sudden refuse to recognize its existence, especially since the issue of the
constitutionality of the PNRC Charter was never raised by the parties.
167.
Antonio M. Carandang vs. Honorable Aniano A. Desierto, Office of the
Ombudsman, G.R. No. 153161, January 12, 2011
A governmentowned or controlled corporation refers to any agency organized as a stock
or non-stock corporation vested with functions relating to public needs whether
governmental or proprietary in nature and owned by the government through its
instrumentalities either wholly or where applicable as in the case of stock corporation to
the extent of at least 51% of its capital stock. When a stockholder ceded to the
government shares representing 72.4 % of the voting stock of the corporation but
subsequently clarified that it should be reduced to 32.4%, the corporation shall not be

Mercantile Law

considered government-owned and controlled until the quantification of shares is

resolved with finality.
168.
Marissa R. Unchuan vs. Antonio J.P. Lozada, Anita Lozada and the Register
of Deeds of Cebu City, G.R. No. 172671, April 16, 2009
A corporation organized under the laws of the Philippines of which at least 60% of the
capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines, is considered a Philippine National. As such, the corporation may acquire
disposable lands in the Philippines.
169.
Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines
Inc., G.R. No. 195580, 28 January 2015
A corporation that complies with the 60-40 Filipino to foreign equity requirement can be
considered a Filipino corporation if there is no doubt as to who has the beneficial
ownership and control of the corporation. In this case, a further investigation as to the
nationality of the personalities with the beneficial ownership and control of the corporate
shareholders in both the investing and investee corporations is necessary. Doubt refers
to various indicia that the beneficial ownership and control of the corporation do not
in fact reside in Filipino shareholders but in foreign stakeholders. Even if at first glance
the petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the
present case that gives rise to a reasonable suspicion that the Filipino shareholders do not
actually have the requisite number of control and beneficial ownership in petitioners
Narra, Tesoro, and McArthur. Hence, the Court is correct in using the Grandfather Rule
in determining the nationality of the petitioners.
170.
Rolando DS. Torres v. Rural Bank of San Juan, Inc. et al., G.R. No. 184520,
March 13, 2013
A corporation has its own legal personality separate and distinct from those of its
stockholders, directors or officers. Hence, absent any evidence that they have exceeded
their authority, corporate officers are not personally liable for their official acts.
Corporate directors and officers may be held solidarily liable with the corporation for the
termination of employment only if done with malice or in bad faith.
171.
Mercy Vda. de Roxas, represented by Arlene C. Roxas-Cruz, in her capacity
as substitute appellant- petitioner vs. Our Lady's Foundation, Inc. G.R. No. 182378,
March 6, 2013
In order for the Court to hold the officer of the corporation personally liable alone for the
debts of the corporation and thus pierce the veil of corporate fiction, the Court has
required that the bad faith of the officer must first be established clearly and convincingly.
Petitioner, however, has failed to include any submission pertaining to any wrongdoing
of the general manager. Necessarily, it would be unjust to hold the latter personally liable.
Moreso, if the general manager was never impleaded as a party to the case.

Mercantile Law

172.
Development Bank of the Philippines vs. Hydro Resources Contractors
Corporation, GR. No. 167603, March 13, 2013
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

In this connection, case law lays down a three-pronged test to determine the application
of the alter ego theory, which is also known as the instrumentality theory, namely:

1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiffs legal right; and;

3. The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.

The first prong is the "instrumentality" or "control" test. This test requires that the
subsidiary be completely under the control and domination of the parent. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs are so
conducted as to make it a mere instrumentality or agent of the parent corporation such
that its separate existence as a distinct corporate entity will be ignored. In addition, the
control must be shown to have been exercised at the time the acts complained of took
place.

The second prong is the "fraud" test. This test requires that the parent corporations
conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines
the relationship of the plaintiff to the corporation. It recognizes that piercing is
appropriate only if the parent corporation uses the subsidiary in a way that harms the

Mercantile Law

plaintiff creditor. As such, it requires a showing of "an element of injustice or

fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the
defendants control, exerted in a fraudulent, illegal or otherwise unfair manner toward it,
caused the harm suffered. A causal connection between the fraudulent conduct committed
through the instrumentality of the subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The plaintiff must prove that, unless the
corporate veil is pierced, it will have been treated unjustly by the defendants exercise of
control and improper use of the corporate form and, thereby, suffer damages.
173.
Gregorio Singian, Jr. vs. the Honorable Sandiganbayan and the Presidential
Commission on Good Government, G.R. Nos. 160577-94, December 16, 2005
The powers to increase capitalization and to offer or give collateral to secure
indebtedness are lodged with the corporations board of directors. However, this does
not mean that the officers of the corporation other than the board of directors cannot be
made criminally liable for their criminal acts if it can be proven that they participated
therein.
174.
Filipinas Broadcasting Network, Inc. vs. AGO Medical And Educational
Center-Bicol Christian College of Medicine, (AMEC-BCCM) and Angelita F. Ago,
G.R. No. 141994, January 17, 2005
A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. Nevertheless, AMECs claim for moral
damages falls under item 7 of Article 2219 of the Civil Code which expressly authorizes
the recovery of moral damages in cases of libel, slander or any other form of defamation.
Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages.
175.
Manila Electric Company vs. T.E.A.M. Electronics Corporation, Technology
Electronics Assembly and Management Pacific Corporation; and Ultra Electronics
Instruments, Inc., G.R. No. 131723, December 13, 2007
As a rule, a corporation is not entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or sentiments like wounded feelings,
serious anxiety, mental anguish and moral shock. The only exception to this rule is when
the corporation has a reputation that is debased, resulting in its humiliation in the
business realm. But in such a case, it is essential to prove the existence of the factual
basis of the damage and its causal relation to petitioner's acts. Thus, where the records are
bereft of evidence that the name or reputation of the corporation has been debased as a

Mercantile Law

result of Meralcos act (which in this case is the disconnection without written notice of
the disconnection of the electricity supply to the building of the corporation due to
alleged meter tampering), the corporation is not entitled to moral damages.
176.
Kukan International Corporation vs. Hon. Judge Amor Reyes, G.R. No.
182729, 29 September 2010
The court must first acquire jurisdiction over the corporation or corporations involved
before its or their separate personalities are disregarded; and the doctrine of piercing the
veil of corporate entity can only be raised during a full-blown trial over a cause of action
duly commenced involving parties duly brought under the authority of the court by way
of service of summons or what passes as such service.
177.
Gold Line Tours vs. Heirs of Maria Concepcion Lacsa, GR No. 159108, 18
June 2012

However, in another case involving an action for breach of contract of carriage resulting
to the death of one of the passengers , Supreme Court ruled that if the RTC had sufficient
factual basis to conclude that the two corporations are one and the same entity as when
they have the same President and controlling shareholder and it is generally known in the
place where they do business that both transportation companies are one, the third party
claim filed by the other corporation was set aside and the levy on its property held valid
even though the latter was not made a party to the case . The judgment may be enforced
against the other corporation to prevent multiplicity of suits and save the parties
unnecessary expenses and delay.
178.

Prince Transport, Inc. vs. Garcia, GR No. 167291, January 12, 2011

The doctrine of piercing the veil of corporate fiction is applicable not only to corporations
but also to a single proprietorship as when the corporation transferred its employees to
the company owned by the controlling stockholder of the corporation and yet despite the
transfer, the employees daily time records, reports, daily income remittances and
schedule of work were all made, performed, filed and kept in the corporation. The
corporation is clearly hiding behind the supposed separate and distinct personality of the
company. As such, the corporation and the company should be solidarily liable for the
claims of the illegally dismissed employees.
179.
Pacific Rehouse Corporation vs. Court of Appeals, GR. No. 199687, March
24, 2014
Where the court rendered judgment against a stock brokerage firm directing the latter to
return shares of stock which it sold without authority, but the writ of execution was
returned unsatisfied, an alias writ of execution could not be enforced against its parent
company because the court has not acquired jurisdiction over the latter and while the

Mercantile Law

parent company owns and controls the brokerage firm, there is no showing that the
control was used to violate the rights of the plaintiff.
180.

Arco Pulp & Paper Co. Inc. v. Lim, G.R. No. 206806, 25 June 2014

The corporate existence may be disregarded where the entity is formed or used for nonlegitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to
shield or perpetrate fraud or to carry out similar or inequitable considerations, other
unjustifiable aims or intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated as identical. In the case
at bar, when petitioner Arco Pulp and Papers obligation to Lim became due and
demandable, she not only issued an unfunded check but also contracted with a third party
in an effort to shift petitioner Arco Pulp and Papers liability. She unjustifiably refused to
honor petitioner corporations obligations to respondent. These acts clearly amount to bad
faith. In this instance, the corporate veil may be pierced, and petitioner Santos may be
held solidarily liable with petitioner Arco Pulp and Paper.
181.

Livesey vs. Binswanger Philippines, GR No. 177493, March 19, 2014

Piercing the veil of corporate fiction is warranted when a corporation ceased to exist only
in name as it re-emerged in the person of another corporation, for the purpose of evading
its unfulfilled financial obligation under a compromise agreement. Thus, if the judgment
for money claim could not be enforced against the employer corporation, an alias writ
may be obtained against the other corporation considering the indubitable link between
the closure of the first corporation and incorporation of the other.
182.
2014

WPM International Trading Inc. v. Labayen, G.R. No. 182770, 17 September

When an officer owns almost all of the stocks of a corporation, it does not ipso facto
warrant the application of the principle of piercing the corporate veil unless it is proven
that the officer has complete dominion over the corporation.
183.
Heirs of Fe Tan Uy, represented by her heir, Mauling Uy Lim vs.
International Exchange Bank, G.R. No. 166282 & 83, February 13, 2013
Under a variation of the doctrine of piercing the veil of corporate fiction, when two
business enterprises are owned, conducted and controlled by the same parties, both law
and equity will, when necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as identical or one and the
same. While the conditions for the disregard of the juridical entity may vary, the
following are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc.,v NLRC: (1)
Stock ownership by one or common ownership of both corporations; (2) Identity of
directors and officers; (3) The manner of keeping corporate books and records, and (4)
Methods of conducting the business.

Mercantile Law

184.
Mariano A. Albert vs. University Publishing Co., Inc., G.R. No. L-19118,
January 30, 1965
When the President of a non-existent principal entered into a contract and failed to pay its
obligation, he shall be the one liable to the aggrieved party. A person acting as a
representative of a non-existent principal is the real party to the contract sued upon, being
the one who reaped the benefits resulting from it.
185.
Samahang Optometrists saPilipinas, Ilocos Sur- Abra Chapter, et al. vs.
Acebedo International Corporation and the Hon. Court of Appeals, G.R. No.
117097, 21 March 1997
A corporation created and organized for the purpose of conducting the business of selling
optical lenses or eyeglasses is not engaged in the practice of optometry because the
determination of the proper lenses to sell to private respondent's clients entails the
employment of optometrists who have been precisely trained for that purpose. Private
respondent's business, rather, is the buying and importing of eyeglasses and lenses and
other similar or allied instruments from suppliers thereof and selling the same to
consumers.
186.
P.C. Javier & Sons, Inc., et al. vs.Paic Savings & Mortgage Bank, Inc., et al.,
G.R. No. 129552, June 29, 2005
A change in the corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the corporation, or on
its property, rights, or liabilities because the corporation upon such change in its name, is
in no sense a new corporation, nor the successor of the original corporation.
187.
Zuellig Freight and Cargo Systemsvs. National Labor Relations Commission,
et al., G.R. No. 157900, July 22, 2013
The mere change in the corporate name is not considered under the law as the creation of
a new corporation; hence, the renamed corporation remains liable for the illegal dismissal
of its employee separated under that guise. Verily, the amendments of the articles of
incorporation of Zeta to change the corporate name to Zuellig Freight and Cargo
Systems, Inc., did not produce the dissolution of the former as a corporation.
188.
Heirs of Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et al.,
G.R. No. 176579, October 9, 2012
Since the constitutional requirement of at least 60 percent Filipino ownership applies not
only to voting control of the corporation but also to the beneficial ownership of the
corporation, it is therefore imperative that such requirement applies uniformly and across
the board to all classes of shares, regardless of nomenclature and category, comprising
the capital of a corporation. Since a specific class of shares may have rights and
privileges or restrictions different from the rest of the shares in a corporation, the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article XII of the

Mercantile Law

Constitution must apply not only to shares with voting rights but also to shares without
voting rights.
189.
Alicia E. Gala, et al.vs. Ellice Agro-Industrial Corporation, et al., G.R. No.
156819, December 11, 2003
The best proof of the purpose of a corporation is its articles of incorporation and by-laws,
and in the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo
shows no sign of the allegedly illegal purposes that petitioners are complaining of. It is
well to note that, if a corporations purpose, as stated in the Articles of Incorporation, is
lawful, then the SEC has no authority to inquire whether the corporation has purposes
other than those stated, and mandamus will lie to compel it to issue the certificate of
incorporation.
190.
Hyatt Elevators and Escalators Corporation vs. Goldstar Elevators Phils.,
Inc., G.R. No. 161026, October 24, 2005
The venue in this case was improperly laid because the principal office of Hyatt as stated
in the Articles of Incorporation is in Makati but the case was filed in Mandaluyong where
Hyatt transferred its operations. Since the principal place of business of a corporation
determines its residence or domicile, then the place indicated in petitioners articles of
incorporation becomes controlling in determining the venue for the filing of a case.
191.
John Gokongwei, Jr. vs. Securities and Exchange Commission, et al., G.R.
No. L-45911, April 11, 1979
Every corporation has the inherent power to adopt by-laws 'for its internal government,
and to regulate the conduct and prescribe the rights and duties of its members towards
itself and among themselves in reference to the management of its affairs. Under Section
21 of the Corporation Law, a corporation may prescribe in its by-laws the qualifications,
duties and compensation of directors, officers and employees.
192.
Loyola Grand Villas Homeowners (South) Association, Inc. vs. Hon. Court of
Appeals, Home Insurance And Guaranty Corporation, Emden Encarnacion and
Horatio Aycardo, G.R. No. 117188, August 7, 1997
Non-filing of the by-laws will not result in automatic dissolution of the corporation.
Under Section 6(I) of PD 902-A, the SEC is empowered to suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration of a corporation on
the ground inter alia of failure to file by-laws within the required period.
193.
Matling Industrial and Commercial Corporation, et al. vs. Ricardo R. Coros,
G.R. No. 157802, October 13, 2010
Conformably with Section 25 of the Corporation Code, a position must be expressly
mentioned in the By-Laws in order to be considered as a corporate office. Thus, the
creation of an office pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office.

Mercantile Law

194.
Grace Christian High Schoolvs.the Court Of Appeals, Grace Village
Association, Inc., Alejandro G. Beltran, and Ernesto L. Go, G.R. No. 108905, 23
October 1997
A provision in the by-laws of the corporation stating that of the 15 members of its Board
of Directors, only 14 members would be elected while the remaining member would be
the representative of an educational institution located in the village of the homeowners,
is invalid for being contrary to law. The fact that for fifteen years it has not been
questioned or challenged but, on the contrary, appears to have been implemented by the
members of the association cannot forestall a later challenge to its validity because, if it is
contrary to law, it is beyond the power of the members of the association to waive its
invalidity.
195.
Cebu Country Club, Inc., et al. vs. Ricardo F. Elizagaque, G.R. No. 160273,
January 18, 2008
When an amendment to a provision in the Amended By-Laws requiring the unanimous
vote of the directors present at a special or regular meeting was not printed on the
application form for proprietory membership, and what was printed thereon was the
original provision which was silent on the required number of votes needed for admission
of an applicant as a proprietary member, the Board of Directors committed fraud and
evident bad faith in disapproving respondents application under Article 31 of the
Corporation Code. The explanation given by the petitioner that the amendment was not
printed on the application form due to economic reasons is flimsy and unconvincing
because such amendment, aside from being extremely significant, was introduced way
back in 1978 or almost twenty (20) years before respondent filed his application.
196.
Mid Pasig Land and Development Corporation v. Tablante, G.R. No. 162924,
February 4, 2010
These officers are in the position to verify the truthfulness and correctness of the
allegations in the petition.
197.

Esguerra vs. Holcim Philippines G.R. No. 182571, September 2, 2013

The general rule is that a corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents when
authorized by a board resolution or its bylaws. The power of a corporation to sue and be
sued is exercised by the board of directors. The physical acts of the corporation, like the
signing of documents, can be performed only by natural persons duly authorized for the
purpose by corporate bylaws or by a specific act of the board. Absent the said board
resolution, a petition may not be given due course.
198.
Spouses Afulugencia vs. Metropolitan Bank and Trust Co. G.R. No. 185145,
February 05, 2014

Mercantile Law

In a complaint for nullification of mortgage and foreclosure with damages against the
mortgagee-bank, the plaintiff can not compel the officers of the bank to appear and testify
as plaintiffs initial witnesses unless written interrogatories are first served upon the bank
officers. This is in line with the Rules of Court provision that calling the adverse party to
the witness stand is not allowed unless written interrogatories are first served upon the
latter. This is because the officers of a corporation are considered adverse parties as well
in a case against the corporation itself based on the principle that corporations act only
through their officers and duly authorized agents.
199.
Islamic Directorate of the Philippines, Manuel F. Perea and Securities &
Exchange Commission,vs. Court of Appeals And Iglesia Ni Cristo, G.R. No. 117897,
May 14, 1997
Where an asset constitutes the only property of the corporation, its sale to a third-party is
a sale or disposition of all the corporate property and assets of said corporation falling
squarely within the contemplation of Section 40 of the Corporation Code. Hence, for the
sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the
vote of at least 2/3 of the bona fide members of the corporation should have been
obtained.
200.
Republic Planters Bank vs. Hon. Enrique A. Agana, Sr., as Presiding Judge,
Court of First Instance of Rizal, Branch XXVIII, Pasay City, Robes-Francisco
Realty & Development Corporation and Adalia F. Robes, G.R. No. 51765, March 3,
1997
Dividends cannot be declared for preferred shares which were guaranteed a quarterly
dividend if there are no unrestricted retained earnings. "Interest bearing stocks, on which
the corporation agrees absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring payment of interest as dividends
from net earnings or surplus only.
201.
2014

Lopez Realty Inc. v. Spouses Tanjangco, G.R. No. 154291, November 12,

The general rule is that a corporation, through its board of directors, should act in the
manner and within the formalities, if any, prescribed by its charter or by the general law.
Directors must act as a body in a meeting called pursuant to the law or the corporation's
by-laws, otherwise, any action taken therein may be questioned by any objecting director
or shareholder; but an action of the board of directors during a meeting, which was illegal
for lack of notice, may be ratified either expressly, by the action of the directors in
subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct.
202.
Atrium Management Corporation vs. Court of Appeals, et al., G.R. No.
109491, February 28, 2001

Mercantile Law

The act of issuing the checks was well within the ambit of a valid corporate act, for it was
for securing a loan to finance the activities of the corporation, hence, not an ultra vires
act.
203.
2011

Megan Sugar Corporation vs. RTC of Ilo-ilo Br. 68, GR no. 170352, June 1,

A corporation cannot deny the authority of lawyer when they clothed him with apparent
authority to act in their behalf such as when he entered his appearance accompanied by
the corporations general manager and the corporation never questioned his acts and even
took time and effort to forward all the court documents to him. The lawyer may not have
been armed with a board resolution but the doctrine of apparent authority imposes
liability not as a result of contractual relationship but rather because of the actions of the
principal or an employer in somehow misleading the public that the relationship or the
authority exists.
204.
Advance Paper Corporation vs Arma Traders Corporation , G.R. No 176897,
December 11, 2013.
The doctrine of apparent authority provides that a corporation will be estopped from
denying the agents authority if it knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, and it holds him out to the public as
possessing the power to do those acts.
Apparent authority is derived not merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words the apparent authority to act in general, with
which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It
is not the quantity of similar acts which establishes apparent authority, but the vesting of
a corporate officer with the power to bind the corporation. When the sole management of
the corporation was entrusted to two of its officers/incorporators with the other officers
never had dealings with the corporation for 14 years and that the board and the
stockholders never had its meeting, the corporation is now estopped from denying the
officers authority to obtain loan from the lender on behalf of the corporation under the
doctrine of apparent authority.
205.
Ong Yong, et al. vs. David S. Tiu, et al., G.R. No. 144476 & G.R. No. 144629,
8 April 2003
In the instant case, the rescission of the Pre-Subscription Agreement will effectively
result in the unauthorized distribution of the capital assets and property of the corporation,
thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a
subscription agreement is not one of the instances when distribution of capital assets and
property of the corporation is allowed. The Trust Fund Doctrine provides that

Mercantile Law

subscriptions to the capital stock of a corporation constitute a fund to which the creditors
have a right to look for the satisfaction of their claims.
206.
Filipinas Port Services, Inc., represented by stockholders, Eliodoro C. Cruz
and Mindanao Terminal and Brokerage Services, Inc. vs. Victoriano S. Go, et al.,
G.R. No. 161886, March 16, 2007
The determination of the necessity for additional offices and/or positions in a corporation
is a management prerogative which courts are not wont to review in the absence of any
proof that such prerogative was exercised in bad faith or with malice.Indeed, it would be
an improper judicial intrusion into the internal affairs of Filport for the Court to
determine the propriety or impropriety of the creation of offices therein and the grant of
salary increases to officers thereof.
207.
United Coconut Planters Bank vs. Planters Products, Inc., Janet Layson and
Gregory Grey, G.R. No. 179015, June 13, 2012
The execution of a document by a bank manager called pagares which guaranteed
purchases on credit by a client is contrary to the General Banking Law which prohibits
bank officers from guaranteeing loans of bank clients. In this case, it is plain from the
guarantee Grey executed that he was acting for himself, not in representation of UCPB;
hence, UCPB cannot be bound by Greys above undertaking since he appears to have
made it in his personal capacity.
208.
Mercy Vda. de Roxas vs. Our Lady's Foundation, Inc., G.R. No. 182378,
March 6, 2013
To hold the general manager personally liable alone for the debts of the corporation and
thus pierce the veil of corporate fiction, it is required that the bad faith of the officer be
established clearly and convincingly. Petitioner, however, has failed to include any
submission pertaining to any wrongdoing of the general manager. Necessarily, it would
be unjust to hold the latter personally liable.
209.

Polymer Rubber Corporation vs. Ang, G.R. No. 185160. July 24, 2013

Obligations incurred as a result of the directors and officers acts as corporate agents, are
not their personal liability but the direct responsibility of the corporation they represent.
As a rule, they are only solidarily liable with the corporation for the illegal termination of
services of employees if they acted with malice or bad faith.
To hold a director or officer personally liable for corporate obligations, two requisites
must concur: (1) it must be alleged in the complaint that the director or officer assented to
patently unlawful acts of the corporation or that the officer was guilty of gross negligence
or bad faith; and (2) there must be proof that the officer acted in bad faith. The fact that
the corporation ceased its operations the day after the promulgation of the SC resolution
finding the corporation liable does not prove bad faith on the part of the incorporator of
the corporation.

Mercantile Law

210.
Elizabeth M. Gagui vs. Simeon Dejero and Teodoro Permejo, G.R. No.
196036, October 23, 2013
Although joint and solidary liability for money claims and damages against a corporation
attaches to its corporate directors and officers under R.A. 8042, it is not automatic. To
make them jointly and solidarily liable, there must be a finding that they were remiss in
directing the affairs of the corporation, resulting in the conduct of illegal activities.
Absent any findings regarding the same, the corporate directors and officers cannot be
held liable for the obligation of the corporation against the judgment debtor.
211.
Rosita Pea vs. the Court of Appeals, Spouses Rising T. Yap and Catalina
Yap, Pampanga Bus Co., Inc., Jesus Domingo, Joaquin Briones, Salvador
Bernardez, Marcelino Enriquez and Edgardo A. Zabat, G.R. No. 91478, February 7,
1991
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation
or by-laws of the corporation may fix a greater number than the majority of the number
of board members to constitute the quorum necessary for the valid transaction of business.
When only three (3) out of five (5) members of the board of directors of PAMBUSCO
convened on November 19, 1974 by virtue of a prior notice of a special meeting,there
was no quorum to validly transact business since, under Section 4 of the amended bylaws hereinabove reproduced, at least four (4) members must be present to constitute a
quorum in a special meeting of the board of directors of PAMBUSCO.
212.

SEC vs. CA, G.R. No. 187702, October 22, 2014

The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases
enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies
are solicited in relation to the election of corporate directors, the resulting controversy,
even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be
properly seen as an election controversy within the original and exclusive jurisdiction of
the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5 (c) of
Presidential Decree No. 902-A
Indeed, the validation of proxies in this case relates to the determination of the existence
of a quorum. Nonetheless, it is a quorum for the election of the directors, and, as such,
which requires the presence in person or by proxy of the owners of the majority of the
outstanding capital stock of Omico. Also, the fact that there was no actual voting did not
make the election any less so, especially since Astra had never denied that an election of
directors took place.
213.
2001

Tam Wing Tak vs. Hon. Ramon P. Makasiar, G.R. No. 122452, January 29,

Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that
where a corporation is an injured party, its power to sue is lodged with its board of

Mercantile Law

directors or trustees. In this case, the petitioner failed to show any proof that he was
authorized or deputized or granted specific powers by the corporations board of director
to sue Victor AngSiong for and on behalf of the firm, and therefore he had no such power
or authority to sue on Concords behalf.
214.

Villamor v Umale, G.R. Nos. 172843 & 172881, 24 September 2014

The Court has recognized that a stockholder's right to institute a derivative suit is not
based on any express provision of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the corporation and its stockholders
for violation of their fiduciary duties. In effect, the suit is an action for specific
performance of an obligation, owed by the corporation to the stockholders, to assist its
rights of action when the corporation has been put in default by the wrongful refusal of
the directors or management to adopt suitable measures for its protection.
215.

Legaspi Towers 300, Inc., vs. Muer G.R. No. 170783, June 18, 2012

Petitioners seek the nullification of the election of the Board of Directors composed
of herein respondents, who pushed through with the election even if petitioners had
adjourned the meeting allegedly due to lack of quorum. Petitioners are the injured party,
whose rights to vote and to be voted upon were directly affected by the election of the
new set of board of directors. The party-in-interest are the petitioners as stockholders,
who wield such right to vote. The cause of action devolves on petitioners, not the
condominium corporation, which did not have the right to vote. Hence, the complaint for
nullification of the election is a direct action by petitioners, who were the members of
the Board of Directors of the corporation before the election, against respondents, who
are the newly-elected Board of Directors. Under the circumstances, the derivative suit
filed by petitioners in behalf of the condominium corporation is improper.
216.
Majority of Stockholders of Ruby Industrial Corporation vs Lim, GR No.
165887, June 6, 2011
A stock corporation is expressly granted the power to issue or sell stocks. The power to
issue stocks is lodged with the Board of Directors and no stockholders meeting is
required to consider it because additional issuances of stock (unlike increase in capital
stock) does not need approval of the stockholders. What is only required is the board
resolution approving the additional issuance of shares. The corporation shall also file the
necessary application with the SEC to exempt these from the registration requirements
under the SRC.
217.
Africa vs. Hon. Sandiganbayan , G.R. Nos. 172222/G.R. No. 174493/ G.R. No.
184636, November 11, 2013
Under the two-tiered test, the government, thru PCGG, may vote sequestered shares if
there is a prima facie evidence that the shares are ill-gotten and there is imminent danger
of dissipation of assets while the case is pending. However, the two- tiered test

Mercantile Law

contemplates a situation where the registered stockholders were in control and had been
dissipating company assets and the PCGG wanted to vote the sequestered shares to save
the company. It does not apply when the PCGG had voted the shares and is in control of
the sequestered corporation
218.
Marsh Thomson vs. Court of Appeals and the American Champer of
Commerce of the Philippines, Inc,, G.R. No. 116631, October 28, 1998
The authority granted to a corporation to regulate the transfer of its stock does not
empower it to restrict the right of a stockholder to transfer his shares, but merely
authorizes the adoption of regulations as to the formalities and procedure to be followed
in effecting transfer.
219.

Valley Golf and Country Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)

The arrangement provided for in the by-laws of the Corporation whereby a lien is
constituted on the membership share to answer for subsequent obligations to the
corporation finds applicable parallels under the Civil Code. Membership shares are
considered as movable or personal property, and they can be constituted as security to
secure a principal obligation, such as the dues and fees. There are at least two contractual
modes under the Civil Code by which personal property can be used to secure a principal
obligation. The first is through a contract of pledge, while the second is through a chattel
mortgage. If the stockholder had not signed any document that manifests his agreement to
constitute his Golf Share as security in favor of the Corporation to answer for his
obligations to the club and there is no document that it is substantially compliant with the
form of chattel mortgages, the by-laws could not suffice for that purpose since it is not
designed as a bilateral contract between the stockholder and the Corporation or a vehicle
by which the stockholder expressed his consent to constitute his Share as security for his
account with the Corporation.
220.
The Rural Bank of Lipa City, Inc., et al.vs. Honorable Court of Appeals, G.R.
No. 124535, September 28, 2001
For a valid transfer of stocks, there must be strict compliance with the mode of transfer
prescribed by law. The requirements are: (a) There must be delivery of the stock
certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation. A deed of
assignment of shares without endorsement and delivery is binding only on the parties and
does not necessarily make the transfer effective as against the corporation.
221.
Vicente C. Ponce vs. Alsons Cement Corporation, and Francisco M. Giron,
Jr., G.R. No. 139802, December 10, 2002
Without such recording, the transferee may not be regarded by the corporation as one
among its stockholders and the corporation may legally refuse the issuance of stock
certificates in the name of the transferee even when there has been compliance with the

Mercantile Law

requirements of Section 64 of the Corporation Code. The situation would be different if

the petitioner was himself the registered owner of the stock which he sought to transfer to
a third party, for then he would be entitled to the remedy of mandamus.
222.
Fil-Estate Golf and Development vs. Vertex Sales and Trading Inc., G.R. No.
202079, June 10, 2013
Section 63 of the Corporation Code provides that shares of stock so issued are personal
property and may be transferred by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally authorized to make the transfer.
The failure of the stockholder to deliver the stock certificate to the buyer within a
reasonable time the shares covered by the stock certificate should have been delivered is
a substantial breach that entitles the buyer to rescind the sale under Article 1191 of the
Corporation Code. It is not entirely correct to say the sale had already been consummated
as the buyer already enjoyed the rights a shareholder can exercise. The enjoyment of
these rights will not suffice where the law, by its express terms, requires a specific form
to transfer ownership.

223.

Yujuico v. Quaiambao, G.R. No. 180416, 02 June 2014

A criminal action based on the violation of a stockholder's right to examine or inspect the
corporate records and the stock and transfer book of a corporation under the second and
fourth paragraphs of Section 74 of the Corporation Code can only he maintained against
corporate officers or any other persons acting on behalf of such corporation. The
complaint and the evidence Quiambao and Sumbilla submitted during preliminary
investigation do not establish that Quiambao and Pilapil were acting on behalf of
STRADEC. Violations of Section 74 contemplates a situation wherein a corporation,
acting thru one of its officers or agents, denies the right of any of its stockholders to
inspect the records, minutes and the stock and transfer book of such corporation. Thus,
the dismissal is valid.

224.

SME BANK INC, vs. GASPAR, G.R. No. 186641, October 8, 2013

In this case, the corporate officers and directors who induced the employees to resign
with the assurance that they would be rehired by the new management are personally
liable to the employees who were not actually rehired. However, the officer who did not
participate in the termination of employment and persons who participated in the
unlawful termination of employment but are not directors and officers of the corporation
are not personally liable.
225.
2014

Bank of Commerce v Radio Philippines Network, G.R. No. 195615, 21 April

Mercantile Law

Indubitably, it is clear that no merger took place between Bancommerce and TRB as the
requirements and procedures for a merger were absent. A merger does not become
effective upon the mere agreement of the constituent corporations. All the requirements
specified in the law must be complied with in order for merger to take effect. Here,
Bancommerce and TRB remained separate corporations with distinct corporate
personalities. What happened is that TRB sold and Bancommerce purchased identified
recorded assets of TRB in consideration of Bancommerces assumption of identified
recorded liabilities of TRB including booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it is done openly and with appropriate
government approval.
226.
Mindanao Savings and Loan Association, Inc., represented by its Liquidator,
the Philippine Deposit Insurance Corporation vs. Edward Willkom; Gilda Go;
RemediosUy; MalayoBantuas, in his capacity as the Deputy Sheriff of Regional
Trial Court, Branch 3, Iligan City; and the Register of Deeds of Cagayan de Oro
City, G.R. No. 178618, October 11, 2010
The issuance of the certificate of merger is crucial because not only does it bear out
SECs approval but it also marks the moment when the consequences of a merger take
place. By operation of law, upon the effectivity of the merger, the absorbed corporation
ceases to exist but its rights and properties, as well as liabilities, shall be taken and
deemed transferred to and vested in the surviving corporation.
227.
Bank of the Philippine Islands vs. BPI Employees Union- Davao ChapterFederation Of Unions In Bpi Unibank, G.R. No. 164301, October 19, 2011
It is more in keeping with the dictates of social justice and the State policy of according
full protection to labor to deem employment contracts as automatically assumed by the
surviving corporation in a merger, even in the absence of an express stipulation in the
articles of merger or the merger plan. By upholding the automatic assumption of the nonsurviving corporations existing employment contracts by the surviving corporation in a
merger, the Court strengthens judicial protection of the right to security of tenure of
employees affected by a merger and avoids confusion regarding the status of their various
benefits which were among the chief objections of our dissenting colleagues.
228.

Bank of Philippine Islands v. Lee, G.R. No. 190144, August 1, 2012

Citytrust, therefore, upon service of the notice of garnishment and its acknowledgment
that it was in possession of defendants' deposit accounts became a "virtual party" to or a
"forced intervenor" in the civil case. As such, it became bound by the orders and
processes issued by the trial court despite not having been properly impleaded therein.
Consequently, by virtue of its merger with BPI, the latter, as the surviving corporation,
effectively became the garnishee, thus the "virtual party" to the civil case.
229.

Aguirre vs. FQB +7, Inc, GR No. 170770, January 9 2013

Mercantile Law

An action to correct entries in the General Information Sheet of the Corporation; to be

recognized as a stockholder and to inspect corporate documents is an intra-corporate
dispute which does not constitute a continuation of corporate business. As such, pursuant
to Section 145 of the Corporation Code, this action is not affected by the subsequent
dissolution of the corporation. The dissolution of the corporation simply prohibits it from
continuing its business. However, despite such dissolution, the parties involved in the
litigation are still corporate actors. The dissolution does not automatically convert the
parties into total strangers or change their intra-corporate relationships. Neither does it
change or terminate existing causes of action, which arose because of the corporate ties
between the parties. Thus, a cause of action involving an intra-corporate controversy
remains and must be filed as an intra-corporate dispute despite the subsequent dissolution
of the corporation.
230.
Rene Knecht and Knecht, Inc. vs. United Cigarette Corp., represented by
Encarnacion Gonzales Wong, and Eduardo Bolima, Sheriff, Regional Trial Court,
Branch 151, Pasig City, G.R. No. 139370, July 4, 2002
The trustee (of a dissolved corporation) may commence a suit which can proceed to final
judgment even beyond the three-year period of liquidation. No reason can be conceived
why a suit already commenced by the corporation itself during its existence, not by a
mere trustee who, by fiction, merely continues the legal personality of the dissolved
corporation, should not be accorded similar treatment to proceed to final judgment and
execution thereof. Indeed, the rights of a corporation that has been dissolved pending
litigation are accorded protection by Section 145 of the Corporation Code which provides
no right or remedy in favor of or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, shall be removed or impaired
either by the subsequent dissolution of said corporation or by any subsequent amendment
or repeal of this Code or of any part thereof.
231.
Lucia Barramedavda. de Ballesteros vs. Rural Bank of Canaman, Inc.,
represented by its liquidator, the Philippine Deposit Insurance Corporation, G.R.
No. 176260, November 24, 2010
To allow a creditors case to proceed independently of the liquidation case, a possibility
of favorable judgment and execution thereof against the assets of the distressed
corporation would not only prejudice the other creditors and depositors but would defeat
the very purpose for which a liquidation court was constituted as well. The requirement
that all claims against the bank be pursued in the liquidation proceedings filed by the
Central Bank is intended to prevent multiplicity of actions against the insolvent bank and
designed to establish due process and orderliness in the liquidation of the bank, to obviate
the proliferation of litigations and to avoid injustice and arbitrariness.
232.
Alabang Corporation Development vs. Alabang Hills Village Association,
G.R. No. 187456, 02 June 2014

Mercantile Law

ADC filed its complaint not only after its corporate existence was terminated but also
beyond the three-year period allowed by Section 122 of the Corporation Code. To allow
ADC to initiate the subject complaint and pursue it until final judgment, on the ground
that such complaint was filed for the sole purpose of liquidating its assets, would be to
circumvent the provisions of Section 122 of the Corporation Code. Thus, it is clear that at
the time of the filing of the subject complaint petitioner lacks the capacity to sue as a
corporation.
233.

Vigilla vs. Philippine College of Criminology, GR No. 200094, June 10, 2013

The executed releases, waivers and quitclaims are valid and binding upon the parties
notwithstanding the fact that these documents were signed six years after the
Corporations revocation of the Certificate of Incorporation. These documents are thus
proof that the employees had received their claims from their employer-corporation in
whose favor the release and quitclaim were issued. The revocation of the corporation
does not mean the termination of its liabilities to these employees. Section 122 of the
Corporation Code provides for a three-year winding up period for a corporation whose
charter is annulled by forfeiture or otherwise to continue as a body corporate for the
purpose, among others, of settling and closing its affairs. As such, these liabilities are
obligations of the dissolved corporation and not of the corporation who contracted the
services of the dissolved corporation.
234.
Sergio F. Naguiat, doing business under the name and style Sergio F.
NaguiatEnt., Inc., & Clark Field Taxi, Inc. vs. National Labor Relations
Commission (Third Division), National Organization Of Workingmen and its
members, Leonardo T. Galang, et al., G.R. No. 116123, 13 March 1997
To the extent that the stockholders are actively engaged in the management or operation
of the business and affairs of a close corporation, the stockholders shall be held to strict
fiduciary duties to each other and among themselves. Said stockholders shall be
personally liable for corporate torts unless the corporation has obtained reasonably
adequate liability insurance.
235.
PetroniloJ. Barayuga vs. Adventist University of the Philippines, through its
Board of Trustees, represented by its Chairman, Nestor D. Dayson, G.R. No. 168008,
August 17, 2011
The second paragraph of Section 108 of the Corporation Code, although setting the term
of the members of the Board of Trustees at five years, contains a proviso expressly
subjecting the duration to what is otherwise provided in the articles of incorporation or
by-laws of the educational corporation. In AUPs case, its amended By-Laws provided
that members of the Board of Trustees were to serve a term of office of only two years;
and the officers, who included the President, were to be elected from among the members
of the Board of Trustees during their organizational meeting, which was held during the
election of the Board of Trustees every two years. Naturally, the officers, including the

Mercantile Law

President, were to exercise the powers vested by Section 2 of the amended By-Laws for a
term of only two years, not five years.
236.
2006

Rev. Luis Ao-as, et al. vs. Hon. Court of Appeals, G.R. No. 128464, June 20,

Section 89 of the Corporation Code pertaining to non-stock corporations which provides

that "the right of the members of any class or classes (of a non-stock corporation) to vote
may be limited, broadened or denied to the extent specified in the articles of
incorporation or the by-laws," is an exception to Section 6 of the same code where it is
provided that "no share may be deprived of voting rights except those classified and
issued as preferred or redeemable shares, unless otherwise provided in this Code."
The stipulation in the By-Laws providing for the election of the Board of Directors by
districts is a form of limitation on the voting rights of the members of a non-stock
corporation as recognized under the aforesaid Section 89.
237.
Cargill, Inc. vs. Intra Strata Assurance Corporation, G.R. No. 168266,
March 15, 2010
A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines. Since the contract between petitioner and NMC involved the purchase of
molasses by petitioner from NMC, it was NMC, the domestic corporation, which derived
income from the transaction and not petitioner. To constitute doing business, the
activity undertaken in the Philippines should involve profit-making.
238.
Hutchison Ports Philippines Limitedvs.Subic Bay Metropolitan Authority,
International Container Terminal Services Inc., Royal Port Services, Inc. and the
Executive Secretary, G.R. No. 131367, August 31, 2000
There is no general rule or governing principle laid down as to what constitutes doing
or engaging in or transacting business in the Philippines. Each case must be judged
in the light its peculiar circumstances. Thus, it has often been held that a single act or
transaction may be considered as doing business when a corporation performs acts for
which it was created or exercises some of the functions for which it was organized. The
amount or volume of the business is of no moment, for even a singular act cannot be
merely incidental or casual if it indicates the foreign corporations intention to do
business. Participating in the bidding process constitutes doing business because it
shows the foreign corporations intention to engage in business here.
239.
Steelcase, Inc. vs. Design International Selections, Inc., G.R. No. 171995,
April 18, 2012
The appointment of a distributor in the Philippines is not sufficient to constitute doing
business unless it is under the full control of the foreign corporation. If the distributor is
an independent entity which buys and distributes products, other than those of the foreign

Mercantile Law

corporation, for its own name and its own account, the latter cannot be considered to be
doing business in the Philippines.
240.
MR Holdings, Ltd.vs. Sheriff Carlos P. Bajar, Sheriff Ferdinand M.
Jandusay, Solidbank Corporation, and Marcopper Mining Corporation, G.R. No.
138104, April 11, 2002
241.
Global Business Holdings, Inc. vs. Surecomp Software, B.V., G.R. No. 173463,
October 13, 2010
A party is estopped from challenging the personality of a corporation after having
acknowledged the same by entering into a contract with it. The principle is applied to
prevent a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such person has received the
benefits of the contract.
Securities Regulation Code

242.
Betty Gabionza and Isabelita Tan vs. Court of Appeals, G.R. No. 161057,
September 12, 2008
The issuance of checks for the purpose of securing a loan to finance the activities of the
corporation is well within the ambit of a valid corporate act. It is one thing for a
corporation to issue checks to satisfy isolated individual obligations, and another for a
corporation to execute an elaborate scheme where it would comport itself to the public as
a pseudo-investment house and issue postdated checks instead of stocks or traditional
securities to evidence the investments of its patrons.
243.
Securities and Exchange Commission vs. Prosperity.Com, Inc., G.R. No.
164197, January 25, 2012
For an investment contract to exist, the following elements, referred to as the Howey test
must concur: (1)a contract, transaction, or scheme; (2)an investment of money;
(3)investment is made in a common enterprise; (4) expectation of profits; and (5)profits
arising primarily from the efforts of others. Network marketing, a scheme adopted by
companies for getting people to buy their products where the buyer can become a downline seller, who earns commissions from purchases made by new buyers whom he refers
to the person who sold the product to him, is not an investment contract.
244.
Securities and Exchange Commission vs. Oudine Santos, G.R. No. 195542,
March 19, 2014
A person is liable for violation of Section 28 of the SRC where, acting as a broker, dealer
or salesman is in the employ of a corporation which sold or offered for sale unregistered
securities in the Philippines. The transaction initiated by the investment consultant of a
corporation is an investment contract or participation in a profit sharing agreement that

Mercantile Law

falls within the definition of lawan investment in a common venture premised on a

reasonable expectation of profits to be derived from the entrepreneurial or managerial
efforts of others.
245.
Securities and Exchange Commission vs. Interport Resources Corporation,
et. al., G.R. No. 135808, October 6, 2008
The term insiders now includes persons whose relationship or former relationship to
the issuer gives or gave them access to a fact of special significance about the issuer or
the security that is not generally available, and one who learns such a fact from an insider
knowing that the person from whom he learns the fact is such an insider. Insiders have
the duty to disclose material facts which are known to them by virtue of their position but
which are not known to persons with whom they deal and which, if known, would affect
their investment judgment.
246.
Philippine Veterans Bank v. Callangan, in her capacity Director of the
Corporation Finance Department of the Securities and Exchange Commission
and/or the Securities and Ex-change Commission, G.R. No. 191995, August 3, 2011
A public company, as contemplated by the SRC is not limited to a company whose
shares of stock are publicly listed; even companies whose shares are offered only to a
specific group of people, are considered a public company, provided they fall under
Subsec. 17.2 of the SRC, which provides: any corporation with a class of equity
securities listed on an Exchange or with assets of at least Fifty Million Pesos
(P50,000,000.00) and having two hundred (200) or more holders, at least two hundred
(200) of which are holding at least one hundred (100) shares of a class of its equity
securities. Philippine Veterans Bank meets the requirements and as such, is subject to
the reportorial requirements for the benefit of its shareholders.
247.
Cemco Holdings, Inc. vs. National Life Insurance Company of the
Philippines, G.R. No. 171815, August 7, 2007
A tender offer is an offer by the acquiring person to stockholders of a public company for
them to tender their shares; it gives the minority shareholders the chance to exit the
company under reasonable terms, giving them the opportunity to sell their shares at the
same price as those of the majority shareholders. The mandatory tender offer is still
applicable even if the acquisition, direct or indirect, is less than 35% when the purchase
would result in ownership of over 51% of the total outstanding equity securities of the
public company.
248.
Securities and Exchange Commission vs. Interport Resources Corporation,
et. al., G.R. No. 135808, October 6, 2008
Section 27 (SRC) penalizes an insiders misuse of material and non-public information
about the issuer, for the purpose of protecting public investors; Section 26 widens the
coverage of punishable acts, which intend to defraud public investors through various

Mercantile Law

devices, misinformation and omissions. Section 23 imposes upon (1) a beneficial owner
of more than ten percent of any class of any equity security or (2) a director or any officer
of the issuer of such security, the obligation to submit a statement indicating his or her
ownership of the issuers securities and such changes in his or her ownership thereof.
249.

Jose U. Pua vs. Citibank, N. A. G.R. No. 180064, September 16, 2013

Civil suits falling under the SRC (like liability for selling unregistered securities) are
under the exclusive original jurisdiction of the RTC and hence, need not be first filed
before the SEC, unlike criminal cases wherein the latter body exercises primary
jurisdiction.

INTELLECTUAL PROPERTY LAW

250.
2003

Pearl & Dean (Phil.), Inc. vs. Shoemart, Inc., G.R. No. 148222, August 15,

A trademark is any visible sign capable of distinguishing the goods (trademark) or

services (service mark) of an enterprise and shall include a stamped or marked container
of goods; a trade name refers to the name or designation identifying or distinguishing an
enterprise. Copyright is confined to literary and artistic works which are original
intellectual creations in the literary and artistic domain protected from the moment of
their creation. On the other hand, patentable inventions refer to any technical solution of a
problem in any field of human activity which is new, involves an inventive step and is
industrially applicable.
251.

Jessie Ching vs. William Salinas, et. al., G.R. No. 161295, June 29, 2005

A utility model is a technical solution to a problem in any field of human activity which
is new and industrially applicable; it may be, or may relate to, a product, or process, or an
improvement of any of the aforesaid. Being plain automotive spare parts that must
conform to the original structural design of the components they seek to replace, the Leaf
Spring Eye Bushing and Vehicle Bearing Cushion are not ornamental; they lack the
decorative quality or value that must characterize authentic works of applied art and in
actuality, they are utility models, useful articles, albeit with no artistic design or value.
252.
Smith Kline Beckman Corporation vs. Court of Appeals, G.R. No. 126627,
August 14, 2003
When the language of its claims is clear and distinct, the patentee is bound thereby and
may not claim anything beyond them. the language of Letter Patent No. 14561 fails to
yield anything at all regarding Albendazole and no extrinsic evidence had been adduced
to prove that Albendazole inheres in petitioners patent in spite of its omission therefrom
or that the meaning of the claims of the patent embraces the same.

Mercantile Law

253.
2010

Phil. Pharmawealth, Inc. vs. Pfizer, Inc., G.R. No. 167715, November 17,

A patentee shall have the exclusive right to make, use and sell the patented machine,
article or product, and to use the patented process for the purpose of industry or
commerce, throughout the territory of the Philippines for the term of the patent; and such
making, using, or selling by any person without the authorization of the patentee
constitutes infringement of the patent. The patentees exclusive rights exist only during
the term of the patent, hence, after the cut-off date, the exclusive rights no longer exist
and the temporary restraining order can no longer be issued in its favor.
254.

Pascual Godines vs. Court of Appeals, G.R. No. 97343, September 13, 1993

To determine whether the particular item falls within the literal meaning of the patent
claims, the court must juxtapose the claims of the patent and the accused product within
the overall context of the claims and specifications, to determine whether there is exact
identity of all material elements. Viewed from any perspective or angle, the power tiller
of the defendant is identical and similar to that of the turtle power tiller of plaintiff in
form, configuration, design, appearance, and even in the manner of operation.
255.
Superior Commercial Enterprises, Inc. vs. Kunnan Enterprises Ltd. and
Sports Concept & Distributor, Inc., G.R. No. 169974, April 20, 2010
The cancellation of registration of a trademark has the effect of depriving the registrant of
protection from infringement from the moment the judgment or order of cancellation has
become final. Accordingly, a distributor has no right to the registration of the disputed
trademarks since the right to register a trademark is based on ownership. An exclusive
distributor who employs the trademark of the manufacturer does not acquire proprietary
rights of the manufacturer, and a registration of the trademark by the distributor as such
belongs to the manufacturer, provided the fiduciary relationship does not terminate before
application for registration is filed.
256.
Birkenstock Orthopaedie Gmbh and Co. Kg vs. Philippine Shoe Expo
Marketing Corporation, G.R. No. 194307, November 20, 2013
It is not the application or registration of a trademark that vests ownership thereof, but it
is the ownership of a trademark that confers the right to register the same. Registration
merely creates a prima facie presumption of the validity of the registration, of the
registrants ownership of the trademark, and of the exclusive right to the use thereof; it is
rebuttable, thus, it must give way to evidence to the contrary.
257.
Ecole De Cuisine Manille (Cordon Bleu of the Philippines), Inc. vs. Renaus
Cointreau & Cie and Le Cordon Bleu Intl, B.V., G.R. No. 185830, June 5, 2013)
Under the Paris Convention to which the Philippines is a signatory, a trade name of a
national of a State that is a party to the Paris Convention, whether or not the trade name
forms part of a trademark, is protected without the obligation of filing or registration. It

Mercantile Law

follows then that the applicant for registration of trademark is not the lawful owner
thereof and is not entitled to registration if the trademark has been in prior use by a
national of a country which is a signatory to the Paris Convention.
258.
Societe Des Produits Nestle, S.A. vs. Court of Appeals and CFC Corporation,
G.R. No. 112012, April 4, 2001
The word MASTER, the dominant feature of the opposers mark, is neither generic nor
descriptive and as such, it cannot be invalidated as a trademark. When the term
MASTER has acquired a certain connotation to mean the coffee products MASTER
ROAST and MASTER BLEND produced by Nestle, the use by the CFC of the term
MASTER in the trademark for its coffee product FLAVOR MASTER is likely to cause
confusion or mistake or even deception of the ordinary purchasers.
259.
Prosource International, Inc. vs. Horphag Research Management SA, G.R.
No. 180073, November 25, 2009
Both the words PYCNOGENOL and PCO-GENOLS have the same suffix GENOL
which appears to be merely descriptive and furnish no indication of the origin of the
article and hence, open for trademark registration by the plaintiff thru combination with
another word or phrase such as PYCNOGENOL. Although there were dissimilarities in
the trademark due to the type of letters used as well as the size, color and design
employed on their individual packages/bottles, still the close relationship of the
competing products name in sounds as they were pronounced, clearly indicates that
purchasers could be misled into believing that they are the same and/or originates from a
common source and manufacturer.
260.
Sketchers USA vs. Inter Pacific Industrial Trading Corporation, GR No.
164321, March 28, 2011
The Dominancy Test focuses on the similarity of the prevalent or dominant features of
the competing trademarks that might cause confusion, mistake, and deception in the mind
of the purchasing public. Respondents use of the stylized S in its Strong rubber shoes
infringes on the mark of the petitioner as it is the dominant feature of the latters
trademark; the likelihood of confusion is present as purchasers may associate the
respondents product as connected with petitioners business.
261.
Emerald Garment Manufacturing Corporation vs. Court of Appeals, G.R.
No. 100098, December 29, 1995
In applying the holistic test, petitioners trademark, STYLISTIC MR. LEE, which
pertains to jeans, should be considered as a whole. The test of fraudulent simulation is to
be found in the likelihood of the deception of some persons in some measure acquainted
with an established design and desirous of purchasing the commodity with which that
design has been associated. When the casual buyer is predisposed to be more cautious in
his purchase, as in this case where the products concerned are not inexpensive, the
likelihood of confusion is absent.

Mercantile Law

262.
Philip Morris, Inc. vs. Fortune Tobacco Corporation, G.R. No. 158589, June
27, 2006
The application of the holistic test entails a consideration of the entirety of the marks as
applied to the products, including the labels and packaging, in determining confusing
similarity. Although the perceived offending word MARK is itself prominent in
petitioners trademarks MARK VII and MARK TEN, the entire marking system
should be considered as a whole and not dissected, because a discerning eye would focus
not only on the predominant word but also on the other features appearing in the labels;
only then would such discerning observer draw his conclusion whether one mark would
be confusingly similar to the other and whether or not sufficient differences existed
between the marks.
263.
2013

Victorio Diaz vs. People of the Philippines, G.R. No. 180677, February 18,

The gravamen of the offense of infringement of a registered trademark is the likelihood

of confusion. In applying the Holistic Test, confusion was remote because the jeans
made and sold by Levis Philippines were not only very popular but also quite expensive,
as opposed to Diazs tailored jeans which were acquired on a made-to-order basis;
moreover, since the jeans are expensive, the casual buyer is predisposed to be more
cautious and discriminating in and would prefer to mull over his purchase.
264.
2015

Taiwan Kolin Corp. v. Kolin Electronics Co., G.R. No. 209843, 25 March

In trademark registration, while both competing marks refer to the word KOLIN
written in upper case letters and in bold font, but one is italicized and colored black while
the other is white in pantone red color background and there are differing features
between the two, registration of the said mark could be granted. It is hornbook doctrine
that emphasis should be on the similarity of the products involved and not on the
arbitrary classification or general description of their properties or characteristics. The
mere fact that one person has adopted and used a trademark on his goods would not,
without more, prevent the adoption and use of the same trademark by others on unrelated
articles of a different kind.
265.
Mighty Corporation and La Campana Fabrica De Tabaco, Inc. vs. E. & J.
Gallo Winery and the Andresons Group, Inc., G.R. No. 154342, July 14, 2004
The Paris Convention for the Protection of Industrial Property does not automatically
exclude all countries of the world which have signed it from using a tradename which
happens to be used in one country. GALLO cannot be considered a well-known mark
within the contemplation and protection of the Paris Convention in this case since
GALLO wines and GALLO cigarettes are neither the same, identical, similar nor related
goods.

Mercantile Law

266.
Fredco Manufacturing Corporation vs. President and Fellows of Harvard
College, GR No. 185917, June 1, 2011
The essential requirement under the Paris Convention (and the Intellectual Property
Code) is that the trademark to be protected must be well-known in the country where
protection is sought and the power to determine whether a trademark is well-known lies
in the competent authority of the country of registration or use. Harvard is a wellknown name and mark not only in the United States but also internationally, including
the Philippines; as such, even before Harvard University applied for registration of the
mark Harvard in the Philippines, the mark was already protected under the Paris
Convention.
267.
Del Monte Corporation and Philippine Packing Corporation vs. Court of
Appeals, G.R. No. L-78325, January 25, 1990
The question is not whether the two articles are distinguishable by their label when set
side by side but whether the general confusion made by the article upon the eye of the
casual purchaser who is unsuspicious and off his guard, is such as to likely result in his
confounding it with the original. It is not difficult to see that the Sunshine label is a
colorable imitation of the Del Monte trademark; the predominant colors used in the Del
Monte label are green and red-orange, the same with Sunshine; the word "catsup" in both
bottles is printed in white and the style of the print/letter is the same; and although the
logo of Sunshine is not a tomato, the figure nevertheless approximates that of a tomato.
268.
Coffee Partners vs. San Francisco Coffee and Roastery, Inc., G.R. No. 169504,
3 March 2010
A trade name previously used in trade or commerce in the Philippines need not be
registered with the IPO before an infringement suit may be filed by its owner against the
owner of an infringing trademark. Nonetheless, respondent does not have the right to the
exclusive use of the geographic word San Francisco or the generic word coffee. It is
only the combination of the words SAN FRANCISCO COFFEE, which is respondents
trade name in its coffee business, that is protected against infringement on matters related
to the coffee business to avoid confusing or deceiving the public.
269.

Ong vs. People of the Philippines, GR No. 169440, November 23, 2011

The trademark Marlboro is not only valid for being neither generic nor descriptive, it
was also exclusively owned by PMPI, as evidenced by the certificate of registration
issued by the Intellectual Property Office. Infringement of trademark clearly lies since
the counterfeit cigarettes not only bore PMPIs trademark, but they were also packaged
almost exactly as PMPIs products.
270.
Republic Gas Corporation (REGASCO), et. al. vs. Petron Corporation, et. al.,
G.R. No. 194062, June 17, 2013

Mercantile Law

The mere unauthorized use of a container bearing a registered trademark in connection

with the sale, distribution or advertising of goods or services which is likely to cause
confusion among the buyers or consumers can be considered as trademark infringement.
Petitioners act of refilling, without the respondents consent, the LPG containers bearing
the registered marks of the respondents will inevitably confuse the consuming public,
who may also be led to believe that the petitioners were authorized refillers and
distributors of respondents LPG products.
271.
McDonalds Corporation vs. L.C. Big Mak Burger, Inc., G.R. No. 143993,
August 18, 2004
The essential elements of an action for unfair competition are (1) confusing similarity in
the general appearance of the goods, and (2) intent to deceive the public and defraud a
competitor. The confusing similarity may or may not result from similarity in the marks,
but may result from other external factors in the packaging or presentation of the goods.
In this case, the intent to deceive and defraud may be inferred from the fact that there was
actually no notice (on their plastic wrappers) to the public that the Big Mak hamburgers
are products of L.C. Big Mak Burger, Inc.
272.
Coca- Cola Bottlers Philippines, Inc. (CCBPI), Naga Plant vs. Quintin
Gomez, et, al., G.R. No. 154491, November 14, 2008
Hoarding does not relate to any patent, trademark, trade name or service mark that the
respondents have invaded, intruded into or used without proper authority from the
petitioner nor are the respondents alleged to be fraudulently passing off their products
or services as those of the petitioner. The respondents are not also alleged to be
undertaking any representation or misrepresentation that would confuse or tend to
confuse the goods of the petitioner with those of the respondents, or vice versa. What in
fact the petitioner alleges is an act foreign to the Code, to the concepts it embodies and to
the acts it regulates; as alleged, hoarding inflicts unfairness by seeking to limit the
oppositions sales by depriving it of the bottles it can use for these sales

273.
Manly Sportwear Manufacturing, Inc. vs. Dadodette Enterprises and/or
Hermes Sports Center, G.R. No. 165306, September 20, 2005
At most, the certificates of registration and deposit issued by the National Library and the
Supreme Court Library serve merely as a notice of recording and registration of the work
but do not confer any right or title upon the registered copyright owner or automatically
put his work under the protective mantle of the copyright law; it is not a conclusive proof
of copyright ownership. Hence, when there is sufficient proof that the copyrighted
products are not original creations but are readily available in the market under various
brands, as in this case, validity and originality will not be presumed.

Mercantile Law

274.
Francisco Joaquin, Jr. vs. Franklin Drilon, et. al., G.R. No. 108946, January
28, 1999
The format or mechanics of a television show is not included in the list of protected
works in Sec. 2 of P.D. No. 49, which is substantially the same as Sec. 172 of the
Intellectual Property Code (R.A. No, 8293). For this reason, the protection afforded by
the law cannot be extended to cover them.
275.
ABS-CBN Broadcasting Corporation vs. Philippine Multi-Media System,
Inc., G.R. Nos. 175769-70, January 19, 2009
Under Sec. 184.1 (h), the use made of a work by or under the direction or control of the
Government, by the National Library or by educational, scientific or professional
institutions where such use is in the public interest and is compatible with fair use will
not constitute copyright infringement. The carriage of ABS-CBNs signals by virtue of
the must-carry rule is under the direction and control of the government through the NTC.
The imposition of the must-carry rule is within the NTCs power to promulgate rules and
regulations, as public safety and interest may require, to encourage a larger and more
effective use of communications, radio and television broadcasting facilities, and to
maintain effective competition among private entities in these activities whenever the
Commission finds it reasonably feasible.
276.
Pacita Habana, et. al. vs. Felicidad Robles and Goodwill Trading Co., Inc.,
G.R. No. 131522, July 19, 1999
To constitute infringement, it is not necessary that the whole or even a large portion of
the work shall have been copied; if so much is taken that the value of the original is
sensibly diminished, or the labors of the original author are substantially and to an
injurious extent appropriated by another, that is sufficient in point of law to constitute
piracy. The injury is sustained when respondent lifted from petitioners book materials
that were the result of the latters research work and compilation and misrepresented
them as her own, even circulating the book DEP for commercial use without
acknowledging petitioners as her source.
277.
2005

NBI-Microsoft Corporation vs. Judy Hwang, et. al., G.R. No. 147043, June 21,

The gravamen of copyright infringement is not merely the unauthorized manufacturing

of intellectual works but rather the unauthorized performance of any of the rights
exclusively granted to the copyright owner. Hence, any person who performs any of such
acts without obtaining the copyright owners prior consent renders himself civilly and
criminally liable for copyright infringement.