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CODE OF COMMERCE
LETTERS OF CREDIT
COMPILATION OF DOCTRINES IN COMMERCIAL LAW
In commercial transactions involving letters of credit, the functions assumed by a correspondent bank are classified according to the obligations taken up by it. The correspondent bank may be called a notifying bank, a negotiating bank, or a confirming bank. In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit to the beneficiary the existence of the letter of credit. The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not imply that the notifying bank promises to accept the draft drawn under the documentary credit. A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. It follows therefore that when the petitioner refused to negotiate with the private respondent, the latter has no cause of action against the petitioner for the enforcement of his rights under the letter. A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has no liability with respect to the seller but after negotiation, a contractual relationship will then prevail between the negotiating bank and the seller. In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and its liability is a primary one as if the correspondent bank itself had issued the letter of credit. (FEATI BANK VS. CA) What characteri es letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the re!uired shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment independent of any breach of the main sales contract. "y this so#called $independence principle,$ the bank determines compliance with the letter of credit only by examining the shipping documents presented% it is precluded from determining whether the main contract is actually accomplished or not. (BANK OF AMERICA VS. CA)
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NEGOTIABLE INSTRUMENTS LAW

NEGOTIABILITY The weight of authority in the &nited 'tates is that postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. (or instance, such laws and regulations usually provide for not more than one endorsement% payment of money orders may be withheld under a variety of circumstances. (PHIL. EDUC. CO. VS. SORIANO) )n this score, the accepted rule is that the negotiability or non#negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. (CALTEX PHIL. VS. CA) The indication of (und *+, as the source of the payment to be made on the treasury warrants makes the order or promise to pay $not unconditional and the warrants themselves non#negotiable. There should be no !uestion that the exception on 'ection - of the .egotiable Instruments /aw is applicable in the case at bar. (METROBANK VS. CA)
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A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal conse!uences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A nonnegotiable instrument may, obviously, not be negotiated% but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument0 The words 1not negotiable,1 stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment% the assignee taking sub2ect to the e!uities between the original parties. (SESBREO VS. CA) The essence of negotiability which characteri es a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. (FIRESTONE TIRE & RUBBER VS. CA) PAYABLE TO BEARER Where a check is made payable to the order of 1cash1, the word cash 1does not purport to be the name of any person1, and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement. (ANG TEK LIAN VS. CA) COMPLETE BUT UNDELI ERED INSTRUMENT A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. 3ust as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Thus, the payee of a negotiable instrument ac!uires no interest with respect thereto until its delivery to him. 4elivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. 5oreover, such delivery must be intended to give effect to the instrument. (DEVELOPMENT BANK VS. SIMA WEI) FORGERY

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A forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be ac!uired through or under the forged signature except against a party who cannot invoke the forgery, it stands to reason, upon the facts of record, that the respondent, as a collecting bank which endorsed the checks to the drawee#banks for clearing, should be liable to the latter for reimbursement, for, as found by the court a !uo and by the appellate court, the endorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the drawee#banks to the respondent on account of the said checks were ineffective% and, such being the case, the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected, the checks not having been properly and legitimately converted into cash. (JAI-ALAI VS. BPI) Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the "ank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money. (REPUBLIC BANK VS. EBRADA) The records show that at the time the twenty#three 67-8 checks were prepared, negotiated, and encashed, the petitioner was using its own personali ed checks, instead of the official 9." :ommercial blank checks. In the exercise of this special privilege, however, the petitioner failed to provide the needed security measures. ;ence, the petitioner is barred from setting up the defense of forgery under 'ection 7- of the .egotiable Instruments /aw because it was guilty of negligence
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not only before the !uestioned checks were negotiated but even after the same had already been negotiated. (MWSS v . CA) While the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutini e checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. (BANCO DE ORO VS. E!UITABLE BANK) The negligence of a depositor which will prevent recovery of an unauthori ed payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. (GEMPESAW VS. CA) The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer1s instructions are reflected on the face and by the terms of the check. 9ayment under a forged indorsement is not to the drawer1s order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer1s 6the drawer8 account only for properly payable items. 'ince the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawer1s account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. ;owever, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. (ASSOCIATED BANK VS. CA) The mere fact that the forgery was committed by the drawer#payor<s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer#payor in the absence of some circumstances raising estoppel against the drawer. (PCIB v . CA) The petitioner is precluded from setting up the forgery, assuming there is a forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of accounts.= (ILUSORIO VS. CA) MATERIAL ALTERATION An alteration is said to be material if it alters the effect of the instrument. It means an unauthori ed change in an instrument that purports to modify in any respect the obligation of a party or an unauthori ed addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are re!uired to be stated under 'ection , of the .egotiable Instrument /aw. A serial number is an item which is not an essential re!uisite for negotiability under 'ection , of the .I/. (PNB v . CA) The insertion of the words $Agent, 9hil. .ational "ank,$ which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument. (MONTINOLA VS. PNB) ACCOMMODATION PARTY )n principle, a solidary accommodation maker who made payment#has the right to contribution, from his co#accommodation maker, in the absence of agreement to the contrary between them,
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and sub2ect to conditions imposed by law. This right springs from an implied promise between the accommodation makers to share e!ually the burdens that may ensue from their having consented to stamp their signatures on the promissory note. (or having lent their signatures to the principal debtor, they clearly placed themselves#in so far as payment made by one may create liability on the other in the category of mere 2oint guarantors of the former. (SADA"A VS. SEVILLA) The afore!uoted provision of the .egotiable Instruments /aw which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. ;ence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon. "y way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authori ed to do so (CRISOLOGO-JOSE VS. CA) To be sure, as regards an accommodation party 6such as 'T>>/W>/48, the fourth condition, i.e., lack of notice of any infirmity in the instrument or defect in title of the persons negotiating it, has no application. This is because 'ection 7? of the law above !uoted preserves the right of recourse of a $holder for value$ against the accommodation party notwithstanding that $such holder, at the time of taking the instrument, knew him to be only an accommodation party.$ (STELCO v . CA) In accommodation transactions recogni ed by the .egotiable Instruments /aw, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or reali es full value which the accommodated party then must repay to the accommodating party, unless of course the accommodating party intended to make a donation to the accommodated party. "ut the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. ;aving issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. (TRAVEL-ON VS. CA) )OLDER IN DUE COURSE As the holder1s title was defective or suspicious, it cannot be stated that the payee ac!uired the check without knowledge of said defect in holder1s title, and for this reason the presumption that it is a holder in due course or that it ac!uired the instrument in good faith does not exist. And having presented no evidence that it ac!uired the check in good faith, it 6payee8 cannot be considered as a holder in due course. In other words, under the circumstances of the case, instead of the presumption that payee was a holder in good faith, the fact is that it ac!uired possession of the instrument under circumstances that should have put it to in!uiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it ac!uired the check in actual good faith. (DE OCAMPO VS. GATCHALIAN) Admittedly, petitioner became the holder of the cashier1s check as endorsed by Alexander /im who stole the check. ;e refused to say how and why it was passed to him. ;e had therefore notice of the defect of his title over the check from the start. The holder of a cashier1s check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier1s check obtained it from the issuing bank by fraud, or if there is some other
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reason why the payee is not entitled to collect the check, the respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since respondent bank was aware of the facts surrounding the loss of the check in !uestion. (MESINA VS. IAC) LIABILITY OF GENERAL INDORSER $@ecourse$ means resort to a person who is secondarily liable after the default of the person who is primarily liable. Appellant, by indorsing the note $with recourse$ does not make itself a !ualified indorser% but a general indorser who is secondarily liable, because by such indorsement, it agreed that if 4r. Aillaruel fails to pay the note, plaintiff#appellee can go after said appellant. The effect of such indorsement is that the note was indorsed Without !ualification. A person who indorses without !ualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Appellant 'ambok1s intention of indorsing the note without !ualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. The words added by said appellant do not limit his liability, but rather, confirm his obligation as a general indorser. (METROPOL VS. SAMBOK) The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements.$ The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in !uestion is a manager1s check. (BPI VS. CA AND NAPI#A) PRESENTMENT FOR PAYMENT*ACCEPTANCE A letter of credit is defined as an engagement by a bank or other person made at the re!uest of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts. 9resentment for acceptance is necessary only in the cases expressly provided for in 'ection ,B- of the .egotiable Instruments /aw 6.I/8. (PRUDENTIAL BANK VS. IAC) &nder 'ection ,CD of the .I/, E a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay=. "y current banking practice, a check becomes stale after more than D months or ,C+ days. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and therefore should not be paid. This is because the nature and theory behind the use of a check points to its immediate use and payability. (INT$L CORP. BANK VS. SPOUSES GUECO) C)EC+S The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. :onse!uently, the withdrawal of the money from the bank to avoid liability on the checks cannot pre2udice the rights of a holder in due course. (STATE INVESTMENT HOUSE VS. CA) In order to preserve the credit worthiness of chocks, 2urisprudence has pronounced that crossing of a check should have the following effects0 6a8 the check may not be encashed but only deposited in the bank% 6b8 the check may be negotiated only once#to one who has an account with a bank% 6c8
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and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must in!uire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. (BATAAN CIGAR & CIGARETTE FACTOR" VS. CA) While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. ,7B? of the :ivil :ode, the rule is otherwise if the debtor is pre2udiced by the creditor1s unreasonable delay in presentment. The acceptance of a cheek implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or in2ury unless presentment is otherwise excused. This is in harmony with Article ,7B? of the :ivil :ode under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its non#payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. (PAPA VS. A.U. VALENCIA & CO.% INC.)
INSURANCE LAW
INSURABLE INTEREST A person who is interested in the safety and preservation of materials in his possession belonging to third parties because he stands either to benefit from their continued existence or to be pre2udiced by their destruction, has an insurable interest thereon which is not necessarily limited to the extent of his liability to the owners thereof. A person having mere right of possession of property may insure it to its full value and in his own name, even when he is not responsible for its safekeeping. (ANG KA "U v . PHOENIX ASSURANCE CO. LTD &CAR ') The automatic assignment of the policy to :F' under the provision of the lease contract previously !uoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses .ilo :ha and 'tella &y#:ha 6herein copetitioners8, The insurer 6&nited8 cannot be compelled to pay the proceeds of the fire insurance policy to a person 6:F'8 who has no insurable interest in the property insured. (SPOUSES CHA v . CA% '(( SCRA )*+) The rationale of a group insurance policy of mortgagors, otherwise known as the $mortgage redemption insurance,$ is a device for the protection of both the mortgagee and the mortgagor. )n the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death% the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. (GREPALIFE VS. CA & LEUTERIO) SUBROGATION The insurer can only be subrogated to only such rights as the insured may have. ;owever if the insured, after receiving payment from the insurer, releases the wrongdoer who caused the loss, the insurer loses his rights against the latter. In such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the release was made with the consent of the insurer. (MANILA MAHOGAN" MANUFACTURING CORP. v . CA% &,- SCRA ),+)
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'ubrogation is a normal incident of indemnity insurance &pon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss. The right of subrogation is of the highest e!uity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. When the insurance company pays for the loss, such payment operates as an e!uitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon written assignment of claim, and payment to the insured makes the insurer an assignee in e!uity. (MALA"AN INSURANCE VS. CA) There are a few recogni ed exceptions to this rule on subrogation. (or instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer1s right of subrogation is defeated. 'imilarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured1s claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting $voluntary payment$, the former has no right of subrogation against the third party liable for the loss. (PAN MALA"AN INSURANCE CORP. VS. CA) INCONTESTABILITY CLAUSE 'ection BC of the Insurance :ode precludes the insurer from raising the defense of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least 7 years during the insured<s lifetime. The phrase Eduring the lifetime= in section BC means that the policy is no longer considered in force after the insured has died. The key phrase in section BC is for a period of 7 years. The insurer has 7 years from the date of the issuance of the contract or its last reinstatement within which to contest the policy whether or not the insured still lives within such period. (TAN v . CA &(- SCRA -+.) MISCONDUCT OF INSURANCE AGENT Where the applicant signs the application in blank and authori es the agent of the insurance company to fill up the blank spaces for him, he made them his own agent for that purpose and he is responsible for their acts in that connection. If they falsified the answers for him, he could not evade the responsibility for the application being falsified. (INSURANCE LIFE ASSURANCE CORP. v . FELICIANO% (-PHIL -)/) MARINE INSURANCE The fact that the sub2ect matter insured was loaded on two different barges did not make the contract several and divisible as to the items insured, where it was shown that the items insured were not separately valued or separately insured and only one premium was paid for the entire shipment. (ORIENTAL ASSURANCE CORP. v . CA '++ SCRA-,*) The fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not be used as a defense to recover on the policy. The cargo owner is re!uired to look for a common carrier that keeps its vessels seaworthy. In the absence of stipulation that the insurer answers for perils of the ship, insurance cannot be recovered on losses from perils of the ship. (RO!UE v . IAC% &.*SCRA ,*() &nder an all#risks policy, it is sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular cause. An all#risks coverage extends all damages/ losses suffered by the insured cargo except a.8 loss or damage or expense proximately caused by delay% b8 loss or damage or expense proximately caused by the inherent vice or nature of the sub2ect matter insured. Also it covers all losses except such as arising from the fraud of the insured. (FILIPINO MERCHANTS INSURANCE CO. v . CA% &(* SCRA )./)
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DOUBLE INSURANCE The insurer may not recover under an insurance policy if he has violated the conditions of the policy to the effect that he did not reveal the existence of other insurance policies over the same properties as re!uired by the warranty appearing on the face of the policy. (UNION MANUFACTURING CO. INC. v . PHILIPPINE GURANT" CO. INC.% -( SCRA '(&) REINSURANCE In an action on a contract of reinsurance, as a general rule, the reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured. (GIBSON v . REVILLA% *' SCRA '&*) IMPLIED WARRANTY OF SEAWORT)INESS In every voyage policy of marine insurance, there is an implied warranty that the vessel is in all respect seaworthy, and such warranty can be excluded only by clear provisions of the policy. (PHILIPPINE AMERICAN GENERAL INSURANCE CO. v . CA '(. SCRA ')') AUT)ORI,ED DRI ER CLAUSE The main purpose of the authori ed driver clause is that a person other than the insured owner who drives the car with his person must be duly licensed and not dis!ualified to drive a car. Where a car is admittedly unlawfully and wrongfully taken without the owner<s consent, such taking constitutes or partakes the nature of theft for purposes of recovery under the insurance policy. (VILLACORTA v . INSURANCE COMMISSION% &++ SCRA -)() The re!uirement in an Eauthori ed driver clause= that the driver be permitted in accordance with the licensing or other law or regulations to drive the motor vehicle and is not dis!ualified from driving such motor vehicle by order of a court of law or by reason of an enactment or regulation in that behalf applies only when the driver is driving under the insured<s order or with his permission. It does not apply when the person driving is the insured himself. (PALERMO v . P"RAMID INSURANCE CO. INC.% &)& SCRA )(()

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LIFE INSURANCE Where a life insurance policy is made payable to one of the heirs of the person whose life is insured, the proceeds of the policy on the death of the insured belong exclusively to the beneficiary and not to the estate of the person whose life was insured and such proceeds are his individual property and not the property of the heirs of the person whose life was insured . (DEL VAL v . DEL VAL% '* PHIL ,.-) The proceeds of a life insurance policy payable to the insured person<s estate, on which the premiums were paid by the con2ugal partnership, constitute community property and belong one# half to the husband exclusively, and the other half to the wife. If the premiums were paid partly with paraphernal and partly con2ugal funds, the proceeds are in like proportion, paraphernal in part and con2ugal in part. (BPI v . POSADAS% ,) PHIL '&,) According to the Article 7+,7 of the .ew :ivil :ode that any person who is forbidden from receiving any donation under Art. G-? cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him. "oth are founded upon the same consideration which is liberality. (INSULAR LIFE v . EBRADO /+ SCRA &/&) CASUALTY INSURANCE

Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue directly the insurer upon the occurrence of the in2ury or event upon which the liability depends. The purpose is to protect the in2ured person against the insolvency of the insured who causes such in2ury and to give him a certain beneficial interest in the proceeds of the policy. It is as if such in2ured person were especially named in person. (SHAFER v . JUDGE% RTC% &)( SCRA ./)) COMPULSORY MOTOR E)ICLE LAW INSURANCE 'ection -GC of the Insurance :ode has established the following rules under the Eno fault indemnity provision= ,.8 a claim maybe made against one motor vehicle only% 78 if the victim is an occupant of a vehicle, the claim shall lie against the insurer of the motor vehicle in which he is riding, mounting, dismounting from% -8 in any other case Hi.e.I if the victim was not an occupant of the vehicle, the claim shall lie against the insurer of the directly offending vehicle% B8 in all cases, the right of the party paying the claim to recover the owner of the vehicle responsible for the accident shall be maintained. (PERLA COMPANIA DE SEGURO INC. v . ANCHETA &)- SCRA &--)
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TRANSPORTATION LAWS
GENERAL CONCEPTS There are two aspects of a contract of common carriage, namely0 a.8 the contract to carry, at some future time, which contract is consensual and is necessarily perfected by mere consent and b.8 the contract of carriage itself which should be considered as a real contract for not until the carrier is actually used can the carrier be said to have already assumed the obligation of a carrier. (BRITISH AIRWA"S% INC. VS. CA) Art. ,G-7 of the .ew :ivil :ode avoids any 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 6sideline8. It also avoids a 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. .either does the law distinguish between a carrier offering its services to the general public that is the general community or population and one who offers services or solicits business only from a narrow segment of the general population. A person or entity is a common carrier even if he did not secure a :ertificate of 9ublic :onvenience. 6DE GU#MAN VS. CA) )ne is a common carrier even if he has no fixed and publicly known route, maintains no terminals, and issues no tickets. 6ASIA LIGHTERAGE SHIPPING% INC. VS. CA)
Art. ,G-7 makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation should be by motor vehicle. The test for determining whether a party is a common carrier is0 1. It must be engaged in the business of carrying goods for others as a public employment and must hold itself out as ready to engage in the transportation of goods generally as a business and not as a casual occupation% 2. It must undertake to carry goods of the kind to which its business in confined% 3. It must undertake to carry by the method by which his business is conducted and over its established roads% and 4. The transportation must be for hire. 6FIRST PHILIPPINE INDUSTRIAL CORPORATION VS. CA) The true test of a common carrier is the carriage of goods or passengers provided it has space for all who opt to avail themselves of its transportation for a fee. 6 NATIONAL STEEL CORP . VS. CA)
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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 and it is immaterial that the collision actually occurred in foreign waters. 6NDC v . CA) REGISTERED OWNER AND +ABIT SYSTEM The registered owner of a certificate of public convenience is liable to the public for the in2uries or damages suffered by passengers or third persons caused by the operation of said vehicle, even thought the same had been transferred to a third person. 6 ERE#O VS. JEPTE) The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate term under his license, sometimes for a fee or percentage of the earnings. (LIM VS. CA) Although not outrightly penali ed as a criminal offense, the kabit system is invariably recogni ed as being contrary to public policy and, therefore, void and inexistent under Art. ,B+? of the :ivil :ode. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. 6 LITA ENTERPRISES% INC. VS. IAC) Where a 2eepney is registered in the name of an authori ed public operator but is actually owned by another and the same bumped somebody thru the negligence of its driver, such a 2eepney can be sold at a public auction to satisfy the court<s award. It cannot be considered a Estranger<s property=. 6SANTOS VS. SIBUG) CARRIAGE OF GOODS D-!. !o A&&e/! good" :ommon carriers cannot lawfully decline to accept a particular class of goods for carriage to the pre2udice of the traffic in those goods unless it appears that for some sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. 5ere pre2udice or whim will not suffice. 6FISHER VS. "ANGCO STEAMSHIP CO.8

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D-!. !o e0e%&#"e e0!%ao%d#na%. d#l#gen&e :ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods transported by them, and this liability lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered actually or constructively, by the carrier to the person who has a right to receive them. 6 SARKIES TOURS PHILIPPINES% INV. VS. CA) When goods placed in its care are lost or damaged, the carrier is presumed to have been at fault or to have acted negligently. The carrier therefore has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo. 6 TABACALERA INSURANCE CO. VS. NORTH FRONT SHIPPING SERVICES% INC.) The extraordinary responsibility of the common carrier lasts until the actual or constructive delivery of the cargoes to the consignee or to the person who has a right to receive them. 6 MACAM VS. CA) After a common carrier<s status has passed from that of carrier to that of agent of consignee, loss of goods in its hands for cause beyond its control and without its negligence being proved relieves the carrier of civil liability for such loss or damage. 6 SAMAR MINING CO. INC. VS. NORDEUTSHER LLO"D)

)wing to the high degree of diligence re!uired of them, 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. 5ere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. (BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. VS. PHILIPPINE FIRST INSURANCE CO.% INC.) 5ere proof of delivery of goods to a carrier in good order and the subse!uent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. 6COASTWISE LIGHTERAGE CORP. V. CA) 4elivery of goods to the custom authorities is not delivery to the consignee. 6 LU DO V. BINAMIRA) DEFENSES Where fortuitous event or force ma2eure is the immediate and proximate cause of the loss, the obligor is exempt from liability for non#performance. .o extraordinary diligence by the carrier could have prevented the loss of the goods after they had been deposited in the warehouse of the "ureau of :ustoms. 6 SERVANDO VS. PHILIPPINE STEAM NAVIGATION CO.) Where loss of cargo results from the failure of the officers of a vessel to inspect their ship fre!uently, that loss cannot be attributed to force ma2eure, but to the negligence of the officials. 6EDGAR COKALIONG SHIPPING LINES% INC. VS. UCPB GENERAL INSURANCE COMPAN" INC.) (ire may not be considered as a natural disaster or calamity as it arises almost invariably from some act of man or by human means. 6EASTERN SHIPPING LINES INC. VS. IAC) To exculpate the carrier from liability arising from hi2acking, he must prove that the robbers or the hi2ackers acted with grave or irresistible threat, violence, or force in accordance with Art.,GB* of the :ivil :ode. 6BASCOS VS. CA) In order that a common carrier may be absolved from liability where the loss, destruction or deterioration of the goods is due to a natural disaster or calamity, it must further be shown that such natural disaster or calamity was the proximate and only cause of the loss and that the common carrier exercised due diligence to prevent or minimi e the loss before, during, and after the occurrence of the natural disaster. 6 PHILIPPINE AMERICAN GENERAL INSURANCE CO.% INC. VS. MGG MARINE SERVICES% INC.) To absolve the common carrier from liability the public authority must be shown to have the power to issue the order or that it was lawful, or that it was issued under legal process of authority. 6GAN#ON VS. CA) If the improper packing or the defects in the container 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. (CALVO VS. UCPB GENERAL INSURANCE CO.% INC.8 CARRIAGE OF PASSENGERS A passenger is defined as one who travels in a public conveyance by virtue of a contract, express or implied, with the carrier as to the payment of fare, or that which is accepted as an e!uivalent thereof. The relation of carrier and passenger commences when one puts himself in the care of carrier, or directly under its control, with the bona fide intention of becoming a passenger and is accepted by the carrier, as where he makes a contract for transportation and presents himself at the proper place and in a proper manner to be transported. 6 JESUSA VDA DE NUECA% ET AL. VS. MANILA RAILROAD COMPAN")
COMMERCIAL LAW
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The relation of carrier and passenger continues until the passenger has been landed at the port of destination and has left the vessel owner<s dock or premises. )nce created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier<s conveyance or had a reasonable opportunity to leave the carrier<s premises. All persons who remain on the premises a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. (ABOITI# SHIPPING CORPORATION VS. CA) A public utility bus, once it stops, is in effect making a continuous offer to bus riders. ;ence, it becomes the duty of the driver and the conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a passenger while he is attempting to board the same. The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is entitled to all the rights and protection pertaining to such a contractual relation. 6DANGWA TRANSPORTATION CO. INC. VS. CA) The duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip but for as long as the passengers are within its premises and where they ought to be in pursuance of the contract of carriage. 6 LIGHT RAIL TRANSIT AUTHORIT" VS. NAVIDAD) The relation of carrier and passenger does not cease at the moment the passenger alights from the carrier<s vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier<s premises. 6LA MALLORCA VS. CA) A contract to transport passengers is a relationship imbued with public interest. (ailure on the part of the common carrier to live up to the exacting standards of care and diligence renders it liable for any damages that may be sustained by its passengers. ;owever, this is not to say that common carriers are absolutely responsible for all in2uries even if the same were caused by a fortuitous event. To rule otherwise would render the defense of force ma2eure, as an exception from any liability, illusory and ineffective. 6JAPAN AIRLINES VS. CA) A common carrier does not give its consent to become an insurer of any and all risks to passengers and goods. It merely undertakes to perform certain duties to the public as the law imposes, and holds itself liable for any breach thereof. 6 PILAPIL VS. CA) While a passenger is entitled to protection from personal violence by the carrier or its agents or employees, since the contract of transportation obligates the carrier to transport a passenger safely to his destination, the responsibility of the carrier extends only to those acts that the carrier could foresee or avoid through the exercise of the degree of care and diligence re!uired of it. (GILLACO% ET AL. VS. MRR CO.) OBLIGATIONS OF T)E S)IPPER1 CONSIGNEE AND PASSENGER The act of the shipper in furnishing the carrier with an inaccurate weight of the payloader constitutes a contributory circumstance to the damage caused on the payloader, which mitigates the liability for damages of petitioner in accordance with Art. ,GB, of the :ivil :ode .( COMPANIA MARITIMA VS. CA) A passenger is guilty of contributory negligence where he chose to ride on the open platform of the train and failed to hold tightly on the vertical grab bar. 6 PNR v . CA)
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E2TRAORDINARY DILIGENCE While the breaking of the idler may be due to an accident, or to something unexpected, the cause of the disaster which resulted in the loss of the gasoline can only be attributed to the negligence and lack of precaution to avert it on the part of defendant. The ship was not seaworthy and defendant did not have a competent tug to effectuate the rescue. 6 STANDARD VACUUM OIL COMPAN" VS. LU#ON STEVEDORING CO.% INC.) The behavior of the captain of the E4on 3uan=# playing mah2ong before and up to the time of the collision# constitutes behavior that is simply unacceptable on the part of the master of the vessel upon whom the law imposes the duty of extraordinary diligence# Ethe duty to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.= 6MECENAS VS. CA) The common carrier<s liability for the death or in2uries to its passengers is based on its contractual obligation to carry its passengers safely to their destination. They are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence. (BATANGAS LAGUNA TA"ABAS BUS CO. VS. IAC) In an action based on a contract of carriage, the court need not make an express finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages sought for by the passenger. "y the contract of carriage, the carrier assumes the express obligation to transport the passenger to his destination safely and to observe extraordinary diligence with due regard for all the circumstances, and any in2ury that might be suffered by the passenger is right away attributable to the fault or negligence of the carrier. 6 BATANGAS TRANSPORTATION COMPAN" VS. CAGUIMBAL) The rule is settled that a driver abandoning his proper lane for the purpose of overtaking another vehicle in an ordinary situation has the duty to see to it that the road is clear and not to proceed if he cannot do so in safety. 6MALLARI% SR. VS. CA) (airness demands that in measuring a common carrier<s duty towards its passengers, allowance must be given to the reliance that should be reposed on the sense of responsibility of all the passengers in regard to their common safety. It is to be presumed that a passenger will not take with him anything dangerous to the lives and limbs of his co#passengers, not to speak of his own. .ot to be considered lightly is the right to privacy of each passenger. ;e cannot be sub2ected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to indicate the contrary. 6NOCUM VS. LAGUNA TA"ABAS BUS CO.) A common carrier is presumed at fault in he absence of a satisfactory explanation on how the airplane crash occurred. 6 VDA. DE ABETO VS. PHIL. AIR LINES% INC.)
BILL OF LADING AND OT)ER FORMALITIES Three kinds of stipulation have often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an un!ualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. The first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. 6 H.E. HEACOCK CO. VS. MACONDRA" & CO.) While it may be true that petitioner had not singed the plane ticket, he is nevertheless bound by the provisions thereof. 'uch provisions have been held to be part of the contract of carriage, and valid and binding upon the passenger regardless of the latter<s lack of knowledge or assent to the regulation. It is what is known as a contract of adhesion, in regards which it has been said that
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contracts of adhesion wherein one party imposes a ready made form of contract on the other are contracts not entirely prohibited. The one who adheres to the contract is in reality free to re2ect it entirely% if he adheres, he gives his consent. 6ONG "IU VS. CA 8 The consignee by making claim for loss on the basis of the bill of lading, to all intents and purposes accepted said bill. ;aving done so, he becomes bound by all stipulations contained therein whether on the front or at the back thereof. 6 SEA-LAND SERVICE% INC. VS. IAC) "asic is the rule that a stipulation limiting the liability of the carrier to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. (urther, a contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and 2ust under the circumstances, and has been fairly and freely agreed upon. 6 CITADEL LINES% INC. VS. CA) A stipulation in the bill of lading limiting the common carrier<s liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by Articles ,GB? and ,G*+ of the :ivil :ode. The 2ust and reasonable character of a stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple expedient and far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. 6EVERETT STEAMSHIP CORPORATION VS. CA) The issuance of a bill of lading carries the presumption that the goods were delivered to the carrier issuing the bill and it is prima facie evidence of the receipt of the goods by the carrier. ;owever as between the shipper and the carrier, when no goods have been delivered for shipment no recitals in the bill of lading can estop the carrier from showing the true facts. 6 SALUDO% JR. VS. CA) ACTIONS IN CASE OF BREAC) OF CONTRACT OF CARRIAGE The owners and driver of the bus may be made 2ointly and severally liable to the victims where their separate and distinct acts concurred to produce the same in2ury. 6 FABRE% JR. VS CA) Where the contract of shipment contains a reasonable re!uirement of giving notice of loss or in2ury to the goods, the giving of such notice is a condition precedent to the action for loss or in2ury or the right to enforce the carrier<s liability. The fundamental purpose is not to relieve the carrier from 2ust liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore, and to give it an opportunity to examine the nature and extent of the in2ury. 6PHILIPPINE AMERICAN GENERAL INSURANCE CO.% INC. VS. SWEET LINES% INC.) (or suits not predicated upon loss or damage but on alleged misdelivery or conversion of the goods, the applicable rule on prescription is that found in the .ew :ivil :ode% either ten years for breach of a written contract or four years for !uasi#delict, and not the rule on prescription in the :)J'A. (ANG VS. AMERICAN STEAMSHIP AGENCIES INC.) E/oss= refers to the deterioration or disappearance of goods. 4amages arising from delay or late delivery are not the damage or loss contemplated under the :)J'A. 6 MITSUI O.S.K. LINES LTD. VS. CA) The coverage of the one#year prescriptive period under the :)J'A includes the insurer of the goods. )therwise, what the Act intends to prohibit after the lapse of the one#year prescriptive period can be done indirectly by the shipper or owner of the goods by simply filing a claim against the insurer even after the lapse of one year. 6 FILIPINO MERCHANTS INSURANCE CO.% INC. VS. ALEJANDRO)
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&nder 'ec. - 6D8 of the :)J'A, only the carrier<s liability is extinguished if no suit is brought within one year. "ut the liability of the insurer is not extinguished because the insurer<s liability is based not on the contract of carriage but on the contract of insurance. 6 MA"ER STEEL PIPE CORP. VS. CA) A written extra2udicial demand by the creditor does not toll the running of the one#year prescriptive period under the Act. (DOLE PHILIPPINES% INC. VS MARITIME CO. OF THE PHILS.) MARITIME LAW The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as the guaranty for their settlement. (ABOITI# SHIPPING CORP. VS. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORP.% LTD.) E.o vessel, no liability=, expresses in a nutshell the limited liability rule. The shipowner<s or agent<s liability is merely co#extensive with his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach. 6MONARCH INSURANCE CO.% INC. VS. CA) Art. *CG of the :ode of :ommerce speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. *CG will not apply, and such situation will be covered by the provision of the :ivil :ode on common carriers. 6PHILIPPINE AMERICAN GENERAL INSURANCE CO.% INC. VS. CA)
COMMERCIAL LAW
The liability of a shipowner is limited to the value of the vessel or to the insurance thereon. 4espite the total loss of the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held liable for by reason of the death of its passenger. (VAS!UE# VS. CA) The provisions of the :ode of :ommerce regarding maritime commerce have no room in the application of the Workmen<s :ompensation Act. 'aid Act creates a liability to compensate employees or laborers in cases of in2ury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents of such laborers and employees in the event of death caused by their employment. 6 ABUEG VS. SAN DIEGO) While the total destruction of the vessel extinguishes a maritime lien, as there is no longer any risk to which it can attach, but the total destruction of the vessel does not affect the liability of the owner for repairs of the vessel completed before its loss. 6 GOVERNMENT OF THE PHILIPPINES VS. MARITIME) The owners and agents of a vessel causing the loss of another vessel by collision are not liable beyond the vessel itself causing the collision and other things appertaining thereto.6 PHILIPPINE SHIPPING CO. VS. GARCIA) In case of collision, abandonment of the vessel is necessary in order to limit the liability of the shipowner or the agent to the value of the vessel, its appurtenances and freightage earned in the voyage in accordance with Art.C-G of the :ode of :ommerce. The only instance where such abandonment is dispensed with is when the vessel was entirely lost. LU#ON STEVEDORING CORP. VS. CA If the shipowner or agent may in any way be held civilly liable at all for in2ury to or death of passengers arising form the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co#extensive with his interest in the vessel such that a total loss thereof results in its extinction. 6"ANGCO VS. LASERNA)
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The re!uisite of registration on the registry, of the purchase of a vessel, is necessary and indispensable in order that the purchaser<s rights may be maintained against a claim filed by a third person. 6RUBISO AND GELITO VS. RIVERA) A ship<s captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically re!uires on a stipulated ocean voyage. 6INTER-ORIENT MARITIME ENTERPRISES INC. VS. CA) While in exercising his functions a pilot is in sole command of the ship and supersedes the master for the time being in the command and navigation of the ship, the master does not surrender his vessel to the pilot and the pilot is not the master. There are occasions when the master may and should interfere and even displace the pilot, as when the pilot is obviously incompetent or intoxicated. 6FAR EASTERN SHIPPING COMPAN" VS. CA) It is imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time#charter or voyage#charter. It is only when the charter includes both the vessel and crew, as in demise or bareboat that a common carrier becomes private, at least insofar as the particular voyage covering the charter#party is concerned. 6 PLANTERS PRODUCTS% INC. VS. CA) 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. 6 CALTEX (PHILIPPINES)% INC. VS. SULPICIO LINES% INC.) >xpenses incurred to refloat a vessel, which accidentally ran aground, in order to continue its voyage, do not constitute general average. .ot only is there absence of a marine peril, common safety factor, and deliberateness. It is the safety of the property, and not the voyage, which constitutes the true foundation of general average. 6 A. MAGSA"SA"% INC. VS. AGAN)

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:ommon carriers cannot limit their liability for in2ury or loss of goods where such in2ury or loss was caused by its own negligence. )therwise stated, the law on averages under the :ode of :ommerce cannot be applied in determining liability where there is negligence. 6 AMERICAN HOME ASSURANCE% COMPAN" VS. CA) A derelict is defined as a ship or her cargo which is abandoned and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any intention of returning to it. If those in charge left with the intention of returning, or of procuring assistance, the property is not derelict, but if they !uitted the property with the intention of finally leaving it, it is derelict and a change of their intention and an attempt to return will not change its nature. (ERLANGER & GALINGER VS. SWEDISH EAST ASIATIC CO. LTD) WARSAW CON ENTION The Warsaw convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. It must not be construed to preclude the operation of the :ivil :ode and other pertinent laws. (CATHA" PACIFIC AIRWA"S% LTD. VS. CA)

The articles in the Warsaw :onvention merely declare the carrier liable for damages in the enumerated cases, if the conditions specified therein are present. .either said provisions nor others regulate or exclude liability for other breaches of contract by the carrier. (NOTHWEST AIRLINES% INC. VS CUENCA) The Warsaw :onvention does not operate as an absolute limit of the extent of an airline<s liability, it does not regulate or exclude liability for other breaches of contract by the carrier, or misconduct of its employees, or of some particular or exceptional type of damage. 6ALITALIA VS IAC) There is international transportation0 ,.8 where the place of departure and the place of destination are situated within the territories of two high contracting parties regardless of whether or not there be a break of transportation or a transshipment% and 7.8 where the place of departure and the place of destination are within the territory of a single high contracting party if there is an agreed stopping place within a territory sub2ect to the sovereignty, mandate or authority of another power, even though the power is not a party to the convention. (MAPA VS. CA) &nder a general pool partnership agreement, the ticket#issuing airline is the principal in a contract of carriage while the endorsee#airline is the agent. The obligation of the former remained and did not cease even when the breach occurred not on its own flight but on that of another airline which had undertaken to carry the passengers to one of their destinations. 6 CHINA AIRLINES VS. CHIOK+ ) The forum of action provided in Art. 7C6,8 is a matter of 2urisdiction rather than of venue. It is the passenger<s Eultimate destination= not Ean agreed stopping place= that determines the country where suit is to be filed. (SANTOS III V. NORTHWEST8 A cause of action arising from the slashing and loss of personal effects by an airline passenger is well within the bounds of the Warsaw :onvention while a cause of action arising from the shabby and humiliating treatment received from the airline employees is not. 6 UNITED AIRLINES VS. U") PUBLIC UTILITIES A certification of public convenience is included in the term $property$ in the broad sense of the term. &nder the 9ublic 'ervice /aw, a certificate of public convenience can be sold by the holder thereof because it has considerable material value and is considered as valuable asset. Although there is no doubt that it is private property, it is affected with a public interest and must be submitted to the control of the government for the common good. ;ence, insofar as the interest of the 'tate is involved, a certificate of public convenience does not confer upon the holder any proprietary right or interest or franchise in the route covered thereby and in the public highways. ;owever, with respect to other persons and other public utilities, a certificate of public convenience as property, which represents the right and authority to operate its facilities for public service, cannot be taken or interfered with without due process of law. Appropriate actions may be maintained in courts by the holder of the certificate against those who have not been authori ed to operate in competition with the former and those who invade the rights which the former has pursuant to the authority granted by the 9ublic 'ervice :ommission. (COGEO-CUBAO OPERATORS & DRIVERS ASSOC. VS. CA) .obody has the exclusive right to secure a franchise or a :ertificate of 9ublic :onvenience. The paramount consideration should always be the public interest and public convenience. (VDA. DE LAT VS. PSC) :onsidering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from 5atnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. &nder no circumstance can the sea between 5atnog and Allen be considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters # separating the
COMMERCIAL LAW
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land, however, when as in this case the two terminals, 5atnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. @espondent 9A.T@A.:) should secure a separate :9: for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. Its :9: as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service. (SAN PABLO VS. PANTRANCO SOUTH EXPRESS% INC.) 'ection ,? 6a8 of the 9ublic 'ervice Act contemplates of failure to provide a service that is safe, proper or ade!uate and refusal to render any service which can reasonably be demanded and furnished. It refers specifically to the operator1s inability to provide reliable vehicles to transport the riding public to their places of destination and to the failure to provide an ade!uate number of units authori ed under his franchise at all times to secure the public of sustained service. While the words $unsafe, inade!uate and improper$ may be broad enough to cover a lot of things, they must be interpreted in consonance with the purpose of the 9ublic 'ervice /aw, which was specifically enacted, among other things, to protect the public against unreasonable charges and poor inefficient service and to secure ade!uate sustained service for the public at the least possible costs. (MAN#ANAL VS. AUSEJO)
CORPORATION LAW
ATTRIBUTES OF A CORPORATION A corporation as known to 9hilippine 2urisprudence is a creature without any existence until it has received the imprimatur of the state acting according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. 5ore than that, it cannot legitimately refuse to yield obedience to acts of its state organs, :ertainly not excluding the 2udiciary, whenever called upon to do so. (TA"AG VS. BENGUET CONSOLIDATED% INC.) (or practical purposes, franchises, so far as relating to corporations, are divisible into 6,8 corporate or general franchises% and 678 special or secondary franchises. The former is the franchise to exist as a corporation, while the latter are certain rights and privileges conferred upon existing corporations such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. The primary franchise of a corporation, that is, the right to exist as such, is vested 1in the individuals who compose the corporation and not in the corporation itself and cannot be conveyed in the absence of legislative authority so to do but the special or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property except such special or secondary franchises as are charged with a public use. (JRS BUSINESS CORP. VS. IMPERIAL INSURANCE% INC.) The guaranties of the (ourteenth Amendment and so of the first paragraph of the 9hilippine "ill of @ights, are universal in their application to all persons within the territorial 2urisdiction, without regard to any differences of race, color, or nationality. The word $person$ includes aliens. 9rivate corporations, likewise, are $persons$ within the scope of the guaranties in so far as their property is concerned. (SMITH% BELL & CO. VS. NATIVIDAD) A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organi ing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the ,Bth Amendment, against unlawful discrimination. In 'tonehill, et al. vs. 4iokno, et al., supra, this :ourt impliedly recogni ed the right of a corporation to ob2ect against unreasonable searches and sei ures. (BACHE & CO. VS. RUI#)
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San Beda College of
COMMERCIAL LAW
It is elementary that the right against self#incrimination has no application to 2uridical persons. While an individual may lawfully refuse to answer incriminating !uestions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privileges. (BASECO v . PCGG) It is a doctrine well#established and obtains both at law and in e!uity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have e!uities in it. 9roperties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. :onversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, $even in the case of a one#man corporation$. (SULO NG BA"AN% INC. VS. GREGORIO ARANETA% INC.) The tenor of the ./@: 2udgment and the implementing writ is clear enough. It directed Kualitrans /imousine 'ervice, Inc. to reinstate the discharged employees and pay them full backwages. @espondent, however, chose to $pierce the veil of corporate entity$ usurping a power belonging to the court and assumed improvidently that since the complainant is the owner/president of Kualitrans /imousine 'ervice, Inc., they are one and the same. It is a well# settled doctrine both in law and in e!uity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities. (CRU# VS. DALISA") Inasmuch as the real properties included in the inventory of the estate of the late 9astor L. /im are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. (LIM VS. CA) The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows0 ,. :ontrol, not mere ma2ority 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% 7. 'uch 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 un2ust act in contravention of plaintiff1s legal rights% and -.The aforesaid control and breach of duty must proximately cause the in2ury or un2ust loss complained of. The absence of any one of these elements prevents 1piercing the corporate veil.1 In applying the 1instrumentality1 or 1alter ego1 doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant1s relationship to that operation.$ (CONCEPT BUILDERS% INC. VS. NLRC) (urthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far#fetched to allege that the corporation is perpetuating fraud or promoting in2ustice, and be thereby held liable therefor by piercing its corporate veil. (FRANCISCO MOTORS CORP. VS. CA)
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College of Law LAW
San Beda COMMERCIAL
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system. The statement in 9eople v. 5aneroand 5ambulao /umber :o. v. 9." that a corporation may recover moral damages if it $has a good reputation that is debased, resulting in social humiliation$ is an obiter dictum. )n this score alone the award for damages must be set aside, since @"' is a corporation. (ABS-CBN v . CA)
.evertheless, A5>:<s claim for moral damages falls under item G of Article 77,? of the :ivil :ode. This provision expressly authori es the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 77,?6G8 does not !ualify whether the plaintiff is a natural or 2uridical person. Therefore, a 2uridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. 5oreover, where the broadcast is libelous 012 1, the law implies damages.In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. .either in such a case is the plaintiff re!uired to introduce evidence of actual damages as a condition precedent to the recovery of some damages. In this case, the broadcasts are libelous 012 1. Thus, A5>: is entitled to moral damages. (FILIPINAS BROADCASTING NETWORK% INC. VS. AMEC-BCCM% JANUAR" '&% '++,) Note: T31 452 1657 89v12 9:;< =18> >9: 0297?;@5A1= 4< A31 SC ?0 A9 J?:1 '++-. H9B1v12% C92 0?209 1 9C 8;52>C<>:@ A31 89:C;>8A>:@ =18> >9: 5 A9 A31 1:A>A;171:A 9C 5 8920925A>9: A9 7925; =575@1 % B1 31214< 75D1 21C121:81 A9 A31 85 1 9C F>;>0>:5 B295=85 A>:@ N1AB92D% I:8.% v . A@9 M1=>85; 5:= E=?85A>9:5; C1:A12-B>89; C32> A>5: C9;;1@1 9C M1=>8>:1% G.R. N9. &-&**-. J5:?52< &(% '++,. An employee of a company or corporation engaged in illegal recruitment may be held liable as principal, together with his employer, if it is shown that he actively and consciously participated in illegal recruitment. It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. The corporation obviously acts, and can act, only by and through its human agents, and it is their conduct which the law must deter. The employee or agent of a corporation engaged in unlawful business naturally aids and abets in the carrying on of such business and will be prosecuted as principal if, with knowledge of the business, its purpose and effect, he consciously contributes his efforts to its conduct and promotion, however slight his contribution may be. (PEOPLE VS. CHOWDUR") In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which lit is a president as in fact them is no such provisions in the @evised 9enal :ode under which petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of a criminal liability for which the accused is made answerable must be clear and certain. (SIA VS. PEOPLE) NoteE T3> 85 1 B5 =18>=1= 5A A31 A>71 B31: P.D. &&, 92 A31 T2? A R181>0A L5B B5 :9A <1A >: 1CC18A) +INDS OF CORPORATIONS It is conceded that the :lub derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit#making enterprise. The bar and restaurant are necessary ad2uncts of the :lub to foster its purposes and the profits derived therefrom are necessarily incidental to the primary ob2ect of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a :lub makes some profit
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does not make it a profit making club. As has been remarked, a club should always strive, whenever possible, to have a surplus (CIR VS. CLUB FILIPINO) The application of the doctrine of estoppel applies to a third party only when he tries to escape liability on a contract from which it had benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. (INT$L EXPRESS TRAVEL VS. CA) The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. )n the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. Technically, it is true that petitioner did not directly act on behalf of the corporation. ;owever, 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. (LIM TONG LIM VS. PHILIPPINE FISHING GEAR INDUSTRIES) The doctrine of corporation by estoppel advanced by private respondent cannot override 2urisdictional re!uirements. 3urisdiction is fixed by law and is not sub2ect to the agreement of the parties. It cannot be ac!uired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the ac!uiescence of the court. :orporation by estoppel is founded on principles of e!uity and is designed to prevent in2ustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered there is no corporation by estoppel. (LO#ANO VS. DE LOS SANTOS) &nder our statute it is to be noted that it is the issuance of a certificate of incorporation by the '>: which calls a corporation into being. The immunity of collateral attack is granted to corporations 1claiming in good faith to be a corporation under this act.1 'uch a claim is compatible with the existence of errors and irregularities% but not with a total or substantial disregard of the law. &nless there has been an evident attempt to comply with the law the claim to be a corporation 1under this act1 could not be made in good faith. (HALL VS. PICCIO)
COMMERCIAL LAW
COMPONENTS OF A CORPORATION A corporation, until organi ed, has no life and, therefore, no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of corporation be ratified by the corporation if and when subse!uently organi ed. (CAGA"AN FISHING VS. SANDIKO) Where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authori ation of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. (BOARD OF LI!UIDATORS VS. HEIRS OF MAXIMO KALAW) BY3LAWS
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College of Law LAW
San Beda COMMERCIAL
>ven under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the re!uired filing of bylaws embodied in 'ection BD of the :orporation :ode, There is no outright $demise$ of corporate existence. 9roper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. (LO"OLA GRAND VILLAS HOMEOWNERS ASSOC. VS. CA) .or can petitioner claim a vested right to sit in the board on the basis of $practice.$ 9ractice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. >ven less tenable is petitioner1s claim that its right is $coterminous with the existence of the association.$ (GRACE CHRISTIAN HIGH SCHOOL VS. CA) Admittedly, the right to amend the by#laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business 2udgment. ;owever this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. 9rescinding from these premises, private respondent1s insistence that it can legally dismiss petitioner on the ground that his tenure has expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of tenure% hence, his services may only be terminated for causes provided by law. A contrary interpretation would not find 2ustification in the laws or the :onstitution. If we were to rule otherwise, it would enable an employer to remove any employee from his employment by the simple expediency of amending its by#laws and providing that his/her position shall cease to exist upon the occurrence of a specified event. (SALAFRANCA VS. PHILAMLIFE) POWERS OF T)E CORPORATION While as a rule an ultra vires act is one committed outside the ob2ect for which a corporation is created as defined by the law of its organi ation and therefore beyond the powers conferred upon it by law, there are however certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has been held that $although not expressly authori ed to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business, and here it is undisputed that the establishment of the local post office is a reasonable and proper ad2unct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality. (REPUBLIC VS. ACOJE MINING) Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the reali ation that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. In the absence of a charter or bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the general ob2ectives of its business and within the scope of his or her usual duties. (PEOPLE$S AIRCARGO VS. CA) 'ince a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said corporation may be performed by agents of its selection% and, except so far as limitations or restrictions may be imposed by special charter, by#law or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation% and agents when once appointed, or members acting in their
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stead, are sub2ect to the same rules, liabilities, and incapacities as are agents of individuals and private persons. (AF REALT" VS. DIESELMAN) (or the principle of apparent authority to apply, the petitioner was burdened to prove the following0 6a8 the acts of the respondent 2ustifying belief in the agency by the petitioner% 6b8 knowledge thereof by the respondent which is sought to be held% and 6c8 reliance thereon by the petitioner consistent with ordinary care and prudence. In this case, there is no evidence on record of specific acts made by the respondent showing or indicating that it had full knowledge of any representations made by @oxas to the petitioner that the respondent had authori ed him to grant to the respondent an option to buy a portion of /ot .o. B?,#A#-#"#, covered by T:T .o. GC+C*, or to create a lien or burden thereon, or that the respondent allowed him to do so. (WOODCHILD HOLDINGS VS. ROXAS ELECTRIC) LIABILITY OF DIRECTORS AND OFFICERS In Tramat 5ercantile, Inc., vs. :ourt of Appeals, the :ourt has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer% to wit0 When 6,8 ;e assents 6a8 to a patently unlawful act of the corporation, or 6b8 for bad faith or gross negligence in directing its affairs, or 6c8 for conflict of interest, resulting in damages to the corporation, its stockholders or other persons% 678 ;e consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written ob2ection thereto% 6-8 ;e agrees to hold himself personally and solidarity liable with the corporation% or 6B8 ;e is made, by a specific provision of law, to personally answer for his corporate action. (SANTOS VS. NLRC) RIG)TS OF S)ARE)OLDERS )ne of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through his vote. The right to vote inherent in and incidental to the ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the to vote his stock nor may the right be essentially impaired, either by the legislature or by the corporation without his consent, through amending the charter, or the by#laws. (CASTILLO VS. BALINGHASA") While it may be true that the right of inspection granted by 'ec. GB of the :orporation :ode is not absolute, as when the stockholder is not acting in good faith and for a legitimate purpose% or when the demand is purely speculative or merely to satisfy curiosity, the same may not be said in the case of private respondent. This is because the impropriety of purpose such as will defeat enforcement must be set up 6by8 the corporation defensively if the :ourt is to take cogni ance of it as a !ualification. In other words, the specific provisions take from the stockholder the burden of showing impropriety of purpose or motive. In the case at bar, petitioner failed to discharge the burden of proof to show that private respondent1s action in seeking examination of the corporate records was moved by unlawful or ill motivated designs which could appropriately call for a 2udicial protection against the exercise of such right. 'ave for its unsubstantiated allegations, petitioner could offer no proof, nay, not even a scintilla of evidence that respondent :o2uangco, 3r., was motivated by bad faith% that the demand was for an illegitimate purpose or that the demand was impelled by speculation or idle curiosity. 'urely, respondent1s substantial shareholdings in the '5: and &:9" cannot be an ob2ect of mere curiosity. (REPUBLIC VS. SANDIGANBA"AN) The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders1 meeting is necessary to consider it because additional issuance of shares of stocks does not need approval of the stockholders. The by#laws of the corporation itself states that 1the "oard of Trustees shall, in accordance with law, provide for the issue and transfer of shares of stock of the Institute and shall prescribe the form of the certificate of stock of the Institute1. 9etitioner bewails the fact that in view of the lack of notice to him of such subse!uent issuance, he was not able to exercise his right of pre#emption over the unissued shares. ;owever, the general
COMMERCIAL LAW
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College of Law LAW
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rule is that pre#emptive right is recogni ed only with respect to new issue of shares, and not with respect to additional issues of originally authori ed shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authori ed to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authori ed shares. When the shares left unsubscribed are later reoffered, he cannot therefore claim a dilution of interest. (BENITO VS. SEC) S)ARES AND SUBSCRIPTIONS A subscription contract necessarily involves the corporation as one of the contracting parties since the sub2ect matter of the transaction is property owned by the corporation M its shares of stock. The real contracting parties to a subscription agreement are the corporation and the subscriber alone. Thus, a civil case for rescission on the ground of breach of contract filed by a third party in their personal capacities will not prosper. )nly the corporation has the legal personality to file suit rescinding the subscription agreement with the subscriber inasmuch as it was the real party in interest therein. (ONG "ONG VS. TIU) The usual practice is for the stockholder to sign the form on the back of the stock certificate. The certificate may thereafter be transferred from one person to another. If the holder of the certificate desires to assume the legal rights of a shareholder to enable him to vote at corporate elections and to receive dividends, he fills up the blanks in the form by inserting his own name as transferee. Then he delivers the certificate to the secretary of the corporation so that the transfer may be entered in the corporation1s books. The certificate is then surrendered and a new one issued to the transferee. That procedure cannot be followed in the instant case because, as already noted, the twenty shares in !uestion we 4ot covered by any certificate of stork in 9o1s name. 5oreover, the corporation has a claim on the said shares for the unpaid balance of 9o1s subscription. A stock subscription in a subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his subscription, as he would be to pay any other debt. The right of the corporation to demand payment is no less incontestable. (NAVA VS. PEERS)

84
It may be argued that despite non#compliance with the re!uisite endorsement and delivery, the assignment was valid between the parties, meaning the private respondents as assignors and the petitioners as assignees. While the assignment may be valid and binding on the petitioners and private respondents, it does not necessarily make the transfer effective. :onse!uently, the petitioners as mere assignees, cannot en2oy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned. 9arenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in !uestion is resolved with finality. (RURAL BANK OF LIPA CIT" VS. CA) "efore a transferee may ask for the issuance of stock certificates, he must first cause the registration of the transfer and thereby en2oy the status of a stockholder insofar as the corporation is concerned. A corporate secretary may not be compelled to register transfers of shares on the basis merely of an indorsement of stock certificates. With more reason, a corporate secretary may not be compelled to issue stock certificates without such registration. (PONCE VS. ALSONS CEMENT CORP) Are attachments of shares of stock included in the term $transfer$ as provided in 'ec. D- of the :orporation :odeN We rule in the negative. As succinctly declared in the case of 5onserrat v. :eron, chattel mortgage over shares of stock need not be registered in the corporation1s stock and transfer book inasmuch as chattel mortgage over shares of stock does not involve a $transfer of

shares,$ and that only absolute transfers of shares of stock are re!uired to be recorded in the corporation1s stock and transfer book in order to have $force and effect as against third persons.$ (CHEMPHIL EXPORT VS. CA) DISSOLUTION AND LI4UIDATION The word $trustee$ as used in the corporation statute must be understood in its general concept which could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by the corporation. The purpose in the transfer of the assets of the corporation to a trustee upon its dissolution is more for the protection of its creditor and stockholders. 4ebtors like the petitioners herein may not take advantage of the failure of the corporation to transfer its assets to a trustee, assuming it has any to transfer which petitioner has failed to show, in the first place. To sustain petitioners1 contention would be to allow them to enrich themselves at the expense of another, which all enlightened legal systems condemn. (GELANO VS. CA) FOREIGN CORPORATIONS As between the parties themselves, @.A. .o. *B** does not declare as void or invalid the contracts entered into without at securing a license or certificate to do business in the 9hilippines. .either does it appear to intend to prevent the courts from enforcing contracts made in contravention of its licensing provisions, There is no denying, though, that an $illegal situation,$ as the appellate court has put it, was created when the parties voluntarily contracted without such license. The parties are charged with knowledge of the existing law at the time they enter into the contract and at the time it is to become operative. 5oreover, a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary. In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of @.A. .o. *B** at the time the contract was executed and at all times thereafter. This conclusion is compelled by the fact that the same statute is now being propounded by the petitioner to bolster its claim. We, therefore, sustain the appellate court1s view that $it was incumbent upon T)9#W>/4 to know whether or not I@TI and >:>4 were properly authori ed to engage in business in the 9hilippines when they entered into the licensing and distributorship agreements.$ The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of @.A. .o. *B**. The parties in this case being e!ually guilty of violating @.A. .o. *B**, they are in pari delicto, in which case it follows as a conse!uence that petitioner is not entitled to the relief prayed for in this case. (TOP-WELD MFG. VS. ECED) The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the :orporation :ode under the general provisions of 'ection ,BB of the :ode. It is, therefore, not necessary to declare the contract null and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. )ur ruling that the lack of capacity at the time of the execution of the contracts was cured by the subse!uent registration is also strengthened by the procedural aspects of these cases. (HOME INSURANCE CO. VS. EASTERN SHIPPING) The obtainment of a license prescribed by 'ection ,7* of the :orporation :ode is not a condition precedent to the maintenance of any kind of action in 9hilippine courts by a foreign corporation. ;owever, under the afore!uoted provision, no foreign corporation shall be permitted to transact business in the 9hilippines, as this phrase is understood under the :orporation :ode, unless it shall have the license re!uired by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain any suit in local courts. As thus interpreted, any foreign corporation not doing business in the 9hilippines may maintain an action in our courts upon any cause of action, provided that the sub2ect matter and the defendant are within the 2urisdiction of the court. It is not the absence of the prescribed license but $doing business$ in the 9hilippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business
COMMERCIAL LAW
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College of Law LAW
San Beda COMMERCIAL
in the 9hilippines, it does not follow that it has no capacity to bring an action. 'uch license is not necessary if it is not engaged in business in the 9hilippines. (COLUMBIA PICTURES VS. CA) 5ore than the sheer number of transactions entered into, a clear and unmistakable intention on the part of petitioner to continue the body of its business in the 9hilippines is more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes, valves and control e!uipment used for industrial fluid control and 9A: pipes and fittings for industrial use. Thus, the sale by petitioner of the items covered by the receipts, which are part and parcel of its main product line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and ob2ect of its business, pure and simple. (urther, its grant and extension of ?+#day credit terms to private respondent for every purchase made, unarguably shows an intention to continue transacting with private respondent, since in the usual course of commercial transactions, credit is extended only to customers in good standing or to those on whom there is an intention to maintain long#term relationship. (ERIKS PTE. LTD. VS. CA) We agree with the finding of the respondent court that petitioner is not suing on an isolated transaction as it claims to be, as it is very obvious from the deed of assignment and its relationships with 5arcopper and 9lacer 4ome, Inc. that its unmistakable intention is to continue the operations of 5arcopper and shield its properties/assets from the reach of legitimate creditors, even those holding valid and executory court 2udgments against it. There is no other way for petitioner to recover its huge financial investments which it poured into 5arcopper<s rehabilitation and the local situs where the 4eeds of Assignment were executed, without petitioner continuing to do business in the country. While petitioner may 2ust be an assignee to the 4eeds of Assignment, it may still fall within the meaning of Edoing business= based on the ruling of the 'upreme :ourt that EWhere a single act or transaction however is not merely incidental or casual but indicates the foreign corporation<s intention to do other business in the 9hilippines, said single act or transaction constitutes doing or engaging in or transacting business in the 9hilippines.= (MR HOLDINGS% INC. VS. BAJAR) The true test 6for doing business8, however, seems tot be whether the foreign corporation is continuing the body of the business or enterprise for which it was organi ed or whether it has substantially retired from it and turned it over to another. 6'ubstance test8 The second test is the continuity test, expressed thus0 The term 6doing business8 implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in the progressive prosecution of, the purpose and ob2ects of its organi ation. (AGILENT TECHNOLOGIES VS. INTEGRATED SILICON) The party is estopped from !uestioning the capacity of a foreign corporation to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporations and thereafter committed a breach of or sought to renege on its obligations. The rule relating to estoppel is deeply rooted in the axiom of commodum ex in2uria sua non habere debet M no person ought to derive any advantage from his own wrong. (EUROPEAN RESOURCES VS. IGNIEBURO)
Law
CORPORATE RE)ABILITATION The issue of whether or not preferred creditors of distressed corporations stand on e!ual footing with all other creditors gains relevance and materiality only upon the appointment of a management committee, rehabilitation receiver, board or body. (RCBC VS. IAC) The reason for suspending actions for claims against the corporation should not be difficult to discover. It is not really to enable the management committee or the rehabilitation receiver to
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substitute the defendant in any pending action against it before any court, tribunal, board or body. )bviously, the real 2ustification is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any 2udicial or extra#2udicial interference that might duly hinder or prevent the Erescue= of the debtor company. (B.F. HOMES% INC. VS. CA 8>A1= >: PAL VS. SPOUSES SADIC)
COMMERCIAL LAW
BAN+ING LAWS
NEW CENTRAL BAN+ ACT It must be remembered that the :entral "ank of the. 9hilippines 6now "angko 'entral ng 9ilipinas8, through the 5onetary "oard, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country and is granted, the power of supervision and examination over banks and non#bank financial institutions performing !uasi# banking functions, of which savings and loan associations, such as 9>'A/A, form part of. (BUSUEGO VS. CA) While admittedly the :entral "ank Act gives vast and far#reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the Epreservation of the assets of the bank 6the reorgani ation thereof8 and the restoration of its viability.= 'uch powers, enormous and extensive as they are, cannot extend to ex post facto repudiation of perfected transactions, otherwise they would infringe against the non#impairment clause of the :onstitution. (FIRST PHIL. INT$L BANK VS. CA) There is no re!uirement whether express or implied, that a hearing be first conducted before a banking institution may be placed under receivership. )n the contrary, the law is explicit as to the conditions prere!uisite to the action of the 5onetary "oard to forbid the institution to do business in the 9hilippines and to appoint a receiver to immediately take charge of the bank1s assets and liabilities. They are0 6a8 an examination made by the examining department of the :entral "ank% 6b8 report by said department to the 5onetary "oard% and 6c8 prima facie showing that the bank is in a condition of insolvency or so situated that its continuance in business would involve probable loss to its depositors or creditors. The evident implication of the law, therefore, is that the appointment of a receiver may be made by the 5onetary "oard without notice and hearing but its action is sub2ect to 2udicial in!uiry to insure the protection of the banking institution. 'tated otherwise, due process does not necessarily re!uire a prior hearing% a hearing or an opportunity to be heard may be subse!uent to the closure. )ne can 2ust imagine the dire conse!uences of a prior hearing0 bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out, and disillusionment will ran the gamut of the entire banking community. (RURAL BANK OF BUHI VS. CA) The purpose of the law in re!uiring that only the stockholders of record representing the ma2ority of the capital stock may bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent "oard of 4irectors or officers who may immediately resort to court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed principally against acts of said 4irectors and officers which place the bank in a state of continuing inability to maintain a condition of li!uidity ade!uate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders. :ommon sense and public policy dictate then that the authority to decide on whether to contest the resolution should he lodged with the stockholders owning a ma2ority of the shares for they are expected to be more ob2ective in determining whether the resolution is plainly arbitrary and issued in bad faith. (CENTRAL BANK VS. CA) It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this
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respect, the receivership is e!uivalent to an in2unction to restrain the bank officers from intermeddling with the property of the bank in any way. (VILLANUEVA VS. CA) The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the 'uperintendent of "anks, as a receiver, for conversion into cash, and that its li!uidation is undertaken with 2udicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank should be filed in the li!uidation proceeding. We explained therein the rationale behind the provision, i.e., the 2udicial li!uidation is intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the li!uidation of the bank, to obviate the proliferation of litigations and to avoid in2ustice and arbitrariness. The lawmaking body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the li!uidation court should assist the 'uperintendent of "anks and regulate his operations. (ONG VS. CA) SECRECY OF BAN+ DEPOSITS ACT The lower court did not order an examination of or in!uiry into the deposit of " O " (orest 4evelopment :orporation, as contemplated in the law. It merely re!uired Tan Fim /iong to inform the court whether or not the defendant " O " (orest 4evelopment :orporation had a deposit in the :hina "anking :orporation only for purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal until further order. It is clear that the prohibition against examination of or in!uiry into a bank deposit under @epublic Act ,B+* does not preclude its being garnished to insure satisfaction of a 2udgment. Indeed there is no real in!uiry in such a case, and if the existence of the deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of :ongress to enable debtors to evade payment of their 2ust debts, even if ordered by the :ourt, through the expedient of converting their assets into cash and depositing the same in a bank. (CHINA BANKING CORP. VS. ORTEGA) "efore an in#camera inspection may be allowed of bank deposits, there must be a pending cases before a court of competent 2urisdiction. (urther, the account must be clearly identified, the inspection limited to the sub2ect matter of the pending case before the court of competent 2urisdiction. The bank personnel and the account holder must be notified to be present during the inspection, and such inspection may cover only the account identified in the pending case. An examination by the )ffice of the )mbudsman is not a pending litigation to allow examination of the respondent<s bank account. (MAR!UE# VS. DESIERTO) Thus, while @epublic Act .o. ,B+* provides that bank deposits are $absolutely confidential . . . and HthereforeI may not be examined, in!uired or looked into,$ except in those cases enumerated therein, the Anti#Jraft /aw directs in mandatory terms that bank deposits $shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary.$ The only conclusion possible is that section C of the Anti#Jraft /aw is intended to amend section 7 of @epublic Act .o. ,B+* by providing an additional exception to the rule against the disclosure of bank deposits. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to point out that while section 7 of @epublic Act .o. ,B+* declares bank deposits to be $absolutely confidential$ it nevertheless allows such disclosure in the following instances0 6,8 &pon written permission of the depositor% 678 In cases of impeachment% 678 &pon order of a competent court in cases of bribery or dereliction of duty of public officials% 6B8 In cases where the money deposited is the sub2ect of the litigation. :ases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to one cannot be different from the policy as to the other. This policy expresses the notion that a public office is
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a public trust and any person who enters upon its discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny. (PNB VS.GANCA"CO) The in!uiry into illegally ac!uired property#or property .)T $legitimately ac!uired$#extends to cases where such property is concealed by being held by or recorded in the name of other persons. This proposition is made clear by @.A. .o. -+,? which !uite categorically states that the term, $legitimately ac!uired property of a public officer or employee shall not include property unlawfully ac!uired by the respondent, but its ownership is concealed by its being recorded in the name of, or held by, respondent1s spouse, ascendants, descendants, relatives or any other persons.$ To sustain the petitioner1s theory, and restrict the in!uiry only to property held by or in the name of the government official or employee, or his spouse and unmarried children is unwarranted in the light of the provisions of the statutes in !uestion, and would make available to persons in government who illegally ac!uire property an easy and foolproof means of evading investigation and prosecution% all they would have to do would be to simply place the property in the possession or name of persons other than their spouse and unmarried children. This is an absurdity that we will not ascribe to the lawmakers. (BANCO FILIPINO VS. PURISIMA)
COMMERCIAL LAW
SPECIAL LAWS
C)ATTEL MORTGAGE While a pledge, real estate mortgage, or antichresis may exceptionally secure after#incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the :hattel 5ortgage /aw. @efusal on the part of the borrower to execute the agreement so as to cover the after#incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. (ACME SHOE% RUBBER & PLASTIC VS. CA) A stipulation in the chattel mortgage, extending its scope and effect to after#ac!uired property, is valid and binding where the after#ac!uired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods. A mortgage may, by express stipulations, be drawn to cover goods put in stock in place of others sold out from time to time. A mortgage may be made to include future ac!uisitions of goods to be added to the original stock mortgaged, but the mortgage must expressly provide that future ac!uisitions shall be held as included in the mortgage. Where a mortgage covering the stock in trade, furniture, and fixtures in the mortgagor1s store provides that $all goods, stock in trade, furniture, and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage,$ the mortgage covers all after#ac!uired property of the classes mentioned, and, upon foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed. (TORRES VS. LIMJAP) In the instant case, defendant corporation elected to foreclose its mortgage upon default by the plaintiffs in the payment of the agreed installments, ;aving chosen to foreclose the chattel mortgage, and bought the purchased vehicles at the public auction as the highest bidder, it submitted itself to the conse!uences of the law as specifically mentioned, by which it is deemed to have renounced any and all rights which it might otherwise have under the promissory note and the chattel mortgage as well as the payment of the unpaid balance. (RIDAD VS. FILIPINAS INVESTMENT) There is also no legal provision nor 2urisprudence in our 2urisdiction which makes a third person who secures the fulfillment of another1s obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgage may be $an accessory contract$ to a contract of loan, but that fact alone does not make a third#party mortgagor solidarily bound with the
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principal debtor in fulfilling the principal obligation that is, to pay the loan. The signatory to the principal contract#loan#remains to be primarily bound. It is only upon the default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third#party mortgagors extends only to the property mortgaged. 'hould there be any deficiency, the creditor has recourse on the principal debtor. (CERNA VS. CA) WARE)OUSE RECEIPTS LAW Any deposit made with a bonded warehouseman must necessarily be governed by the provisions of Act .o. -C?-. The kind or nature of the receipts issued by him for the deposits is not very material, much less decisive. Though it is desirable that receipts issued by a bonded warehouseman should conform to the provisions of the Warehouseman @eceipts /aw, said provisions are not mandatory, and indispensable in the sense that if they fell short of the re!uirement of the Warehouse @eceipts Act, then the commodities delivered for storage become ordinary deposits and will not be governed by the provisions of the "onded Warehouse Act. &nder 'ection , of the Warehouse @eceipts Act, the issuance of a warehouse receipt in the form provided by it is merely permissive and directory and not obligatory. (GON#ALES VS. GO TIONG) In conclusion, we hold that where a warehouse receipt or !uedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or !uedan but he merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and that if the property covered by the !uedans or warehouse receipts is lost without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or !uedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. The indorsement and delivery of the warehouse receipts 6!uedans8 by @amos and Poleta to petitioner was not to convey $title$ to or ownership of the goods but to secure 6by way of pledge8 the loans granted to @amos and Poleta by petitioner. The indorsement of the warehouse receipts 6!uedans8, to perfect the pledge, merely constituted a symbolical or constructive delivery of the possession of the thing thus encumbered. (PNB VS. SA"O% JR.)
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@egrettably, the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with 'ection C of the law. The presumption, nevertheless, would be that the law was complied with, rather than breached, by petitioner. &pon the other hand, it would appear that the refusal of private respondents to deliver the goods was not anchored on a valid excuse, i.e., non#satisfaction of the warehouseman1s lien over the goods, but on an adverse claim of ownership. 9rivate respondents 2ustified their refusal to deliver the goods, as stated in their Answer with :ounterclaim and Third#9arty :omplaint in :ivil :ase .o. ?+#*-+7-, by claiming that they $are still the legal owners of the sub2ect !uedans and the !uantity of sugar represented therein.$ &nder the circumstances, this hardly !ualified as a valid, legal excuse. The loss of the warehouseman1s lien, however, does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in this case. "ut even as to the owners#pledgors, the warehouseman fees and charges have ceased to accrue from the date of the re2ection by .oah1s Ark to heed the lawful demand by petitioner for the release of the goods. (PNB VS. SA"O% JR.) Imperative is the right of the warehouseman to demand payment of his lien at this 2uncture, because, in accordance with 'ection 7? of the Warehouse @eceipts /aw, the warehouseman loses his lien upon goods by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without re!uiring payment of his lien, because a warehouseman1s lien is possessory in nature. (PNB v . S1% J2.) Where a warehouse receipt or !uedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of
Law

the goods covered by the warehouse receipt or !uedan but he merely retains the right to keep, and with the consent of the owner to sell, them so as to satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and if the property covered by the !uedans or warehouse receipts is lost later without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or !uedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. (MARTINE# VS. PNB) TRUST RECEIPTS LAW As regards the first issue, the :ourt has repeatedly upheld the validity of the Trust @eceipts /aw and consistently declared that the said law does not violate the constitutional proscription against imprisonment for non#payment of debts. Aerily, 94 ,,* is a declaration by the legislative authority that, as a matter of public policy, the failure of a person to turn over the proceeds of the sale of goods covered by a trust receipt or to return said goods if not sold is a public nuisance to be abated by the imposition of penal sanctions. In fine, 94 ,,* is a valid exercise of police power and is not repugnant to the constitutional provision of non#imprisonment for non#payment of debt. In a similar vein, the case of 9eople vs. .itafan 6supra8 held0 $The Trust @eceipts /aw punishes the dishonesty and abuse of confidence in the handling of money or goods to the pre2udice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of a loan. Thus, there can be no violation of the right against imprisonment for non#payment of a debt.$ (TIOMICO VS. CA) A letter of credit#trust receipt arrangement is endowed with its own distinctive features and characteristics. &nder that set#up, a bank extends a loan covered by the letter of :redit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. A trust receipt, therefore, is a security agreement, pursuant to which a bank ac!uires a $security interest= in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. :ontrary to the allegation of the AI.T)/A', I"AA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the AI.T)/A'. The goods the AI.T)/A' had purchased through I"AA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the I"AA into an investor% the latter remained a lender and creditor.$ (or the bank has previously extended a loan which the //: represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were go, it could dispose of the goods in any manner it wants, which it cannot do, 2ust 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. 'ince the I"AA is not the factual owner of the goods, the AI.T)/A' cannot 2ustifiably claim that because they have surrendered the goods to I"AA and subse!uently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in !uestion does not affect I"AA1s right to recover the advances it had made under the /etter of :redit. (VINTOLA VS. INSULAR BANK) The penal provisions of 9.4. .o. ,,* apply even when the trust receipt issued covers goods or items not destined for sale or for use in manufacture, and would include items obtained under a trust receipt used to repair and maintain e!uipment used in business. If the beneficiary is not paid under such trust receipt, the trustee is liable under the law. (ALLIED BANKING CORP. VS. ORDOE#) (rom the legal and 2urisprudential standpoint it is clear that the security interest of the entruster is not merely an empty or idle title. To a certain extent, such interest becomes a $lien$ on the goods because the entruster1s advances will have to be settled first before the entrustee can
COMMERCIAL LAW
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consolidate his ownership over the goods. A contrary view would be disastrous. (or to refuse to recogni e the title of the banker under the trust receipt as security for the advance of the purchase price would be to strike down a bonafide and honest transaction of great commercial benefit and advantage founded upon a well#recogni ed custom by which banking credit is officially mobili ed for manufacturers and importers of small means. "esides, as earlier stated, the law warrants the validity of petitioner1s security interest in the goods pursuant to the written terms of the trust receipt as against all creditors of the trust receipt agreement. The only exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good faith. The records however do not show that the winning bidder is such purchaser. .either can private respondents plead preferential claims to the properties as petitioner has the primary right to them until its advances are fully paid. (PRUDENTIAL BANK VS. NLRC) INSOL ENCY LAW The provision of the above#!uoted 'ection -7, of the Insolvency /aw is very clear#that attachments dissolved are those levied within one 6,8 month next preceding the commencement of the insolvency proceedings and 2udgments vacated and set aside are 2udgments entered in any action, including 2udgment entered by default or consent of the debtor, where the action was filed within thirty 6-+8 days immediately prior to the commencement of the insolvency proceedings. In short, there is cut off period##one 6,8 month in attachment cases and thirty 6-+8 days, in 2udgments entered in actions commenced prior to the insolvency proceedings. 'ection G?, on the other hand, relied upon by private respondents, provides for the right of the plaintiff if the attachment is not dissolved before the commencement of proceedings in insolvency, or is dissolved by an undertaking given by the defendant, if the claim upon which the attachment suit was commenced is proved against the estate of the debtor. Therefore, there is no conflict between the two provisions. (RADIOLA-TOSHIBA VS. IAC)
INTELLECTUAL PROPERTY LAW

TRADEMAR+ A word or a combination of words which is merely descriptive of an article of trade, or of its composition, characteristics, or !ualities, cannot be appropriated and protected as a trademark to the exclusion of others. (ONG OI GUI VS. DIRECTOR% PHILIPPINE PATENTS OFFICE% *) PHIL. )(.) :ommon geometric shapes, such as diamonds, are ordinarily not regarded as indicia of the origin of goods, unless they have ac!uired a secondary meaning. (VICTORIAS MILLING CO. INC. VS. ONG SU% (* SCRA '+()

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)ne who has adopted and used a trademark on his goods does not prevent the adoption and use on the same trademark by others for products which and of a different description. 6 FABERGE INC. VS. INTERMEDIATE APPELLATE COURT% '&, SCRA .&)+ A word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because it is geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to its article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product. 6L"CEUM OF THE PHILIPPINES INC. VS. COURT OF APPEALS% '&* SCRA )&+)
Although the word E'electa= may be an ordinary or common word in the sense that it may be used or employed by any one in promoting his business or enterprise, once adopted or coined in connection with one<s business as an emblem, sign or device to characteri e its products, or as a badge of authenticity, it may ac!uire a secondary meaning as to be exclusively associated with its

products and business. In this sense, its use by another may lead to confusion in trade and cause damage to its business. 6ARCE SONS AND CO. VS. SELECTA BISCUIT CO. INC.% ET. AL% &&+ PHIL. /,/) The trademark E/ionpas= for medicated plaster cannot be registered because it is confusingly similar to E'alonpas=, a registered trademark also for medicated plaster. When the two words are pronounced, the sound effects are confusingly similar. (MARVEX COMMERCIAL CO. INC. VS. PETRA HAWPIA AND CO.% &/ SCRA &&(/) The function of a trademark is to point distinctively, either by its own meaning or by association, to the origin or ownership of the wares to which it is applied. EAng Tibay= as used by the respondent to designate his wares, had exactly performed that function for twenty#two years before the petitioner adopted it as a trademark in her own business. >ven if EAng Tibay= therefore, were not capable of exclusive appropriation as a trademark, the application of the doctrine of secondary meaning could be sustained because, in any event, by respondent<s long and exclusive use of said phrase with reference to his products and his business, it has ac!uired a proprietary connotation. 6ANG VS. TEODORO% (- PHIL. ,+) Infringement of trademark is a form of unfair competition. The universal test !uestion for infringement is whether the public is likely to be deceived. Actual probable deception and confusion on the part of the customers by reason of defendant<s practices must always appear. 6ASIA BREWER" INC. VS. COURT OF APPEALS% ''- SCRA -.() The validity of a cause for infringement is predicated upon colorable imitation. The phrase Ecolorable imitation= denotes such a close or ingenious imitation as to be calculated to deceive ordinary persons, or such resemblance to the original as to deceive an ordinary purchaser giving such attention as a purchaser usually gives, and to cause him to purchase the one supposing it to be the other. 6ETEPHA VS. DIRECTOR OF PATENTS ET. AL% &) SCRA -*,) If the competing trademark contains the main or essential or dominant features of another by reason of which, confusion and deception are likely to result, then infringement takes place% the duplication or imitation is not necessary, a similarity in the dominant features of the trademarks would be sufficient. 6PHILIPPINE NUT INDUSTR" INC. VS. STANDARD BRANDS INC.% ), SCRA ,(,) In infringement or trademark cases in the 9hilippines, particularly in ascertaining whether one trademark is confusingly similar to or is a colorable imitation of another, no set rules can be deduced M each case must be decided on its own merits. (SOCIETE DES PRODUITS NESTLE S.A. VS. COURT OF APPEALS% .,) SCRA '+() Infringement of trademark depends on whether the goods of the two contending parties using the same trademark, such as E>'')=, are so related as to lead the public to be deceived. The trademark >'') which the petitioner uses for its various petroleum products can be used by another as trademark for cigarettes as the two classes of products flow through different trade channels. (ESSO STANDARD E5 A12: I:8. v . C9?2A 9C A0015; % &&) SCRA ..)) In determining whether the trademarks are confusingly similar, a comparison of the words is not the only determining factor. The trademark in their entirety as they appear in their respective labels or hang tags must also be considered in relation to the goods to which they are attached. (FRUIT OF THE LOOM INC. VS. COURT OF APPEALS% &.. SCRA -+,)
COMMERCIAL LAW
It has been held that if a mark is so commonplace that it cannot be readily distinguished from others, then it is apparent that it cannot identify a particular business% and he who first adopted it cannot be in2ured by any subse!uent appropriation or imitation by others, and the public will not be deceived. 6PHILIPPINE REFINING CO. INC. VS. NG SAM% &&, SCRA -(')
The :onvention of 9aris for the 9rotection of Industrial 9roperty, otherwise known as the 9aris :onvention, is a multilateral treaty that seeks to protect industrial property consisting of patents, utility models, industrial designs, trademarks, service marks, trade names and indications of source
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or appellations of origin and at the same time aims to repress unfair competition. The convention is essentially a compact among various countries which as members, have pledged to accord to citi ens of the other member countries, trademark and other rights comparable to those accorded their own citi ens by their domestic laws for an effective protection against unfair competition. 6MIRPURI VS. COURT OF APPEALS% .&/ SCRA ,&)) A foreign corporation not doing business in the 9hilippines needs no license to sue in the 9hilippines for trademark violations. The 9hilippine being a party to the 9aris :onvention for the 9rotection of Industrial 9roperty, the right of a foreign corporation to file suit in the 9hilippine courts to protect its trademark is to be enforced. 6 LA CHEMISE LACOSTE VS. FERNANDE#% &'* SCRA .(.) A foreign corporation not doing business in the 9hilippines may have the right to sue before the 9hilippine courts but it may not necessarily be entitled to protection due to absence of actual use of the emblem in the 9hilippine market. 6 PHILIP MORRIS INC. VS. COURT OF APPEALS% ''- SCRA ,()) An unlicensed, unregistered foreign corporation which has never done any business in the 9hilippines, but is widely and favorably known in the 9hilippines through the use of its products bearing its corporate and trade name, has a legal right to maintain an action in the 9hilippines to restrict the organi ation of a corporation whose sole purpose is to deal and trade in the same goods as those of the foreign corporation. 6 CONVERSE RUBBER CORP. VS. UNIVERSAL RUBBER PRODUCTS INC.% &-( SCRA &,-) Agreement giving distributor ownership of packages does not necessarily get her exclusive use of the trademark. The fact that distributor spent substantial sums to promote product covered by trademark is not sufficient to vest ownership of the trademark. (GABRIEL VS. PERE#% ,, SCRA -+)) A certificate of registration of a mark or trade name is prima facie evidence of the validity of the registration, the registrant<s ownership of the mark or trade name, and of the registrant<s exclusive right to use the same in connection with the goods, business or services specified in the certificate, sub2ect to any conditions and limitations stated therein. (AMIGO MANUFACTURING INC. VS. CLUETT PEABOD" CO. INC.% .,- SCRA -.-) In cases of confusion of business or origin, the !uestion that usually arises is whether the respective goods or services of the senior user are so related as to likely cause confusion of business or origin, and thereby render the trademark or trade name confusingly similar. Joods are related when they belong to the same class or have the same descriptive properties, when they possess the same physical attributes or essential characteristics with reference to their form, composition, texture or !uality. They may also be related because they serve the same purpose. 6 CANON KABUSHIKI KAISHA A'. COURT OF APPEALS% ..) SCRA '))) The reckoning point for the filing of a petition for cancellation of certificate of registration of trademark is not from the alleged date of use but from the date the certificate of registration was published in the )fficial Ja ette and issued to the registrant. 6 EMERALD GARMENT MANUFACTURING CORP. VS. COURT OF APPEALS% ',& SCRA )++)
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The right to the exclusive use of a corporate name with freedom from infringement is determined by priority of adoption. In determining the existence of confusing similarity in corporate name, the test is whether the similarity is such as to mislead a person using ordinary care and discretion. 6 PHILIPS EXPORT B.V. VS. COURT OF APPEALS% '+) SCRA -,()
COMMERCIAL LAW
Where an unreasonable period of time had elapsed prior to the filing of a petition for revival of the patent application due to the negligence of the applicant<s counsel, such inaction would result in the forfeiture of the right to revive the patent application. 6 SCHWART# VS. COURT OF APPEALS% .., SCRA -*.) PATENTS A person or entity who has not been granted letters patent over an invention and has not ac!uired any right of title thereto either as assignee or as licensee, has no cause of action for infringement because the right to maintain an infringement suit depends on the existence of the patent. 6CRESSER PRECISSION S"STENS INC. VS. COURT OF APPEALS% '/) SCRA &.) The =98A2>:1 9C 1F?>v5;1:A provides that an infringement also takes place when a device appropriates a prior invention by incorporating its innovative concept and, although with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result. The =98A2>:1 9C 1F?>v5;1:A thus re!uires satisfaction of the function#means#and#result test, the patentee having the burden to show that all three components of such e!uivalency test are met. (SMITH KLINE BECKMAN CORPORATION v . COURT OF APPEALS ET AL.) To be able to effectively and legally preclude others from copying and profiting from the invention, a patent is a primordial re!uirement. .o patent, no protection. The ultimate goal of a patent system is to bring new designs and technologies into the public domain through disclosure. Ideas, once disclosed to the public without the protection of a valid patent, are sub2ect to appropriation without significant restraint . (PEARL & DEAN (PHIL.)% INCORPORATED v . SHOEMART% INCORPORATED% 5:= NORTH EDSA MARKETING% INCORPORATED)
&nder the afore!uoted law, only the patentee or his successors#in#interest may file an action for infringement. The phrase $anyone possessing any right, title or interest in and to the patented invention$ upon which petitioner maintains its present suit, refers only to the patentee1s successors# in#interest, assignees or grantees since actions for infringement of patent may be brought in the name of the person or persons interested, whether as patentee, assignees, or as grantees, of the exclusive right. 5oreover, there can be no infringement of a patent until a patent has been issued, since whatever right one has to the invention covered by the patent arises alone from the grant of patent. In short, a person or entity who has not been granted letters patent over an invention and has not ac!uired any right or title thereto either as assignee or as licensee, has no cause of action for infringement because the right to maintain an infringement suit depends on the existence of the patent. 9etitioner admits it has no patent over its aerial fu e. Therefore, it has no legal basis or cause of action to institute the petition for in2unction and damages arising from the alleged infringement by private respondent. While petitioner claims to be the first inventor of the aerial fu e, still it has no right of property over the same upon which it can maintain a suit unless it obtains a patent therefor. 6:@>'>@ 9@>:I'). 'LT>5' A'. :A8
COPYRIG)T :opyright, in the strict sense of the term, is purely a statutory right. "eing a mere statutory grant, the rights are limited to what the statute confers. It may be obtained and en2oyed only with respect to the sub2ects and by the persons, and on terms and conditions specified in the statute. Accordingly, it can cover only the works falling within the statutory enumeration or description. 6PEARL & DEAN (PHIL.)% INCORPORATED v . SHOEMART% INCORPORATED% 5:= NORTH EDSA MARKETING% INCORPORATED) The copyright does not extend to the general concept or format of its dating game show. (JOA!UIN VS. DRILON) In determining the !uestion of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole
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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 in2urious extent appropriated by another, that is sufficient in point of law to constitute piracy. (HABANA VS. ROBLES)
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