LETTERS OF CREDIT

Bank of Commerce v. Serrano

G.R. No. 151895 February 16, 2005

FACTS: Petitioner Bank of Commerce (Boston Bank of the Philippines) is banking institution while
Teresita Serrano, the respondent is the General Manager and Treasurer of Via Moda Int’l, an importer
and exporter of Textile materials and fabrics.
Via Moda obtained an export packing loan from petitioner Bank of Commerce in amount of
$50,000 secured by Deed of Assignment over Irrevocable Letter of Credit to which Serrano executed a
promissory note. She then opened a deposit account for the proceeds of the said loan. Bank of
Commerce issued to Via Moda an irrevocable letter of credit in the amount of $56,735 for the purchase
and importation of fabric and textile products from Tiger Ear Fabric of Taiwan. To secure the release of
the goods, she executed a trust receipt.
Under the terms of the trust receipt, Via Moda agreed to hold the goods in trust for petitioner
as the latter’s property and to sell the same for the latter’s account. In case of sale, the proceeds are to
be remitted to the bank as soon as it is received, but not later than the maturity date or in the
alternative, to return the goods in case of non-sale.
The goods covered by the trust receipt were shipped by Via Moda to its consignee in New
Jersey, USA, who sent an Export Letter of Credit issued by the Bank of New York, in favor of BOC. The
Regional Operations Officer of BOC signed the export declarations to show consent to the shipment.
The proceeds of the entrusted goods sold were not credited to the trust receipt but, were
applied by the bank to the principal, penalties and interest of the export packing loan. The excess
P472,114.85 was applied to the trust receipt, leaving a balance of P1,444,802.28 as of November 15,
1994.
On November 16, 1994, petitioner sent a demand letter to Via Moda to pay the said amount
plus interest and penalty charges, or to return the goods covered by Trust Receipt within 5 days from
receipt. The demand was not heeded. As of December 15, 1998, the outstanding balance of Via Moda
was P4,783,487.15.
Respondent was then charged with the crime of estafa under Article 315 (b) of the Revised
Penal Code in relation to Presidential Decree No. 115 where the Regional Trial Court rendered a decision
finding Serrano Guilty. However, the Court of Appeals reversed the RTC decision declaring that the
element of misappropriation or conversion in relation to the crime of estafa, was absent in this case.
Hence this Petition

ISSUE: Whether or not CA erred in Reversing RTC decision?

HELD: No.
A letter of credit is a separate document from a trust receipt. While the trust receipt may have
been executed as a security on the letter of credit, still the two documents involve different
undertakings and obligations.
A letter of credit is an engagement by a bank or other person made at the request 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.
By contrast, a trust receipt transaction is one where the entruster, who holds an absolute title or
security interests over certain goods, documents or instruments, released the same to the entrustee,
who executes a trust receipt binding himself to hold the goods, documents or instruments in trust for
the entruster and to sell or otherwise dispose of the goods, documents and instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the
entruster, or as appears in the trust receipt, or return the goods, documents or instruments themselves
if they are unsold, or not otherwise disposed of, in accordance with the terms and conditions specified
in the trust receipt.
Worthy of mention at this point is the Court of Appeals’ finding that there was no
misappropriation or conversion by the respondent of the proceeds of the sale in the goods, subject of
the trust receipt since the proceeds were actually received by petitioner but the latter applied the
same to Via Moda’s other obligations under the export packing loan. It further stated that such
application of payment to another obligation was done by petitioner on its own and should not create a
criminal liability on the part of respondent who did not take part nor had any knowledge thereof. It is on
this premise that the respondent was acquitted of the crime charged.

TRUST RECEIPTS LAW

Landl and Company, Percival Llaban and Manuel Lucente vs.METROPOLITAN BANK & TRUST
COMPANY.
G.R. No. 159622 July 30, 2004

FACTS: Landl Co opened Commercial Letter of Credit No. 4998 with respondent bank, in the amount of
US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the transaction
was consummated. The letter of credit was opened to purchase various welding rods and electrodes
from Perma Alloys, Inc., New York, U.S.A., As an additional security, and as a condition for the approval
of petitioner corporation’s application for the opening of the commercial letter of credit, respondent
bank required petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship
Agreement to the extent of P400,000.00.
Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody
thereof. On the maturity date of the trust receipt, petitioner corporation defaulted in the payment of its
obligation to respondent bank and failed to turn over the goods to the latter. The goods were sold for
P30,000.00 to respondent bank as the highest bidder. The proceeds of the auction sale were insufficient
to completely satisfy petitioners’ outstanding obligation to respondent bank, notwithstanding the
application of the time deposit account of petitioner Lucente. Accordingly, respondent bank demanded
that petitioners pay the remaining balance of their obligation. After petitioners failed to do so,
respondent bank instituted the instant case to collect the said deficiency.

ISSUE: Whether or not possession by the bank of the goods under the trust receipts does not bar
collection of the loan.

HELD: The initial repossession by the bank of the goods subject of the trust receipt did not result in the
full satisfaction of the petitioners’ loan obligation. Petitioners are apparently laboring under the
mistaken impression that the full turn-over of the goods suffices to divest them of their obligation to
repay the principal amount of their loan obligation. The entrustee’s possession of the subject machinery
and equipment being precisely as a form of security for the advances given to TCC under the Letter of
Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment
would legally result only after PNB had foreclosed on said securities, sold the same and applied the
proceeds thereof to TCC’s loan obligation. Mere possession does not amount to foreclosure for
foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor
on the property and includes the sale itself. Neither can said repossession amount to dacion en pago.
Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in
money and the same is governed by sales. Dation in payment is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the
obligation.
A trust receipt is inextricably linked with the primary agreement between the parties. Time and
again, the SC have emphasized that a trust receipt agreement is merely a collateral agreement, the
purpose of which is to serve as security for a loan. Thus, in Abad v. Court of Appeals, the SC ruled: A
letter of credit-trust receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust
receipt as 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. x x x. A trust receipt,
therefore, is a security agreement, pursuant to which a bank acquires a “security interest” in the goods.
It secures an indebtedness and there can be no such thing as security interest that secures no obligation.
The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional
layer of security to the lending bank. Trust receipts are indispensable contracts in international and
domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or
misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments
held in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard
the rights and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts
Law.
THE NEW CENTRAL BANK ACT AND GENERAL BANKING LAW
Marylou Tolentino vs CA and Citytrust Banking Institution
G.R. No. 171354 517 SCRA 732 March 07, 2007

FACTS: Petitioner’s real property, which was used to secure her mortgage with the private respondent,
was extrajudicially foreclosed and sold in a public auction because she failed to settle her obligations.
The Citytrust was the highest bidder. On April 13, 1999, the Certificate of Sale was registered and duly
annotated on TCT No. 1933.
As of March 17, 2000, the "Statement of Account To Redeem" sent by Citytrust showed
petitioner's outstanding obligation at P5,386,993.91. Petitioner asked for a re-computation and the
deletion of certain charges, such as the late payment charges, foreclosure expenses, attorney's fees,
liquidated damages, and interests, but was denied by Citytrust. As of April 10, 2000, petitioner's
outstanding balance amounted to P5,431,337.41.
On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages,
with application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction,
against Citytrust and the Register of Deeds of Mandaluyong City. Petitioner alleged the inequity of
contract of mortgage led to the property being foreclosed.
In its Answer with Counterclaim, Citytrust asserted that petitioner's credit line has a term of one
year and that upon the expiration of the said period, it may be cancelled and closed; that the inclusion
of late payment charges, foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and
interests in the redemption price was in accordance with the terms and conditions of their loan and
mortgage contracts; that the bid price was applied to the outstanding obligations of petitioner; and that
the Complaint of petitioner was merely dilatory and frivolous considering that she has admitted having
defaulted in the payment of her obligations.
The trial court ruled in favour of the petitioner held that the filing of an action for judicial
redemption by petitioner is equivalent to a formal offer to redeem. Petitioner should not be barred
from redeeming the property, but at the redemption price as computed by Citytrust pursuant to the
provisions of their loan agreement. Petitioner cannot belatedly claim that the loan agreement and
mortgage contract are contracts of adhesion considering that she freely and voluntarily executed the
same, nor was she ignorant of the nature and provisions of the agreements.
However, the Court of Appeals held that petitioner's act of filing an action for judicial
redemption without simultaneous consignation of redemption money was not valid. Having failed to
exercise her right of redemption within the one-year period provided by law, petitioner thus lost all her
rights over the foreclosed property.
Petitioner claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals and Lee
Chuy Realty Corporation v. Court of Appeals that in case of disagreement over the redemption price, the
redemptioner may preserve his right of redemption through judicial action which must be filed within
the one-year period of redemption. The filing of a court action to enforce redemption, being equivalent
to a formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing"
the expiration of the one-year period. Bona fide tender of the redemption price, within the prescribed
period is only essential to preserve the right of redemption for future enforcement beyond such period
of redemption and within the period prescribed for the action by the statute of limitations. Where the
right to redeem is exercised through judicial action within the reglementary period, the offer to redeem,
accompanied by a bona fide tender of the redemption price, while proper, may be unessential.

ISSUE: Whether or not there was a valid redemption.

HELD: No
The general rule in redemption is that it is not sufficient that a person offering to redeem simply
manifests his/her desire to do so. The statement of intention must be accompanied by an actual and
simultaneous tender of payment. This constitutes the exercise of the right to repurchase. Bona fide
redemption necessarily implies a reasonable and valid tender of the entire purchase price, otherwise the
rule on the redemption period fixed by law can easily be circumvented.
It should be noted that in Hi-Yield Realty, Inc. v. Court of Appeals, it was held that the action for
judicial redemption should be filed on time and in good faith, the redemption price is finally determined
and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the
foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by
expiration date; (2) good faith as always, meaning, the filing of the action must have been for the sole
purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and
(3) once the redemption price is determined within a reasonable time, the redemptioner must make
prompt payment in full.
The records show that the correct redemption price had been determined prior to the filing of
the complaint for judicial redemption. Petitioner had been furnished updated Statements of Account
specifying the redemption price even prior to the consolidation of the title of the foreclosed property in
the bank's name. The inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated
damages, foreclosure fee, and interests therein was pursuant to the Loan Agreement. Considering that
the Loan Agreement was read and freely adhered to by petitioner, the stipulations therein are binding
on her.
Moreover, petitioner admitted during trial that she was not questioning the computation of the
redemption price, but she was requesting for a condonation of certain fees and charges.
Based on the foregoing, it is clear that petitioner did not file the instant case for judicial
redemption in good faith. It was not filed for the purpose of determining the correct redemption price
but to stretch the redemption period indefinitely, which is not allowed by law.
LAW ON SECRECY OF BANK DEPOSITS
Mellon Bank, N.A. vs Magsino
G.R. No. 71479 190 SCRA 633 October 18, 1990

FACTS: Dolores Ventosa requested the transfer of $1,000 from the First National Bank of Moundsville,
West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential Bank.
To effect the transfer, the First National Bank requested the petitioner, Mellon Bank, which
mistakenly indicated in its wire sent to Manufacturers Hanover Bank, a correspondent of Prudential
Bank the amount transferred as "US$1,000,000.00" instead of US$1,000.00.
Manufacturers Hanover Bank transferred one million dollars less bank charges of $6.30 to the
Prudential Bank for the account of Victoria Javier.
Javier opened a new dollar account (No. 343) in the Prudential Bank and deposited $999,943.70.
Immediately, Victoria Javier and her husband, Melchor Javier, Jr., made withdrawals from the account,
deposited them in several banks only to withdraw them later in an apparent plan to conceal, "launder"
and dissipate the erroneously sent amount.
Melchor Javier, requested Jose Marquez, a realtor, to look for properties for sale in the United
States. Marquez offered a 160-acre lot in the Mojave Desert in California City which was owned by
Honorio Poblador.
Without having seen the property, Javier agreed to buy said property. Deeds were issued and
one of it was sent to the Kern County Registrar in California for registration.
The payment of the purchased property was made through six cashier's checks withdrawn from
dollar account 434 while the balance of P236,000 was paid in cash by Javier who did not even ask for a
receipt.
Inasmuch as Poblador had requested that the purchase price should not be paid directly to him,
the payment was coursed through six companies in which he is financially related with.
Mellon Bank filed a complaint in the Superior Court of California, County of Kern, against Javier
spouses’ to impose constructive trust of the property they’ve purchased from the money mistakenly and
erroneously transferred to their account. Mellon Bank also filed in the Court of First Instance of Rizal,
Branch X, a complaint against the Javier spouses, Honorio Poblador, etc to recover the amount they
received for the sale of the 160-acre lot in California City.
In due course, it was found out that the checks originally issued by Javier spouses were already
negotiated and now were deposited to Account 2825-1 of the Philippine Veterans Bank in the name of
Cipriano Azada, Poblador's law partner and counsel to the Javiers.
Mellon Bank then subpoenaed Erlinda Baylosis of Veterans Bank to show that Azada deposited
HSBC checks No. 339736 and 339737 amounting to P874,490.75 in his personal current account with
said bank and Pilologo Red, Jr. of HSBC to prove that said amount was returned by Azada to Hagedorn
one of the companies connected with Poblador.
The testimonies of these witnesses were objected to by the defense on the grounds of res inter
alios acta, immateriality, irrelevancy and confidentiality and then moved to strike off the testimonies
from the record of the case in violation of Republic Act No. 1405 the Secrecy of Bank Deposits.

ISSUE: Whether or not disclosure of bank deposits in cases where the money is the subject matter of
litigation violates RA 1405.

HELD: Private respondents' protestations that to allow the questioned testimonies to remain on record
would be in violation of the provisions of Republic Act No. 1405 on the secrecy of bank deposits, is
unfounded.
Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited
is the subject matter of the litigation. Inasmuch as Civil Case is aimed at recovering the amount
converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the
illegally acquired amount extends to whatever is concealed by being held or recorded in the name of
persons other than the one responsible for the illegal acquisition.
TRUTH IN LENDING ACT
BPI v. Spouses Norman and Angelina Yu & Tuanson Builders Corporation represented by Pres. Norman
Yu
G.R. No. 184122 January 20, 2010

FACTS: Spouses Yu, doing business as Tuanson Trading and Tuanson Builders Corporation (hereafter
Tuanson Builders) borrowed various sums totaling P 75 Million from Far East Bank and Trust Company
(FEBTC). For collateral, they executed real estate mortgages over several of their properties including
certain lands located in Legazpi City owned by Tuanson Trading.
Unable to pay their loans, the Spouses Yu and Tuanson Builders requested a loan restructuring ,
which the bank, now merged with Bank of the Philippines (BPI), granted. By this time, the Spouses Yu
loan balance stood at P 33, 400,000.00. The restructured loan used the same collaterals with the
exception of TCT 40247 that secured a loan of P1, 600.000.
Despite the restructuring, however, the Spouses Yu still had difficulties paying their loan. They
asked BPI to release some of the mortgaged lands since their total appraised
value far exceeded the amount of the remaining debt. When BPI ignored their request, Spouses Yu
withheld payments on their amortizations. Thus, BPI extra judicially foreclosed the mortgaged
properties in Legazpi City and in Pili, Camarines Sur.
Spouses Yu sought the annulment of the foreclosure sale by court action against BPI and the
winning bidder Magnacraft Development Corporation (hereafter Magnacraft).
In the course of the proceedings, however, Spouses Yu and Magnacraft entered into a compromise
agreement that affirmed the latter’s ownership of 3 out of the 10 parcels of land that were auctioned.
By virtue of this agreement, the court dismissed the complaint against Magnacraft, without prejudice to
the Yus filing a new one against BPI.
On October 2003, the Spouses Yu filed their new complaint before the RTC against BPI for recovery of
alleged excessive penalty charges, attorney’s fees, foreclosure expenses that the bank caused to be
incorporated in the price of the auctioned properties.
BPI essentially admitted the foreclosure of the mortgaged properties for P39, 055,254.95
corresponded only to Spouses Yu debt as of date of filing of the petition. The notice of the auction sale
said that the total was inclusive of interest, penalty charges, attorney’s fee and expenses of this
foreclosure.
BPI further admitted that its bid of P45,090,566.41 for all the auctioned properties. BPI also
admitted that Magnacraft submitted the highest and winning bid of P45,500,000.00. The sheriff turned
over this amount to BPI. According to BPI, it in turn remitted to the Clerk of Court the P409,433.59
difference between its bid price and that of Magnacrafts. Although the proceeds of the sale exceeded
the P39,055,254.95 stated in the notice of sale by P6,035,311.46, the bid amount increased because it
now included litigation expenses and attorney’s fees as well as interests and penalties as recomputed.
BPI admitted that it also pushed through with the second auction for the sale of a lot in Pili, Camarines
Sur that secured a remaining debt of P5,562,000. BPI made the lone bid of P1,701,934.09.
The Yus had three causes of action against BPI:
First, The bank imposed excessive penalty charges and interests: over P5 million in penalty
charges computed at 36% per annum compared to the 12% per annum that the Courtfixed in cases. In
addition, BPI collected a 14% yearly interest on the principal, bringing the combined penalty charges and
interest to 50% of the principal per annum.
Second, BPI also imposed a charge of P4,052,046.11 in attorney’s fees, the equivalent of 10% of
the principal, interest, and penalty charges.
Third, BPI did not provide documents to support its claim for foreclosure expenses of
P446,726.74 and cost of publication of P518,059.21.
As an alternative to their three causes of action, the Yus claimed that BPI was in estoppel to claim more
than the amount stated in its published notices. Consequently, it must turn over the excess bid of
P6,035,311.46.
RTC partially granted. It reduced the penalty charge of 36% per annum to 12% per annum until
the debt would have been fully paid but maintained the attorney’s fees as reasonable considering that
BPI already waived the amount that formed part of the attorney’s fee and reduced the rate of attorney’s
fee it collected from 25 % to 10% of the amount due. The RTC ruled that facts necessary to resolve the
issues on penalties and fees had been admitted by the parties thus dispensing with the need to receive
evidence. BPI appealed to CA which affirmed RTC’s decision.
ISSUE: Whether or not the reference to the penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement of the Truth in Lending Act.

HELD: Yes. Both the RTC and CA decisions cited BPIs alleged violation of the Truth in Lending Act and
the ruling of the Court in New Sampaguita Builders Construction, Inc. v. Philippine National Bank to
justify their deletion of the penalty charges. Section 4 of the Truth in Lending Act states that:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations prescribed by the Board, the following
information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection
with the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.

Penalty charge, which is liquidated damages resulting from a breach, falls under item (6) or
finance charge. A finance charge represents the amount to be paid by the debtor incident to the
extension of credit. The lender may provide for a penalty clause so long as the amount or rate of the
charge and the conditions under which it is to be paid are disclosed to the borrower before he enters
into the credit agreement.
In this case, although BPI failed to state the penalty charges in the disclosure statement, the
promissory note that the Yus signed, on the same date as the disclosure statement, contained a penalty
clause that said: I/We jointly and severally, promise to further pay a late payment charge on any
overdue amount herein at the rate of 3% per month. The promissory note is an acknowledgment of a
debt and commitment to repay it on the date and under the conditions that the parties agreed on. It is a
valid contract absent proof of acts which might have vitiated consent.
The RTC and CA relied on the ruling in New Sampaguita as authority that the non-disclosure of
the penalty charge renders its imposition illegal. But New Sampaguita is not attended by the same
circumstances. What New Sampaguita disallowed, because it was not mentioned either in the disclosure
statement or in the promissory note, was the unilateral increase in the rates of penalty charges that the
creditor imposed on the borrower. Here, however, it is not shown that BPI increased the rate of penalty
charge that it collected from the Yus.
The ruling that is more in point is that laid down in The Consolidated Bank and Trust Corporation
v. Court of Appeals, a case cited in New Sampaguita. The Consolidated Bank ruling declared valid the
penalty charges that were stipulated in the promissory notes. What the Court disallowed in that case
was the collection of a handling charge that the promissory notes did not contain.
The Court has affirmed that financial charges are amply disclosed if stated in the promissory
note in the case of Development Bank of the Philippines v. Arcilla, Jr. The Court there said, Under
Circular 158 of the Central Bank, the lender is required to include the information required by R.A. 3765
in the contract covering the credit transaction or any other document to be acknowledged and signed by
the borrower. In addition, the contract or document shall specify additional charges, if any, which will be
collected in case certain stipulations in the contract are not met by the debtor. In this case, the
promissory notes signed by the Yus contained data, including penalty charges, required by the Truth in
Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in Lending Act that
contravenes its goal.
Nonetheless, the courts have authority to reduce penalty charges when these are unreasonable
and iniquitous. Considering that BPI had already received over P2.7 million in interest and that it seeks
to impose the penalty charge of 3% per month or 36% per annum on the total amount due principal plus
interest, with interest not paid when due added to and becoming part of the principal and also bearing
interest at the same rate, the Court finds the ruling of the RTC in its original decision reasonable and fair.
Thus, the penalty charge of 12% per annum or 1% per month is imposed.
FINANCIAL REHABILITATION AND INSOLVENCY ACT
Majority Stockholders of Ruby Industrial Corp vs Lim
G.R. No. 165887 650 SCRA 461 June 6, 2011

FACTS: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing.
Reeling from severe liquidity problems beginning in 1980, RUBY filed on December 13, 1983a petition
for suspension of payments with the Securities and Exchange Commission (SEC) docketed as SEC Case
No. 2556.
On December 20, 1983, the SEC issued an order declaring RUBY under suspension of payments and
enjoining the disposition of its properties pending hearing of the petition, except insofar as necessary in
its ordinary operations, and making payments outside of the necessary or legitimate expenses of its
business.
On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM) for
RUBY, composed of representatives from Allied Leasing and Finance Corporation (ALFC), Philippine Bank
of Communications (PBCOM), China Banking Corporation (China Bank), Pilipinas Shell Petroleum
Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang.
The MANCOM was tasked to perform the following functions: (1) undertake the management of
RUBY; (2) take custody and control over all existing assets and liabilities of RUBY; (3) evaluate RUBYs
existing assets and liabilities, earnings and operations; (4) determine the best way to salvage and protect
the interest of its investors and creditors; and (5) study, review and evaluate the proposed rehabilitation
plan for RUBY.
Subsequently, two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by Yu Kim Giang, and the Alternative Plan of the
minority stockholders represented by Miguel Lim (Lim).
Both plans were endorsed by the SEC to the MANCOM for evaluation.
On April 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the Revised
BENHAR/RUBY Plan and the creation of a new management committee.
Instead, they endorsed the minority stockholders Alternative Plan. At the hearing of the petition for the
creation of a new management committee, three (3) members of the original management committee
(Lim, ALFC and Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it would
legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor
of RUBY;(2) it would put RUBYs assets beyond the reach of the unsecured creditors and the minority
stockholders; and (3) it was not approved by RUBYs stockholders in a meeting called for the purpose.
Notwithstanding the objections of 90% of RUBYs creditors and three members of the MANCOM,
the SEC Hearing Panel approved on September 18, 1991the Revised BENHAR/RUBY Plan and dissolved
the existing management committee.
It also created a new management committee and appointed BENHAR as one of its members. In
addition to the powers originally conferred to the management committee under Presidential Decree
(P.D.) No. 902-A, the new management committee was tasked to oversee the implementation by the
Board of Directors of the revised rehabilitation plan for RUBY.

ISSUE: Whether the minority’s pre-emptive rights were violated

HELD: Yes.
Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder of a
stock corporation to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings. The right may be restricted or denied under the articles of incorporation, and
subject to certain exceptions and limitations.The stockholder must be given a reasonable time within
which to exercise their preemptive rights. Upon the expiration of said period, any stockholder who has
not exercised such right will be deemed to have waived it.
The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist, either because the issue
comes within the exceptions in Section 39 or because it is denied or limited in the articles of
incorporation, an issue of shares may still be objectionable if the directors acted in breach of trust and
their primary purpose is to perpetuate or shift control of the corporation, or to “freeze out” the minority
interest.
In this case, the following relevant observations should have signaled greater circumspection on
the part of the SEC — upon the third and last remand to it pursuant to our January 20, 1998 decision —
to demand transparency and accountability from the majority stockholders, in view of the illegal
assignments and objectionable features of the Revised BENHAR/RUBY Plan, as found by the CA and as
affirmed by this Court:
There can be no gainsaying the well-established rule in corporate practice and procedure that
the will of the majority shall govern in all matters within the limits of the act of incorporation and
lawfully enacted by-laws not proscribed by law.
It is, however, equally true that other stockholders are afforded the right to intervene especially
during critical periods in the life of a corporation like reorganization, or in this case, suspension of
payments, more so, when the majority seek to impose their will and through fraudulent means, attempt
to siphon off Rubys valuable assets to the great prejudice of Ruby itself, as well as the minority
stockholders and the unsecured creditors.
Certainly, the minority stockholders and the unsecured creditors are given some measure of
protection by the law from the abuses and impositions of the majority, more so in this case, considering
the give-away signs of private respondents perfidy strewn all over the factual landscape.
Indeed, equity cannot deprive the minority of a remedy against the abuses of the majority, and
the present action has been instituted precisely for the purpose of protecting the true and legitimate
interests of Ruby against the Majority Stockholders. On this score, the Supreme Court, has ruled that:
“Generally speaking, the voice of the majority of the stockholders is the law of the
corporation, but there are exceptions to this rule. There must necessarily be a limit upon the
power of the majority. Without such a limit the will of the majority will be absolute and
irresistible and might easily degenerate into absolute tyranny.x x x”
Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for
the SEC to order RUBY to commence liquidation proceedings, which is allowed under Sec. 4-9 of the
Rules on Corporate Recovery.
Under the circumstances, liquidation was the only hope of the minority stockholders for
effecting an orderly and equitable settlement of RUBYs obligations, and compelling the majority
stockholders to account for all funds, properties and documents in their possession, and make full
disclosure on the nullified credit assignments.
Oblivious to these pending incidents so crucial to the protection of the interest of the majority
of creditors and minority shareholders, the SEC simply stated that in the interim, RUBYs corporate term
was validly extended, as if such extension would provide the solution to RUBYs myriad problems.
Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a
stockholders meeting called for the purpose. The actual percentage of shareholdings in RUBY as of
September 3, 1996 — when the majority stockholders allegedly ratified the board resolution approving
the extension of RUBY’s corporate life to another 25 years was seriously disputed by the minority
stockholders, and the SC find the evidence of compliance with the notice and quorum requirements
submitted by the majority stockholders insufficient and doubtful. Consequently, the SEC had no basis for
its ruling denying the motion of the minority stockholders to declare as without force and effect the
extension of RUBY’s corporate existence.
TRADEMARK
Societe Des Produits Nestle, S.A. and Nestle Philippines Inc. vs CA and CFC Corporation
G.R. No. 112012 356 SCRA 207 April 4, 2001

FACTS: On January 18, 1984, private respondent CFC Corporation filed with the Bureau of
Patents, Trademarks and Technology Transfer (BPTTT) an application for the registration of
the trademark "FLAVOR MASTER" for instant coffee.
Petitioner Societe Des Produits Nestle, S.A., a Swiss company registered under Swiss
laws and domiciled in Switzerland, filed an unverified Notice of Opposition, claiming that the
trademark of private respondent’s product is "confusingly similar to its trademarks for coffee
and coffee extracts, to wit: MASTER ROAST and MASTER BLEND."
A verified Notice of Opposition was filed by Nestle Philippines, Inc., a Philippine
corporation and a licensee of Societe Des Produits Nestle S.A., against CFC’s application for
registration of the trademark FLAVOR MASTER.
Nestle claimed that the use, if any, by CFC of the trademark FLAVOR MASTER and its
registration would likely cause confusion in the trade; or deceive purchasers and would
falsely suggest to the purchasing public a connection in the business of Nestle, as the
dominant word present in the three (3) trademarks is "MASTER"; or that the goods of CFC
might be mistaken as having originated from the latter.
In answer to the two oppositions, CFC argued that its trademark, FLAVOR MASTER,
is not confusingly similar with the former’s trademarks, MASTER ROAST and MASTER
BLEND, alleging that, "except for the word MASTER (which cannot be exclusively
appropriated by any person for being a descriptive or generic name), the other words that
are used respectively with said word in the three trademarks are very different from each
other – in meaning, spelling, pronunciation, and sound".
The BPTTT denied CFC’s application for registration.
The Court of Appeals reversed the BPTTT’s decision and ordered the Director of
Patents to approve CFC’s application. Hence this petition before the SC.

ISSUE: Whether or not the CA erred in reversing the decision of the BPTTT denying CFC’s
petition for registration.

HELD: Yes.
Colorable imitation denotes such a close or ingenious imitation as to be calculated to
deceive ordinary persons, or such a resemblance to the original as to deceive an ordinary purchaser
giving such attention as a purchaser usually gives, as to cause him to purchase the one supposing it to be
the other. In determining if colorable imitation exists, jurisprudence has developed two kinds of tests -
the Dominancy Test and the Holistic Test.
The test of dominancy focuses on the similarity of the prevalent features of the competing
trademarks which might cause confusion or deception and thus constitute infringement. On the other
side of the spectrum, the holistic test mandates that the entirety of the marks in question must be
considered in determining confusing similarity.
The Court of Appeals erred in applying the totality rule as defined in the cases of Bristol Myers v.
Director of Patents; Mead Johnson & Co. v. NVJ Van Dorf Ltd.; and American Cyanamid Co. v. Director of
Patents. The totality rule states that "the test is not simply to take their words and compare the spelling
and pronunciation of said words. In determining whether two trademarks are confusingly similar, the
two marks in their entirety as they appear in the respective labels must be considered in relation to the
goods to which they are attached; the discerning eye of the observer must focus not only on the
predominant words but also on the other features appearing on both labels."
In the case at bar, other than the fact that both Nestle’s and CFC’s products are inexpensive and
common household items, the similarity ends there. What is being questioned here is the use by CFC of
the trademark MASTER. In view of the difficulty of applying jurisprudential precedents to trademark
cases due to the peculiarity of each case, judicial fora should not readily apply a certain test or standard
just because of seeming similarities. As this Court has pointed above, there could be more telling
differences than similarities as to make a jurisprudential precedent inapplicable.
The Court of Appeals held that the test to be applied should be the totality or holistic test
reasoning, since what is of paramount consideration is the ordinary purchaser who is, in general,
undiscerningly rash in buying the more common and less expensive household products like coffee, and
is therefore less inclined to closely examine specific details of similarities and dissimilarities between
competing products.
 This Court cannot agree with the above reasoning. If the ordinary purchaser is "undiscerningly
rash" in buying such common and inexpensive household products as instant coffee, and would
therefore be "less inclined to closely examine specific details of similarities and dissimilarities" between
the two competing products, then it would be less likely for the ordinary purchaser to notice that CFC’s
trademark FLAVOR MASTER carries the colors orange and mocha while that of Nestle’s uses red and
brown. The application of the totality or holistic test is improper since the ordinary purchaser would not
be inclined to notice the specific features, similarities or dissimilarities, considering that the product is
an inexpensive and common household item.
Moreover, the totality or holistic test is contrary to the elementary postulate of the law on
trademarks and unfair competition that confusing similarity is to be determined on the basis of visual,
aural, connotative comparisons and overall impressions engendered by the marks in controversy as they
are encountered in the realities of the marketplace. The totality or holistic test only relies on visual
comparison between two trademarks whereas the dominancy test relies not only on the visual but also
on the aural and connotative comparisons and overall impressions between the two trademarks.
In addition, the word "MASTER" is neither a generic nor a descriptive term. As such, said term
cannot be invalidated as a trademark and, therefore, may be legally protected.
Generic terms are those which constitute "the common descriptive name of an article or
substance," or comprise the "genus of which the particular product is a species," or are "commonly used
as the name or description of a kind of goods," or "imply reference to every member of a genus and the
exclusion of individuating characters," or "refer to the basic nature of the wares or services provided
rather than to the more idiosyncratic characteristics of a particular product," and are not legally
protectable.
On the other hand, a term is descriptive and therefore invalid as a trademark if, as understood
in its normal and natural sense, it "forthwith conveys the characteristics, functions, qualities or
ingredients of a product to one who has never seen it and does not know what it is," or "if it forthwith
conveys an immediate idea of the ingredients, qualities or characteristics of the goods," or if it clearly
denotes what goods or services are provided in such a way that the consumer does not have to exercise
powers of perception or imagination.
Rather, the term "MASTER" is a suggestive term brought about by the advertising scheme of
Nestle. Suggestive terms are those which, in the phraseology of one court, require "imagination,
thought and perception to reach a conclusion as to the nature of the goods." Such terms, "which subtly
connote something about the product," are eligible for protection in the absence of secondary meaning.
While suggestive marks are capable of shedding "some light" upon certain characteristics of the goods
or services in dispute, they nevertheless involve "an element of incongruity," "figurativeness," or "
imaginative effort on the part of the observer."
The term "MASTER", therefore, has acquired a certain connotation to mean the coffee products
MASTER ROAST and MASTER BLEND produced by Nestle. As such, the use by CFC of the term "MASTER"
in the trademark for its coffee product FLAVOR MASTER is likely to cause confusion or mistake or even
to deceive the ordinary purchasers.
COPYRIGHT
Filipino Society of Composers, Authors and Publishers Inc vs Benjamin Tan
G.R. No. L-36402 148 SCRA 461 March 16, 1987

FACTS: Plaintiff-appellant, the owner of certain musical compositions among which are the songs
entitled: "Dahil Sa Iyo", "Sapagkat Ikaw Ay Akin," "Sapagkat Kami Ay Tao Lamang" and "The Nearness Of
You", filed a complaint with the lower court for infringement of copyright against defendant-appelleefor
allowing the playing in defendant-appellee's restaurant of said songs copyrighted in thename of the
former.
Defendant-appellee, countered that the complaint states no cause of action. While not denying
the playing of said copyrighted compositions in his establishment, appellee maintains that the mere
singing and playing of songs and popular tunes even if they are copyrighted do not constitute
aninfringement under the provisions of Section 3 of the Copyright Law.

ISSUE: Whether or not the playing and signing of musical compositions which have been copyrighted
under the provisions of the Copyright Law (Act 3134) inside the establishment of the defendant-appellee
constitute a public performance for profit within the meaning and contemplation of the Copyright Law
of the Philippines; and assuming that there were indeed public performances for profit, whether or not
appellee can be held liable therefor.

HELD: NO.
It has been held that "The playing of music in dine and dance establishment which was paid for
by the public in purchases of food and drink constituted "performance for profit "within a Copyright
Law." Thus, it has been explained that while it is possible in such establishments for the patrons to
purchase their food and drinks and at the same time dance to the music of the orchestra, the music is
furnished and used by the orchestra for the purpose of inducing the public to patronize the
establishment and pay for the entertainment in the purchase of food and drinks. The defendant
conducts his place of business for profit, and it is public; and the music is performed for profit.
Nevertheless, appellee cannot be said to have infringed upon the Copyright Law. Appellee's
allegation that the composers of the contested musical compositions waived their right in favor of the
general public when they allowed their intellectual creations to become property of the public domain
before applying for the corresponding copyrights for the same is correct. The Supreme Court has ruled
that "Paragraph 33 of Patent Office Administrative Order No. 3 (as amended, dated September 18,
1947) entitled 'Rules of Practice in the Philippines Patent Office relating to the Registration of Copyright
Claims' promulgated pursuant to Republic Act165, provides among other things that an intellectual
creation should be copyrighted thirty (30)days after its publication, if made in Manila, or within the (60)
days if made elsewhere, failure of which renders such creation public property." Indeed, if the general
public has made use of the object sought to be copyrighted for thirty (30) days prior to the copyright
application the law deems the object to have been donated to the public domain and the same can no
longer be copyrighted. Under the circumstances, it is clear that the musical compositions in question
had long become public property, and are therefore beyond the protection of the Copyright Law.
THE CORPORATION CODE OF THE PHILIPPINES
Dante V. Liban, Reynaldo M. Bernardo and Salvador M. Viari vs Richard Gordon
G.R. No. 175352 639 SCRA 709 July 15, 2009

FACTS: Petitioners filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His
Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross
Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors.
During respondent’s incumbency as a member of the Senate of the Philippines, he was elected
Chairman of the PNRC during the February 23, 2006 meeting of the PNRC Board of Governors.
Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors, respondent has
ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which
reads: “No Senator or Member of the House of Representatives may hold any other office or
employment in the Government, or any subdivision, agency, or instrumentality thereof, including
government-owned or controlled corporations or their subsidiaries, during his term without forfeiting
his seat. Neither shall he be appointed to any office which may have been created or the emoluments
thereof increased during the term for which he was elected.”

ISSUE: Whether or not the office of the PNRC Chairman is a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of
the Constitution.

RULING: NO.
PNRC is a Private Organization Performing Public Functions. The Republic of the Philippines,
adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the purpose
contemplated in the Geneva Convention of 27 July 1929. The PNRC must not appear to be an instrument
or agency that implements government policy; otherwise, it cannot merit the trust of all and cannot
effectively carry out its mission as a National Red Cross Society. It is imperative that the PNRC must be
autonomous, neutral, and independent in relation to the State. To ensure and maintain its autonomy,
neutrality, and independence, the PNRC cannot be owned or controlled by the government. Indeed, the
Philippine government does not own the PNRC. The PNRC does not have government assets and does
not receive any appropriation from the Philippine Congress. The PNRC is financed primarily by
contributions from private individuals and private entities obtained through solicitation campaigns
organized by its Board of Governors. The government does not control the PNRC. Under the PNRC
Charter, as amended, only six of the thirty members of the PNRC Board of Governors are appointed by
the President of the Philippines.
The PNRC is not government-owned but privately owned. The vast majority of the thousands of
PNRC members are private individuals, including students. Under the PNRC Charter, those who
contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for one
year. Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization.
Hence, the office of the PNRC Chairman is not a government office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC as a private
corporation, the PNRC should incorporate under the Corporation Code and register with the Securities
and Exchange Commission if it wants to be a private corporation.
Marissa Unchuan vs Antonio J.P Lozada, Anita Lozada and Register of Deeds of Cebu City
GR No. 172671 585 SCRA 421 April 16, 2009
Place of Incorporation Test

FACTS:
Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered co-owners of parcels
of lots covered by TCT Nos. 53258 and 53257 in Cebu City and were both based in the US. They sold the
lots to Antonio J.P. Lozada under a Deed of Sale.
Armed with an SPA from Anita, Peregrina went to the house of their brother, Dr. Antonio
Lozada, in Long Beach, California. Dr. Lozada agreed to advance the purchase price of US$367,000 or
₱10,000,000 for Antonio, his nephew. The Deed of Sale was later notarized and authenticated at the
Philippine Consul’s Office and was then forwarded, along with the SPA and owners’ copies of the titles
to Antonio in the Philippines by Dr. Lozada.
Upon receipt of said documents, Antonio recorded the sale with the Register of Deeds of Cebu.
Accordingly, TCT Nos. 128322 and 128323 were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the annotation of an
adverse claim on the lots. She claimed that Anita donated an undivided share in the lots to her under an
unregistered Deed of Donation in 1987.
Antonio and Anita filed a case against Marissa for Quieting of Title; Marissa, on the other hand,
filed a petition to declare the Deed of Sale void and to cancel TCT Nos. 128322 and 128323. Cases were
consolidated after motion.
Respondents presented the following evidences:
○ Notarized and duly authenticated sworn statement, and a videotape where Anita
denied having donated land in favor of Marissa.
○ Testimony of Dr. Lozada that he agreed to advance payment for Antonio in preparation
for their plan to form a corporation, Damasa Corp., where he and Antonio have 40% and
60% stake, respectively
○ Testimony of Lourdes G. Vicencio who has been renting the ground floor of Anita’s
house since 1983, and tendering rentals to Antonio.
On the side of the petitioner, Marissa claims that she accompanied Anita to the office of Atty.
Cresencio Tomakin for the signing of the Deed of Donation. She allegedly kept it in a safety deposit box
but continued to funnel monthly rentals to Peregrina’s account. She also presented medical records of
Peregrina signed by Dr. Cecilia Fuentes. That it was physically impossible for Peregrina to have signed
the Deed of Sale on March 11, 1994, when she was reported to be suffering from edema. Peregrina died
on April 4, 1994.
Originally, the RTC ruled in favor for the respondents and declared that Deed of Donation was
declared NULL AND VOID. This was reversed by the same trial court, upon motion for reconsideration by
petitioner, declaring the Deed of Sale VOID and the Deed of Donation was VALID as it gave credence to
the medical records of Peregrina. However, upon motion for reconsideration by the respondents, the
original ruling of RTC but deleted the award of damages in favor of Antonio Lozada.
The CA affirmed RTC but restored the award of damages.
Petitioner claim that her right to due process was violated when CA did not rule on the validity
of the sale between the sisters Lozada and their nephew, Antonio, since it was anomalous that Dr.
Lozada, an American citizen, would pay for the lots; that the conflicting factual findings financial capacity
of Dr. Lozada to advance payment and Peregrina’s medical condition should be revied; that the CA erred
in nullifying the donation in her favor based on laches; and that she challenges the admissibility of the
videotaped statement of Anita who was not presented as a witness.
Respondent’s, on the other hand, raised that the petitioner failed to furnish the Register of
Deeds of Cebu City with a copy of the petition and proof of service in violation of Sections 3 and 4 of
Rule 45 of the Rules; that the Peregrina’s unauthenticated medical records were merely falsified to
make it appear that she was confined in the hospital on the day of the sale; and, lastly, they question
the credibility of Dr. Fuentes who was neither presented in court as an expert witness nor professionally
involved in Peregrina’s medical care.

ISSUE:
1) Whether or not CA erred in upholding the Decision of the RTC which declared Antonio J.P. Lozada the
absolute owner of the questioned properties.
2) Wether or not the Deed of Donation was valid

HELD:
1) No
In the assailed Decision, the CA reiterates the rule that a notarized and authenticated deed of
sale enjoys the presumption of regularity, and is admissible without further proof of due execution.
As regards to due process, while it is a part of the right of appellant to urge that the decision
should directly meet the issues presented for resolution, mere failure by the appellate court to specify in
its decision all contentious issues raised by the appellant and the reasons for refusing to believe
appellant’s contentions is not sufficient to hold the appellate court’s decision contrary to the
requirements of the law and the Constitution, so long as the decision of the CA contains the necessary
findings of facts to warrant its conclusions. There is a legal presumption that official duty has been
regularly performed, and all matters within an issue in a case were laid down before the court and were
passed upon by it.
As to violation of public policy, even if Dr. Lozada advanced the money for the payment of
Antonio’s share, at no point were the lots registered in Dr. Lozada’s name. Nor was it contemplated that
the lots be under his control for they are actually to be included as capital of Damasa Corporation.
According to their agreement, Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said
corporation, respectively. This is well within the Constitution.

2) No
The law requires that a deed of donation on an immovable property be made in a public
document, specifying therein the property donated and the value of the charges which the donee must
satisfy. (Art. 749)
Here, the Deed of Donation was not properly notarized; the date as to when the Notary Public
who signed the document appears to have been superimposed as confirmed by petitioner’s nephew
Richard Unchuan who testified that he saw petitioner’s husband write 7 over 1983 to make it appear
that the deed was notarized in 1987.
Additionally, Clerk of Court testified that the Deed of Donation purportedly identified in Book
No. 4, Document No. 48, and Page No. 35 Series of 1987 was not reported and filed with said office.
The rules require a party producing a document as genuine which has been altered and appears
to have been altered after its execution, in a part material to the question in dispute, to account for the
alteration.
He may show that the alteration was made by another, without his concurrence, or was made
with the consent of the parties affected by it, or was otherwise properly or innocently made, or that the
alteration did not change the meaning or language of the instrument. And if he fails to do that, the
document shall, as in this case, not be admissible in evidence
Also, the lands described in the Deed of Donation are covered by TCT Nos. 73645 and 73646.
However, these TCTs have already been cancelled on dated April 8, 1981. It is further puzzling because
on August 10, 1987, or six months after Anita supposedly donated her undivided share in the lots to
petitioner, the Unchuan Development Corporation, which was represented by petitioner’s husband,
filed suit to compel the Lozada sisters to surrender their titles by virtue of a sale.
NEGOTIABLE INSTRUMENTS LAW
Security Bank and Trust Company vs Rizal Commercial Banking Institution
G.R. No. 170984 577 SCRA 407 January 30, 2009

FACTS: On January 9, 1981, Security Bank and Trust Company (SBTC) issued a manager’s check for P 8M,
payable to "CASH," as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC).
The check was deposited by Continental Manufacturing Corporation (CMC) in its Current
Account with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8M check
and allowed CMC to withdraw.
On January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC claiming that the P 8M check
was released to a 3rd party by mistake. SBTC dishonored and returned the manager’s check to RCBC.
On February 13, 1981, RCBC filed a complaint for damages against SBTC with CFI then
transferred to RTC. Following the rules of the Philippine Clearing House, RCBC and SBTC stopped
returning the checks to each other. By way of a temporary arrangement pending resolution of the case,
the P 8 M check was equally divided between RCBC and SBTC.
On May 9, 2000, RTC in favor of RCBC.
CA affirmed with modification RTC decision by adding interest.

ISSUE: Whether or not SBTC should be held liable for its manager's check.

HELD: YES. SBTC should be held liable for its manager’s check.
At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary
check but a manager’s check.
A manager’s check is one drawn by a bank’s manager upon the bank itself. It has the same
footing as a certified check which is deemed to have been accepted by the bank that certified it. As the
bank’s own check, a manager’s check becomes the primary obligation of the bank and is accepted in
advance by the act of its issuance
RCBC, in immediately crediting the amount of P8 million to CMC’s account, relied on the
integrity and honor of the check as it is regarded in commercial transactions
In the July 9, 1980 Memorandum, banks were given the discretion to allow immediate drawings
on uncollected deposits of manager’s checks, among others. It is important that banks should guard
against injury attributable to negligence or bad faith on its part. The banking business is impressed with
public interest, the trust and confidence of the public in it is of paramount importance. Highest degree
of diligence is expected, and high standards of integrity and performance are required of it.

Ofelia Marigomen vs People of the Philippines

G.R. No. 153451 459 SCRA 169 May 26, 2005.

Facts: Caltex Philippines, Inc. sold gasoline and oil products to Industrial Sugar Resources, Inc.
(INSURECO) on credit. Ofelia Marigomen was finance officer of INSURECO while John Dalao was the
assistant to the general manager. They were authorized to draw and sign checks for INSURECO which
paid for its purchases via postdated checks.
On presenting the postdated checks for payment, three were dishonored by the bank because
they were "drawn against insufficient funds." Another was also dishonored because the account was
closed. Caltex demanded for replacement checks or cash, but received no reply.
Caltex filed criminal complaints against Marigomen (D) and Dalao (D) for violation of BP 22.
Marigomen admitted signing the postdated checks along with Dalao, but said that she already resigned
from INSURECO and had no participation whatsoever in the purchase of Caltex (P) oil products by
INSURECO. Marigomen also did not know that Caltex sent demands for payment to INSURECO because
she was no longer employed therein. Lastly, Marigomen insisted that she was not aware that
INSURECO's account with the bank had insufficient funds at the time she issued the checks.
The trial court found Marigomen and Dalao guilty of violating BP 22. On appeal, the decision was
affirmed.

Issues: Whether or not demand to employer company necessarily a demand on the check signatory for
purposes of prosecuting violation of BP 22
Ruling: No. The ruling of the Court in Lao vs. Court of Appeals is applicable in this case. In acquitting the
petitioner therein, the Court explained that under BP 22, the state actually offers the violator "a
compromise by allowing him to perform some act which operates to preempt the criminal action, and if
he opts to perform it the action is abated." In this light, the full payment of the amount appearing in the
check within five banking days from notice of dishonor is a "complete defense." The absence of a notice
of dishonor necessarily deprives an accused an opportunity to avoid criminal prosecution. Accordingly,
procedural due process clearly requires that a notice of dishonor be actually served on petitioner. And
petitioner has a right to demand and fairness require that the notice of dishonor be actually sent to and
received by her to afford her the opportunity to avert prosecution under BP 22.
Petitioner counters that the lack of a written notice of dishonor is fatal. The Court agrees.
Although Section 2 of BP 22 does not state that the notice of dishonor be in writing, taken in conjunction
with Section 3 of BP 22—i.e., that where there are no sufficient funds in or credit with such drawee
bank, such fact shall always be explicitly stated in the notice of dishonor or refusal—a mere oral notice
or demand to pay would appear to be insufficient for conviction under the law. The Court is convinced
that both the spirit and letter of the Bouncing Checks Law would require for the act to be punished
thereunder not only that the accused issued a check that was dishonored, but that likewise the accused
has actually been notified in writing of the fact of dishonor. The consistent rule is that penal statutes
have to be construed strictly against the State and liberally in favor of the accused.
Thus, if the drawer or maker is an officer of a corporation, the notice of dishonor to the said
corporation is not notice to the employee or officer who drew or issued the check for and in its behalf.
The Court explained in Lao vs. Court of Appeals that the postulate of the Court of Appeals that "Demand
on the Corporation constitutes demand on the accused," is erroneous. Premiere has no obligation to
forward the notice addressed to it to the employee concerned, especially because the corporation itself
incurs no criminal liability under BP 22 for the issuance of a bouncing check. Responsibility under BP 22
is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary.
Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it
is the accused, as an officer of the corporation, who is the latter's agent for purposes of receiving
notices and other documents, and not the other way around. It is but axiomatic that notice to the
corporation, which has a personality distinct and separate from the petitioner, does not constitute
notice to the latter.
TRANSPORTATION LAWS
Alfredo Barba and Renato Gonzales vs CA, NLRC and Philippine Airlines Inc.
G.R. NO. 169731 519 SCRA 448 March 28, 2007

Philippine Charter Insurance Corp vs Unknown Owner of the Vessel M/V “National Honor”
G.R. No. 161833 463 SCRA 557 July 8, 2005

FACTS: Petitioner Philippine Charter Insurance Corporation (PCIC) is the insurer of a shipment on board
the vessel M/V “National Honor,” represented in the Philippines by its agent, National Shipping
Corporation of the Philippines (NSCP).
The M/V “National Honor” arrived at the Manila International Container Terminal (MICT). The
International Container Terminal Services, Incorporated (ICTSI) was furnished with a copy of the crate
cargo list and bill of lading, and it knew the contents of the crate. The following day, the vessel started
discharging its cargoes using its winch crane. The crane was operated by Olegario Balsa, a winchman
from the ICTSI, exclusive arrastre operator of MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of
the ICTSI, conducted an inspection of the cargo. They inspected the hatches, checked the cargo and
found it in apparent good condition. Claudio Cansino, the stevedore of the ICTSI, placed two sling cables
on each end of Crate No. 1. No sling cable was fastened on the mid-portion of the crate. In Dauz’s
experience, this was a normal procedure. As the crate was being hoisted from the vessel’s hatch, the
mid-portion of the wooden flooring suddenly snapped in the air, about five feet high from the vessel’s
twin deck, sending all its contents crashing down hard, resulting in extensive damage to the shipment.
PCIC paid the damage, and as subrogee, filed a case against M/V National Honor, NSCP and
ICTSI. Both RTC and CA dismissed the complaint.

ISSUE: Whether or not the presumption of negligence is applicable in the instant case.

HELD: No.
The SC agrees with the contention of the petitioner that common carriers, from the nature of
their business and for reasons of public policy, are mandated to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case. he Court has defined extraordinary diligence in the vigilance over the goods
as follows:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction of
the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service
with the greatest skill and foresight and “to use all reasonable means to ascertain the nature and
characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.”
The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for
their acceptance, by the person entitled to receive them.] >When the goods shipped are either lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. To overcome the
presumption of negligence in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence.
However, under Article 1734 of the New Civil Code, the presumption of negligence does not
apply to any of the following causes:
1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts the
common carrier for the loss or damage to the cargo is a closed list. To exculpate itself from liability for
the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove any of
the aforecited causes claimed by it by a preponderance of evidence. If the carrier succeeds, the burden
of evidence is shifted to the shipper to prove that the carrier is negligent.
“Defect” is the want or absence of something necessary for completeness or perfection; a lack
or absence of something essential to completeness; a deficiency in something essential to the proper
use for the purpose for which a thing is to be used. On the other hand, inferior means of poor quality,
mediocre, or second rate. A thing may be of inferior quality but not necessarily defective. In other
words, “defectiveness” is not synonymous with “inferiority.”
In the present case, the trial court declared that based on the record, the loss of the shipment
was caused by the negligence of the petitioner as the shipper:
The same may be said with respect to defendant ICTSI. The breakage and collapse of Crate No. 1
and the total destruction of its contents were not imputable to any fault or negligence on the part of
said defendant in handling the unloading of the cargoes from the carrying vessel, but was due solely to
the inherent defect and weakness of the materials used in the fabrication of said crate.
The crate should have three solid and strong wooden batten placed side by side underneath or
on the flooring of the crate to support the weight of its contents.

INSURANCE CODE

Country Bankers Insurance Corporation vs Lianga Bay and Community Multi-Purpose Cooperative
G.R. No. 136914 January 25, 2002

FACTS: The petitioner is a domestic corporation principally engaged in the insurance business wherein it
undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown
or contingent event including fire while the respondent is a duly registered cooperative judicially
declared insolvent and represented by the elected assignee, Cornelio Jamero.
Sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance,
Fire Insurance Policy No. F-1397. Under Fire Insurance, the petitioner insured the respondent’s stocks-
in-trade against fire loss, damage or liability during the period starting from June 20, 1989 to June 20,
1990 for the sum of Two Hundred Thousand Pesos.
On July 1, 1989, the respondent’s building located at Surigao del Sur was gutted by fire and
reduced to ashes, resulting in the total loss of the respondent’s stocks-in-trade, pieces of furnitures and
fixtures, equipments and records. Due to the loss, the respondent filed an insurance claim with the
petitioner under its Fire Insurance.
The petitioner, however, denied the insurance claim on the ground that, based on the
submitted documents, the building was set on fire by two NPA rebels who wanted to obtain canned
goods, rice and medicines as provisions for their comrades in the forest, and that such loss was an
excepted risk under the policy conditions of Fire Insurance Policy which provides: This insurance does
not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any
of the following occurrences, namely:
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped
power.
Respondent then instituted in the trial court the complaint for recovery of "loss, damage or
liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier
cited to deny the insurance claim.
The trial court rendered its Decision in favor of the respondent declaring that the defendant-
Country Bankers was liable to plaintiff-Insolvent Cooperative and to fully pay the insurance claim for the
loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance in its full face value of
P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully
paid.
Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in its
entirety. Hence, this petition.

ISSUE: Whether Country Bankers in liable

HELD: Yes Country bankers is liable
The petitioner does not dispute that the respondent’s stocks-in-trade were insured against fire
loss, damage or liability under Fire Insurance Policy and that the respondent lost its stocks-in-trade in a
fire that occurred within the duration of said fire insurance. The petitioner, however, posits the view
that the cause of the loss was an excepted risk under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or hazards,
loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that
risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or
limitation in the policy has the burden of proving that the loss comes within the purview of the
exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the
burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for
which it is not liable, or from a cause which limits its liability. Stated else wise, since the petitioner in this
case is defending on the ground of non-coverage and relying upon an exemption or exception clause in
the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based,
by a preponderance of evidence. But petitioner failed to do so.
The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo and on
the Spot Report of Pfc. Arturo V. Juarbal specifically that: “investigation revealed by Jose Lomocso that
those armed men wanted to get can goods and rice for their consumption in the forest PD investigation
further disclosed that the perpetrator are members of the NPA”. Such testimony is considered hearsay
and may not be received as proof of the truth of what he has learned. Such is the hearsay rule which
applies not only to oral testimony or statements but also to written evidence as well. The petitioner’s
evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under
Fire Insurance Policy.
A witness can testify only to those facts which he knows of his personal knowledge, which
means those facts which are derived from his perception. Consequently, a witness may not testify as to
what he merely learned from others either because he was told or read or heard the same. Such
testimony is considered hearsay and may not be received as proof of the truth of what he has learned.
Such is the hearsay rule which applies not only to oral testimony or statements but also to written
evidence as well.
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in
evidence, for being hearsay, inasmuch as they did not take the witness stand and could not therefore be
cross-examined.
There are exceptions to the hearsay rule, among which are entries in official records. To be
admissible in evidence, however, three (3) requisites must concur, to wit:
(a) that the entry was made by a public officer, or by another person specially enjoined by law to
do so;
(b) that it was made by the public officer in the performance of his duties, or by such other
person in the performance of a duty specially enjoined by law; and
(c) that the public officer or other person had sufficient knowledge of the facts by him stated,
which must have been acquired by him personally or through official information.

The third requisite was not met in this case since no investigation, independent of the
statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the
petitioner itself pointed out, citing the testimony of Pfc. Arturo Juarbal, the latter’s Spot Report "was
based on the personal knowledge of the caretaker Jose Lomocso who witnessed every single incident
surrounding the facts and circumstances of the case."
Nonetheless, the SC do not sustain the trial court’s imposition of twelve percent (12%) interest
on the insurance claim as well as the monetary award for actual and exemplary damages, litigation
expenses and attorney’s fees for lack of legal and valid basis. The insurance claim in this case is evidently
not a forbearance of money, goods or credit, and thus the interest rate should be as it is hereby fixed at
six percent (6%) computed from the date of filing of the complaint.

Philippine First Insurance v. Wallem First Shipping

G.R. No. 165647 582 SCRA 457 March 26, 2009.

FACTS: Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore Master a shipment
consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min. (shipment) to be delivered at the
port of Manila for L.G. Atkimson Import-Export, Inc. (consignee). The shipper of the shipment is
Shanghai Fareast Ship Business Company. Both are foreign firms doing business in the Philippines, thru
its local ship agent, respondent Wallem Philippines Shipping, Inc. (Wallem). It was disclosed during the
discharge of the shipment from the carrier that 2,426 poly bags were in bad order and condition.
The consignee filed a formal claim with Wallem for the value of the damaged shipment. The
former filed a formal claim with petitioner for the damage and losses sustained by the shipment.
Consequently, petitioner paid the consignee the sum of P397, 879.69 and the latter signed a
subrogation receipt. In this regard, petitioner sent a demand letter to Wallem for the recovery of the
amount paid by petitioner to the consignee to which Wallem did not respond.
Consequently, petitioner instituted an action before the RTC for damages against respondents
representing the actual damages suffered by petitioner plus legal interest thereon.

ISSUE: Whether or not as a common carrier, the carrier’s duties extend to the obligation to safely
discharge the cargo from the vessel;
HELD: YES.
Common 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. Subject to
certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible
for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common
carrier 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 consignee, or to the person who has a right to receive them.
The responsibility of the carrier shall commence from the time when the goods are loaded on
board the vessel and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before loading and after
discharging from the vessel, howsoever such loss or damage arises.
On the other hand, the functions of an arrastre operator involve the handling of cargo deposited
on the wharf or between the establishment of the consignee or shipper and the ship's tackle. Being the
custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care of the
goods and to turn them over to the party entitled to their possession.
Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or
employees should observe the standards and measures necessary to prevent losses and damage to
shipments under its custody.
The records show that the damage to the bags happened before and after their discharge and
that it was caused by the stevedores of the arrastre operator who were then under the supervision of
Wallem.
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case, the damage or losses were incurred during the
discharge of the shipment while under the supervision of the carrier. Consequently, the carrier is liable
for the damage or losses caused to the shipment.