commercial digests - acbo2002

C O M M E R C I A L L A W D I G E S T S A T E N E O C E N T R A L B A R O P E R A T I O N S 2 0 0 2

CORPORATION LAW

2001

TCL Sales Corporation v. CA & Ting Ping Lay [349 SCRA 35 (Jan.5, 2001)]Jurisdiction of the SEC Rights of a Shareholder Duty of Corporate Secretary to enter transfer of Shares in Corporate Books

Facts: Ting Ping Lay, not one of the original subscribers of the shares of stock of TCL Sales Corporation, acquired his shares by purchasing those of some of the original subscribers. In order to protect his shareholdings with TCL, Lay requested Anna Teng, TCL Corporate Secretary to enter the transfer of shares of stock for proper recording of his acquisitions in the Stock & Transfer Book of TCL. He too demanded issuance of new certificates of stock in his favor.

TCL, however, even after repeated demands, refused. Lay filed a case with the SEC for mandamus against TCL and Teng. This was in turn granted by the SEC denying a later MR as well. The CA dismissed TCL’s petition as well for being filed out of time.

Issues: (1) WON SEC has jurisdiction over the petition for mandamus filed by Lay.(2) WON the alleged transfer of shares in favor of Lay are valid and can be

ordered recorded.

Held: Denied and CA decision affirmed. Even if Lay were not a Share Holder, he is still a member of the public whose investment in the corporate the law seeks to protect and encourage, as his purchase of shares of stock has been established. Principal function of SEC is supervision and control of corps, partnerships, assoc with the view of protecting and encouraging investments for the protection of economic development. SEC has power of control & supervision over all corps to encourage active public participation in the affairs of private corps through investments.

Jurisdiction over an action for mandamus lies with the SEC even if the proponent is not yet a SH of record, as in the case of Abejo v. de la Cruz. SEC by express mandate has absolute jurisdiction to enforce the provisions of the Corp Code among which is the stock purchaser’s right to secure the corresponding certificate of stock in his name.

Determination of whether or not a Share Holder is entitled to exercise the rights of a Share Holder is within jurisdiction of the SEC. The SEC en banc found that TCL did not refute the validity of the transfers of the shares of stock – they conceded that they could not assail the documents evincing the transfer of the shares to Lay. Lay was able to establish prima facie ownership through the deeds of transfer of shares of stock of TCL. A listing of TCL’s Share Holders & their respective shares before & after the execution of a certain deed of assignment shows that Lay is indeed listed as a Share Holder of TCL. The dispute is an intra-corp controversy involving Share Holders of TCL.

As held in Lim Tay v. CA, the duty of the corporate secretary to record transfers of stocks is ministerial. It however, cannot be compelled when the transferee’s title has no prima facie validity or is uncertain. Mandamus will not issue to establish a right but only to enforce one already established.

Although during the trial before the SEC, TCL admitted that they ignored Lay’s request was based simply on the fact that they did not want to grant it. Having been capricious, whimsical & unwarranted, it constitutes bad faith. However, the SEC en banc modified & deleted the said award for damages imposed on the corp. The matter of damages now concerns only Teng, the corporate secretary. It was Teng’s refusal as corp secretary to record the transfer of the shares, without evidence that such refusal was authorized by TCL’s BOD, that caused damage. No error was committed by the respondent court in refusing to disturb the SEC’s findings.

Union Bank of the Philippines v. SEC [June 6, 2001]Revised Securities Act

Facts: On April 4, 1997, petitioner Union Bank sought the opinion of Chairman Perfecto Yasay, Jr. of respondent Commission as to the applicability and coverage of the Full Material Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3) of the Revised Securities Act which exempts securities issued or guaranteed by banking institutions from the registration requirement provided by Section 4 of the same Act.

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Chairman Yasay replied and informed the petitioner that while the requirements of registration do not apply to securities of banks which are exempt under Section 5(a) (3) of the Revised Securities Act, however, banks with a class of securities listed for trading on the Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act Rules governing the filing of various reports with respondent Commission.

On July 17, 1997, respondent Commission wrote petitioner, enjoining the latter to show cause why it should not be penalized for its failure to submit a Proxy/Information Statement in connection with its annual meeting held on May 23, 1997, in violation of respondent Commission’s ‘Full Material Disclosure Rule.’

“Failing to respond to the aforesaid communication, petitioner was given a ‘2nd Show Cause with Assessment’ by respondent Commission on July 21, 1997. Petitioner was then assessed a fine of P50,000.00 plus P500.00 for every day that the report [was] not filed, or a total of P91, 000.00 as of July 21, 1997. Petitioner was likewise advised by respondent Commission to submit the required reports and settle the assessment, or submit the case to a formal hearing.

The SEC issued an order: “In view of the foregoing, the appeal filed by the Union Bank of the Philippines is

hereby denied. The penalty imposed in the amount of P91,000.00 as of July 21, 1997, for failure to file SEC Form 11-A excludes the fine accruing after the cut-off date until the final submission of the report. Further, the amount of P50,000.00 shall be collected for the violation of RSA Rule 34(a)-1 or Rule 34 (c)(1).”

Issue: WON is required to comply with the respondent SEC’s full disclosure rules.

Held: The petition is not meritorious. Section 5 of the Revised Securities Act states that:Sec 5. Exempt Securities. (a) Except as expressly provided, the requirement of registration under subsection (a) of Section four of this Act shall not apply to any of the following classes of securities: xxxx (3) Any security issued or guaranteed by any banking institution authorized to do business in the Philippines, the business of which is substantially confined to banking, or a financial institution licensed to engage in quasi-banking, and is supervised by the Central Bank.This provision exempts from registration the securities issued by banking or financial

institutions mentioned in the law. Nowhere does it state or even imply that petitioner, as a listed corporation, is exempt from complying with the reports required by the assailed RSA Implementing Rules.

It must be emphasized that petitioner is a commercial banking corporation listed in the stock exchange. Thus, it must adhere not only to banking and other allied special laws, but also to the rules promulgated by Respondent SEC, the government entity tasked not only with the enforcement of the Revised Securities Act, but also with the supervision of all corporations, partnerships or associations which are grantees of government-issued primary franchises and/or licenses or permits to operate in the Philippines.

That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Stock Exchange (PSE) does not exempt it from complying with the continuing disclosure requirements embodied in the assailed Rules. Petitioner, as a bank, is primarily subject to the control of the BSP; and as a corporation trading its securities in the stock market, it is under the supervision of the SEC. It must be pointed out that even the PSE is under the control and supervision of respondent. There is no over-supervision here. Each regulating authority operates within the sphere of its powers. That stringent requirements are imposed is understandable, considering the paramount importance given to the interests of the investing public.

Otherwise stated, the mere fact that in regard to its banking functions, petitioner is already subject to the supervision of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC. These regulations are meant to assure full, fair and accurate disclosure of information for the protection of investors in the stock market. Imposing such regulations is a function within the jurisdiction of the SEC. Since petitioner opted to trade its shares in the exchange, then it must abide by the reasonable rules imposed by the SEC.

2000

Cyanamid Philippines, Inc. vs CA, CTA and Commissioner of Internal RevenueJanuary 20, 2000

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Accumulation of Profits

Facts: Petitioner is a corporation organized under Philippine laws and is a wholly owned subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods and an imported/indentor. In 1985 the CIR assessed on petitioner a deficiency income tax of P119,817) for the year 1981. Cyanamid protested the assessments particularly the 25% surtax for undue accumulation of earnings. It claimed that said profits were retained to increase petitioner's working capital and it would be used for reasonable business needs of the company. The CIR refused to allow the cancellation of the assessments, petitioner appealed to the CTA. It claimed that there was not legal basis for the assessment because 1) it accumulated its earnings and profits for reasonable business requirements to meet working capital needs and retirement of indebtedness 2) it is a wholly owned subsidiary of American Cyanamid Company, a foreign corporation, and its shares are listed and traded in the NY Stock Exchange. The CTA denied the petition stating that the law permits corporations to set aside a portion of its retained earnings for specified purposes under Sec. 43 of the Corporation Code but that petitioner's purpose did not fall within such purposes. It found that there was no need to set aside such retained earnings as working capital as it had considerable liquid funds. Those corporations exempted from the accumulated earnings tax are found under Sec. 25 of the NIRC, and that the petitioner is not among those exempted.

The CA affirmed the CTA's decision.

Issue: Whether or not the accumulation of income was justified.

Held: In order to determine whether profits are accumulated for the reasonable needs of the business to avoid the surtax upon the shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the time of the accumulation, not intentions subsequently, which are mere afterthoughts. The accumulated profits must be used within reasonable time after the close of the taxable year. In the instant case, petitioner did not establish by clear and convincing evidence that such accumulated was for the immediate needs of the business.

To determine the reasonable needs of the business, the United States Courts have invented the "Immediacy Test" which construed the words "reasonable needs of the business" to mean the immediate needs of the business, and it is held that if the corporation did not prove an immediate need for the accumulation of earnings and profits such was not for reasonable needs of the business and the penalty tax would apply. (Law of Federal Income Taxation Vol 7) The working capital needs of a business depend on the nature of the business, its credit policies, the amount of inventories, the rate of turnover, the amount of accounts receivable, the collection rate, the availability of credit and other similar factors. The Tax Court opted to determine the working capital sufficiency by using the ration between the current assets to current liabilities. Unless, rebutted, the presumption is that the assessment is correct. With the petitioner's failure to prove the CIR incorrect, clearly and conclusively, the Tax Court's ruling is upheld.

Rufina Lim vs CA, Auto Truck, TBA Corporation, Sspeed Distributing Inc., Active Distributors, Alliance Marketing Corporation, Action Company, Inc. (January 24, 2000)Tests to Pierce the Veil of Corporate Fiction

Facts: Rufina Lim is the surviving spouse of Pastor Lim whose estate is the subject of probate proceedings. The private respondents are corporations formed, organized and existing under Philippine Laws and which own real properties. Pastor Lim died June 1994, Rufina Lim filed for the administration of the estate. The properties which were owned by the corporations were included in the inventory of the estate. They filed for the exclusion of the properties from said estate and the cancellation of the annotation of lis pendens in the TCTs of said properties.

The RTC granted the motions. However Rufina Lim filed an amended petition which averred that such corporations were owned by Pastor Lim, that such were dummies of Pastor Lim, that those listed as incorporators are there only for the purpose of registration with the SEC, and that the real properties, although registered in the name of the corporations, were actually acquired by Pastor Lim during his marriage with Rufina Lim. The RTC acting on such motion set aside its order and ordered the Register of Deeds to reinstate the lis pendens. The respondent filed for certiorari with the CA which granted its prayer. Rufina Lim disputes such decision and urges that not only are the properties of the corporations part of the estate but also

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the corporations themselves. She cites that Pastor Lim during his lifetime organized and wholly owned the 5 corporations.

Issue: Whether or not a corporation in its universality be the proper subject of and be included in the inventory of the estate of a deceased person?

Held: The real properties included in the inventory of the estate of the late Pastor Lim 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. It is settled that a corporation is clothed with personality separate and distinct from that of persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. A corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. But "when the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from...will be lifted to allow for its consideration merely as an aggregation of individuals." First Philippine International Bank vs CA (252 SCRA 259)

The test in determining the applicability of piercing the veil of corporation fiction is as follows: 1) Control, not mere majority or complete stock control but complete domination not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as of this transaction had at the time no separate mind, will or existence of its own. 2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's legal right. 3) The control and breach of duty must proximately cause the injury. The absence of these elements prevent the piercing. Petitioner failed to adduce evidence that would justify such piercing. Mere ownership by a single stockholder or by a corporation of all or nearly all of the capital stock is not sufficient reason for disregarding the fiction of separate corporate personalities.

Francisca Baluyot vs Paul Holganza and the Office of the Ombudsman (Visayas) represented by Arturo Mojica, Dir. Virginia Planca-Santiago and Graft Investigation Officer Anna Marie Militante (February 9, 2000)Incorporation Test to determine Nature of Corporation ( Private/ Public)

Facts: During a spot audit in 1977, the auditors from the Philippine National Red Cross (PNRC) headquarters discovered a case shortage in the funds of its Bohol chapter. The chapter administrator, petitioner Baluyot, was held accountable and thereafter, respondent Holganza as member of the board Bohol chapter, filed a complaint with the Ofc. of the Ombudsman for malversation. Upon recommendation of respondent Militante, an administratiave docket of dishonesty was also opened against Baluyot. Baluyot raised the defense that the Ombudsman had no jurisdiction as he had authority only over government owned or controlled corporations which the PNRC was not. She gives as evidence of its private character 1) it does not receive budgetary support from the government and all money given to it by the latter and its instrumentalities become private funds of the organization. 2) funds for the payment of personnel's salaries and other emoluments come from yearly fund campaigns, private contributions and rentals from its properties. 3) it is not audited by COA. PNRC, petitioner claims falls under the International Federation of Red Cross, Swiss-based organization.

Issue: Whether or not PNRC is a government owned or controlled corporation or a private corporation.

Held: The Court cited the case of Camporedondo vs. NLRC. "Resolving the issue set out...we rule that the PNRC is a government owned and controlled corporation, with an original charter under RA No. 95, as amended, The test to determine whether a corporation is government owned or controlled or private in nature is simple. Is it created by its own charter for the exercise of a public function, or by incorporation under the general corporation law? Those with special charters are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory members of the GSIS. The PNRC was not "impliedly converted to a private corporation" simply because its

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charter was amended to vest in it the authority to secure loans, be exempted from payment of all duties, taxes, fees and other charges of all kinds on all importations and purchases for its exclusive use, on donations for its disaster relief work and other services and in its benefits and fund raising drives..." Clearly then, public respondent has jurisdiction over the matter.

Andres Lao vs. CA, the Associated Anglo-Amedican Tabacco Corp. and Esteban Co.February 17, 2000Corporate Officers not personally liable for Authorized Corporate ActsFacts: In 1965 a Contract of Sales Agent was entered by the Association of Anglo-American Tobacco Corporation with Andres Lao. Lao was to sell cigarettes manufactured and shipped by the Corporation to his address in Tacloban, and he would remit the sales proceeds. Lao would receive commission for those sold, with a monthly salary and operational allowance. In 1968 Lao's attention was called to his enormous accounts and the difficulty in obtaining a tally despite his avowal of regular remittance of collections. In 1969 it was established that his liability amounted to P525,053. Also, the Corp. discovered that Lao was engaged in a construction business and suspecting that he diverted the sale proceeds to such business, it gave a demand letter for payment of his obligations. It also found that contrary to his allegations, he did not have a huge collectible from customers and nothing was due to the Corporation. From then on, the Corp. no longer sent him shipments. In 1970, Andres, Jose and Tomas Lao brought a complaint for accounting and damages against the Corp.. The court ordered both to undergo a court supervised accounting but also ordered the Corporation to pay the Lao's actual loss of earnings, moral damages, exemplary damages, atty. fees and cost of suit. Later the court gave a supplemental decision dismissing Lao's claim of overpayment. The Corp. and the Lao's appealed. The CA found the Corp. liable for actual damages of loss of earnings, moral damages and exemplary damages. It also ordered the Corp. to pay the claim of overpayment by Lao. The Corp. file a motion for reconsideration and during its pendency, Esteban Co, the new VP of the Corp. filed a complaint with the fiscal alleging Lao failed to remit an amount which he allegedly misappropriated and converted to his own personal use. Pending the criminal case, Lao filed against the Corp. and Esteban Co a complaint for malicious prosecution. The fiscal found that Lao did not commit estafa and that his liability was civil. The trial court found the Corp and Esteban Co guilty of malicious prosecution. They appealed. Co asserts that he cannot be held jointly and severally liable with the Corp. as he was acting as executive vice president and his action was within the scope of his authority as such corporate officer.

Issue: Whether or not Co should be held solidarily liable with the Corp.

Held: A perusal of his affidavit reveals that at the time he filed the complaint on June 1974, Co was vice president of the Corp. As a corporate officer, his power to bind the Corp as its agent must be sought from statute, charter, by-laws, a delegation of authority to a corporate officer, or from the acts of the board of directions, expressed or implied from custom of doing business. In this case, no such sources of Co's authority from which to deduce whether or not he was acting beyond the scope of his responsibilities are mentioned, or proven. It is logical to conclude that the board or by-laws of the Corp. vested Co with certain executive duties, one of which is the case for the Corp. That Co was authorized to institute the estafa case is buttressed by the fact the Corp failed to make an issue out of his authority to file the case. The defense should have been specially pleaded by the Corp. Its failure to interpose such defense could only mean that the filing of Co was with consent and authority of the Corp. Thus, Co may not be held personally liable for acts performed by him in pursuance of an authority.

Pilipinas Bank vs CA and Ricardo Silverio (February 22, 2000)SEC Jurisdiction, Requirement of Proof of Relationship of Parties and Subject Matter

Facts: In 1991, Pilipinas bank filed a complaint against Silverio to secure payment of two loans he obtained from petitioner when he was still its majority stockholder. Silverio contends that it is the SEC and not the regular courts that has jurisdiction over the suit which is an intra-corporate controversy between the Bank and its stockholder and that there is a pending case in the SEC wherein the petitioner may plead his claim.

The Bank in answer to a request for admission, admits that Silverio was a stockholder, that it instituted a case for Specific Performance and Breach of Contract before the SEC. It also admits that Silverio had a capital infusin of 25 million credited to paid in surplus in its books but the same was written off against losses of the Bank, in the same may equities of other stockholders were proportionately written off. The court granted the motion to dismiss and denied the Banks motion for reconsideration. The Bank filed for certiorari with the CA, which

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found the case to be intra-corporate and dismissed the case. It cited Sec. 5 of P.D. 902-a. Motion for reconsideration denied.

Issue: Whether or not the establishment of a relationship between a stockholder and corporation in a dispute necessarily vest jurisdiction in the SEC.

Held: The Bank invoke the ruling of the cases of Viray vs. CA wherein the Court ruled that the establishment of the relationship does not always confer jurisdiction on the SEC. The better policy is determining which body has jurisdiction would be to consider not only the status or the relationship of the parties but also the nature of the question. And in Macapalan Vs. Katalbas-Moscardon, the Court held that simple money claims, without any averment of fraud or misrepresentation committed by the corporations involved, are cognizable by the ordinary courts.

However, there is no question that the present case instituted by the Bank to collect loans obtained by Silverio who in turn seeks to recover his 25 million deposit in paid-in surplus which was written off by the Bank , is an intra-corporate controversy. Considering the relationship of the parties and the subject matter of the controversy, jurisdiction is with the SEC. Question which arise, such as: whether the loans obtained by Silverio were in his personal capacity or as accommodation, he having been the majority stockholder and whether the write-off was applied for his loan accounts or for a proportionate reduction of his equity, call for an investigation of specific matters within the exclusive competence and authority of the SEC to pass upon.

Presidential Commission on Good Government v. The Hon. SandiganbayanFebruary 23, 2000Piercing Veil of Corporate Fiction to recover Ill-Gotten Wealth

Facts: World Universal Trading & Investment Co., S.A. *WUTIC( was a sociedad anonima registered in Panama but not licensed to do business in the Philippines. Construction Development Corporation of the Philippines, now known as Philippine National Construction Corporation (CDCP/PNCC) is duly organized and existing under the laws of the Philippines. PCGG ordered the sequestration and provisional takeovers against assets and records of Rodolfo Cuenca, Universal Holdings, Cuenca Investment, PNCC and San Mariano Milling Corporation. In 1987 PCGG filed with the Sandiganbayan a complaint against Cuenca for illegally acquiring assets in the Cuenca owned corporations of CDCP/PNCC, Asia International Hardwood Limited (AHL), a Hongkong based company and Construction Development Corporation International Limited, Hongkong, a wholly owned subsidiary or alter ego of CDCP/PNCC. In 1991, claiming to be an assignee of AHL, WUTIC filed with the RTC against CDCP/PNCC to enforce a foreign judgement which WUTIC had obtained in Hongkong against CDCPI, which is wholly owned by CDCP/PNCC. After trial, the RTC found in favor of WUTIC, it considered CDCP/PNCC and CDCPI as "one corporate entity" and liable to pay WUTIC. CDCP/PNCC appealed, the CA affirmed the decision of the RTC and the Supreme Court denied it on petition for review. Upon motion of WUTIC, the RTC issued a writ of execution and Sheriff Harina issued notices of garnishment against the accounts, shares of stocks and income of CDCP/PNCC with various banks and corporations.

In October 197, PCGG Commissioner Mendoza attended the PNCC board meeting and discovered the writ and notices of garnishment. After realizing that WUTIC/AHL's claim could be Cuenca's in disguise, PCGG enjoined ONCC and/or any person acting in its behalf from taking any action which would dissipate or affect the assets of CDCP/PNCC. PCGG filed for certiorari with the Sandiganbayan to annul the RTC decision, writ and garnishment. The Sandiganbayan dismissed the petition ruling that it had not jurisdiction to annul the judgement of the RTC. It claimed to have only appellate jurisdiction over decisions of the RTC in criminal cases involving offenses relating to public office.

Issue: Whether or not the Sandiganbayan committed grave abuse of discretion in summarily dismissing the petition for certiorari despite the possibility that WUTIC is a dummy corporation or an alter ego of Rodolfo Cuenca.

Held: The 3 corporations involved in this petition, PNCC/CDCP, AHL and CDCPI, Hongkong are under sequestration are defendants in the sequestration case pending before the Sandiganbayan. AHL had claims against CDCPI and assigned the same to WUTIC. Eventually WUTIC obtained a favorable judgement in a Hongkong court. Due to the closure of CDCPI in Hongkong, WUTIC filed a case with RTC against PNCC/CDCP to enforce a foreign judgement

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obtained against CDCPI. Both corporations are Cuenca-owned and under sequestration. Hence there is valid ground for PCGG to evaluate the validity of WUTIC's claim as a legitimate assignee or merely a dummy corporation set up to circumvent the sequestration case. As per the Court, it should be noted that despite the initial sequestration orders and the case filed with the Sandiganbayan against stockholdings of Rodolfo Cuenca and th so-called Cuenca-owned corporations, AHL, ONCC/CDCP and CDCPI, the PCGG was not made a party in the civil case in Hongkong and the case to enforce the foreign judgement filled with the trial court. Considering the interconnections between the participating corporations in the said transactions and the existence of the sequestration case, the PCGG should have been informed of the above cases to question and verify the veracity of the claim.

The Court stated that it is aware of various schemes employed to circumvent sequestration orders, dissipate sequestered assets and thwart PCGG's efforts to recover ill-gotten wealth. That there is a possibility that WUTIC is a dummy corporation formed by Rodolfo Cuenca, or his alter ego, the reach the sequestered assets, there is a need to vigorously guard these assets and preserve them pending resolution of the sequestration case before the Sandiganbayan.

DLSU vs Dela Salle University Employees Association (DLSUEA)Dela Salle University Employees Association-National Federation of Teachers and Employees Union (DLSUEA-NAFTEU) vs DLSU (April 12, 2000)Piercing the Veil of Corporate Fiction to determine members of Collective Bargaining Unit

Facts: Dela Salle University and DLSUEA-NAFTEU entered into a collective bargaining agreement with a life span of 3 years. During the freedom period, negotiations with the University for a new CBA were unsuccessful. Identifying the unresolved issues, the matter was submitted for arbitration. One of the issues was the scope of the bargaining unit. Magsalin, as arbitrator decided that the Computer Operators assigned at the Computer Services Center just like any other Computer Operators in other units, should be included as members of the bargaining unit, the discipline officers belong to the rank-and-file on the basis of the nature of their job and that the employees of the College of St. Benilde, the College having a personality separate and distinct from the University, such employees are outside the bargaining unit of said University.

Both parties filed for reconsideration with the Magsalin but were not entertained by him. The University then filed for certiorari with the Court.

Issue: Whether or not to pierce the veil of corporate fiction of the College of St. Benilde-DLSU (whether or not the employees thereat are within or outside the bargaining unit.)

Held: The Solicitor General supports the employees of the College of St. Benilde and the Union that the veil of corporate fiction should be pierced and thus, according to the Union, the University and the College of St. Benilde should be considered as only one entity because the latter is but a mere intergral part of the University.

However, the Court affirms the findings of the voluntary arbitrator that the employees of the College of St. Benilde should be excluded from the bargaining unit of the rank and file employees of Dela Salle University, because the two educational institutions have their own separate juridical personality and not sufficient evidence was shown to justify the piercing of the veil of corporate ficiton.

Leyson vs. Office of the Ombudsman, Tirso Antiporda, Chairman, UCPB and CIIF Oil Mills, and Oscar A. Torralba, President, CIIF Oil Mills (April 27, 2000)Control and Function Test to determine Nature of Corporation (public/private)

Facts: In 1996 International Towage and Transport Corp. (ITTC), a domestic corporation engaged in shipping business, entered into a 1 yr. contract with Legaspi Oil Company, Inc. (LEGASPI OIL), Granexport Manufacturing Corp. (GRANEXPORT) and United Coconut Chemicals, Inc. (UNITED COCONUT), comprising the Coconut Industry Investment Fund (CIIF) companies for the transport of coconut oil in bulk through MT Transasia. The majority of shareholdings of these companies are owned by the United Coconut Planters Bank (UCPB) as administrator of CIIF. Under the contract, 3 month advance notice would be given to terminate the contract. However, the CIIF with their new president Torralba terminated the contract without such advance notice and engaged another vessel, MT Marilag.

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Leyson, Ex. Vice Pres. Of ITTC filed with the Office of the Ombudsman against Torralba. In another complaint, petitioner charged Antiporda as Chairman of UCPB and CIIF Oil Mills and Torralba with violation of the Anti- Graft and Corrupt Practices Act. The Ombudsman dismissed the complaint finding that the case is a simple breach of contract and that the entities involved are private corporations over which it has no jurisdiction. Motion for reconsideration was denied. Petitioner raises the issue to the Court. He submits that based on Philippine Coconut Producers Federation Inc. (COCOFED) vs PCGG and Republic vs. Sandiganbayan, the Court has declared that the coconut levy funds are public funds, then corporations formed and organized from those funds or whose controlling stocks are from those funds should be regarded as government owned and/or controlled corporations. As in the present case, since the funding or controlling interest of the companies being headed by private respondents was given or owned by the CIIF as shown in the certification of their Corporate Secretary, it follows that they are government owned and/or controlled corporations. Corollarily, petitioner asserts that respondents Antiporda and Torralba are public officers subject to the jurisdiction of the Ombudsman.

Private respondents counter that the CIIF companies were duly organized under the Corporation Code and that their stockholders are private individuals and entities.

Issue: Whether or not the CIIF companies are public corporation.

Held: The Court found in favor of the respondents. The jurisprudential rules invoked by petitioner are incomplete without resorting to the definition of "government owned or controlled corporation" contained in par. 13, Sec. 2 Introductory Provisions of the Administrative Code of 1987. It mentions 3 requisites 1) any agency organized as a stock or non-stock corp. 2) it is vested with functions relating to public needs whether governmental or proprietary in nature 3) owned by the Government directly or through its instrumentalities either wholly or in case of stock corp. at least 51% of its capital stock.

In the present case, UCPB owns 44.1% of Legaspi Oil, which is below 51% and removes it from the definition of government owned or controlled corp. UCPB owns 91.24% of GRANEXPORT and 92.85% of United Coconut. However, there is no showing that both were vested with functions relating to public needs whether governmental or proprietary in nature. The CIIF companies are private corporations and not within the scope of the jurisdiction of the Office of the Ombudsman.

ARB Construction Co., Inc v CA (May 31, 2000)Corporate Officers not personally liable for Authorized Corporate Acts

Facts: In 1993 TBS Security and Investigation Agency (TBSS) entered into 2 service contracts with ARBC wherein TBSS agreed to provide and post securioty guards in the 5 establishments being maintained by ARBC. In 1994, ARBC informed TBSS of its desire to terminate the service contracts. ARBC also informed TBSS through its Vice President for Operations, Mark Molina, that it was replacing its security guards with those of Global Security for Investigation Agency (GSIA). TBSS informed ARBS that it could not preterminate the service contracts nor post security guards from GSIA as these would run counter to their contracts. Later, Molina wrote TBSS conceding that ARBS could not preterminate the contract but nevertheless decreased the security guards to only 1, allegedly pursuant to Clause 2 of the service contract. TBSS subsequently filed a complaint for preliminary injunction against ARBC and GSIA. In answer, ARBC claimed that it decreased the number of security guards because they were found to be grossly negligent and inefficient. TBSS, in addition to the allegations in its original complaint, alleged in an amended and supplemental complaint that ARBC illegally deducted from the payroll amounts representing the value of 1 unit of concrete vibrator and cassette recorder and furthermore, ARBC withheld additional amounts from its payroll as payment for the parts of the grader that were stolen. ARBC filed its opposition to the filing of such. Subsequently, MArk Molina also filed a motion to dismiss the amended and supplemental complaint on the ground that it did not state a cause of action. The RTC denied the motion. On appeal, the CA denied both petitions of ARBC and Molina. Hence this petition.

Aside from arguing that the CA erred in holding that TBSS had a right to change its cause of action in view of a change in the situation of the parties after the filing of the original complaint, both ARBC and Molina argue that the CA erred in holding that the allegations in the amended and supplemental complaint were sufficient to hold Molina liable to TBSS in his personal capacity.

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Issue: Whether or not Molina is personally liable for his act of applying amounts payable to TBSS to losses suffered by ARBC due to TBSS security guards. (Whether or not Molina was acting in his capacity as an officer of ARBC)

Held: The Court agrees with ARBC and Molina. The CA, affirming the order of the RTC, ruled that Molina by his actions imputed pretended and fabricated violations, blaming TBSS for alleged losses and deducting the values from TBSS' billings. It likewise held that since all these accusations and imputations were made by Molica such are sufficient cause of action against Molina in his personal capacity.

However, it is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities it may be connected an vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify a wrong, protect fraud or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit o the stockholders.

The general rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. (Art. 31 of the Corporate Code.) Absent any proof of bad faith or malice, Molina cannot be held jointly and severally liable for any obligation which ARBC may be held accountable for.

Jardine Davies Inc. vs. CA and Far East Mills Supply Corporation; Pure Foods Corporation vs CA (June 19, 2000)Corporation entitled to Moral Damages (reputation besmirched)

Facts: In 1992 Purefoods decided to install 2 generators in its food processing plant in San Roque, Marikina. A bidding for the supply and installation was held among the bidders was Far East Mills Supply Corporation (FEMSCO). Thereafter, in a letter addressed to FEMSCO president, Purefoods confirmed the award of the contract. Immediately FEMSCO submitted the requirements such as a performance bond and all risk insurance policy as well as purchasing the necessary materials. However, in another letter, Purefoods unilaterally cancelled the award citing "significant factors" which were uncovered and brought to their attention "which dictate the cancellation and warrant a total review and re-bid of the project." FEMSCO protested the cancellation but before the matter could be resolve, Purefoods awarded the project with Jardine Nell, a division of Jardine Davies.

FEMSCO sued both Purefoods and Jardine. The RTC granted Jardine’s demurrer to evidence but found in favor of FEMSCO against Purefoods and order indemnification. FEMSCO appealed the granting of the demurrer filed by Jardine and Purefoods appealed the decision of the court. The CA affirmed the decision of the RTC but ordered Jardine to pay FEMSCO damages for inducing Purefoods to violate the contract as such, Jardine must pay moral damages. In addition, Purefoods was also directed to pay FEMSCO moral damages and exemplary damages Both Purefoods and Jardine filed motions for reconsideration which were denied.

Issue: Whether or not moral damages may be granted to a corporation?

Held: The Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. (Asset Privatization Trust v. CA, 300 SCRA 379) In this case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. The Court thus, sustained respondent appellate court's award of moral damages. However, as there is no showing whatsoever that Jardine induced Purefoods, the decision of the CA is modified. The order to Jardine Davies to pay FEMSCO moral damages is reversed and set aside.

Rubberworld (Phils.) vs. NLRC [336 SCRA 433 (July 26, 2000)]Jurisdiction of the SEC

Facts: Petitioner Rubberworld, a corporation established in 1965, is engaged in the manufacture of footwear, bags and garment. Private respondents are employees of the said

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corporation. On August 26, 1994, Rubberworld filed with the Department of Labor and employment a notice of temporary shutdown of operations to take effect on September 26, 1994. Before the effectivity date, however, Rubberworld was forced to prematurely shutdown its operations.

On November 11, 1994, private respondents filed with the NLRC a complaint against petitioner for illegal dismissal and non-payment of separation pay. On November 22, 1994, Rubberworld filed with the SEC a petition for declaration of suspension of payments with a proposed rehabilitation plan.

On December 28, 1994, SEC issued an order suspending all actions for claims against Rubberworld in accordance with P.D. 902-A. Despite this order, however, the Labor Arbiter ruled against Rubberworld, declaring its shutdown illegal and making the corporation liable for damages and payment of separation pay. The NLRC affirmed the decision of the Labor Arbiter. Hence, Rubberworld filed with the SC a petition to annul the NLRC resolution.

Issue: Whether or not NLRC acted without or in excess of its jurisdiction?

Held: P.D. 902-A is clear that “all actions for claims against corporations, partnerships, or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly.” NLRC thus acted without an in excess of its jurisdiction when it proceeded to decide the case despite the suspension order. As a consequence, any resolution decisions or order that is rendered without jurisdiction is a nullity.

BA Savings Bank vs. Sia [336 SCRA 484 ((July 27,2000)]Powers of the Board of Directors

Facts: The Court of Appeals issued a Resolution denying due course to a Petition for Certiorari filed by BA Savings Bank, on the ground that ‘the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular 28-91 but by its counsel.xxx” A Motion for Reconsideration was filed by petitioner, attached to it was a BA Savings Bank Corporate Secretary’s Certificate. The Certificate showed that the petitioner’s Board of directors approved a resolution authorizing the petitioners lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign the Certificate of Non-forum Shopping, among others. The MR was denied.

Issue: Whether or not the Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping in its behalf

Held: Yes. The resolution of the Board of Directors was sufficient to vest petitioner’s lawyers with authority to bind the corporation and was specific enough as to the acts they were empowered to do. In the case of natural persons, Circular 28-91 requires the patties themselves to sign the certificate of non-forum shopping. However, such requirement cannot be imposed on artificial persons, like corporations, for the reason that they cannot do the task themselves. Corporations act only through their officers and duly authorized agents. The Circular does not require corporate officers to sign the certificate. Further, there is no prohibition against authorizing agents to do so.

Pascual vs. Court of Appeals [339 SCRA 117 (Aug. 25, 2000)]Jurisdiction of the SEC

Facts: Private respondents filed an action for reconveyance of a piece of land and for accounting and damages against petitioners. Petitioners filed a motion to dismiss on the ground of lack of jurisdiction. They claim that the case involves an intra-corporate dispute and thus, the SEC has jurisdiction and not the regular courts. The trial court denied the motion to dismiss and ruled that the case does not involve an intra-corporate dispute. The CA affirmed. Hence, this petition.

Issue: Whether or not this case involves an intra-corporate dispute and whether or not the SEC has jurisdiction over it?

Held: Pursuant to R.A. 8799, §5.2, which took effect on August 8, 2000, the jurisdiction of the Sec to decide cases involving intra-corporate dispute was transferred to courts of general jurisdiction. Thus, the question as to whether this case involves an intra-corporate dispute is

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now only of academic interest. Even if the case involves an intra-corporate dispute, it would be remanded to the RTC just the same.

Manila Hotel Corp. v. National Labor Relations Commission [343 SCRA 1 (Oct.13, 2000)]Requisites to Piercing the Veil of Corporate Fiction

Facts: Marcelo Santos was an overseas worker, a printer at the Mazoon Printing Press, Sultanate of Oman when he was directly hired by the Palace Hotel, Beijing by its GM Gerhard Shmidt as he was recommended by Nestor Buenio, his friend. Santos resigned from Mazoon and thereafter signed an employment contract mailed to him. The contract stated it would be for a period of 2 years.

After a short vacation in the Phil & barely a year into the contract, Santos was terminated from his job due to retrenchment, and repatriated to the Phil. Santos, through his lawyer, demanded full compensation pursuant to the employment agreement which Shmidt denied. Santos then filed a complaint with the NLRC against MHC, MHICL, the Palace Hotel & Shmidt for illegal dismissal.

The Labor Arbiter grants payment of damages to Santos which was vacated on appeal by the NLRC. On an MR, the NLRC found Santos illegally dismissed & recommended that he be paid actual damages equivalent to his salaries for the unexpired portion of his contract. MRs were denied, hence this petition.

Issue: WON MHC is liable to Santos.

Held: Granted. Piercing the veil of corporate fiction – fact that MHC is an incorporator & owns 50% of the capital stock of MHICL is not enough to pierce the veil. Even if we assume: NLRC had jurisdiction over the case & MHICL was liable for Santos’ retrenchment, still MHC, as a separate & distinct juridical entity, cannot be held liable. Piercing the veil is an equitable remedy. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corp as an association of persons. It is done only when the corp is a mere alter ego or business conduit of a person or another corp.

Clear & convincing evidence is needed to pierce the veil of corporate fiction. There is no such evidence to show that MHICL & MHC are 1 & the same entity.

Test to enable piercing of the veil, except in express agency, estoppel or direct tort: a)Control, not mere majority or complete domination; b)Such control must have e=been used by the defendant to commit fraud or wrong, etc.; c)The aforesaid control & breach of duty must approximately cause the injury or unjust loss complained of.

Fact that the Palace Hotel is a member of the Manila Hotel Group is not enough to pierce the corporate veil – there is no evidence to show that they are 1 & the same entity.

Contrary to what Santos claims that MHICL signed his employment contract, MHICL Vice-President signed as a mere witness under the word ‘noted’. Furthermore, there is no EER between Santos & MHICL.

Transfarm & Co., Inc. v. Daewoo Corporation [343 SCRA 410 (Oct.17, 2000)]Jurisdiction of SEC

Facts: Daewoo Corp (Daewoo) entered into a joint venture agreement with Transfarm & Co. (Transfarm) for the delivery, assembly, production & distribution of Daewoo cars in the country. Transdaewoo Automotive Manufacturing Company was to be incorporated with Transfarm owning 70% & Daewoo 30%. Transfarm & TAMC were then to enter into a separate agreement that would name Transfarm as the exclusive distributor in the country of Daewoo cars.

Parties stipulated that controversies or claims arising out of the joint venture itself should be settled by arbitration conducted in Hong Kong but the joint venture agreement itself was to be governed & construed in accordance with Philippine laws.

When the agreement went awry, Transfarm & TAMC filed a complaint with the RTC against Daewoo & Daewoo Motor Co., Ltd. (DMCL), a corp organized under Korean laws & not doing business in the Phils, praying that Daewoo & DMCL be ordered to refrain from doing business here. An MTD was filed on the ground that what was field was an intracorp controversy hence cognizable by the SEC. RTC denied such MTD. CA dismisses the case & says that jurisdiction is with the SEC. With a subsequent MR rebuffed, Transfarm now files a petition with the SC.

During the pendency of the petition with the SC, RA8799 was enacted.

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Issue: WON SEC has jurisdiction over the dispute.

Held: CA decision set aside & case remanded back to RTC. The Securities Regulation Code (RA 8799) transferred to the courts of general

jurisdiction the SEC’s jurisdiction over all cases enumerated under Sec.5 of PD 902-A. The SEC shall retain jurisdiction over pending cases involving intra-corp disputes submitted for final resolution which shall be resolved within 1 year from the enactment of RA 8799. The SEC shall retain jurisdiction over pending suspension of payments/ rehabilitation cases filed as of 30 June 2000 until finally disposed.

The instant case, neither filed nor pending with the SEC, let alone ready for final resolution by it, is clearly cognizable by the RTC.

EXTRA: Statutes regulating court jurisdiction & procedure are generally construed to be

applicable to actions pending & undetermined at the time of the passage of said enactments.

International Express Travel & Tour Services, Inc. v. CA, Kahn & Philippine Football Federation [343 SCRA 674 (Oct.19, 2000)]Creation of Separate Corporate PersonalityLiability of Person Acting for Unincorporated EntityDoctrine of Estoppel

Facts: IETTSI wrote a letter to the Federation through its president, Kahn, offering its services as a travel agency. This was accepted by the Federation. IETTSI secured airline tickets for the trips of the athletes & officials of the Federation to the South East Asian Games in Kula Lumpur as well as other trips to China & Brisbane. A demand letter was sent to the Federation re: payment of the tickets. After 3 partial payments, Kahn issued a personal check as partial payment for the Federation’s balance. No further payments were made, causing IETTSI to file a civil case before the RTC against Kahn in his personal capacity on the ground that he allegedly guaranteed the said obligation & as President of the Federation, impleading the Federation as an alternative defendant.

Kahn filed a counterclaim against IETTSI averring that it had no cause of action against him either in his personal nor official capacity as he did not guarantee the payment but merely acted as an agent of the Federation w/c has a separate & distinct juridical personality. The Federation, in failing to file its answer, was declared in default.

The RTC found Kahn personally liable since a voluntary unincorporated association, like the Federation, doesn’t have the power to enter nor ratify a contract. The contract thus entered into by its officers or agents on its behalf is not binding on the association nor enforceable against it – but against the officers or agents in their personal capacity. On appeal to the CA, decision was reversed saying that IETTSI failed to prove that Kahn guaranteed the obligation, hence this petition.

Issues: (1) WON the Federation has a separate juridical personality.(2) WON Kahn can be held personally liable for the unpaid obligations of the Federation

Held: CA decision reversed & set aside. RTC decision reinstated. RA 3135 & PD 604 recognized the juridical existence of national sports associations.

The power to purchase, sell, lease & encumber property are acts w/c may only be done by persons, whether natural or artificial, with juridical capacity and these have been granted to national sports associations, clearly indicating their juridical personality. However, such does not automatically take place by mere passage of the laws.

Before a corp may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. Nowhere can it be found in RA 3135 & PD 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations & provided the manner by which they may acquire juridical personality.

The statutory provisions require that before an entity may be considered as a national sports association, such must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under RA 3135 & the Department of Youth & Sports Development

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under PD 604. In attempting to prove juridical existence of the Federation, Kahn attached a copy of the constitution & by-laws of the Federation this doesn’t prove the said Federation has been recognized & accredited.

Any person acting or purporting to act on behalf of a corp w/c has no valid existence assumes such privileges & obligations & becomes personally liable for contracts entered into or for such other acts performed as such agent. Hence, Kahn should be liable for the unpaid obligations of the unincorporated Federation. He is presumed to have known of the corp existence or non-existence of the Federation.

Doctrine of Corporation by Estoppel – applies to third persons only when he tries to escape liability on a contract from w/c he has benefited on the irrelevant ground of defective corporation. Here, IETTSI is not trying to escape liability from the contract but rather is the 1 claiming from it.

Heirs of Ramon Durano, Sr. v. Uy [344 SCRA 238 (Oct.24, 2000)]Separate Juridical Personality Alter Ego: Piercing the Veil of Corporate Fiction

Facts: Ramon Durano III & wife instituted an action for damages against Uy, etc. accusing them of officiating a hate campaign against them by lodging complaints in the police for ‘invasion of property’; sending complaints to the Office of the President depicting them as oppressors, landgrabbers & usurpers; spreading false rumors & damaging tales w/c put them into public contempt & ridicule.

In their answer, Uy, etc. lodged affirmative defenses, demanded the return of their property & made counterclaims for actual, moral & exemplary damages. They claim that in the first week of August 1970, they received mimeographed notices signed by Durano, Sr. informing them that the land they were tilling, formerly owned by Cepco was purchased by Durano & Co, directing them to immediately turn over the property. Even before they could vacate, Durano & Co. proceeded to bulldoze & destroy their property & fire at air even. September 15, 1970 Durano & Co. sold the property to Durano III who proceeded to register the lands in his name. They claim that they were deprived of their independent source of income, were made victims of serious violence & demanded damages for cost of improvements on the land that were destroyed.

The Duranos moved for the dismissal of their complaint w/c the trial court granted w/o prejudice to the right of Uy, etc. to maintain their counterclaim. The counterclaim was later upheld. This decision was affirmed by the CA. Hence this petition.

Issue: WON Durano can invoke the doctrine of separate corporate personality to evade liability for damages

Held: Denied & CA decision modified. The Duranos hinge their claim on the TCTs issued in the name of Durano III. Their validity was put into serious doubt by the ff: a) the certificates reveal the lack of registered title of Cepoc to the Properties; b) alleged reconstituted titles of Cepoc were not produced in evidence; c) deed of sale between Cepoc & Durano & Co. was unnotarized & thus unregisterable

Fraud in the issuance of a certificate of title may be raised only in an action expressly instituted for that purpose; and not collaterally as in an action for reconveyance & damages. The rule on indefeasibility of title – Torrens titles can only be attacked for fraud w/in 1 year from the date of issuance of the decree of registration; an action for reconveyance may prosper if a property wrongfully registered has not passed to an innocent purchaser for value. The purchase of Durano & Co. could not be said to have been in good faith since it is not disputed that Durano III acquired the property w/ full knowledge of Uy’s occupancy thereon. Uy’s action for reconveyance will prosper, it being clear that the property, wrongfully registered in the name of Durano III, has not passed to an innocent purchaser for value.

Notarization of the deed of sale is essential to its registrability, & the action of the RD in allowing the registration of the unacknowledged deed of sale was unauthorized & did not render validity to the registration of the document.

A buyer who could not have failed to know or discover that the land sold to him was in the adverse possession of another is a buyer in bad faith. A purchaser cannot just close his eyes to facts w/c should put a reasonable man upon his guard, such as when the subject of the sale is in the possession of persons other than the seller. Uy & company were in open possession & occupancy of the properties when Durano & Co. supposedly purchased the same from Cepoc.

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In applying the instrumentality or alter ego doctrine, the courts are concerned w/ reality & not form, w/ how the corp operated & the individual defendant’s relationship to that operation.

Whether a corporation is a mere alter ego is purely one of fact. Shortly after the sale by Cepco to Durano & Co., the latter sold the property to Durano III, who immediately procured the registration of the property in his name. Obviously, Durano & Co. was used by Durano III,etc. as an instrumentality to appropriate the disputed property for themselves.


Sec.8 Rule 51 indicates that the CA is not limited to reviewing only those errors assigned by appellant but also those closely related to or dependent on an assigned error. CA is imbued w/ sufficient discretion to review matters.

Ordinary acquisitive prescription, in the case of immovable property, requires possession of the thing in good faith & w/ just title for a period of 10 years.

Remedies of an owner on whose land somebody has built in bad faith: a) appropriate what has been built w/o any obligation to pay indemnity; b) demand that the builder remove what he had built; c) compel the builder to pay the value of the land. In any case, landowner is entitled to damages (Art.451)

Reynoso IV v. CA & General Credit Corporation [345 SCRA 335 (Nov.22, 2000)]Separate Juridical Entity Sufficiency of Proof to Pierce the Veil of Corporate Fiction

Facts: Commercial Credit Corporation (CCC), a financing & investment firm, decided to organize franchise companies in different parts of the country, wherein it shall hold 30% equity. Employees of CCC were designated as resident managers of the franchise companies – Bibiano Reynoso IV was resident manager in CCC-QC.

Due to the DOSRI Rule prohibiting lending of funds by a corporation to its directors, officers, Share Holders & other persons with related interests therein, CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary to which CCC transferred its 30% equity in CCC-QC together with 2 seats on the BoD. In the new set-up, several employees of CCC became employees of CCC-Equity.

A complaint for a sum of money was later field by CCC-QC against Reynoso, who in the meantime was dismissed from CCC-Equity, & wife for embezzlement of funds which were used to buy a house in Valle Verde. Reynoso claims the money he used represented his money placements in CCC-QC shown by 23 checks he issued to CCC-QC.

RTC dismissed the case against Reynoso and found his counterclaim for damages to be meritorious hence granted it. For failing to pay the docket fees, CCC-QC’s appeal to the IAC was dismissed hence the RTC decision became final & executory. However, the judgment became remained unsatisfied prompting Reynoso to file a Motion for Alias Writ of Execution. CCC-QC opposed saying that its premises & records had been taken over by CCC.

CCC meanwhile became known as General Credit Corporation. So, when the RTC ordered GCC to file its comment on the petition of Reynoso, it claimed that it was not a party to the case & Reynoso should direct his claim against CCC-QC. Reynoso replied saying that CCC-QC is in adjunct instrumentality, conduit & agency of CCC & invoked the ruling in Ramoso v. GCC where the SC declared that GCC, CCC-Equity & other franchised companies including CCC-QC were declared as 1 corp. Reynoso claimed that GCC is just the new name of CCC hence both should be treated as 1 entity. Cases were filed in the RTC of Pasig & QC to levy on the properties of GCC. CA on the other hand enjoins the auction sale of the properties.

Issue: (1) WON the piercing the veil of corporate fiction was proper.

Held: CA decision reversed and set aside. Injunction against levying on properties of GCC & their auction sale lifted. The use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one & the same business: investment & financing. When the mother corporation & its subsidiary corporations cease to act in good faith and honest business judgment, when the corporate fiction is used to perpetuate fraud or promote injustice, the law steps in to remedy the injustice. The corporate character is not necessarily abrogated. It continues for legitimate objectives; however pierced, to remedy injustices.

A court judgment becomes useless & ineffective if the employer, in this case CCC as a

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mother corporation, is placed beyond the legal reach of the judgment creditor who after protracted litigation, has been found entitled to positive relief. Courts have been organized to put an end to controversy. This should not be negated by an inapplicable and wrong use of the fiction of the corporate veil.

The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there us dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when used to defeat public convenience, justify wrong, protect fraud, or defend crime.

Factually & legally, CCC had dominant control of the business operations of CCC-QC:a. the exclusive management contract insured that CCC-QC would be managed &

controlled by CCC & not deviate from the commands of the mother corpb. CCC appointed its own employee as the resident manager of CCC-QCc. Salaries, pensions, benefits, etc were from CCC, which later became GCCd. Unity of interest, management, control, intensive auditing function of CCC over CCC-

QC, sharing of office spacee. Lawyers of the CCC-QC case were all in-house counsels of CCC

Ramoso v. CA & General Credit Corporation [347 SCRA 463 (Dec.8, 2000)]Sufficiency of Proof to Pierce the Veil of Corporate FictionJurisdiction of the SEC

Facts: Commercial Credit Corporation (CCC), a general financing & investment firm, decided to organize franchise companies in different parts of the country, wherein it shall the franchise company shall be managed by CCC’s resident manager, management fee equivalent to 10% of net profit before taxes shall be paid to CCC, all expenses shall be borne by the franchise company except salary of the resident manager & cost of credit investigation, CCC shall set prime rates for discounting or rediscounting of receivables. Each investor, Ramoso included, was asked to sign a continuing guarantee for bad accounts that might be incurred by CCC.

Due to the DOSRI Rule prohibiting lending of funds by a corp to its directors, officers, Share Holders & other persons with related interests therein, CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary to which CCC divested its equity in the franchise companies but continued to provide a discounting line for receivables of the franchise companies through CCC Equity. CCC meanwhile became known as General Credit Corporation.

Upon investigation, investors discovered the dissipation of the assets of their respective franchise companies: transfer or assignment of uncollectible notes & accounts, utilization of spurious commercial papers to generate paper revenues, release of collateral in connivance with unauthorized loans, divesting its assets through a questionable offset of receivables arrangement with 1 of its creditors.

Investors filed a case for receivership, an order directing GCC & CCC-Equity solidarily to pay them for the losses sustained, nullification of the offset agreement. GCC filed an MTD for lack of SEC jurisdiction & that the petitioners were not the real parties in interest. Hearing officer ordered piercing of the corporate veil, declaring GCC, GCC-Equity & the other franchise companies as 1 & later declared that GCC is not liable for losses since as investors, they assumed the risk of loss nor are the individual petitioners who executed a continuing guarantee to secure the obligation of the franchised companies to GCC arising from the discounting accounts. SEC en banc reversed this ruling which was affirmed by the CA hence this petition.

Issue: (1) WON GCC’s fraud & mismanagement of the franchise companies warrant a piercing of its veil of corporate fiction.(2) WON only the SEC has jurisdiction over the issue of whether individual petitioners may be held liable on the surety agreements for bad accounts incurred by GCC.

Held: Denied for lack of merit & CA decision affirmed. As a general rule, a corp will be looked upon as a legal entity, unless & until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corp as an association of persons. Also, the corp entity may be disregarded in the interest of justice in cases such as fraud that may work inequities among members of the corp internally, involving no rights of the public or third persons. There must be fraud & proof of it. The wrongdoing must be clearly & convincingly established, not presumed.

Where the existence of the corp should be pierced depends on questions of facts,

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appropriately pleaded. The burden of proving is on the party seeking to have the court pierce the veil of corporate fiction.

Any taint of bad faith on the part of a financing & investment corp in enticing investors may be resolved in ordinary courts since this is in the nature of a contractual relationship. Ramoso signed the continuing guaranty of the franchise companies’ bad debts in their own personal capacities. Hence they are responsible for their individual acts. The liabilities of Ramoso arose out of the regular financing venture of the franchise companies, there is no evidence that these bad debts were fraudulently incurred. Changing their subsidiary liability by converting them to guarantors of bad debts cannot be done by piercing the veil of corp identity.

Not every conflict between a corporate & its Share Holders involves corporate matters that only the SEC can resolve. Expedient as the policy may be to vest in administrative bodies power to adjudicate matters that fall within their particular field of expertise, it should not deprive the courts of justice the power to decide ordinary cases in accordance with the general laws that do not require any particular expertise or training to interpret & apply. The franchised companies’ accounts discounted by GCC would arise even if there is no intra-corporate relationship between the parties – hence it did not arise out of the parties’ relationships as Share Holders. The matter is better left to the regular courts in which suits have been filed to enforce the suretyship agreements.

A close scrutiny of the facts shows that the disputed decision of the hearing officer dealt mainly with control of GCC over the franchises – this is not enough to pierce the veil. The circumstances leading to bankruptcy should also be taken into consideration – was there fraud, dishonesty, etc.


1999

Reburiano vs. CA [301 SCRA 342 (Jan 21 1999)]Continuation of juridical personality for 3 years after dissolution of corporation for limited purpose

Facts: RTC rendered judgment in favor of Pepsi Cola Bottling Co. ordering Reburiano to pay P55,000 with interest for the unpaid bottles of softdrinks it received from the company. RTC issued a writ of execution. However, before the promulgation of the decision of the RTC, Pepsi amended its articles of incorporation to shorten its term of existence. The RTC was not notified of this fact.

Reburiano then moved to quash the writ of execution on the ground that Pepsi no longer had juridical personality, hence, it could no longer sue and be sued.

RTC denied Reburiano’s petition to quash the writ of execution. An appeal was made. CA dismissed the appeal. Hence, this petition for review on certiorari.

Issue: Whether or not Pepsi still had juridical personality to pursue its case against Reburiano after a shortening of its corporate existence.

Held: YES. Sec. 122 of the Corporation Code provides that every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for 3 years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

However, Reburiano further argues that when Pepsi undertook a voluntary dissolution, there was no showing that a receiver or trustee was ever appointed. He contends that Sec. 122 of the Corporation Code above cited does not authorize a corporation, after the 3 year liquidation period, to continue actions instituted by it within said period of 3 years. SC held that in the case of Gelano vs. CA, a corporation that has a pending action and which cannot be

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terminated within the 3 year period after dissolution is authorized to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the 3 year period. No reason could be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation, should not be accorded similar treatment allowed to proceed to final judgment and execution thereof.

Counsel of the dissolved corporation can be considered a trustee. Also, the board of directors may be permitted to complete the corporate liquidation by continuing as trustees by legal implication.

Moreover, the Corporation Code provides:Sec. 145 – Amendment or Repeal – No right or remedy in favor of or against any

corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof.

ABS CBN Broadcasting Corporation vs. CA [301 SCRA 572 (Jan 21 1999)]Power of the Board of DirectorsDelegation to Executive Committee

Facts: In 1990, ABS CBN and Viva executed a Film Exhibition Agreement whereby Viva gave ABS CBN an exclusive right to exhibit some Viva films. Said agreement contained a stipulation that ABS shall have the right of first refusal to the next 24 Viva films for TV telecast, provided that such right shall be exercised by ABS from the actual offer in writing.

Hence, through this agreement, Viva offered ABS a list of 36 films from which ABS may exercise its right of first refusal. ABS however, through VP Concio, did not accept the list since she could only tick off 10 films. This rejection was embodied in a letter.

In 1992, Viva again approached ABS with a list consisting of 52 original films where Viva proposed to sell these airing rights for P60M.

Viva’s Vic del Rosario and ABS’ general manager Eugenio Lopez III met at the Tamarind Grill to discuss this package proposal. What transcribed at that meeting was subject to conflicting versions.

According to Lopez, he and del Rosario agreed that ABS was granted exclusive film rights to 14 films for P36M, and that this was put in writing in a napkin, signed by Lopez and given to del Rosario. On the other hand, del Rosario denied the existence of the napkin in which Lopez wrote something, and insisted that what he and Lopez discussed was Viva’s film package of the 52 original films for P60M stated above, and that Lopez refused said offer, allegedly signifying his intent to send a counter proposal. When the counter proposal arrived, Viva’s BoD rejected it, hence, he sold the rights to the 52 original films to RBS.

Thus, ABS filed before RTC a complaint for specific performance with prayer for TRO against RBS and Viva. RTC issued the TRO enjoining the airing of the films subject of controversy. After hearing, RTC rendered its decision in favor of RBS and Viva contending that there was no meeting of minds on the price and terms of the offer. The agreement between Lopez and del Rosario was subject to Viva BoD approval, and since this was rejected by the board, then, there was no basis for ABS’ demand that a contract was entered into between them. That the 1990 Agreement with the right of first refusal was already exercised by Ms. Concio when it rejected the offer, and such 1990 Agreement was an entirely new contract other than the 1992 alleged agreement at the Tamarind Grill. CA affirmed. Hence, this petition for certiorari with SC.

Lopez claims that it had not fully exercised its right of first refusal over 24 films since it only chose 10. He insists that SC give credence to his testimony that he and del Rosario discussed the airing of the remaining 14 films under the right of first refusal agreement in Tamarind Grill where there was a contract written in the alleged napkin.

Issue: Whether or not there was a perfected contract between Lopez and del Rosario.

Held: NO. A contract is a meeting of minds between 2 persons whereby one binds himself to give something or to render some service to another for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties (2) object certain which is the subject of the contract (3) cause of the obligation, which is established.

Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To

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convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer.

In the case at bar, when del Rosario met with Lopez at the Tamarind Grill, the package of 52 films was Viva’s offer to enter into a new Exhibition Agreement. But ABS, through its counter proposal sent to Viva, actually made a counter offer. Clearly, there was no acceptance. The acceptance should be unqualified. When Viva’s BoD rejected the counter proposal, then no contract could have been executed. Assuming arguendo that del Rosario did enter into a contract with Lopez at Tamarind Grill, this acceptance did not bind Viva since there was no proof whatsoever that del Rosario had specific authority to do so. Under the Corporation Code, unless otherwise provided by said law, corporate powers, such as the power to enter into contracts, are exercised by the BoD. However, the board may delegate such powers to either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes. Delegation to officers makes the latter agents of the corporation, and accordingly, the general rules of agency ad to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That del Rosario did not have the authority to accept ABS’ counter offer was best evidenced by his submission of the counter proposal to Viva’s BoD for the latter’s approval. In any event, there was no meeting of the minds between del Rosario and Lopez.

The contention of Lopez that their meeting in Tamarind Grill was a continuation of their right of first refusal agreement over the remaining 14 films is untenable. ABS’ right of first refusal had already been exercised when Ms. Concio wrote to Viva choosing only 10 out of the 36 films offered by del Rosario. It already refused the 26 films.

Luxuria Homes Inc. vs. CA [302 SCRA 315 (Jan 28 1999)]Ownership in Capital Stock not sufficient to Pierce Veil of Corporate Fiction

Facts: Posadas and her 2 minors co-owned a 1.6 hectare property in Sucat which was occupied by squatters. Posadas negotiated with Bravo regarding the development of said property into a residential subdivision. She authorized Bravo to negotiate with the squatters.

Meanwhile, Posadas assigned the property to Luxuria Homes via a deed of assignment. Relations with Bravo turned sour. Bravor demanded payment for services rendered. Posadas refused to pay. Bravo instituted a complaint for specific performance with the RTC. He included Luxuria Homes, Inc. as respondent since he alleged that Posadas surreptitiously formed said corporation and transferred the parcel of land to it to evade payment and defraud creditors. RTC adjudged in favor of Bravo. CA affirmed. Hence, this petition for review.

Issue: Whether or not Luxuria Homes, Inc. was a party to the transactions entered into by Posadas and Bravo and thus could be held jointly and severally liable with Posadas.

Held: No. It is evident from the records that Bravo sent demand letters more than a year and a half after the execution of the Deed of Assignment in favor of Luxuria and the issuance of AoI of Luxuria. The transfer was made at the time the relationship between Posadas and Bravo was still very pleasant. Furthermore, Posadas is not the majority stockholder of Luxuria. The AOI shows that Posadas owns approximately 33% only of the capital stock. Hence, Posadas cannot be considered as an alter ego of Luxuria Homes.

To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. The separate personality of the corproation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of the creditors. In the case at bar, Bravo failed to show proof that Posadas was acting in bad faith.

Calma vs. CA [302 SCRA 682 (Feb 9 1999)]Investigatory Powers of the SEC

Facts: Sometime in 1990, the Hukbalahap Veterans Association (Hukvets) filed a letter complaint with the SEC alleging that petitioners Calma, Liwanag, Cayanan and Maglangue surreptitiously arrogated unto themselves the powers and functions of trustees and officers of Hukvets.

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SEC, through its Prosecution and Enforcement Department issued a resolution directing the Board of Trustees to call within 30 days a general membership meeting for the election of 7 new members of the board. Petitioners objected to this. SEC denied their motion for reconsideration.

Petitioners went to the CA contending that the SEC Prosecution and Enforcement Department was without jurisdiction to entertain and adjudicate corporate election contests. CA was unpersuaded. Hence, this petition before the SC.

Issue: Whether or not the Prosecution and Enforcement Department of the SEC has jurisdiction to investigate the letter complaint filed by Hukvets.

Held: Yes. (1) SEC has both regulatory and adjudicative functions. Relative to the latter, SEC has original and exclusive jurisdiction to hear and decide controversies and cases involving (a) intra-corporate and partnership relations between the corporation, officers and stockholders, including elections or appointments; (b) state and corporate affairs in relation to the legal existence of the corporation, partnership or to their franchises; (c) investors and corporate affairs; (d) petitions for suspension of payments.(2) The Prosecution and Enforcement Department of the SEC has the inherent power, according to Sec. 6 of P.D. 1758 amending P.D. 902-A, to investigate, on complaint or motu propio, any act or omission of the Board of Directors/Trustees of corporations, their stockholders, officers or partners, including any fraudulent devices, schemes or representations, in violation of any law.

Hence, SEC, under its adjudicative jurisdiction, has the power to hear and decide controversies involving intra-corporate relations between and among members and officers of a corporation. The Prosecution and Enforcement Department was established as its adjudicative arm. As such, it is vested with the authority to investigate, on complaint or motu propio, any act or omission of the Board of Directors of corporations, as in the case at bar.

Azcor Manufacturing Inc. vs. NLRC [303 SCRA 26 (Feb 11 1999)]Piercing the Veil of Corporate Fiction to prevent evasion of obligations or confuse the legitimate issues

Facts: Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal. He alleged that he worked for Azcor as ceramics worker for more than 2 years. Then, due to asthma, he filed a leave of absence. Upon returning to work, he was not permitted to do so. He later on amended his complaint and impleaded Filipinas Paso as additional respondent.

On the other hand, Azcor contends that Capulso validly resigned from the company, as evidenced by a letter of resignation, for which Capulso then sought employment from Filipinas Paso, from which he also resigned. The Labor Arbiter dismissed the case. On appeal to the NLRC, it adjudged in favor of Capulso holding Filipinas Paso and Azcor solidarily liable. Hence, this petition with the SC.

Issue: Whether or not Filipinas Paso may be held jointly and severally liable with Azcor for back wages of Capulso.

Held: Yes. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point beyond its reason and policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the 2 corporations would be merged as one, the first being merely considered as the instrumentality, agency, conduit, or adjunct of the other.

In the case at bar, there was much confusion as to the identity of Capulso's employer, but, for sure, it was Filipinas Paso and Azcor's own making. First, Capulso had no knowledge that he was already working under Filipinas Paso since he continued to retain his Azcor ID. Second, his pay slips contained the name of Azcor giving the impression that Azcor was paying his salary. Third, he was paid the same salary and he performed the same kind of job, in the same work area, in the same location, using the same tools and under the same supervisor.

Neugene Marketing Inc. vs. CA [303 SCRA 295 (Feb 18 1999)]Ownership of Corporate Share/Stock Certificates

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Facts: Neugene was duly registered with SEC to engage in trading business. Private Respondents Sy, Yang, and Suen, holders of 5250 shares or 2/3 of the outstanding capital stock sent notice to the BoD for a board meeting. In this meeting, they approved a resolution dissolving Neugene.

SEC thus issued a Certificate of Dissolution of Neugene. Petitioners Tan, Martin, Moreno and Lee brought an action to annul said SEC Certification contending that they were the majority stockholders of the corporation, and that prior to the board meeting, the private respondents had already divested themselves of their stockholdings by endorsing them in blank and delivering them to the Uy family. The latter in turn awarded said stock certificates to Johnny Uy, who in turn sold the same to petitioners. Hence, private respondents could no longer validly vote for the dissolution of Neugene at the time of the board meeting.

Private respondents contend that the assignment of shares were simulated and fraudulently effected since the endorsement in blank by them of the stock certificates to the Uy family was only for safekeeping when they were stolen from a vault by Johnny Uy.

SEC nullified the Certificate of Dissolution. CA, on the other hand, upheld Neugene's dissolution. Hence, this petition with the SC.

Issue: Whether or not private respondents divested themselves of their stockholdings when they voted for the resolution dissolving Neugene.

Held: No. Entries in the Stock and Transfer Book show that at the time of dissolution of Neugene, the private respondents owned at least 2/3 of the outstanding capital stock, in sufficient compliance with Sec. 118 of the Corporation Code of the Philippines.

Petitioners submitted the same Stock and Transfer Book to show that the certificates of private respondents were cancelled. But after a careful examination of the evidence on record, SC found that the stock certificates of private respondents were stolen and therefore not validly transfered, and the transfers of stock relied upon by petitioners were fraudulently recorded in the Stock and Transfer Book of Neugene.

The true relationship between stockholders of Neugene and that of the Uy family was that they had an understanding that the beneficial ownership of Neugene would remain with the Uy family, such that the shares of stock were endorsed in blank, upon issuance, by the shareholders and entrusted to the Uy family for safekeeping. Such beneficial ownership has been admitted through the testimonies not only of private respondents but also of petitioners.

Rubberworld Inc. vs. NLRC [305 SCRA 721 (April 14 1999)]Effect of Petition for Suspension of Payments on all other claims

Facts: Rubberworld filed with the SEC a petition for suspension of payments. SEC ruled favorably on the request and accordingly, it issued an order for the creation of a management committee; and all actions for claims against the corporation pending before any court, tribunal, office, board, body were suspended.

The employees of Rubberworld filed against the corporation a complaint for illegal dismissal and unfair labor practice. Rubberworld moved to suspend the proceedings relying on the SEC order. The Labor Arbiter denied Rubberworld’s motion ruling that claims as regards labor cases are not included in the SEC order. Rubberworld appealed to the NLRC, which affirmed the Labor Arbiter’s decision. Hence, this petition for certiorari.

Issue: Whether or not a petition for suspension of payments filed under P.D. 902-A effectively suspends all actions against a corporation including labor claims.

HELD: YES. P.D. 902-A provides that upon the appointment of a management committee, rehabilitation receiver, board or body pursuant to this decree, all actions for claims against corporations, partnerships, or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. The law is clear. Upon the creation of a management committee or the appointment of a rehabilitation receiver, all claims for actions shall be suspended. No exception in favor of labor claims is mentioned in the law. Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely encumbers the management committee’s time and resources. The said committee would need to defend against these suits, to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it viable again.

The preferential right of workers and employees under Article 110 of the Labor Code may be invoked only upon the institution of insolvency or judicial liquidation proceedings and not

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during rehabilitation proceedings, the purpose of which is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings.

SC also noted that PD 902-A does not provide for the duration of the automatic stay. And in the case at bar, the SEC order neither contains such. Hence, the suspensive effect in this case had no time limit and remained in force as long as reasonably necessary to accomplish the purpose of the SEC order.

1998

Bitong vs. CA [292 SCRA 503 (July 13 1998)]Ownership of Corporate Shares/ Stock Certificates: Valid Issuance Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of the corporation to the prejudice of the stockholders. She alleges that certain transactions entered into by the corporation were not supported by any stockholder’s resolution.

The complaint sought to enjoin Apostol from further acting as president-director of the corporation and from disbursing any money or funds. Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel issued a writ enjoining Apostol.

After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the complaint filed by Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC Hearing Panel decision. Apostol filed petition for review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the owner of any share of stock in the corporation and therefore, not a real party in interest to prosecute the complaint. Hence, this petition with the SC.

Issue: Whether or not Bitong was the real party in interest.

Held: Based on the evidence presented, it could be gleaned that Bitong was not a bona fide stockholder of the corporation. Several corporate documents disclose that the true party in interest was JAKA.

Although her buying of the shares were recorded in the Stock and Transfer Book of the corporation, and as provided by Sec. 63 of the Corp Code that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares, this provision is not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply the omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. Besides, the provision envisions a formal certificate of stock which can be issued only upon compliance with certain requisites: (1) certificates must be signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation, (2) delivery of the certificate; (3) the par value, as to par value shares, or the full subscription as to no par value shares, must be first fully paid; (4) the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

These considerations are founded on the basic principle that stock issued without authority and in violation of the law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence.

Lim Tay vs. CA [293 SCRA 634 (Aug 5 1998)]Established Ownership of Corporate Shares/ Stock Certificates necessary to be entitled to rights of shareholder

Facts: Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of P40,000. This was secured by a contract of pledge whereby the former pledged their 300 shares of stock each in Go Fay & Company to the latter. However, they failed to pay their respective loans. Hence, Lim Tay filed a petition for mandamus against Go Fay & Company with the SEC praying that an

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order be issued directing the corporate secretary of the said corporation to register the stock transfers and issue new certificates in favor of Lim Tay.

Go Fay & Company filed its answer contending that SEC had no jurisdiction to entertain the complaint on the ground that since Lim Tay was not a stockholder of the company, no intra corporate controversy took place; and furthermore, that the default of payment of Sy Guiok and Sy Lim did not automatically vest in Lim Tay the ownership of the pledged shares.

SEC dismissed the complaint. On appeal to the CA, it affirmed SEC’s decision. Hence, this petition for certiorari with the SC.

Issue: Whether or not SEC had jurisdiction.

Held: No. The registration of shares in a stockholder’s name, the issuance of stock certificates, and the right to receive dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or not a shareholder is entitled to exercise the above mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts.

In the case at bar, reading into the contract of pledge, the stipulation shows that Lim Tay was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure was not automatic, for it must be done in a public or private sale. Nowhere was it mentioned that he exercised his right of foreclosure. Hence, his status was still a mere pledgee, and under civil law, this does not entitle him to ownership of the shares of stock in question.

Nicario vs. NLRC [295 SCRA 619 (Sept 17 1998)]Corporate Officers not personally liable for Authorized Corporate ActsSeparate Corporate Personality

Facts: Nicario was employed as a salesgirl, later promoted to supervisor, with Mancao Supermarket. She was terminated in 1989. Nicario filed a complaint for illegal dismissal with NLRC. The Labor Arbiter dismissed the case. Nicario appealed to the NLRC. NLRC remanded the case back to the Labor Arbiter for lack of due process. Labor Arbiter adjudged in favor of Nicario, ordering Mancao Supermarket to pay unpaid service incentive leave, 13 th

month pay, overtime pay and rest day pay, but dismissed Nicario’s claims for holiday premium pay and unpaid salaries.

Nicario appealed to NLRC. It affirmed in toto the decision of the Labor Arbiter. In its motion for reconsideration, NLRC deleted the award of overtime pay and ruled that Antonio Mancao is not jointly and severally liable with Mancao Supermarket in paying Nicario. Hence, this certiorari proceeding.

Issue: Whether or not Antonio Mancao is solidarily liable with Mancao Supermarket as manager.

Held: NO. The general rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.

In this case, there is no showing that Antonio Mancao, as manager of the company, deliberately and maliciously evaded the company’s financial obligation to Nicario. Hence, there appearing to be no evidence on record that Antonio Mancao acted maliciously or deliberately in the non-payment of benefits to Nicario, he cannot be held jointly and severally liable with Mancao supermarket.

San Juan Structural and Steel Fabricators Inc. vs. CA [296 SCRA 631 (Sept 29 1998)]Effect of Unauthorized Acts of Corporate OfficerSufficiency of Proof to Pierce Veil of Corporate Fiction

Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich Sales Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to the former a parcel of land upon a P100,000 earnest money, balance to be payable within March 2, 1989. Upon payment of the earnest money, and on March 1, 1989, San Juan

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allegedly asked to be submitted a computation of the balance due to Motorich. The latter, despite repeated demands, refused to execute the Deed of Assignment of the land. San Juan discovered that Motorich entered into a Deed of Absolute Sale of the land to ACL Development Corporation. Hence, San Juan filed a complaint with the RTC.

On the other hand, Motorich contends that since Nenita Gruenberg was only the treasurer of said corporation, and that its president, Reynaldo Gruenberg, did not sign the agreement entered into by San Juan and Motorich, the treasurer’s signature was inadequate to bind Motorich to the agreement. Furthermore, Nenita contended that since San Juan was not able to pay within the stipulated period, no deed of assignment could be made. The deed was agreed to be executed only after receipt of the cash payment, and since according to Nenita, no cash payment was made on the due date, no deed could have been executed.

RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich to enter into said contract with San Juan, and that a majority vote of the BoD was necessary to sell assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA affirmed this decision. Hence, this petition with SC.

Issues: (1) Whether or not there was a valid contract existing between San Juan and Motorich.(2) Whether or not the veil of corporate fiction could be pierced.

Held: (1) No. The contract entered into between Nenita and San Juan cannot bind Motorich, because the latter never authorized nor ratified such sale. A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders and may not be sold by them without express authorization from the corporation’s BoD. This is in accordance with Sec. 23 of the Corporation Code.

Indubitably, a corporation can only act through its BoD or, when authorized either by its by laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the AoI, by laws, or relevant provisions of law. A corporate officer or agent may represent and bind the corporation in transactions with 3rd persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. Furthermore, persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.

In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenita’s authority to represent the corporation. Selling is obviously foreign to a corporate treasurer’s function. Neither was real estate sale shown to be a normal business activity of Motorich. The primary purpose of said corporation is marketing, distribution, import and export relating to a general merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority.

Acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their authority, their actions cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them.

(2) No. San Juan argues that the veil of corporate fiction should be pierced because the spouses Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital stock, they needed no authorization from the BoD to enter into the said contract.

The veil can only be disregarded when it is utilized as a shield to commit fraud, illegality or inequity, defeat public convenience, confuse legitimate issues, or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation. Hence, the question of piercing the veil becomes a matter of proof. In the case at bar, SC found no reason to pierce the veil. San Juan failed to establish that said corporation was formed for the purpose of shielding any fraudulent act of its officers and stockholders.

People's Aircargo and Warehousing Co., Inc. vs. CA [297 SCRA 170 (Oct 7 1998)]

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Power of Board of Directors to Bind Corporation

Facts: People's Aircargo is a domestic corporation organized to operate a customs bonded warehouse. To obtain a license for the corporation from the Bureau of Customs, Punsalan, its President, solicited a proposal from Sano for the preparation of a feasibility study. Sano submitted a letter proposal to Punsalan of the terms and conditions of the contract, amounting to P350,000.00. Punsalan sent a letter to Sano confirming to their agreement. Accordingly, Sano prepared the feasibility study. Sano was paid in full.

Thereafter, a 2nd contract was entered into for consultancy services. Hence, the Bureau of Customs issued a license to People's Aircargo. Sano was not paid for this 2nd contract. Hence, he filed a collection case against the corporation. Meanwhile, Punsalan sold his shares in People's Aircargo andresigned as president.

People's Aircargo denied that there were consultancy services rendered by Sano. It alleged that the 2nd contract entered into between him and Punsalan was without authority.

RTC adjudged in favor of Sano. CA affirmed. Hence, this petition.

Issue: Whether or not the Punsalan had apparent authority to bind People's Aircargo to the 2nd contract.

Held: Yes. The general rule is that, in the absence of authority from the BoD, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, having powers, attributes and properties expressly authrized by law or incident to its existence. Being a juridical entity, a corporation may act through its BoD, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management as is under Sec. 23 of the Corporation Code.

The power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to AoI, by laws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the BoD may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by laws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business.

In the case at bar, since the corporation had previously allowed Punsalan to enter into the first contract with Sano without a board resolution expressly authorizing him, thus, it had clothed its president with apparent authority to execute the subject 2nd contract.

If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts, and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.

MWSS vs. CA [297 SCRA 287 (Oct 7 1998)]Acts of Corporate Officer: Effects of Ratification by Board

Facts; MWSS leased 128 hectares of its land to CHGCCI for 25 years with a stipulation allowing the latter to exercise a right of first refusal should the subject property be made open for sale. The terms and conditions of CHGCCI’s purchase was nonetheless subject to presidential approval.

Then Pres. Marcos directed MWSS to negotiate the cancellation of this lease agreement between MWSS and CHGCCI. However, MWSS’ general manager, Ilustre, informed CHGCCI that the property was up for sale, and that as per their contract, CHGCCI had the preferential right to buy said property. Hence, the property was purchased, and Pres. Marcos later on approved this sale. Then, BoT of MWSS also approved the sale by passing a resolution. CHGCCI sold the land to Ayala.

10 years later, MWSS filed an action against CHGCCI and Ayala in RTC praying for the declaration of nullity of the MWSS-CHGCCI sales agreement. RTC dismissed the petition. CA affirmed. Hence, this petition for certiorari with SC. MWSS holds that Ilustre was never given the authority by the BoT to enter into the initial agreement, and therefore, the sale of the property was null and void.

Issue: Whether or not the sale was valid.

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Held: Yes. Assuming that Ilustre was not given the ample authority to enter into the agreement, this infirmity was cured by ratification. So settled is the precept that ratification can be made by the corporate board either expressly or impliedly. Implied ratification may take various forms – like silence or acquiescence, by acts showing approval or adoption of the contract, or by acceptance and retention of benefits flowing therefrom. Both modes of ratification have been made in this case. There was express ratification made by the BoT of MWSS when it passed a resolution approving the sale of the subject property to CHGCCI, authorizing Ilustre to sign for and in behalf of MWSS the contract papers relative thereto. Implied ratification by silence or acquiescence is revealed from the acts of MWSS in sending 3 demand letters for the payment of the purchase price, accepting P25M as down payment, and accepting a letter of credit for the balance. Furthermore, MWSS did not return any of these amounts covering the purchase price at any point in time. This is indicative of MWSS’ acceptance and retention of benefits flowing from the sales transactions which is another form of implied ratification.

1997

Hahn v. Court of Appeals [266 SCRA 537 (January 22, 1997)]Jurisdiction Over Foreign CorporationDoing Business in the Philippines Without a License

Facts: Petitioner is a Filipino citizen doing business under the name of “Hahn-Manila”. Private respondent BMW is a non-resident corporation incorporated in Germany. Petitioner executed in favor of private respondent a “Deed of Assignment with a Special Power of Attorney” which constituted petitioner as the exclusive dealer of private respondent as long as the assignment of its trademark and device subsisted. However, no formal contract was drawn between the two parties. Thereafter, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to Columbia Motors Corp. (CMC). BMW expressed dissatisfaction with various aspect of petitioner’s business but nonetheless also expressed willingness to continue business relations with petitioner on the basis of a standard BMW contract otherwise, if said offer was unacceptable to petitioner then BMW would terminate petitioner’s exclusive dealership. Petitioner refused BMWs offer in which case BMW withdrew its alternative offer and terminated petitioner's exclusive dealership. Petitioner therefore filed an action for specific performance and damages against BMW to compel it to continue the exclusive dealership.

BMW moved to dismiss the case contending that the trial court did not acquire jurisdiction over it through the service of summons on DTI because BMW is a foreign corporation and is not doing business in the Philippines. The trial court deferred the resolution of the motion for dismissal until after trial on the merits for the reason that the grounds advanced by BMW did not seem indubitable. BMW appealed said order to the CA. The CA resolved that BMW was not doing business in the country and therefore jurisdiction over it could not have been acquired through the service of summons on DTI and it dismissed the petition.

Issue: W/N BMW is doing business in the Philippines so as to enable the court to acquire jurisdiction over it through the service of summons on the DTI.

HeId: RA 7042 enumerates what acts are considered as “doing business”. Section 3(d) enumerating such acts includes the phrase “appointing representatives or distributors in the Philippines” but not when the representative or distributor “transacts” business in his own name for his own account. In the case at bar, petitioner is private respondent BMW’s agent and not merely a broker. The record reveals that private respondent exercised control over petitioner’s activities as a dealer and made regular inspections of petitioner’s premises to enforce its standards. Since BMW is considered as doing business in the Philippines, the trial court validly acquired jurisdiction over it by virtue of the service of summons on the DTI. Furthermore, it is now settled that, for purposes of having summons served on a foreign corporation in accordance with the Rules of Court, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations in the complaint in order to determine whether or not it acquired jurisdiction. Such determination that the foreign corporation is doing business in the Philippines is only tentative and only for the purpose of enabling the court to acquire jurisdiction. A contrary determination may be made based on the court’s findings or evidence presented.

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Eriks PTE., Ltd. v. Court of Appeals [February 6, 1997]Effect of Doing Business in Philippines without a License: Barred From Access to Courts

Facts:1. Petitioner Eriks Pte., Ltd. is a nonresident foreign corporation engaged in the manufacture

and sale of elements used in sealing pumps, valves and pipes for industrial purposes, and PVC pipes and fittings for industrial uses.

2. Private respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings.

3. The transfer of goods were perfected in Singapore for private respondent’s account with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent to settle his account, but the latter failed/refused to do so.

4. Petitioner corporation filed with the RTC a complaint for the recovery of US$41,939.63. Private respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal capacity to sue. The trial court dismissed the action on the ground that petitioner is a foreign corporation doing business in the Philippines without a license.

5. On appeal, the respondent court affirmed the RTC as it deemed the series of transactions between petitioner corporation and private respondent not to be an “isolated or casual transaction.” Thus, respondent court found petitioner to be without legal capacity to sue.

Issue: Is a foreign corporation which sold its products 16 times over a 5-month period to the same Filipino buyer without first obtaining a license to do business in the Philippines, prohibited from maintaining an action to collect payment therefor in Philippine courts? In other words, is such foreign corporation “doing business” in the Philippines without the required license and thus barred access to our court system?

Held:1.The Corporation Code provides:

“Section 133. Doing business without a license — No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.” The aforementioned provision prohibits, not merely absence of the prescribed license, but it also bars a foreign corporation “doing business” in the Philippines without such license access to our courts. A foreign corporation without such license is not ipso facto incapacitated from bringing an action. A license is necessary only if it is “transacting or doing business” in the country.

2. The test to determine whether a foreign company is “doing business” in the Philippines, thus: "x x x The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term 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 progressive prosecution of, the purpose and object of its organization (Mentholaturn Co., Inc. v. Mangaliman).

3. The accepted rule in jurisprudence is that each case must be judged in the light of its environmental circumstances. It should be kept in mind that the purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking the steps necessary to render it amenable to suits in the local courts.

4. Thus, we hold that the series of transactions in question could not have been isolated or casual transactions. What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of

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such intention. The phrase "isolated transaction” has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is “doing business” does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions.

5. Accordingly, petitioner must be held to be incapacitated to maintain the action a quo against private respondent. By this judgment, we are not foreclosing petitioner’s right to collect payment. Res judicata does not set in a case dismissed for lack of capacity to sue, because there has been no determination on the merits. Moreover, this Court has ruled that subsequent acquisition of the license will cure the lack of capacity at the time of the execution of the contract. By securing a license, a foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it.

Republic Planters Bank vs. Agana, Sr. [March 3, 1997]Rights of Holders of Perferred SharesLegality of Interest Bearing Shares

1. Private respondent Robes Francisco Realty & Dev’t Corp. secured a loan from petitioner in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to private respondent corporation. In other words, instead of giving the legal tender totaling to the full amount of the loan which is P120,000.00, petitioner lent such amount partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia Robes and Carlos Robes, who, however, subsequently endorsed his shares in favor of Adalia Robes.

Said certificates of stock bear the following terms and conditions:1. The right to receive a quarterly dividend of 1%, cumulative and participating.2. That such preferred shares may be redeemed, by the system of drawing lots, at any time

after 2 years from the date of issue at the option of the Corporation.Private respondents proceeded against petitioner and filed a complaint anchored on

private respondents’ alleged rights to collect dividends under the preferred shares in question and to have petitioner redeem the same under the terms and conditions of the stock certificates.

The trial court ordered the petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1% quarterly interest. Hence this petition.

Issue: W/N respondents have the right to collect dividends and whether they can compel petitioner to redeem the preferred shares.

Held:1. A preferred share of stock is one which entitles the holder thereof to certain preferences

over the holders of common stock. The preferences are designed to induce persons to subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred as to dividends. The former is a share which gives the holder thereof the preference in the distribution of the assets of the corporation in case of liquidation; the latter is a share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common stock. There is no guarantee, however, that the share will receive any dividends.

2. Preferences granted to preferred stockholders do not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter. Shareholders, both common and preferred are considered risk takers who invest capital in the business arid who can look only to what is left after corporate debts and liabilities are fully paid.

3. Redeemable shares are shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder, or both at certain redemption price; redemption may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature.

4. While the stock certificates in the case at bar does allow redemption, the option to do so

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was clearly vested in the petitioner bank. The redemption is therefore optional.5. The redemption of said shares cannot be allowed. The Central Bank made a finding that

said petitioner has been suffering from chronic reserve deficiency, and that such finding resulted in the directive prohibiting the petitioner bank from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason.

6."Interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only.

Samahan ng Optometrists sa Pilipinas v. Acebedo International Corp. [270 SCRA 298 (March 21, 1997)]Powers of the Corporation

Facts: Respondent Acebedo Optical applied for a permit with the Office of the Mayor of Cancion, Ilocos Sur for the operation of a branch office. Said application was opposed by herein petitioner on the ground that respondent is a juridical entity. Said application was denied.

Issue: WIN a corporation engaged in the business of selling optical wares, supplies, etc. which as an incident to and in the ordinary course of business hire optometrists be said to be practicing the profession of optometry which may only be engaged in by natural persons.

Held: Respondent is a corporation created and organized for the purpose of conducting the business of selling optical lenses, etc. The determination of proper lenses to sell entails the employment of optometrists. Under R.A. 8050 (Revised Optometry Law), there is no prohibition against hiring by corporation of optometrists or considers the hiring by the corporation of optometrists as a practice by the corporation itself of the profession of optometry.

Aguenza v. Metrobank [GR 74336, April 7, 1997]Effects of Unauthorized Acts of Corporate Officers

Facts: Intertrade Corp authorized and empowered Aguenza and Arrieta (its president and EVP, respectively) to jointly apply for open credit lines with Metrobank. The two officers executed a Continuing Suretyship Agreement whereby both bound themselves jointly and severally with Intertrade to pay Metrobank whatever obligation Intertrade occurs. Subsequently, Arrieta and Perez, Intertrade's bookkeeper, obtained another loan from Metrobank and they also promised to pay the loan, jointly and severally. Arrieta and Perez defaulted in the payment. Metrobank sued Intertrade, impleading Aguenza on the basis of the Continuing Suretyship Agreement executed earlier. (Incidentally, Intertrade made an admission that the loan obtained by Arrieta and Perez was a corporate liability.)

Issue: WIN Aguenza is liable.

Held: No. Arrieta’s subsequent action (of obtaining the loan together with Perez) was ultra vires, and to bind the corporation, it had to be ratified through a board resolution. Emphatically, Intertrade has a distinct personality separate from its members. The corporation transacts its business only through its corporate officers or agents. Whatever authority these officers or agents may have is derived from the Board of Directors or other governing body unless conferred by the charter of the corporation. An officer’s power as an agent of the corporation must be sought from the statute, charter, the by laws, as in a delegation of authority to such officer, or the acts of the Board of Directors formally expressed, or implied from a habit or custom of doing business.

Garcia vs. CA [GR 123639, June 10, 1997]Jurisdiction of SEC

Facts: ARCI and Chiudian (major stockholders of Dynetics) acquired a foreign loan with Philguarantee as guarantor. They defaulted in the payment of the loan causing a collapse in the business of Dynetics. Garcia (president of Dynetics), ARCI and Chiudian eventually entered into a Settlement and Mutual Release Agreement (SMRA) in order to settle the financial

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condition of the company and to rehabilitate it. Philguarantee allegedly reneged on its commitment and Garcia filed a case against it in the regular courts. Philguarantee questioned the jurisdiction of the regular courts and insisted that the case should have been filed with SEC.

Issue: W/N SEC has jurisdiction.

Held: Yes. SC stated thus: "To determine which body has jurisdiction over the present controversy, we rely on the sound judicial principle that jurisdiction over the subject matter of a case is conferred by law and determined by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein. We have judiciously gone over petitioner’s original complaint and are convinced that the case at bar is a classic illustration of a dispute between stockholders -- private respondent, the current majority and controlling stockholder of Dynetics and petitioner, the erstwhile majority stockholder of said corporation . Petitioner’s stubborn insistence that he brought the case for damages in his capacity as an aggrieved surety and not as a stockholder is belied by the opening statement in his complaint.”

The case of Lozano vs. de los Santos, GR 125221, June 19, 1997, likewise held as follows:

"The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. This jurisdiction is determined by a concurrence of 2 elements, (1) the status or relationship of the parties; (2) the nature of the question that is the subject of their controversy."

Grace Christian High School v CA [(October 23, 1997)]Right of Share Holders to Vote for the Board of DirectorsRight of Share Holders to Be Voted to the Board of Directors

Facts: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village. In 1968, the by-laws of the association provided in Article IV, as follows: “The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one year until their successors are duly elected and have qualified.”

On December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows: “The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.”

This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. From 1975 until 1989 petitioner's representative had been recognized as a "permanent director" of the association. But on February 13, 1990, petitioner received notice from the association's committee on election that the latter was "reexamining" (actually, reconsidering) the right of petitioner's representative to continue as an unelected member of the board. As the board denied petitioner's request to be allowed representation without election, petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGC's appeals board. Hence this petition for review.1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association;2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the Association without the benefit of election is allowed under the law.

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Issue: (1) WON the 1975 Amendment is valid despite not having been approved by the General Assembly

(2) WON the Corporate Code grants Grace Christian High School a right to a seat at the Board

Held: (1) This provision of the by-laws actually implements §22 of the Corporation Law which provides that the owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting.

The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all intents and purposes should be considered to have been ratified by them. Petitioner contends: Considering, therefore, that the "agents" or committee were duly authorized to draft the amended by-laws and the acts done by the "agents" were in accordance with such authority, the acts of the "agents" from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized "agents" but express approval and confirmation of what the "agents" did pursuant to the authority granted to them.

(2) The present Corporation Code (B.P. Blg. 68) provides:“§23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the

corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.”

This provision leave no room for doubt as to the meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law.

It is probable that, in allowing petitioner's representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the existence of the association."

CREDIT TRANSACTIONS

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2001

Project Builders, Inc. v. CA [June 19, 2001]Usury Law

Facts: On August 21, 1975, plaintiff-respondent Industrial Finance Corporation (ICF) and defendant-petitioner Project Builders Inc. (PBI) entered into an agreement whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00 (which was subsequently increased to 5,000,000) against which said defendant would discount and assign to plaintiff on a ‘with recourse non-collection basis’ its (PBI’s) accounts receivable under the contracts to sell specified in said agreement. Against the credit line, defendant PBI discounted with plaintiff on different dates accounts receivables with different maturity dates from different condominium-unit buyers.

To secure compliance with the terms and conditions of the agreement, defendants on the same date executed a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly defaulted in the payment of the subject account, plaintiff foreclosed the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00.’

‘The foreclosed property was redeemed a year later, but after application of the redemption payment, plaintiff claims that there is still a deficiency in the amount of P1,323,053.08. Issue: WON the agreement forged by petitioners and private respondent is a simple loan or a financing transaction governed by the provisions of Republic Act No. 5980; and

WON there was a violation of the Usury law.

HELD:It is a financing agreement. private respondent is a financing company as so defined by the

Financing Company Act.(a) “Financing companies,” x x x organized for the purpose of extending credit

facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property.

An insistence of petitioners that the subject transaction should be considered a simple loan since private respondent did not communicate with the debtors, condominium unit buyers, to collect payment from them, is untenable. In an assignment of credit, the consent of the debtor is not essential for its perfection, his knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he might make. Since it is a financing agreement, plaintiff can still recover the deficiency.

Petitioners’ claim that private respondent is proscribed from imposing interest and other charges beyond the limits set out by the Financing Company Act lacks merit. The law states:

“SEC. 5. Limitation on purchase discount, fees, service and other Charges. --- In the case of assignments of credit or the buying of installment papers, accounts receivables and other evidences of indebtedness by financing companies, the purchase discount, exclusive of interest and other charges, shall be limited to fourteen (14%) per cent of the value of the credit assigned or the value of the installment papers, accounts receivable and other evidence of indebtedness purchased based on a period of twelve (12) months or less, and to one and one-sixth (1 1/6%) per cent for each additional month or fraction thereof in excess of twelve months, regardless of the terms and conditions of the assignment or purchase.”

Clearly, the 14% ceiling provided for purchase discount is exclusive of interest and other charges. A purchase discount is distinct from interest. The term purchase discount refers to the difference between the value of the receivable purchased or credit assigned, and the net amount paid by the finance company for such purchase or assignment, exclusive of fees, service charges, interests and other charges incident to the extension of credit, and it is akin to “time price differential,” or the increase in price to cover the expense generally entailed by transactions on credit. There is thus no impingement of the Usury Law.

2000

PHILIPPINE NATIONAL BANK vs. SPOUSES FRANCISCO and MERCED RABAT

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(G.R. No. 134406. November 15, 2000)Extrajudicial Foreclosure Sale

In extrajudicial foreclosure sales, personal notice to the mortgagor is not necessary Section 3 of Act No. 3135 reads:

Section 3. Notice shall be given by posting of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.

Clearly personal notice to the mortgagor is not required. The requirements of posting and publication in a newspaper of general circulation were duly complied with by the PNB as correctly found by the trial court, to which we accord great respect. A question of non-compliance with the notice and publication requirements of an extrajudicial foreclosure sale is a factual issue and the resolution thereof by the trial court is binding and conclusive upon us absent any showing of grave abuse of discretion.

Colinares vs. Court of Appeals [339 SCRA 609 (Sept. 25,2000)]Trust Receipts Law

Facts: Melvin Colinares and Lordino Veloso (Petitioners) were contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s convent. Petitioners obtained the materials needed for the construction project from CM Builders Centre. Petitioners applied for a commercial letter of credit with the Philippine Banking Corporation (PBC) in favor of CM Builders Centre. PBC approved the letter of credit to cover the full invoice value of the goods. Petitioners signed a pro-forma trus receipt as security.

PBC wrote to Petitioners demanding that the amount be paid within seven days from notice. Instead of complying with the demand, Veloso confessed that they lost P19,195 in the Carmelite Monastery Project and requested for a grace period to settle the account. The grace period lapsed and PBC sent a new demand letter to Petitioners. Petitioners proposed that the terms of payment of the loan be modified. Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Art. 315 of the Revised Penal Code. The Petitioners were convicted.

Issue: Assuming there was a valid trust receipt, whether or not the accused were properly charged, tried and convicted for violation of P.D. No. 115 in relation to Art. 315 of the RPC, notwithstanding the novation of the so-called trust receipt converting the trustor-trustee relationship to creditor-debtor situation

Held: Section 4 of P.D. No. 115 defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called a “trust receipt” wherein the enteustee binds himself to hold the designated goods, documents or 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 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. A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a simple loan, not a trust receipt agreement. On the day the Petitioners received the merchandise from CM Builders Centre, ownership was already transferred to Petitioners who were to use the materials for the construction project. It was only a day later that they went to the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan. Nowhere in the testimony of PBC’s witness does it appear that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust receipt implications. The Information charged Petitioners with intent to defraud and misappropriating the money for their personal use. But Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation. Petitioners acquitted.

MELVIN COLINARES and LORDINO VELOSO vs. HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES (G.R. No. 90828, September 5, 2000)Sectrans; Trust receipts

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Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or 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 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.

There are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which refers to merchandise received under the obligation to "return" it (devolvera) to the owner.

Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, 34 without need of proving intent to defraud.

HUERTA ALBA RESORT INC. vs. COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC. (G.R. No. 128567, September 1, 2000)Security Transactions: Equity of Redemption and Right of Redemption; Estoppel

The right of redemption in relation to a mortgage – understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale – exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution.

Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriff's certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale 'when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure — after confirmation by the court of the foreclosure sale — which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property.

To repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, 'when confirmed by an order of the court. . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser.' There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.

Philippine National Bank vs. Court of Appeals [337 SCRA 381 (Aug. 8, 2000)]Preference of Credit: Maritime Lien

Facts: To finance the acquisition of 7 shipping vessels, the Philippine International Shipping Corporation (PISC) applied for and was granted by National Investment Development Corporation (NIDC) guaranty accomodations. As security for these guaranty accomodations, PISC executed chattel mortgages on the vessels to be acquired by it. Meanwhile, PISC entered into a contract with Hong Kong United Dockyards, Ltd. for the repair and conversion of one of the vessels, M/V Asean Liberty. The Central Bank of the Phils. authorized PISC to open with China Banking Corporation (CBC) a standby letter of credit for US$545,000 in favor of Citibank, N.A. to cover the repair and partial conversion of the vessel M/V Asean Liberty.PISC executed an Application and Agreement for Commercial Letter of Credit for US$545,000

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with CBC in favor of Citibank. CBC then issued its Irrevocable Standby Letter of Credit for US$545,000 in favor of Citibank for the account of PISC. PISC executed a promissory note for US$545,000 in favor of Citibank pursuant to the Loan Agreement between PISC and Citibank. Upon failure of PISC to fulfill its obligations, Citibank sent CBC a letter drawing on the Letter of Credit. CBC then instructed its correspondent Irving Trust Co. to pay to Citibank the amount of US$242,225. Subsequently, for failure of PISC to settle its obligations under the guaranty accommodations, the Philippine National Bank (PNB) conducted an auction sale of the mortgaged vessels. NIDC emerged as the highest bidder in these auctions. PISC, claiming that the foreclosure sale of its mortgaged vessels was illegal and irregular, instituted a civil case for the annulment of the foreclosure and auction sale. CBC filed a complaint in intervention for recovery upon a maritime lien against the proceeds of the sale of the foreclosed vessels.

Issue: Whether or not CBC’s claim as evidenced by its Irrevocable Letter of Credit is in the nature of a maritime lien under the provisions of P.D. No. 1521; and if so, whether or not said maritime lien is preferred over the mortgage lien of PNB/NIDC on the foreclosed vessel M/V Asean Liberty

Held: Under the provisions of P.D. No. 1521, any person furnishing repairs, supplies, or other necessities to a vessel on credit will have a maritime lien. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage lien. In this case, it was Hongkong United Dockyards, Ltd. which originally possessed a maritime lien over the vessel M/V Asean Liberty by virtue of its repair of the said vessel on credit. CBC, however, stands as guarantor of the loan extended by Citibank to PISC. It was Citibank which advanced the money to PISC. It was only upon the failure of PISC to fulfill its obligations under its promissory note to Citibank that CBC was called upon by Citibank to exercise its duties under the Standby Letter of Credit. The applicable law, which is the Shipping Mortgage Decree of 1978, was patterned closely after the U.S. Ship Mortgage Act of 1920. Being of foreign origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed with the aid of foreign jurisprudence. Under American jurisprudence, “furnishing money to a master in good faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a lien just as though the things for which money was obtained to pay for had been furnished by the lender”. This is in accord with Art5. 1302 of the Civil Code which provides that there is legal subrogation “when a third person, not interested in the fulfillment of the obligation, pays with the express or tacit approval of the debtor”. In this case, the amount for the repair of vessel M/V Asean Liberty was advanced by Citibank and was used for the purpose of paying off the original maritime lienor, Hongkong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank was subrogated to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the vessel. CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the latter’s debtor. Art. 2067 of the civil Code provides that “the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor”.

When CBC honored its contract of guaranty with Citibank on March 30, 1983, it also acquired by subrogation the maritime lien over the vessel which attached to it on March 12, 1979 in favor of Hongkong United Drydocks, Ltd. The maritime lien of CBC thus arose prior to the recording of PNB/NIDC’s mortgage on September 25, 1979. As such, the said maritime lien has priority over the said mortgage lien.

PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR. vs. COURT OF APPEALS, THE HONORABLE DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD (DARAB), ALFREDO PARE, PABLO GALANG and AMADO VIE (G.R. No. 129572, June 26, 2000)Sectrans; Right of Redemption

Republic Act No. 3844, Section 12, provides as follows:"In case the landholding is sold to a third person without the knowledge of the agricultural lessee, the latter shall have the right to redeem the same at a reasonable price and consideration. Provided, that the entire landholding sold must be redeemed. Provided further, that where there are two or more agricultural lessees, each shall be entitled to said right of redemption only to the extent of the area actually cultivated by him. The right of redemption under this section may be exercised within two (2) years from the registration of the sale and shall have priority over any other right of legal redemption."

In this case, the certificate of sale of the subject property, which was sold at public auction, was registered with the Register of Deeds of Pampanga on July 31, 1985. The two-year redemption period thus expired on July 31, 1987. The complaint for redemption was filed

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by respondents only on July 14, 1992, five (5) years after expiration of the redemption period prescribed by law.

Nonetheless, private respondents may continue in possession and enjoyment of the land in question as legitimate tenants because the right of tenancy attaches to the landholding by operation of law. The leasehold relation is not extinguished by the alienation or transfer of the legal possession of the landholding.

SPS. ONG v. CA (GR. No. 121494, June 8, 2000.)Securities Transactions; Mortgage, ForeclosureAs a rule, any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession. Regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice of course to the eventual outcome of said case. Hence, an injunction to prohibit the issuance of writ of possession is entirely out of place.

Eastern Assurance and Surety Corporation v. CA [322 SCRA 73 (Jan. 18, 2000)]Rate of Legal Interest

Facts: Private Respondent Tan insured his building in Dumaguete against fire with petitioner Eastern Assurance (EASCO). In 1981, the building was destroyed by fire. Tan’s claim for indemnity was refused and therefore he filed a complaint for breach of contract with damages. The RTC order EASCO to pay Tan the sum of the insurance policy plus legal rate of interest from June 26 until fully paid.

The CA affirmed the decision. No further appeal was taken and the same became final and executory on Aug, 25 1993. EASCO thereafter tendered the full amount of the policy plus interest of 6% per annum from June 1981 to July 1993. Tan refused the accept on the ground that the legal rate of interest is 12%. EASCO filed with the RTC to fix the legal rate of interest. The RTC issued a resolution fixing it at 12%. The CA set the interest at 6% from June 26, 1981 to Aug. 24,1993 and 12% from Aug. 25, 1993 until money judgment is fully paid.

Issue: What is the legal rate of interest for money judgments?

Held: In Eastern Shipping Line v CA the Court held (at pp. 95-97)

"II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12 per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6 per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12 per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit

This case falls under paragraph 3. When the judgment awarding a sum of money becomes final and executory, the monetary award shall earn interest at 12% per annum from

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the date of such finality until its satisfaction, regardless of whether the case involves a loan or forbearance of money. The reason is that this interim period is deemed to be by then equivalent to a forbearance of credit

1999

PACIONARIA BAYLON v. CA & LEONILA TOMACRUZ (August 1999)Civil Law/ Credit Transactions

It is petitioner’s contention that even though she is a guarantor under the terms of the PN, she is not liable because private respondent did not exhaust the property of the principal debtor and has not resorted to all the legal remedies by law against the debtor. Petitioner is invoking the benefit of excussion pursuant to Art 2058 of the CC which provides that the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. SC agrees and further held that the liability of the guarantor may be determined only after that of the principal debtor has been adjudicated so that in the case at bar, it was held that it was premature to determine whether the petitioner is liable as a guarantor and whether she is entitled to such concomitant rights since the most basic prerequisite is wanting – that is, no judgement was first obtained against the principal debtor.

UNION BANK v CA & FERMINA & REYNALDO DARIO (August 1999)Civil Law/ Lis Pendens/ Real Estate Mortgage

The buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of 1 year after the registration of the sale. Thus, upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the RD.

However, with the main action for reconveyance pending before the RTC, the notice of lis pendens , which despite consolidation remains annotated on the buyer’s TCT subject to the outcome of the litigation, sufficiently protects private respondent’s interest over the property. A transferee pendente lite stands exactly in the shoes of the transferor.

PAMECA WOOD TREATMENT PLANT et al. v. CA (July 1999)Civil Law/ Chattel Mortgage

The effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Art 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation, Sec 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs.

Since the Chattel Mortgage Law bares the creditor-mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction.

Busuego vs. CA [304 SCRA 473 (March 11 1999)]Power of Monetory Board

Facts: The 16th regular examination of the books and records of PAL Employees Savings and Loan Association (PESALA) was conducted by a team of CB Examiners. Several irregularities were found to have been committed by the PESALA officers. Hence, CB sent a letter to petitioners for them to be present at a meeting specifically for the purpose of investigating said anomalies. Petitioners did not respond. Hence, the Monetary Board adopted a resolution including the names of the officers of PESALA in the watchlist to prevent them from holding responsible positions in any institution under CB supervision.

Petitioners filed a petition for injunction against the MB in order to prevent their names from being added in the said watchlist. RTC issued the TRO. The MB appealed to the CA which reversed RTC. Hence, this petition for certiorari with the SC.

Petitioners contend that the MB resolution was null and void for being violative of their right to due process by imposing administrative sanctions where the MB is not vested with

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authority to disqualify persons from occupying positions in institutions under the supervision of CB.

Issue: Whether or not the MB resolution was null and void.

Held: NO. The CB, through the MB, 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 quasi-banking functions of which savings and loan associations, such as PESALA, form part of.

The special law governing savings and loan associations is R.A. 3779, the Savings and Loan Association Act. Said law authorizes the MB to conduct regular yearly examinations of the books and records of savings and loan associations, to suspend a savings and loan association for violation of law, to decide any controversy over the obligations and duties of directors and officers, and to take remedial measures. Hence, the CB, through the MB, is empowered to conduct investigations and examine the records of savings and loan associations. If any irregularity is discovered in the process, the MB may impose appropriate sanctions, such as suspending the offender from holding office or from being employed with the CB, or placing the names of the offenders in a watchlist.

Tiomico vs. CA [304 SCRA 216 (March 4 1999)]Constitutionality of Trust Receipts Law

Facts: Tiomico opened a Letter of Credit with BPI for $5,600 to be used for the importation of 2 units of forklifts and a truck. Upon the maturity of the trust receipt, he made a partial payment, leaving a balance of $4,770. Failing to pay the said amount, he was accused of a violation of PD 115, otherwise known as the Trust Receipts Law for failure to remit back to BPI the proceeds of the sale of the forklifts or surrender said machineries if not sold.

Tiomico entered a plea of not guilty. RTC found him guilty. Hence, this petition for review with SC.

Issue: Whether or not the Trust Receipts Law violates the constitutional proscription against imprisonment for non-payment of debts.

Held: No. PD 115 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. It is within the authority of Congress to proscribe certain acts deemed pernicious and inimical to public welfare. Acts mala in se are not the only acts that the law can punish. An act may not be considered by society as inherently wrong, hence, not malum in se, but because of the harm that it inflicts on the community, it can be outlawed and criminally punished as malum prohibitum. The State can do this in the exercise of its police power.

In fine, PD 115 is a valid exercise of police power and is not repugnant to the constitutional provision of non-imprisonment for non-payment of debt.

The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner 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.

VALMONTE, ET AL V CA. PNB, ET AL. (Feb. 18, 1999)Extrajudicial Foreclosure; Requirements; Inadequacy of the Price, Redemption; Estoppel; Merger; Pactum Commissorium

Inadequacy of price is of no moment when there is a right to redeem for the reason that the judgment debtor has always the chance to redeem and reacquire the property. In fact, the property may be sold for less than its fair market value precisely because the lesser the price, the easier for the owner to effect a redemption.

Foreclosure sale conducted on a holiday is valid. Since the law used the word “MAY”, it is merely discretionary and cannot be given a probative meaning.

The act of asking for an extension of time to redeem foreclosed properties estops one from impugning the foreclosure sale.- If a party in interest enters into a lawful agreement, stipulation, compromise or arrangement calculated to benefit him in connection with a mortgage

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foreclosure sale, he inevitably affirms thereby the validity, force and effect of the sale. Similarly, a party cannot later on rely upon the supposed defects of the sale.

Merger; requirements.- (a) merger of the characters of the creditor and debtor must be in the same person; (b) it must take place in the person of the principal creditor or principal debtor; and (c) it must be complete and definite. There is merger when the mortgagee purchases the foreclosed properties on which it had another subsisting mortgage credit.- Here, merger took place in the person of PNB, the principal creditor. The merger was brought about when during the auction sale, PNB purchased the properties on which it had another subsisting mortgage credit. The two loans referred to are separate and distinct and the mere allegation of by petitioners that said loans constitute a single indivisible obligation is without evidence.

Pactum commissorium is not present when there is foreclosure of the mortgage.- PC takes place when in a mortgage contract, it is stipulated that the ownership of the property would automatically pass to the vendee in case no redemption is made within a given period, this enabling the mortgagee to acquire ownership of the mortgaged property without need of foreclosure. IT is not so in the present case where there was foreclosure of the mortgage.

Valid title passes to the vendee despite the existence of an annotated unforeclosed mortgage.

1998

Quezon Development Bank vs. CA [300 SCRA 206 (Dec 16 1998)]Penalty Charges

Facts: Quezon Development Bank (QDB) and Construction Services of Australia-Phils Inc. (CONSAPHIL) entered into a loan agreement by which QDB granted CONSAPHIL loans in the amount of P490,000 and P415,000. CONSAPHIL executed 2 promissory notes accordingly.

For failure to pay, QDB filed a case for recovery with the RTC of Makati. RTC adjudged in favor of QDB ordering CONSAPHIL to pay the sum of P850,000 with 48% interest. CONSAPHIL appealed to the CA. CA modified RTC’s judgment ordering CONSAPHIL to pay P905,000 with 14% interest plus a penalty of 36% per annum.

CONSAPHIL filed a motion for reconsideration. CA modified its decision absolving CONSAPHIL from paying the penalty of 36% per annum. Hence, this petition for review on certiorari filed by QDB alleging that the promissory notes clearly stipulate the payment of penalty charges in the event of failure of the borrowers to pay the notes on maturity and that CONSAPHIL fully understood this. To support this, QDB showed a letter written by CONSAPHIL requesting QDB to waive the penalty charges. CONSAPHIL, on the other hand, claims that the penalty charges only apply in the event the amounts of the loan were subject to amortizations.

Issue: Whether the penalty charges are applicable to the amounts stated in the promissory notes.

Held: NO. The subject promissory notes were on a standard form used by QDB. In these instruments, there are stipulations regarding amortizations although the loans in this case were payable in lump sums and that the loan agreements did not provide for them much less for the payment by the borrower of penalty charges.

Clearly, the stipulations regarding penalty charges have no application to the loans in this case which are payable in lump sum.

With regard to the waiver, SC held that CONSAPHIL was only mistaken concerning a question of law, and that this cannot be the basis of a finding of liability.

Medel vs. CA [299 SCRA 481 (Nov 27 1998)]Usury Law

Facts: Medel obtained several loans from Gonzales totalling P500,000. These were evidenced by several promissory notes agreeing to an interest rate of 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month.. On maturity, Medel failed to pay their indebtedness. Hence, Gonzales filed with the RTC of Bulacan a complaint for collection of the full amount of the loan.

RTC declared that the promissory notes were genuine, however, it ruled that although the Usury Law had been repealed, the interest charged by Gonzales on the loans was

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unconscionable. Hence, RTC applied the legal rate of interest for loan of money, goods or credit of 12% per annum.

CA reversed the ruling of the RTC holding that the Usury Law had become legally inexistent. Hence, this petition for review on certiorari.

Issue: Whether or not the interest rate stipulated upon was valid.

Held: NO. SC held that the stipulated rate of interest at 5.5% per month on the P500,000 loan was excessive. However, it could not consider the rate “usurious” because CB Circular No. 905 has expressly removed the interest ceilings prescribed by the Usury Law and that said law is now legally inexistent.

CB Circular 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. A CB Circular cannot repeal a law. Only a law can repeal another law. By virtue of this circular, the Usury Law has been rendered ineffective. Interest can no be charged as lender and borrower may agree upon.

Nevertheless, SC held that the interest of 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note was unconscionable, and hence, contrary to morals, if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.

SC ordered that the interest of 12% per annum and additional 1% a month penalty charge as liquidated damages reasonable.

A. Francisco Realty and Development Corp. vs. CA [298 SCRA 349 (Oct 30 1998)]Pactum Commissorium

Facts: A. Francisco Realty granted a loan of P7.5 M to spouses Javillonar, in consideration of which, the latter executed a promissory note, a real estate mortgage over a certain property, and a deed of sale of said mortgaged property in favor of A. Francisco.

Upon maturity, Javillonar spouses failed to pay, and as a consequence, A. Francisco registered the sale of the mortgaged property, for which a new TCT was issued.

A. Francisco demanded possession of the mortgaged realty. Spouses refused to vacate. Hence, A. Francisco filed a case for possession before the RTC.

The spouses admitted that they owed money in favor of A. Francisco but they also alleged that it was not their intention to sell the realty as the deed of sale executed by them was merely an additional security for the payment of their loan. RTC adjudged in favor of A. Francisco. On appeal, CA reversed RTC decision and dismissed the complaint against the spouses holding that the deed of sale was void, being in the nature of a pactum commissorium prohibited by law. Hence, this petition with the SC.

Issue: Whether or not the deed of sale executed by the spouses was void, being in the nature of pactum commissorium.

Held: Yes. Art. 2088 of the Civil Code provides that the creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is void. What is envisioned by this article is a provision in the deed of mortgage providing for the automatic conveyance of the mortgaged property in case of the failure of the debtor to pay the loan. A pactum commissorium is a forfeiture clause in a deed of mortgage. The proscribed stipulation of automatic conveyance must be found in the mortgage deed itself. In the case at bar, the stipulations in the promissory note provide that, upon failure of spouses to pay interest, ownership of the property would be automatically transferred to A. Francisco and the deed of sale in its favor would be registered. These stipulations are in substance a pactum commissorium. They embody the two elements of pactum commissorium, to wit:(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation;(2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.

Empire Insurance Company vs. NLRC [294 SCRA 263 (Aug 14 1998)]Liability of a Surety

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Facts: Andal applied with G&M Phils. for an overseas employment as a domestic helper in Saudi Arabia. She was hired for a term of 2 years. Upon working for 2 years, she was repatriated. Upon her repatriation, she brought a complaint before the POEA for illegal dismissal, non-payment and underpayment of salaries. Impleaded in the complaint was Empire Insurance as surety of G&M.

Empire Insurance Company theorized that Andal was without any cause of action against it for the alleged reason that the liability of its principal, G&M had not been established. Further, it argued that its liability, if any, for the money claims sued upon was merely subsidiary.

G&M contends that Andal was not illegally dismissed, but that she abandoned her job.POEA adjudged in favor of Andal ordering G&M to pay the salaries due Andal.Empire appealed the case to the NLRC. NLRC affirmed in toto the decision of the

POEA. Hence, this petition with the SC.

Issue: Whether or not NLRC erred in adjudging Empire jointly liable with G&M for the payment of Andal’s monetary claims.

Held: NO. Empire is solidarily liable with its principal, G&M. Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. Where the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal debtor such that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. The surety’s liability is solidary but the nature of its undertaking is such that unless and until the principal debtor is held liable it does not incur liability.

Lim Tay vs. CA [293 SCRA 634 (Aug 5 1998)]Contract of Pledge

Facts: Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of P40,000. This was secured by a contract of pledge whereby the former pledged their 300 shares of stock each in Go Fay & Company to the latter. However, they failed to pay their respective loans. Hence, Lim Tay filed a petition for mandamus against Go Fay & Company with the SEC praying that an order be issued directing the corporate secretary of the said corporation to register the stock transfers and issue new certificates in favor of Lim Tay.

Go Fay & Company filed its answer contending that SEC had no jurisdiction to entertain the complaint on the ground that since Lim Tay was not a stockholder of the company, no intra corporate controversy took place; and furthermore, that the default of payment of Sy Guiok and Sy Lim did not automatically vest in Lim Tay the ownership of the pledged shares.

SEC dismissed the complaint. On appeal to the CA, it affirmed SEC’s decision. Hence, this petition for certiorari with the SC.

Issue: Whether or not SEC had jurisdiction.

Held: No. The registration of shares in a stockholder’s name, the issuance of stock certificates, and the right to receive dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or not a shareholder is entitled to exercise the above mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts.

In the case at bar, reading into the contract of pledge, the stipulation shows that Lim Tay was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure was not automatic, for it must be done in a public or private sale. Nowhere was it mentioned that he exercised his right of foreclosure. Hence, his status was still a mere pledgee, and under civil law, this does not entitle him to ownership of the shares of stock in question.

PNB vs. Sayo, Jr. [292 SCRA 202 (July 9 1998)]Warehouse Receipts Law, Warehouseman’s Lien

Facts: Noah’s Ark Sugar Refinery issued several warehouse receipts covering sugar deposited by RNS Merchandising and St. Therese Merchandising. Subsequently, these same receipts were endorsed to Ramos and Zoleta. The latter then used the receipts as security for two loan agreements with PNB, thus endorsing them with said bank. When Ramos and Zoleta could not

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pay their loan to the bank, PNB demanded delivery of the sugar stocks covered by the receipts from Noah'’ Ark Sugar Refinery.

Noah refused to comply with the demand alleging ownership of the sugar. It alleged that the owner of Noah, Looyuko, entered into an agreement with RNS and St. Therese Merchandising to sell the sugar indicated in the warehouse receipts stored in Noah for an amount of P63,000,000. Checks were issued but they were dishonored for being drawn against insufficient funds.

Hence, PNB filed a complaint with the RTC. RTC dismissed said complaint. On appeal to the SC by way of petition for review on certiorari, SC ordered Noah and its owner, Looyuko, to deliver to PNB the sugar stocks covered by the warehouse receipts in controversy.

However, Noah filed an Omnibus Motion seeking deferment of the judgment until it was heard on its warehouseman’s lien. RTC granted the order and evidence was received in support thereof. RTC adjudged that there existed a valid lien in favor of Noah, and accordingly, execution of the judgment against Noah should be stayed until the full amount of Noah’s lien shall have been satisfied. PNB then filed certiorari proceedings before the SC. SC held that while PNB was entitled to the sugar stocks as endorsee of the receipts, delivery to it shall only be effected upon payment of the storage fees. SC further ruled that imperative is the right of the warehouseman to demand payment of his lien because he loses his lien upon goods by surrendering possession thereof.

RTC Judge Sayo, Jr. allowed a writ of execution in favor of Noah to collect on its warehouseman’s lien against PNB. Hence, this certiorari proceeding before the SC.

Issue: (1) Whether or not PNB is liable for storage fees. (2) If yes, what is the duration of time the right of PNB over the goods may be subject to the lien?

Held: (1) YES. PNB contends that it was a mere pledgee as the receipts were used to secure two loans it granted. SC agreed with this and held that the indorsement and delivery of the receipts by Ramos and Zoleta to PNB was not to convey title to or ownership of the goods but to secure the loans by way of pledge. The indorsement of the receipts to perfect the pledge merely constituted a symbolical or constructive delivery of the possession of the thing thus encumbered. The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge. Any stipulation to the contrary is null and void for being pactum commissorio. The law requires foreclosure in order to allow a transfer of title of the goods given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods.

However, SC held that the warehouseman nevertheless is entitled to his lien that attaches to the goods invokable against anyone who claims a right of possession thereon.

(2) SC held that where a valid demand by the lawful holder of the receipts for the delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse provided by the law itself, the warehouseman’s lien is thereafter concomitantly lost. As to what the law deems a valid demand, Section 8 of the Warehouse Receipts Law enumerates what must accompany a demand.

SC held that regrettably, the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with Sec. 8. The presumption, nevertheless, would be that the law was complied with. On the other hand, it would appear that the refusal of Noah to deliver the goods was not anchored on a valid excuse, i.e., non-satisfaction of the lien over the goods, but on an adverse claim of ownership. Under the circumstances, this hardly qualified as a valid, legal excuse. The loss of the 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. But even as to the owners-pledgors, the warehouseman fees and charges have ceased to accrue from the date of the rejection by Noah to heed the lawful demand by PNB for the release of the goods.

Hence, the time from which the fees and charges should be made payable is from the time Noah refused to heed PNB’s demand for delivery of the sugar stocks and in no event beyond the value of the credit in favor of the pledgee since it is basic that, in foreclosures, the buyer does not assume the obligations of the pledgor to his other creditors even while such buyer acquires title over the goods less any existing preferred lien thereover.

1997

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DOMINADOR D. BORNASAL, JR., Clerk of Court and Ex-Officio Sheriff, RTC Valenzuela v. DEPUTY SHERIFF JAIME T. MONTES, RTC Valenzuela, Br. 75 (October 1997)Civil Law/Extrajudicial foreclosure of real estate mortgage

Complainant alleged: (1) upon examining a petition for extrajudicial foreclosure, complainant realized that the property involved was in Taytay, Rizal, hence he refused to issue a notice of sheriff's sale; (2) respondent, together with a lady representative of a party, argued that pursuant to the PN secured by the mortgage, the stipulated venue of any legal action would be in Valenzuela; (3) complainant still refused to conduct the foreclosure sale pursuant to Act No. 3135, §2; (4) that the party withdrew its petition for extrajudicial foreclosure; and (5) but respondent issued/falsified complainant's signature on a notice of sheriff's sale concerning the property, likewise was the publication falsified.

Respondent categorically admitted all the accusations, but invoked good faith.Good faith is unavailing. Respondent could not have been unaware of the legal

consequences of his act of effecting a notice of sheriff's sale even after withdrawal of the petition for extrajudicial foreclosure. Further, the sale in Valenzuela of a property in Taytay contravened Act No. 3135, §2.

However, in view of respondent's plea of forgiveness which appears sincere and proceeds from a voluntary admission of charges = suspended for one (1) month without pay.

HILARIO T. DE LOS SANTOS v. CA, EMILIO MILLER, SR., et al. (September 1997)Civil Law/Subrogation; Civil Law & Commercial Law/Mortgages

Petitioner sued private respondents to remove a cloud and to deliver title. Miller was petitioner’s business partner in the MS Rice Mill Co. (MSRMC), while the other 2 private respondents were officials at Manphil Investment Corp. Petitioner alleged that he and Miller borrowed P450,000.00 from Manphil in consideration of which petitioner mortgaged his house and lot; and that out of the profits of MSRMC, Miller surreptitiously paid the loan from Manphil in full, but despite the fact that said payment extinguished the real estate mortgage, private respondents maliciously refused to return petitioner’s title.

Petitioner contends that under his agreement with Miller, the latter is entitled to be repaid what the latter had advanced in petitioner’s behalf, and that ownership of petitioner’s house and lot should not have “reverted automatically” to Miller.

Petitioner is under a misapprehension. The CA did not hold that by virtue of Miller’s payment in full of the loan to Manphil, Miller automatically owned petitioner’s property; only that Miller succeded to Manphil’s rights as petitioner’s creditor under Art. 1303, NCC.

The CA erred, however, in holding that Miller cannot be compelled to return petitioner’s TCT until Miller has been repaid what he advanced in behalf of petitioner. It is undisputed that petitioner’s mortgage to Manphil annotated at the back of the TCT was already cancelled in 1983, apparently upon payment of the loan. There is therefore no more mortgage to which the property covered by the TCT is subject and therefore no basis for Miller’s refusal to return the TCT to petitioner.

PERFECTA QUINTANILLA v. CA & RCBC (September 1997)Civil Law & Commercial Law/Mortgages

An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage, but where on the four corners of the contract, the intent of the parties is manifest that the mortgage shall also answer for future loans, then the same is valid and binds the parties.

The amount stated in the mortgage between petitioner and RCBC does not limit the amount for which it may stand as security considering that under the terms of the contract, the intent to secure future debts is apparent. It would have been different if the mortgage contract here simply provided that it was intended only "to secure the payment of the same and those that may hereafter be obtained the principal of all of which is hereby fixed at P45,000..." Yet the parties further stipulated "as well as those that the Mortgagee may extend to the Mortgagor." Thus the general rule that mortgage must be limited to the amount mentioned in the mortgage cannot be applied here.

STATE INVESTMENT HOUSE v. CA, SEC & PHIL. BLOOMING MILLS (PBM) (August 1997)Civil Law/Preferrence of Credits

In any rehabilitation/receivership proceeding where claims of several creditors shall have to be resolved, Art. 2242 applies where a mortgaged piece of realty is involved.

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Petitioner’s motion filed with the SEC to declare and confirm the highest preference of petitioner’s first mortgage lien is premature. There may or may not exist claims enumerated in Arts. 2242 and 2243 which shall be considered as mortgagees of the specific property involved. At best, this issue should be resolved in light of the rehabilitation plan approved by the SEC.

Here, the foreclosure sale of the mortgaged property was declared to be void, and petitioner’s claim was accordingly referred to the SEC for determination of the preferences or priorities under the law in the settlement of claims of firms under receivership or liquidation. There are no longer any previous foreclosure proceedings to speak of.

RODRIGO B. SUPENA v. JUDGE ROSALIO G. DE LA ROSA (RTJ-93-1031, Jan. 28, 1997)Civil Law & Commercial Law/Extrajudicial foreclosure of real estate mortgage

We have 3 different types of sales: an ordinary execution sale (governed by Rule 39), a judicial foreclosure sale (Rule 68) and an extrajudicial forclosure sale (Act No. 3135, as amended by Act No. 4118). This case involves the third type.

If the main concern of respondent judge in holding in abeyance the auction sale in Manila scheduled on May 26, 1993 was to determine whether or not venue of the execution sale was improperly laid, he would have easily been enlightened by referring to the correct law, Act No. 3135, §§s 1 and 2. Here, the real property subject of the sale is situated in Sta. Cruz, Manila, hence, in accordance with §2, the sale cannot be made outside of Manila. Further, the intention of the parties is reflected by the Deed of Real Estate Mortgage, that the foreclosure would be governed by Act 3135 and the sale would be held at the capital of the province where the property was located.

Respondent judge, thus, had no valid reason to entertain any doubt as to the propriety of the venue of the auction sale in Manila. He referred to the venue stipulation in the Loan Agreement, however, to the effect that any action would be instituted in the Makati courts, then cited Rule 4 of the Rules re: venue. Again, we reiterate that the law in point is Act No. 3135, a special law, and not the general provisions of the Rules. Further, Rule 4 refers to actions (as defined by Rule 2, §1), which an extrajudicial foreclosure is not. It is clear that the operative fact which converts a claim into an action or suit is the filing of the same with a court of justice. (Hagans v. Wislizenus, 42 Phil. 880, 882 [1920]) Unlike an action, an extrajudicial foreclosure of real estate mortgage is initiated by filing a petition with the office of wheriff of the province where the sale is to be made. And if ever the executive judge comes into the picture, it is only because he exercises administrative supervision over the sheriff.

Written stipulations as to venue are either mandatory or permissive, and inquiry must be made as to whether or not the agreement is restrictive in the sense that the suit may be filed only in the place agreed upon. Bottom line: venue stipulations in a contract, while valid and enforceable, do not as a rule supersede the general rule set forth in Rule 4. In the absence of qualifying or restrictive words, they should be considered merely as an agreement on additional forum, not as limiting venue to the specified place.

1996

CHINA BANKING CORPORATION, et al. v. CA, et al. (G.R. No. 121158, Dec. 5, 1996)Civil & Commercial Law/Mortgages:

It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.

Foreclosure is valid where the debtors, as in this case, are in default in the payment of their obligation. The essence of a contract of mortgage is that a property has been identified or set apart from the mass of the debtor-mortgagor's property as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness, in case of default payment. It is a settled rule that in a real estate mortgage when the obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold in view of applying the proceeds to the payment of the obligation.

We find that the issuance of injunctive relief by the trial court unjustified. The function of the writ is to preserve the status quo, and it may be issued only when there is a clear showing that the right to be protected exists and the acts against which the writ is to be directed are violative of the right. Here, we fail to see any reason why the foreclosure of the mortgages should be enjoined. On the face of private respondents' clear admission that they were unable

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to settle their obligations which secured the mortgages, petitioners have a clear right to foreclose, as provided by law. On the other hand, if the mortgagee sues to collect, he waives his mortgage lien. He will have no more priority over the mortgaged property. If the judgment in the action to collect is favorable to him, and it becomes final and executory, he can enforce the judgment by execution. He can even levy execution on the same mortgaged property, but he will not have priority over the latter and there may be other creditors who have better liens on the mortgagor's properties.

FORTUNE MOTORS v. METROPOLITAN BANK & CA (G.R. No. 115068, November 1996)Civil Law & Commercial Law/Mortgages: extrajudicial foreclosure: notice:

A perusal of P.D. No. 1079 and Act 3135 shows that they do not require that the newspaper which publishes judicial notices should be a daily newspaper. Under the former, it is enough that the newspaper be a newspaper or periodical which is authorized by law to publish and which which is regularly published for at least one year before the date of publication. Nor is there a requirement that the newspaper should have the largest circulation in the place of publication.

Personal notice in extrajudicial foreclosure is not necessary. §3, Act No. 3135, as amended by Act No. 4118 (re: extrajudicail foreclosre of real estate mortgages), requires only the posting of notice of sale in 3 public places and publication of that notice in a nogc. It is clear that lack of personal notice to the mortgagor is not a ground to set aside the foreclosure sale. (citations omitted)

§3, Act 3135 merely requires that the notice of sale be posted for not less than 20 days in at least 3 public places of the municipality or city where the property is situated. The aforementioned places are certainly the public places contemplated by law, as these are places where people interested in purchasing real estate congregate.

ACME SHOE CORP. & CHUA PAC v. CA, PRODUCERS BANK, et al. (G.R. No. 103576, Aug. 22, 1996)Civil Law/Mortgages

Would it be valid to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred?

Contracts of security are either personal or real. In the former, such as a guaranty or suretyship, faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety). In the latter, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property -- in pledge, the placing of a movable property in the possession of the creditor; in chattel mortgage, by execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit -- upon the essential condition that if the principal obligation becomes due and the debtor default, then the property encumbered can be alienated for the payment of the obligation, but that should the obligation should be duly paid, then the contract is automatically extinguished proceeding from the accessory character (See Mla. Surety v. Velayo, 21 SCRA 515) of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto null and void. (See §3, Act 1508)

While a pledge, real estate mortgage or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described (See Mojica v. CA, 201 SCRA 517; Lim Julian v. Lutero, 49 Phil. 703), 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 Chattel Mortgage Law (Act No. 1508). Refusal 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.

A chattel mortgage must comply substantially with the form prescribed by Act No. 1508. One requisite, under §5, is an affidavit of good faith. While it is not doubted that if such an

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affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons acting in good faith [See PRC v. Jarque, 61 Phil. 229]), the fact, however, that the statute has provided that the parties to the contract must execute an oath makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid, By virtue of §3, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries v. Magallanes Press (49 Phil. 647): "A mortgage that contins a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage." (reiterated in Jaca v. Davao Lumber, 113 SCRA 107) The significance of this ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of the loan (being merely accessory in nature, it cannot exist independently of the principal obligation), there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter.

BA FINANCE v. CA & REYES (July 1996)Civil Law & Commercial Law/Mortgages

A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties, like the debtor or mortgagor himself, may be required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the property. The burden to establish a valid justification for that action lies with the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin. Mortgagee cannot maintain replevin suit against a third person who is a possessor in good faith, especially while mortgagor not in default.

GARCIA v. CA & SECURITY BANK (SBTC) (July 1996)Civil Law & Commercial Law/Contracts, Suretyships, Trust Receipts, Contracts of Adhesion; Privity

The phrase "such other obligations" in the Indemnity Agreement is vague, equivocal and patently ambiguous. It is, therefore, subject to interpretation.

It is a well-stated legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety. Ambiguous contracts are construed against the party who caused the ambiguity.

On the matter of petitioner's liability for the deficiency balance under the SWAP LOAN, the chattel mortgage executed between Dynetics and SBTC was merely for additional security which did not alter, affect, or modify the terms and conditions of the Indemnity Agreement executed between Garcia and SBTC, even if, it must be admitted, the chattel mortgage was entered into without the knowledge of or notice to Garcia. Hence, Garcia, contrary to his submission, was not released as surety by virtue of execution of the aforementioned chattel mortgage.

Finally, it should be noted that the chattel mortgage was entered into by Dynetics and SBTC. Garcia was not a party to the chattel mortgage nor was he aware of the contract or its provisions. It is a basic principle in law that contracts can only bind those who had entered into it, and it cannot favor or prejudice a third person.

SERVICEWIDE SPECIALISTS, INC. v. CA, RICARDO TRINIDAD & ELISA TRINIDAD (May 1996)Civil Law/Chattel Mortgage/Interpretation of Contract

The central issue is: whether or not petitioner should have applied the installment payments made by private respondents for the payment of the car to the payment of the insurance premiums without prior notice to private respondents.

While it is true that the Chattel Mortgage does not say that notice to the mortgagor of the renewal of the insurance premium by the mortgagee is necessary, at the same time, there is no

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provision that authorizes petitioner to apply the payments made to it for the payment of the chattel to the payment of the said premiums.

Furthermore, even if the car were not covered with the proper insurance, there is nothing in the provisions of the Chattel Mortgage that authorizes petitioner to apply previous payments for the car to the insurance. What it states is that petitioner is not obligated to convert any of the installments made by private respondents for the car to the payment for the renewal of the insurance. Should it decide to do so, it has to send notice to private respondents who had already paid in full the principal indebtedness.

BOHANAN v. CA, L & R CORP. and SPOUSES CABRERA (April 1996)Civil Law/Extra-judicial foreclosure of mortgage; Sheriff's Certificate of Posting not indispensable

Personal notice on the mortgagor is not required under Act No. 3135. All that is required is that notice be given by posting notices of the sale for not less than twenty (20) days in at least three (3) public places of the municipality or city where the property is situated, and publication once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the municipality or city, if the property is worth more than four hundred pesos.

Also, a certificate of posting is not statutorily required, much less considered indispensable, for the validity of a foreclosure sale either under Act 3135. Rather, it is significant only in the matter of proving compliance with the required posting of notice. And although the SC said in Tambunting that "the presumption of compliance with official duty has been rebutted by the failure to present proof of posting and publication of the notice of sale ," this cannot be construed to mean that a certificate of posting is indispensable without which a questioned foreclosure sale is automatically doomed as invalid. For the fact alone that there is no certificate of posting attached to the sheriff's records is not sufficient to prove the lack of posting. In Tambunting the absence of the affidavit of publication was considered fatal because no equally convincing and competent proof of compliance was offered to compensate for its non-presentation. In the case at bench, however, although Deputy Sheriff failed to present a certificate of posting because some records were lost when the sheriff's office was transferred he did declare under oath that he posted notices of the questioned sale. Such testimony suffices.

PNB v. HON. PRES. JUDGE SE (April 1996)Commercial Law & Civil Law/Warehouse Receipts Law

Considering that petitioner does not deny the existence, validity and genuiness of the Warehouse Receipts it cannot disclaim liability for the payment of the storage fees stipulated therein. As contracts, the receipts must be respected by authority of Article 1159 of the Civil Code.

Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with §29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof because a warehouseman's lien is possessory in nature.

PHILIPPINE BANK OF COMMUNICATIONS v. CA (February 1996)Sectrans, Mortgages

1) Distinction between mortgages to secure future advancements and mortgages over two specific amounts procured in a single instance. In the latter, "an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage."

2) "Dragnet clause:" a mortgage provision specifically phrased to subsume all debts of past or future origin."

3) Scope of mortgage, does it include penalty charges? A mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. In this case, the mortgage contract provides that it secures "notes and other evidences of indebtedness." Under the ejusdem generis rule, the penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the mortgage cannot be understood to secure the penalty.

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DBP v. CA (February 1996)Sectrans; Mortgage; Public land

The crux of this appeal thus lies in the basic issue of whether the land in dispute could have been validly mortgaged while still the subject of a Free Patent Application with the government. We hold that petitioner bank did not acquire valid title over the land in dispute because it was public land when mortgaged to the bank. We cannot accept petitioner's contention that the lot in dispute was no longer public land when mortgaged to it since the Olidiana spouses had been in open, continuous, adverse and public possession thereof for more than 30 years. In Visayan Realty v. Meer (96 Phil. 515 [1955]) we ruled that the approval of a sales application merely authorized the applicant to take possession of the land so that he could comply with the requirements prescribed by law before a final patent could be issued in his favor. Meanwhile the government still remained the owner thereof, as in fact the application could still be canceled and the land awarded to another applicant should it be shown that the legal requirements had not been complied with. What divests the government of title to the land is the issuance of the sales patent and its subsequent registration with the Register of Deeds. It is the registration and issuance of the certificate of title that segregates public lands from the mass of public domain and convert it into private property. (Dir. of Lands v. De Luna, 110 Phil.. 28 [1960]) Since the disputed lot was still the subject of a Free Patent Application when mortgaged to petitioner and no patent was granted to the Olidiana spouses, said lot remained part of the public domain.

With regard to the validity of the mortgaged contracts, Art. 1085 (2), Civil Code, specifically requires that the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. Thus, since the disputed property was not owned by the Olidiana spouses when they mortgaged it to petitioner the contracts of mortgage and all their subsequent legal consequences are null and void. (See Vda. de Bautista v. Marcos, 3 SCRA 434 [1961])

1995

CASTRO v. CA (G.R. No. 97401, Dec. 6, 1995)Mortgages

The issue is whether a residential house, constructed by the lessee on a portion of the leased property, which, in turn, was encumbered under a real estate mortgage by the lessor, can be rightly covered by a writ of possession following the foreclosure sale of the mortgaged land? HELD: NO. The house owned by petitioners was improperly included in the writ of possession issued by the trial court.

Art. 2127, NCC extends the effects of the real estate mortgage to accessions and accessories found on the hypothecated property when the secured obligation becomes due. The law is predicated on an assumption that the ownership of such acces ecurity, whether real or personal, needs as an indispensable element thereof the ownership by the pledgor or mortgagor of the property pledged or mortgaged. The rationale should be clear enough -- in the event of default on the secured obligation, the foreclosure sale of the property would naturally be the next step that can expectedly follow. A sale would result in the transmission of title to the buyer which is feasible only if the seller can be in a position to convey ownership of the thing sold (Art. 1458, NCC). It is to say, in the instant case, that a foreclosure would be ineffective unless the mortgagor has title to the property to be foreclosed.

It may not be amiss to state, in passing, that in respect of the lease on the foreclosed property, the buyer at the foreclosure sale merely succeeds to the rights and obligations of the pledgor-mortgagor subject, however, to the provisions of Article 1676 of the Civil Code on its possible termination.

OLEA v. CA (247 SCRA 274, G.R. 91995)Civil Law; Mortgage; Pactum Commissorium

Article 1602 of the NCC, being remedial in nature, may be applied retroactively to cases prior to the effectivity of the NCC.

Where, in a contract of sale with pacto de retro, the vendor remains in physical possession of the land sold as lessee or otherwise, the contract should be considered an equitable mortgage.

Where the contract contains a stipulation that upon payment by the vendor of the purchase price within a certain period the document shall become null and void and have no legal force and effect, the purported sale should be considered a mortgage contract.

Even when a document appears on its face to be a sale with pacto de retro the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the

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fact that the document does not express the true intent and agreement of the parties, and parol evidence then becomes competent and admissible to prove that the instrument was merely given as a security for the repayment of the loan.

UY v. CA [246 SCRA 703 (1995 July)]Civil Law/Mortgages

In the case of an investment and financing company, ascertainment of the status and condition of properties offered to it as security for the loans it extends must be a standard and indispensable part of its operations. Surely, it cannot simply rely on an examinations of a Torrens certificate to determine what the subject property looks like as its condition is not apparent in the document.

SPS. JOSE & HERMINIA ROSARIO v. CACivil Law/ Trust

Trust relations between parties may either be express or implied. Express trusts are created by the direct and positive acts if the parties, by some writing or deed, or will, or by words evidencing an intention to create a trust. Implied trusts are those which without being express, are deducible from the nature of the transaction as matters of intent, or which are superinduced on the transaction by operation of law as a matter of equity, independently of the particular intention of the parties. Implied trusts may either be resulting or constructive. Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and presumed to have been contemplated by the parties. They arise from the nature or circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment.

INSURANCE

Rizal Surety & Insurance Company v. Court of Appeals [336 SCRA 12 (2000)]Insurance Contract; Interpretation of provisions

Facts: Transworld Knitting Mills (TKM) insured a four-span building and stocks with Rizal Surety. Fire broke out that gutted the four-span building and stocks in the adjourning two-span building. Rizal contended that the insurance policy only covered the four-span and the damage to the two-span and stocks therein are not covered. TKM theorized that the two-span was not an annex as claimed by Rizal, but an integral part of the four-span, as stocks was also stored in the two-span building.

Issue: Was the damage to the two-span building compensable under the insurance policy?

Held: Yes. Both the trial and appellate court found that the two-span was an integral portion of the building. Also considering that the two-span was already existing when the insurance policy was contracted, Rizal should have specifically excluded the two-span from the coverage of the policy. Article 1377 of the Civil Code: The interpretation of obscure words or stipulations in a contract shall not favors the party who caused the obscurity. Thus, any doubt in the interpretation of the contract must be resolved in favor of the insured TKM.

Malayan Insurance Corp vs. CA [270 SCRA 242 (March 20, 1997)]Arrest of Vessel by Civil Authorities: Peril of the Sea

Facts: TKC Mktg. was the owner/consignee of soya bean meal (insured with the Malayan Insurance) which was loaded on board the vessel which, while docked in South Africa enroute to Manila, was arrested and detained by the civil authorities pursuant to a lawsuit on a question of its ownership and possession. TKC notified Malayan about this and claimed on the insurance policy. Malayan refused to pay and posits that the arrest of the vessel by civil authorities on a question of ownership was an excepted risk under the marine insurance policies.

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Issue: W/N the arrest is included in the phrase "perils of the sea".

Held: Yes. By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase "perils of the sea" to encompass the wide and varied range of risks that were covered.

Additionally, where restrictive provisions (in the insurance policies) are open to two interpretations, that which is most favorable to the insured is adopted. Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured.

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INTELLECTUAL PROPERTY

Joaquin Jr. vs. Drilon [302 SCRA 225 (Jan 28 1999)]Necessity of presentation of Master Copy Format not Copyrightable

Facts: BJPI is the holder/grantee of a Certificate of Copyright of Rhoda and Me, a dating game show aired from 1970-1977. In 1991, while watching TV, Joaquin, president of BJPI, saw an episode of It's a Date, produced by IXL Productions. Joaquin wrote IXL a letter demanding the latter to stop airing It's a Date, but since IXL continued airing the show, Joaquin filed an information for violation of PD 49. In the meantime, IXL successfully registered the first episode of It's a Date and was issued a certificate of copyright.

Upon review of the Department of Justice, the case was dismissed in favor of IXL. It contended that Joaquin failed to establish the existence of probable cause due to his failure to present the copyrighted master videotape of Rhoda and Me. Furthermore, it adjudged that BJPI's copyright covers only a specific episode of Rhoda and Me and that the formats or concepts of dating game shows are not covered by copyright protection under PD 49. Hence, this petition with SC.

Issues: (1) Whether or not the presentation of the master tape is necessary to establish probable cause. (2) Whether or not the format of Rhoda and Me is a product of ingenuity and skill and is thus entitled to copyright protection.

Held: (1) Yes. The presentation of the master tapes of the copyrighted show was necessary for the validity of search warrants. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns. The investigating officer should have the opportunity to compare the video tapes of the two shows. Mere description by words of the general format of the two dating game shows is insufficient. The presentation of the master videotape in evidence was indispensable to the determination of the existence of probable cause. (2) No. The format of a show is not copyrightable. Sec. 2 of PD 49, otherwise known as the Decree on Intellectual Property, enumerates the classes of work entitled to copyright protection. The format or mechanics of a TV show is not included in the list of protected works. For this reason, the protection afforded by the law cannot be extended to cover them.

Copyright, in the strict sense of the term, is purely a statutory right. It is a new or independent right granted by the statute, and not simply a pre-existing right regulated by the statute. Being a statutory grant, the rights are only such as the statute confers, and may be obtained and enjoyed only with respect to the subjects and by the persons, and on terms and conditions specified in the statute.

PD 49, Sec. 2, in enumerating what are subject to copyright, refers to finished works and not to concepts. The copyright does not extend to an idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.

However, BJPI's copyright covers audio-visual recordings of each episode of Rhoda and Me, as falling within the class of works mentioned in Sec. 2 of PD 49, to wit:

"Cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings."

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NEGOTIABLE INSTRUMENTS LAW

2001

Philippine Commercial & International Bank (PCIB) v. CA [350 SCRA 446 (Jan.29, 2001)]Liability of Drawee BankEffects of Crossed ChecksDoctrine of Comparative Negligence

Facts: Ford drew & issued a crossed Citibank check in favor of the CIR as payment of percentage or manufacturer’s sales tax. It was deposited with PCIB & cleared by the Central Bank. Upon payment to Citibank, it was paid to PCIB as collecting or depository bank. Proceeds never found its way to the BIR hence Ford was compelled to make a second payment w/c the BIR received.

It was later found that Rivera, the General Ledger Accountant of Ford recalled the Citibank check claiming error in assessing the tax due. With his instructions, PCIB replaced the check the 2 of its own Manager’s checks. Alleged members of a syndicate later deposited the 2 MC’s with the Pacific Banking Corp. Ford then filed a third-party complaint impleading PBC & Rivera – court dismissed complaint against PBC for lack of cause of action & that of Rivera since summons could not be served on him declaring him a ‘fugitive from justice’. The trial court found PCIB & Citibank jointly & severally liable but Citibank was later absolved by the CA. Ford & PCIB now appeal the decision.

Later, 2 more Ford checks were victims of the same modus operandi, with the same banks and people involved.

It was then found that Rivera, instead of delivering the same to the payee, passed the checks to a co-conspirator, Castro, a pro-manager of PCIB. Conniving with Dulay, Asst.Mgr. at another PCIB branch, Castro opened a checking account for himself. Castro deposited a worthless Bank of America check in the exact amount as the Ford check & while this worthless check was coursed through PCIB’s main office enroute to the Central Bank for clearing, replaced it with Ford’s, tampering documents to cover the replacement. As a result, the Ford check was cleared by Citibank & the fictitious deposit account credited with the same amount of the Ford check. From this, Castro drew various checks distributing the shares of other participating conspirators.

RTC this time held Citibank, the drawee bank liable & absolved PCIB. Ford & Citibank appealed to the CA claiming that PCIB was clearly negligent when it failed to exercise diligence required to be exercised by a banking institution

Issue: WON Ford has the right to recover from the collecting & the drawee banks the value of the checks intended as payment to the BIR? (a question of liability based on the degree of negligence among the parties concerned)

Held: Affirmed. PCIB is declared solely responsible for the loss of the proceeds regarding the first case while Citibank & PCIB are held equally liable for the loss of the proceeds in the second case.

The mere fact that the forgery was committed by a drawer-payor’s confidential employee, who by virtue of his position, had unusual facilities for perpetrating the fraud & 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. Although it appears that the employees of Ford initiated the transactions attributable to an organized syndicate, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford’s negligence couldn’t be characterized as the proximate cause of the injury to the parties. Its BoD did not confirm the request of Rivera to recall the Citibank check. Rivera’s instruction to replace said check with PCIB’s Manager’s check was not in the ordinary course of business w/c could have prompted PCIB to validate the same. Note too that these checks were crossed checks. The checks were apparently turned around by Ford’s employees, who were acting on their own personal capacity.

The neglect of PCIB to verify whether Rivera’s letter requesting for replacement of the check showed lack of care & prudence required.

The relationship between the payee or holder of commercial paper & the bank to w/c it is sent for collection is, in the absence of an agreement to the contrary, that of principal & agent. A bank w/c receives such paper for collection is the agent of the payee or holder. Even assuming that the diversion of the amount of the check payable to the collecting bank in behalf

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of the designated payee may be allowed, still, it must be properly authorized by the payor or that the payor has clothed his agent with apparent authority to receive the proceeds of such check.

Crossing of the check with “Payee’s Account Only” is a warning that the check should be deposited only in the account of the payee. It is the collecting bank, PCIB, w/c is duty bound to scrutinize the check & know its depositors before it could make the clearing indorsement “all prior indorsements and/or lack of indorsements guaranteed”

A bank w/c cashes a check drawn upon another bank without requiring proof as to the ID of persons presenting it or making inquiries with regard to them cannot hold the proceeds against the drawee when the proceeds of the check were afterwards diverted to the hands of a third party. The drawee bank has a right to believe that the cashing bank/ collecting bank had, by usual investigation, satisfied itself of the authenticity of the negotiation of the checks. One who encashed a check w/c had been forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence w/c proximately contributed to the success of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check.

Citibank should have scrutinized the Citibank checks before paying the amount of the proceeds thereof to the collecting bank of the BIR. The clearing stamps at the back of the checks do not bear any initials. The fact that the drawee bank did not discover the irregularity seasonably constitutes negligence in carrying out the bank’s duty to its depositors. Banks are under an obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

Doctrine of Comparative Negligence: Where both the collecting & drawee banks failed in their respective obligations & both were negligent in the selection & supervision of their employees, both are equally liable for the loss of the proceeds of checks fraudulently encashed. A bank’s liability as obligor is not merely vicarious but primary, wherein the defense if exercise of due diligence in the selection & supervision of its employees is of no moment.

The statute of limitations begins to run when the bank gives the depositor notice of the payment, and an action upon a check is ordinarily governed by the statutory period applicable to instruments in writing: 10 years from the time the right of action accrues – when the instrument was issued & the corresponding check was returned by the bank to its depositor. Ford’s cause of action to recover the amount of the check was seasonably filed as it was filed barely 6 years after.

Ford is not completely blameless. Failure on the part of the depositor to examine its passbook, statements of account & cancelled checks & to give notice w/in a reasonable time of any discrepancy w/c it may in the exercise of due care & diligence find therein – the contributory negligence of the plaintiff, serves to mitigate the banks’ liability by reducing the award of interest from 12% per annum to 6% per annum.

General rule: a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course & apparent scope of his employment or authority. Moreover, Sec.5 of the Central Bank Circular No.580 Series of 1977 provides that any theft affecting items in transit for clearing, shall be for account of the sending bank, PCIB in this case.

Extra: Sec.55 of the NIL – when title is defective: when he obtained the instrument or nay signature thereto, by fraud, duress, force & fear or other unlawful means or for an illegal consideration or when he negotiates it in breach of faith or under circumstances amounting to fraud.

Mendoza v. CA [June 25, 2001]Promissory Notes

Facts:: Danilo Mendoza owned a single proprietorship called Atlantic Exchange Philippines. In 1978, this company was granted by PNB a 500,000 peso credit line and a 1,000,000 peso Letter of Credit/Trust Receipt (LC/TR) line.

In 1981, he wrote a letter to PNB requesting for a restructuring of his past accounts into a 5 year term loan and for an additional LC/TR line of 2M and gave some proposals changing the terms. Petitioner Mendoza claimed that Respondent PNB found his proposal favorable and recommended the implementation of the agreement s as long as he submit a formal agreement and he sign two blank promissory notes. The petitioner complied with these requirements.

The PN were filled up with the amounts of 2M and 1M and for a period of two years, not five. Also, PNB increased the rate of the interest from 21% to 32% pursuant to the escalation clauses contained therein.

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When petitioner failed to pay the PN’s when they fell due, respondent extra-judicially foreclosed on his mortgaged properties.

Petitioner alleges that the foreclosure was null and void since his loans were supposed to be restructured to 5 years pursuant to their verbal agreement. Thus, the loan was not yet due and demandable. Also, he claims damages because the PNs were improperly filled out by PNB. Furthermore, he posits that the escalation clauses in the PNs were null and void.

Petitioner argues that he submitted the requirements according to the instructions given to him and that upon submission thereof, his proposed five-year restructuring plan was deemed automatically approved by respondent PNB. He then presented some letters to show the favorable response of PNB bank to their proposal.

Issue: WON the Promissory Notes were improperly filled out.

Held: The PNs were not improperly filled out. Private transactions are presumed to be fair and regular. The burden of presenting evidence to overcome this presumption falls upon petitioner. Considering that petitioner imputes a serious act of fraud on respondent PNB, which is a banking corporation, this court will not be satisfied with anything but the most convincing evidence. Besides, it could be gleaned from the record that the petitioner is an astute businessman who took care to reduce in writing his business proposals to the respondent bank. It is unthinkable that the same person would commit the careless mistake of leaving his subject two (2) promissory notes in blank in the hands of other persons.

2000

Radiowealth Finance Company v. Del Rosario [335 SCRA 288 (2000)]Where payment for interest is not expressly provided in the Promissory Note.

Facts: Spouses X executed and delivered a promissory note to Radiowealth. The P/N provided for 12 monthly installments, but did not indicate the date whence such payment would commence and what date of the month payments shall be due. A late payment penalty of 2.5% per month for each unpaid installment from due date until paid. The debtors paid the first installment with a check, which was dishonored by the drawee bank. Radiowealth sued, and asked for 14% interest p.a. until payment. The spouses contend that the obligation is not yet due and demandable as Radiowealth allegedly allowed them to apply their promotional services as payment for the P/N. This was supposedly the reason why the commencement for the payment of installments was left blank. Hence, the courts should fix the period for payment.

Issue: When will the interest start to run considering that the date for the commencement of installment payments was left blank?

Held: The note expressly stipulated that the debt should be amortized monthly. While the specific date was left blank, the note was clear that each payment was to be made monthly. The only conclusion was that the payment already became due and demandable as evidence by the fact that respondents started paying, even if the checks were dishonored. Yet as the note already stipulated a late payment penalty of 2.5%, payment of interest was not expressly stipulated in the note, and should be deemed included in such penalty.

Bank of the Philippine Islands vs. CA and Benjamin Napiza [2000]Liability of Drawee Bank for its negligence

Facts: In 1987 private respondent deposited in Foreign Currency Deposit Unit (FCDU) savings account which he maintained in petitioner Bank's Buendia Avenue Extension Branch a Continental Bank Manager's Check dated Aug. 17,1984 payable to "cash" in the amount of $2,500 and duly endorsed by private respondent on its dorsal sides. The check belonged to a Henry Chan who went to the office of respondent and requested him to deposit the check in his account by way of accommodation and for the purpose of clearing the same. Respondent acceded and agreed to deliver to Chan a signed blank withdrawl slip, with the understanding that as soon as the check is cleared both of them would go to the bank to withdraw the amount upon repondent's presentation of his passbook to the bank. Using the blank withdrawal slip given by respondent to Chan, on Oct. 23, 1984 a Ruben Gayon Jr. was able to withdraw the amount of $2,541 from the account. The slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman, and was duly initialed by the branch assistant manager, Teresita Lindo. On Nov. 20, petitioner Bank received communication from the Wells Fargo

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Bank International of NY that the check was a counterfeit check because "it was not of the type or style of checks issued by Continental Bank International" Bank Manager Ariel Reyes informed respondent regarding the dishonor of the check. Respondent wrote to counsel of petitioner that he deposited the check for "clearing purposes" only to accommodate Chan and that he signed the authority to withdraw subject to its clearing. Moreover, he did not receive its proceeds. Petitioner Bank filed a complaint praying for the return of $2,500 plus legal interest. In his ans. Respondent admitted that signed a "blank" withdrawal slip with the understanding the amount would be withdrawn only after the check has been cleared, that he instructed the party to whom he issue the signed blank withdrawal slip to return it to him after the banks draft's clearance so he could lend his passbook for the withdrawal and that without his knowledge, the party was able to withdraw the amount through collusion with one of the Bank's employees. The Bank should have disallowed the withdrawal because the passbook was not presented, it has no one to blame but itself for being grossly negligent and that it already admitted having paid the amount of the check by mistake. The Bank on the other hand asserts that respondent alone was liable for the value, that he was estopped from disclaiming liability because he himself authorized the withdrawal by signing the withdrawal slip. The trial court dismissed the complaint holding that the Bank could not hold respondent liable as this would render "inutile" the requirement of clearance from the drawee bank before the value of a particular foreign check or draft can be credited to the account. “It was incumbent upon the petitioner to credit the value of the check only upon receipt of the notice of final payment and should not have authorized the withdrawal from the latter’s account. Having admitted that it committed a “mistake” in not waiting for the clearance, petitioner should suffer the loss. The CA affirmed the decision.

Issue: Whether or not respondent Napiza is liable under his warranties as a general indorser.

Held: Petitioner claims that respondent having affixed his signature at the dorsal side of the check should be liable as a general indorser in accordance with Sec. 66 of the NIL. Also, respondent may be held liable as an indorser of a check even as an accommodation party (Town Savings and Loan Bank Inc. v CA) However, to hold respondent liable for the amount of the check by strict application of the law and without considering the attending circumstances in the case would result in an injustice and in an erosion of the public trust in the banking system. The withdrawal slip itself indicates a special instruction that the amount is payable to Ramon A. de Guzman &/or Agnes de Guzman. Petitioner's personnel should have been duly warned that Gayon who was also employed in petitioner's Buendia Branch was not the proper payee. Although at the dorsal side of the slip is an authority to withdraw to Gayon and respondent does not deny having signed such authority, with petitioner's clear admission that the withdrawal slip was a blank one except for respondent's signature the unavoidable conclusion is that the typewritten name of Gayon was intercalated and thereafter signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Moreover, the slip contains a boxed warning that states that it must be signed and presented with the passbook by the depositor in person. To withdraw thru a representative, the depositor should accomplish the authority at the back.

As correctly held by the CA, in depositing the check in his name, respondent did not become the outright owner of the amount. By depositing, respondent merely designated petitioner as the collecting bank. Petitioner shall only then credit the value thereon after the drawee bank shall have paid the amount of the check. "The collecting bank or last indorser 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 representation has done its duty to ascertain the genuineness of the endorsements" In the case at bar, it allowing the withdrawal, petitioner failed to exercise the diligence of a good father. While it is true that having signed the blank slip, respondent set the events in motion that resulted in the withdrawal. However, the negligence of petitioner's personnel was the proximate cause of the loss sustained.

Francisco T. Sycip Jr. vs, CA and People of the Philippines [2000]When are Postdated Checks deemed “Issued”

Facts: To buy on installment a townhouse unit, petitioner issued to Francel Realty Corporation (FRC) 48 postdated checks each in the amount of P9,304. Later, due to a disagreement regarding defects in the unit and incomplete features of the townhouse, petitioner suspended payment. Notwithstanding notarial notices, FRC continued to present for encashment the checks. Thus petitioner sent "stop payment" orders to the bank. Subsequent check presented

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were then dishonored. FRC filed a complaint for violation of B.P. 22. The trial court found Sycip guilty. On appeal, the CA affirmed the findings of the trial court.

Issue: The main issue is not related to NIL but among the side issues relates: When are postdated checks considered as having been "issued"

Held: The second element of BP 22 involves knowledge on the part of the issuer at the time of the check's issuance that he did not have enough funds or credit in the bank for payment. Admittedly, what is involved here are postdated checks. Postdating simply means that on the date indicated on its face, the check would be properly funded, not that the checks should be deemed as issued only then. The checks in this case were issued a the time of the signing of the Contract to Sell. But we find from the records no showing that the time the checks were issued, petitioner had knowledge that his deposit or credit in the bank would be insufficient to cover them when presented for encashment.

1999

Security Bank and Trust Company vs. Triumph Lumber and Construction Corporation[301 SCRA 537 (Jan 21 1999)]Liability of Drawee Bank

Facts: Triumph was a depositor of Security Bank with a savings and current checking account. Their arrangement was that the bank would notify Triumph in case a check of more than P10,000 would be presented for encashment.

3 checks payable to cash and all drawn against Triumph were presented for encashment with Security Bank. These were allegedly encashed by unauthorized persons to the damage of the corporation for being forgeries. Hence, Triumph filed a complaint with the RTC.

Security bank, on the other hand, alleged that Triumph's office was forced open including the filing cabinet where the check booklets were kept. And this incident was not reported to the bank, thus, it was Triumph's own negligence that caused damage to it. Besides, it avers that it was diligent because it first verified in accordance with standard bank practices and procedures the genuineness of the signatures and endorsements.

RTC adjudged in favor of Security Bank holding that Triumph failed to show that the signatures on the checks were forged because it did not even present the originals of the checks. On appeal, CA reversed contending that the bank did not follow the arrangement of notifying Triumph of the encashment of a check if it was more than P10,000. Hence, this petition.

Issue: Whether or not Security Bank was negligent.

Held: NO. Evidence proved to show that the agreement with the bank was that all encashments over the counter of P10,000 and above should be accompanied by one of the signatories of Triumph Corp. But this arrangement was only made a few days after the encashment of the checks in question.

At any rate, since the questioned checks, which were payable to cash, appeared regular on their face and the bank found nothing unusual in the transaction, as Triumph usually issued checks in big amounts made payable to cash or to a particular person or to a company, the bank could not be faulted in paying the value of the disputed checks.

Triumph is the one which stands to be blamed for its predicament. It should have informed the bank that certain checks were missing from the check booklet which was stolen.

Maralit v. Imperial [301 SCRA 605 (Jan. 21, 1999)]Liability as indorser

Facts: Petitioner Maralit if the assistant manger of Naga City branch of the PNB. Respondent Imperial on 3 separate occasions deposited in her SA in PNB three US treasury warrants and on the same days withdrew their peso equivalent. The warrants were subsequently returned by the US Treasury on the ground that the amounts have been altered. Maralit filed 3 separate complaints for estafa versus Imperial claiming that as a consequence she was held personally liable by PNB for the total amount.

Imperial claims that she was merely helping a relative to encash the warrants, that she withdrew the amounts with the approval of petitioner, that she did not know that the amounts on the warrants have been altered nor did she represent to the petitioner that the warrants were

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genuine. Moreover, upon being informed of the dishonor of the warrants, she immediately contacted her relative and signed a acknowledgement of debt promising to pay the amount.

The MTC acquitted Imperial of criminal liability but found her civilly liable as indorser of the checks. The decision becaming executory, the petitioner moved for execution of the same. Respondent moved to quash on the ground that the judgment did not order he to pay a specific sum to a particular person, it merely adjudicated the criminal aspect but not the civil aspect hence no judgment which can be the subject of execution. The MTC denied the motion to quash. The RTC issued a writ of injunction to stop execution.

Issue: The RTC held that the MTC did not really find respondent liable for the amount because it was petitioner who was found responsible for making the defraudation possible. However, that portion of the decision (on which the RTC based its decision) actually refers to Imperial’s criminal liability and not her civil liability. More specifically, the portion in question refers to the allegations in the 3 informations. Nevertheless, the MTC held that Imperial was civilly liable

“…said loss is chargeable to the accused who upon her indorsements warrant that the instrument is genuine in al respect what it purports to be and that she will pay the amount thereof in case of dishonor (Sec. 66 NIL)”

Thus, while the MTC found petitioner partly responsible for the encashment of the altered checks, it found respondent civilly liable because of her indorsement of the treasury warrants, in addition to the fact that respondent executed a notarized acknowledgement of debt promising to pay.(The reason why Maralit is partially responsible is that she disregarded banking rules that out of town checks and US Treasury Warrants should be 1st cleared before the same is paid. More so if the holder is a 2nd indorser.)

1998

Security bank & Trust Co. v CA [June 18, 1998]Relationship of Drawee Bank to Payee: Can the Drawee file action against the Payee

Facts: A.T. Diaz Realty, through Anita Diaz, bought from Ricardo Lorenzo his undivided share in a parcel of land which he owned in common with Servando Solomon. In connection with this transaction, Diaz issued a check for P60,000.00 in the name of Ricardo Lorenzo's agent, private respondent Crispulo Arboleda. The check, dated November 7, 1983, was to be drawn against the current account of A.T. Diaz Realty in the Marikina branch of the Security Bank and Trust Co. (SBTC). According to Diaz, the money was part of the purchase price of the land. It was to be used to pay the capital gains tax on the transaction and to reimburse Solomon for payments he had made for delinquent real estate taxes on the land. In return, Solomon would deliver to Diaz the title to the land. But on Nov. 8, 1983, Solomon informed Diaz that, as he had not yet been reimbursed by private respondent, he could not deliver to Diaz the title to the land. Diaz decided to reimburse Solomon and to pay the capital gains tax herself. Consequently, she issued two more checks, one for P20,000.00, in the name of Solomon for the reimbursement, and another one for P40,000.00, payable to bearer, for the payment of the tax. Thereafter, on the same date, she ordered SBTC to stop payment on the check. Diaz allegedly advised private respondent of the order and requested the return of the check to her.

However respondent encashed the check on Nov. 24, 1983, SBTC employees of petitioner bank failing to notice that the check was the subject of a stop payment order. (The drawer, A.T. Diaz Realty, had two accounts with petitioner, a savings account and a current account. By agreement with petitioner Bank, it was possible for the drawer to draw a check against its current account and have it supported by funds from the savings account, if funds from the current account were insufficient. The stop payment order was posted in the current account ledger but the bank employee looked directly at the savings account ledger which had no stop payment order was posted.) Upon discovering the error the next day, SBTC recredited the amount (P60,000.00) to A.T. Diaz Realty's account. Respondents told SBTC that they would return it provided Diaz showed him the receipt for payment of the capital gains tax. As Diaz failed to show receipts, Arboleda and Libongco refused to return the money. Petitioner, therefore, filed the instant suit.

The trial court ruled that petitioner incurred no liability even if it encashed the check despite a stop payment order, because of a note in the stop payment order form which the depositor agrees . . . not to hold the bank liable on account of payment contrary to the request . . . if the same occurs through inadvertence, accident or oversight . . . Petitioner appealed to the Court of Appeals which, as earlier stated, affirmed the decision of the trial court. Hence, this petition.

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Issue: WON the Drawee Bank may file suit against the Payee

Held: The petition must fail. Petitioner contends that whatever claim respondent has against Anita Diaz is immaterial to this case. It is argued that private respondent has an obligation to return the money he received based on Art. 2154 of the Civil Code (If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.) However this contention has no merit. There was no contractual relation created between petitioner and private respondent as a result of the payment by the former of the amount of the check. Petitioner simply paid the check for and in behalf of Anita Diaz. Therefore, the question whether private respondent Crispulo Arboleda has a right to keep the proceeds of the check is very relevant to this action brought to recover the amount. As private respondent points out:

It is Anita Diaz to whom respondent sold their property. It is Anita Diaz who issued the subject check in payment of the balance of the purchase price, and earmarked for the payment of the capital gains tax and agent's commission for the sale of the property. If the check was dishonored upon presentment for payment, respondent cannot sue petitioner but only the drawer (Anita Diaz) for lack of privity. The funds from which the check shall be paid belong to Anita Diaz and merely deposited with the petitioner bank. The stop payment order was issued by Anita Diaz for alleged "incomplete transaction" which is a misrepresentation. Whether petitioner is liable to Anita Diaz for cashing the check after it had been ordered not to pay is a matter between them. By restoring the amount it had paid to the account of A.T. Diaz Realty, petitioner merely stepped into the shoes of the drawer. Consequently, its present action is subject to the defenses which private respondent Arboleda might raise had this action been instituted by Anita Diaz.

Allied Banking Corporation vs. CA [294 SCRA 803 (Aug 31 1998)]Jurisdiction of Philippine Clearing House Corporation

Facts: Hyatt Terraces Baguio issued 2 crossed checks drawn against Allied Bank in favor of Meszellen Commodities Services. These checks were deposited with COMTRUST. After clearing with PCHC, Allied paid the proceeds of the checks to COMTRUST as the collecting bank.

Meszellen sued Allied for damages which it allegedly suffered when the value of the checks were paid not to it but to some other person.

During trial, Allied filed a 3rd party complaint against BPI as successor-in-interest of COMTRUST, for reimbursement in the event that it would be adjudged liable in the main case to pay Meszellen.

The 3rd party complaint was admitted by the trial court. BPI filed a motion to dismiss said 3rd party complaint on the ground that RTC had no jurisdiction over the nature of the action. RTC dismissed said 3rd party complaint. CA affirmed. Hence, Allied filed this petition for review on certiorari under Rule 45.

Issue: Whether or not the 3rd party complaint was within the jurisdiction of RTC or the Philippine Clearing House Corporation via Sec. 38 of the Clearing House Rules and Regulations which state that any dispute between 2 or more clearing participants involving any item cleared through the PCHC shall be submitted to the Arbitration Committee.

Held: PCHC has jurisdiction. A 3rd party complaint of one bank against another involving a check cleared through the PCHC is unavailing, unless the 3rd party claimant has first exhausted the arbitral authority of the PCHC Arbitration Committee and obtained a decision from said body adverse to its claim.

SC held that it defers to the primary authority of PCHC over the present dispute because its technical expertise in this field enables it to better resolve questions of this nature. It further held that such was not prejudicial to the interest of any party since primary recourse to the PCHC does not prevent an appeal to the trial courts on questions of law. Furthermore, when the error is so patent, gross and prejudicial as to constitute grave abuse of discretion, courts may address questions of fact already decided by the arbitrator.

Since banks have given their written and subscribed consent to arbitration under the auspices of the PCHC, the rule that a trial court, which has jurisdiction over the main action, also has jurisdiction over the 3rd party complaint, even if the said court would have no jurisdiction over it had it been filed as an independent action, would not apply to banks. By participating in the clearing operations of the PCHC, banks like Allied have agreed to submit disputes to

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arbitration. Accordingly, it cannot invoke the jurisdiction of the trial courts without prior recourse to PCHC Arbitration Committee.

BPI Express Card Corporation vs. CA [296 SCRA 260 (Sept 25 1998)]Nature of a CheckEffect of Payment by Check

Facts: Marasigan was a complimentary member of BPI Express Card Corporation with a credit limit of P5,000. In October of 1989, his statement of account of P8,987 was not paid in due time. BPI demanded immediate payment. Marasigan issued a post dated check (December) of P15,000 to cover the unpaid debt.

When Marasigan invited some guests to eat at Café Adriatico, his card was dishonored. Hence, he filed a complaint with RTC for damages. RTC ruled in favor of Marasigan. CA affirmed. Hence, this petition with the SC.

Issue: Whether or not BPI had the right to suspend the credit card of Marasigan.

Held: Yes. Under the terms and conditions of the credit card, signed by Marasigan, any card with outstanding balances after 30 days from original billing shall automatically be suspended. This provision cannot be any clearer. By Marasigan’s own admission, he made no payment within 30 days from original billing. Consequently, as early as November, BPI had the right to automatically suspend his credit card.

Although Marasigan issued a check of P15,000, this was post dated to effect in December. A check is only a substitute for money and not money, the delivery of such an instrument does not, by itself operate as payment. Thus, the issuance of the post dated check was not effective payment. It did not comply with his obligation. Hence, BPI was still justified in suspending his credit card.

1997

Traders Royal Bank v. Court of Appeals [269 SCRA 15 (March 3, 1997)]Certificate of Indebtedness Not NegotiableMere Ownership by Single Stockholder not sufficient reason to Pierce Veil

Facts: Defendant Filriters is the registered owner of CBCI No. D891. Under the deed of assignment, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Phihfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, conveying to appellant TRB all its rights and title to CBCI No. D891.

Armed with the deed of assignment, TRB sought the transfer and registration of CBCI No. D891 in its name before the Central Bank. CB, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against CB in the RTC. The suit was treated by the RTC as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the ownership of CBCI No D891. TRB appealed to the CA after failing to secure a favorable judgment from the lower court. The respondent court affirmed the RTC.

Held:1. A certificate of indebtedness which pertains to certificates for the creation and maintenance

of a permanent improvement revolving fund, is similar to a "bond". The freedom of negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time.

2. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. Piercing the veil of corporate entity requires the court to see through the protective shield which excepts its stockholders from liabilities that they could, ordinarily, be subjected to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate

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fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his/her/its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine.

3. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.

4. Petitioner, being a commercial bank, cannot feign ignorance of CB Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable.

TRANSPORTATION LAW

1999

Fortune Express Inc. v CA [305 SCRA 14 (March 18, 1999)]Liability of Common Carrier for negligence resulting to Breach of ContractHijacking and Death of PassengerWhat is a Fortuitous EventDamages payable for Death of Passenger (Computation of Life Expectancy and Loss of Expected Income)

Facts: Because of a report of its field agent, the Philippine Constabulary of at Cagayan de Oro warned the operations manager of Fortune Express that certain Maranaos were planning to take revenge (for a collision between the petitioner’s bus and a jeepney which resulted in death of two Maranao passengers) by burning some of petitioner’s buses. The manager assured the Constabulary that they would take extra precautions.

On Nov. 22, 1989 3 armed Maranaos pretending to be passengers seized a bus of petitioner on route to Iligan City. They shot the driver in the arm and ordered all the passengers off the bus. Atty. Caorang, a passenger, returned to retrieve something from the overhead rack which he was allowed to do so. However, upon learning that the Hijackers intended, using gasoline, to set the bus on fire with the driver still inside, he pleaded for the life of the driver. While this was ongoing, the driver took the opportunity to escape by crawling out through a window. Other passengers reported seeing the Maranaos shot Atty. Caorang The bus was set on fire, thereafter, some passengers were able to pull Atty. Coarang out of the bus and he was rushed to the hospital. He died in operation.

The Trial Court dismissed the complaint for damages due to breach of contract filed by the heirs of Coarang. It found that, despite the report by the Constabulary, the diligence demanded by law does not include the posting of security guards in the buses also even if there were guards such is not guaranteed to deter the determined assault of the lawless. Morever, the Hijackers did not intend to harm the passengers as they asked them to leave the bus. The death of Atty. Caorang was an unexpected and unforeseen occurrence over which defendant (Fortune) had no control.

The CA reversed finding Fortune guilty of negligence. The defendant-appellee never adopted even a single safety measure for the protection of the passengers (despite the report of the threat). One available safeguard was frisking passengers. If frisking was resorted to even temporarily, defendant might be excused from liability. On hindsight, the handguns and the gallon of gasoline used which were all brought aboard the bus could have been discovered. The defendant was not expected to assign security guards on all its buses but at least to adopt a system of verification in response to the report such as frisking. The CA awarded indemnity for death (P3+ million) and attorney’s fees.

Issue: (1) WON Fortune is guilty of negligence resulting in breach of contract of carriage(2) WON the attack was a force majeure.

Held: (1) 1763 of the Civil Code, states that a common carrier is responsible for injuries suffered by the passengers on account of willful acts of other passengers if its employees could have prevented the act through the exercise of the diligence of a good father of the family. Despite warning by the Constabulary, petitioner did nothing to protect the safety of its passengers. Had petitioner and its employees been vigilant they would not have failed to see that the Maranaos (as passengers) had a large quantity of gasoline with them. Under the

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circumstances, frisking and inspection of baggage should have been made before allowing them to board. As held in Gacal v Philippine Air Lines Inc. a common carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting baggage.

(2) Seizure of the Bus was not force majeure. Art. 1174 states that a fortuitous event is one which could not be foreseen or which though foreseen is inevitable. To be considered a force majeure it is necessary that (a) the cause of the breach of the obligation must be independent of the human will. (b) the event must be either unforeseeable or unavoidable (c) the occurrence must be such as to render it impossible for the debtor to fulfill the obligation in a normal manner (d) the obligor must be free of participation in or aggravating the injury.

Despite the report of the Constabulary, Fortune took no steps to safeguard the lives of the passengers or their properties. The event was foreseeable was is therefore lacking one of the requisites mentioned above. Therefore, this is not a fortuitous event.

Other issues:(a) The deceased was not guilty of contributory negligence. He was allowed by

the Maranaos to retrieve something from the bus. What angered them was his attempt to plead for the life of the driver. He was playing the role of the Good Samaritan. this act cannot certainly be considered an act of negligence or recklessness.

(b) 1764 in relation to 2206 of the Civil Code provides for payment for the death of passengers caused by breach of contract. It is presently fixed at P50,000.

(c) Compensation for loss of earning capacity is also provided for in 1764 in relation to 2206. The formula for computation is:

Net earning capacity = life expectancy x (gross annual income – necessary living expenses)

Formula for life expectancy s as follows:2/3 x (80 – 37)

Sulpicio Lines vs. CA [305 SCRA 478 (March 29 1999)]Collision

Facts: Aquarius Fishing Co. filed a complaint for damages against Sulpicio Lines Inc. for a collision which occurred between their boats. Aquarius contended that the collision was due to the negligence of Sulpicio when it was at twice its normal speed, wanting to overtake Aquarius. Sulpicio, on the other hand, claims that since Aquarius had no lookout at that time, it was the negligent one. RTC adjudged in favor of Aquarius. CA affirmed RTC's decision. Hence, this petition with the SC.

Sulpicio contends that it was evident that Aquarius' patron and crew were negligent. The Rules of the Road of the Phil. Merchant Rules and Regulations required that all vessels must have a lookout, of which Aquarius did not have.

Issue: Who was negligent?

Held: Sulpicio. The duty to keep out of the way remained with Sulpicio even if the overtaking vessel cannot determine with certainty whether she is forward of or aft more than 2 points from the vessel. Sulpicio must assume responsibility as it was in a better position to avoid the collision. It should have blown its horn or given signs to warn the other vessel that it was to overtake it.

Assuming arguendo that Aquarius had no lookout during the collision, the omission does not suffice to exculpate Sulpicio from liability. When it overtook Aquarius, it was duty bound to slacken its speed and keep away from other vessels, which it failed to do.

1998

Far Eastern Shipping Company vs. CA [297 SCRA 30 (Oct 1 1998)]Collision: Presumption Against Moving VesselDuties and Liability of Pilot

Facts: The M/V Pavlador, flying under the flagship of USSR, owned and operated by Far Eastern Shipping Company (FESC), arrived at the port of Manila. Capt. Abellana was tasked by the PPA to supervise the berthing of the vessel. Gavino was assigned by Manila Pilot’s Association (MPA) to conduct docking maneuvers for the safe berthing of the vessel.

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Gavino boarded the vessel at the quarantine anchorage and stationed himself in the bridge, with the master of the vessel Kavankov beside him. The vessel then lifted anchor from the quarantine anchorage and proceeded to the Manila International Port. When the vessel reached the landmark, Gavino ordered the engine stopped. When the vessel was already about 2,000 ft from the pier, Gavino ordered the anchor dropped. However, one of the anchors did not take hold as expected. The speed of the vessel did not slacken. A commotion ensued between the crew members. A brief conference ensued between Kavankov and the crew members. When Gavino inquired what was all the commotion about, Kavankov assured Gavino that there was nothing to it.

After Gavino noticed that the anchor did not take hold, he ordered the engines half-astern. Abellana, who was then on the pier apron, noticed that the vessel was approaching the pier fast. Kavankov likewise noticed that the anchor did not take hold. Gavino thereafter gave the full-astern code. Before the right anchor and additional shackles could be dropped, the bow of the vessel rammed into the apron of the pier causing damage to it. Kavankov filed his sea protest. Gavino submitted his report to the PPA.

PPA filed before RTC a complaint for sum of money against FESC and Gavino. RTC adjudged in favor of PPA. On appeal, CA affirmed the decision of RTC. Hence, this petition for certiorari with SC.

FESC contends that since the vessel was under compulsory pilotage at the time of the incident, it was the compulsory pilot, Gavino, who was in command and had complete control in the navigation and docking of the vessel. It is the pilot who supersedes the master for the time being in the command and navigation of a ship and his orders must be obeyed in all respects connected with her navigation. Consequently, Gavina was solely responsible for the damage caused upon the pier apron and not FESC. It further claims that the master of the vessel did not commit any act of negligence when he failed to countermand or overrule the orders of the pilot because he did not see any justifiable reason to do so. In other words, the master cannot be faulted for relying absolutely on the competence of the compulsory pilot.

Issue: Whether or not FESC is liable considering its contentions.

Held: Yes. First, we must bear in mind the evidentiary rule in American jurisprudence that there is a presumption of fault against a moving vessel that strikes a stationary object such as a dock or navigational aid. In admiralty, this presumption does more than merely require the ship to go forward and produce some evidence on the presumptive matter. The moving vessel must show that it was without fault or that the collision was occasioned by the fault of the stationary object or was the result of inevitable accident. It has been held that such vessel must exhaust every reasonable possibility which the circumstances admit and show that in each, they did all that reasonable care required. In the absence of sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides with a fixed object and makes a prima facie case of fault against the vessel. The task, therefore, is to pinpoint who was negligent – the master of the ship, the harbor pilot or both.

Capt. Gavino failed to measure up to the strict standard of care and diligence required of pilots in the performance of their duties by not making sure that his directions were promptly and strictly followed as per his testimony. Generally, a pilot supersedes the master for the time being in the command and navigation of the ship, and his orders must be obeyed in all matters connected with her navigation. He becomes the master pro hac vice and should give all directions as to speed, course, stopping and reversing, anchoring, towing and the like. And when a licensed pilot is employed in a place where pilotage is compulsory, it is his duty to insist on having effective control of the vessel, or to decline to act as pilot. The pilot does not take entire charge of the vessel, but is deemed merely the adviser of the master, who retains command and control of the navigation even in localities where pilotage is compulsory. Hence, a pilot is presumed to have skill and knowledge in respect to navigation in the particular waters over which his license extends superior to that of the master. He is not held to the highest possible degree of skill and care, but must have and exercise the ordinary skill and care demanded by the circumstances.

However, Kavankov is no less responsible for the allision. His unconcerned lethargy as master of the ship in the face of troublous exigence constitutes negligence. While it is indubitable that in exercising his functions a pilot is in sole command of the ship and supersedes the master for the time being in the command of the ship, the master does not surrender his vessel tot he pilot and the pilot is not the master. The master is still in command of the vessel notwithstanding the presence of a pilot. There are occasions when the master may and should interfere and even displace the pilot, as when the pilot is obviously incompetent. He is not wholly absolved from his duties while a pilot is on board his vessel, and may advise with or offer

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suggestions to him. He is still in command of the vessel, except so far as her navigation is concerned, and must cause the ordinary work of the vessel to be properly carried on and the usual precaution taken.

A perusal of Kavankov’s testimony makes it apparent that he was remiss in the discharge of his duties as master of the ship, leaving the entire docking procedure up to the pilot, instead of maintaining watchful vigilance over this risky maneuver.

Hence, both Kavankov and Gavino are negligent. In sum, where a compulsory pilot is in charge of a ship, the master being required to permit him to navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty of the master to refuse to permit the pilot to act. But if no such reasons are present, then the master is justified in relying upon the pilot, but not blindly.

1997

Mitsui O.S.K. Lines Ltd., represented by MAGSAYSAY AGENCIES, INC. v CA [(March 11, 1998.)]Carriage of Goods by Sea Act (COGSA): Damage due to delay and prescription period

Facts: Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent, Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., an international freight forwarder, with private respondent Lavine Loungewear Manufacturing Corporation to transport goods of the latter from Manila to Le Havre, France. Petitioner undertook to deliver the goods to France 28 days from initial loading. On July 24, 1991, petitioner's vessel loaded private respondent's container van for carriage at the said port of origin. However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half the value of the said goods on the ground that they did not arrive in France until the "off season" in that country. The remaining half was allegedly charged to the account of private respondent which in turn demanded payment from petitioner through its agent. Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under the Carriage of Goods by Sea Act.

The Regional Trial Court, as aforesaid, denied petitioner's motion as well as its subsequent motion for reconsideration. On petition for certiorari, the Court of Appeals sustained the trial court's orders. Hence this petition containing one assignment of error:

Issue: (1) WON damage due to delay is covered under COGSA(2) WON (if covered) the action has prescribed

Held: Section 3 of COGSA provides that unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.

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

(1) In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of goods which had been delivered to a party other than the consignee is for "loss or damage" within the meaning of s3(6) of the COGSA. It was held that there was no loss because the goods had simply been misdelivered. "Loss" refers to the deterioration or disappearance of goods. As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered.

Conformably with this concept of what constitutes "loss" or "damage," this Court held in another case that the deterioration of goods due to delay in their transportation constitutes

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"loss" or "damage" within the meaning of 3(6), so that as suit was not brought within one year the action was barred:

Whatever damage or injury is suffered by the goods while in transit would result in loss or damage to either the shipper or the consignee. As long as it is claimed, therefore, as it is done here, that the losses or damages suffered by the shipper or consignee were due to the arrival of the goods in damaged or deteriorated condition, the action is still basically one for damage to the goods, and must be filed within the period of one year from delivery or receipt, under the above-quoted provision of the Carriage of Goods by Sea Act.

There would be some merit in appellant's insistence that the damages suffered by him as a result of the delay in the shipment of his cargo are not covered by the prescriptive provision of the Carriage of Goods by Sea Act above referred to, if such damages were due, not to the deterioration and decay of the goods while in transit, but to other causes independent of the condition of the cargo upon arrival, like a drop in their market value

The rationale behind limiting the said definitions to such parameters is not hard to find or fathom. Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in port to someone who claimed to be entitled thereto, the situation is different, and the special need for the short period of limitation in cases of loss or damage caused by maritime perils does not obtain. (Ang)

In the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused by the carrier's breach of contract. Whatever reduction there may have been in the value of the goods is not due to their deterioration or disappearance because they had been damaged in transit.

(2) Although we agree that there are places in the section (Article III) in which the phrase need have no broader meaning than loss or physical damage to the goods, we disagree with the conclusion that it must so be limited wherever it is used. We take it that the phrase has a uniform meaning, not merely in Section 3, but throughout the Act; and there are a number of places in which the restricted interpretation suggested would be inappropriate. For example Section 4(2) [Article IV(2) (sic) exempts exempts (sic) the carrier, the ship (sic), from liability "loss or damage" (sic) resulting from certain courses beyond their control. 9

What is in issue in this petition is not the liability of petitioner for its handling of goods as provided by 3(6) of the COGSA, but its liability under its contract of carriage with private respondent as covered by laws of more general application. The question before the trial court is not the particular sense of "damages" as it refers to the physical loss or damage of a shipper's goods as specifically covered by s3(6) of COGSA but petitioner's potential liability for the damages it has caused in the general sense and, as such, the matter is governed by the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of carriage with private respondent. The suit below is not for "loss or damage" to goods contemplated in §3(6), the question of prescription of action is governed not by the COGSA but by Art. 1144 of the Civil Code which provides for a prescriptive period of ten years.

PHILAMGEN vs. CA and FELMAN [GR 116940, June 11, 1997]Code of Commerce: Limited Liability

Facts: Coke loaded on board a vessel owned and operated by Felman 7,500 cases of softdrinks for shipment. The shipment was insured with Philamgen. The vessel sank.. Philamgen paid Coke, and now it seeks reimbursement from Felman as subrogee.

Issue: W/N Felman is liable.

Held: Yes. As to the issue of seaworthiness of the vessel, the sinking was ascribed to the entry of seawater through a hole in the hull caused by the vessel's collision with a partially submerged log and all other evidence revealed that the vessel was overloaded. Thus, it was held that the vessel was unseaworthy.

Secondly, Art. 587 of the Code of Commerce (on limited liability) is not applicable to the case at bar. Simply put, the ship agent is liable for negligent acts of the captain in the care of the goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 537. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite abandonment, as where the loss or injury was due to the fault of ship owner and captain. It must

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be stressed that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where the ship owner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carriers.

Lastly, it is held that Philamgen's action against Felman (for reimbursement) is sanctioned by Art. 2207 of the NCC. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.

Valenzuela Hardwood and Industrial Supply vs. CA and Seven Brothers [GR 102316, June 30, 1997]Code of Commerce Inapplicable to Private Carriers

Facts: SV Shipping Corp undertook to transport Valenzuela’s logs from Isabela to Manila. The vessel sank. Valenzuela filed a formal claim with SV for the value of the lost logs. SV refused to pay on the basis of the provisions in their contract exempting them from liability in case of loss.

Issue: W/N the stipulation in the charter party that the "owners shall not be responsible for loss, split, short-landing, breakage and any kind of damages to the cargo" is valid.

Held: Yes. It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking of the vessel resulting in the loss of the cargo was the "snapping of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to fortuitous event". Likewise undisputed is the status of SV as a private carrier when it contracted to transport the cargo of Valenzuela (admitted as such by the latter in its petition). Thus, Article 1745 and other Civil Code provisions on common carriers are inapplicable.

In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer, exempting the ship owner from liability for loss of or damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such stipulation is valid because it is freely entered into by the parties and the same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a contract of adhesion.

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