Mercantile Law) Corpo, Cred Trans, Insurance, IPC, NIL & Transpo) Case Survey Up To 2001) Made 2

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002
CORPORATION LAW 2001 TCL Sales Corporation v. CA & Ting Ping Lay [349 SCRA 35 (Jan.5, !!"#$ J%ris&i'tion o( t)e S*C Rig)ts o( a S)are)ol&er +%ty o( Corporate Se'retary to enter trans(er o( S)ares in Corporate ,oo-s 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. n order to protect his shareholdings !ith TCL, Lay requested "nna Teng, TCL Corporate Secretary to enter the transfer of shares of stock for proper recording of his acquisitions in the Stock # Transfer $ook of TCL. %e too demanded issuance of ne! certificates of stock in his fa&or. TCL, ho!e&er, e&en after repeated demands, refused. Lay filed a case !ith the S'C for mandamus against TCL and Teng. This !as in turn granted by the S'C denying a later () as !ell. The C" dismissed TCL*s petition as !ell for being filed out of time. ssues: +,- ./0 S'C has 1urisdiction o&er the petition for mandamus filed by Lay. +2- ./0 the alleged transfer of shares in fa&or of Lay are &alid and can be ordered recorded.
%eld: Denied and C" decision affirmed. '&en if Lay !ere not a Share %older, he is still a member of the public !hose in&estment in the corporate the la! seeks to protect and encourage, as his purchase of shares of stock has been established. Principal function of S'C is super&ision and control of corps, partnerships, assoc !ith the &ie! of protecting and encouraging in&estments for the protection of economic de&elopment. S'C has po!er of control # super&ision o&er all corps to encourage acti&e public participation in the affairs of pri&ate corps through in&estments. 3urisdiction o&er an action for mandamus lies !ith the S'C e&en if the proponent is not yet a S% of record, as in the case of Abejo v. de la Cruz. S'C by e4press mandate has absolute 1urisdiction to enforce the pro&isions of the Corp Code among !hich is the stock purchaser*s right to secure the corresponding certificate of stock in his name. 5etermination of !hether or not a Share %older is entitled to e4ercise the rights of a Share %older is !ithin 1urisdiction of the S'C. The S'C en banc found that TCL did not refute the &alidity of the transfers of the shares of stock 6 they conceded that they could not assail the documents e&incing the transfer of the shares to Lay. Lay !as able to establish prima facie o!nership through the deeds of transfer of shares of stock of TCL. " listing of TCL*s Share %olders # their respecti&e shares before # after the e4ecution of a certain deed of assignment sho!s that Lay is indeed listed as a Share %older of TCL. The dispute is an intra7corp contro&ersy in&ol&ing Share %olders of TCL. "s held in Lim Tay v. CA, the duty of the corporate secretary to record transfers of stocks is ministerial. t ho!e&er, cannot be compelled !hen the transferee*s title has no prima facie &alidity or is uncertain. (andamus !ill not issue to establish a right but only to enforce one already established. "lthough during the trial before the S'C, TCL admitted that they ignored Lay*s request !as based simply on the fact that they did not !ant to grant it. %a&ing been capricious, !himsical # un!arranted, it constitutes bad faith. %o!e&er, the S'C en banc modified # deleted the said a!ard for damages imposed on the corp. The matter of damages no! concerns only Teng, the corporate secretary. t !as Teng*s refusal as corp secretary to record the transfer of the shares, !ithout e&idence that such refusal !as authori8ed by TCL*s $/5, that caused damage. 0o error !as committed by the respondent court in refusing to disturb the S'C*s findings. .nion ,an- o( t)e P)ilippines v. S*C [J%ne /, !!"$ Revise& Se'%rities A't Facts: /n "pril 9, ,::;, petitioner <nion $ank sought the opinion of Chairman Perfecto =asay, 3r. of respondent Commission as to the applicability and co&erage of the Full (aterial 5isclosure )ule on banks, contending that said rules, in effect, amend Section > +a- +?- of the )e&ised Securities "ct !hich e4empts securities issued or guaranteed by banking institutions from the registration requirement pro&ided by Section 9 of the same "ct.
Chairman =asay replied and informed the petitioner that !hile the requirements of registration do not apply to securities of banks !hich are e4empt under Section >+a- +?- of the )e&ised Securities "ct, ho!e&er, banks !ith a class of securities listed for trading on the Philippine Stock '4change, nc. are co&ered by certain )e&ised Securities "ct )ules go&erning the filing of &arious reports !ith respondent Commission. /n 3uly ,;, ,::;, respondent Commission !rote petitioner, en1oining the latter to sho! cause !hy it should not be penali8ed for its failure to submit a Pro4y@ nformation Statement in connection !ith its annual meeting held on (ay 2?, ,::;, in &iolation of respondent Commission*s AFull (aterial 5isclosure )ule.* BFailing to respond to the aforesaid communication, petitioner !as gi&en a A2 nd Sho! Cause !ith "ssessment* by respondent Commission on 3uly 2,, ,::;. Petitioner !as then assessed a fine of P>C,CCC.CC plus P>CC.CC for e&ery day that the report D!asE not filed, or a total of P:,, CCC.CC as of 3uly 2,, ,::;. Petitioner !as like!ise ad&ised by respondent Commission to submit the required reports and settle the assessment, or submit the case to a formal hearing. The S'C issued an order: B n &ie! of the foregoing, the appeal filed by the <nion $ank of the Philippines is hereby denied. The penalty imposed in the amount of P:,,CCC.CC as of 3uly 2,, ,::;, for failure to file S'C Form ,,7" e4cludes the fine accruing after the cut7off date until the final submission of the report. Further, the amount of P>C,CCC.CC shall be collected for the &iolation of )S" )ule ?9+a-7, or )ule ?9 +c-+,-.F ssue: ./0 is required to comply !ith the respondent S'C*s full disclosure rules. %eld: The petition is not meritorious. Section > of the )e&ised Securities "ct states that: Sec >. Exempt Securities. +a- '4cept as e4pressly pro&ided, the requirement of registration under subsection +a- of Section four of this "ct shall not apply to any of the follo!ing classes of securities: 4444 +?- "ny security issued or guaranteed by any banking institution authori8ed to do business in the Philippines, the business of !hich is substantially confined to banking, or a financial institution licensed to engage in quasi7banking, and is super&ised by the Central $ank. This pro&ision e4empts from registration the securities issued by banking or financial institutions mentioned in the la!. 0o!here does it state or e&en imply that petitioner, as a listed corporation, is e4empt from complying !ith the reports required by the assailed )S" mplementing )ules. t must be emphasi8ed that petitioner is a commercial banking corporation listed in the stock e4change. Thus, it must adhere not only to banking and other allied special la!s, but also to the rules promulgated by )espondent S'C, the go&ernment entity tasked not only !ith the enforcement of the )e&ised Securities "ct, but also !ith the super&ision of all corporations, partnerships or associations !hich are grantees of go&ernment7issued primary franchises and@or licenses or permits to operate in the Philippines. That petitioner is under the super&ision of the $angko Sentral ng Pilipinas +$SP- and the Philippine Stock '4change +PS'- does not e4empt it from complying !ith the continuing disclosure requirements embodied in the assailed )ules. Petitioner, as a bank, is primarily sub1ect to the control of the $SPG and as a corporation trading its securities in the stock market, it is under the super&ision of the S'C. t must be pointed out that e&en the PS' is under the control and super&ision of respondent. There is no o&er7super&ision here. 'ach regulating authority operates !ithin the sphere of its po!ers. That stringent requirements are imposed is understandable, considering the paramount importance gi&en to the interests of the in&esting public. /ther!ise stated, the mere fact that in regard to its banking functions, petitioner is already sub1ect to the super&ision of the $SP does not e4empt the former from reasonable disclosure regulations issued by the S'C. These regulations are meant to assure full, fair and accurate disclosure of information for the protection of in&estors in the stock market. mposing such regulations is a function !ithin the 1urisdiction of the S'C. Since petitioner opted to trade its shares in the e4change, then it must abide by the reasonable rules imposed by the S'C. 2000 Cyana0i& P)ilippines, 1n'. vs CA, CTA an& Co00issioner o( 1nternal Reven%e Jan%ary !, !!!
A''%0%lation o( Pro(its Facts: Petitioner is a corporation organi8ed under Philippine la!s and is a !holly o!ned subsidiary of "merican Cyanamid Co. based in (aine, <S". t is engaged in the manufacture of pharmaceutical products and chemicals, a !holesaler of imported finished goods and an imported@indentor. n ,:H> the C ) assessed on petitioner a deficiency income ta4 of P,,:,H,;- for the year ,:H,. Cyanamid protested the assessments particularly the 2>I surta4 for undue accumulation of earnings. t claimed that said profits !ere retained to increase petitionerJs !orking capital and it !ould be used for reasonable business needs of the company. The C ) refused to allo! the cancellation of the assessments, petitioner appealed to the CT". t claimed that there !as not legal basis for the assessment because ,- it accumulated its earnings and profits for reasonable business requirements to meet !orking capital needs and retirement of indebtedness 2- it is a !holly o!ned subsidiary of "merican Cyanamid Company, a foreign corporation, and its shares are listed and traded in the 0= Stock '4change. The CT" denied the petition stating that the la! permits corporations to set aside a portion of its retained earnings for specified purposes under Sec. 9? of the Corporation Code but that petitionerJs purpose did not fall !ithin such purposes. t found that there !as no need to set aside such retained earnings as !orking capital as it had considerable liquid funds. Those corporations e4empted from the accumulated earnings ta4 are found under Sec. 2> of the 0 )C, and that the petitioner is not among those e4empted. The C" affirmed the CT"Js decision. ssue: .hether or not the accumulation of income !as 1ustified. %eld: n order to determine !hether profits are accumulated for the reasonable needs of the business to a&oid the surta4 upon the shareholders, it must be sho!n that the controlling intention of the ta4payer is manifested at the time of the accumulation, not intentions subsequently, !hich are mere afterthoughts. The accumulated profits must be used !ithin reasonable time after the close of the ta4able year. n the instant case, petitioner did not establish by clear and con&incing e&idence that such accumulated !as for the immediate needs of the business. To determine the reasonable needs of the business, the <nited States Courts ha&e in&ented the K mmediacy TestK !hich construed the !ords Kreasonable needs of the businessK to mean the immediate needs of the business, and it is held that if the corporation did not pro&e an immediate need for the accumulation of earnings and profits such !as not for reasonable needs of the business and the penalty ta4 !ould apply. +La! of Federal ncome Ta4ation Lol ;The !orking capital needs of a business depend on the nature of the business, its credit policies, the amount of in&entories, the rate of turno&er, the amount of accounts recei&able, the collection rate, the a&ailability of credit and other similar factors. The Ta4 Court opted to determine the !orking capital sufficiency by using the ration bet!een the current assets to current liabilities. <nless, rebutted, the presumption is that the assessment is correct. .ith the petitionerJs failure to pro&e the C ) incorrect, clearly and conclusi&ely, the Ta4 CourtJs ruling is upheld. R%(ina Li0 vs CA, A%to Tr%'-, T,A Corporation, Sspee& +istri2%ting 1n'., A'tive +istri2%tors, Allian'e 3ar-eting Corporation, A'tion Co0pany, 1n'. (Jan%ary 4, !!!# Tests to Pier'e t)e 4eil o( Corporate 5i'tion Facts: )ufina Lim is the sur&i&ing spouse of Pastor Lim !hose estate is the sub1ect of probate proceedings. The pri&ate respondents are corporations formed, organi8ed and e4isting under Philippine La!s and !hich o!n real properties. Pastor Lim died 3une ,::9, )ufina Lim filed for the administration of the estate. The properties !hich !ere o!ned by the corporations !ere included in the in&entory of the estate. They filed for the e4clusion of the properties from said estate and the cancellation of the annotation of lis pendens in the TCTs of said properties. The )TC granted the motions. %o!e&er )ufina Lim filed an amended petition !hich a&erred that such corporations !ere o!ned by Pastor Lim, that such !ere dummies of Pastor Lim, that those listed as incorporators are there only for the purpose of registration !ith the S'C, and that the real properties, although registered in the name of the corporations, !ere actually acquired by Pastor Lim during his marriage !ith )ufina Lim. The )TC acting on such motion set aside its order and ordered the )egister of 5eeds to reinstate the lis pendens. The respondent filed for certiorari !ith the C" !hich granted its prayer. )ufina Lim disputes such decision and urges that not only are the properties of the corporations part of the estate but also
the corporations themsel&es. She cites that Pastor Lim during his lifetime organi8ed and !holly o!ned the > corporations. ssue: .hether or not a corporation in its uni&ersality be the proper sub1ect of and be included in the in&entory of the estate of a deceased personM %eld: The real properties included in the in&entory of the estate of the late Pastor Lim are in the possession of and are registered in the name of pri&ate respondent corporations, !hich under the la! possess a personality separate and distinct from their stockholders and in the absence of any cogency to shred the &eil of corporate fiction, the presumption of conclusi&eness of said titles in fa&or of pri&ate respondents should stand. t is settled that a corporation is clothed !ith personality separate and distinct from that of persons composing it. t may not generally be held liable for that of the persons composing it. t may not be held liable for the personal indebtedness of its stockholders or those of the entities connected !ith it. " corporation by legal fiction and con&enience is an entity shielded by a protecti&e mantle and imbued by la! !ith a character alien to the persons comprising it. $ut K!hen the fiction is urged as a means of perpetrating a fraud or an illegal act or as a &ehicle for the e&asion of an e4isting obligation, the circum&ention of statutes, the achie&ement or perfection of a monopoly or generally the perpetration of kna&ery or crime, the &eil !ith !hich the la! co&ers and isolates the corporation from...!ill be lifted to allo! for its consideration merely as an aggregation of indi&iduals.K First Philippine nternational $ank &s C" +2>2 SC)" 2>:The test in determining the applicability of piercing the &eil of corporation fiction is as follo!s: ,- Control, not mere ma1ority 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, !ill or e4istence of its o!n. 2- Such control must ha&e been used by the defendant to commit fraud or !rong, to perpetuate the &iolation of a statutory or other positi&e legal duty, or dishonest and un1ust act in contra&ention of plaintiffJs legal right. ?- The control and breach of duty must pro4imately cause the in1ury. The absence of these elements pre&ent the piercing. Petitioner failed to adduce e&idence that !ould 1ustify such piercing. (ere o!nership 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. 5ran'is'a ,al%yot vs Pa%l 6olgan7a an& t)e 8((i'e o( t)e 802%&s0an (4isayas# represente& 2y Art%ro 3o9i'a, +ir. 4irginia Plan'a:Santiago an& ;ra(t 1nvestigation 8((i'er Anna 3arie 3ilitante (5e2r%ary 9, !!!# 1n'orporation Test to &eter0ine <at%re o( Corporation ( Private= P%2li'# Facts: 5uring a spot audit in ,:;;, the auditors from the Philippine 0ational )ed Cross +P0)Cheadquarters disco&ered a case shortage in the funds of its $ohol chapter. The chapter administrator, petitioner $aluyot, !as held accountable and thereafter, respondent %olgan8a as member of the board $ohol chapter, filed a complaint !ith the /fc. of the /mbudsman for mal&ersation. <pon recommendation of respondent (ilitante, an administratia&e docket of dishonesty !as also opened against $aluyot. $aluyot raised the defense that the /mbudsman had no 1urisdiction as he had authority only o&er go&ernment o!ned or controlled corporations !hich the P0)C !as not. She gi&es as e&idence of its pri&ate character ,- it does not recei&e budgetary support from the go&ernment and all money gi&en to it by the latter and its instrumentalities become pri&ate funds of the organi8ation. 2- funds for the payment of personnelJs salaries and other emoluments come from yearly fund campaigns, pri&ate contributions and rentals from its properties. ?- it is not audited by C/". P0)C, petitioner claims falls under the nternational Federation of )ed Cross, S!iss7based organi8ation. ssue: .hether or not P0)C is a go&ernment o!ned or controlled corporation or a pri&ate corporation. %eld: The Court cited the case of Camporedondo &s. 0L)C. K)esol&ing the issue set out...!e rule that the P0)C is a go&ernment o!ned and controlled corporation, !ith an original charter under )" 0o. :>, as amended, The test to determine !hether a corporation is go&ernment o!ned or controlled or pri&ate in nature is simple. s it created by its o!n charter for the e4ercise of a public function, or by incorporation under the general corporation la!M Those !ith special charters are go&ernment corporations sub1ect to its pro&isions, and its employees are under the 1urisdiction of the Ci&il Ser&ice Commission, and are compulsory members of the NS S. The P0)C !as not Kimpliedly con&erted to a pri&ate corporationK simply because its
charter !as amended to &est in it the authority to secure loans, be e4empted from payment of all duties, ta4es, fees and other charges of all kinds on all importations and purchases for its e4clusi&e use, on donations for its disaster relief !ork and other ser&ices and in its benefits and fund raising dri&es...K Clearly then, public respondent has 1urisdiction o&er the matter. An&res Lao vs. CA, t)e Asso'iate& Anglo:A0e&i'an Ta2a''o Corp. an& *ste2an Co. 5e2r%ary ">, !!! Corporate 8((i'ers not personally lia2le (or A%t)ori7e& Corporate A'ts Facts: n ,:O> a Contract of Sales "gent !as entered by the "ssociation of "nglo7"merican Tobacco Corporation !ith "ndres Lao. Lao !as to sell cigarettes manufactured and shipped by the Corporation to his address in Tacloban, and he !ould remit the sales proceeds. Lao !ould recei&e commission for those sold, !ith a monthly salary and operational allo!ance. n ,:OH LaoJs attention !as called to his enormous accounts and the difficulty in obtaining a tally despite his a&o!al of regular remittance of collections. n ,:O: it !as established that his liability amounted to P>2>,C>?. "lso, the Corp. disco&ered that Lao !as engaged in a construction business and suspecting that he di&erted the sale proceeds to such business, it ga&e a demand letter for payment of his obligations. t also found that contrary to his allegations, he did not ha&e a huge collectible from customers and nothing !as due to the Corporation. From then on, the Corp. no longer sent him shipments. n ,:;C, "ndres, 3ose and Tomas Lao brought a complaint for accounting and damages against the Corp.. The court ordered both to undergo a court super&ised accounting but also ordered the Corporation to pay the LaoJs actual loss of earnings, moral damages, e4emplary damages, atty. fees and cost of suit. Later the court ga&e a supplemental decision dismissing LaoJs claim of o&erpayment. The Corp. and the LaoJs appealed. The C" found the Corp. liable for actual damages of loss of earnings, moral damages and e4emplary damages. t also ordered the Corp. to pay the claim of o&erpayment by Lao. The Corp. file a motion for reconsideration and during its pendency, 'steban Co, the ne! LP of the Corp. filed a complaint !ith the fiscal alleging Lao failed to remit an amount !hich he allegedly misappropriated and con&erted to his o!n personal use. Pending the criminal case, Lao filed against the Corp. and 'steban Co a complaint for malicious prosecution. The fiscal found that Lao did not commit estafa and that his liability !as ci&il. The trial court found the Corp and 'steban Co guilty of malicious prosecution. They appealed. Co asserts that he cannot be held 1ointly and se&erally liable !ith the Corp. as he !as acting as e4ecuti&e &ice president and his action !as !ithin the scope of his authority as such corporate officer. ssue: .hether or not Co should be held solidarily liable !ith the Corp. %eld: " perusal of his affida&it re&eals that at the time he filed the complaint on 3une ,:;9, Co !as &ice president of the Corp. "s a corporate officer, his po!er to bind the Corp as its agent must be sought from statute, charter, by7la!s, a delegation of authority to a corporate officer, or from the acts of the board of directions, e4pressed or implied from custom of doing business. n this case, no such sources of CoJs authority from !hich to deduce !hether or not he !as acting beyond the scope of his responsibilities are mentioned, or pro&en. t is logical to conclude that the board or by7la!s of the Corp. &ested Co !ith certain e4ecuti&e duties, one of !hich is the case for the Corp. That Co !as authori8ed 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 ha&e been specially pleaded by the Corp. ts failure to interpose such defense could only mean that the filing of Co !as !ith 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 ,an- vs CA an& Ri'ar&o Silverio (5e2r%ary , !!!# S*C J%ris&i'tion, Re?%ire0ent o( Proo( o( Relations)ip o( Parties an& S%29e't 3atter Facts: n ,::,, Pilipinas bank filed a complaint against Sil&erio to secure payment of t!o loans he obtained from petitioner !hen he !as still its ma1ority stockholder. Sil&erio contends that it is the S'C and not the regular courts that has 1urisdiction o&er the suit !hich is an intra7corporate contro&ersy bet!een the $ank and its stockholder and that there is a pending case in the S'C !herein the petitioner may plead his claim. The $ank in ans!er to a request for admission, admits that Sil&erio !as a stockholder, that it instituted a case for Specific Performance and $reach of Contract before the S'C. t also admits that Sil&erio had a capital infusin of 2> million credited to paid in surplus in its books but the same !as !ritten off against losses of the $ank, in the same may equities of other stockholders !ere proportionately !ritten off. The court granted the motion to dismiss and denied the $anks motion for reconsideration. The $ank filed for certiorari !ith the C", !hich
>
found the case to be intra7corporate and dismissed the case. (otion for reconsideration denied.
t cited Sec. > of P.5. :C27a.
ssue: .hether or not the establishment of a relationship bet!een a stockholder and corporation in a dispute necessarily &est 1urisdiction in the S'C. %eld: The $ank in&oke the ruling of the cases of Liray &s. C" !herein the Court ruled that the establishment of the relationship does not al!ays confer 1urisdiction on the S'C. The better policy is determining !hich body has 1urisdiction !ould be to consider not only the status or the relationship of the parties but also the nature of the question. "nd in (acapalan Ls. Patalbas7 (oscardon, the Court held that simple money claims, !ithout any a&erment of fraud or misrepresentation committed by the corporations in&ol&ed, are cogni8able by the ordinary courts. %o!e&er, there is no question that the present case instituted by the $ank to collect loans obtained by Sil&erio !ho in turn seeks to reco&er his 2> million deposit in paid7in surplus !hich !as !ritten off by the $ank , is an intra7corporate contro&ersy. Considering the relationship of the parties and the sub1ect matter of the contro&ersy, 1urisdiction is !ith the S'C. Question !hich arise, such as: !hether the loans obtained by Sil&erio !ere in his personal capacity or as accommodation, he ha&ing been the ma1ority stockholder and !hether the !rite7 off !as applied for his loan accounts or for a proportionate reduction of his equity, call for an in&estigation of specific matters !ithin the e4clusi&e competence and authority of the S'C to pass upon. Presi&ential Co00ission on ;oo& ;overn0ent v. T)e 6on. San&igan2ayan 5e2r%ary 3, !!! Pier'ing 4eil o( Corporate 5i'tion to re'over 1ll:;otten @ealt) Facts: .orld <ni&ersal Trading # n&estment Co., S.". R.<T C+ !as a sociedad anonima registered in Panama but not licensed to do business in the Philippines. Construction 5e&elopment Corporation of the Philippines, no! kno!n as Philippine 0ational Construction Corporation +C5CP@P0CC- is duly organi8ed and e4isting under the la!s of the Philippines. PCNN ordered the sequestration and pro&isional takeo&ers against assets and records of )odolfo Cuenca, <ni&ersal %oldings, Cuenca n&estment, P0CC and San (ariano (illing Corporation. n ,:H; PCNN filed !ith the Sandiganbayan a complaint against Cuenca for illegally acquiring assets in the Cuenca o!ned corporations of C5CP@P0CC, "sia nternational %ard!ood Limited +"%L-, a %ongkong based company and Construction 5e&elopment Corporation nternational Limited, %ongkong, a !holly o!ned subsidiary or alter ego of C5CP@P0CC. n ,::,, claiming to be an assignee of "%L, .<T C filed !ith the )TC against C5CP@P0CC to enforce a foreign 1udgement !hich .<T C had obtained in %ongkong against C5CP , !hich is !holly o!ned by C5CP@P0CC. "fter trial, the )TC found in fa&or of .<T C, it considered C5CP@P0CC and C5CP as Kone corporate entityK and liable to pay .<T C. C5CP@P0CC appealed, the C" affirmed the decision of the )TC and the Supreme Court denied it on petition for re&ie!. <pon motion of .<T C, the )TC issued a !rit of e4ecution and Sheriff %arina issued notices of garnishment against the accounts, shares of stocks and income of C5CP@P0CC !ith &arious banks and corporations. n /ctober ,:;, PCNN Commissioner (endo8a attended the P0CC board meeting and disco&ered the !rit and notices of garnishment. "fter reali8ing that .<T C@"%LJs claim could be CuencaJs in disguise, PCNN en1oined /0CC and@or any person acting in its behalf from taking any action !hich !ould dissipate or affect the assets of C5CP@P0CC. PCNN filed for certiorari !ith the Sandiganbayan to annul the )TC decision, !rit and garnishment. The Sandiganbayan dismissed the petition ruling that it had not 1urisdiction to annul the 1udgement of the )TC. t claimed to ha&e only appellate 1urisdiction o&er decisions of the )TC in criminal cases in&ol&ing offenses relating to public office. ssue: .hether or not the Sandiganbayan committed gra&e abuse of discretion in summarily dismissing the petition for certiorari despite the possibility that .<T C is a dummy corporation or an alter ego of )odolfo Cuenca. %eld: The ? corporations in&ol&ed in this petition, P0CC@C5CP, "%L and C5CP , %ongkong are under sequestration are defendants in the sequestration case pending before the Sandiganbayan. "%L had claims against C5CP and assigned the same to .<T C. '&entually .<T C obtained a fa&orable 1udgement in a %ongkong court. 5ue to the closure of C5CP in %ongkong, .<T C filed a case !ith )TC against P0CC@C5CP to enforce a foreign 1udgement
obtained against C5CP . $oth corporations are Cuenca7o!ned and under sequestration. %ence there is &alid ground for PCNN to e&aluate the &alidity of .<T CJs claim as a legitimate assignee or merely a dummy corporation set up to circum&ent the sequestration case. "s per the Court, it should be noted that despite the initial sequestration orders and the case filed !ith the Sandiganbayan against stockholdings of )odolfo Cuenca and th so7called Cuenca7o!ned corporations, "%L, /0CC@C5CP and C5CP , the PCNN !as not made a party in the ci&il case in %ongkong and the case to enforce the foreign 1udgement filled !ith the trial court. Considering the interconnections bet!een the participating corporations in the said transactions and the e4istence of the sequestration case, the PCNN should ha&e been informed of the abo&e cases to question and &erify the &eracity of the claim. The Court stated that it is a!are of &arious schemes employed to circum&ent sequestration orders, dissipate sequestered assets and th!art PCNNJs efforts to reco&er ill7 gotten !ealth. That there is a possibility that .<T C is a dummy corporation formed by )odolfo Cuenca, or his alter ego, the reach the sequestered assets, there is a need to &igorously guard these assets and preser&e them pending resolution of the sequestration case before the Sandiganbayan. +LS. vs +ela Salle .niversity *0ployees Asso'iation (+LS.*A# +ela Salle .niversity *0ployees Asso'iation:<ational 5e&eration o( Tea')ers an& *0ployees .nion (+LS.*A:<A5T*.# vs +LS. (April " , !!!# Pier'ing t)e 4eil o( Corporate 5i'tion to &eter0ine 0e02ers o( Colle'tive ,argaining .nit Facts: 5ela Salle <ni&ersity and 5LS<'"70"FT'< entered into a collecti&e bargaining agreement !ith a life span of ? years. 5uring the freedom period, negotiations !ith the <ni&ersity for a ne! C$" !ere unsuccessful. dentifying the unresol&ed issues, the matter !as submitted for arbitration. /ne of the issues !as the scope of the bargaining unit. (agsalin, as arbitrator decided that the Computer /perators assigned at the Computer Ser&ices Center 1ust like any other Computer /perators in other units, should be included as members of the bargaining unit, the discipline officers belong to the rank7and7file on the basis of the nature of their 1ob and that the employees of the College of St. $enilde, the College ha&ing a personality separate and distinct from the <ni&ersity, such employees are outside the bargaining unit of said <ni&ersity. $oth parties filed for reconsideration !ith the (agsalin but !ere not entertained by him. The <ni&ersity then filed for certiorari !ith the Court. ssue: .hether or not to pierce the &eil of corporate fiction of the College of St. $enilde75LS< +!hether or not the employees thereat are !ithin or outside the bargaining unit.%eld: The Solicitor Neneral supports the employees of the College of St. $enilde and the <nion that the &eil of corporate fiction should be pierced and thus, according to the <nion, the <ni&ersity and the College of St. $enilde should be considered as only one entity because the latter is but a mere intergral part of the <ni&ersity. %o!e&er, the Court affirms the findings of the &oluntary arbitrator that the employees of the College of St. $enilde should be e4cluded from the bargaining unit of the rank and file employees of 5ela Salle <ni&ersity, because the t!o educational institutions ha&e their o!n separate 1uridical personality and not sufficient e&idence !as sho!n to 1ustify the piercing of the &eil of corporate ficiton. Leyson vs. 8((i'e o( t)e 802%&s0an, Tirso Antipor&a, C)air0an, .CP, an& C115 8il 3ills, an& 8s'ar A. Torral2a, Presi&ent, C115 8il 3ills (April >, !!!# Control an& 5%n'tion Test to &eter0ine <at%re o( Corporation (p%2li'=private# Facts: n ,::O nternational To!age and Transport Corp. + TTC-, a domestic corporation engaged in shipping business, entered into a , yr. contract !ith Legaspi /il Company, nc. +L'N"SP / L-, Nrane4port (anufacturing Corp. +N)"0'SP/)T- and <nited Coconut Chemicals, nc. +<0 T'5 C/C/0<T-, comprising the Coconut ndustry n&estment Fund +C Fcompanies for the transport of coconut oil in bulk through (T Transasia. The ma1ority of shareholdings of these companies are o!ned by the <nited Coconut Planters $ank +<CP$- as administrator of C F. <nder the contract, ? month ad&ance notice !ould be gi&en to terminate the contract. %o!e&er, the C F !ith their ne! president Torralba terminated the contract !ithout such ad&ance notice and engaged another &essel, (T (arilag.
Leyson, '4. Lice Pres. /f TTC filed !ith the /ffice of the /mbudsman against Torralba. n another complaint, petitioner charged "ntiporda as Chairman of <CP$ and C F /il (ills and Torralba !ith &iolation of the "nti7 Nraft and Corrupt Practices "ct. The /mbudsman dismissed the complaint finding that the case is a simple breach of contract and that the entities in&ol&ed are pri&ate corporations o&er !hich it has no 1urisdiction. (otion for reconsideration !as denied. Petitioner raises the issue to the Court. %e submits that based on Philippine Coconut Producers Federation nc. +C/C/F'5- &s PCNN and )epublic &s. Sandiganbayan, the Court has declared that the coconut le&y funds are public funds, then corporations formed and organi8ed from those funds or !hose controlling stocks are from those funds should be regarded as go&ernment o!ned and@or controlled corporations. "s in the present case, since the funding or controlling interest of the companies being headed by pri&ate respondents !as gi&en or o!ned by the C F as sho!n in the certification of their Corporate Secretary, it follo!s that they are go&ernment o!ned and@or controlled corporations. Corollarily, petitioner asserts that respondents "ntiporda and Torralba are public officers sub1ect to the 1urisdiction of the /mbudsman. Pri&ate respondents counter that the C F companies !ere duly organi8ed under the Corporation Code and that their stockholders are pri&ate indi&iduals and entities. ssue: .hether or not the C F companies are public corporation. %eld: The Court found in fa&or of the respondents. The 1urisprudential rules in&oked by petitioner are incomplete !ithout resorting to the definition of Kgo&ernment o!ned or controlled corporationK contained in par. ,?, Sec. 2 ntroductory Pro&isions of the "dministrati&e Code of ,:H;. t mentions ? requisites ,- any agency organi8ed as a stock or non7stock corp. 2- it is &ested !ith functions relating to public needs !hether go&ernmental or proprietary in nature ?o!ned by the No&ernment directly or through its instrumentalities either !holly or in case of stock corp. at least >,I of its capital stock. n the present case, <CP$ o!ns 99.,I of Legaspi /il, !hich is belo! >,I and remo&es it from the definition of go&ernment o!ned or controlled corp. <CP$ o!ns :,.29I of N)"0'SP/)T and :2.H>I of <nited Coconut. %o!e&er, there is no sho!ing that both !ere &ested !ith functions relating to public needs !hether go&ernmental or proprietary in nature. The C F companies are pri&ate corporations and not !ithin the scope of the 1urisdiction of the /ffice of the /mbudsman. AR, Constr%'tion Co., 1n' v CA (3ay 3", !!!# Corporate 8((i'ers not personally lia2le (or A%t)ori7e& Corporate A'ts Facts: n ,::? T$S Security and n&estigation "gency +T$SS- entered into 2 ser&ice contracts !ith ")$C !herein T$SS agreed to pro&ide and post securioty guards in the > establishments being maintained by ")$C. n ,::9, ")$C informed T$SS of its desire to terminate the ser&ice contracts. ")$C also informed T$SS through its Lice President for /perations, (ark (olina, that it !as replacing its security guards !ith those of Nlobal Security for n&estigation "gency +NS "-. T$SS informed ")$S that it could not preterminate the ser&ice contracts nor post security guards from NS " as these !ould run counter to their contracts. Later, (olina !rote T$SS conceding that ")$S could not preterminate the contract but ne&ertheless decreased the security guards to only ,, allegedly pursuant to Clause 2 of the ser&ice contract. T$SS subsequently filed a complaint for preliminary in1unction against ")$C and NS ". n ans!er, ")$C claimed that it decreased the number of security guards because they !ere found to be grossly negligent and inefficient. T$SS, in addition to the allegations in its original complaint, alleged in an amended and supplemental complaint that ")$C illegally deducted from the payroll amounts representing the &alue of , unit of concrete &ibrator and cassette recorder and furthermore, ")$C !ithheld additional amounts from its payroll as payment for the parts of the grader that !ere stolen. ")$C filed its opposition to the filing of such. Subsequently, ("rk (olina also filed a motion to dismiss the amended and supplemental complaint on the ground that it did not state a cause of action. The )TC denied the motion. /n appeal, the C" denied both petitions of ")$C and (olina. %ence this petition. "side from arguing that the C" erred in holding that T$SS had a right to change its cause of action in &ie! of a change in the situation of the parties after the filing of the original complaint, both ")$C and (olina argue that the C" erred in holding that the allegations in the amended and supplemental complaint !ere sufficient to hold (olina liable to T$SS in his personal capacity.
ssue: .hether or not (olina is personally liable for his act of applying amounts payable to T$SS to losses suffered by ")$C due to T$SS security guards. +.hether or not (olina !as acting in his capacity as an officer of ")$C%eld: The Court agrees !ith ")$C and (olina. The C", affirming the order of the )TC, ruled that (olina by his actions imputed pretended and fabricated &iolations, blaming T$SS for alleged losses and deducting the &alues from T$SSJ billings. t like!ise held that since all these accusations and imputations !ere made by (olica such are sufficient cause of action against (olina in his personal capacity. %o!e&er, it is basic that a corporation is in&ested by la! !ith a personality separate and distinct from those of the persons composing it as !ell as from that of any other legal entity to !hich it may be related. "s a general rule, a corporation may not be made to ans!er for acts or liabilities of its stockholders or those of the legal entities it may be connected an &ice &ersa. %o!e&er, the &eil of corporate fiction may be pierced !hen it is used as a shield to further an end sub&ersi&e of 1usticeG or for purposes that could not ha&e been intended by the la! that created itG or to defeat public con&enience, 1ustify a !rong, protect fraud or defend crimeG or to perpetuate deceptionG or as an alter ego, ad1unct or business conduit for the sole benefit o the stockholders. The general rule is that officers of a corporation are not personally liable for their official acts unless it is sho!n that they ha&e e4ceeded their authority. +"rt. ?, of the Corporate Code."bsent any proof of bad faith or malice, (olina cannot be held 1ointly and se&erally liable for any obligation !hich ")$C may be held accountable for. Jar&ine +avies 1n'. vs. CA an& 5ar *ast 3ills S%pply CorporationA Corporation vs CA (J%ne "9, !!!# Corporation entitle& to 3oral +a0ages (rep%tation 2es0ir')e&# P%re 5oo&s
Facts: n ,::2 Purefoods decided to install 2 generators in its food processing plant in San )oque, (arikina. " bidding for the supply and installation !as held among the bidders !as Far 'ast (ills Supply Corporation +F'(SC/-. Thereafter, in a letter addressed to F'(SC/ president, Purefoods confirmed the a!ard of the contract. mmediately F'(SC/ submitted the requirements such as a performance bond and all risk insurance policy as !ell as purchasing the necessary materials. %o!e&er, in another letter, Purefoods unilaterally cancelled the a!ard citing Ksignificant factorsK !hich !ere unco&ered and brought to their attention K!hich dictate the cancellation and !arrant a total re&ie! and re7bid of the pro1ect.K F'(SC/ protested the cancellation but before the matter could be resol&e, Purefoods a!arded the pro1ect !ith 3ardine 0ell, a di&ision of 3ardine 5a&ies. F'(SC/ sued both Purefoods and 3ardine. The )TC granted 3ardine*s demurrer to e&idence but found in fa&or of F'(SC/ against Purefoods and order indemnification. F'(SC/ appealed the granting of the demurrer filed by 3ardine and Purefoods appealed the decision of the court. The C" affirmed the decision of the )TC but ordered 3ardine to pay F'(SC/ damages for inducing Purefoods to &iolate the contract as such, 3ardine must pay moral damages. n addition, Purefoods !as also directed to pay F'(SC/ moral damages and e4emplary damages $oth Purefoods and 3ardine filed motions for reconsideration !hich !ere denied. ssue: .hether or not moral damages may be granted to a corporationM %eld: The Court has a!arded in the past moral damages to a corporation !hose reputation has been besmirched. +"sset Pri&ati8ation Trust &. C", ?CC SC)" ?;:- n this case, respondent F'(SC/ has sufficiently sho!n that its reputation !as tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the pro1ect, only to be canceled later. The Court thus, sustained respondent appellate courtJs a!ard of moral damages. %o!e&er, as there is no sho!ing !hatsoe&er that 3ardine induced Purefoods, the decision of the C" is modified. The order to 3ardine 5a&ies to pay F'(SC/ moral damages is re&ersed and set aside. R%22erBorl& (P)ils.# vs. <LRC [33/ SCRA 433 (J%ly /, !!!#$ J%ris&i'tion o( t)e S*C Facts: Petitioner )ubber!orld, a corporation established in ,:O>, is engaged in the manufacture of foot!ear, bags and garment. Pri&ate respondents are employees of the said
corporation. /n "ugust 2O, ,::9, )ubber!orld filed !ith the 5epartment of Labor and employment a notice of temporary shutdo!n of operations to take effect on September 2O, ,::9. $efore the effecti&ity date, ho!e&er, )ubber!orld !as forced to prematurely shutdo!n its operations. /n 0o&ember ,,, ,::9, pri&ate respondents filed !ith the 0L)C a complaint against petitioner for illegal dismissal and non7payment of separation pay. /n 0o&ember 22, ,::9, )ubber!orld filed !ith the S'C a petition for declaration of suspension of payments !ith a proposed rehabilitation plan. /n 5ecember 2H, ,::9, S'C issued an order suspending all actions for claims against )ubber!orld in accordance !ith P.5. :C27". 5espite this order, ho!e&er, the Labor "rbiter ruled against )ubber!orld, declaring its shutdo!n illegal and making the corporation liable for damages and payment of separation pay. The 0L)C affirmed the decision of the Labor "rbiter. %ence, )ubber!orld filed !ith the SC a petition to annul the 0L)C resolution. ssue: .hether or not 0L)C acted !ithout or in e4cess of its 1urisdictionM %eld: P.5. :C27" is clear that Ball actions for claims against corporations, partnerships, or associations under management or recei&ership pending before any court, tribunal, board or body shall be suspended accordingly.F 0L)C thus acted !ithout an in e4cess of its 1urisdiction !hen it proceeded to decide the case despite the suspension order. "s a consequence, any resolution decisions or order that is rendered !ithout 1urisdiction is a nullity. ,A Savings ,an- vs. Sia [33/ SCRA 4C4 ((J%ly >, !!!#$ PoBers o( t)e ,oar& o( +ire'tors Facts: The Court of "ppeals issued a )esolution denying due course to a Petition for Certiorari filed by $" Sa&ings $ank, on the ground that Athe Certification on anti7forum shopping incorporated in the petition !as signed not by the duly authori8ed representati&e of the petitioner, as required under Supreme Court Circular 2H7:, but by its counsel.444F " (otion for )econsideration !as filed by petitioner, attached to it !as a $" Sa&ings $ank Corporate Secretary*s Certificate. The Certificate sho!ed that the petitioner*s $oard of directors appro&ed a resolution authori8ing the petitioners la!yers to represent it in any action or proceeding before any court, tribunal or agencyG and to sign the Certificate of 0on7forum Shopping, among others. The () !as denied. ssue: .hether or not the Supreme Court )e&ised Circular 0o. 2H7:, allo!s a corporation to authori8e its counsel to e4ecute a certificate of non7forum shopping in its behalf %eld: =es. The resolution of the $oard of 5irectors !as sufficient to &est petitioner*s la!yers !ith authority to bind the corporation and !as specific enough as to the acts they !ere empo!ered to do. n the case of natural persons, Circular 2H7:, requires the patties themsel&es to sign the certificate of non7forum shopping. %o!e&er, such requirement cannot be imposed on artificial persons, like corporations, for the reason that they cannot do the task themsel&es. Corporations act only through their officers and duly authori8ed agents. The Circular does not require corporate officers to sign the certificate. Further, there is no prohibition against authori8ing agents to do so. Pas'%al vs. Co%rt o( Appeals [339 SCRA ""> (A%g. 5, !!!#$ J%ris&i'tion o( t)e S*C Facts: Pri&ate respondents filed an action for recon&eyance of a piece of land and for accounting and damages against petitioners. Petitioners filed a motion to dismiss on the ground of lack of 1urisdiction. They claim that the case in&ol&es an intra7corporate dispute and thus, the S'C has 1urisdiction and not the regular courts. The trial court denied the motion to dismiss and ruled that the case does not in&ol&e an intra7corporate dispute. The C" affirmed. %ence, this petition. ssue: .hether or not this case in&ol&es an intra7corporate dispute and !hether or not the S'C has 1urisdiction o&er itM %eld: Pursuant to ).". H;::, T>.2, !hich took effect on "ugust H, 2CCC, the 1urisdiction of the Sec to decide cases in&ol&ing intra7corporate dispute !as transferred to courts of general 1urisdiction. Thus, the question as to !hether this case in&ol&es an intra7corporate dispute is
,C
no! only of academic interest. '&en if the case in&ol&es an intra7corporate dispute, it !ould be remanded to the )TC 1ust the same. 3anila 6otel Corp. v. <ational La2or Relations Co00ission [343 SCRA " (8't."3, !!!#$ Re?%isites to Pier'ing t)e 4eil o( Corporate 5i'tion Facts: (arcelo Santos !as an o&erseas !orker, a printer at the (a8oon Printing Press, Sultanate of /man !hen he !as directly hired by the Palace %otel, $ei1ing by its N( Nerhard Shmidt as he !as recommended by 0estor $uenio, his friend. Santos resigned from (a8oon and thereafter signed an employment contract mailed to him. The contract stated it !ould be for a period of 2 years. "fter a short &acation in the Phil # barely a year into the contract, Santos !as terminated from his 1ob due to retrenchment, and repatriated to the Phil. Santos, through his la!yer, demanded full compensation pursuant to the employment agreement !hich Shmidt denied. Santos then filed a complaint !ith the 0L)C against (%C, (% CL, the Palace %otel # Shmidt for illegal dismissal. The Labor "rbiter grants payment of damages to Santos !hich !as &acated on appeal by the 0L)C. /n an (), the 0L)C found Santos illegally dismissed # recommended that he be paid actual damages equi&alent to his salaries for the une4pired portion of his contract. ()s !ere denied, hence this petition. ssue: ./0 (%C is liable to Santos. %eld: Granted. Piercing the &eil of corporate fiction 6 fact that (%C is an incorporator # o!ns >CI of the capital stock of (% CL is not enough to pierce the &eil. '&en if !e assume: 0L)C had 1urisdiction o&er the case # (% CL !as liable for Santos* retrenchment, still (%C, as a separate # distinct 1uridical entity, cannot be held liable. Piercing the &eil is an equitable remedy. .hen the notion of legal entity is used to defeat public con&enience, 1ustify !rong, protect fraud, or defend crime, the la! !ill regard the corp as an association of persons. t is done only !hen the corp is a mere alter ego or business conduit of a person or another corp. Clear # con&incing e&idence is needed to pierce the &eil of corporate fiction. There is no such e&idence to sho! that (% CL # (%C are , # the same entity. Test to enable piercing of the &eil, e4cept in e4press agency, estoppel or direct tort: a-Control, not mere ma1ority or complete dominationG b-Such control must ha&e eUbeen used by the defendant to commit fraud or !rong, etc.G c-The aforesaid control # breach of duty must appro4imately cause the in1ury or un1ust loss complained of. Fact that the Palace %otel is a member of the (anila %otel Nroup is not enough to pierce the corporate &eil 6 there is no e&idence to sho! that they are , # the same entity. Contrary to !hat Santos claims that (% CL signed his employment contract, (% CL Lice7President signed as a mere !itness under the !ord Anoted*. Furthermore, there is no '') bet!een Santos # (% CL. Trans(ar0 & Co., 1n'. v. +aeBoo Corporation [343 SCRA 4"! (8't.">, !!!#$ J%ris&i'tion o( S*C Facts: 5ae!oo Corp +5ae!oo- entered into a 1oint &enture agreement !ith Transfarm # Co. +Transfarm- for the deli&ery, assembly, production # distribution of 5ae!oo cars in the country. Transdae!oo "utomoti&e (anufacturing Company !as to be incorporated !ith Transfarm o!ning ;CI # 5ae!oo ?CI. Transfarm # T"(C !ere then to enter into a separate agreement that !ould name Transfarm as the e4clusi&e distributor in the country of 5ae!oo cars. Parties stipulated that contro&ersies or claims arising out of the 1oint &enture itself should be settled by arbitration conducted in %ong Pong but the 1oint &enture agreement itself !as to be go&erned # construed in accordance !ith Philippine la!s. .hen the agreement !ent a!ry, Transfarm # T"(C filed a complaint !ith the )TC against 5ae!oo # 5ae!oo (otor Co., Ltd. +5(CL-, a corp organi8ed under Porean la!s # not doing business in the Phils, praying that 5ae!oo # 5(CL be ordered to refrain from doing business here. "n (T5 !as filed on the ground that !hat !as field !as an intracorp contro&ersy hence cogni8able by the S'C. )TC denied such (T5. C" dismisses the case # says that 1urisdiction is !ith the S'C. .ith a subsequent () rebuffed, Transfarm no! files a petition !ith the SC. 5uring the pendency of the petition !ith the SC, )"H;:: !as enacted.
,,
ssue: ./0 S'C has 1urisdiction o&er the dispute. %eld: CA decision set aside # case remanded back to )TC. The Securities )egulation Code +)" H;::- transferred to the courts of general 1urisdiction the S'C*s 1urisdiction o&er all cases enumerated under Sec.> of P5 :C27". The S'C shall retain 1urisdiction o&er pending cases in&ol&ing intra7corp disputes submitted for final resolution !hich shall be resol&ed !ithin , year from the enactment of )" H;::. The S'C shall retain 1urisdiction o&er pending suspension of payments@ rehabilitation cases filed as of ?C 3une 2CCC until finally disposed. The instant case, neither filed nor pending !ith the S'C, let alone ready for final resolution by it, is clearly cogni8able by the )TC. 'ST)": Statutes regulating court 1urisdiction # procedure are generally construed to be applicable to actions pending # undetermined at the time of the passage of said enactments. 1nternational *Dpress Travel & To%r Servi'es, 1n'. v. CA, Ea)n & P)ilippine 5oot2all 5e&eration [343 SCRA />4 (8't."9, !!!#$ Creation o( Separate Corporate Personality Lia2ility o( Person A'ting (or .nin'orporate& *ntity +o'trine o( *stoppel Facts: 'TTS !rote a letter to the Federation through its president, Pahn, offering its ser&ices as a tra&el agency. This !as accepted by the Federation. 'TTS secured airline tickets for the trips of the athletes # officials of the Federation to the South 'ast "sian Names in Pula Lumpur as !ell as other trips to China # $risbane. " demand letter !as sent to the Federation re: payment of the tickets. "fter ? partial payments, Pahn issued a personal check as partial payment for the Federation*s balance. 0o further payments !ere made, causing 'TTS to file a ci&il case before the )TC against Pahn in his personal capacity on the ground that he allegedly guaranteed the said obligation # as President of the Federation, impleading the Federation as an alternati&e defendant. Pahn filed a counterclaim against 'TTS a&erring 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 !@c has a separate # distinct 1uridical personality. The Federation, in failing to file its ans!er, !as declared in default. The )TC found Pahn personally liable since a &oluntary unincorporated association, like the Federation, doesn*t ha&e the po!er 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 6 but against the officers or agents in their personal capacity. /n appeal to the C", decision !as re&ersed saying that 'TTS failed to pro&e that Pahn guaranteed the obligation, hence this petition. ssues: +,- ./0 the Federation has a separate 1uridical personality. +2- ./0 Pahn can be held personally liable for the unpaid obligations of the Federation
%eld: CA decision reversed & set aside. )TC decision reinstated. )" ?,?> # P5 OC9 recogni8ed the 1uridical e4istence of national sports associations. The po!er to purchase, sell, lease # encumber property are acts !@c may only be done by persons, !hether natural or artificial, !ith 1uridical capacity and these ha&e been granted to national sports associations, clearly indicating their 1uridical personality. %o!e&er, such does not automatically take place by mere passage of the la!s. $efore a corp may acquire 1uridical personality, the State must gi&e its consent either in the form of a special la! or a general enabling act. 0o!here can it be found in )" ?,?> # P5 OC9 any pro&ision creating the Philippine Football Federation. These la!s merely recogni8ed the e4istence of national sports associations # pro&ided the manner by !hich they may acquire 1uridical personality. The statutory pro&isions require that before an entity may be considered as a national sports association, such must be recogni8ed by the accrediting organi8ation, the Philippine "mateur "thletic Federation under )" ?,?> # the 5epartment of =outh # Sports 5e&elopment
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under P5 OC9. n attempting to pro&e 1uridical e4istence of the Federation, Pahn attached a copy of the constitution # by7la!s of the Federation this doesn*t pro&e the said Federation has been recogni8ed # accredited. "ny person acting or purporting to act on behalf of a corp !@c has no &alid e4istence assumes such pri&ileges # obligations # becomes personally liable for contracts entered into or for such other acts performed as such agent. %ence, Pahn should be liable for the unpaid obligations of the unincorporated Federation. %e is presumed to ha&e kno!n of the corp e4istence or non7e4istence of the Federation. 5octrine of Corporation by 'stoppel 6 applies to third persons only !hen he tries to escape liability on a contract from !@c he has benefited on the irrele&ant ground of defecti&e corporation. %ere, 'TTS is not trying to escape liability from the contract but rather is the , claiming from it. 6eirs o( Ra0on +%rano, Sr. v. .y [344 SCRA 3C (8't. 4, !!!#$ Separate J%ri&i'al Personality Alter *goF Pier'ing t)e 4eil o( Corporate 5i'tion Facts: )amon 5urano # !ife instituted an action for damages against <y, etc. accusing them of officiating a hate campaign against them by lodging complaints in the police for Ain&asion of property*G sending complaints to the /ffice of the President depicting them as oppressors, landgrabbers # usurpersG spreading false rumors # damaging tales !@c put them into public contempt # ridicule. n their ans!er, <y, etc. lodged affirmati&e defenses, demanded the return of their property # made counterclaims for actual, moral # e4emplary damages. They claim that in the first !eek of "ugust ,:;C, they recei&ed mimeographed notices signed by 5urano, Sr. informing them that the land they !ere tilling, formerly o!ned by Cepco !as purchased by 5urano # Co, directing them to immediately turn o&er the property. '&en before they could &acate, 5urano # Co. proceeded to bulldo8e # destroy their property # fire at air e&en. September ,>, ,:;C 5urano # Co. sold the property to 5urano !ho proceeded to register the lands in his name. They claim that they !ere depri&ed of their independent source of income, !ere made &ictims of serious &iolence # demanded damages for cost of impro&ements on the land that !ere destroyed. The 5uranos mo&ed for the dismissal of their complaint !@c the trial court granted !@o pre1udice to the right of <y, etc. to maintain their counterclaim. The counterclaim !as later upheld. This decision !as affirmed by the C". %ence this petition. ssue: ./0 5urano can in&oke the doctrine of separate corporate personality to e&ade liability for damages %eld: Denied # C" decision modified. The 5uranos hinge their claim on the TCTs issued in the name of 5urano . Their &alidity !as put into serious doubt by the ff: a- the certificates re&eal the lack of registered title of Cepoc to the PropertiesG b- alleged reconstituted titles of Cepoc !ere not produced in e&idenceG c- deed of sale bet!een Cepoc # 5urano # Co. !as unnotari8ed # thus unregisterable Fraud in the issuance of a certificate of title may be raised only in an action e4pressly instituted for that purposeG and not collaterally as in an action for recon&eyance # damages. The rule on indefeasibility of title 6 Torrens titles can only be attacked for fraud !@in , year from the date of issuance of the decree of registrationG an action for recon&eyance may prosper if a property !rongfully registered has not passed to an innocent purchaser for &alue. The purchase of 5urano # Co. could not be said to ha&e been in good faith since it is not disputed that 5urano acquired the property !@ full kno!ledge of <y*s occupancy thereon. <y*s action for recon&eyance !ill prosper, it being clear that the property, !rongfully registered in the name of 5urano , has not passed to an innocent purchaser for &alue. 0otari8ation of the deed of sale is essential to its registrability, # the action of the )5 in allo!ing the registration of the unackno!ledged deed of sale !as unauthori8ed # did not render &alidity to the registration of the document. " buyer !ho could not ha&e failed to kno! or disco&er that the land sold to him !as in the ad&erse possession of another is a buyer in bad faith. " purchaser cannot 1ust close his eyes to facts !@c should put a reasonable man upon his guard, such as !hen the sub1ect of the sale is in the possession of persons other than the seller. <y # company !ere in open possession # occupancy of the properties !hen 5urano # Co. supposedly purchased the same from Cepoc. ,?
n applying the instrumentality or alter ego doctrine, the courts are concerned !@ reality # not form, !@ ho! the corp operated # the indi&idual defendant*s relationship to that operation. .hether a corporation is a mere alter ego is purely one of fact. Shortly after the sale by Cepco to 5urano # Co., the latter sold the property to 5urano , !ho immediately procured the registration of the property in his name. /b&iously, 5urano # Co. !as used by 5urano ,etc. as an instrumentality to appropriate the disputed property for themsel&es. Test to enable piercing of the &eil, e4cept in e4press agency, estoppel or direct tort: a-Control, not mere ma1ority or complete dominationG b-Such control must ha&e eUbeen used by the defendant to commit fraud or !rong, etc.G c-The aforesaid control # breach of duty must appro4imately cause the in1ury or un1ust loss complained of. Sec.H )ule >, indicates that the C" is not limited to re&ie!ing only those errors assigned by appellant but also those closely related to or dependent on an assigned error. C" is imbued !@ sufficient discretion to re&ie! matters. /rdinary acquisiti&e prescription, in the case of immo&able property, requires possession of the thing in good faith # !@ 1ust title for a period of ,C years. )emedies of an o!ner on !hose land somebody has built in bad faith: a- appropriate !hat has been built !@o any obligation to pay indemnityG b- demand that the builder remo&e !hat he had builtG c- compel the builder to pay the &alue of the land. n any case, lando!ner is entitled to damages +"rt.9>,Reynoso 14 v. CA & ;eneral Cre&it Corporation [345 SCRA 335 (<ov. Separate J%ri&i'al *ntity S%((i'ien'y o( Proo( to Pier'e t)e 4eil o( Corporate 5i'tion , !!!#$
Facts: Commercial Credit Corporation +CCC-, a financing # in&estment firm, decided to organi8e franchise companies in different parts of the country, !herein it shall hold ?CI equity. 'mployees of CCC !ere designated as resident managers of the franchise companies 6 $ibiano )eynoso L !as resident manager in CCC7QC. 5ue to the 5/S) )ule prohibiting lending of funds by a corporation to its directors, officers, Share %olders # other persons !ith related interests therein, CCC decided to form CCC 'quity Corporation, a !holly7o!ned subsidiary to !hich CCC transferred its ?CI equity in CCC7QC together !ith 2 seats on the $o5. n the ne! set7up, se&eral employees of CCC became employees of CCC7'quity. " complaint for a sum of money !as later field by CCC7QC against )eynoso, !ho in the meantime !as dismissed from CCC7'quity, # !ife for embe88lement of funds !hich !ere used to buy a house in Lalle Lerde. )eynoso claims the money he used represented his money placements in CCC7QC sho!n by 2? checks he issued to CCC7QC. )TC dismissed the case against )eynoso and found his counterclaim for damages to be meritorious hence granted it. For failing to pay the docket fees, CCC7QC*s appeal to the "C !as dismissed hence the )TC decision became final # e4ecutory. %o!e&er, the 1udgment became remained unsatisfied prompting )eynoso to file a (otion for "lias .rit of '4ecution. CCC7QC opposed saying that its premises # records had been taken o&er by CCC. CCC mean!hile became kno!n as Neneral Credit Corporation. So, !hen the )TC ordered NCC to file its comment on the petition of )eynoso, it claimed that it !as not a party to the case # )eynoso should direct his claim against CCC7QC. )eynoso replied saying that CCC7QC is in ad1unct instrumentality, conduit # agency of CCC # in&oked the ruling in amoso v. GCC !here the SC declared that NCC, CCC7'quity # other franchised companies including CCC7QC !ere declared as , corp. )eynoso claimed that NCC is 1ust the ne! name of CCC hence both should be treated as , entity. Cases !ere filed in the )TC of Pasig # QC to le&y on the properties of NCC. C" on the other hand en1oins the auction sale of the properties. ssue: +,- ./0 the piercing the &eil of corporate fiction !as proper. %eld: CA decision reversed and set aside. n1unction against le&ying on properties of NCC # their auction sale lifted. The use by CCC7QC of the same name of Commercial Credit Corporation !as intended to publicly identify it as a component of the CCC group of companies engaged in one # the same business: in&estment # financing. .hen the mother corporation # its subsidiary corporations cease to act in good faith and honest business 1udgment, !hen the corporate fiction is used to perpetuate fraud or promote in1ustice, the la! steps in to remedy the in1ustice. The corporate character is not necessarily abrogated. t continues for legitimate ob1ecti&esG ho!e&er pierced, to remedy in1ustices. " court 1udgment becomes useless # ineffecti&e if the employer, in this case CCC as a
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mother corporation, is placed beyond the legal reach of the 1udgment creditor !ho after protracted litigation, has been found entitled to positi&e relief. Courts ha&e been organi8ed to put an end to contro&ersy. This should not be negated by an inapplicable and !rong use of the fiction of the corporate &eil. The defense of separateness !ill be disregarded !here the business affairs of a subsidiary corporation are so controlled by the mother corporation to the e4tent that it becomes an instrument or agent of its parent. $ut e&en !hen there us dominance o&er the affairs of the subsidiary, the doctrine of piercing the &eil of corporate fiction applies only !hen used to defeat public con&enience, 1ustify !rong, protect fraud, or defend crime. Factually # legally, CCC had dominant control of the business operations of CCC7QC: a. the e4clusi&e management contract insured that CCC7QC !ould be managed # controlled by CCC # not de&iate from the commands of the mother corp b. CCC appointed its o!n employee as the resident manager of CCC7QC c. Salaries, pensions, benefits, etc !ere from CCC, !hich later became NCC d. <nity of interest, management, control, intensi&e auditing function of CCC o&er CCC7 QC, sharing of office space e. La!yers of the CCC7QC case !ere all in7house counsels of CCC Ra0oso v. CA & ;eneral Cre&it Corporation [34> SCRA 4/3 (+e'.C, !!!#$ S%((i'ien'y o( Proo( to Pier'e t)e 4eil o( Corporate 5i'tion J%ris&i'tion o( t)e S*C Facts: Commercial Credit Corporation +CCC-, a general financing # in&estment firm, decided to organi8e franchise companies in different parts of the country, !herein it shall the franchise company shall be managed by CCC*s resident manager, management fee equi&alent to ,CI of net profit before ta4es shall be paid to CCC, all e4penses shall be borne by the franchise company e4cept salary of the resident manager # cost of credit in&estigation, CCC shall set prime rates for discounting or rediscounting of recei&ables. 'ach in&estor, )amoso included, !as asked to sign a continuing guarantee for bad accounts that might be incurred by CCC. 5ue to the 5/S) )ule prohibiting lending of funds by a corp to its directors, officers, Share %olders # other persons !ith related interests therein, CCC decided to form CCC 'quity Corporation, a !holly7o!ned subsidiary to !hich CCC di&ested its equity in the franchise companies but continued to pro&ide a discounting line for recei&ables of the franchise companies through CCC 'quity. CCC mean!hile became kno!n as Neneral Credit Corporation. <pon in&estigation, in&estors disco&ered the dissipation of the assets of their respecti&e franchise companies: transfer or assignment of uncollectible notes # accounts, utili8ation of spurious commercial papers to generate paper re&enues, release of collateral in conni&ance !ith unauthori8ed loans, di&esting its assets through a questionable offset of recei&ables arrangement !ith , of its creditors. n&estors filed a case for recei&ership, an order directing NCC # CCC7'quity solidarily to pay them for the losses sustained, nullification of the offset agreement. NCC filed an (T5 for lack of S'C 1urisdiction # that the petitioners !ere not the real parties in interest. %earing officer ordered piercing of the corporate &eil, declaring NCC, NCC7'quity # the other franchise companies as , # later declared that NCC is not liable for losses since as in&estors, they assumed the risk of loss nor are the indi&idual petitioners !ho e4ecuted a continuing guarantee to secure the obligation of the franchised companies to NCC arising from the discounting accounts. S'C en banc re&ersed this ruling !hich !as affirmed by the C" hence this petition. ssue: +,- ./0 NCC*s fraud # mismanagement of the franchise companies !arrant a piercing of its &eil of corporate fiction. +2- ./0 only the S'C has 1urisdiction o&er the issue of !hether indi&idual petitioners may be held liable on the surety agreements for bad accounts incurred by NCC. %eld: Denied for lack of merit # C" decision affirmed. "s a general rule, a corp !ill be looked upon as a legal entity, unless # until sufficient reason to the contrary appears. .hen the notion of legal entity is used to defeat public con&enience, 1ustify !rong, protect fraud, or defend crime, the la! !ill regard the corp as an association of persons. "lso, the corp entity may be disregarded in the interest of 1ustice in cases such as fraud that may !ork inequities among members of the corp internally, in&ol&ing no rights of the public or third persons. There must be fraud # proof of it. The !rongdoing must be clearly # con&incingly established, not presumed. .here the e4istence of the corp should be pierced depends on questions of facts,
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appropriately pleaded. The burden of pro&ing is on the party seeking to ha&e the court pierce the &eil of corporate fiction. "ny taint of bad faith on the part of a financing # in&estment corp in enticing in&estors may be resol&ed in ordinary courts since this is in the nature of a contractual relationship. )amoso signed the continuing guaranty of the franchise companies* bad debts in their o!n personal capacities. %ence they are responsible for their indi&idual acts. The liabilities of )amoso arose out of the regular financing &enture of the franchise companies, there is no e&idence that these bad debts !ere fraudulently incurred. Changing their subsidiary liability by con&erting them to guarantors of bad debts cannot be done by piercing the &eil of corp identity. 0ot e&ery conflict bet!een a corporate # its Share %olders in&ol&es corporate matters that only the S'C can resol&e. '4pedient as the policy may be to &est in administrati&e bodies po!er to ad1udicate matters that fall !ithin their particular field of e4pertise, it should not depri&e the courts of 1ustice the po!er to decide ordinary cases in accordance !ith the general la!s that do not require any particular e4pertise or training to interpret # apply. The franchised companies* accounts discounted by NCC !ould arise e&en if there is no intra7corporate relationship bet!een the parties 6 hence it did not arise out of the parties* relationships as Share %olders. The matter is better left to the regular courts in !hich suits ha&e been filed to enforce the suretyship agreements. " close scrutiny of the facts sho!s that the disputed decision of the hearing officer dealt mainly !ith control of NCC o&er the franchises 6 this is not enough to pierce the &eil. The circumstances leading to bankruptcy should also be taken into consideration 6 !as there fraud, dishonesty, etc. Test to enable piercing of the &eil, e4cept in e4press agency, estoppel or direct tort: a-Control, not mere ma1ority or complete dominationG b-Such control must ha&e eUbeen used by the defendant to commit fraud or !rong, etc.G c-The aforesaid control # breach of duty must appro4imately cause the in1ury or un1ust loss complained of.
1999 Re2%riano vs. CA [3!" SCRA 34 (Jan " "999#$ Contin%ation o( 9%ri&i'al personality (or 3 years a(ter &issol%tion o( 'orporation (or li0ite& p%rpose Facts: )TC rendered 1udgment in fa&or of Pepsi Cola $ottling Co. ordering )eburiano to pay P>>,CCC !ith interest for the unpaid bottles of softdrinks it recei&ed from the company. )TC issued a !rit of e4ecution. %o!e&er, before the promulgation of the decision of the )TC, Pepsi amended its articles of incorporation to shorten its term of e4istence. The )TC !as not notified of this fact. )eburiano then mo&ed to quash the !rit of e4ecution on the ground that Pepsi no longer had 1uridical personality, hence, it could no longer sue and be sued. )TC denied )eburiano*s petition to quash the !rit of e4ecution. "n appeal !as made. C" dismissed the appeal. %ence, this petition for re&ie! on certiorari. ssue: .hether or not Pepsi still had 1uridical personality to pursue its case against )eburiano after a shortening of its corporate e4istence. %eld: ='S. Sec. ,22 of the Corporation Code pro&ides that e&ery corporation !hose charter e4pires by its o!n limitation or is annulled by forfeiture or other!ise, or !hose corporate e4istence for other purposes is terminated in any other manner, shall ne&ertheless be continued as a body corporate for ? years after the time !hen it !ould ha&e been so dissol&ed, 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 con&ey its property and to distribute its assets, but not for the purpose of continuing the business for !hich it !as established. %o!e&er, )eburiano further argues that !hen Pepsi undertook a &oluntary dissolution, there !as no sho!ing that a recei&er or trustee !as e&er appointed. %e contends that Sec. ,22 of the Corporation Code abo&e cited does not authori8e a corporation, after the ? year liquidation period, to continue actions instituted by it !ithin said period of ? years. SC held that in the case of Nelano &s. C", a corporation that has a pending action and !hich cannot be
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terminated !ithin the ? year period after dissolution is authori8ed to con&ey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the ? year period. 0o reason could be concei&ed !hy a suit already commenced by the corporation itself during its e4istence, not by a mere trustee !ho, by fiction, merely continues the legal personality of the dissol&ed corporation, should not be accorded similar treatment allo!ed to proceed to final 1udgment and e4ecution thereof. Counsel of the dissol&ed corporation can be considered a trustee. "lso, the board of directors may be permitted to complete the corporate liquidation by continuing as trustees by legal implication. (oreo&er, the Corporation Code pro&ides: Sec. !"# $ Amendment or epeal $ %o ri&'t or remedy in (avor o( or a&ainst any corporation) its stoc*'olders) members) directors) trustees) or o((icers) nor any liability incurred by any suc' corporation) stoc*'olders) members) directors) trustees) or o((icers) s'all be removed or impaired eit'er by t'e subse+uent dissolution o( said corporation or by any subse+uent amendment or repeal o( t'is Code or o( any part t'ereo(. A,S C,< ,roa&'asting Corporation vs. CA [3!" SCRA 5> (Jan " "999#$ PoBer o( t)e ,oar& o( +ire'tors +elegation to *De'%tive Co00ittee Facts: n ,::C, "$S C$0 and Li&a e4ecuted a Film '4hibition "greement !hereby Li&a ga&e "$S C$0 an e4clusi&e right to e4hibit some Li&a films. Said agreement contained a stipulation that "$S shall ha&e the right of first refusal to the ne4t 29 Li&a films for TL telecast, pro&ided that such right shall be e4ercised by "$S from the actual offer in !riting. %ence, through this agreement, Li&a offered "$S a list of ?O films from !hich "$S may e4ercise its right of first refusal. "$S ho!e&er, through LP Concio, did not accept the list since she could only tick off ,C films. This re1ection !as embodied in a letter. n ,::2, Li&a again approached "$S !ith a list consisting of >2 original films !here Li&a proposed to sell these airing rights for POC(. Li&a*s Lic del )osario and "$S* general manager 'ugenio Lope8 met at the Tamarind Nrill to discuss this package proposal. .hat transcribed at that meeting !as sub1ect to conflicting &ersions. "ccording to Lope8, he and del )osario agreed that "$S !as granted e4clusi&e film rights to ,9 films for P?O(, and that this !as put in !riting in a napkin, signed by Lope8 and gi&en to del )osario. /n the other hand, del )osario denied the e4istence of the napkin in !hich Lope8 !rote something, and insisted that !hat he and Lope8 discussed !as Li&a*s film package of the >2 original films for POC( stated abo&e, and that Lope8 refused said offer, allegedly signifying his intent to send a counter proposal. .hen the counter proposal arri&ed, Li&a*s $o5 re1ected it, hence, he sold the rights to the >2 original films to )$S. Thus, "$S filed before )TC a complaint for specific performance !ith prayer for T)/ against )$S and Li&a. )TC issued the T)/ en1oining the airing of the films sub1ect of contro&ersy. "fter hearing, )TC rendered its decision in fa&or of )$S and Li&a contending that there !as no meeting of minds on the price and terms of the offer. The agreement bet!een Lope8 and del )osario !as sub1ect to Li&a $o5 appro&al, and since this !as re1ected by the board, then, there !as no basis for "$S* demand that a contract !as entered into bet!een them. That the ,::C "greement !ith the right of first refusal !as already e4ercised by (s. Concio !hen it re1ected the offer, and such ,::C "greement !as an entirely ne! contract other than the ,::2 alleged agreement at the Tamarind Nrill. C" affirmed. %ence, this petition for certiorari !ith SC. Lope8 claims that it had not fully e4ercised its right of first refusal o&er 29 films since it only chose ,C. %e insists that SC gi&e credence to his testimony that he and del )osario discussed the airing of the remaining ,9 films under the right of first refusal agreement in Tamarind Nrill !here there !as a contract !ritten in the alleged napkin. ssue: .hether or not there !as a perfected contract bet!een Lope8 and del )osario. %eld: 0/. " contract is a meeting of minds bet!een 2 persons !hereby one binds himself to gi&e something or to render some ser&ice to another for a consideration. There is no contract unless the follo!ing requisites concur: +,- consent of the contracting parties +2- ob1ect certain !hich is the sub1ect of the contract +?- cause of the obligation, !hich is established. Contracts that are consensual in nature are perfected upon mere meeting of the minds. /nce there is concurrence bet!een the offer and the acceptance upon the sub1ect matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To
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con&ert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offerG it must be plain, unequi&ocal, unconditional, and !ithout &ariance of any sort from the proposal. " qualified acceptance, or one that in&ol&es a ne! proposal, constitutes a counter offer and is a re1ection of the original offer. Consequently, !hen something is desired !hich is not e4actly !hat is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or &ariation from the terms of the offer annuls the offer. n the case at bar, !hen del )osario met !ith Lope8 at the Tamarind Nrill, the package of >2 films !as Li&a*s offer to enter into a ne! '4hibition "greement. $ut "$S, through its counter proposal sent to Li&a, actually made a counter offer. Clearly, there !as no acceptance. The acceptance should be unqualified. .hen Li&a*s $o5 re1ected the counter proposal, then no contract could ha&e been e4ecuted. "ssuming arguendo that del )osario did enter into a contract !ith Lope8 at Tamarind Nrill, this acceptance did not bind Li&a since there !as no proof !hatsoe&er that del )osario had specific authority to do so. <nder the Corporation Code, unless other!ise pro&ided by said la!, corporate po!ers, such as the po!er to enter into contracts, are e4ercised by the $o5. %o!e&er, the board may delegate such po!ers to either an e4ecuti&e committee or officials or contracted managers. The delegation, e4cept for the e4ecuti&e committee, must be for specific purposes. 5elegation to officers makes the latter agents of the corporation, and accordingly, the general rules of agency ad to the binding effects of their acts !ould apply. For such officers to be deemed fully clothed by the corporation to e4ercise a po!er of the $oard, the latter must specially authori8e them to do so. That del )osario did not ha&e the authority to accept "$S* counter offer !as best e&idenced by his submission of the counter proposal to Li&a*s $o5 for the latter*s appro&al. n any e&ent, there !as no meeting of the minds bet!een del )osario and Lope8. The contention of Lope8 that their meeting in Tamarind Nrill !as a continuation of their right of first refusal agreement o&er the remaining ,9 films is untenable. "$S* right of first refusal had already been e4ercised !hen (s. Concio !rote to Li&a choosing only ,C out of the ?O films offered by del )osario. t already refused the 2O films. L%D%ria 6o0es 1n'. vs. CA [3! SCRA 3"5 (Jan C "999#$ 8Bners)ip in Capital Sto'- not s%((i'ient to Pier'e 4eil o( Corporate 5i'tion Facts: Posadas and her 2 minors co7o!ned a ,.O hectare property in Sucat !hich !as occupied by squatters. Posadas negotiated !ith $ra&o regarding the de&elopment of said property into a residential subdi&ision. She authori8ed $ra&o to negotiate !ith the squatters. (ean!hile, Posadas assigned the property to Lu4uria %omes &ia a deed of assignment. )elations !ith $ra&o turned sour. $ra&or demanded payment for ser&ices rendered. Posadas refused to pay. $ra&o instituted a complaint for specific performance !ith the )TC. %e included Lu4uria %omes, nc. as respondent since he alleged that Posadas surreptitiously formed said corporation and transferred the parcel of land to it to e&ade payment and defraud creditors. )TC ad1udged in fa&or of $ra&o. C" affirmed. %ence, this petition for re&ie!. ssue: .hether or not Lu4uria %omes, nc. !as a party to the transactions entered into by Posadas and $ra&o and thus could be held 1ointly and se&erally liable !ith Posadas. %eld: 0o. t is e&ident from the records that $ra&o sent demand letters more than a year and a half after the e4ecution of the 5eed of "ssignment in fa&or of Lu4uria and the issuance of "o of Lu4uria. The transfer !as made at the time the relationship bet!een Posadas and $ra&o !as still &ery pleasant. Furthermore, Posadas is not the ma1ority stockholder of Lu4uria. The "/ sho!s that Posadas o!ns appro4imately ??I only of the capital stock. %ence, Posadas cannot be considered as an alter ego of Lu4uria %omes. To disregard the separate 1uridical personality of a corporation, the !rongdoing must be clearly and con&incingly established. t cannot be presumed. The separate personality of the corproation may be disregarded only !hen the corporation is used as a cloak or co&er for fraud or illegality, or to !ork in1ustice, or !here necessary for the protection of the creditors. n the case at bar, $ra&o failed to sho! proof that Posadas !as acting in bad faith. Cal0a vs. CA [3! SCRA /C (5e2 9 "999#$ 1nvestigatory PoBers o( t)e S*C Facts: Sometime in ,::C, the %ukbalahap Leterans "ssociation +%uk&ets- filed a letter complaint !ith the S'C alleging that petitioners Calma, Li!anag, Cayanan and (aglangue surreptitiously arrogated unto themsel&es the po!ers and functions of trustees and officers of %uk&ets.
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S'C, through its Prosecution and 'nforcement 5epartment issued a resolution directing the $oard of Trustees to call !ithin ?C days a general membership meeting for the election of ; ne! members of the board. Petitioners ob1ected to this. S'C denied their motion for reconsideration. Petitioners !ent to the C" contending that the S'C Prosecution and 'nforcement 5epartment !as !ithout 1urisdiction to entertain and ad1udicate corporate election contests. C" !as unpersuaded. %ence, this petition before the SC. ssue: .hether or not the Prosecution and 'nforcement 5epartment of the S'C has 1urisdiction to in&estigate the letter complaint filed by %uk&ets. %eld: =es. +,- S'C has both regulatory and ad1udicati&e functions. )elati&e to the latter, S'C has original and e4clusi&e 1urisdiction to hear and decide contro&ersies and cases in&ol&ing +a- intra7 corporate and partnership relations bet!een the corporation, officers and stockholders, including elections or appointmentsG +b- state and corporate affairs in relation to the legal e4istence of the corporation, partnership or to their franchisesG +c- in&estors and corporate affairsG +d- petitions for suspension of payments. +2- The Prosecution and 'nforcement 5epartment of the S'C has the inherent po!er, according to Sec. O of P.5. ,;>H amending P.5. :C27", to in&estigate, on complaint or motu propio, any act or omission of the $oard of 5irectors@Trustees of corporations, their stockholders, officers or partners, including any fraudulent de&ices, schemes or representations, in &iolation of any la!. %ence, S'C, under its ad1udicati&e 1urisdiction, has the po!er to hear and decide contro&ersies in&ol&ing intra7corporate relations bet!een and among members and officers of a corporation. The Prosecution and 'nforcement 5epartment !as established as its ad1udicati&e arm. "s such, it is &ested !ith the authority to in&estigate, on complaint or motu propio, any act or omission of the $oard of 5irectors of corporations, as in the case at bar. A7'or 3an%(a't%ring 1n'. vs. <LRC [3!3 SCRA / (5e2 "" "999#$ Pier'ing t)e 4eil o( Corporate 5i'tion to prevent evasion o( o2ligations or 'on(%se t)e legiti0ate iss%es Facts: Capulso filed !ith the Labor "rbiter a complaint for constructi&e illegal dismissal. %e alleged that he !orked for "8cor as ceramics !orker for more than 2 years. Then, due to asthma, he filed a lea&e of absence. <pon returning to !ork, he !as not permitted to do so. %e later on amended his complaint and impleaded Filipinas Paso as additional respondent. /n the other hand, "8cor contends that Capulso &alidly resigned from the company, as e&idenced by a letter of resignation, for !hich Capulso then sought employment from Filipinas Paso, from !hich he also resigned. The Labor "rbiter dismissed the case. /n appeal to the 0L)C, it ad1udged in fa&or of Capulso holding Filipinas Paso and "8cor solidarily liable. %ence, this petition !ith the SC. ssue: .hether or not Filipinas Paso may be held 1ointly and se&erally liable !ith "8cor for back !ages of Capulso. %eld: =es. The doctrine that a corporation is a legal entity or a person in la! distinct from the persons composing it is merely a legal fiction for purposes of con&enience and to subser&e the ends of 1ustice. This fiction cannot be e4tended to a point beyond its reason and policy. .here, as in this case, the corporate fiction !as used as a means to perpetrate a social in1ustice or as a &ehicle to e&ade obligations or confuse the legitimate issues, it !ould be discarded and the 2 corporations !ould be merged as one, the first being merely considered as the instrumentality, agency, conduit, or ad1unct of the other. n the case at bar, there !as much confusion as to the identity of CapulsoJs employer, but, for sure, it !as Filipinas Paso and "8corJs o!n making. First, Capulso had no kno!ledge that he !as already !orking under Filipinas Paso since he continued to retain his "8cor 5. Second, his pay slips contained the name of "8cor gi&ing the impression that "8cor !as paying his salary. Third, he !as paid the same salary and he performed the same kind of 1ob, in the same !ork area, in the same location, using the same tools and under the same super&isor. <e%gene 3ar-eting 1n'. vs. CA [3!3 SCRA 95 (5e2 "C "999#$ 8Bners)ip o( Corporate S)are=Sto'- Certi(i'ates
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Facts: 0eugene !as duly registered !ith S'C to engage in trading business. Pri&ate )espondents Sy, =ang, and Suen, holders of >2>C shares or 2@? of the outstanding capital stock sent notice to the $o5 for a board meeting. n this meeting, they appro&ed a resolution dissol&ing 0eugene. S'C thus issued a Certificate of 5issolution of 0eugene. Petitioners Tan, (artin, (oreno and Lee brought an action to annul said S'C Certification contending that they !ere the ma1ority stockholders of the corporation, and that prior to the board meeting, the pri&ate respondents had already di&ested themsel&es of their stockholdings by endorsing them in blank and deli&ering them to the <y family. The latter in turn a!arded said stock certificates to 3ohnny <y, !ho in turn sold the same to petitioners. %ence, pri&ate respondents could no longer &alidly &ote for the dissolution of 0eugene at the time of the board meeting. Pri&ate respondents contend that the assignment of shares !ere simulated and fraudulently effected since the endorsement in blank by them of the stock certificates to the <y family !as only for safekeeping !hen they !ere stolen from a &ault by 3ohnny <y. S'C nullified the Certificate of 5issolution. C", on the other hand, upheld 0eugeneJs dissolution. %ence, this petition !ith the SC. ssue: .hether or not pri&ate respondents di&ested themsel&es of their stockholdings !hen they &oted for the resolution dissol&ing 0eugene. %eld: 0o. 'ntries in the Stock and Transfer $ook sho! that at the time of dissolution of 0eugene, the pri&ate respondents o!ned at least 2@? of the outstanding capital stock, in sufficient compliance !ith Sec. ,,H of the Corporation Code of the Philippines. Petitioners submitted the same Stock and Transfer $ook to sho! that the certificates of pri&ate respondents !ere cancelled. $ut after a careful e4amination of the e&idence on record, SC found that the stock certificates of pri&ate respondents !ere stolen and therefore not &alidly transfered, and the transfers of stock relied upon by petitioners !ere fraudulently recorded in the Stock and Transfer $ook of 0eugene. The true relationship bet!een stockholders of 0eugene and that of the <y family !as that they had an understanding that the beneficial o!nership of 0eugene !ould remain !ith the <y family, such that the shares of stock !ere endorsed in blank, upon issuance, by the shareholders and entrusted to the <y family for safekeeping. Such beneficial o!nership has been admitted through the testimonies not only of pri&ate respondents but also of petitioners. R%22erBorl& 1n'. vs. <LRC [3!5 SCRA > " (April "4 "999#$ *((e't o( Petition (or S%spension o( Pay0ents on all ot)er 'lai0s Facts: )ubber!orld filed !ith the S'C a petition for suspension of payments. S'C ruled fa&orably on the request and accordingly, it issued an order for the creation of a management committeeG and all actions for claims against the corporation pending before any court, tribunal, office, board, body !ere suspended. The employees of )ubber!orld filed against the corporation a complaint for illegal dismissal and unfair labor practice. )ubber!orld mo&ed to suspend the proceedings relying on the S'C order. The Labor "rbiter denied )ubber!orld*s motion ruling that claims as regards labor cases are not included in the S'C order. )ubber!orld appealed to the 0L)C, !hich affirmed the Labor "rbiter*s decision. %ence, this petition for certiorari. ssue: .hether or not a petition for suspension of payments filed under P.5. :C27" effecti&ely suspends all actions against a corporation including labor claims. %'L5: ='S. P.5. :C27" pro&ides that upon the appointment of a management committee, rehabilitation recei&er, board or body pursuant to this decree, all actions for claims against corporations, partnerships, or associations under management or recei&ership pending before any court, tribunal, board or body shall be suspended accordingly. The la! is clear. <pon the creation of a management committee or the appointment of a rehabilitation recei&er, all claims for actions shall be suspended. 0o e4ception in fa&or of labor claims is mentioned in the la!. "llo!ing labor cases to proceed clearly defeats the purpose of the automatic stay and se&erely encumbers the management committee*s time and resources. The said committee !ould need to defend against these suits, to the detriment of its primary and urgent duty to !ork to!ards rehabilitating the corporation and making it &iable again. The preferential right of !orkers and employees under "rticle ,,C of the Labor Code may be in&oked only upon the institution of insol&ency or 1udicial liquidation proceedings and not
2C
during rehabilitation proceedings, the purpose of !hich is to enable the company to gain a ne! lease on life and thereby allo! creditors to be paid their claims from its earnings. SC also noted that P5 :C27" does not pro&ide for the duration of the automatic stay. "nd in the case at bar, the S'C order neither contains such. %ence, the suspensi&e effect in this case had no time limit and remained in force as long as reasonably necessary to accomplish the purpose of the S'C order. 1998 ,itong vs. CA [ 9 SCRA 5!3 (J%ly "3 "99C#$ 8Bners)ip o( Corporate S)ares= Sto'- Certi(i'atesF 4ali& 1ss%an'e Facts: $itong !as the treasurer and member of the $o5 of (r. # (rs. Corporation. She filed a complaint !ith the S'C to hold respondent spouses "postol liable for fraud, misrepresentation, disloyalty, e&ident bad faith, conflict of interest and mismanagement in directing the affairs of the corporation to the pre1udice of the stockholders. She alleges that certain transactions entered into by the corporation !ere not supported by any stockholder*s resolution. The complaint sought to en1oin "postol from further acting as president7director of the corporation and from disbursing any money or funds. "postol contends that $itong !as merely a holder7in7trust of the 3"P" shares of the corporation, hence, not entitled to the relief she prays for. S'C %earing Panel issued a !rit en1oining "postol. "fter hearing the e&idence, S'C %earing Panel dissol&ed the !rit and dismissed the complaint filed by $itong. $itong appealed to the S'C en banc. The latter re&ersed S'C %earing Panel decision. "postol filed petition for re&ie! !ith the C". C" re&ersed S'C en banc ruling holding that $itong !as not the o!ner of any share of stock in the corporation and therefore, not a real party in interest to prosecute the complaint. %ence, this petition !ith the SC. ssue: .hether or not $itong !as the real party in interest. %eld: $ased on the e&idence presented, it could be gleaned that $itong !as not a bona fide stockholder of the corporation. Se&eral corporate documents disclose that the true party in interest !as 3"P". "lthough her buying of the shares !ere recorded in the Stock and Transfer $ook of the corporation, and as pro&ided by Sec. O? of the Corp Code that no transfer shall be &alid e4cept as bet!een 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 pro&ision is not conclusi&e e&en against the corporation but are prima facie e&idence only. Parol e&idence may be admitted to supply the omissions in the records, e4plain ambiguities, or sho! !hat transpired !here no records !ere kept, or in some cases !here such records !ere contradicted. $esides, the pro&ision en&isions a formal certificate of stock !hich can be issued only upon compliance !ith certain requisites: +,- certificates must be signed by the president or &ice president, countersigned by the secretary or assistant secretary, and sealed !ith the seal of the corporation, +2- deli&ery of the certificateG +?- the par &alue, as to par &alue shares, or the full subscription as to no par &alue shares, must be first fully paidG +9- the original certificate must be surrendered !here the person requesting the issuance of a certificate is a transferee from a stockholder. These considerations are founded on the basic principle that stock issued !ithout authority and in &iolation of the la! is &oid and confers no rights on the person to !hom it is issued and sub1ects him to no liabilities. .here there is an inherent lack of po!er in the corporation to issue the stock, neither the corporation nor the person to !hom the stock is issued is estopped to question its &alidity since an estoppel cannot operate to create stock !hich under the la! cannot ha&e e4istence. Li0 Tay vs. CA [ 93 SCRA /34 (A%g 5 "99C#$ *sta2lis)e& 8Bners)ip o( Corporate S)ares= Sto'- Certi(i'ates ne'essary to 2e entitle& to rig)ts o( s)are)ol&er Facts: Sy Nuiok and Sy Lim secured a loan from Lim Tay in the amount of P9C,CCC. This !as secured by a contract of pledge !hereby the former pledged their ?CC shares of stock each in No Fay # Company to the latter. %o!e&er, they failed to pay their respecti&e loans. %ence, Lim Tay filed a petition for mandamus against No Fay # Company !ith the S'C praying that an
2,
order be issued directing the corporate secretary of the said corporation to register the stock transfers and issue ne! certificates in fa&or of Lim Tay. No Fay # Company filed its ans!er contending that S'C had no 1urisdiction to entertain the complaint on the ground that since Lim Tay !as not a stockholder of the company, no intra corporate contro&ersy took placeG and furthermore, that the default of payment of Sy Nuiok and Sy Lim did not automatically &est in Lim Tay the o!nership of the pledged shares. S'C dismissed the complaint. /n appeal to the C", it affirmed S'C*s decision. %ence, this petition for certiorari !ith the SC. ssue: .hether or not S'C had 1urisdiction. %eld: 0o. The registration of shares in a stockholder*s name, the issuance of stock certificates, and the right to recei&e di&idends !hich pertain to the said shares are all rights that flo! from o!nership. The determination of !hether or not a shareholder is entitled to e4ercise the abo&e mentioned rights falls !ithin the 1urisdiction of the S'C. %o!e&er, if o!nership of the shares is not clearly established and is still unresol&ed at the time the action for mandamus is filed, then 1urisdiction lies !ith the regular courts. n the case at bar, reading into the contract of pledge, the stipulation sho!s that Lim Tay !as merely authori8ed to foreclose the pledge upon maturity of the loans, not to o!n them. Such foreclosure !as not automatic, for it must be done in a public or pri&ate sale. 0o!here !as it mentioned that he e4ercised his right of foreclosure. %ence, his status !as still a mere pledgee, and under ci&il la!, this does not entitle him to o!nership of the shares of stock in question. <i'ario vs. <LRC [ 95 SCRA /"9 (Sept "> "99C#$ Corporate 8((i'ers not personally lia2le (or A%t)ori7e& Corporate A'ts Separate Corporate Personality Facts: 0icario !as employed as a salesgirl, later promoted to super&isor, !ith (ancao Supermarket. She !as terminated in ,:H:. 0icario filed a complaint for illegal dismissal !ith 0L)C. The Labor "rbiter dismissed the case. 0icario appealed to the 0L)C. 0L)C remanded the case back to the Labor "rbiter for lack of due process. Labor "rbiter ad1udged in fa&or of 0icario, ordering (ancao Supermarket to pay unpaid ser&ice incenti&e lea&e, ,? th month pay, o&ertime pay and rest day pay, but dismissed 0icario*s claims for holiday premium pay and unpaid salaries. 0icario appealed to 0L)C. t affirmed in toto the decision of the Labor "rbiter. n its motion for reconsideration, 0L)C deleted the a!ard of o&ertime pay and ruled that "ntonio (ancao is not 1ointly and se&erally liable !ith (ancao Supermarket in paying 0icario. %ence, this certiorari proceeding. ssue: .hether or not "ntonio (ancao is solidarily liable !ith (ancao Supermarket as manager. %eld: 0/. The general rule is that officers of a corporation are not personally liable for their official acts unless it is sho!n that they ha&e e4ceeded their authority. %o!e&er, 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 &ehicle for the e&asion of an e4isting obligation, the circum&ention of statutes, or to confuse legitimate issues. n this case, there is no sho!ing that "ntonio (ancao, as manager of the company, deliberately and maliciously e&aded the company*s financial obligation to 0icario. %ence, there appearing to be no e&idence on record that "ntonio (ancao acted maliciously or deliberately in the non7payment of benefits to 0icario, he cannot be held 1ointly and se&erally liable !ith (ancao supermarket. San J%an Str%'t%ral an& Steel 5a2ri'ators 1n'. vs. CA [ 9/ SCRA /3" (Sept 9 "99C#$ *((e't o( .na%t)ori7e& A'ts o( Corporate 8((i'er S%((i'ien'y o( Proo( to Pier'e 4eil o( Corporate 5i'tion Facts: San 3uan Structural and Steel Fabricators entered into an agreement !ith (otorich Sales Corporation through 0enita Nruenberg, corporate treasurer of (otorich, for the transfer to the former a parcel of land upon a P,CC,CCC earnest money, balance to be payable !ithin (arch 2, ,:H:. <pon payment of the earnest money, and on (arch ,, ,:H:, San 3uan
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allegedly asked to be submitted a computation of the balance due to (otorich. The latter, despite repeated demands, refused to e4ecute the 5eed of "ssignment of the land. San 3uan disco&ered that (otorich entered into a 5eed of "bsolute Sale of the land to "CL 5e&elopment Corporation. %ence, San 3uan filed a complaint !ith the )TC. /n the other hand, (otorich contends that since 0enita Nruenberg !as only the treasurer of said corporation, and that its president, )eynaldo Nruenberg, did not sign the agreement entered into by San 3uan and (otorich, the treasurer*s signature !as inadequate to bind (otorich to the agreement. Furthermore, 0enita contended that since San 3uan !as not able to pay !ithin the stipulated period, no deed of assignment could be made. The deed !as agreed to be e4ecuted only after receipt of the cash payment, and since according to 0enita, no cash payment !as made on the due date, no deed could ha&e been e4ecuted. )TC dismissed the case holding that 0enita Nruenberg !as not authori8ed by (otorich to enter into said contract !ith San 3uan, and that a ma1ority &ote of the $o5 !as necessary to sell assets of the corporation in accordance !ith Sec. 9C of the Corporation Code. C" affirmed this decision. %ence, this petition !ith SC. ssues: +,- .hether or not there !as a &alid contract e4isting bet!een San 3uan and (otorich. +2- .hether or not the &eil of corporate fiction could be pierced. %eld: +,- 0o. The contract entered into bet!een 0enita and San 3uan cannot bind (otorich, because the latter ne&er authori8ed nor ratified such sale. " corporation is a 1uridical person separate and distinct from its stockholders or members. "ccordingly, the property of the corporation is not the property of its stockholders and may not be sold by them !ithout e4press authori8ation from the corporation*s $o5. This is in accordance !ith Sec. 2? of the Corporation Code. ndubitably, a corporation can only act through its $o5 or, !hen authori8ed either by its by la!s or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency go&ern the relation bet!een the corporation and its officers or agents, sub1ect to the "o , by la!s, or rele&ant pro&isions of la!. " corporate officer or agent may represent and bind the corporation in transactions !ith ? rd persons to the e4tent that the authority to do so has been conferred upon him, and this includes po!ers !hich ha&e been intentionally conferred, and also such po!ers as, in the usual course of the particular business, are incidental to, or may be implied from, the po!ers intentionally conferred, po!ers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent po!ers as the corporation has caused persons dealing !ith the officer or agent to belie&e that it has conferred. Furthermore, persons dealing !ith an assumed agent, !hether the assumed agency be a general or special one, are bound at their peril, if they !ould hold the principal liable, to ascertain not only the fact of agency but also the nature and e4tent of authority, and in case either is contro&erted, the burden of proof is upon them to establish it. <nless duly authori8ed, a treasurer, !hose po!ers are limited, cannot bind the corporation in a sale of its assets. n the case at bar, San 3uan had the responsibility of ascertaining the e4tent of 0enita*s authority to represent the corporation. Selling is ob&iously foreign to a corporate treasurer*s function. 0either !as real estate sale sho!n to be a normal business acti&ity of (otorich. The primary purpose of said corporation is marketing, distribution, import and e4port relating to a general merchandising business. <nmistakably, its treasurer is not cloaked !ith actual or apparent authority to buy or sell real property, an acti&ity !hich falls !ay beyond the scope of her general authority. "cts of corporate officers !ithin the scope of their authority are binding on the corporation. $ut !hen these officers e4ceed their authority, their actions cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them. +2- 0o. San 3uan argues that the &eil of corporate fiction should be pierced because the spouses )eynaldo and 0enita Nruenberg o!n ::.:OI of the subscribed capital stock, they needed no authori8ation from the $o5 to enter into the said contract. The &eil can only be disregarded !hen it is utili8ed as a shield to commit fraud, illegality or inequity, defeat public con&enience, confuse legitimate issues, or ser&e as a mere alter ego or business conduit of a person or an instrumentality, agency or ad1unct of another corporation. %ence, the question of piercing the &eil becomes a matter of proof. n the case at bar, SC found no reason to pierce the &eil. San 3uan failed to establish that said corporation !as formed for the purpose of shielding any fraudulent act of its officers and stockholders. PeopleGs Air'argo an& @are)o%sing Co., 1n'. vs. CA [ 9> SCRA ">! (8't > "99C#$
2?
PoBer o( ,oar& o( +ire'tors to ,in& Corporation Facts: PeopleJs "ircargo is a domestic corporation organi8ed to operate a customs bonded !arehouse. To obtain a license for the corporation from the $ureau 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 P?>C,CCC.CC. Punsalan sent a letter to Sano confirming to their agreement. "ccordingly, Sano prepared the feasibility study. Sano !as paid in full. Thereafter, a 2nd contract !as entered into for consultancy ser&ices. %ence, the $ureau of Customs issued a license to PeopleJs "ircargo. Sano !as not paid for this 2nd contract. %ence, he filed a collection case against the corporation. (ean!hile, Punsalan sold his shares in PeopleJs "ircargo andresigned as president. PeopleJs "ircargo denied that there !ere consultancy ser&ices rendered by Sano. t alleged that the 2nd contract entered into bet!een him and Punsalan !as !ithout authority. )TC ad1udged in fa&or of Sano. C" affirmed. %ence, this petition. ssue: .hether or not the Punsalan had apparent authority to bind PeopleJs "ircargo to the 2nd contract. %eld: =es. The general rule is that, in the absence of authority from the $o5, no person, not e&en its officers, can &alidly bind a corporation. " corporation is a 1uridical person, separate and distinct from its stockholders and members, ha&ing po!ers, attributes and properties e4pressly authri8ed by la! or incident to its e4istence. $eing a 1uridical entity, a corporation may act through its $o5, !hich e4ercises almost all corporate po!ers, lays do!n all corporate business policies and is responsible for the efficiency of management as is under Sec. 2? of the Corporation Code. The po!er and responsibility to decide !hether the corporation should enter into a contract that !ill bind the corporation is lodged in the board, sub1ect to "o , by la!s, or rele&ant pro&isions of la!. %o!e&er, 1ust as a natural person may authori8e another to do certain acts for and on his behalf, the $o5 may &alidly delegate some of its functions and po!ers to officers, committees or agents. The authority of such indi&iduals to bind the corporation is generally deri&ed from la!, corporate by la!s or authori8ation from the board, either e4pressly or impliedly by habit, custom or acquiescence in the general course of business. n the case at bar, since the corporation had pre&iously allo!ed Punsalan to enter into the first contract !ith Sano !ithout a board resolution e4pressly authori8ing him, thus, it had clothed its president !ith apparent authority to e4ecute the sub1ect 2nd contract. f a corporation kno!ingly permits one of its officers, or any other agent, to act !ithin the scope of an apparent authority, it holds him out to the public as possessing the po!er to do those acts, and thus, the corporation !ill, as against anyone !ho has in good faith dealt !ith it through such agent, be estopped from denying the agentJs authority. 3@SS vs. CA [ 9> SCRA C> (8't > "99C#$ A'ts o( Corporate 8((i'erF *((e'ts o( Rati(i'ation 2y ,oar& FactsG (.SS leased ,2H hectares of its land to C%NCC for 2> years !ith a stipulation allo!ing the latter to e4ercise a right of first refusal should the sub1ect property be made open for sale. The terms and conditions of C%NCC *s purchase !as nonetheless sub1ect to presidential appro&al. Then Pres. (arcos directed (.SS to negotiate the cancellation of this lease agreement bet!een (.SS and C%NCC . %o!e&er, (.SS* general manager, lustre, informed C%NCC that the property !as up for sale, and that as per their contract, C%NCC had the preferential right to buy said property. %ence, the property !as purchased, and Pres. (arcos later on appro&ed this sale. Then, $oT of (.SS also appro&ed the sale by passing a resolution. C%NCC sold the land to "yala. ,C years later, (.SS filed an action against C%NCC and "yala in )TC praying for the declaration of nullity of the (.SS7C%NCC sales agreement. )TC dismissed the petition. C" affirmed. %ence, this petition for certiorari !ith SC. (.SS holds that lustre !as ne&er gi&en the authority by the $oT to enter into the initial agreement, and therefore, the sale of the property !as null and &oid. ssue: .hether or not the sale !as &alid.
29
%eld: =es. "ssuming that lustre !as not gi&en the ample authority to enter into the agreement, this infirmity !as cured by ratification. So settled is the precept that ratification can be made by the corporate board either e4pressly or impliedly. mplied ratification may take &arious forms 6 like silence or acquiescence, by acts sho!ing appro&al or adoption of the contract, or by acceptance and retention of benefits flo!ing therefrom. $oth modes of ratification ha&e been made in this case. There !as e4press ratification made by the $oT of (.SS !hen it passed a resolution appro&ing the sale of the sub1ect property to C%NCC , authori8ing lustre to sign for and in behalf of (.SS the contract papers relati&e thereto. mplied ratification by silence or acquiescence is re&ealed from the acts of (.SS in sending ? demand letters for the payment of the purchase price, accepting P2>( as do!n payment, and accepting a letter of credit for the balance. Furthermore, (.SS did not return any of these amounts co&ering the purchase price at any point in time. This is indicati&e of (.SS* acceptance and retention of benefits flo!ing from the sales transactions !hich is another form of implied ratification. 1997 Hahn v. Co !" o# A$$%a&' ( // SCRA 53> (Jan%ary , "99>#$ J%ris&i'tion 8ver 5oreign Corporation +oing ,%siness in t)e P)ilippines @it)o%t a Li'ense Facts: Petitioner is a Filipino citi8en doing business under the name of B%ahn7(anilaF. Pri&ate respondent $(. is a non7resident corporation incorporated in Nermany. Petitioner e4ecuted in fa&or of pri&ate respondent a B5eed of "ssignment !ith a Special Po!er of "ttorneyF !hich constituted petitioner as the e4clusi&e dealer of pri&ate respondent as long as the assignment of its trademark and de&ice subsisted. %o!e&er, no formal contract !as dra!n bet!een the t!o parties. Thereafter, petitioner !as informed that $(. !as arranging to grant the e4clusi&e dealership of $(. cars and products to Columbia (otors Corp. +C(C-. $(. e4pressed dissatisfaction !ith &arious aspect of petitioner*s business but nonetheless also e4pressed !illingness to continue business relations !ith petitioner on the basis of a standard $(. contract other!ise, if said offer !as unacceptable to petitioner then $(. !ould terminate petitioner*s e4clusi&e dealership. Petitioner refused $(.s offer in !hich case $(. !ithdre! its alternati&e offer and terminated petitionerJs e4clusi&e dealership. Petitioner therefore filed an action for specific performance and damages against $(. to compel it to continue the e4clusi&e dealership. $(. mo&ed to dismiss the case contending that the trial court did not acquire 1urisdiction o&er it through the ser&ice of summons on 5T because $(. 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 ad&anced by $(. did not seem indubitable. $(. appealed said order to the C". The C" resol&ed that $(. !as not doing business in the country and therefore 1urisdiction o&er it could not ha&e been acquired through the ser&ice of summons on 5T and it dismissed the petition. ssue: .@0 $(. is doing business in the Philippines so as to enable the court to acquire 1urisdiction o&er it through the ser&ice of summons on the 5T . %e d: )" ;C92 enumerates !hat acts are considered as Bdoing businessF. Section ?+denumerating such acts includes the phrase Bappointing representati&es or distributors in the PhilippinesF but not !hen the representati&e or distributor BtransactsF business in his o!n name for his o!n account. n the case at bar, petitioner is pri&ate respondent $(.*s agent and not merely a broker. The record re&eals that pri&ate respondent e4ercised control o&er petitioner*s acti&ities as a dealer and made regular inspections of petitioner*s premises to enforce its standards. Since $(. is considered as doing business in the Philippines, the trial court &alidly acquired 1urisdiction o&er it by &irtue of the ser&ice of summons on the 5T . Furthermore, it is no! settled that, for purposes of ha&ing summons ser&ed on a foreign corporation in accordance !ith the )ules of Court, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations in the complaint in order to determine !hether or not it acquired 1urisdiction. Such determination that the foreign corporation is doing business in the Philippines is only tentati&e and only for the purpose of enabling the court to acquire 1urisdiction. " contrary determination may be made based on the court*s findings or e&idence presented.
2>
*ri-s PT*., Lt&. v. Co%rt o( Appeals [5e2r%ary /, "99>$ *((e't o( +oing ,%siness in P)ilippines Bit)o%t a Li'enseF Co%rts
,arre& 5ro0 A''ess to
Facts: ,. Petitioner 'riks Pte., Ltd. is a nonresident foreign corporation engaged in the manufacture and sale of elements used in sealing pumps, &al&es and pipes for industrial purposes, and PLC pipes and fittings for industrial uses. 2. Pri&ate respondent 5elfin 'nrique8, 3r., doing business under the name and style of 5elrene '$ Controls Center and@or '$ Parmine Commercial, ordered and recei&ed from petitioner &arious elements used in sealing pumps, &al&es, pipes and control equipment, PLC pipes and fittings. ?. The transfer of goods !ere perfected in Singapore for pri&ate respondent*s account !ith a :C7day credit term. Subsequently, demands !ere made by petitioner upon pri&ate respondent to settle his account, but the latter failed@refused to do so. 9. Petitioner corporation filed !ith the )TC a complaint for the reco&ery of <SV9,,:?:.O?. Pri&ate respondent responded !ith a (otion to 5ismiss, 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 !ithout a license. >. /n appeal, the respondent court affirmed the )TC as it deemed the series of transactions bet!een petitioner corporation and pri&ate respondent not to be an Bisolated or casual transaction.F Thus, respondent court found petitioner to be !ithout legal capacity to sue. ssue: s a foreign corporation !hich sold its products ,O times o&er a >7month period to the same Filipino buyer !ithout first obtaining a license to do business in the Philippines, prohibited from maintaining an action to collect payment therefor in Philippine courtsM n other !ords, is such foreign corporation Bdoing businessF in the Philippines !ithout the required license and thus barred access to our court systemM %eld: ,.The Corporation Code pro&ides: BSection ,??. Doin& business ,it'out a license - 0o foreign corporation transacting business in the Philippines !ithout a license, or its successors or assigns, shall be permitted to maintain or inter&ene in any action, suit or proceeding in any court or administrati&e agency of the PhilippinesG but such corporation may be sued or proceeded against before Philippine courts or administrati&e tribunals on any &alid cause of action recogni8ed under Philippine la!s.F The aforementioned pro&ision prohibits, not merely absence of the prescribed license, but it also bars a foreign corporation Bdoing businessF in the Philippines !ithout such license access to our courts. " foreign corporation !ithout such license is not ipso (acto incapacitated from bringing an action. " license is necessary only if it is .transactin& or doin& business/ in the country. 2. The test to determine !hether a foreign company is Bdoing businessF in the Philippines, thus: K4 4 4 The true test, ho!e&er, seems to be !hether the foreign corporation is continuing the body or substance of the business or enterprise for !hich it !as organi8ed or !hether it has substantially retired from it and turned it o&er to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that e4tent, the performance of acts or !orks or the e4ercise of some of the functions normally incident to, and in progressi&e prosecution of, the purpose and ob1ect of its organi8ation +(entholaturn Co., nc. &. (angaliman-. ?. The accepted rule in 1urisprudence is that each case must be 1udged in the light of its en&ironmental circumstances. t should be kept in mind that the purpose of the la! is to sub1ect the foreign corporation doing business in the Philippines to the 1urisdiction of our courts. t is not to pre&ent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business !ithout first taking the steps necessary to render it amenable to suits in the local courts. 9. Thus, !e hold that the series of transactions in question could not ha&e been isolated or casual transactions. .hat is determinati&e of Kdoing businessK 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 e&idence of
2O
such intention. The phrase Kisolated transactionF has a definite and fi4ed 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 progressi&e pursuit of the purpose and ob1ect of the business organi8ation. .hether a foreign corporation is Bdoing businessF does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. >. "ccordingly, petitioner must be held to be incapacitated to maintain the action a +uo against pri&ate respondent. $y this 1udgment, !e are not foreclosing petitioner*s right to collect payment. )es 1udicata does not set in a case dismissed for lack of capacity to sue, because there has been no determination on the merits. (oreo&er, this Court has ruled that subsequent acquisition of the license !ill cure the lack of capacity at the time of the e4ecution of the contract. $y securing a license, a foreign entity !ould be gi&ing assurance that it !ill abide by the decisions of our courts, e&en if ad&erse to it. Rep%2li' Planters ,an- vs. Agana, Sr. [3ar') 3, "99>$ Rig)ts o( 6ol&ers o( Per(erre& S)ares Legality o( 1nterest ,earing S)ares ,. Pri&ate respondent )obes Francisco )ealty # 5e&*t Corp. secured a loan from petitioner in the amount of P,2C,CCC.CC. "s part of the proceeds of the loan, preferred shares of stocks !ere issued to pri&ate respondent corporation. n other !ords, instead of gi&ing the legal tender totaling to the full amount of the loan !hich is P,2C,CCC.CC, petitioner lent such amount partially in the form of stock certificates numbered ?2C9 and ?2C>, each for 9CC shares !ith a par &alue of P,C.CC per share, or for P9,CCC each, for a total of PH,CCC.CC. Said stock certificates !ere in the name of pri&ate respondent "dalia )obes and Carlos )obes, !ho, ho!e&er, subsequently endorsed his shares in fa&or of "dalia )obes. Said certificates of stock bear the follo!ing terms and conditions: ,. The right to recei&e a quarterly di&idend of ,I, cumulati&e and participating. 2. That such preferred shares may be redeemed, by the system of dra!ing lots, at any time after 2 years from the date of issue at the option of the Corporation. Pri&ate respondents proceeded against petitioner and filed a complaint anchored on pri&ate respondents* alleged rights to collect di&idends under the preferred shares in question and to ha&e petitioner redeem the same under the terms and conditions of the stock certificates. The trial court ordered the petitioner to pay pri&ate respondents the face &alue of the stock certificates as redemption price, plus ,I quarterly interest. %ence this petition. ssue: .@0 respondents ha&e the right to collect di&idends and !hether they can compel petitioner to redeem the preferred shares. %eld: ,. " preferred share of stock is one !hich entitles the holder thereof to certain preferences o&er 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 t!o: +,- preferred shares as to assetsG and +2preferred as to di&idends. The former is a share !hich gi&es the holder thereof the preference in the distribution of the assets of the corporation in case of liquidationG the latter is a share the holder of !hich is entitled to recei&e di&idends on said share to the e4tent agreed upon before any di&idends at all are paid to the holders of common stock. There is no guarantee, ho!e&er, that the share !ill recei&e any di&idends. 2. Preferences granted to preferred stockholders do not gi&e them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being al!ays subordinate to the latter. Shareholders, both common and preferred are considered risk takers !ho in&est capital in the business arid !ho can look only to !hat is left after corporate debts and liabilities are fully paid. ?. )edeemable shares are shares usually preferred, !hich by their terms are redeemable at a fi4ed date, or at the option of either issuing corporation, or the stockholder, or both at certain redemption priceG redemption may not be made !here the corporation is insol&ent or if such redemption !ill cause insol&ency or inability of the corporation to meet its debts as they mature. 9. .hile the stock certificates in the case at bar does allo! redemption, the option to do so
2;
!as clearly &ested in the petitioner bank. The redemption is therefore optional. >. The redemption of said shares cannot be allo!ed. The Central $ank made a finding that said petitioner has been suffering from chronic reser&e deficiency, and that such finding resulted in the directi&e prohibiting the petitioner bank from redeeming any preferred share, on the ground that said redemption !ould reduce the assets of the $ank to the pre1udice of its depositors and creditors. )edemption of preferred shares !as prohibited for a 1ust and &alid reason. O.K nterest bearing stocksK, on !hich the corporation agrees absolutely to pay interest before di&idends are paid to common stockholders, is legal only !hen construed as requiring payment of interest as di&idends from net earnings or surplus only. Sa0a)an ng 8pto0etrists sa Pilipinas v. A'e2e&o 1nternational Corp. [ >! SCRA (3ar') ", "99>#$ PoBers o( t)e Corporation 9C
Facts: )espondent "cebedo /ptical applied for a permit !ith the /ffice of the (ayor of Cancion, locos Sur for the operation of a branch office. Said application !as opposed by herein petitioner on the ground that respondent is a 1uridical entity. Said application !as denied. ssue: . 0 a corporation engaged in the business of selling optical !ares, supplies, etc. !hich as an incident to and in the ordinary course of business hire optometrists be said to be practicing the profession of optometry !hich may only be engaged in by natural persons. %eld: )espondent is a corporation created and organi8ed for the purpose of conducting the business of selling optical lenses, etc. The determination of proper lenses to sell entails the employment of optometrists. <nder ).". HC>C +)e&ised /ptometry La!-, 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. Ag%en7a v. 3etro2an- [;R >433/, April >, "99>$ *((e'ts o( .na%t)ori7e& A'ts o( Corporate 8((i'ers Facts: ntertrade Corp authori8ed and empo!ered "guen8a and "rrieta +its president and 'LP, respecti&ely- to 1ointly apply for open credit lines !ith (etrobank. The t!o officers e4ecuted a Continuing Suretyship "greement !hereby both bound themsel&es 1ointly and se&erally !ith ntertrade to pay (etrobank !hate&er obligation ntertrade occurs. Subsequently, "rrieta and Pere8, ntertradeJs bookkeeper, obtained another loan from (etrobank and they also promised to pay the loan, 1ointly and se&erally. "rrieta and Pere8 defaulted in the payment. (etrobank sued ntertrade, impleading "guen8a on the basis of the Continuing Suretyship "greement e4ecuted earlier. + ncidentally, ntertrade made an admission that the loan obtained by "rrieta and Pere8 !as a corporate liability.ssue: . 0 "guen8a is liable. %eld: 0o. "rrieta*s subsequent action +of obtaining the loan together !ith Pere8- !as ultra &ires, and to bind the corporation, it had to be ratified through a board resolution. 'mphatically, ntertrade has a distinct personality separate from its members. The corporation transacts its business only through its corporate officers or agents. .hate&er authority these officers or agents may ha&e is deri&ed from the $oard of 5irectors or other go&erning body unless conferred by the charter of the corporation. "n officer*s po!er as an agent of the corporation must be sought from the statute, charter, the by la!s, as in a delegation of authority to such officer, or the acts of the $oard of 5irectors formally e4pressed, or implied from a habit or custom of doing business. ;ar'ia vs. CA [;R " 3/39, J%ne "!, "99>$ J%ris&i'tion o( S*C Facts: ")C and Chiudian +ma1or stockholders of 5ynetics- acquired a foreign loan !ith Philguarantee as guarantor. They defaulted in the payment of the loan causing a collapse in the business of 5ynetics. Narcia +president of 5ynetics-, ")C and Chiudian e&entually entered into a Settlement and (utual )elease "greement +S()"- in order to settle the financial
2H
condition of the company and to rehabilitate it. Philguarantee allegedly reneged on its commitment and Narcia filed a case against it in the regular courts. Philguarantee questioned the 1urisdiction of the regular courts and insisted that the case should ha&e been filed !ith S'C. ssue: .@0 S'C has 1urisdiction. %eld: =es. SC stated thus: KTo determine !hich body has 1urisdiction o&er the present contro&ersy, !e rely on the sound 1udicial principle that 1urisdiction o&er the sub1ect matter of a case is conferred by la! and determined by the allegations of the complaint irrespecti&e of !hether the plaintiff is entitled to all or some of the claims asserted therein. .e ha&e 1udiciously gone o&er petitioner*s original complaint and are con&inced that the case at bar is a classic illustration of a dispute bet!een stockholders 77 pri&ate respondent, the current ma1ority and controlling stockholder of 5ynetics and petitioner, the erst!hile ma1ority stockholder of said corporation . Petitioner*s stubborn insistence that he brought the case for damages in his capacity as an aggrie&ed surety and not as a stockholder is belied by the opening statement in his complaint.F The case of Lo8ano &s. de los Santos, N) ,2>22,, 3une ,:, ,::;, like!ise held as follo!s: KThe grant of 1urisdiction to the S'C must be &ie!ed in the light of its nature and function under the la!. This 1urisdiction is determined by a concurrence of 2 elements, +,- the status or relationship of the partiesG +2- the nature of the question that is the sub1ect of their contro&ersy.K ;ra'e C)ristian 6ig) S')ool v CA [(8'to2er 3, "99>#$
Rig)t o( S)are 6ol&ers to 4ote (or t)e ,oar& o( +ire'tors

Rig)t o( S)are 6ol&ers to ,e 4ote& to t)e ,oar& o( +ire'tors Facts: Petitioner Nrace Christian %igh School is an educational institution offering preparatory, kindergarten and secondary courses at the Nrace Lillage in Que8on City. Pri&ate respondent Nrace Lillage "ssociation, nc., on the other hand, is an organi8ation of lot and@or building o!ners, lessees and residents at Nrace Lillage. n ,:OH, the by7la!s of the association pro&ided in "rticle L, as follo!s: BThe annual meeting of the members of the "ssociation shall be held on the first Sunday of 3anuary in each calendar year at the principal office of the "ssociation at 2:CC P.(. !here they shall elect by plurality &ote and by secret balloting, the $oard of 5irectors, composed of ele&en +,,- members to ser&e for one year until their successors are duly elected and ha&e qualified.F /n 5ecember 2C, ,:;>, a committee of the board of directors prepared a draft of an amendment to the by7la!s, reading as follo!s: BThe "nnual (eeting of the members of the "ssociation shall be held on the second Thursday of 3anuary of each year. 'ach Charter or "ssociate (ember of the "ssociation is entitled to &ote. %e shall be entitled to as many &otes as he has acquired thru his monthly membership fees only computed on a ratio of T'0 +P,C.CCP'S/S for one &ote. The Charter and "ssociate (embers shall elect the 5irectors of the "ssociation. The candidates recei&ing the first fourteen +,9- highest number of &otes shall be declared and proclaimed elected until their successors are elected and qualified. N)"C' C%) ST "0 % N% SC%//L representati&e is a permanent 5irector of the "SS/C "T /0.F This draft !as ne&er presented to the general membership for appro&al. 0e&ertheless, from ,:;>, after it !as presumably submitted to the board, up to ,::C, petitioner !as gi&en a permanent seat in the board of directors of the association. From ,:;> until ,:H: petitionerJs representati&e had been recogni8ed as a Kpermanent directorK of the association. $ut on February ,?, ,::C, petitioner recei&ed notice from the associationJs committee on election that the latter !as Kree4aminingK +actually, reconsidering- the right of petitionerJs representati&e to continue as an unelected member of the board. "s the board denied petitionerJs request to be allo!ed representation !ithout election, petitioner brought an action for mandamus in the %ome nsurance and Nuaranty Corporation. ts action !as dismissed by the hearing officer !hose decision !as subsequently affirmed by the appeals board. Petitioner appealed to the Court of "ppeals, !hich in turn upheld the decision of the % NCJs appeals board. %ence this petition for re&ie!. ,. The Petitioner herein has already acquired a &ested right to a permanent seat in the $oard of 5irectors of Nrace Lillage "ssociationG 2. The amended $y7la!s of the "ssociation drafted and promulgated by a Committee on 5ecember 2C, ,:;> is &alid and bindingG and ?. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the $oard of 5irectors of the "ssociation !ithout the benefit of election is allo!ed under the la!. 2:
ssue: +,- ./0 the ,:;> "mendment is &alid despite not ha&ing been appro&ed by the Neneral "ssembly +2- ./0 the Corporate Code grants Nrace Christian %igh School a right to a seat at the $oard %eld: +,- This pro&ision of the by7la!s actually implements T22 of the Corporation La! !hich pro&ides that the o!ners of a ma1ority of the subscribed capital stock, or a ma1ority 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 by7la! or adopt ne! by7la!s. The o!ners of t!o7thirds of the subscribed capital stock, or t!o7thirds of the members if there be no capital stock, may delegate to the board of directors the po!er to amend or repeal any by7la! or to adopt ne! by7la!s: Pro&ided, ho!e&er, That any po!er delegated to the board of directors to amend or repeal any by7la! or adopt ne! by7la!s shall be considered as re&oked !hene&er a ma1ority of the stockholders or of the members of the corporation shall so &ote at a regular or special meeting. The proposed amendment to the by7la!s !as ne&er appro&ed by the ma1ority of the members of the association as required by these pro&isions of the la! and by7la!s. $ut petitioner contends that the members of the committee !hich prepared the proposed amendment !ere duly authori8ed to do so and that because the members of the association thereafter implemented the pro&ision for fifteen years, the proposed amendment for all intents and purposes should be considered to ha&e been ratified by them. Petitioner contends: Considering, therefore, that the KagentsK or committee !ere duly authori8ed to draft the amended by7la!s and the acts done by the KagentsK !ere in accordance !ith such authority, the acts of the KagentsK from the &ery beginning !ere la!ful and binding on the homeo!ners +the principals- per se !ithout need of any ratification or adoption. The more has the amended by7 la!s become binding on the homeo!ners !hen the homeo!ners follo!ed and implemented the pro&isions of the amended by7la!s. This is not merely tantamount to tacit ratification of the acts done by duly authori8ed KagentsK but e4press appro&al and confirmation of !hat the KagentsK did pursuant to the authority granted to them. +2- The present Corporation Code +$.P. $lg. OH- pro&ides: BT2?. The $oard of 5irectors or Trustees. W <nless other!ise pro&ided in this Code, the corporate po!ers of all corporations formed under this Code shall be e4ercised, 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 !here there is no stock, from among the members of the corporation, !ho shall hold office for one +,- year and until their successors are elected and qualified.F This pro&ision lea&e 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 !hich there are unelected members in the board but it is clear that in the e4amples cited by petitioner the unelected members sit as e4 officio members, i.e., by &irtue of and for as long as they hold a particular office. $ut in the case of petitioner, there is no reason at all for its representati&e to be gi&en a seat in the board. 0or does petitioner claim a right to such seat by &irtue of an office held. n fact it !as not gi&en such seat in the beginning. t !as only in ,:;> that a proposed amendment to the by7la!s sought to gi&e it one. Since the pro&ision in question is contrary to la!, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to ha&e been implemented by the members of the association cannot forestall a later challenge to its &alidity. 0either can it attain &alidity through acquiescence because, if it is contrary to la!, it is beyond the po!er of the members of the association to !ai&e its in&alidity. For that matter the members of the association may ha&e formally adopted the pro&ision in question, but their action !ould be of no a&ail because no pro&ision of the by7la!s can be adopted if it is contrary to la!. t is probable that, in allo!ing petitionerJs representati&e to sit on the board, the members of the association !ere not a!are that this !as contrary to la!. t should be noted that they did not actually implement the pro&ision in question e4cept perhaps insofar as it increased the number of directors from ,, to ,>, but certainly not the allo!ance of petitionerJs representati&e as an unelected member of the board of directors. t is more accurate to say that the members merely tolerated petitionerJs representati&e and tolerance cannot be considered ratification. 0or can petitioner claim a &ested right to sit in the board on the basis of Kpractice.K Practice, no matter ho! long continued, cannot gi&e rise to any &ested right if it is contrary to la!. '&en less tenable is petitionerJs claim that its right is Kcoterminus !ith the e4istence of the association.K CREDIT TRANSACTIONS
?C
2001 Pro9e't ,%il&ers, 1n'. v. CA [J%ne "9, !!"$ .s%ry LaB Facts: /n "ugust 2,, ,:;>, plaintiff7respondent ndustrial Finance Corporation + CF- and defendant7petitioner Pro1ect $uilders nc. +P$ - entered into an agreement !hereby it !as agreed that plaintiff !ould pro&ide a ma4imum amount of P2,CCC,CCC.CC +!hich !as subsequently increased to >,CCC,CCC- against !hich said defendant !ould discount and assign to plaintiff on a A!ith recourse non7collection basis* its +P$ *s- accounts recei&able under the contracts to sell specified in said agreement. "gainst the credit line, defendant P$ discounted !ith plaintiff on different dates accounts recei&ables !ith different maturity dates from different condominium7unit buyers. To secure compliance !ith the terms and conditions of the agreement, defendants on the same date e4ecuted a 5eed of )eal 'state (ortgage in fa&or of plaintiff. .hen defendants allegedly defaulted in the payment of the sub1ect account, plaintiff foreclosed the mortgage and plaintiff !as the highest bidder in the amount of P?,>CC,CCC.CC.* AThe foreclosed property !as redeemed a year later, but after application of the redemption payment, plaintiff claims that there is still a deficiency in the amount of P,,?2?,C>?.CH. ssue: ./0 the agreement forged by petitioners and pri&ate respondent is a simple loan or a financing transaction go&erned by the pro&isions of )epublic "ct 0o. >:HCG and ./0 there !as a &iolation of the <sury la!. %'L5: t is a financing agreement. pri&ate respondent is a financing company as so defined by the Financing Company "ct. +a- BFinancing companies,F 4 4 4 organi8ed for the purpose of e4tending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by )*'+o n"*n, or #a+"o!*n, commercial papers or accounts recei&able, or by - .*n, an) '%&&*n, contracts, leases, chattel mortgages, or other e&idences of indebtedness or by &%a'*n, of motor &ehicles, hea&y equipment and industrial machinery, business and office machines and equipment, appliances and other mo&able property. "n insistence of petitioners that the sub1ect transaction should be considered a simple loan since pri&ate respondent did not communicate !ith the debtors, condominium unit buyers, to collect payment from them, is untenable. n an assignment of credit, the consent of the debtor is not essential for its perfection, his kno!ledge 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 reco&er the deficiency. Petitioners* claim that pri&ate respondent is proscribed from imposing interest and other charges beyond the limits set out by the Financing Company "ct lacks merit. The la! states: BS'C. >. Limitation on purc'ase discount) (ees) service and ot'er C'ar&es. 777 n the case of assignments of credit or the buying of installment papers, accounts recei&ables and other e&idences of indebtedness by financing companies, the purchase discount, %/+& '*v% o# *n"%!%'" an) o"h%! +ha!,%'0 shall be limited to fourteen +,9I- per cent of the &alue of the credit assigned or the &alue of the installment papers, accounts recei&able and other e&idence of indebtedness purchased based on a period of t!el&e +,2- months or less, and to one and one7si4th +, ,@OI- per cent for each additional month or fraction thereof in e4cess of t!el&e months, regardless of the terms and conditions of the assignment or purchase.F Clearly, the ,9I ceiling pro&ided for purchase discount is e4clusi&e of interest and other charges. " purchase discount is distinct from interest. The term purchase discount refers to the difference bet!een the &alue of the recei&able purchased or credit assigned, and the net amount paid by the finance company for such purchase or assignment, %/+& '*v% o# #%%'0 '%!v*+% +ha!,%'0 *n"%!%'"' an) o"h%! +ha!,%' *n+*)%n" "o "h% %/"%n'*on o# +!%)*" , and it is akin to Btime price differential,F or the increase in price to co&er the e4pense generally entailed by transactions on credit. There is thus no impingement of the <sury La!. 2000 PHILIPPINE NATIONAL BAN1 vs. SPO2SES 3RANCISCO an) MERCED RABAT
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(G.R. No. 145506. Nov%7-%! 180 20009 *Dtra9%&i'ial 5ore'los%re Sale n e4tra1udicial foreclosure sales, personal notice to the mortgagor is not necessary Section ? of "ct 0o. ?,?> reads: Section ?. 0otice shall be gi&en by posting of the sale for not less than t!enty days in at least three public places of the municipality or city !here the property is situated, and if such property is !orth more than four hundred pesos, such notice shall be published once a !eek for at least three consecuti&e !eeks in a ne!spaper 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 ne!spaper of general circulation !ere duly complied !ith by the P0$ as correctly found by the trial court, to !hich !e accord great respect. " question of non7compliance !ith the notice and publication requirements of an e4tra1udicial foreclosure sale is a factual issue and the resolution thereof by the trial court is binding and conclusi&e upon us absent any sho!ing of gra&e abuse of discretion. Colinares vs. Co%rt o( Appeals [339 SCRA /!9 (Sept. 5, !!!#$ Tr%st Re'eipts LaB Facts: (el&in Colinares and Lordino Leloso +Petitioners- !ere contracted for a consideration of P9C,CCC by the Carmelite Sisters of Cagayan de /ro City to reno&ate the latter*s con&ent. Petitioners obtained the materials needed for the construction pro1ect from C( $uilders Centre. Petitioners applied for a commercial letter of credit !ith the Philippine $anking Corporation +P$C- in fa&or of C( $uilders Centre. P$C appro&ed the letter of credit to co&er the full in&oice &alue of the goods. Petitioners signed a pro7forma trus receipt as security. P$C !rote to Petitioners demanding that the amount be paid !ithin se&en days from notice. nstead of complying !ith the demand, Leloso confessed that they lost P,:,,:> in the Carmelite (onastery Pro1ect and requested for a grace period to settle the account. The grace period lapsed and P$C sent a ne! demand letter to Petitioners. Petitioners proposed that the terms of payment of the loan be modified. Petitioners !ere charged !ith the &iolation of P.5. 0o. ,,> +Trust )eceipts La!- in relation to "rt. ?,> of the )e&ised Penal Code. The Petitioners !ere con&icted. ssue: "ssuming there !as a &alid trust receipt, !hether or not the accused !ere properly charged, tried and con&icted for &iolation of P.5. 0o. ,,> in relation to "rt. ?,> of the )PC, not!ithstanding the no&ation of the so7called trust receipt con&erting the trustor7trustee relationship to creditor7debtor situation %eld: Section 9 of P.5. 0o. ,,> defines a trust receipt transaction as any transaction by and bet!een a person referred to as the entruster, and another person referred to as the entrustee, !hereby the entruster !ho o!ns or holds absolute title or security interest o&er certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter*s e4ecution and deli&ery to the entruster of a signed document called a Btrust receiptF !herein the enteustee binds himself to hold the designated goods, documents or instruments !ith the obligation to turn o&er to the entruster the proceeds thereof to the e4tent of the amount o!ing to the entruster or as appears in the trust receipt or the goods, documents or instruments themsel&es if they are unsold or not other!ise disposed of, in accordance !ith the terms and conditions specified in the trust receipt. " thorough e4amination of the facts obtaining in the case at bar re&eals that the transaction intended by the parties !as a simple loan, not a trust receipt agreement. /n the day the Petitioners recei&ed the merchandise from C( $uilders Centre, o!nership !as already transferred to Petitioners !ho !ere to use the materials for the construction pro1ect. t !as only a day later that they !ent to the bank to apply for a loan to pay for the merchandise. This situation belies !hat normally obtains in a pure trust receipt transaction !here goods are o!ned by the bank and only released to the importer in trust subsequent to the grant of the loan. 0o!here in the testimony of P$C*s !itness does it appear that P$C represented to Petitioners that the transaction they !ere entering into !as not a pure loan but had trust receipt implications. The nformation charged Petitioners !ith intent to defraud and misappropriating the money for their personal use. $ut Petitioners employed no artifice in dealing !ith P$C and ne&er did they e&ade payment of their obligation. Petitioners acquitted. 3*L41< C8L1<AR*S an& L8R+1<8 4*L8S8 vs. 68<8RA,L* C8.RT 85 APP*ALS, an& T6* P*8PL* 85 T6* P61L1PP1<*S (;.R. <o. 9!C C, Septe02er 5, !!!# Se'transA Tr%st re'eipts
?2
Section 9, P.5. 0o. ,,>, the Trust )eceipts La!, defines a trust receipt transaction as any transaction by and bet!een a person referred to as the entruster, and another person referred to as the entrustee, !hereby the entruster !ho o!ns or holds absolute title or security interest o&er certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latterJs e4ecution and deli&ery to the entruster of a signed document called a Ktrust receiptK !herein the entrustee binds himself to hold the designated goods, documents or instruments !ith the obligation to turn o&er to the entruster the proceeds thereof to the e4tent of the amount o!ing to the entruster or as appears in the trust receipt or the goods, documents or instruments themsel&es if they are unsold or not other!ise disposed of, in accordance !ith the terms and conditions specified in the trust receipt. There are t!o possible situations in a trust receipt transaction. The first is co&ered by the pro&ision !hich refers to money recei&ed under the obligation in&ol&ing the duty to deli&er it +entregarla- to the o!ner of the merchandise sold. The second is co&ered by the pro&ision !hich refers to merchandise recei&ed under the obligation to KreturnK it +de&ol&era- to the o!ner. Failure of the entrustee to turn o&er the proceeds of the sale of the goods, co&ered by the trust receipt to the entruster or to return said goods if they !ere not disposed of in accordance !ith the terms of the trust receipt shall be punishable as estafa under "rticle ?,> +,of the )e&ised Penal Code, ?9 !ithout need of pro&ing intent to defraud. 6.*RTA AL,A R*S8RT 1<C. vs. C8.RT 85 APP*ALS an& SH<+1CAT*+ 3A<A;*3*<T ;R8.P 1<C. (;.R. <o. " C5/>, Septe02er ", !!!# Se'%rity Transa'tionsF *?%ity o( Re&e0ption an& Rig)t o( Re&e0ptionA *stoppel The right of redemption in relation to a mortgage 6 understood in the sense of a prerogati&e to re7acquire mortgaged property after registration of the foreclosure sale 6 e4ists only in the case of the e4tra1udicial foreclosure of the mortgage. 0o such right is recogni8ed in a 1udicial foreclosure e4cept only !here the mortgagee is the Philippine 0ational $ank or a bank or banking institution. .here a mortgage is foreclosed e4tra1udicially, "ct ?,?> grants to the mortgagor the right of redemption !ithin one +,- year from the registration of the sheriffJs certificate of foreclosure sale. .here the foreclosure is 1udicially effected, ho!e&er, no equi&alent right of redemption e4ists. The la! declares that a 1udicial foreclosure sale J!hen confirmed be an order of the court. . . . shall operate to di&est the rights of all the parties to the action and to &est their rights in the purchaser, sub1ect to such rights of redemption as may be allo!ed by la!.J Such rights e4ceptionally Jallo!ed by la!J +i.e., e&en after confirmation by an order of the court- are those granted by the charter of the Philippine 0ational $ank +"cts 0o. 2;9; and 2:?H-, and the Neneral $anking "ct +).". ??;-. These la!s confer on the mortgagor, his successors in interest or any 1udgment creditor of the mortgagor, the right to redeem the property sold on foreclosure W after confirmation by the court of the foreclosure sale W !hich right may be e4ercised !ithin a period of one +,- year, counted from the date of registration of the certificate of sale in the )egistry of Property. To repeat, no such right of redemption e4ists in case of 1udicial foreclosure of a mortgage if the mortgagee is not the P0$ or a bank or banking institution. n such a case, the foreclosure sale, J!hen confirmed by an order of the court. . . shall operate to di&est the rights of all the parties to the action and to &est their rights in the purchaser.J There then e4ists only !hat is kno!n as the equity of redemption. This is simply the right of the defendant mortgagor to e4tinguish the mortgage and retain o!nership of the property by paying the secured debt !ithin the :C7day period after the 1udgment becomes final, in accordance !ith )ule OH, or e&en after the foreclosure sale but prior to its confirmation. P)ilippine <ational ,an- vs. Co%rt o( Appeals [33> SCRA 3C" (A%g. C, !!!#$ Pre(eren'e o( Cre&itF 3ariti0e Lien Facts: To finance the acquisition of ; shipping &essels, the Philippine nternational Shipping Corporation +P SC- applied for and !as granted by 0ational n&estment 5e&elopment Corporation +0 5C- guaranty accomodations. "s security for these guaranty accomodations, P SC e4ecuted chattel mortgages on the &essels to be acquired by it. (ean!hile, P SC entered into a contract !ith %ong Pong <nited 5ockyards, Ltd. for the repair and con&ersion of one of the &essels, (@L "sean Liberty. The Central $ank of the Phils. authori8ed P SC to open !ith China $anking Corporation +C$C- a standby letter of credit for <SV>9>,CCC in fa&or of Citibank, 0.". to co&er the repair and partial con&ersion of the &essel (@L "sean Liberty. P SC e4ecuted an "pplication and "greement for Commercial Letter of Credit for <SV>9>,CCC ??
!ith C$C in fa&or of Citibank. C$C then issued its rre&ocable Standby Letter of Credit for <SV>9>,CCC in fa&or of Citibank for the account of P SC. P SC e4ecuted a promissory note for <SV>9>,CCC in fa&or of Citibank pursuant to the Loan "greement bet!een P SC and Citibank. <pon failure of P SC to fulfill its obligations, Citibank sent C$C a letter dra!ing on the Letter of Credit. C$C then instructed its correspondent r&ing Trust Co. to pay to Citibank the amount of <SV292,22>. Subsequently, for failure of P SC to settle its obligations under the guaranty accommodations, the Philippine 0ational $ank +P0$- conducted an auction sale of the mortgaged &essels. 0 5C emerged as the highest bidder in these auctions. P SC, claiming that the foreclosure sale of its mortgaged &essels !as illegal and irregular, instituted a ci&il case for the annulment of the foreclosure and auction sale. C$C filed a complaint in inter&ention for reco&ery upon a maritime lien against the proceeds of the sale of the foreclosed &essels. ssue: .hether or not C$C*s claim as e&idenced by its rre&ocable Letter of Credit is in the nature of a maritime lien under the pro&isions of P.5. 0o. ,>2,G and if so, !hether or not said maritime lien is preferred o&er the mortgage lien of P0$@0 5C on the foreclosed &essel (@L "sean Liberty %eld: <nder the pro&isions of P.5. 0o. ,>2,, any person furnishing repairs, supplies, or other necessities to a &essel on credit !ill ha&e a maritime lien. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall ha&e priority o&er the said mortgage lien. n this case, it !as %ongkong <nited 5ockyards, Ltd. !hich originally possessed a maritime lien o&er the &essel (@L "sean Liberty by &irtue of its repair of the said &essel on credit. C$C, ho!e&er, stands as guarantor of the loan e4tended by Citibank to P SC. t !as Citibank !hich ad&anced the money to P SC. t !as only upon the failure of P SC to fulfill its obligations under its promissory note to Citibank that C$C !as called upon by Citibank to e4ercise its duties under the Standby Letter of Credit. The applicable la!, !hich is the Shipping (ortgage 5ecree of ,:;H, !as patterned closely after the <.S. Ship (ortgage "ct of ,:2C. $eing of foreign origin, the pro&isions of the Ship (ortgage 5ecree of ,:;H may thus be construed !ith the aid of foreign 1urisprudence. <nder "merican 1urisprudence, Bfurnishing money to a master in good faith to obtain repairs or supplies or to remo&e liens, in order to for!ard the &oyage of the &essel, raises a lien 1ust as though the things for !hich money !as obtained to pay for had been furnished by the lenderF. This is in accord !ith "rt>. ,?C2 of the Ci&il Code !hich pro&ides that there is legal subrogation B!hen a third person, not interested in the fulfillment of the obligation, pays !ith the e4press or tacit appro&al of the debtorF. n this case, the amount for the repair of &essel (@L "sean Liberty !as ad&anced by Citibank and !as used for the purpose of paying off the original maritime lienor, %ongkong <nited 5ockyards, Ltd. "s a person not interested in the fulfillment of the obligation bet!een P SC and %ongkong <nited 5ockyards, Ltd., Citibank !as subrogated to the rights of %ongkong <nited 5ockyards, Ltd. as maritime lienor o&er the &essel. C$C, as guarantor, !as itself subrogated to all the rights of Citibank as against P SC, the latter*s debtor. "rt. 2CO; of the ci&il Code pro&ides that Bthe guarantor !ho pays is subrogated by &irtue thereof to all the rights !hich the creditor had against the debtorF. .hen C$C honored its contract of guaranty !ith Citibank on (arch ?C, ,:H?, it also acquired by subrogation the maritime lien o&er the &essel !hich attached to it on (arch ,2, ,:;: in fa&or of %ongkong <nited 5rydocks, Ltd. The maritime lien of C$C thus arose prior to the recording of P0$@0 5C*s mortgage on September 2>, ,:;:. "s such, the said maritime lien has priority o&er the said mortgage lien. P61L,A<C8R 51<A<C*, 1<C. A<+ 41C*<T* 61I8<, JR. vs. C8.RT 85 APP*ALS, T6* 68<8RA,L* +*PART3*<T 85 A;RAR1A< R*58R3 A+J.+1CAT18< ,8AR+ (+ARA,#, AL5R*+8 PAR*, PA,L8 ;ALA<; an& A3A+8 41* (;.R. <o. " 95> , J%ne /, !!!# Se'transA Rig)t o( Re&e0ption )epublic "ct 0o. ?H99, Section ,2, pro&ides as follo!s: K n case the landholding is sold to a third person !ithout the kno!ledge of the agricultural lessee, the latter shall ha&e the right to redeem the same at a reasonable price and consideration. Pro&ided, that the entire landholding sold must be redeemed. Pro&ided further, that !here there are t!o or more agricultural lessees, each shall be entitled to said right of redemption only to the e4tent of the area actually culti&ated by him. The right of redemption under this section may be e4ercised !ithin t!o +2- years from the registration of the sale and shall ha&e priority o&er any other right of legal redemption.K n this case, the certificate of sale of the sub1ect property, !hich !as sold at public auction, !as registered !ith the )egister of 5eeds of Pampanga on 3uly ?,, ,:H>. The t!o7 year redemption period thus e4pired on 3uly ?,, ,:H;. The complaint for redemption !as filed
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by respondents only on 3uly ,9, ,::2, fi&e +>- years after e4piration of the redemption period prescribed by la!. 0onetheless, pri&ate respondents may continue in possession and en1oyment of the land in question as legitimate tenants because the right of tenancy attaches to the landholding by operation of la!. The leasehold relation is not e4tinguished by the alienation or transfer of the legal possession of the landholding. SPS. 8<; v. CA (;R. <o. " "494, J%ne C, !!!.# Se'%rities Transa'tionsA 3ortgage, 5ore'los%re "s a rule, any question regarding the &alidity of the mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a !rit of possession. )egardless of !hether or not there is a pending suit for annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a !rit of possession, !ithout pre1udice of course to the e&entual outcome of said case. %ence, an in1unction to prohibit the issuance of !rit of possession is entirely out of place. *astern Ass%ran'e an& S%rety Corporation v. CA [3 Rate o( Legal 1nterest SCRA >3 (Jan. "C, !!!#$
Facts: Pri&ate )espondent Tan insured his building in 5umaguete against fire !ith petitioner 'astern "ssurance +'"SC/-. n ,:H,, the building !as destroyed by fire. Tan*s claim for indemnity !as refused and therefore he filed a complaint for breach of contract !ith damages. The )TC order '"SC/ to pay Tan the sum of the insurance policy plus legal rate of interest from 3une 2O until fully paid. The C" affirmed the decision. 0o further appeal !as taken and the same became final and e4ecutory on "ug, 2> ,::?. '"SC/ thereafter tendered the full amount of the policy plus interest of OI per annum from 3une ,:H, to 3uly ,::?. Tan refused the accept on the ground that the legal rate of interest is ,2I. '"SC/ filed !ith the )TC to fi4 the legal rate of interest. The )TC issued a resolution fi4ing it at ,2I. The C" set the interest at OI from 3une 2O, ,:H, to "ug. 29,,::? and ,2I from "ug. 2>, ,::? until money 1udgment is fully paid. ssue: .hat is the legal rate of interest for money 1udgmentsM %eld: 0n Eastern S'ippin& Line v CA the Court held +at pp. :>7:;K . .ith regard particularly to an a!ard of interest in the concept of actual and compensatory damages, the rate of interest, as !ell as the accrual thereof, is imposed, as follo!s: ,. .hen 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 !hich may ha&e been stipulated in !riting. Furthermore, the interest due shall itself earn legal interest from the time it is 1udicially demanded. n the absence of stipulation, the rate of interest shall be ,2 per annum to be computed from default, i.e., from 1udicial or e4tra1udicial demand under and sub1ect to the pro&isions of "rticle ,,O: of the Ci&il Code. 2. .hen an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages a!arded may be imposed at the discretion of the court at the rate of O per annum. 0o interest, ho!e&er, shall be ad1udged on unliquidated claims or damages e4cept !hen or until the demand can be established !ith reasonable certainty. "ccordingly, !here the demand is established !ith reasonable certainty, the interest shall begin to run from the time the claim is made 1udicially or e4tra1udicially +"rt. ,,O:, Ci&il Code- but !hen 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 1udgment of the court is made +at !hich time the quantification of damages may be deemed to ha&e been reasonably ascertained-. The actual base for the computation of legal interest shall, in any case, be on the amount finally ad1udged. ?. .hen the 1udgment of the court a!arding a sum of money becomes final and e4ecutory, the rate of legal interest, !hether the case falls under paragraph , or paragraph 2, abo&e, shall be ,2 per annum from such finality until its satisfaction, this interim period being deemed to be by then an equi&alent to a forbearance of credit This case falls under paragraph ?. .hen the 1udgment a!arding a sum of money becomes final and e4ecutory, the monetary a!ard shall earn interest at ,2I per annum from
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the date of such finality until its satisfaction, regardless of !hether the case in&ol&es a loan or forbearance of money. The reason is that this interim period is deemed to be by then equi&alent to a forbearance of credit 1999 PAC18<AR1A ,AHL8< v. CA & L*8<1LA T83ACR.I (A%g%st "999# Civil LaB= Cre&it Transa'tions t is petitioner*s contention that e&en though she is a guarantor under the terms of the P0, she is not liable because pri&ate respondent did not e4haust the property of the principal debtor and has not resorted to all the legal remedies by la! against the debtor. Petitioner is in&oking the benefit of e4cussion pursuant to "rt 2C>H of the CC !hich pro&ides that the guarantor cannot be compelled to pay the creditor unless the latter has e4hausted 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 ad1udicated so that in the case at bar, it !as held that it !as premature to determine !hether the petitioner is liable as a guarantor and !hether she is entitled to such concomitant rights since the most basic prerequisite is !anting 6 that is, no 1udgement !as first obtained against the principal debtor. .<18< ,A<E v CA & 5*R31<A & R*H<AL+8 +AR18 (A%g%st "999# Civil LaB= Lis Pen&ens= Real *state 3ortgage The buyer in a foreclosure sale becomes the absolute o!ner of the property purchased if it is not redeemed during the period of , 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 fa&or of the purchaser becomes ministerial upon the )5. %o!e&er, !ith the main action for recon&eyance pending before the )TC, the notice of lis pendens , !hich despite consolidation remains annotated on the buyer*s TCT sub1ect to the outcome of the litigation, sufficiently protects pri&ate respondent*s interest o&er the property. " transferee pendente lite stands e4actly in the shoes of the transferor. PA3*CA @88+ TR*AT3*<T PLA<T et al. v. CA (J%ly "999# Civil LaB= C)attel 3ortgage The effects of foreclosure under the Chattel (ortgage La! run inconsistent !ith those of pledge under "rt 2,,>. .hereas, in pledge, the sale of the thing pledged e4tinguishes the entire principal obligation, such that the pledgor may no longer reco&er proceeds of the sale in e4cess of the amount of the principal obligation, Sec ,9 of the Chattel (ortgage La! e4pressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs. Since the Chattel (ortgage La! bares the creditor7mortgagee from retaining the e4cess of the sale proceeds there is a corollary obligation on the part of the debtor7mortgagee to pay the deficiency in case of a reduction in the price at public auction. ,%s%ego vs. CA [3!4 SCRA 4>3 (3ar') "" "999#$ PoBer o( 3onetory ,oar& Facts: The ,Oth regular e4amination of the books and records of P"L 'mployees Sa&ings and Loan "ssociation +P'S"L"- !as conducted by a team of C$ '4aminers. Se&eral irregularities !ere found to ha&e been committed by the P'S"L" officers. %ence, C$ sent a letter to petitioners for them to be present at a meeting specifically for the purpose of in&estigating said anomalies. Petitioners did not respond. %ence, the (onetary $oard adopted a resolution including the names of the officers of P'S"L" in the !atchlist to pre&ent them from holding responsible positions in any institution under C$ super&ision. Petitioners filed a petition for in1unction against the ($ in order to pre&ent their names from being added in the said !atchlist. )TC issued the T)/. The ($ appealed to the C" !hich re&ersed )TC. %ence, this petition for certiorari !ith the SC. Petitioners contend that the ($ resolution !as null and &oid for being &iolati&e of their right to due process by imposing administrati&e sanctions !here the ($ is not &ested !ith
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authority to disqualify persons from occupying positions in institutions under the super&ision of C$. ssue: .hether or not the ($ resolution !as null and &oid. %eld: 0/. The C$, through the ($, is the go&ernment agency charged !ith the responsibility of administering the monetary, banking and credit system of the country and is granted the po!er of super&ision and e4amination o&er banks and non7bank financial institutions performing quasi7banking functions of !hich sa&ings and loan associations, such as P'S"L", form part of. The special la! go&erning sa&ings and loan associations is ).". ?;;:, the Sa&ings and Loan "ssociation "ct. Said la! authori8es the ($ to conduct regular yearly e4aminations of the books and records of sa&ings and loan associations, to suspend a sa&ings and loan association for &iolation of la!, to decide any contro&ersy o&er the obligations and duties of directors and officers, and to take remedial measures. %ence, the C$, through the ($, is empo!ered to conduct in&estigations and e4amine the records of sa&ings and loan associations. f any irregularity is disco&ered in the process, the ($ may impose appropriate sanctions, such as suspending the offender from holding office or from being employed !ith the C$, or placing the names of the offenders in a !atchlist. Tio0i'o vs. CA [3!4 SCRA "/ (3ar') 4 "999#$ Constit%tionality o( Tr%st Re'eipts LaB Facts: Tiomico opened a Letter of Credit !ith $P for V>,OCC to be used for the importation of 2 units of forklifts and a truck. <pon the maturity of the trust receipt, he made a partial payment, lea&ing a balance of V9,;;C. Failing to pay the said amount, he !as accused of a &iolation of P5 ,,>, other!ise kno!n as the Trust )eceipts La! for failure to remit back to $P the proceeds of the sale of the forklifts or surrender said machineries if not sold. Tiomico entered a plea of not guilty. )TC found him guilty. %ence, this petition for re&ie! !ith SC. ssue: .hether or not the Trust )eceipts La! &iolates the constitutional proscription against imprisonment for non7payment of debts. %eld: 0o. P5 ,,> is a declaration by the legislati&e authority that, as a matter of public policy, the failure of a person to turn o&er the proceeds of the sale of goods co&ered 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. t is !ithin the authority of Congress to proscribe certain acts deemed pernicious and inimical to public !elfare. "cts mala in se are not the only acts that the la! can punish. "n act may not be considered by society as inherently !rong, hence, not malum in se, but because of the harm that it inflicts on the community, it can be outla!ed and criminally punished as malum prohibitum. The State can do this in the e4ercise of its police po!er. n fine, P5 ,,> is a &alid e4ercise of police po!er and is not repugnant to the constitutional pro&ision of non7imprisonment for non7payment of debt. The Trust )eceipts La! punishes the dishonesty and abuse of confidence in the handling of money or goods to the pre1udice of another regardless of !hether the latter is the o!ner or not. The la! does not seek to enforce payment of a loan. Thus, there can be no &iolation of the right against imprisonment for non7payment of a debt. 4AL38<T*, *T AL 4 CA. P<,, *T AL. (5e2. "C, "999# *Dtra9%&i'ial 5ore'los%reA Re?%ire0entsA 1na&e?%a'y o( t)e Pri'e, Re&e0ptionA *stoppelA 3ergerA Pa't%0 Co00issori%0 nadequacy of price is of no moment !hen there is a right to redeem for the reason that the 1udgment debtor has al!ays the chance to redeem and reacquire the property. n fact, the property may be sold for less than its fair market &alue precisely because the lesser the price, the easier for the o!ner to effect a redemption. Foreclosure sale conducted on a holiday is &alid. Since the la! used the !ord B("=F, it is merely discretionary and cannot be gi&en a probati&e meaning. The act of asking for an e4tension of time to redeem foreclosed properties estops one from impugning the foreclosure sale.7 f a party in interest enters into a la!ful agreement, stipulation, compromise or arrangement calculated to benefit him in connection !ith a mortgage
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foreclosure sale, he ine&itably affirms thereby the &alidity, force and effect of the sale. Similarly, a party cannot later on rely upon the supposed defects of the sale. (ergerG requirements.7 +a- merger of the characters of the creditor and debtor must be in the same personG +b- it must take place in the person of the principal creditor or principal debtorG and +c- it must be complete and definite. There is merger !hen the mortgagee purchases the foreclosed properties on !hich it had another subsisting mortgage credit.7 %ere, merger took place in the person of P0$, the principal creditor. The merger !as brought about !hen during the auction sale, P0$ purchased the properties on !hich it had another subsisting mortgage credit. The t!o loans referred to are separate and distinct and the mere allegation of by petitioners that said loans constitute a single indi&isible obligation is !ithout e&idence. Pactum commissorium is not present !hen there is foreclosure of the mortgage.7 PC takes place !hen in a mortgage contract, it is stipulated that the o!nership of the property !ould automatically pass to the &endee in case no redemption is made !ithin a gi&en period, this enabling the mortgagee to acquire o!nership of the mortgaged property !ithout need of foreclosure. T is not so in the present case !here there !as foreclosure of the mortgage. Lalid title passes to the &endee despite the e4istence of an annotated unforeclosed mortgage. 1998 J%e7on +evelop0ent ,an- vs. CA [3!! SCRA !/ (+e' "/ "99C#$ Penalty C)arges Facts: Que8on 5e&elopment $ank +Q5$- and Construction Ser&ices of "ustralia7Phils nc. +C/0S"P% L- entered into a loan agreement by !hich Q5$ granted C/0S"P% L loans in the amount of P9:C,CCC and P9,>,CCC. C/0S"P% L e4ecuted 2 promissory notes accordingly. For failure to pay, Q5$ filed a case for reco&ery !ith the )TC of (akati. )TC ad1udged in fa&or of Q5$ ordering C/0S"P% L to pay the sum of PH>C,CCC !ith 9HI interest. C/0S"P% L appealed to the C". C" modified )TC*s 1udgment ordering C/0S"P% L to pay P:C>,CCC !ith ,9I interest plus a penalty of ?OI per annum. C/0S"P% L filed a motion for reconsideration. C" modified its decision absol&ing C/0S"P% L from paying the penalty of ?OI per annum. %ence, this petition for re&ie! on certiorari filed by Q5$ alleging that the promissory notes clearly stipulate the payment of penalty charges in the e&ent of failure of the borro!ers to pay the notes on maturity and that C/0S"P% L fully understood this. To support this, Q5$ sho!ed a letter !ritten by C/0S"P% L requesting Q5$ to !ai&e the penalty charges. C/0S"P% L, on the other hand, claims that the penalty charges only apply in the e&ent the amounts of the loan !ere sub1ect to amorti8ations. ssue: .hether the penalty charges are applicable to the amounts stated in the promissory notes. %eld: 0/. The sub1ect promissory notes !ere on a standard form used by Q5$. n these instruments, there are stipulations regarding amorti8ations although the loans in this case !ere payable in lump sums and that the loan agreements did not pro&ide for them much less for the payment by the borro!er of penalty charges. Clearly, the stipulations regarding penalty charges ha&e no application to the loans in this case !hich are payable in lump sum. .ith regard to the !ai&er, SC held that C/0S"P% L !as only mistaken concerning a question of la!, and that this cannot be the basis of a finding of liability. 3e&el vs. CA [ 99 SCRA 4C" (<ov > "99C#$ .s%ry LaB Facts: (edel obtained se&eral loans from Non8ales totalling P>CC,CCC. These !ere e&idenced by se&eral promissory notes agreeing to an interest rate of >.>I per month !ith additional ser&ice charge of 2I per annum, and penalty charge of ,I per month.. /n maturity, (edel failed to pay their indebtedness. %ence, Non8ales filed !ith the )TC of $ulacan a complaint for collection of the full amount of the loan. )TC declared that the promissory notes !ere genuine, ho!e&er, it ruled that although the <sury La! had been repealed, the interest charged by Non8ales on the loans !as
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unconscionable. %ence, )TC applied the legal rate of interest for loan of money, goods or credit of ,2I per annum. C" re&ersed the ruling of the )TC holding that the <sury La! had become legally ine4istent. %ence, this petition for re&ie! on certiorari. ssue: .hether or not the interest rate stipulated upon !as &alid. %eld: 0/. SC held that the stipulated rate of interest at >.>I per month on the P>CC,CCC loan !as e4cessi&e. %o!e&er, it could not consider the rate BusuriousF because C$ Circular 0o. :C> has e4pressly remo&ed the interest ceilings prescribed by the <sury La! and that said la! is no! legally ine4istent. C$ Circular :C> did not repeal nor in any !ay amend the <sury La! but simply suspended the latter*s effecti&ity. " C$ Circular cannot repeal a la!. /nly a la! can repeal another la!. $y &irtue of this circular, the <sury La! has been rendered ineffecti&e. nterest can no be charged as lender and borro!er may agree upon. 0e&ertheless, SC held that the interest of >.>I per month, or OOI per annum, stipulated upon by the parties in the promissory note !as unconscionable, and hence, contrary to morals, if not against the la!. The stipulation is &oid. The courts shall reduce equitably liquidated damages, !hether intended as an indemnity or a penalty if they are iniquitous or unconscionable. SC ordered that the interest of ,2I per annum and additional ,I a month penalty charge as liquidated damages reasonable. A. 5ran'is'o Realty an& +evelop0ent Corp. vs. CA [ 9C SCRA 349 (8't 3! "99C#$ Pa't%0 Co00issori%0 Facts: ". Francisco )ealty granted a loan of P;.> ( to spouses 3a&illonar, in consideration of !hich, the latter e4ecuted a promissory note, a real estate mortgage o&er a certain property, and a deed of sale of said mortgaged property in fa&or of ". Francisco. <pon maturity, 3a&illonar spouses failed to pay, and as a consequence, ". Francisco registered the sale of the mortgaged property, for !hich a ne! TCT !as issued. ". Francisco demanded possession of the mortgaged realty. Spouses refused to &acate. %ence, ". Francisco filed a case for possession before the )TC. The spouses admitted that they o!ed money in fa&or of ". Francisco but they also alleged that it !as not their intention to sell the realty as the deed of sale e4ecuted by them !as merely an additional security for the payment of their loan. )TC ad1udged in fa&or of ". Francisco. /n appeal, C" re&ersed )TC decision and dismissed the complaint against the spouses holding that the deed of sale !as &oid, being in the nature of a pactum commissorium prohibited by la!. %ence, this petition !ith the SC. ssue: .hether or not the deed of sale e4ecuted by the spouses !as &oid, being in the nature of pactum commissorium. %eld: =es. "rt. 2CHH of the Ci&il Code pro&ides that the creditor cannot appropriate the things gi&en by !ay of pledge or mortgage, or dispose of them. "ny stipulation to the contrary is &oid. .hat is en&isioned by this article is a pro&ision in the deed of mortgage pro&iding for the automatic con&eyance of the mortgaged property in case of the failure of the debtor to pay the loan. " pactum commissorium is a forfeiture clause in a deed of mortgage. The proscribed stipulation of automatic con&eyance must be found in the mortgage deed itself. n the case at bar, the stipulations in the promissory note pro&ide that, upon failure of spouses to pay interest, o!nership of the property !ould be automatically transferred to ". Francisco and the deed of sale in its fa&or !ould be registered. These stipulations are in substance a pactum commissorium. They embody the t!o elements of pactum commissorium, to !it: +,- that there should be a pledge or mortgage !herein a property is pledged or mortgaged by !ay of security for the payment of the principal obligationG +2- that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the e&ent of non7payment of the principal obligation !ithin the stipulated period. *0pire 1ns%ran'e Co0pany vs. <LRC [ 94 SCRA /3 (A%g "4 "99C#$ Lia2ility o( a S%rety
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Facts: "ndal applied !ith N#( Phils. for an o&erseas employment as a domestic helper in Saudi "rabia. She !as hired for a term of 2 years. <pon !orking for 2 years, she !as repatriated. <pon her repatriation, she brought a complaint before the P/'" for illegal dismissal, non7payment and underpayment of salaries. mpleaded in the complaint !as 'mpire nsurance as surety of N#(. 'mpire nsurance Company theori8ed that "ndal !as !ithout any cause of action against it for the alleged reason that the liability of its principal, N#( had not been established. Further, it argued that its liability, if any, for the money claims sued upon !as merely subsidiary. N#( contends that "ndal !as not illegally dismissed, but that she abandoned her 1ob. P/'" ad1udged in fa&or of "ndal ordering N#( to pay the salaries due "ndal. 'mpire appealed the case to the 0L)C. 0L)C affirmed in toto the decision of the P/'". %ence, this petition !ith the SC. ssue: .hether or not 0L)C erred in ad1udging 'mpire 1ointly liable !ith N#( for the payment of "ndal*s monetary claims. %eld: 0/. 'mpire is solidarily liable !ith its principal, N#(. Suretyship is a contractual relation resulting from an agreement !hereby one person, the surety, engages to be ans!erable for the debt, default or miscarriage of another, kno!n as the principal. .here the surety bound itself solidarily !ith the principal obligor, the former is so dependent on the principal debtor such that the surety is considered in la! as being the same party as the debtor in relation to !hate&er is ad1udged touching the obligation of the latter, and their liabilities are inter!o&en 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. Li0 Tay vs. CA [ 93 SCRA /34 (A%g 5 "99C#$ Contra't o( Ple&ge Facts: Sy Nuiok and Sy Lim secured a loan from Lim Tay in the amount of P9C,CCC. This !as secured by a contract of pledge !hereby the former pledged their ?CC shares of stock each in No Fay # Company to the latter. %o!e&er, they failed to pay their respecti&e loans. %ence, Lim Tay filed a petition for mandamus against No Fay # Company !ith the S'C praying that an order be issued directing the corporate secretary of the said corporation to register the stock transfers and issue ne! certificates in fa&or of Lim Tay. No Fay # Company filed its ans!er contending that S'C had no 1urisdiction to entertain the complaint on the ground that since Lim Tay !as not a stockholder of the company, no intra corporate contro&ersy took placeG and furthermore, that the default of payment of Sy Nuiok and Sy Lim did not automatically &est in Lim Tay the o!nership of the pledged shares. S'C dismissed the complaint. /n appeal to the C", it affirmed S'C*s decision. %ence, this petition for certiorari !ith the SC. ssue: .hether or not S'C had 1urisdiction. %eld: 0o. The registration of shares in a stockholder*s name, the issuance of stock certificates, and the right to recei&e di&idends !hich pertain to the said shares are all rights that flo! from o!nership. The determination of !hether or not a shareholder is entitled to e4ercise the abo&e mentioned rights falls !ithin the 1urisdiction of the S'C. %o!e&er, if o!nership of the shares is not clearly established and is still unresol&ed at the time the action for mandamus is filed, then 1urisdiction lies !ith the regular courts. n the case at bar, reading into the contract of pledge, the stipulation sho!s that Lim Tay !as merely authori8ed to foreclose the pledge upon maturity of the loans, not to o!n them. Such foreclosure !as not automatic, for it must be done in a public or pri&ate sale. 0o!here !as it mentioned that he e4ercised his right of foreclosure. %ence, his status !as still a mere pledgee, and under ci&il la!, this does not entitle him to o!nership of the shares of stock in question. P<, vs. Sayo, Jr. [ 9 SCRA ! (J%ly 9 "99C#$ @are)o%se Re'eipts LaB, @are)o%se0anKs Lien Facts: 0oah*s "rk Sugar )efinery issued se&eral !arehouse receipts co&ering sugar deposited by )0S (erchandising and St. Therese (erchandising. Subsequently, these same receipts !ere endorsed to )amos and Xoleta. The latter then used the receipts as security for t!o loan agreements !ith P0$, thus endorsing them !ith said bank. .hen )amos and Xoleta could not
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pay their loan to the bank, P0$ demanded deli&ery of the sugar stocks co&ered by the receipts from 0oahJ* "rk Sugar )efinery. 0oah refused to comply !ith the demand alleging o!nership of the sugar. t alleged that the o!ner of 0oah, Looyuko, entered into an agreement !ith )0S and St. Therese (erchandising to sell the sugar indicated in the !arehouse receipts stored in 0oah for an amount of PO?,CCC,CCC. Checks !ere issued but they !ere dishonored for being dra!n against insufficient funds. %ence, P0$ filed a complaint !ith the )TC. )TC dismissed said complaint. /n appeal to the SC by !ay of petition for re&ie! on certiorari, SC ordered 0oah and its o!ner, Looyuko, to deli&er to P0$ the sugar stocks co&ered by the !arehouse receipts in contro&ersy. %o!e&er, 0oah filed an /mnibus (otion seeking deferment of the 1udgment until it !as heard on its !arehouseman*s lien. )TC granted the order and e&idence !as recei&ed in support thereof. )TC ad1udged that there e4isted a &alid lien in fa&or of 0oah, and accordingly, e4ecution of the 1udgment against 0oah should be stayed until the full amount of 0oah*s lien shall ha&e been satisfied. P0$ then filed certiorari proceedings before the SC. SC held that !hile P0$ !as entitled to the sugar stocks as endorsee of the receipts, deli&ery to it shall only be effected upon payment of the storage fees. SC further ruled that imperati&e is the right of the !arehouseman to demand payment of his lien because he loses his lien upon goods by surrendering possession thereof. )TC 3udge Sayo, 3r. allo!ed a !rit of e4ecution in fa&or of 0oah to collect on its !arehouseman*s lien against P0$. %ence, this certiorari proceeding before the SC. ssue: +,- .hether or not P0$ is liable for storage fees. +2- f yes, !hat is the duration of time the right of P0$ o&er the goods may be sub1ect to the lienM %eld: +,- ='S. P0$ contends that it !as a mere pledgee as the receipts !ere used to secure t!o loans it granted. SC agreed !ith this and held that the indorsement and deli&ery of the receipts by )amos and Xoleta to P0$ !as not to con&ey title to or o!nership of the goods but to secure the loans by !ay of pledge. The indorsement of the receipts to perfect the pledge merely constituted a symbolical or constructi&e deli&ery of the possession of the thing thus encumbered. The creditor, in a contract of real security, like pledge, cannot appropriate !ithout foreclosure the things gi&en by !ay of pledge. "ny stipulation to the contrary is null and &oid for being pactum commissorio. The la! requires foreclosure in order to allo! a transfer of title of the goods gi&en by !ay of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the o!ner of the goods. %o!e&er, SC held that the !arehouseman ne&ertheless is entitled to his lien that attaches to the goods in&okable against anyone !ho claims a right of possession thereon. +2- SC held that !here a &alid demand by the la!ful holder of the receipts for the deli&ery of the goods is refused by the !arehouseman, despite the absence of a la!ful e4cuse pro&ided by the la! itself, the !arehouseman*s lien is thereafter concomitantly lost. "s to !hat the la! deems a &alid demand, Section H of the .arehouse )eceipts La! enumerates !hat must accompany a demand. SC held that regrettably, the factual settings do not sufficiently indicate !hether the demand to obtain possession of the goods complied !ith Sec. H. The presumption, ne&ertheless, !ould be that the la! !as complied !ith. /n the other hand, it !ould appear that the refusal of 0oah to deli&er the goods !as not anchored on a &alid e4cuse, i.e., non7 satisfaction of the lien o&er the goods, but on an ad&erse claim of o!nership. <nder the circumstances, this hardly qualified as a &alid, legal e4cuse. The loss of the lien, ho!e&er, does not necessarily mean the e4tinguishment of the obligation to pay the !arehousing fees and charges !hich continues to be a personal liability of the o!ners, i.e., the pledgors, not the pledgee, in this case. $ut e&en as to the o!ners7pledgors, the !arehouseman fees and charges ha&e ceased to accrue from the date of the re1ection by 0oah to heed the la!ful demand by P0$ for the release of the goods. %ence, the time from !hich the fees and charges should be made payable is from the time 0oah refused to heed P0$*s demand for deli&ery of the sugar stocks and in no e&ent beyond the &alue of the credit in fa&or of the pledgee since it is basic that, in foreclosures, the buyer does not assume the obligations of the pledgor to his other creditors e&en !hile such buyer acquires title o&er the goods less any e4isting preferred lien thereo&er. 1997
9,
+831<A+8R +. ,8R<ASAL, JR., Cler- o( Co%rt an& *D:8((i'io S)eri((, RTC 4alen7%ela v. +*P.TH S6*R155 JA13* T. 38<T*S, RTC 4alen7%ela, ,r. >5 (8'to2er "99># Civil LaB=*Dtra9%&i'ial (ore'los%re o( real estate 0ortgage Complainant alleged: +,- upon e4amining a petition for e4tra1udicial foreclosure, complainant reali8ed that the property in&ol&ed !as in Taytay, )i8al, hence he refused to issue a notice of sheriffJs saleG +2- respondent, together !ith a lady representati&e of a party, argued that pursuant to the P0 secured by the mortgage, the stipulated &enue of any legal action !ould be in Lalen8uelaG +?- complainant still refused to conduct the foreclosure sale pursuant to "ct 0o. ?,?>, T2G +9- that the party !ithdre! its petition for e4tra1udicial foreclosureG and +>- but respondent issued@falsified complainantJs signature on a notice of sheriffJs sale concerning the property, like!ise !as the publication falsified. )espondent categorically admitted all the accusations, but in&oked good faith. Nood faith is una&ailing. )espondent could not ha&e been una!are of the legal consequences of his act of effecting a notice of sheriffJs sale e&en after !ithdra!al of the petition for e4tra1udicial foreclosure. Further, the sale in Lalen8uela of a property in Taytay contra&ened "ct 0o. ?,?>, T2. %o!e&er, in &ie! of respondentJs plea of forgi&eness !hich appears sincere and proceeds from a &oluntary admission of charges U suspended for one +,- month !ithout pay. 61LAR18 T. +* L8S SA<T8S v. CA, *31L18 31LL*R, SR., et al. (Septe02er "99># Civil LaB=S%2rogationA Civil LaB & Co00er'ial LaB=3ortgages Petitioner sued pri&ate respondents to remo&e a cloud and to deli&er title. (iller !as petitioner*s business partner in the (S )ice (ill Co. +(S)(C-, !hile the other 2 pri&ate respondents !ere officials at (anphil n&estment Corp. Petitioner alleged that he and (iller borro!ed P9>C,CCC.CC from (anphil in consideration of !hich petitioner mortgaged his house and lotG and that out of the profits of (S)(C, (iller surreptitiously paid the loan from (anphil in full, but despite the fact that said payment e4tinguished the real estate mortgage, pri&ate respondents maliciously refused to return petitioner*s title. Petitioner contends that under his agreement !ith (iller, the latter is entitled to be repaid !hat the latter had ad&anced in petitioner*s behalf, and that o!nership of petitioner*s house and lot should not ha&e Bre&erted automaticallyF to (iller. Petitioner is under a misapprehension. The C" did not hold that by &irtue of (iller*s payment in full of the loan to (anphil, (iller automatically o!ned petitioner*s propertyG only that (iller succeded to (anphil*s rights as petitioner*s creditor under "rt. ,?C?, 0CC. The C" erred, ho!e&er, in holding that (iller cannot be compelled to return petitioner*s TCT until (iller has been repaid !hat he ad&anced in behalf of petitioner. t is undisputed that petitioner*s mortgage to (anphil annotated at the back of the TCT !as already cancelled in ,:H?, apparently upon payment of the loan. There is therefore no more mortgage to !hich the property co&ered by the TCT is sub1ect and therefore no basis for (iller*s refusal to return the TCT to petitioner. P*R5*CTA J.1<TA<1LLA v. CA & RC,C (Septe02er "99># Civil LaB & Co00er'ial LaB=3ortgages "n action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage, but !here on the four corners of the contract, the intent of the parties is manifest that the mortgage shall also ans!er for future loans, then the same is &alid and binds the parties. The amount stated in the mortgage bet!een petitioner and )C$C does not limit the amount for !hich it may stand as security considering that under the terms of the contract, the intent to secure future debts is apparent. t !ould ha&e been different if the mortgage contract here simply pro&ided that it !as intended only Kto secure the payment of the same and those that may hereafter be obtained the principal of all of !hich is hereby fi4ed at P9>,CCC...K =et the parties further stipulated Kas !ell as those that the (ortgagee may e4tend to the (ortgagor.K Thus the general rule that mortgage must be limited to the amount mentioned in the mortgage cannot be applied here. STAT* 1<4*ST3*<T 68.S* v. CA, S*C & P61L. ,L8831<; 31LLS (P,3# (A%g%st "99># Civil LaB=Pre(erren'e o( Cre&its n any rehabilitation@recei&ership proceeding !here claims of se&eral creditors shall ha&e to be resol&ed, "rt. 2292 applies !here a mortgaged piece of realty is in&ol&ed. 92
Petitioner*s motion filed !ith the S'C to declare and confirm the highest preference of petitioner*s first mortgage lien is premature. There may or may not e4ist claims enumerated in "rts. 2292 and 229? !hich shall be considered as mortgagees of the specific property in&ol&ed. "t best, this issue should be resol&ed in light of the rehabilitation plan appro&ed by the S'C. %ere, the foreclosure sale of the mortgaged property !as declared to be &oid, and petitioner*s claim !as accordingly referred to the S'C for determination of the preferences or priorities under the la! in the settlement of claims of firms under recei&ership or liquidation. There are no longer any pre&ious foreclosure proceedings to speak of. R8+R1;8 ,. S.P*<A v. J.+;* R8SAL18 ;. +* LA R8SA (RTJ:93:"!3", Jan. C, "99># Civil LaB & Co00er'ial LaB=*Dtra9%&i'ial (ore'los%re o( real estate 0ortgage .e ha&e ? different types of sales: an ordinary e4ecution sale +go&erned by )ule ?:-, a 1udicial foreclosure sale +)ule OH- and an e4tra1udicial forclosure sale +"ct 0o. ?,?>, as amended by "ct 0o. 9,,H-. This case in&ol&es the third type. f the main concern of respondent 1udge in holding in abeyance the auction sale in (anila scheduled on (ay 2O, ,::? !as to determine !hether or not &enue of the e4ecution sale !as improperly laid, he !ould ha&e easily been enlightened by referring to the correct la!, "ct 0o. ?,?>, TTs , and 2. %ere, the real property sub1ect of the sale is situated in Sta. Cru8, (anila, hence, in accordance !ith T2, the sale cannot be made outside of (anila. Further, the intention of the parties is reflected by the 5eed of )eal 'state (ortgage, that the foreclosure !ould be go&erned by "ct ?,?> and the sale !ould be held at the capital of the pro&ince !here the property !as located. )espondent 1udge, thus, had no &alid reason to entertain any doubt as to the propriety of the &enue of the auction sale in (anila. %e referred to the &enue stipulation in the Loan "greement, ho!e&er, to the effect that any action !ould be instituted in the (akati courts, then cited )ule 9 of the )ules re: &enue. "gain, !e reiterate that the la! in point is "ct 0o. ?,?>, a special la!, and not the general pro&isions of the )ules. Further, )ule 9 refers to actions +as defined by )ule 2, T,-, !hich an e4tra1udicial foreclosure is not. t is clear that the operati&e fact !hich con&erts a claim into an action or suit is the filing of the same !ith a court of 1ustice. +1a&ans v. 2islizenus, 92 Phil. HHC, HH2 D,:2CE- <nlike an action, an e4tra1udicial foreclosure of real estate mortgage is initiated by filing a petition !ith the office of !heriff of the pro&ince !here the sale is to be made. "nd if e&er the e4ecuti&e 1udge comes into the picture, it is only because he e4ercises administrati&e super&ision o&er the sheriff. .ritten stipulations as to &enue are either mandatory or permissi&e, and inquiry must be made as to !hether or not the agreement is restricti&e in the sense that the suit may be filed only in the place agreed upon. $ottom line: &enue stipulations in a contract, !hile &alid and enforceable, do not as a rule supersede the general rule set forth in )ule 9. n the absence of qualifying or restricti&e !ords, they should be considered merely as an agreement on additional forum, not as limiting &enue to the specified place. 1996 C61<A ,A<E1<; C8RP8RAT18<, et al. v. CA, et al. (;.R. <o. " ""5C, +e'. 5, "99/# Civil & Co00er'ial LaB=3ortgagesF t is !ell settled that mortgages gi&en to secure future ad&ancements or loans are &alid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for !hich 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 &alid !here 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 debtor7mortgagorJs property as security for the payment of money or the fulfillment of an obligation to ans!er the amount of indebtedness, in case of default payment. t is a settled rule that in a real estate mortgage !hen the obligation is not paid !hen due, the mortgagee has the right to foreclose the mortgage and to ha&e the property sei8ed and sold in &ie! of applying the proceeds to the payment of the obligation. .e find that the issuance of in1uncti&e relief by the trial court un1ustified. The function of the !rit is to preser&e the status +uo, and it may be issued only !hen there is a clear sho!ing that the right to be protected e4ists and the acts against !hich the !rit is to be directed are &iolati&e of the right. %ere, !e fail to see any reason !hy the foreclosure of the mortgages should be en1oined. /n the face of pri&ate respondentsJ clear admission that they !ere unable
9?
to settle their obligations !hich secured the mortgages, petitioners ha&e a clear right to foreclose, as pro&ided by la!. /n the other hand, if the mortgagee sues to collect, he !ai&es his mortgage lien. %e !ill ha&e no more priority o&er the mortgaged property. f the 1udgment in the action to collect is fa&orable to him, and it becomes final and e4ecutory, he can enforce the 1udgment by e4ecution. %e can e&en le&y e4ecution on the same mortgaged property, but he !ill not ha&e priority o&er the latter and there may be other creditors !ho ha&e better liens on the mortgagorJs properties. 58RT.<* 38T8RS v. 3*TR8P8L1TA< ,A<E & CA (;.R. <o. ""5!/C, <ove02er "99/# Civil LaB & Co00er'ial LaB=3ortgagesF eDtra9%&i'ial (ore'los%reF noti'eF " perusal of P.5. 0o. ,C;: and "ct ?,?> sho!s that they do not require that the ne!spaper !hich publishes 1udicial notices should be a daily ne!spaper. <nder the former, it is enough that the ne!spaper be a ne!spaper or periodical !hich is authori8ed by la! to publish and !hich !hich is regularly published for at least one year before the date of publication. 0or is there a requirement that the ne!spaper should ha&e the largest circulation in the place of publication. Personal notice in e4tra1udicial foreclosure is not necessary. T?, "ct 0o. ?,?>, as amended by "ct 0o. 9,,H +re: e4tra1udicail foreclosre of real estate mortgages-, requires only the posting of notice of sale in ? public places and publication of that notice in a nogc. t is clear that lack of personal notice to the mortgagor is not a ground to set aside the foreclosure sale. +citations omittedT?, "ct ?,?> merely requires that the notice of sale be posted for not less than 2C days in at least ? public places of the municipality or city !here the property is situated. The aforementioned places are certainly the public places contemplated by la!, as these are places !here people interested in purchasing real estate congregate. AC3* S68* C8RP. & C6.A PAC v. CA, PR8+.C*RS ,A<E, et al. (;.R. <o. "!35>/, A%g. , "99/# Civil LaB=3ortgages .ould it be &alid to ha&e a clause in a chattel mortgage that purports to like!ise e4tend its co&erage to obligations yet to be contracted or incurredM Contracts of security are either personal or real. n 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-. n the latter, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property 77 in pledge, the placing of a mo&able property in the possession of the creditorG in chattel mortgage, by e4ecution of the corresponding deed substantially in the form prescribed by la!G in real estate mortgage, by e4ecution of a public instrument encumbering the real property co&ered therebyG and in antichresis, by a !ritten instrument granting to the creditor the right to recei&e the fruits of an immo&able property !ith the obligation to apply such fruits to the payment of interest, if o!ing, and thereafter to the principal of his credit 77 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 e4tinguished proceeding from the accessory character + See 3la. Surety v. 4elayo, 2, SC)" >,>- of the agreement. "s the la! so puts it, once the obligation is complied !ith, then the contract of security becomes, ipso (acto null and &oid. +See T?, "ct ,>CH.hile a pledge, real estate mortgage or antichresis may e4ceptionally secure after7 incurred obligations so long as these future debts are accurately described + See 3ojica v. CA, 2C, SC)" >,;G Lim 5ulian v. Lutero, 9: Phil. ;C?-, a chattel mortgage, ho!e&er, can only co&er obligations e4isting at the time the mortgage is constituted. "lthough a promise e4pressed 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, ho!e&er, does not come into e4istence or arise until after a chattel mortgage agreement co&ering the ne!ly contracted debt is e4ecuted either by concluding a fresh chattel mortgage or by amending the old contract conformably !ith the form prescribed by the Chattel (ortgage La! +"ct 0o. ,>CH-. )efusal on the part of the borro!er to e4ecute the agreement so as to co&er the after7incurred obligation can constitute an act of default on the part of the borro!er of the financing agreement !hereon the promise is !ritten but, of course, the remedy of foreclosure can only co&er the debts e4tant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. " chattel mortgage must comply substantially !ith the form prescribed by "ct 0o. ,>CH. /ne requisite, under T>, is an affida&it of good faith. .hile it is not doubted that if such an
99
affida&it is not appended to the agreement, the chattel mortgage !ould still be &alid bet!een the parties +not against third persons acting in good faith D See 6 C v. 5ar+ue, O, Phil. 22:E-, the fact, ho!e&er, that the statute has pro&ided that the parties to the contract must e4ecute an oath makes it ob&ious that the debt referred to in the la! is a current, not an obligation that is yet merely contemplated. n the chattel mortgage here in&ol&ed, the only obligation specified in the chattel mortgage contract !as the P?,CCC,CCC.CC loan !hich petitioner corporation later fully paid, $y &irtue of T?, the payment of the obligation automatically rendered the chattel mortgage &oid or terminated. n 7el&ian Cat'olic 3issionaries v. 3a&allanes 6ress +9: Phil. O9;-: K" mortgage that contins a stipulation in regard to future ad&ances in the credit !ill take effect only from the date the same are made and not from the date of the mortgage.K +reiterated in 5aca v. Davao Lumber, ,,? SC)" ,C;- The significance of this ruling to the instant problem !ould be that since the ,:;H chattel mortgage had ceased to e4ist coincidentally !ith the full payment of the loan +being merely accessory in nature, it cannot e4ist independently of the principal obligation-, there no longer !as any chattel mortgage that could co&er the ne! loans that !ere concluded thereafter. ,A 51<A<C* v. CA & R*H*S (J%ly "99/# Civil LaB & Co00er'ial LaB=3ortgages " 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 mortgageeJs right of possession is conditioned upon the actual fact of default !hich itself may be contro&erted, the inclusion of other parties, like the debtor or mortgagor himself, may be required in order to allo! a full and conclusi&e determination of the case. .hen the mortgagee seeks a reple&in in order to effect the e&entual foreclosure of the mortgage, it is not only the e4istence of, but also the mortgagorJs default on, the chattel mortgage that, among other things, can properly uphold the right to reple&y the property. The burden to establish a &alid 1ustification for that action lies !ith the plaintiff. "n ad&erse possessor, !ho is not the mortgagor, cannot 1ust be depri&ed of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for reple&in. (ortgagee cannot maintain reple&in suit against a third person !ho is a possessor in good faith, especially !hile mortgagor not in default. ;ARC1A v. CA & S*C.R1TH ,A<E (S,TC# (J%ly "99/# Civil LaB & Co00er'ial LaB=Contra'ts, S%retys)ips, Tr%st Re'eipts, Contra'ts o( A&)esionA Privity The phrase Ksuch other obligationsK in the ndemnity "greement is &ague, equi&ocal and patently ambiguous. t is, therefore, sub1ect to interpretation. t is a !ell7stated legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resol&ed in fa&or of the surety. "mbiguous contracts are construed against the party !ho caused the ambiguity. /n the matter of petitionerJs liability for the deficiency balance under the S."P L/"0, the chattel mortgage e4ecuted bet!een 5ynetics and S$TC !as merely for additional security !hich did not alter, affect, or modify the terms and conditions of the ndemnity "greement e4ecuted bet!een Narcia and S$TC, e&en if, it must be admitted, the chattel mortgage !as entered into !ithout the kno!ledge of or notice to Narcia. %ence, Narcia, contrary to his submission, !as not released as surety by &irtue of e4ecution of the aforementioned chattel mortgage. Finally, it should be noted that the chattel mortgage !as entered into by 5ynetics and S$TC. Narcia !as not a party to the chattel mortgage nor !as he a!are of the contract or its pro&isions. t is a basic principle in la! that contracts can only bind those !ho had entered into it, and it cannot fa&or or pre1udice a third person. S*R41C*@1+* SP*C1AL1STS, 1<C. v. CA, R1CAR+8 TR1<1+A+ & *L1SA TR1<1+A+ (3ay "99/# Civil LaB=C)attel 3ortgage=1nterpretation o( Contra't The central issue is: !hether or not petitioner should ha&e applied the installment payments made by pri&ate respondents for the payment of the car to the payment of the insurance premiums !ithout prior notice to pri&ate respondents. .hile it is true that the Chattel (ortgage does not say that notice to the mortgagor of the rene!al of the insurance premium by the mortgagee is necessary, at the same time, there is no 9>
pro&ision that authori8es petitioner to apply the payments made to it for the payment of the chattel to the payment of the said premiums. Furthermore, e&en if the car !ere not co&ered !ith the proper insurance, there is nothing in the pro&isions of the Chattel (ortgage that authori8es petitioner to apply pre&ious payments for the car to the insurance. .hat it states is that petitioner is not obligated to con&ert any of the installments made by pri&ate respondents for the car to the payment for the rene!al of the insurance. Should it decide to do so, it has to send notice to pri&ate respondents !ho had already paid in full the principal indebtedness. ,86A<A< v. CA, L & R C8RP. an& SP8.S*S CA,R*RA (April "99/# Civil LaB=*Dtra:9%&i'ial (ore'los%re o( 0ortgageA S)eri((Gs Certi(i'ate o( Posting not in&ispensa2le Personal notice on the mortgagor is not required under "ct 0o. ?,?>. "ll that is required is that notice be gi&en by posting notices of the sale for not less than t!enty +2C- days in at least three +?- public places of the municipality or city !here the property is situated, and publication once a !eek for at least three +?- consecuti&e !eeks in a ne!spaper of general circulation in the municipality or city, if the property is !orth more than four hundred pesos. "lso, a certificate of posting is not statutorily required, much less considered indispensable, for the &alidity of a foreclosure sale either under "ct ?,?>. )ather, it is significant only in the matter of pro&ing compliance !ith the required posting of notice. "nd although the SC said in Tambuntin& that 8t'e presumption o( compliance ,it' o((icial duty 'as been rebutted by t'e (ailure to present proo( o( postin& and publication o( t'e notice o( sale ,K this cannot be construed to mean that a certificate of posting is indispensable !ithout !hich a questioned foreclosure sale is automatically doomed as in&alid. For the fact alone that there is no certificate of posting attached to the sheriffJs records is not sufficient to pro&e the lack of posting. n Tambuntin& the absence of the affida&it of publication !as considered fatal because no equally con&incing and competent proof of compliance !as offered to compensate for its non7presentation. n the case at bench, ho!e&er, although 5eputy Sheriff failed to present a certificate of posting because some records !ere lost !hen the sheriffJs office !as transferred he did declare under oath that he posted notices of the questioned sale. Such testimony suffices. P<, v. 68<. PR*S. J.+;* S* (April "99/# Co00er'ial LaB & Civil LaB=@are)o%se Re'eipts LaB Considering that petitioner does not deny the e4istence, &alidity and genuiness of the .arehouse )eceipts it cannot disclaim liability for the payment of the storage fees stipulated therein. "s contracts, the receipts must be respected by authority of "rticle ,,>: of the Ci&il Code. mperati&e is the right of the !arehouseman to demand payment of his lien at this 1uncture, because, in accordance !ith T2: of the .arehouse )eceipts La!, the !arehouseman loses his lien upon goods by surrendering possession thereof because a !arehousemanJs lien is possessory in nature. P61L1PP1<* ,A<E 85 C833.<1CAT18<S v. CA (5e2r%ary "99/# Se'trans, 3ortgages ,5istinction bet!een mortgages to secure future ad&ancements and mortgages o&er t!o specific amounts procured in a single instance. n the latter, Kan action to foreclose a mortgage must be limited to the amount mentioned in the mortgage.K 2K5ragnet clause:K a mortgage pro&ision specifically phrased to subsume all debts of past or future origin.K ?Scope of mortgage, does it include penalty chargesM " mortgage must sufficiently describe the debt sought to be secured, !hich description must not be such as to mislead or decei&e, and an obligation is not secured by a mortgage unless it comes fairly !ithin the terms of the mortgage. n this case, the mortgage contract pro&ides that it secures Knotes and other e&idences of indebtedness.K <nder the ejusdem &eneris 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.
9O
+,P v. CA (5e2r%ary "99/# Se'transA 3ortgageA P%2li' lan& The cru4 of this appeal thus lies in the basic issue of !hether the land in dispute could ha&e been &alidly mortgaged !hile still the sub1ect of a Free Patent "pplication !ith the go&ernment. .e hold that petitioner bank did not acquire &alid title o&er the land in dispute because it !as public land !hen mortgaged to the bank. .e cannot accept petitionerJs contention that the lot in dispute !as no longer public land !hen mortgaged to it since the /lidiana spouses had been in open, continuous, ad&erse and public possession thereof for more than ?C years. n 4isayan ealty v. 3eer +:O Phil. >,> D,:>>E- !e ruled that the appro&al of a sales application merely authori8ed the applicant to take possession of the land so that he could comply !ith the requirements prescribed by la! before a final patent could be issued in his fa&or. (ean!hile the go&ernment still remained the o!ner thereof, as in fact the application could still be canceled and the land a!arded to another applicant should it be sho!n that the legal requirements had not been complied !ith. .hat di&ests the go&ernment of title to the land is the issuance of the sales patent and its subsequent registration !ith the )egister of 5eeds. t is the registration and issuance of the certificate of title that segregates public lands from the mass of public domain and con&ert it into pri&ate property. + Dir. o( Lands v. De Luna, ,,C Phil.. 2H D,:OCE- Since the disputed lot !as still the sub1ect of a Free Patent "pplication !hen mortgaged to petitioner and no patent !as granted to the /lidiana spouses, said lot remained part of the public domain. .ith regard to the &alidity of the mortgaged contracts, "rt. ,CH> +2-, Ci&il Code, specifically requires that the pledgor or mortgagor be the absolute o!ner of the thing pledged or mortgaged. Thus, since the disputed property !as not o!ned by the /lidiana spouses !hen they mortgaged it to petitioner the contracts of mortgage and all their subsequent legal consequences are null and &oid. +See 4da. de 7autista v. 3arcos, ? SC)" 9?9 D,:O,E1998 CASTR8 v. CA (;.R. <o. 9>4!", +e'. /, "995# 3ortgages The issue is !hether a residential house, constructed by the lessee on a portion of the leased property, !hich, in turn, !as encumbered under a real estate mortgage by the lessor, can be rightly co&ered by a !rit of possession follo!ing the foreclosure sale of the mortgaged landM %'L5: 0/. The house o!ned by petitioners !as improperly included in the !rit of possession issued by the trial court. "rt. 2,2;, 0CC e4tends the effects of the real estate mortgage to accessions and accessories found on the hypothecated property !hen the secured obligation becomes due. The la! is predicated on an assumption that the o!nership of such acces ecurity, !hether real or personal, needs as an indispensable element thereof the o!nership by the pledgor or mortgagor of the property pledged or mortgaged. The rationale should be clear enough 77 in the e&ent of default on the secured obligation, the foreclosure sale of the property !ould naturally be the ne4t step that can e4pectedly follo!. " sale !ould result in the transmission of title to the buyer !hich is feasible only if the seller can be in a position to con&ey o!nership of the thing sold +"rt. ,9>H, 0CC-. t is to say, in the instant case, that a foreclosure !ould be ineffecti&e unless the mortgagor has title to the property to be foreclosed. t 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 pledgor7mortgagor sub1ect, ho!e&er, to the pro&isions of "rticle ,O;O of the Ci&il Code on its possible termination. 8L*A v. CA ( 4> SCRA >4, ;.R. 9"995# Civil LaBA 3ortgageA Pa't%0 Co00issori%0 "rticle ,OC2 of the 0CC, being remedial in nature, may be applied retroacti&ely to cases prior to the effecti&ity of the 0CC. .here, in a contract of sale !ith pacto de retro, the &endor remains in physical possession of the land sold as lessee or other!ise, the contract should be considered an equitable mortgage. .here the contract contains a stipulation that upon payment by the &endor of the purchase price !ithin a certain period the document shall become null and &oid and ha&e no legal force and effect, the purported sale should be considered a mortgage contract. '&en !hen a document appears on its face to be a sale !ith pacto de retro the o!ner of the property may pro&e that the contract is really a loan !ith mortgage by raising as an issue the 9;
fact that the document does not e4press the true intent and agreement of the parties, and parol e&idence then becomes competent and admissible to pro&e that the instrument !as merely gi&en as a security for the repayment of the loan. .H v. CA [ 4/ SCRA >!3 ("995 J%ly#$ Civil LaB=3ortgages n the case of an in&estment and financing company, ascertainment of the status and condition of properties offered to it as security for the loans it e4tends must be a standard and indispensable part of its operations. Surely, it cannot simply rely on an e4aminations of a Torrens certificate to determine !hat the sub1ect property looks like as its condition is not apparent in the document. SPS. J8S* & 6*R31<1A R8SAR18 v. CA Civil LaB= Tr%st Trust relations bet!een parties may either be e4press or implied. '4press trusts are created by the direct and positi&e acts if the parties, by some !riting or deed, or !ill, or by !ords e&idencing an intention to create a trust. mplied trusts are those !hich !ithout being e4press, are deducible from the nature of the transaction as matters of intent, or !hich are superinduced on the transaction by operation of la! as a matter of equity, independently of the particular intention of the parties. mplied trusts may either be resulting or constructi&e. )esulting trusts are based on the equitable doctrine that &aluable consideration and not legal title determines the equitable title or interest and presumed to ha&e been contemplated by the parties. They arise from the nature or circumstances of the consideration in&ol&ed in a transaction !hereby one person thereby becomes in&ested !ith legal title but is obligated in equity to hold his legal title for the benefit of another. /n the other hand, constructi&e trusts are created by the construction of equity in order to satisfy the demands of 1ustice and pre&ent un1ust enrichment.
INS2RANCE Ri7al S%rety & 1ns%ran'e Co0pany v. Co%rt o( Appeals [33/ SCRA " ( !!!#$ 1ns%ran'e Contra'tA 1nterpretation o( provisions Facts: Trans!orld Pnitting (ills +TP(- insured a four7span building and stocks !ith )i8al Surety. Fire broke out that gutted the four7span building and stocks in the ad1ourning t!o7span building. )i8al contended that the insurance policy only co&ered the four7span and the damage to the t!o7span and stocks therein are not co&ered. TP( theori8ed that the t!o7span !as not an anne4 as claimed by )i8al, but an integral part of the four7span, as stocks !as also stored in the t!o7span building. ssue: .as the damage to the t!o7span building compensable under the insurance policyM %eld: =es. $oth the trial and appellate court found that the t!o7span !as an integral portion of the building. "lso considering that the t!o7span !as already e4isting !hen the insurance policy !as contracted, )i8al should ha&e specifically e4cluded the t!o7span from the co&erage of the policy. "rticle ,?;; of the Ci&il Code: The interpretation of obscure !ords or stipulations in a contract shall not fa&ors the party !ho caused the obscurity. Thus, any doubt in the interpretation of the contract must be resol&ed in fa&or of the insured TP(. 3alayan 1ns%ran'e Corp vs. CA [ >! SCRA 4 (3ar') !, "99>#$ Arrest o( 4essel 2y Civil A%t)oritiesF Peril o( t)e Sea Facts: TPC (ktg. !as the o!ner@consignee of soya bean meal +insured !ith the (alayan nsurance- !hich !as loaded on board the &essel !hich, !hile docked in South "frica enroute to (anila, !as arrested and detained by the ci&il authorities pursuant to a la!suit on a question of its o!nership and possession. TPC notified (alayan about this and claimed on the insurance policy. (alayan refused to pay and posits that the arrest of the &essel by ci&il authorities on a question of o!nership !as an e4cepted risk under the marine insurance policies.
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ssue: .@0 the arrest is included in the phrase Kperils of the seaK. %eld: =es. $y !ay of a historical background, marine insurance de&eloped as an all7risk co&erage, using the phrase Kperils of the seaK to encompass the !ide and &aried range of risks that !ere co&ered. "dditionally, !here restricti&e pro&isions +in the insurance policies- are open to t!o interpretations, that !hich is most fa&orable to the insured is adopted. ndemnity and liability insurance policies are construed in accordance !ith the general rule of resol&ing any ambiguity therein in fa&or of the insured.
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INTELLECT2AL PROPERT: Joa?%in Jr. vs. +rilon [3! SCRA 5 (Jan C "999#$ <e'essity o( presentation o( 3aster Copy 5or0at not Copyrig)ta2le Facts: $3P is the holder@grantee of a Certificate of Copyright of 'oda and 3e, a dating game sho! aired from ,:;C7,:;;. n ,::,, !hile !atching TL, 3oaquin, president of $3P , sa! an episode of 0t9s a Date, produced by SL Productions. 3oaquin !rote SL a letter demanding the latter to stop airing 0t9s a Date, but since SL continued airing the sho!, 3oaquin filed an information for &iolation of P5 9:. n the meantime, SL successfully registered the first episode of 0t9s a Date and !as issued a certificate of copyright. <pon re&ie! of the 5epartment of 3ustice, the case !as dismissed in fa&or of SL. t contended that 3oaquin failed to establish the e4istence of probable cause due to his failure to present the copyrighted master &ideotape of 'oda and 3e. Furthermore, it ad1udged that $3P Js copyright co&ers only a specific episode of 'oda and 3e and that the formats or concepts of dating game sho!s are not co&ered by copyright protection under P5 9:. %ence, this petition !ith SC. ssues: +,- .hether or not the presentation of the master tape is necessary to establish probable cause. +2- .hether or not the format of 'oda and 3e is a product of ingenuity and skill and is thus entitled to copyright protection. %eld: +,- =es. The presentation of the master tapes of the copyrighted sho! !as necessary for the &alidity of search !arrants. The court cannot presume that duplicate or copied tapes !ere necessarily reproduced from master tapes that it o!ns. The in&estigating officer should ha&e the opportunity to compare the &ideo tapes of the t!o sho!s. (ere description by !ords of the general format of the t!o dating game sho!s is insufficient. The presentation of the master &ideotape in e&idence !as indispensable to the determination of the e4istence of probable cause. +2- 0o. The format of a sho! is not copyrightable. Sec. 2 of P5 9:, other!ise kno!n as the 5ecree on ntellectual Property, enumerates the classes of !ork entitled to copyright protection. The format or mechanics of a TL sho! is not included in the list of protected !orks. For this reason, the protection afforded by the la! cannot be e4tended to co&er them. Copyright, in the strict sense of the term, is purely a statutory right. t is a ne! or independent right granted by the statute, and not simply a pre7e4isting right regulated by the statute. $eing a statutory grant, the rights are only such as the statute confers, and may be obtained and en1oyed only !ith respect to the sub1ects and by the persons, and on terms and conditions specified in the statute. P5 9:, Sec. 2, in enumerating !hat are sub1ect to copyright, refers to finished !orks and not to concepts. The copyright does not e4tend to an idea, procedure, process, system, method of operation, concept, principle, or disco&ery, regardless of the form in !hich it is described, e4plained, illustrated, or embodied in such !ork. %o!e&er, $3P Js copyright co&ers audio7&isual recordings of each episode of 'oda and 3e, as falling !ithin the class of !orks mentioned in Sec. 2 of P5 9:, to !it: KCinematographic !orks and !orks produced by a process analogous to cinematography or any process for making audio7&isual recordings.K
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NEGOTIABLE INSTR2MENTS LAW 2001 P)ilippine Co00er'ial & 1nternational ,an- (PC1,# v. CA [35! SCRA 44/ (Jan. 9, !!"#$ Lia2ility o( +raBee ,an*((e'ts o( Crosse& C)e'-s +o'trine o( Co0parative <egligen'e Facts: Ford dre! # issued a crossed Citibank check in fa&or of the C ) as payment of percentage or manufacturer*s sales ta4. t !as deposited !ith PC $ # cleared by the Central $ank. <pon payment to Citibank, it !as paid to PC $ as collecting or depository bank. Proceeds ne&er found its !ay to the $ ) hence Ford !as compelled to make a second payment !@c the $ ) recei&ed. t !as later found that )i&era, the Neneral Ledger "ccountant of Ford recalled the Citibank check claiming error in assessing the ta4 due. .ith his instructions, PC $ replaced the check the 2 of its o!n (anager*s checks. "lleged members of a syndicate later deposited the 2 (C*s !ith the Pacific $anking Corp. Ford then filed a third7party complaint impleading P$C # )i&era 6 court dismissed complaint against P$C for lack of cause of action # that of )i&era since summons could not be ser&ed on him declaring him a Afugiti&e from 1ustice*. The trial court found PC $ # Citibank 1ointly # se&erally liable but Citibank !as later absol&ed by the C". Ford # PC $ no! appeal the decision. Later, 2 more Ford checks !ere &ictims of the same modus operandi, !ith the same banks and people in&ol&ed. t !as then found that )i&era, instead of deli&ering the same to the payee, passed the checks to a co7conspirator, Castro, a pro7manager of PC $. Conni&ing !ith 5ulay, "sst.(gr. at another PC $ branch, Castro opened a checking account for himself. Castro deposited a !orthless $ank of "merica check in the e4act amount as the Ford check # !hile this !orthless check !as coursed through PC $*s main office enroute to the Central $ank for clearing, replaced it !ith Ford*s, tampering documents to co&er the replacement. "s a result, the Ford check !as cleared by Citibank # the fictitious deposit account credited !ith the same amount of the Ford check. From this, Castro dre! &arious checks distributing the shares of other participating conspirators. )TC this time held Citibank, the dra!ee bank liable # absol&ed PC $. Ford # Citibank appealed to the C" claiming that PC $ !as clearly negligent !hen it failed to e4ercise diligence required to be e4ercised by a banking institution ssue: ./0 Ford has the right to reco&er from the collecting # the dra!ee banks the &alue of the checks intended as payment to the $ )M +a question of liability based on the degree of negligence among the parties concerned%eld: A((irmed. PC $ is declared solely responsible for the loss of the proceeds regarding the first case !hile Citibank # PC $ are held equally liable for the loss of the proceeds in the second case. The mere fact that the forgery !as committed by a dra!er7payor*s confidential employee, !ho by &irtue 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 dra!er7payor, in the absence of some circumstances raising estoppel against the dra!er. "lthough it appears that the employees of Ford initiated the transactions attributable to an organi8ed syndicate, their actions !ere not the pro4imate cause of encashing the checks payable to the C ). The degree of Ford*s negligence couldn*t be characteri8ed as the pro4imate cause of the in1ury to the parties. ts $o5 did not confirm the request of )i&era to recall the Citibank check. )i&era*s instruction to replace said check !ith PC $*s (anager*s check !as not in the ordinary course of business !@c could ha&e prompted PC $ to &alidate the same. 0ote too that these checks !ere crossed checks. The checks !ere apparently turned around by Ford*s employees, !ho !ere acting on their o!n personal capacity. The neglect of PC $ to &erify !hether )i&era*s letter requesting for replacement of the check sho!ed lack of care # prudence required. The relationship bet!een the payee or holder of commercial paper # the bank to !@c it is sent for collection is, in the absence of an agreement to the contrary, that of principal # agent. " bank !@c recei&es such paper for collection is the agent of the payee or holder. '&en assuming that the di&ersion of the amount of the check payable to the collecting bank in behalf
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of the designated payee may be allo!ed, still, it must be properly authori8ed by the payor or that the payor has clothed his agent !ith apparent authority to recei&e the proceeds of such check. Crossing of the check !ith BPayee*s "ccount /nlyF is a !arning that the check should be deposited only in the account of the payee. t is the collecting bank, PC $, !@c is duty bound to scrutini8e the check # kno! its depositors before it could make the clearing indorsement Ball prior indorsements and@or lack of indorsements guaranteedF " bank !@c cashes a check dra!n upon another bank !ithout requiring proof as to the 5 of persons presenting it or making inquiries !ith regard to them cannot hold the proceeds against the dra!ee !hen the proceeds of the check !ere after!ards di&erted to the hands of a third party. The dra!ee bank has a right to belie&e that the cashing bank@ collecting bank had, by usual in&estigation, satisfied itself of the authenticity of the negotiation of the checks. /ne !ho encashed a check !@c had been forged or di&erted and in turn recei&ed payment thereon from the dra!ee, is guilty of negligence !@c pro4imately contributed to the success of the fraud practiced on the dra!ee bank. The latter may reco&er from the holder the money paid on the check. Citibank should ha&e scrutini8ed the Citibank checks before paying the amount of the proceeds thereof to the collecting bank of the $ ). The clearing stamps at the back of the checks do not bear any initials. The fact that the dra!ee bank did not disco&er the irregularity seasonably constitutes negligence in carrying out the bank*s duty to its depositors. $anks are under an obligation to treat the accounts of its depositors !ith meticulous care, al!ays ha&ing in mind the fiduciary nature of their relationship. 5octrine of Comparati&e 0egligence: .here both the collecting # dra!ee banks failed in their respecti&e obligations # both !ere negligent in the selection # super&ision of their employees, both are equally liable for the loss of the proceeds of checks fraudulently encashed. " bank*s liability as obligor is not merely &icarious but primary, !herein the defense if e4ercise of due diligence in the selection # super&ision of its employees is of no moment. The statute of limitations begins to run !hen the bank gi&es the depositor notice of the payment, and an action upon a check is ordinarily go&erned by the statutory period applicable to instruments in !riting: ,C years from the time the right of action accrues 6 !hen the instrument !as issued # the corresponding check !as returned by the bank to its depositor. Ford*s cause of action to reco&er the amount of the check !as seasonably filed as it !as filed barely O years after. Ford is not completely blameless. Failure on the part of the depositor to e4amine its passbook, statements of account # cancelled checks # to gi&e notice !@in a reasonable time of any discrepancy !@c it may in the e4ercise of due care # diligence find therein 6 the contributory negligence of the plaintiff, ser&es to mitigate the banks* liability by reducing the a!ard of interest from ,2I per annum to OI per annum. Neneral rule: a bank is liable for the fraudulent acts or representations of an officer or agent acting !ithin the course # apparent scope of his employment or authority. (oreo&er, Sec.> of the Central $ank Circular 0o.>HC Series of ,:;; pro&ides that any theft affecting items in transit for clearing, shall be for account of the sending bank, PC $ in this case. '4tra: Sec.>> of the 0 L 6 !hen title is defecti&e: !hen he obtained the instrument or nay signature thereto, by fraud, duress, force # fear or other unla!ful means or for an illegal consideration or !hen he negotiates it in breach of faith or under circumstances amounting to fraud. 3en&o7a v. CA [J%ne 5, !!"$ Pro0issory <otes Facts:: 5anilo (endo8a o!ned a single proprietorship called "tlantic '4change Philippines. n ,:;H, this company !as granted by P0$ a >CC,CCC peso credit line and a ,,CCC,CCC peso Letter of Credit@Trust )eceipt +LC@T)- line. n ,:H,, he !rote a letter to P0$ requesting for a restructuring of his past accounts into a > year term loan and for an additional LC@T) line of 2( and ga&e some proposals changing the terms. Petitioner (endo8a claimed that )espondent P0$ found his proposal fa&orable and recommended the implementation of the agreement s as long as he submit a formal agreement and he sign t!o blank promissory notes. The petitioner complied !ith these requirements. The P0 !ere filled up !ith the amounts of 2( and ,( and for a period of t!o years, not fi&e. "lso, P0$ increased the rate of the interest from 2,I to ?2I pursuant to the escalation clauses contained therein.
>2
.hen petitioner failed to pay the P0*s !hen they fell due, respondent e4tra71udicially foreclosed on his mortgaged properties. Petitioner alleges that the foreclosure !as null and &oid since his loans !ere supposed to be restructured to > years pursuant to their &erbal agreement. Thus, the loan !as not yet due and demandable. "lso, he claims damages because the P0s !ere improperly filled out by P0$. Furthermore, he posits that the escalation clauses in the P0s !ere null and &oid. Petitioner argues that he submitted the requirements according to the instructions gi&en to him and that upon submission thereof, his proposed fi&e7year restructuring plan !as deemed automatically appro&ed by respondent P0$. %e then presented some letters to sho! the fa&orable response of P0$ bank to their proposal. ssue: ./0 the Promissory 0otes !ere improperly filled out. %eld: The P0s !ere not improperly filled out. Pri&ate transactions are presumed to be fair and regular. The burden of presenting e&idence to o&ercome this presumption falls upon petitioner. Considering that petitioner imputes a serious act of fraud on respondent P0$, !hich is a banking corporation, this court !ill not be satisfied !ith anything but the most con&incing e&idence. $esides, it could be gleaned from the record that the petitioner is an astute businessman !ho took care to reduce in !riting his business proposals to the respondent bank. t is unthinkable that the same person !ould commit the careless mistake of lea&ing his sub1ect t!o +2- promissory notes in blank in the hands of other persons. 2000 Ra&ioBealt) 5inan'e Co0pany v. +el Rosario [335 SCRA CC ( !!!#; @)ere pay0ent (or interest is not eDpressly provi&e& in t)e Pro0issory <ote. Facts: Spouses S e4ecuted and deli&ered a promissory note to )adio!ealth. The P@0 pro&ided for ,2 monthly installments, but did not indicate the date !hence such payment !ould commence and !hat date of the month payments shall be due. " late payment penalty of 2.>I per month for each unpaid installment from due date until paid. The debtors paid the first installment !ith a check, !hich !as dishonored by the dra!ee bank. )adio!ealth sued, and asked for ,9I interest p.a. until payment. The spouses contend that the obligation is not yet due and demandable as )adio!ealth allegedly allo!ed them to apply their promotional ser&ices as payment for the P@0. This !as supposedly the reason !hy the commencement for the payment of installments !as left blank. %ence, the courts should fi4 the period for payment. ssue: .hen !ill the interest start to run considering that the date for the commencement of installment payments !as left blankM %eld: The note e4pressly stipulated that the debt should be amorti8ed monthly. .hile the specific date !as left blank, the note !as clear that each payment !as to be made monthly. The only conclusion !as that the payment already became due and demandable as e&idence by the fact that respondents started paying, e&en if the checks !ere dishonored. =et as the note already stipulated a late payment penalty of 2.>I, payment of interest !as not e4pressly stipulated in the note, and should be deemed included in such penalty. ,an- o( t)e P)ilippine 1slan&s vs. CA an& ,en9a0in <api7a [ !!!$ Lia2ility o( +raBee ,an- (or its negligen'e Facts: n ,:H; pri&ate respondent deposited in Foreign Currency 5eposit <nit +FC5<- sa&ings account !hich he maintained in petitioner $ankJs $uendia "&enue '4tension $ranch a Continental $ank (anagerJs Check dated "ug. ,;,,:H9 payable to KcashK in the amount of V2,>CC and duly endorsed by pri&ate respondent on its dorsal sides. The check belonged to a %enry Chan !ho !ent to the office of respondent and requested him to deposit the check in his account by !ay of accommodation and for the purpose of clearing the same. )espondent acceded and agreed to deli&er to Chan a signed blank !ithdra!l slip, !ith the understanding that as soon as the check is cleared both of them !ould go to the bank to !ithdra! the amount upon repondentJs presentation of his passbook to the bank. <sing the blank !ithdra!al slip gi&en by respondent to Chan, on /ct. 2?, ,:H9 a )uben Nayon 3r. !as able to !ithdra! the amount of V2,>9, from the account. The slip sho!s that the amount !as payable to )amon ". de Nu8man and "gnes C. de Nu8man, and !as duly initialed by the branch assistant manager, Teresita Lindo. /n 0o&. 2C, petitioner $ank recei&ed communication from the .ells Fargo
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$ank nternational of 0= that the check !as a counterfeit check because Kit !as not of the type or style of checks issued by Continental $ank nternationalK $ank (anager "riel )eyes informed respondent regarding the dishonor of the check. )espondent !rote to counsel of petitioner that he deposited the check for Kclearing purposesK only to accommodate Chan and that he signed the authority to !ithdra! sub1ect to its clearing. (oreo&er, he did not recei&e its proceeds. Petitioner $ank filed a complaint praying for the return of V2,>CC plus legal interest. n his ans. )espondent admitted that signed a KblankK !ithdra!al slip !ith the understanding the amount !ould be !ithdra!n only after the check has been cleared, that he instructed the party to !hom he issue the signed blank !ithdra!al slip to return it to him after the banks draftJs clearance so he could lend his passbook for the !ithdra!al and that !ithout his kno!ledge, the party !as able to !ithdra! the amount through collusion !ith one of the $ankJs employees. The $ank should ha&e disallo!ed the !ithdra!al because the passbook !as not presented, it has no one to blame but itself for being grossly negligent and that it already admitted ha&ing paid the amount of the check by mistake. The $ank on the other hand asserts that respondent alone !as liable for the &alue, that he !as estopped from disclaiming liability because he himself authori8ed the !ithdra!al by signing the !ithdra!al slip. The trial court dismissed the complaint holding that the $ank could not hold respondent liable as this !ould render KinutileK the requirement of clearance from the dra!ee bank before the &alue of a particular foreign check or draft can be credited to the account. B t !as incumbent upon the petitioner to credit the &alue of the check only upon receipt of the notice of final payment and should not ha&e authori8ed the !ithdra!al from the latter*s account. %a&ing admitted that it committed a BmistakeF in not !aiting for the clearance, petitioner should suffer the loss. The C" affirmed the decision. ssue: .hether or not respondent 0api8a is liable under his !arranties as a general indorser. %eld: Petitioner claims that respondent ha&ing affi4ed his signature at the dorsal side of the check should be liable as a general indorser in accordance !ith Sec. OO of the 0 L. "lso, respondent may be held liable as an indorser of a check e&en as an accommodation party +To!n Sa&ings and Loan $ank nc. & C"- %o!e&er, to hold respondent liable for the amount of the check by strict application of the la! and !ithout considering the attending circumstances in the case !ould result in an in1ustice and in an erosion of the public trust in the banking system. The !ithdra!al slip itself indicates a special instruction that the amount is payable to )amon ". de Nu8man #@or "gnes de Nu8man. PetitionerJs personnel should ha&e been duly !arned that Nayon !ho !as also employed in petitionerJs $uendia $ranch !as not the proper payee. "lthough at the dorsal side of the slip is an authority to !ithdra! to Nayon and respondent does not deny ha&ing signed such authority, !ith petitionerJs clear admission that the !ithdra!al slip !as a blank one e4cept for respondentJs signature the una&oidable conclusion is that the type!ritten name of Nayon !as intercalated and thereafter signed by Nayon or !hoe&er !as allo!ed by petitioner to !ithdra! the amount. (oreo&er, the slip contains a bo4ed !arning that states that it must be signed and presented !ith the passbook by the depositor in person. To !ithdra! thru a representati&e, the depositor should accomplish the authority at the back. "s correctly held by the C", in depositing the check in his name, respondent did not become the outright o!ner of the amount. $y depositing, respondent merely designated petitioner as the collecting bank. Petitioner shall only then credit the &alue thereon after the dra!ee bank shall ha&e paid the amount of the check. KThe collecting bank or last indorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the dra!ee is an assertion that the party making the representation has done its duty to ascertain the genuineness of the endorsementsK n the case at bar, it allo!ing the !ithdra!al, petitioner failed to e4ercise the diligence of a good father. .hile it is true that ha&ing signed the blank slip, respondent set the e&ents in motion that resulted in the !ithdra!al. %o!e&er, the negligence of petitionerJs personnel !as the pro4imate cause of the loss sustained. 5ran'is'o T. Sy'ip Jr. vs, CA an& People o( t)e P)ilippines [ !!!$ @)en are Post&ate& C)e'-s &ee0e& L1ss%e&M Facts: To buy on installment a to!nhouse unit, petitioner issued to Francel )ealty Corporation +F)C- 9H postdated checks each in the amount of P:,?C9. Later, due to a disagreement regarding defects in the unit and incomplete features of the to!nhouse, petitioner suspended payment. 0ot!ithstanding notarial notices, F)C continued to present for encashment the checks. Thus petitioner sent Kstop paymentK orders to the bank. Subsequent check presented
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!ere then dishonored. F)C filed a complaint for &iolation of $.P. 22. The trial court found Sycip guilty. /n appeal, the C" affirmed the findings of the trial court. ssue: The main issue is not related to 0 L but among the side issues relates: .hen are postdated checks considered as ha&ing been KissuedK %eld: The second element of $P 22 in&ol&es kno!ledge on the part of the issuer at the time of the checkJs issuance that he did not ha&e enough funds or credit in the bank for payment. "dmittedly, !hat is in&ol&ed here are postdated checks. Postdating simply means that on the date indicated on its face, the check !ould be properly funded, not that the checks should be deemed as issued only then. The checks in this case !ere issued a the time of the signing of the Contract to Sell. $ut !e find from the records no sho!ing that the time the checks !ere issued, petitioner had kno!ledge that his deposit or credit in the bank !ould be insufficient to co&er them !hen presented for encashment. 1999 Se'%rity ,an- an& Tr%st Co0pany vs. Tri%0p) L%02er an& Constr%'tion Corporation [3!" SCRA 53> (Jan " "999#$ Lia2ility o( +raBee ,anFacts: Triumph !as a depositor of Security $ank !ith a sa&ings and current checking account. Their arrangement !as that the bank !ould notify Triumph in case a check of more than P,C,CCC !ould be presented for encashment. ? checks payable to cash and all dra!n against Triumph !ere presented for encashment !ith Security $ank. These !ere allegedly encashed by unauthori8ed persons to the damage of the corporation for being forgeries. %ence, Triumph filed a complaint !ith the )TC. Security bank, on the other hand, alleged that TriumphJs office !as forced open including the filing cabinet !here the check booklets !ere kept. "nd this incident !as not reported to the bank, thus, it !as TriumphJs o!n negligence that caused damage to it. $esides, it a&ers that it !as diligent because it first &erified in accordance !ith standard bank practices and procedures the genuineness of the signatures and endorsements. )TC ad1udged in fa&or of Security $ank holding that Triumph failed to sho! that the signatures on the checks !ere forged because it did not e&en present the originals of the checks. /n appeal, C" re&ersed contending that the bank did not follo! the arrangement of notifying Triumph of the encashment of a check if it !as more than P,C,CCC. %ence, this petition. ssue: .hether or not Security $ank !as negligent. %eld: 0/. '&idence pro&ed to sho! that the agreement !ith the bank !as that all encashments o&er the counter of P,C,CCC and abo&e should be accompanied by one of the signatories of Triumph Corp. $ut this arrangement !as only made a fe! days after the encashment of the checks in question. "t any rate, since the questioned checks, !hich !ere payable to cash, appeared regular on their face and the bank found nothing unusual in the transaction, as Triumph usually issued checks in big amounts made payable to cash or to a particular person or to a company, the bank could not be faulted in paying the &alue of the disputed checks. Triumph is the one !hich stands to be blamed for its predicament. t should ha&e informed the bank that certain checks !ere missing from the check booklet !hich !as stolen. 3aralit v. 10perial [3!" SCRA /!5 (Jan. ", "999#$ Lia2ility as in&orser Facts: Petitioner (aralit if the assistant manger of 0aga City branch of the P0$. )espondent mperial on ? separate occasions deposited in her S" in P0$ three <S treasury !arrants and on the same days !ithdre! their peso equi&alent. The !arrants !ere subsequently returned by the <S Treasury on the ground that the amounts ha&e been altered. (aralit filed ? separate complaints for estafa &ersus mperial claiming that as a consequence she !as held personally liable by P0$ for the total amount. mperial claims that she !as merely helping a relati&e to encash the !arrants, that she !ithdre! the amounts !ith the appro&al of petitioner, that she did not kno! that the amounts on the !arrants ha&e been altered nor did she represent to the petitioner that the !arrants !ere
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genuine. (oreo&er, upon being informed of the dishonor of the !arrants, she immediately contacted her relati&e and signed a ackno!ledgement of debt promising to pay the amount. The (TC acquitted mperial of criminal liability but found her ci&illy liable as indorser of the checks. The decision becaming e4ecutory, the petitioner mo&ed for e4ecution of the same. )espondent mo&ed to quash on the ground that the 1udgment did not order he to pay a specific sum to a particular person, it merely ad1udicated the criminal aspect but not the ci&il aspect hence no 1udgment !hich can be the sub1ect of e4ecution. The (TC denied the motion to quash. The )TC issued a !rit of in1unction to stop e4ecution. ssue: The )TC held that the (TC did not really find respondent liable for the amount because it !as petitioner !ho !as found responsible for making the defraudation possible. %o!e&er, that portion of the decision +on !hich the )TC based its decision- actually refers to mperial*s criminal liability and not her ci&il liability. (ore specifically, the portion in question refers to the allegations in the ? informations. 0e&ertheless, the (TC held that mperial !as ci&illy liable BYsaid loss is chargeable to the accused !ho upon her indorsements !arrant that the instrument is genuine in al respect !hat it purports to be and that she !ill pay the amount thereof in case of dishonor +Sec. OO 0 L-F Thus, !hile the (TC found petitioner partly responsible for the encashment of the altered checks, it found respondent ci&illy liable because of her indorsement of the treasury !arrants, in addition to the fact that respondent e4ecuted a notari8ed ackno!ledgement of debt promising to pay. +The reason !hy (aralit is partially responsible is that she disregarded banking rules that out of to!n checks and <S Treasury .arrants should be , st cleared before the same is paid. (ore so if the holder is a 2nd indorser.1998 Se'%rity 2an- & Tr%st Co. v CA [J%ne "C, "99C$ Relations)ip o( +raBee ,an- to PayeeF Can t)e +raBee (ile a'tion against t)e Payee Facts: ".T. 5ia8 )ealty, through "nita 5ia8, bought from )icardo Loren8o his undi&ided share in a parcel of land !hich he o!ned in common !ith Ser&ando Solomon. n connection !ith this transaction, 5ia8 issued a check for POC,CCC.CC in the name of )icardo Loren8oJs agent, pri&ate respondent Crispulo "rboleda. The check, dated 0o&ember ;, ,:H?, !as to be dra!n against the current account of ".T. 5ia8 )ealty in the (arikina branch of the Security $ank and Trust Co. +S$TC-. "ccording to 5ia8, the money !as part of the purchase price of the land. t !as to be used to pay the capital gains ta4 on the transaction and to reimburse Solomon for payments he had made for delinquent real estate ta4es on the land. n return, Solomon !ould deli&er to 5ia8 the title to the land. $ut on 0o&. H, ,:H?, Solomon informed 5ia8 that, as he had not yet been reimbursed by pri&ate respondent, he could not deli&er to 5ia8 the title to the land. 5ia8 decided to reimburse Solomon and to pay the capital gains ta4 herself. Consequently, she issued t!o more checks, one for P2C,CCC.CC, in the name of Solomon for the reimbursement, and another one for P9C,CCC.CC, payable to bearer, for the payment of the ta4. Thereafter, on the same date, she ordered S$TC to stop payment on the check. 5ia8 allegedly ad&ised pri&ate respondent of the order and requested the return of the check to her. %o!e&er respondent encashed the check on 0o&. 29, ,:H?, S$TC employees of petitioner bank failing to notice that the check !as the sub1ect of a stop payment order. +The dra!er, ".T. 5ia8 )ealty, had t!o accounts !ith petitioner, a sa&ings account and a current account. $y agreement !ith petitioner $ank, it !as possible for the dra!er to dra! a check against its current account and ha&e it supported by funds from the sa&ings account, if funds from the current account !ere insufficient. The stop payment order !as posted in the current account ledger but the bank employee looked directly at the sa&ings account ledger !hich had no stop payment order !as posted.- <pon disco&ering the error the ne4t day, S$TC recredited the amount +POC,CCC.CC- to ".T. 5ia8 )ealtyJs account. )espondents told S$TC that they !ould return it pro&ided 5ia8 sho!ed him the receipt for payment of the capital gains ta4. "s 5ia8 failed to sho! receipts, "rboleda and Libongco refused to return the money. Petitioner, therefore, filed the instant suit. The trial court ruled that petitioner incurred no liability e&en if it encashed the check despite a stop payment order, because of a note in the stop payment order form !hich the depositor agrees . . . not to hold the bank liable on account of payment contrary to the request . . . if the same occurs through inad&ertence, accident or o&ersight . . . Petitioner appealed to the Court of "ppeals !hich, as earlier stated, affirmed the decision of the trial court. %ence, this petition.
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ssue: ./0 the 5ra!ee $ank may file suit against the Payee %eld: The petition must fail. Petitioner contends that !hate&er claim respondent has against "nita 5ia8 is immaterial to this case. t is argued that pri&ate respondent has an obligation to return the money he recei&ed based on "rt. 2,>9 of the Ci&il Code + f something is recei&ed !hen there is no right to demand it, and it !as unduly deli&ered through mistake, the obligation to return it arises.- %o!e&er this contention has no merit. There !as no contractual relation created bet!een petitioner and pri&ate 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 "nita 5ia8. Therefore, the question !hether pri&ate respondent Crispulo "rboleda has a right to keep the proceeds of the check is &ery rele&ant to this action brought to reco&er the amount. "s pri&ate respondent points out: t is "nita 5ia8 to !hom respondent sold their property. t is "nita 5ia8 !ho issued the sub1ect check in payment of the balance of the purchase price, and earmarked for the payment of the capital gains ta4 and agentJs commission for the sale of the property. f the check !as dishonored upon presentment for payment, respondent cannot sue petitioner but only the dra!er +"nita 5ia8- for lack of pri&ity. The funds from !hich the check shall be paid belong to "nita 5ia8 and merely deposited !ith the petitioner bank. The stop payment order !as issued by "nita 5ia8 for alleged Kincomplete transactionK !hich is a misrepresentation. .hether petitioner is liable to "nita 5ia8 for cashing the check after it had been ordered not to pay is a matter bet!een them. $y restoring the amount it had paid to the account of ".T. 5ia8 )ealty, petitioner merely stepped into the shoes of the dra!er. Consequently, its present action is sub1ect to the defenses !hich pri&ate respondent "rboleda might raise had this action been instituted by "nita 5ia8. Allie& ,an-ing Corporation vs. CA [ 94 SCRA C!3 (A%g 3" "99C#$ J%ris&i'tion o( P)ilippine Clearing 6o%se Corporation Facts: %yatt Terraces $aguio issued 2 crossed checks dra!n against "llied $ank in fa&or of (es8ellen Commodities Ser&ices. These checks !ere deposited !ith C/(T)<ST. "fter clearing !ith PC%C, "llied paid the proceeds of the checks to C/(T)<ST as the collecting bank. (es8ellen sued "llied for damages !hich it allegedly suffered !hen the &alue of the checks !ere paid not to it but to some other person. 5uring trial, "llied filed a ?rd party complaint against $P as successor7in7interest of C/(T)<ST, for reimbursement in the e&ent that it !ould be ad1udged liable in the main case to pay (es8ellen. The ?rd party complaint !as admitted by the trial court. $P filed a motion to dismiss said rd ? party complaint on the ground that )TC had no 1urisdiction o&er the nature of the action. )TC dismissed said ?rd party complaint. C" affirmed. %ence, "llied filed this petition for re&ie! on certiorari under )ule 9>. ssue: .hether or not the ?rd party complaint !as !ithin the 1urisdiction of )TC or the Philippine Clearing %ouse Corporation &ia Sec. ?H of the Clearing %ouse )ules and )egulations !hich state that any dispute bet!een 2 or more clearing participants in&ol&ing any item cleared through the PC%C shall be submitted to the "rbitration Committee. %eld: PC%C has 1urisdiction. " ?rd party complaint of one bank against another in&ol&ing a check cleared through the PC%C is una&ailing, unless the ?rd party claimant has first e4hausted the arbitral authority of the PC%C "rbitration Committee and obtained a decision from said body ad&erse to its claim. SC held that it defers to the primary authority of PC%C o&er the present dispute because its technical e4pertise in this field enables it to better resol&e questions of this nature. t further held that such !as not pre1udicial to the interest of any party since primary recourse to the PC%C does not pre&ent an appeal to the trial courts on questions of la!. Furthermore, !hen the error is so patent, gross and pre1udicial as to constitute gra&e abuse of discretion, courts may address questions of fact already decided by the arbitrator. Since banks ha&e gi&en their !ritten and subscribed consent to arbitration under the auspices of the PC%C, the rule that a trial court, !hich has 1urisdiction o&er the main action, also has 1urisdiction o&er the ?rd party complaint, e&en if the said court !ould ha&e no 1urisdiction o&er it had it been filed as an independent action, !ould not apply to banks. $y participating in the clearing operations of the PC%C, banks like "llied ha&e agreed to submit disputes to
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arbitration. "ccordingly, it cannot in&oke the 1urisdiction of the trial courts !ithout prior recourse to PC%C "rbitration Committee. ,P1 *Dpress Car& Corporation vs. CA [ 9/ SCRA /! (Sept 5 "99C#$ <at%re o( a C)e'*((e't o( Pay0ent 2y C)e'Facts: (arasigan !as a complimentary member of $P '4press Card Corporation !ith a credit limit of P>,CCC. n /ctober of ,:H:, his statement of account of PH,:H; !as not paid in due time. $P demanded immediate payment. (arasigan issued a post dated check +5ecember- of P,>,CCC to co&er the unpaid debt. .hen (arasigan in&ited some guests to eat at CafZ "driatico, his card !as dishonored. %ence, he filed a complaint !ith )TC for damages. )TC ruled in fa&or of (arasigan. C" affirmed. %ence, this petition !ith the SC. ssue: .hether or not $P had the right to suspend the credit card of (arasigan. %eld: =es. <nder the terms and conditions of the credit card, signed by (arasigan, any card !ith outstanding balances after ?C days from original billing shall automatically be suspended. This pro&ision cannot be any clearer. $y (arasigan*s o!n admission, he made no payment !ithin ?C days from original billing. Consequently, as early as 0o&ember, $P had the right to automatically suspend his credit card. "lthough (arasigan issued a check of P,>,CCC, this !as post dated to effect in 5ecember. " check is only a substitute for money and not money, the deli&ery of such an instrument does not, by itself operate as payment. Thus, the issuance of the post dated check !as not effecti&e payment. t did not comply !ith his obligation. %ence, $P !as still 1ustified in suspending his credit card. 1997 Tra&ers Royal ,an- v. Co%rt o( Appeals [ /9 SCRA "5 (3ar') 3, "99>#$ Certi(i'ate o( 1n&e2te&ness <ot <egotia2le 3ere 8Bners)ip 2y Single Sto'-)ol&er not s%((i'ient reason to Pier'e 4eil Facts: 5efendant Filriters is the registered o!ner of C$C 0o. 5H:,. <nder the deed of assignment, Filriters transferred C$C 0o. 5H:, to Philippine <nder!riters Finance Corporation +Phihfinance-. Subsequently, Philfinance transferred C$C 0o. 5H:,, !hich !as still registered in the name of Filriters, to appellant Traders )oyal $ank +T)$-. The transfer !as made under a repurchase agreement, granting Philfinance the right to repurchase the instrument on or before "pril 2;, ,:H,. .hen Philfinance failed to buy back the note on maturity date, it e4ecuted a deed of assignment, con&eying to appellant T)$ all its rights and title to C$C 0o. 5H:,. "rmed !ith the deed of assignment, T)$ sought the transfer and registration of C$C 0o. 5H:, in its name before the Central $ank. C$, ho!e&er, refused to effect the transfer and registration in &ie! of an ad&erse claim filed by defendant Filriters. Left !ith no other recourse, T)$ filed a special ci&il action for mandamus against C$ in the )TC. The suit !as treated by the )TC as a case of interpleader !hen C$ prayed in its amended ans!er that Filriters be impleaded as a respondent and the court ad1udge !hich of them is entitled to the o!nership of C$C 0o 5H:,. T)$ appealed to the C" after failing to secure a fa&orable 1udgment from the lo!er court. The respondent court affirmed the )TC. %eld: ,. " certificate of indebtedness !hich pertains to certificates for the creation and maintenance of a permanent impro&ement re&ol&ing fund, is similar to a KbondK. The freedom of negotiability is totally absent in a certificate of indebtedness as it merely ackno!ledges to pay a sum of money to a specified person or entity for a period of time. 2. Petitioner cannot put up the e4cuse of piercing the &eil of corporate entity, as this is merely an equitable remedy, and may be a!arded only in cases !hen the corporate fiction is used to defeat public con&enience, 1ustify !rong, protect fraud or defend crime or !here a corporation is a mere alter ego or business conduit of a person. Piercing the &eil of corporate entity requires the court to see through the protecti&e shield !hich e4cepts its stockholders from liabilities that they could, ordinarily, be sub1ected to, or distinguishes one corporation from a seemingly separate one, !ere it not for the e4isting corporate
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fiction. $ut to do this, the court must be sure that the corporate fiction !as misused, to such an e4tent that in1ustice, fraud, or crime !as committed upon another, disregarding, thus, his@her@its rights. t is the protection of the interests of innocent third persons dealing !ith the corporate entity !hich the la! aims to protect by this doctrine. ?. (ere o!nership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. 9. Petitioner, being a commercial bank, cannot feign ignorance of C$ Circular ;O: ) and its requirements. "n entity !hich deals !ith corporate agents !ithin circumstances sho!ing that the agents are acting in e4cess of corporate authority, may not hold the corporation liable. TRANSPORTATION LAW 1999 5ort%ne *Dpress 1n'. v CA [3!5 SCRA "4 (3ar') "C, "999#$ Lia2ility o( Co00on Carrier (or negligen'e res%lting to ,rea') o( Contra't 6i9a'-ing an& +eat) o( Passenger @)at is a 5ort%ito%s *vent +a0ages paya2le (or +eat) o( Passenger (Co0p%tation o( Li(e *Dpe'tan'y an& Loss o( *Dpe'te& 1n'o0e# Facts: $ecause of a report of its field agent, the Philippine Constabulary of at Cagayan de /ro !arned the operations manager of Fortune '4press that certain (aranaos !ere planning to take re&enge +for a collision bet!een the petitioner*s bus and a 1eepney !hich resulted in death of t!o (aranao passengers- by burning some of petitioner*s buses. The manager assured the Constabulary that they !ould take e4tra precautions. /n 0o&. 22, ,:H: ? armed (aranaos pretending to be passengers sei8ed a bus of petitioner on route to ligan City. They shot the dri&er in the arm and ordered all the passengers off the bus. "tty. Caorang, a passenger, returned to retrie&e something from the o&erhead rack !hich he !as allo!ed to do so. %o!e&er, upon learning that the %i1ackers intended, using gasoline, to set the bus on fire !ith the dri&er still inside, he pleaded for the life of the dri&er. .hile this !as ongoing, the dri&er took the opportunity to escape by cra!ling out through a !indo!. /ther passengers reported seeing the (aranaos shot "tty. Caorang The bus !as set on fire, thereafter, some passengers !ere able to pull "tty. Coarang out of the bus and he !as rushed to the hospital. %e died in operation. The Trial Court dismissed the complaint for damages due to breach of contract filed by the heirs of Coarang. t found that, despite the report by the Constabulary, the diligence demanded by la! does not include the posting of security guards in the buses also e&en if there !ere guards such is not guaranteed to deter the determined assault of the la!less. (ore&er, the %i1ackers did not intend to harm the passengers as they asked them to lea&e the bus. The death of "tty. Caorang !as an une4pected and unforeseen occurrence o&er !hich defendant +Fortune- had no control. The C" re&ersed finding Fortune guilty of negligence. The defendant7appellee ne&er adopted e&en a single safety measure for the protection of the passengers +despite the report of the threat-. /ne a&ailable safeguard !as frisking passengers. f frisking !as resorted to e&en temporarily, defendant might be e4cused from liability. /n hindsight, the handguns and the gallon of gasoline used !hich !ere all brought aboard the bus could ha&e been disco&ered. The defendant !as not e4pected to assign security guards on all its buses but at least to adopt a system of &erification in response to the report such as frisking. The C" a!arded indemnity for death +P?[ million- and attorney*s fees. ssue: +,- ./0 Fortune is guilty of negligence resulting in breach of contract of carriage +2- ./0 the attack !as a force ma1eure. %eld: +,- ,;O? of the Ci&il Code, states that a common carrier is responsible for in1uries suffered by the passengers on account of !illful acts of other passengers if its employees could ha&e pre&ented the act through the e4ercise of the diligence of a good father of the family. 5espite !arning by the Constabulary, petitioner did nothing to protect the safety of its passengers. %ad petitioner and its employees been &igilant they !ould not ha&e failed to see that the (aranaos +as passengers- had a large quantity of gasoline !ith them. <nder the >:
circumstances, frisking and inspection of baggage should ha&e been made before allo!ing them to board. "s held in Nacal & Philippine "ir Lines nc. a common carrier can be held liable for failing to pre&ent a hi1acking by frisking passengers and inspecting baggage. +2- Sei8ure of the $us !as not force ma1eure. "rt. ,,;9 states that a fortuitous e&ent is one !hich could not be foreseen or !hich though foreseen is ine&itable. To be considered a force ma1eure it is necessary that +a- the cause of the breach of the obligation must be independent of the human !ill. +b- the e&ent must be either unforeseeable or una&oidable +cthe occurrence must be such as to render it impossible for the debtor to fulfill the obligation in a normal manner +d- the obligor must be free of participation in or aggra&ating the in1ury. 5espite the report of the Constabulary, Fortune took no steps to safeguard the li&es of the passengers or their properties. The e&ent !as foreseeable !as is therefore lacking one of the requisites mentioned abo&e. Therefore, this is not a fortuitous e&ent. /ther issues: +aThe deceased !as not guilty of contributory negligence. %e !as allo!ed by the (aranaos to retrie&e something from the bus. .hat angered them !as his attempt to plead for the life of the dri&er. %e !as playing the role of the Nood Samaritan. this act cannot certainly be considered an act of negligence or recklessness. +b,;O9 in relation to 22CO of the Ci&il Code pro&ides for payment for the death of passengers caused by breach of contract. t is presently fi4ed at P>C,CCC. +cCompensation for loss of earning capacity is also pro&ided for in ,;O9 in relation to 22CO. The formula for computation is: 0et earning capacity U life e4pectancy 4 +gross annual income 6 necessary li&ing e4pensesFormula for life e4pectancy s as follo!s: 2@? 4 +HC 6 ?;S%lpi'io Lines vs. CA [3!5 SCRA 4>C (3ar') 9 "999#$ Collision Facts: "quarius Fishing Co. filed a complaint for damages against Sulpicio Lines nc. for a collision !hich occurred bet!een their boats. "quarius contended that the collision !as due to the negligence of Sulpicio !hen it !as at t!ice its normal speed, !anting to o&ertake "quarius. Sulpicio, on the other hand, claims that since "quarius had no lookout at that time, it !as the negligent one. )TC ad1udged in fa&or of "quarius. C" affirmed )TCJs decision. %ence, this petition !ith the SC. Sulpicio contends that it !as e&ident that "quariusJ patron and cre! !ere negligent. The )ules of the )oad of the Phil. (erchant )ules and )egulations required that all &essels must ha&e a lookout, of !hich "quarius did not ha&e. ssue: .ho !as negligentM %eld: Sulpicio. The duty to keep out of the !ay remained !ith Sulpicio e&en if the o&ertaking &essel cannot determine !ith certainty !hether she is for!ard of or aft more than 2 points from the &essel. Sulpicio must assume responsibility as it !as in a better position to a&oid the collision. t should ha&e blo!n its horn or gi&en signs to !arn the other &essel that it !as to o&ertake it. "ssuming arguendo that "quarius had no lookout during the collision, the omission does not suffice to e4culpate Sulpicio from liability. .hen it o&ertook "quarius, it !as duty bound to slacken its speed and keep a!ay from other &essels, !hich it failed to do. 1998 5ar *astern S)ipping Co0pany vs. CA [ 9> SCRA 3! (8't " "99C#$ CollisionF Pres%0ption Against 3oving 4essel +%ties an& Lia2ility o( Pilot Facts: The (@L Pa&lador, flying under the flagship of <SS), o!ned and operated by Far 'astern Shipping Company +F'SC-, arri&ed at the port of (anila. Capt. "bellana !as tasked by the PP" to super&ise the berthing of the &essel. Na&ino !as assigned by (anila Pilot*s "ssociation +(P"- to conduct docking maneu&ers for the safe berthing of the &essel.
OC
Na&ino boarded the &essel at the quarantine anchorage and stationed himself in the bridge, !ith the master of the &essel Pa&anko& beside him. The &essel then lifted anchor from the quarantine anchorage and proceeded to the (anila nternational Port. .hen the &essel reached the landmark, Na&ino ordered the engine stopped. .hen the &essel !as already about 2,CCC ft from the pier, Na&ino ordered the anchor dropped. %o!e&er, one of the anchors did not take hold as e4pected. The speed of the &essel did not slacken. " commotion ensued bet!een the cre! members. " brief conference ensued bet!een Pa&anko& and the cre! members. .hen Na&ino inquired !hat !as all the commotion about, Pa&anko& assured Na&ino that there !as nothing to it. "fter Na&ino noticed that the anchor did not take hold, he ordered the engines half7 astern. "bellana, !ho !as then on the pier apron, noticed that the &essel !as approaching the pier fast. Pa&anko& like!ise noticed that the anchor did not take hold. Na&ino thereafter ga&e the full7astern code. $efore the right anchor and additional shackles could be dropped, the bo! of the &essel rammed into the apron of the pier causing damage to it. Pa&anko& filed his sea protest. Na&ino submitted his report to the PP". PP" filed before )TC a complaint for sum of money against F'SC and Na&ino. )TC ad1udged in fa&or of PP". /n appeal, C" affirmed the decision of )TC. %ence, this petition for certiorari !ith SC. F'SC contends that since the &essel !as under compulsory pilotage at the time of the incident, it !as the compulsory pilot, Na&ino, !ho !as in command and had complete control in the na&igation and docking of the &essel. t is the pilot !ho supersedes the master for the time being in the command and na&igation of a ship and his orders must be obeyed in all respects connected !ith her na&igation. Consequently, Na&ina !as solely responsible for the damage caused upon the pier apron and not F'SC. t further claims that the master of the &essel did not commit any act of negligence !hen he failed to countermand or o&errule the orders of the pilot because he did not see any 1ustifiable reason to do so. n other !ords, the master cannot be faulted for relying absolutely on the competence of the compulsory pilot. ssue: .hether or not F'SC is liable considering its contentions. %eld: =es. First, !e must bear in mind the e&identiary rule in "merican 1urisprudence that there is a presumption of fault against a mo&ing &essel that strikes a stationary ob1ect such as a dock or na&igational aid. n admiralty, this presumption does more than merely require the ship to go for!ard and produce some e&idence on the presumpti&e matter. The mo&ing &essel must sho! that it !as !ithout fault or that the collision !as occasioned by the fault of the stationary ob1ect or !as the result of ine&itable accident. t has been held that such &essel must e4haust e&ery reasonable possibility !hich the circumstances admit and sho! that in each, they did all that reasonable care required. n the absence of sufficient proof in rebuttal, the presumption of fault attaches to a mo&ing &essel !hich collides !ith a fi4ed ob1ect and makes a prima facie case of fault against the &essel. The task, therefore, is to pinpoint !ho !as negligent 6 the master of the ship, the harbor pilot or both. Capt. Na&ino 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 !ere promptly and strictly follo!ed as per his testimony. Nenerally, a pilot supersedes the master for the time being in the command and na&igation of the ship, and his orders must be obeyed in all matters connected !ith her na&igation. %e becomes the master pro hac &ice and should gi&e all directions as to speed, course, stopping and re&ersing, anchoring, to!ing and the like. "nd !hen a licensed pilot is employed in a place !here pilotage is compulsory, it is his duty to insist on ha&ing effecti&e control of the &essel, or to decline to act as pilot. The pilot does not take entire charge of the &essel, but is deemed merely the ad&iser of the master, !ho retains command and control of the na&igation e&en in localities !here pilotage is compulsory. %ence, a pilot is presumed to ha&e skill and kno!ledge in respect to na&igation in the particular !aters o&er !hich his license e4tends superior to that of the master. %e is not held to the highest possible degree of skill and care, but must ha&e and e4ercise the ordinary skill and care demanded by the circumstances. %o!e&er, Pa&anko& is no less responsible for the allision. %is unconcerned lethargy as master of the ship in the face of troublous e4igence constitutes negligence. .hile it is indubitable that in e4ercising 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 &essel tot he pilot and the pilot is not the master. The master is still in command of the &essel not!ithstanding the presence of a pilot. There are occasions !hen the master may and should interfere and e&en displace the pilot, as !hen the pilot is ob&iously incompetent. %e is not !holly absol&ed from his duties !hile a pilot is on board his &essel, and may ad&ise !ith or offer
O,
suggestions to him. %e is still in command of the &essel, e4cept so far as her na&igation is concerned, and must cause the ordinary !ork of the &essel to be properly carried on and the usual precaution taken. " perusal of Pa&anko&*s testimony makes it apparent that he !as remiss in the discharge of his duties as master of the ship, lea&ing the entire docking procedure up to the pilot, instead of maintaining !atchful &igilance o&er this risky maneu&er. %ence, both Pa&anko& and Na&ino are negligent. n sum, !here a compulsory pilot is in charge of a ship, the master being required to permit him to na&igate it, if the master obser&es that the pilot is incompetent or physically incapable, then it is the duty of the master to refuse to permit the pilot to act. $ut if no such reasons are present, then the master is 1ustified in relying upon the pilot, but not blindly. 1997 3its%i 8.S.E. Lines Lt&., represente& 2y 3A;SAHSAH A;*<C1*S, 1<C. v CA [(3ar') "", "99C.#$
Carriage o( ;oo&s 2y Sea A't (C8;SA#F +a0age &%e to &elay an& pres'ription perio&
Facts: Petitioner (itsui /.S.P. Lines Ltd. is a foreign corporation represented in the Philippines by its agent, (agsaysay "gencies. t entered into a contract of carriage through (eister Transport, nc., an international freight for!arder, !ith pri&ate respondent La&ine Lounge!ear (anufacturing Corporation to transport goods of the latter from (anila to Le %a&re, France. Petitioner undertook to deli&er the goods to France 2H days from initial loading. /n 3uly 29, ,::,, petitionerJs &essel loaded pri&ate respondentJs container &an for carriage at the said port of origin. %o!e&er, in Paoshiung, Tai!an the goods !ere not transshipped immediately, !ith the result that the shipment arri&ed in Le %a&re only on 0o&ember ,9, ,::,. The consignee allegedly paid only half the &alue of the said goods on the ground that they did not arri&e in France until the Koff seasonK in that country. The remaining half !as allegedly charged to the account of pri&ate respondent !hich 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 Noods by Sea "ct. The )egional Trial Court, as aforesaid, denied petitionerJs motion as !ell as its subsequent motion for reconsideration. /n petition for certiorari, the Court of "ppeals sustained the trial courtJs orders. %ence this petition containing one assignment of error: ssue: +,- ./0 damage due to delay is co&ered under C/NS" +2- ./0 +if co&ered- the action has prescribed %eld: Section ? of C/NS" pro&ides that unless notice of loss or damage and the general nature of such loss or damage be gi&en in !riting to the carrier or his agent at the port of discharge or at the time of the remo&al of the goods into the custody of the person entitled to deli&ery thereof under the contract of carriage, such remo&al shall be prima facie e&idence of the deli&ery by the carrier of the goods as described in the bill of lading. f the loss or damage is not apparent, the notice must be gi&en !ithin three days of the deli&ery. The carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought !ithin one year after deli&ery of the goods or the date !hen the goods should ha&e been deli&ered: Pro&ided, that, if a notice of loss or damage, either apparent or concealed, is not gi&en as pro&ided for in this section, that fact shall not affect or pre1udice the right of the shipper to bring suit !ithin one year after the deli&ery of the goods or the date !hen the goods should ha&e been deli&ered. +,- n "ng &. "merican Steamship "gencies, nc., the question !as !hether an action for the &alue of goods !hich had been deli&ered to a party other than the consignee is for Kloss or damageK !ithin the meaning of s?+O- of the C/NS". t !as held that there !as no loss because the goods had simply been misdeli&ered. KLossK refers to the deterioration or disappearance of goods. "s defined in the Ci&il Code and as applied to Section ?+O-, paragraph 9 of the Carriage of Noods by Sea "ct, KlossK contemplates merely a situation !here no deli&ery at all !as made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a !ay that their e4istence is unkno!n or they cannot be reco&ered. Conformably !ith this concept of !hat constitutes KlossK or Kdamage,K this Court held in another case that the deterioration of goods due to delay in their transportation constitutes
O2
KlossK or KdamageK !ithin the meaning of ?+O-, so that as suit !as not brought !ithin one year the action !as barred: .hate&er damage or in1ury is suffered by the goods !hile in transit !ould result in loss or damage to either the shipper or the consignee. "s long as it is claimed, therefore, as it is done here, that the losses or damages suffered by the shipper or consignee !ere due to the arri&al of the goods in damaged or deteriorated condition, the action is still basically one for damage to the goods, and must be filed !ithin the period of one year from deli&ery or receipt, under the abo&e7quoted pro&ision of the Carriage of Noods by Sea "ct. There !ould be some merit in appellantJs insistence that the damages suffered by him as a result of the delay in the shipment of his cargo are not co&ered by the prescripti&e pro&ision of the Carriage of Noods by Sea "ct abo&e referred to, if such damages !ere due, not to the deterioration and decay of the goods !hile in transit, but to other causes independent of the condition of the cargo upon arri&al, like a drop in their market &alue The rationale behind limiting the said definitions to such parameters is not hard to find or fathom. Said one7year period of limitation is designed to meet the e4igencies of maritime ha8ards. n a case !here the goods shipped !ere neither lost nor damaged in transit but !ere, on the contrary, deli&ered in port to someone !ho 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. +An&n the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused by the carrierJs breach of contract. .hate&er reduction there may ha&e been in the &alue of the goods is not due to their deterioration or disappearance because they had been damaged in transit. +2- "lthough !e agree that there are places in the section +"rticle - in !hich the phrase need ha&e no broader meaning than loss or physical damage to the goods, !e disagree !ith the conclusion that it must so be limited !here&er it is used. .e take it that the phrase has a uniform meaning, not merely in Section ?, but throughout the "ctG and there are a number of places in !hich the restricted interpretation suggested !ould be inappropriate. For e4ample Section 9+2- D"rticle L+2- +sic- e4empts e4empts +sic- the carrier, the ship +sic-, from liability Kloss or damageK +sic- resulting from certain courses beyond their control. : .hat is in issue in this petition is not the liability of petitioner for its handling of goods as pro&ided by ?+O- of the C/NS", but its liability under its contract of carriage !ith pri&ate respondent as co&ered by la!s of more general application. The question before the trial court is not the particular sense of KdamagesK as it refers to the physical loss or damage of a shipperJs goods as specifically co&ered by s?+O- of C/NS" but petitionerJs potential liability for the damages it has caused in the general sense and, as such, the matter is go&erned by the Ci&il Code, the Code of Commerce and C/NS", for the breach of its contract of carriage !ith pri&ate respondent. The suit belo! is not for Kloss or damageK to goods contemplated in T?+O-, the question of prescription of action is go&erned not by the C/NS" but by "rt. ,,99 of the Ci&il Code !hich pro&ides for a prescripti&e period of ten years. P61LA3;*< vs. CA an& 5*L3A< [;R ""/94!, J%ne "", "99>$ Co&e o( Co00er'eF Li0ite& Lia2ility Facts: Coke loaded on board a &essel o!ned and operated by Felman ;,>CC cases of softdrinks for shipment. The shipment !as insured !ith Philamgen. The &essel sank.. Philamgen paid Coke, and no! it seeks reimbursement from Felman as subrogee. ssue: .@0 Felman is liable. %eld: =es. "s to the issue of sea!orthiness of the &essel, the sinking !as ascribed to the entry of sea!ater through a hole in the hull caused by the &esselJs collision !ith a partially submerged log and all other e&idence re&ealed that the &essel !as o&erloaded. Thus, it !as held that the &essel !as unsea!orthy. Secondly, "rt. >H; 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 &essel. This liability ho!e&er can be limited through abandonment of the &essel, its equipment and freightage as pro&ided in "rt. >?;. 0onetheless, there are e4ceptional circumstances !herein the ship agent could still be held ans!erable despite abandonment, as !here the loss or in1ury !as due to the fault of ship o!ner and captain. t must
O?
be stressed that "rt. >H; speaks only of situations !here the fault or negligence is committed solely by the captain. .here the ship o!ner is like!ise to be blamed, "rt. >H; !ill not apply, and such situation !ill be co&ered by the pro&isions of the Ci&il Code on common carriers. Lastly, it is held that PhilamgenJs action against Felman +for reimbursement- is sanctioned by "rt. 22C; of the 0CC. The doctrine of subrogation has its roots in equity. t is designed to promote and to accomplish 1ustice and is the mode !hich equity adopts to compel the ultimate payment of a debt by one !ho in 1ustice, equity and good conscience ought to pay. 4alen7%ela 6ar&Boo& an& 1n&%strial S%pply vs. CA an& Seven ,rot)ers [;R "! 3"/, J%ne 3!, "99>$ Co&e o( Co00er'e 1nappli'a2le to Private Carriers Facts: SL Shipping Corp undertook to transport Lalen8uela*s logs from sabela to (anila. The &essel sank. Lalen8uela filed a formal claim !ith SL for the &alue of the lost logs. SL refused to pay on the basis of the pro&isions in their contract e4empting them from liability in case of loss. ssue: .@0 the stipulation in the charter party that the Ko!ners shall not be responsible for loss, split, short7landing, breakage and any kind of damages to the cargoK is &alid. %eld: =es. t should be noted at the outset that there is no dispute bet!een the parties that the pro4imate cause of the sinking of the &essel resulting in the loss of the cargo !as the Ksnapping of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in sto!ing and securing the logs on board the &essel and not due to fortuitous e&entK. Like!ise undisputed is the status of SL as a pri&ate carrier !hen it contracted to transport the cargo of Lalen8uela +admitted as such by the latter in its petition-. Thus, "rticle ,;9> and other Ci&il Code pro&isions on common carriers are inapplicable. n a contract of pri&ate carriage, the parties may &alidly stipulate that responsibility for the cargo rests solely on the charterer, e4empting the ship o!ner from liability for loss of or damage to the cargo caused e&en by the negligence of the ship captain. Pursuant to "rticle ,?CO of the Ci&il Code, such stipulation is &alid because it is freely entered into by the parties and the same is not contrary to la!, morals, good customs, public order, or public policy. ndeed, their contract of pri&ate carriage is not e&en a contract of adhesion.
O9

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COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

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t cited Sec. > of P.5. :C27a.

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,arre& 5ro0 A''ess to

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Rig)t o( S)are 6ol&ers to 4ote (or t)e ,oar& o( +ire'tors

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COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002

COMMERCIAL LAW DIGESTS ATENEO CENTRAL BAR OPERATIONS2002