Red Notes Mercantile Law

San Beda College of Law
C O M M E R C I A L L A W
COMPILATION OF DOCTRINES IN
COMMERCIAL LAW
CODE OF COMMERCE
LETTERS OF CREDIT
In commercial transactions involving
letters of credit, the functions assumed by
a correspondent bank are classified
according to the obligations taken up by it.
The correspondent bank may be called a
notifying bank, a negotiating bank, or a
confirming bank.
In case of a notifying bank, the
correspondent bank assumes no liability
except to notify and/or transmit to the
beneficiary the existence of the letter of
credit. The notifying bank may suggest to
the seller its willingness to negotiate, but
this fact alone does not imply that the
notifying bank promises to accept the draft
drawn under the documentary credit.
A notifying bank is not a privy to the
contract of sale between the buyer and the
seller, its relationship is only with that of
the issuing bank and not with the
beneficiary to whom he assumes no
liability. It follows therefore that when the
petitioner refused to negotiate with the
private respondent, the latter has no cause
of action against the petitioner for the
enforcement of his rights under the letter.
A negotiating bank, on the other hand, is a
correspondent bank which buys or discounts
a draft under the letter of credit. Its
liability is dependent upon the stage of the
negotiation. If before negotiation, it has no
liability with respect to the seller but after
negotiation, a contractual relationship will
then prevail between the negotiating bank
and the seller.
In the case of a confirming bank, the
correspondent bank assumes a direct
obligation to the seller and its liability is a
primary one as if the correspondent bank
itself had issued the letter of credit. (FEATI
BANK VS. CA)
What characteries letters of credit, as
distinguished from other accessory
contracts, is the engagement of the issuing
bank to pay the seller once the draft and
the re!uired shipping documents are
presented to it. In turn, this arrangement
assures the seller of prompt payment
independent of any breach of the main
sales contract. "y this so#called
$independence principle,$ the bank
determines compliance with the letter of
credit only by examining the shipping
documents presented% it is precluded from
determining whether the main contract is
actually accomplished or not. (BANK OF
AMERICA VS. CA)
NEGOTIABLE INSTRUMENTS LAW
NEGOTIABILITY
The weight of authority in the &nited
'tates is that postal money orders are not
negotiable instruments, the reason behind
this rule being that, in establishing and
operating a postal money order system, the
government is not engaging in commercial
transactions but merely exercises a
governmental power for the public benefit.
It is to be noted in this connection that
some of the restrictions imposed upon
money orders by postal laws and
regulations are inconsistent with the
character of negotiable instruments. (or
instance, such laws and regulations usually
provide for not more than one
endorsement% payment of money orders
may be withheld under a variety of
circumstances. (PHIL. EDUC. CO. VS.
SORIANO)
)n this score, the accepted rule is that
the negotiability or non#negotiability of an
instrument is determined from the writing,
that is, from the face of the instrument
itself. (CALTEX PHIL. VS. CA)
The indication of (und *+, as the source
of the payment to be made on the treasury
warrants makes the order or promise to pay
$not unconditional and the warrants
themselves non#negotiable. There should
be no !uestion that the exception on
'ection - of the .egotiable Instruments
/aw is applicable in the case at bar.
(METROBANK VS. CA)
A negotiable instrument may, however,
instead of being negotiated, also be
assigned or transferred. The legal
conse!uences of negotiation as
distinguished from assignment of a
negotiable instrument are, of course,
different. A nonnegotiable instrument may,
obviously, not be negotiated% but it may be
assigned or transferred, absent an express
prohibition against assignment or transfer
written in the face of the instrument0
The words 1not negotiable,1 stamped on the
face of the bill of lading, did not destroy its
assignability, but the sole effect was to
exempt the bill from the statutory
provisions relative thereto, and a bill,
though not negotiable, may be transferred
by assignment% the assignee taking sub2ect
to the e!uities between the original
parties. (SESBREO VS. CA)
The essence of negotiability which
characteries a negotiable paper as a credit
instrument lies in its freedom to circulate
freely as a substitute for money.
(FIRESTONE TIRE & RUBBER VS. CA)
PAYABLE TO BEARER
Where a check is made payable to the
order of 1cash1, the word cash 1does not
purport to be the name of any person1, and
hence the instrument is payable to bearer.
The drawee bank need not obtain any
indorsement of the check, but may pay it
to the person presenting it without any
indorsement. (ANG TEK LIAN VS. CA)
COMPLETE BUT UNDELIVERED
INSTRUMENT
A negotiable instrument, of which a
check is, is not only a written evidence of a
contract right but is also a species of
property. 3ust as a deed to a piece of land
must be delivered in order to convey title
to the grantee, so must a negotiable
instrument be delivered to the payee in
order to evidence its existence as a binding
contract.
Thus, the payee of a negotiable instrument
ac!uires no interest with respect thereto
until its delivery to him. 4elivery of an
instrument means transfer of possession,
actual or constructive, from one person to
another. Without the initial delivery of the
instrument from the drawer to the payee,
there can be no liability on the instrument.
5oreover, such delivery must be intended
to give effect to the instrument.
(DEVELOPMENT BANK VS. SIMA WEI)
FORGERY
A forged signature in a negotiable
instrument is wholly inoperative and no
right to discharge it or enforce its payment
can be ac!uired through or under the
forged signature except against a party who
cannot invoke the forgery, it stands to
reason, upon the facts of record, that the
respondent, as a collecting bank which
endorsed the checks to the drawee#banks
for clearing, should be liable to the latter
for reimbursement, for, as found by the
court a !uo and by the appellate court, the
endorsements on the checks had been
forged prior to their delivery to the
petitioner. In legal contemplation,
therefore, the payments made by the
drawee#banks to the respondent on account
of the said checks were ineffective% and,
such being the case, the relationship of
creditor and debtor between the petitioner
and the respondent had not been validly
effected, the checks not having been
properly and legitimately converted into
cash. (JAI-ALAI VS. BPI)
2005 CENTRALIZED BAR OPERATIONS
Where a check is drawn payable to the
order of one person and is presented to a
bank by another and purports upon its face
to have been duly indorsed by the payee of
the check, it is the duty of the bank to
know that the check was duly indorsed by
the original payee, and where the "ank
pays the amount of the check to a third
person, who has forged the signature of the
payee, the loss falls upon the bank who
cashed the check, and its only remedy is
against the person to whom it paid the
money. (REPUBLIC BANK VS. EBRADA)
The records show that at the time the
twenty#three 67-8 checks were prepared,
negotiated, and encashed, the petitioner
was using its own personalied checks,
instead of the official 9." :ommercial
blank checks. In the exercise of this special
privilege, however, the petitioner failed to
provide the needed security measures.
;ence, the petitioner is barred from setting
up the defense of forgery under 'ection 7-
of the .egotiable Instruments /aw because
it was guilty of negligence not only before
the !uestioned checks were negotiated but
even after the same had already been
negotiated. (MWSS v. CA)
While the drawer generally owes no duty
of diligence to the collecting bank, the law
imposes a duty of diligence on the
collecting bank to scrutinie checks
deposited with it for the purpose of
determining their genuineness and
regularity. The collecting bank being
primarily engaged in banking holds itself
out to the public as the expert and the law
holds it to a high standard of conduct.
(BANCO DE ORO VS. E!UITABLE BANK)
The negligence of a depositor which will
prevent recovery of an unauthoried
payment is based on failure of the
depositor to act as a prudent businessman
would under the circumstances.
(GEMPESAW VS. CA)
The bank on which a check is drawn,
known as the drawee bank, is under strict
liability to pay the check to the order of
the payee. The drawer1s instructions are
reflected on the face and by the terms of
the check. 9ayment under a forged
indorsement is not to the drawer1s order.
When the drawee bank pays a person other
than the payee, it does not comply with the
terms of the check and violates its duty to
charge its customer1s 6the drawer8 account
only for properly payable items. 'ince the
drawee bank did not pay a holder or other
person entitled to receive payment, it has
no right to reimbursement from the
drawer. The general rule then is that the
drawee bank may not debit the drawer1s
account and is not entitled to
indemnification from the drawer. The risk
of loss must perforce fall on the drawee
bank.
;owever, if the drawee bank can prove a
failure by the customer/drawer to exercise
ordinary care that substantially contributed
to the making of the forged signature, the
drawer is precluded from asserting the
forgery.
If at the same time the drawee bank was
also negligent to the point of substantially
contributing to the loss, then such loss from
the forgery can be apportioned between
the negligent drawer and the negligent
bank. (ASSOCIATED BANK VS. CA)
The mere fact that the forgery was
committed by the drawer#payor<s
confidential employee or agent, who by
virtue of his position had unusual facilities
for perpetrating the fraud and imposing the
forged paper upon the bank, does not
entitle the bank to shift the loss to the
drawer#payor in the absence of some
circumstances raising estoppel against the
drawer. (PCIB v. CA)
86

The petitioner is precluded from setting
up the forgery, assuming there is a forgery,
due to his own negligence in entrusting to
his secretary his credit cards and
checkbook including the verification of his
statements of accounts.= (ILUSORIO VS. CA)
MATERIAL ALTERATION
An alteration is said to be material if it
alters the effect of the instrument. It
means an unauthoried change in an
instrument that purports to modify in any
respect the obligation of a party or an
unauthoried addition of words or numbers
or other change to an incomplete
instrument relating to the obligation of a
party. In other words, a material alteration
is one which changes the items which are
re!uired to be stated under 'ection , of
the .egotiable Instrument /aw.
A serial number is an item which is not an
essential re!uisite for negotiability under
'ection , of the .I/. (PNB v. CA)
The insertion of the words $Agent, 9hil.
.ational "ank,$ which converts the bank
from a mere drawee to a drawer and
therefore changes its liability, constitutes a
material alteration of the instrument
without the consent of the parties liable
thereon, and so discharges the instrument.
(MONTINOLA VS. PNB)
ACCOMMODATION PARTY
)n principle, a solidary accommodation
maker who made payment#has the right to
contribution, from his co#accommodation
maker, in the absence of agreement to the
contrary between them, and sub2ect to
conditions imposed by law. This right
springs from an implied promise between
the accommodation makers to share
e!ually the burdens that may ensue from
their having consented to stamp their
signatures on the promissory note. (or
having lent their signatures to the principal
debtor, they clearly placed themselves#in
so far as payment made by one may create
liability on the other in the category of
mere 2oint guarantors of the former.
(SADA"A VS. SEVILLA)
The afore!uoted provision of the
.egotiable Instruments /aw which holds an
accommodation party liable on the
instrument to a holder for value, although
such holder at the time of taking the
instrument knew him to be only an
accommodation party, does not include nor
apply to corporations which are
accommodation parties. This is because the
issue or indorsement of negotiable paper by
a corporation without consideration and for
the accommodation of another is ultra
vires. ;ence, one who has taken the
instrument with knowledge of the
accommodation nature thereof cannot
recover against a corporation where it is
only an accommodation party. If the form
of the instrument, or the nature of the
transaction, is such as to charge the
indorsee with knowledge that the issue or
indorsement of the instrument by the
corporation is for the accommodation of
another, he cannot recover against the
corporation thereon.
"y way of exception, an officer or agent of
a corporation shall have the power to
execute or indorse a negotiable paper in
the name of the corporation for the
accommodation of a third person only if
specifically authoried to do so
(CRISOLOGO-JOSE VS. CA)
To be sure, as regards an
accommodation party 6such as 'T>>/W>/48,
the fourth condition, i.e., lack of notice of
any infirmity in the instrument or defect in
title of the persons negotiating it, has no
application. This is because 'ection 7? of
the law above !uoted preserves the right of
recourse of a $holder for value$ against the
accommodation party notwithstanding that
$such holder, at the time of taking the
instrument, knew him to be only an
accommodation party.$ (STELCO v. CA)
In accommodation transactions
recognied by the .egotiable Instruments
/aw, an accommodating party lends his
credit to the accommodated party, by
issuing or indorsing a check which is held by
a payee or indorsee as a holder in due
course, who gave full value therefor to the
accommodated party. The latter, in other
words, receives or realies full value which
the accommodated party then must repay
to the accommodating party, unless of
course the accommodating party intended
to make a donation to the accommodated
party. "ut the accommodating party is
bound on the check to the holder in due
course who is necessarily a third party and
is not the accommodated party. ;aving
issued or indorsed the check, the
accommodating party has warranted to the
holder in due course that he will pay the
same according to its tenor. (TRAVEL-ON
VS. CA)
HOLDER IN DUE COURSE
As the holder1s title was defective or
suspicious, it cannot be stated that the
payee ac!uired the check without
knowledge of said defect in holder1s title,
and for this reason the presumption that it
is a holder in due course or that it ac!uired
the instrument in good faith does not exist.
And having presented no evidence that it
ac!uired the check in good faith, it 6payee8
cannot be considered as a holder in due
course. In other words, under the
circumstances of the case, instead of the
presumption that payee was a holder in
good faith, the fact is that it ac!uired
possession of the instrument under
circumstances that should have put it to
in!uiry as to the title of the holder who
negotiated the check to it. The burden
was, therefore, placed upon it to show that
notwithstanding the suspicious
circumstances, it ac!uired the check in
actual good faith. (DE OCAMPO VS.
GATCHALIAN)
Admittedly, petitioner became the
holder of the cashier1s check as endorsed by
Alexander /im who stole the check. ;e
refused to say how and why it was passed
to him. ;e had therefore notice of the
defect of his title over the check from the
start. The holder of a cashier1s check who is
not a holder in due course cannot enforce
such check against the issuing bank which
dishonors the same. If a payee of a cashier1s
check obtained it from the issuing bank by
fraud, or if there is some other reason why
the payee is not entitled to collect the
check, the respondent bank would, of
course, have the right to refuse payment of
the check when presented by the payee,
since respondent bank was aware of the
facts surrounding the loss of the check in
!uestion. (MESINA VS. IAC)
LIABILITY OF GENERAL INDORSER
$@ecourse$ means resort to a person who
is secondarily liable after the default of the
person who is primarily liable. Appellant,
by indorsing the note $with recourse$ does
not make itself a !ualified indorser% but a
general indorser who is secondarily liable,
because by such indorsement, it agreed
that if 4r. Aillaruel fails to pay the note,
plaintiff#appellee can go after said
appellant. The effect of such indorsement
is that the note was indorsed Without
!ualification. A person who indorses
without !ualification engages that on due
presentment, the note shall be accepted or
paid, or both as the case may be, and that
if it be dishonored, he will pay the amount
thereof to the holder. Appellant 'ambok1s
intention of indorsing the note without
!ualification is made even more apparent
by the fact that the notice of demand,
dishonor, protest and presentment were all
waived. The words added by said appellant
88
do not limit his liability, but rather,
confirm his obligation as a general indorser.
(METROPOL VS. SAMBOK)
The collecting bank or last endorser
generally suffers the loss because it has the
duty to ascertain the genuineness of all
prior endorsements considering that the act
of presenting the check for payment to the
drawee is an assertion that the party
making the presentment has done its duty
to ascertain the genuineness of the
endorsements.$ The rule finds more
meaning in this case where the check
involved is drawn on a foreign bank and
therefore collection is more difficult than
when the drawee bank is a local one even
though the check in !uestion is a manager1s
check. (BPI VS. CA AND NAPI#A)
PRESENTMENT FOR
PAYMENT/ACCEPTANCE
A letter of credit is defined as an
engagement by a bank or other person
made at the re!uest of a customer that the
issuer will honor drafts or other demands
for payment upon compliance with the
conditions specified in the credit. Through
a letter of credit, the bank merely
substitutes its own promise to pay for the
promise to pay of one of its customers who
in return promises to pay the bank the
amount of funds mentioned in the letter of
credit plus credit or commitment fees
mutually agreed upon.
In the instant case then, the drawee was
necessarily the herein petitioner. It was to
the latter that the drafts were presented
for payment. In fact, there was no need for
acceptance as the issued drafts are sight
drafts. 9resentment for acceptance is
necessary only in the cases expressly
provided for in 'ection ,B- of the
.egotiable Instruments /aw 6.I/8.
(PRUDENTIAL BANK VS. IAC)
&nder 'ection ,CD of the .I/, E a check
must be presented for payment within a
reasonable time after its issue or the
drawer will be discharged from liability
thereon to the extent of the loss caused by
the delay=. "y current banking practice, a
check becomes stale after more than D
months or ,C+ days.
A stale check is one which has not been
presented for payment within a reasonable
time after its issue. It is valueless and
therefore should not be paid. This is
because the nature and theory behind the
use of a check points to its immediate use
and payability. (INT$L CORP. BANK VS.
SPOUSES GUECO)
CHECKS
The drawing and negotiation of a check
have certain effects aside from the transfer
of title or the incurring of liability in regard
to the instrument by the transferor. The
holder who takes the negotiated paper
makes a contract with the parties on the
face of the instrument. There is an implied
representation that funds or credit are
available for the payment of the instrument
in the bank upon which it is drawn.
:onse!uently, the withdrawal of the money
from the bank to avoid liability on the
checks cannot pre2udice the rights of a
holder in due course. (STATE INVESTMENT
HOUSE VS. CA)
In order to preserve the credit
worthiness of chocks, 2urisprudence has
pronounced that crossing of a check should
have the following effects0 6a8 the check
may not be encashed but only deposited in
the bank% 6b8 the check may be negotiated
only once#to one who has an account with a
bank% 6c8 and the act of crossing the check
serves as warning to the holder that the
check has been issued for a definite
purpose so that he must in!uire if he has
received the check pursuant to that
purpose, otherwise, he is not a holder in
due course. (BATAAN CIGAR & CIGARETTE
FACTOR" VS. CA)
While it is true that the delivery of a
check produces the effect of payment only
when it is cashed, pursuant to Art. ,7B? of
the :ivil :ode, the rule is otherwise if the
debtor is pre2udiced by the creditor1s
unreasonable delay in presentment. The
acceptance of a cheek implies an
undertaking of due diligence in presenting
it for payment, and if he from whom it is
received sustains loss by want of such
diligence, it will be held to operate as
actual payment of the debt or obligation
for which it was given. It has, likewise,
been held that if no presentment is made
at all, the drawer cannot be held liable
irrespective of loss or in2ury unless
presentment is otherwise excused.
This is in harmony with Article ,7B? of the
:ivil :ode under which payment by way of
check or other negotiable instrument is
conditioned on its being cashed, except
when through the fault of the creditor, the
instrument is impaired. The payee of a
check would be a creditor under this
provision and if its non#payment is caused
by his negligence, payment will be deemed
effected and the obligation for which the
check was given as conditional payment
will be discharged. (PAPA VS. A.U.
VALENCIA & CO.% INC.)
INSURANCE LAW
INSURABLE INTEREST
A person who is interested in the safety
and preservation of materials in his
possession belonging to third parties
because he stands either to benefit from
their continued existence or to be
pre2udiced by their destruction, has an
insurable interest thereon which is not
necessarily limited to the extent of his
liability to the owners thereof. A person
having mere right of possession of property
may insure it to its full value and in his own
name, even when he is not responsible for
its safekeeping. (ANG KA "U v. PHOENIX
ASSURANCE CO. LTD &CAR ')
The automatic assignment of the policy
to :F' under the provision of the lease
contract previously !uoted is void for being
contrary to law and/or public policy. The
proceeds of the fire insurance policy thus
rightfully belong to the spouses .ilo :ha
and 'tella &y#:ha 6herein copetitioners8,
The insurer 6&nited8 cannot be compelled
to pay the proceeds of the fire insurance
policy to a person 6:F'8 who has no
insurable interest in the property insured.
(SPOUSES CHA v. CA% '(( SCRA )*+)
The rationale of a group insurance policy
of mortgagors, otherwise known as the
$mortgage redemption insurance,$ is a
device for the protection of both the
mortgagee and the mortgagor. )n the part
of the mortgagee, it has to enter into such
form of contract so that in the event of the
unexpected demise of the mortgagor during
the subsistence of the mortgage contract,
the proceeds from such insurance will be
applied to the payment of the mortgage
debt, thereby relieving the heirs of the
mortgagor from paying the obligation. In a
similar vein, ample protection is given to
the mortgagor under such a concept so that
in the event of death% the mortgage
obligation will be extinguished by the
application of the insurance proceeds to
the mortgage indebtedness. (GREPALIFE
VS. CA & LEUTERIO)
SUBROGATION
The insurer can only be subrogated to
only such rights as the insured may have.
;owever if the insured, after receiving
payment from the insurer, releases the
wrongdoer who caused the loss, the insurer
loses his rights against the latter. In such a
case, the insurer will be entitled to recover
from the insured whatever it has paid to
the latter, unless the release was made
90
with the consent of the insurer. (MANILA
MAHOGAN" MANUFACTURING CORP. v.
CA% &,- SCRA ),+)
'ubrogation is a normal incident of
indemnity insurance &pon payment of the
loss, the insurer is entitled to be
subrogated pro tanto to any right of action
which the insured may have against the
third person whose negligence or wrongful
act caused the loss.
The right of subrogation is of the highest
e!uity. The loss in the first instance is that
of the insured but after reimbursement or
compensation, it becomes the loss of the
insurer.
When the insurance company pays for the
loss, such payment operates as an
e!uitable assignment to the insurer of the
property and all remedies which the
insured may have for the recovery thereof.
That right is not dependent upon, nor does
it grow out of, any privity of contract, or
upon written assignment of claim, and
payment to the insured makes the insurer
an assignee in e!uity. (MALA"AN
INSURANCE VS. CA)
There are a few recognied exceptions
to this rule on subrogation. (or instance, if
the assured by his own act releases the
wrongdoer or third party liable for the loss
or damage, from liability, the insurer1s right
of subrogation is defeated. 'imilarly, where
the insurer pays the assured the value of
the lost goods without notifying the carrier
who has in good faith settled the assured1s
claim for loss, the settlement is binding on
both the assured and the insurer, and the
latter cannot bring an action against the
carrier on his right of subrogation. And
where the insurer pays the assured for a
loss which is not a risk covered by the
policy, thereby effecting $voluntary
payment$, the former has no right of
subrogation against the third party liable
for the loss. (PAN MALA"AN INSURANCE
CORP. VS. CA)
INCONTESTABILITY CLAUSE
'ection BC of the Insurance :ode
precludes the insurer from raising the
defense of false representations or
concealment of material facts insofar as
health and previous diseases are concerned
if the insurance has been in force for at
least 7 years during the insured<s lifetime.
The phrase Eduring the lifetime= in section
BC means that the policy is no longer
considered in force after the insured has
died. The key phrase in section BC is for a
period of 7 years. The insurer has 7 years
from the date of the issuance of the
contract or its last reinstatement within
which to contest the policy whether or not
the insured still lives within such period.
(TAN v. CA &(- SCRA -+.)
MISCONDUCT OF INSURANCE AGENT
Where the applicant signs the
application in blank and authories the
agent of the insurance company to fill up
the blank spaces for him, he made them his
own agent for that purpose and he is
responsible for their acts in that
connection. If they falsified the answers for
him, he could not evade the responsibility
for the application being falsified.
(INSURANCE LIFE ASSURANCE CORP. v.
FELICIANO% (-PHIL -)/)
MARINE INSURANCE
The fact that the sub2ect matter insured
was loaded on two different barges did not
make the contract several and divisible as
to the items insured, where it was shown
that the items insured were not separately
valued or separately insured and only one
premium was paid for the entire shipment.
(ORIENTAL ASSURANCE CORP. v. CA '++
SCRA-,*)
The fact that the unseaworthiness of the
ship was unknown to the insured is
immaterial in ordinary marine insurance
and may not be used as a defense to
recover on the policy. The cargo owner is
re!uired to look for a common carrier that
keeps its vessels seaworthy. In the absence
of stipulation that the insurer answers for
perils of the ship, insurance cannot be
recovered on losses from perils of the ship.
(RO!UE v. IAC% &.*SCRA ,*()
&nder an all#risks policy, it is sufficient
to show that there was damage occasioned
by some accidental cause of any kind, and
there is no necessity to point to any
particular cause. An all#risks coverage
extends all damages/ losses suffered by the
insured cargo except a.8 loss or damage or
expense proximately caused by delay% b8
loss or damage or expense proximately
caused by the inherent vice or nature of
the sub2ect matter insured. Also it covers
all losses except such as arising from the
fraud of the insured. (FILIPINO MERCHANTS
INSURANCE CO. v. CA% &(* SCRA )./)
DOUBLE INSURANCE
The insurer may not recover under an
insurance policy if he has violated the
conditions of the policy to the effect that
he did not reveal the existence of other
insurance policies over the same properties
as re!uired by the warranty appearing on
the face of the policy. (UNION
MANUFACTURING CO. INC. v. PHILIPPINE
GURANT" CO. INC.% -( SCRA '(&)
REINSURANCE
In an action on a contract of
reinsurance, as a general rule, the
reinsurer is entitled to avail itself of every
defense which the reinsured might urge in
an action by the person originally insured.
(GIBSON v. REVILLA% *' SCRA '&*)
IMPLIED WARRANTY OF SEAWORTHINESS
In every voyage policy of marine
insurance, there is an implied warranty
that the vessel is in all respect seaworthy,
and such warranty can be excluded only by
clear provisions of the policy. (PHILIPPINE
AMERICAN GENERAL INSURANCE CO. v. CA
'(. SCRA ')')
AUTHORIZED DRIVER CLAUSE
The main purpose of the authoried
driver clause is that a person other than
the insured owner who drives the car with
his person must be duly licensed and not
dis!ualified to drive a car.
Where a car is admittedly unlawfully and
wrongfully taken without the owner<s
consent, such taking constitutes or partakes
the nature of theft for purposes of recovery
under the insurance policy. (VILLACORTA
v. INSURANCE COMMISSION% &++ SCRA -)()
The re!uirement in an Eauthoried
driver clause= that the driver be permitted
in accordance with the licensing or other
law or regulations to drive the motor
vehicle and is not dis!ualified from driving
such motor vehicle by order of a court of
law or by reason of an enactment or
regulation in that behalf applies only when
the driver is driving under the insured<s
order or with his permission. It does not
apply when the person driving is the
insured himself. (PALERMO v. P"RAMID
INSURANCE CO. INC.% &)& SCRA )(()
LIFE INSURANCE
Where a life insurance policy is made
payable to one of the heirs of the person
whose life is insured, the proceeds of the
policy on the death of the insured belong
exclusively to the beneficiary and not to
the estate of the person whose life was
insured and such proceeds are his individual
property and not the property of the heirs
of the person whose life was insured. (DEL
VAL v. DEL VAL% '* PHIL ,.-)
The proceeds of a life insurance policy
payable to the insured person<s estate, on
which the premiums were paid by the
con2ugal partnership, constitute community
property and belong one#half to the
husband exclusively, and the other half to
the wife. If the premiums were paid partly
92
with paraphernal and partly con2ugal funds,
the proceeds are in like proportion,
paraphernal in part and con2ugal in part.
(BPI v. POSADAS% ,) PHIL '&,)
According to the Article 7+,7 of the .ew
:ivil :ode that any person who is forbidden
from receiving any donation under Art. G-?
cannot be named beneficiary of a life
insurance policy by the person who cannot
make a donation to him. "oth are founded
upon the same consideration which is
liberality. (INSULAR LIFE v. EBRADO /+
SCRA &/&)
CASUALTY INSURANCE
Where the contract provides for
indemnity against liability to third persons,
then third persons to whom the insured is
liable, can sue directly the insurer upon the
occurrence of the in2ury or event upon
which the liability depends. The purpose is
to protect the in2ured person against the
insolvency of the insured who causes such
in2ury and to give him a certain beneficial
interest in the proceeds of the policy. It is
as if such in2ured person were especially
named in person. (SHAFER v. JUDGE% RTC%
&)( SCRA ./))
COMPULSORY MOTOR VEHICLE LAW
INSURANCE
'ection -GC of the Insurance :ode has
established the following rules under the
Eno fault indemnity provision= ,.8 a claim
maybe made against one motor vehicle
only% 78 if the victim is an occupant of a
vehicle, the claim shall lie against the
insurer of the motor vehicle in which he is
riding, mounting, dismounting from% -8 in
any other case Hi.e.I if the victim was not
an occupant of the vehicle, the claim shall
lie against the insurer of the directly
offending vehicle% B8 in all cases, the right
of the party paying the claim to recover the
owner of the vehicle responsible for the
accident shall be maintained. (PERLA
COMPANIA DE SEGURO INC. v. ANCHETA
&)- SCRA &--)
TRANSPORTATION LAWS
GENERAL CONCEPTS
There are two aspects of a contract of
common carriage, namely0 a.8 the contract
to carry, at some future time, which
contract is consensual and is necessarily
perfected by mere consent and b.8 the
contract of carriage itself which should be
considered as a real contract for not until
the carrier is actually used can the carrier
be said to have already assumed the
obligation of a carrier. (BRITISH AIRWA"S%
INC. VS. CA)
Art. ,G-7 of the .ew :ivil :ode avoids
any distinction between one whose
principal business activity is the carrying of
persons or goods or both and one who does
such carrying only as an ancillary activity
6sideline8. It also avoids a distinction
between a person or enterprise offering
transportation service on a regular or
scheduled basis and one offering such
service on an occasional, episodic or
unscheduled basis.
.either does the law distinguish between a
carrier offering its services to the general
public that is the general community or
population and one who offers services or
solicits business only from a narrow
segment of the general population.
A person or entity is a common carrier even
if he did not secure a :ertificate of 9ublic
:onvenience. 6DE GU#MAN VS. CA)
)ne is a common carrier even if he has
no fixed and publicly known route,
maintains no terminals, and issues no
tickets. 6ASIA LIGHTERAGE SHIPPING% INC.
VS. CA)
Art. ,G-7 makes no distinction as to the
means of transporting, as long as it is by
land, water or air. It does not provide that
the transportation should be by motor
vehicle.
The test for determining whether a party is
a common carrier is0
1. It must be engaged in the business of
carrying goods for others as a public
employment and must hold itself out
as ready to engage in the
transportation of goods generally as a
business and not as a casual
occupation%
2. It must undertake to carry goods of
the kind to which its business in
confined%
3. It must undertake to carry by the
method by which his business is
conducted and over its established
roads% and
4. The transportation must be for hire.
6FIRST PHILIPPINE INDUSTRIAL
CORPORATION VS. CA)
The true test of a common carrier is the
carriage of goods or passengers
provided it has space for all who opt to
avail themselves of its transportation
for a fee. 6NATIONAL STEEL CORP. VS.
CA)

The law of the country to which the
goods are to be transported governs the
liability of the common carrier in case of
their loss, destruction, or deterioration and
it is immaterial that the collision actually
occurred in foreign waters. 6NDC v. CA)
REGISTERED OWNER AND KABIT SYSTEM
The registered owner of a certificate of
public convenience is liable to the public
for the in2uries or damages suffered by
passengers or third persons caused by the
operation of said vehicle, even thought the
same had been transferred to a third
person. 6ERE#O VS. JEPTE)
The kabit system is an arrangement
whereby a person who has been granted a
certificate of public convenience allows
other persons who own motor vehicles to
operate term under his license, sometimes
for a fee or percentage of the earnings.
(LIM VS. CA)
Although not outrightly penalied as a
criminal offense, the kabit system is
invariably recognied as being contrary to
public policy and, therefore, void and
inexistent under Art. ,B+? of the :ivil
:ode. It is a fundamental principle that the
court will not aid either party to enforce an
illegal contract, but will leave them both
where it finds them. 6LITA ENTERPRISES%
INC. VS. IAC)
Where a 2eepney is registered in the
name of an authoried public operator but
is actually owned by another and the same
bumped somebody thru the negligence of
its driver, such a 2eepney can be sold at a
public auction to satisfy the court<s award.
It cannot be considered a Estranger<s
property=. 6SANTOS VS. SIBUG)
CARRIAGE OF GOODS
Duty to Accet !oo"#
:ommon carriers cannot lawfully decline
to accept a particular class of goods for
carriage to the pre2udice of the traffic in
those goods unless it appears that for some
sufficient reason the discrimination against
the traffic in such goods is reasonable and
necessary. 5ere pre2udice or whim will not
suffice. 6FISHER VS. "ANGCO STEAMSHIP
CO.8
Duty to e$e%c&#e e$t%'o%"&('%y "&)&!e(ce
:ommon carriers, from the nature of
their business and for reasons of public
policy, are bound to observe extraordinary
diligence in the vigilance over the goods
transported by them, and this liability lasts
94
from the time the goods are unconditionally
placed in the possession of, and received by
the carrier for transportation until the
same are delivered actually or
constructively, by the carrier to the person
who has a right to receive them. 6SARKIES
TOURS PHILIPPINES% INV. VS. CA)
When goods placed in its care are lost or
damaged, the carrier is presumed to have
been at fault or to have acted negligently.
The carrier therefore has the burden of
proving that it observed extraordinary
diligence in order to avoid responsibility for
the lost cargo. 6TABACALERA INSURANCE
CO. VS. NORTH FRONT SHIPPING SERVICES%
INC.)
The extraordinary responsibility of the
common carrier lasts until the actual or
constructive delivery of the cargoes to the
consignee or to the person who has a right
to receive them. 6MACAM VS. CA)
After a common carrier<s status has
passed from that of carrier to that of agent
of consignee, loss of goods in its hands for
cause beyond its control and without its
negligence being proved relieves the carrier
of civil liability for such loss or damage.
6SAMAR MINING CO. INC. VS. NORDEUTSHER
LLO"D)
)wing to the high degree of diligence
re!uired of them, common carriers as a
general rule are presumed to have been at
fault or negligent if the goods they
transported deteriorated or got lost or
destroyed. 5ere proof of delivery of the
goods in good order to a common carrier
and of their arrival in bad order at their
destination constitutes a prima facie case
of fault or negligence against the carrier.
(BELGIAN OVERSEAS CHARTERING AND
SHIPPING N.V. VS. PHILIPPINE FIRST
INSURANCE CO.% INC.)
5ere proof of delivery of goods to a
carrier in good order and the subse!uent
arrival of the same goods at the place of
destination in bad order makes for a prima
facie case against the carrier. 6COASTWISE
LIGHTERAGE CORP. V. CA)
4elivery of goods to the custom
authorities is not delivery to the consignee.
6LU DO V. BINAMIRA)
DEFENSES
Where fortuitous event or force ma2eure
is the immediate and proximate cause of
the loss, the obligor is exempt from liability
for non#performance.
.o extraordinary diligence by the carrier
could have prevented the loss of the goods
after they had been deposited in the
warehouse of the "ureau of :ustoms.
6SERVANDO VS. PHILIPPINE STEAM
NAVIGATION CO.)
Where loss of cargo results from the
failure of the officers of a vessel to inspect
their ship fre!uently, that loss cannot be
attributed to force ma2eure, but to the
negligence of the officials. 6EDGAR
COKALIONG SHIPPING LINES% INC. VS. UCPB
GENERAL INSURANCE COMPAN" INC.)
(ire may not be considered as a natural
disaster or calamity as it arises almost
invariably from some act of man or by
human means. 6EASTERN SHIPPING LINES
INC. VS. IAC)
To exculpate the carrier from liability
arising from hi2acking, he must prove that
the robbers or the hi2ackers acted with
grave or irresistible threat, violence, or
force in accordance with Art.,GB* of the
:ivil :ode. 6BASCOS VS. CA)
In order that a common carrier may be
absolved from liability where the loss,
destruction or deterioration of the goods is
due to a natural disaster or calamity, it
must further be shown that such natural
disaster or calamity was the proximate and
only cause of the loss and that the common
carrier exercised due diligence to prevent
or minimie the loss before, during, and
after the occurrence of the natural
disaster. 6PHILIPPINE AMERICAN GENERAL
INSURANCE CO.% INC. VS. MGG MARINE
SERVICES% INC.)
To absolve the common carrier from
liability the public authority must be shown
to have the power to issue the order or that
it was lawful, or that it was issued under
legal process of authority. 6GAN#ON VS.
CA)
If the improper packing or the defects in
the container are known to the carrier or
his employees or apparent upon ordinary
observation, but he nevertheless accepts
the same without protest or exception
notwithstanding such condition, he is not
relieved of liability for damage resulting
therefrom. (CALVO VS. UCPB GENERAL
INSURANCE CO.% INC.8
CARRIAGE OF PASSENGERS
A passenger is defined as one who
travels in a public conveyance by virtue of
a contract, express or implied, with the
carrier as to the payment of fare, or that
which is accepted as an e!uivalent thereof.
The relation of carrier and passenger
commences when one puts himself in the
care of carrier, or directly under its
control, with the bona fide intention of
becoming a passenger and is accepted by
the carrier, as where he makes a contract
for transportation and presents himself at
the proper place and in a proper manner to
be transported. 6JESUSA VDA DE NUECA% ET
AL. VS. MANILA RAILROAD COMPAN")
continues until the passenger has been
landed at the port of destination and has
left the vessel owner<s dock or premises.
)nce created, the relationship will not
ordinarily terminate until the passenger
has, after reaching his destination, safely
alighted from the carrier<s conveyance or
had a reasonable opportunity to leave the
carrier<s premises. All persons who remain
on the premises a reasonable time after
leaving the conveyance are to be deemed
passengers, and what is a reasonable time
or a reasonable delay within this rule is to
be determined from all the circumstances,
and includes a reasonable time to see after
his baggage and prepare for his departure.
(ABOITI# SHIPPING CORPORATION VS. CA)
A public utility bus, once it stops, is in
effect making a continuous offer to bus
riders. ;ence, it becomes the duty of the
driver and the conductor, every time the
bus stops, to do no act that would have the
effect of increasing the peril to a passenger
while he is attempting to board the same.
The victim herein, by stepping and standing
on the platform of the bus, is already
considered a passenger and is entitled to
all the rights and protection pertaining to
such a contractual relation. 6DANGWA
TRANSPORTATION CO. INC. VS. CA)
The duty of a common carrier to provide
safety to its passengers so obligates it not
only during the course of the trip but for as
long as the passengers are within its
premises and where they ought to be in
pursuance of the contract of carriage.
6LIGHT RAIL TRANSIT AUTHORIT" VS.
NAVIDAD)
does not cease at the moment the
passenger alights from the carrier<s vehicle
at a place selected by the carrier at the
point of destination, but continues until the
passenger has had a reasonable time or a
96
reasonable opportunity to leave the
carrier<s premises. 6LA MALLORCA VS. CA)
A contract to transport passengers is a
relationship imbued with public interest.
(ailure on the part of the common carrier
to live up to the exacting standards of care
and diligence renders it liable for any
damages that may be sustained by its
passengers. ;owever, this is not to say that
common carriers are absolutely responsible
for all in2uries even if the same were
caused by a fortuitous event. To rule
otherwise would render the defense of
force ma2eure, as an exception from any
liability, illusory and ineffective. 6JAPAN
AIRLINES VS. CA)
A common carrier does not give its
consent to become an insurer of any
and all risks to passengers and
goods. It merely undertakes to
perform certain duties to the public
as the law imposes, and holds itself
liable for any breach thereof.
6PILAPIL VS. CA)
While a passenger is entitled to
protection from personal violence by the
carrier or its agents or employees, since
the contract of transportation obligates the
carrier to transport a passenger safely to
his destination, the responsibility of the
carrier extends only to those acts that the
carrier could foresee or avoid through the
exercise of the degree of care and diligence
re!uired of it. (GILLACO% ET AL. VS. MRR
CO.)
OBLIGATIONS OF THE SHIPPER*
CONSIGNEE AND PASSENGER
The act of the shipper in furnishing the
carrier with an inaccurate weight of the
payloader constitutes a contributory
circumstance to the damage caused on the
payloader, which mitigates the liability for
damages of petitioner in accordance with
Art. ,GB, of the :ivil :ode.( COMPANIA
MARITIMA VS. CA)
A passenger is guilty of contributory
negligence where he chose to ride on the
open platform of the train and failed to
hold tightly on the vertical grab bar. 6PNR
v. CA)
E+TRAORDINARY DILIGENCE
While the breaking of the idler may be
due to an accident, or to something
unexpected, the cause of the disaster
which resulted in the loss of the gasoline
can only be attributed to the negligence
and lack of precaution to avert it on the
part of defendant. The ship was not
seaworthy and defendant did not have a
competent tug to effectuate the rescue.
6STANDARD VACUUM OIL COMPAN" VS.
LU#ON STEVEDORING CO.% INC.)
The behavior of the captain of the E4on
3uan=# playing mah2ong before and up to
the time of the collision# constitutes
behavior that is simply unacceptable on the
part of the master of the vessel upon whom
the law imposes the duty of extraordinary
diligence# Ethe duty to carry the passengers
safely as far as human care and foresight
can provide, using the utmost diligence of
very cautious persons, with due regard for
all the circumstances.= 6MECENAS VS. CA)
The common carrier<s liability for the
death or in2uries to its passengers is based
on its contractual obligation to carry its
passengers safely to their destination. They
are presumed to have been at fault or to
have acted negligently unless they prove
that they observed extraordinary diligence.
(BATANGAS LAGUNA TA"ABAS BUS CO. VS.
IAC)
In an action based on a contract of
carriage, the court need not make an
express finding of fault or negligence on
the part of the carrier in order to hold it
responsible to pay the damages sought for
by the passenger. "y the contract of
carriage, the carrier assumes the express
obligation to transport the passenger to his
destination safely and to observe
extraordinary diligence with due regard for
all the circumstances, and any in2ury that
might be suffered by the passenger is right
away attributable to the fault or negligence
of the carrier. 6BATANGAS
TRANSPORTATION COMPAN" VS.
CAGUIMBAL)
The rule is settled that a driver
abandoning his proper lane for the purpose
of overtaking another vehicle in an ordinary
situation has the duty to see to it that the
road is clear and not to proceed if he
cannot do so in safety. 6MALLARI% SR. VS.
CA)
(airness demands that in measuring a
common carrier<s duty towards its
passengers, allowance must be given to the
reliance that should be reposed on the
sense of responsibility of all the passengers
in regard to their common safety. It is to be
presumed that a passenger will not take
with him anything dangerous to the lives
and limbs of his co#passengers, not to speak
of his own. .ot to be considered lightly is
the right to privacy of each passenger. ;e
cannot be sub2ected to any unusual search,
when he protests the innocuousness of his
baggage and nothing appears to indicate
the contrary. 6NOCUM VS. LAGUNA
TA"ABAS BUS CO.)
A common carrier is presumed at fault in
he absence of a satisfactory explanation on
how the airplane crash occurred. 6VDA. DE
ABETO VS. PHIL. AIR LINES% INC.)

BILL OF LADING AND OTHER FORMALITIES
Three kinds of stipulation have often
been made in a bill of lading. The first is
one exempting the carrier from any and all
liability for loss or damage occasioned by
its own negligence. The second is one
providing for an un!ualified limitation of
such liability to an agreed valuation. And
the third is one limiting the liability of the
carrier to an agreed valuation unless the
shipper declares a higher value and pays a
higher rate of freight. The first and second
kinds of stipulations are invalid as being
contrary to public policy, but the third is
valid and enforceable. 6H.E. HEACOCK CO.
VS. MACONDRA" & CO.)
While it may be true that petitioner had
not singed the plane ticket, he is
nevertheless bound by the provisions
thereof. 'uch provisions have been held to
be part of the contract of carriage, and
valid and binding upon the passenger
regardless of the latter<s lack of knowledge
or assent to the regulation. It is what is
known as a contract of adhesion, in regards
which it has been said that contracts of
adhesion wherein one party imposes a
ready made form of contract on the other
are contracts not entirely prohibited. The
one who adheres to the contract is in
reality free to re2ect it entirely% if he
adheres, he gives his consent. 6ONG "IU VS.
CA 8
The consignee by making claim for loss
on the basis of the bill of lading, to all
intents and purposes accepted said bill.
;aving done so, he becomes bound by all
stipulations contained therein whether on
the front or at the back thereof. 6SEA-LAND
SERVICE% INC. VS. IAC)
"asic is the rule that a stipulation
limiting the liability of the carrier to the
value of the goods appearing in the bill of
lading, unless the shipper or owner declares
a greater value, is binding. (urther, a
98
contract fixing the sum that may be
recovered by the owner or shipper for the
loss, destruction or deterioration of the
goods is valid, if it is reasonable and 2ust
under the circumstances, and has been
fairly and freely agreed upon. 6CITADEL
LINES% INC. VS. CA)
A stipulation in the bill of lading limiting
the common carrier<s liability for loss or
destruction of a cargo to a certain sum,
unless the shipper or owner declares a
greater value, is sanctioned by Articles
,GB? and ,G*+ of the :ivil :ode. The 2ust
and reasonable character of a stipulation is
implicit in it giving the shipper or owner
the option of avoiding accrual of liability
limitation by the simple expedient and far
from onerous expedient of declaring the
nature and value of the shipment in the bill
of lading. 6EVERETT STEAMSHIP
CORPORATION VS. CA)
The issuance of a bill of lading carries
the presumption that the goods were
delivered to the carrier issuing the bill and
it is prima facie evidence of the receipt of
the goods by the carrier. ;owever as
between the shipper and the carrier, when
no goods have been delivered for shipment
no recitals in the bill of lading can estop
the carrier from showing the true facts.
6SALUDO% JR. VS. CA)
ACTIONS IN CASE OF BREACH OF
CONTRACT OF CARRIAGE
The owners and driver of the bus may be
made 2ointly and severally liable to the
victims where their separate and distinct
acts concurred to produce the same in2ury.
6FABRE% JR. VS CA)

Where the contract of shipment contains
a reasonable re!uirement of giving notice
of loss or in2ury to the goods, the giving of
such notice is a condition precedent to the
action for loss or in2ury or the right to
enforce the carrier<s liability. The
fundamental purpose is not to relieve the
carrier from 2ust liability, but reasonably to
inform it that the shipment has been
damaged and that it is charged with
liability therefore, and to give it an
opportunity to examine the nature and
extent of the in2ury. 6PHILIPPINE AMERICAN
GENERAL INSURANCE CO.% INC. VS. SWEET
LINES% INC.)
(or suits not predicated upon loss or
damage but on alleged misdelivery or
conversion of the goods, the applicable rule
on prescription is that found in the .ew
:ivil :ode% either ten years for breach of a
written contract or four years for !uasi#
delict, and not the rule on prescription in
the :)J'A. (ANG VS. AMERICAN STEAMSHIP
AGENCIES INC.)
E/oss= refers to the deterioration or
disappearance of goods. 4amages arising
from delay or late delivery are not the
damage or loss contemplated under the
:)J'A. 6MITSUI O.S.K. LINES LTD. VS. CA)
The coverage of the one#year
prescriptive period under the :)J'A
includes the insurer of the goods.
)therwise, what the Act intends to prohibit
after the lapse of the one#year prescriptive
period can be done indirectly by the
shipper or owner of the goods by simply
filing a claim against the insurer even after
the lapse of one year. 6FILIPINO
MERCHANTS INSURANCE CO.% INC. VS.
ALEJANDRO)
&nder 'ec. - 6D8 of the :)J'A, only the
carrier<s liability is extinguished if no suit is
brought within one year. "ut the liability of
the insurer is not extinguished because the
insurer<s liability is based not on the
contract of carriage but on the contract of
insurance. 6MA"ER STEEL PIPE CORP. VS.
CA)
A written extra2udicial demand by the
creditor does not toll the running of the
one#year prescriptive period under the Act.
(DOLE PHILIPPINES% INC. VS MARITIME CO.
OF THE PHILS.)
MARITIME LAW
The real and hypothecary nature of
maritime law simply means that the
liability of the carrier in connection with
losses related to maritime contracts is
confined to the vessel, which is
hypothecated for such obligations or which
stands as the guaranty for their settlement.
(ABOITI# SHIPPING CORP. VS. GENERAL
ACCIDENT FIRE AND LIFE ASSURANCE
CORP.% LTD.)
E.o vessel, no liability=, expresses in a
nutshell the limited liability rule. The
shipowner<s or agent<s liability is merely
co#extensive with his interest in the vessel
such that a total loss thereof results in its
extinction. The total destruction of the
vessel extinguishes maritime liens because
there is no longer any res to which it can
attach. 6MONARCH INSURANCE CO.% INC.
VS. CA)
Art. *CG of the :ode of :ommerce
speaks only of situations where the
fault or negligence is committed solely
by the captain. Where the shipowner is
likewise to be blamed, Art. *CG will not
apply, and such situation will be
covered by the provision of the :ivil
:ode on common carriers. 6PHILIPPINE
AMERICAN GENERAL INSURANCE CO.%
INC. VS. CA)
The liability of a shipowner is limited to
the value of the vessel or to the insurance
thereon. 4espite the total loss of the vessel
therefore, its insurance answers for the
damages that a shipowner or agent may be
held liable for by reason of the death of its
passenger. (VAS!UE# VS. CA)
The provisions of the :ode of :ommerce
regarding maritime commerce have no
room in the application of the Workmen<s
:ompensation Act. 'aid Act creates a
liability to compensate employees or
laborers in cases of in2ury received by or
inflicted upon them, while engaged in the
performance of their work or employment,
or the heirs and dependents of such
laborers and employees in the event of
death caused by their employment. 6ABUEG
VS. SAN DIEGO)
While the total destruction of the vessel
extinguishes a maritime lien, as there is no
longer any risk to which it can attach, but
the total destruction of the vessel does not
affect the liability of the owner for repairs
of the vessel completed before its loss.
6GOVERNMENT OF THE PHILIPPINES VS.
MARITIME)
The owners and agents of a vessel
causing the loss of another vessel by
collision are not liable beyond the vessel
itself causing the collision and other things
appertaining thereto.6PHILIPPINE SHIPPING
CO. VS. GARCIA)
In case of collision, abandonment of the
vessel is necessary in order to limit the
liability of the shipowner or the agent to
the value of the vessel, its appurtenances
and freightage earned in the voyage in
accordance with Art.C-G of the :ode of
:ommerce. The only instance where such
abandonment is dispensed with is when the
vessel was entirely lost. LU#ON
STEVEDORING CORP. VS. CA
If the shipowner or agent may in any way
be held civilly liable at all for in2ury to or
death of passengers arising form the
negligence of the captain in cases of
collisions or shipwrecks, his liability is
merely co#extensive with his interest in the
100
vessel such that a total loss thereof results
in its extinction. 6"ANGCO VS. LASERNA)
The re!uisite of registration on the
registry, of the purchase of a vessel, is
necessary and indispensable in order that
the purchaser<s rights may be maintained
against a claim filed by a third person.
6RUBISO AND GELITO VS. RIVERA)
A ship<s captain must be accorded a
reasonable measure of discretionary
authority to decide what the safety of the
ship and of its crew and cargo specifically
re!uires on a stipulated ocean voyage.
6INTER-ORIENT MARITIME ENTERPRISES INC.
VS. CA)
While in exercising his functions a pilot is
in sole command of the ship and supersedes
the master for the time being in the
command and navigation of the ship, the
master does not surrender his vessel to the
pilot and the pilot is not the master. There
are occasions when the master may and
should interfere and even displace the
pilot, as when the pilot is obviously
incompetent or intoxicated. 6FAR EASTERN
SHIPPING COMPAN" VS. CA)
It is imperative that a public carrier shall
remain as such, notwithstanding the
charter of the whole or portion of a vessel
by one or more persons, provided the
charter is limited to the ship only, as in the
case of a time#charter or voyage#charter. It
is only when the charter includes both the
vessel and crew, as in demise or bareboat
that a common carrier becomes private, at
least insofar as the particular voyage
covering the charter#party is concerned.
6PLANTERS PRODUCTS% INC. VS. CA)
If the charter is a contract of
affreightment which leaves the general
owner in possession of the ship as owner for
the voyage, the rights and the
responsibilities of ownership rest on the
owner. The charterer is free from liability
to third persons in respect of the ship.
6CALTEX (PHILIPPINES)% INC. VS. SULPICIO
LINES% INC.)
>xpenses incurred to refloat a vessel,
which accidentally ran aground, in order to
continue its voyage, do not constitute
general average. .ot only is there absence
of a marine peril, common safety factor,
and deliberateness. It is the safety of the
property, and not the voyage, which
constitutes the true foundation of general
average. 6A. MAGSA"SA"% INC. VS. AGAN)
:ommon carriers cannot limit their
liability for in2ury or loss of goods where
such in2ury or loss was caused by its own
negligence. )therwise stated, the law on
averages under the :ode of :ommerce
cannot be applied in determining liability
where there is negligence. 6AMERICAN
HOME ASSURANCE% COMPAN" VS. CA)
A derelict is defined as a ship or her
cargo which is abandoned and deserted at
sea by those who are in charge of it,
without any hope of recovering it, or
without any intention of returning to it. If
those in charge left with the intention of
returning, or of procuring assistance, the
property is not derelict, but if they !uitted
the property with the intention of finally
leaving it, it is derelict and a change of
their intention and an attempt to return
will not change its nature. (ERLANGER &
GALINGER VS. SWEDISH EAST ASIATIC CO.
LTD)
WARSAW CONVENTION
The Warsaw convention does not operate
as an exclusive enumeration of the
instances for declaring a carrier liable for
breach of contract of carriage or as an
absolute limit of the extent of that
liability. It must not be construed to
preclude the operation of the :ivil :ode
and other pertinent laws. (CATHA" PACIFIC
AIRWA"S% LTD. VS. CA)
The articles in the Warsaw :onvention
merely declare the carrier liable for
damages in the enumerated cases, if the
conditions specified therein are present.
.either said provisions nor others regulate
or exclude liability for other breaches of
contract by the carrier. (NOTHWEST
AIRLINES% INC. VS CUENCA)
The Warsaw :onvention does not operate
as an absolute limit of the extent of an
airline<s liability, it does not regulate or
exclude liability for other breaches of
contract by the carrier, or misconduct
of its employees, or of some particular
or exceptional type of damage.
6ALITALIA VS IAC)
There is international transportation0 ,.8
where the place of departure and the
place of destination are situated within
the territories of two high contracting
parties regardless of whether or not
there be a break of transportation or a
transshipment% and 7.8 where the place
of departure and the place of
destination are within the territory of a
single high contracting party if there is
an agreed stopping place within a
territory sub2ect to the sovereignty,
mandate or authority of another power,
even though the power is not a party to
the convention. (MAPA VS. CA)
&nder a general pool partnership
agreement, the ticket#issuing airline is the
principal in a contract of carriage while the
endorsee#airline is the agent. The
obligation of the former remained and did
not cease even when the breach occurred
not on its own flight but on that of another
airline which had undertaken to carry the
passengers to one of their destinations.
6CHINA AIRLINES VS. CHIOK+ )
The forum of action provided in Art.
7C6,8 is a matter of 2urisdiction rather than
of venue.
It is the passenger<s Eultimate destination=
not Ean agreed stopping place= that
determines the country where suit is to be
filed. (SANTOS III V. NORTHWEST8
A cause of action arising from the
slashing and loss of personal effects by an
airline passenger is well within the bounds
of the Warsaw :onvention while a cause of
action arising from the shabby and
humiliating treatment received from the
airline employees is not. 6UNITED AIRLINES
VS. U")
PUBLIC UTILITIES
A certification of public convenience is
included in the term $property$ in the broad
sense of the term. &nder the 9ublic 'ervice
/aw, a certificate of public convenience
can be sold by the holder thereof because
it has considerable material value and is
considered as valuable asset. Although
there is no doubt that it is private
property, it is affected with a public
interest and must be submitted to the
control of the government for the common
good. ;ence, insofar as the interest of the
'tate is involved, a certificate of public
convenience does not confer upon the
holder any proprietary right or interest or
franchise in the route covered thereby and
in the public highways. ;owever, with
respect to other persons and other public
utilities, a certificate of public convenience
as property, which represents the right and
authority to operate its facilities for public
service, cannot be taken or interfered with
without due process of law. Appropriate
actions may be maintained in courts by the
holder of the certificate against those who
have not been authoried to operate in
competition with the former and those who
invade the rights which the former has
102
pursuant to the authority granted by the
9ublic 'ervice :ommission. (COGEO-CUBAO
OPERATORS & DRIVERS ASSOC. VS. CA)
.obody has the exclusive right to secure
a franchise or a :ertificate of 9ublic
:onvenience. The paramount consideration
should always be the public interest and
public convenience. (VDA. DE LAT VS. PSC)
:onsidering the environmental
circumstances of the case, the conveyance
of passengers, trucks and cargo from
5atnog to Allen is certainly not a ferry boat
service but a coastwise or interisland
shipping service. &nder no circumstance
can the sea between 5atnog and Allen be
considered a continuation of the highway.
While a ferry boat service has been
considered as a continuation of the highway
when crossing rivers or even lakes, which
are small body of waters # separating the
land, however, when as in this case the two
terminals, 5atnog and Allen are separated
by an open sea it can not be considered as
a continuation of the highway. @espondent
9A.T@A.:) should secure a separate :9:
for the operation of an interisland or
coastwise shipping service in accordance
with the provisions of law. Its :9: as a bus
transportation cannot be merely amended
to include this water service under the
guise that it is a mere private ferry service.
(SAN PABLO VS. PANTRANCO SOUTH
EXPRESS% INC.)
'ection ,? 6a8 of the 9ublic 'ervice Act
contemplates of failure to provide a service
that is safe, proper or ade!uate and refusal
to render any service which can reasonably
be demanded and furnished. It refers
specifically to the operator1s inability to
provide reliable vehicles to transport the
riding public to their places of destination
and to the failure to provide an ade!uate
number of units authoried under his
franchise at all times to secure the public
of sustained service. While the words
$unsafe, inade!uate and improper$ may be
broad enough to cover a lot of things, they
must be interpreted in consonance with the
purpose of the 9ublic 'ervice /aw, which
was specifically enacted, among other
things, to protect the public against
unreasonable charges and poor inefficient
service and to secure ade!uate sustained
service for the public at the least possible
costs. (MAN#ANAL VS. AUSEJO)
BANKING LAWS
NEW CENTRAL BANK ACT
It must be remembered that the :entral
"ank of the. 9hilippines 6now "angko
'entral ng 9ilipinas8, through the 5onetary
"oard, is the government agency charged
with the responsibility of administering the
monetary, banking and credit system of the
country and is granted, the power of
supervision and examination over banks and
non#bank financial institutions performing
!uasi#banking functions, of which savings
and loan associations, such as 9>'A/A, form
part of. (BUSUEGO VS. CA)
While admittedly the :entral "ank Act
gives vast and far#reaching powers to the
conservator of a bank, it must be pointed
out that such powers must be related to
the Epreservation of the assets of the bank
6the reorganiation thereof8 and the
restoration of its viability.= 'uch powers,
enormous and extensive as they are, cannot
extend to ex post facto repudiation of
perfected transactions, otherwise they
would infringe against the non#impairment
clause of the :onstitution. (FIRST PHIL.
INT$L BANK VS. CA)
There is no re!uirement whether express
or implied, that a hearing be first
conducted before a banking institution may
be placed under receivership. )n the
contrary, the law is explicit as to the
conditions prere!uisite to the action of the
5onetary "oard to forbid the institution to
do business in the 9hilippines and to
appoint a receiver to immediately take
charge of the bank1s assets and liabilities.
They are0 6a8 an examination made by the
examining department of the :entral "ank%
6b8 report by said department to the
5onetary "oard% and 6c8 prima facie
showing that the bank is in a condition of
insolvency or so situated that its
continuance in business would involve
probable loss to its depositors or creditors.
The evident implication of the law,
therefore, is that the appointment of a
receiver may be made by the 5onetary
"oard without notice and hearing but its
action is sub2ect to 2udicial in!uiry to
insure the protection of the banking
institution. 'tated otherwise, due process
does not necessarily re!uire a prior
hearing% a hearing or an opportunity to be
heard may be subse!uent to the closure.
)ne can 2ust imagine the dire conse!uences
of a prior hearing0 bank runs would be the
order of the day, resulting in panic and
hysteria. In the process, fortunes may be
wiped out, and disillusionment will ran the
gamut of the entire banking community.
(RURAL BANK OF BUHI VS. CA)
The purpose of the law in re!uiring that
only the stockholders of record
representing the ma2ority of the capital
stock may bring the action to set aside a
resolution to place a bank under
conservatorship is to ensure that it be not
frustrated or defeated by the incumbent
"oard of 4irectors or officers who may
immediately resort to court action to
prevent its implementation or
enforcement. It is presumed that such a
resolution is directed principally against
acts of said 4irectors and officers which
place the bank in a state of continuing
inability to maintain a condition of li!uidity
ade!uate to protect the interest of
depositors and creditors. Indirectly, it is
likewise intended to protect and safeguard
the rights and interests of the stockholders.
:ommon sense and public policy dictate
then that the authority to decide on
whether to contest the resolution should he
lodged with the stockholders owning a
ma2ority of the shares for they are
expected to be more ob2ective in
determining whether the resolution is
plainly arbitrary and issued in bad faith.
(CENTRAL BANK VS. CA)
It has been said that where upon the
insolvency of a bank a receiver therefor is
appointed, the assets of the bank pass
beyond its control into the possession and
control of the receiver whose duty it is to
administer the assets for the benefit of the
creditors of the bank. Thus, the
appointment of a receiver operates to
suspend the authority of the bank and of its
directors and officers over its property and
effects, such authority being reposed in the
receiver, and in this respect, the
receivership is e!uivalent to an in2unction
to restrain the bank officers from
intermeddling with the property of the
bank in any way. (VILLANUEVA VS. CA)
The fact that the insolvent bank is
forbidden to do business, that its assets are
turned over to the 'uperintendent of
"anks, as a receiver, for conversion into
cash, and that its li!uidation is undertaken
with 2udicial intervention means that, as
far as lawful and practicable, all claims
against the insolvent bank should be filed in
the li!uidation proceeding.
We explained therein the rationale behind
the provision, i.e., the 2udicial li!uidation
is intended to prevent multiplicity of
actions against the insolvent bank. It is a
pragmatic arrangement designed to
establish due process and orderliness in the
li!uidation of the bank, to obviate the
proliferation of litigations and to avoid
104
in2ustice and arbitrariness. The lawmaking
body contemplated that for convenience
only one court, if possible, should pass
upon the claims against the insolvent bank
and that the li!uidation court should assist
the 'uperintendent of "anks and regulate
his operations. (ONG VS. CA)
SECRECY OF BANK DEPOSITS ACT
The lower court did not order an
examination of or in!uiry into the deposit
of " K " (orest 4evelopment :orporation,
as contemplated in the law. It merely
re!uired Tan Fim /iong to inform the court
whether or not the defendant " K " (orest
4evelopment :orporation had a deposit in
the :hina "anking :orporation only for
purposes of the garnishment issued by it, so
that the bank would hold the same intact
and not allow any withdrawal until further
order.
It is clear that the prohibition against
examination of or in!uiry into a bank
deposit under @epublic Act ,B+* does not
preclude its being garnished to insure
satisfaction of a 2udgment. Indeed there is
no real in!uiry in such a case, and if the
existence of the deposit is disclosed the
disclosure is purely incidental to the
execution process. It is hard to conceive
that it was ever within the intention of
:ongress to enable debtors to evade
payment of their 2ust debts, even if
ordered by the :ourt, through the
expedient of converting their assets into
cash and depositing the same in a bank.
(CHINA BANKING CORP. VS. ORTEGA)
"efore an in#camera inspection may be
allowed of bank deposits, there must be a
pending cases before a court of competent
2urisdiction. (urther, the account must be
clearly identified, the inspection limited to
the sub2ect matter of the pending case
before the court of competent 2urisdiction.
The bank personnel and the account holder
must be notified to be present during the
inspection, and such inspection may cover
only the account identified in the pending
case.
An examination by the )ffice of the
)mbudsman is not a pending litigation to
allow examination of the respondent<s bank
account. (MAR!UE# VS. DESIERTO)
Thus, while @epublic Act .o. ,B+*
provides that bank deposits are $absolutely
confidential . . . and HthereforeI may not
be examined, in!uired or looked into,$
except in those cases enumerated therein,
the Anti#Jraft /aw directs in mandatory
terms that bank deposits $shall be taken
into consideration in the enforcement of
this section, notwithstanding any provision
of law to the contrary.$ The only conclusion
possible is that section C of the Anti#Jraft
/aw is intended to amend section 7 of
@epublic Act .o. ,B+* by providing an
additional exception to the rule against the
disclosure of bank deposits.
With regard to the claim that disclosure
would be contrary to the policy making
bank deposits confidential, it is enough to
point out that while section 7 of @epublic
Act .o. ,B+* declares bank deposits to be
$absolutely confidential$ it nevertheless
allows such disclosure in the following
instances0 6,8 &pon written permission of
the depositor% 678 In cases of impeachment%
678 &pon order of a competent court in
cases of bribery or dereliction of duty of
public officials% 6B8 In cases where the
money deposited is the sub2ect of the
litigation. :ases of unexplained wealth are
similar to cases of bribery or dereliction of
duty and no reason is seen why these two
classes of cases cannot be excepted from
the rule making bank deposits confidential.
The policy as to one cannot be different
from the policy as to the other. This policy
expresses the notion that a public office is
a public trust and any person who enters
upon its discharge does so with the full
knowledge that his life, so far as relevant
to his duty, is open to public scrutiny. (PNB
VS.GANCA"CO)
The in!uiry into illegally ac!uired
property#or property .)T $legitimately
ac!uired$#extends to cases where such
property is concealed by being held by or
recorded in the name of other persons. This
proposition is made clear by @.A. .o. -+,?
which !uite categorically states that the
term, $legitimately ac!uired property of a
public officer or employee shall not include
property unlawfully ac!uired by the
respondent, but its ownership is concealed
by its being recorded in the name of, or
held by, respondent1s spouse, ascendants,
descendants, relatives or any other
persons.$
To sustain the petitioner1s theory, and
restrict the in!uiry only to property held by
or in the name of the government official
or employee, or his spouse and unmarried
children is unwarranted in the light of the
provisions of the statutes in !uestion, and
would make available to persons in
government who illegally ac!uire property
an easy and foolproof means of evading
investigation and prosecution% all they
would have to do would be to simply place
the property in the possession or name of
persons other than their spouse and
unmarried children. This is an absurdity
that we will not ascribe to the lawmakers.
(BANCO FILIPINO VS. PURISIMA)
SPECIAL LAWS
CHATTEL MORTGAGE
While a pledge, real estate mortgage, or
antichresis may exceptionally secure after#
incurred obligations so long as these future
debts are accurately described, a chattel
mortgage, however, can only cover
obligations existing at the time the
mortgage is constituted. Although a
promise expressed in a chattel mortgage to
include debts that are yet to be contracted
can be a binding commitment that can be
compelled upon, the security itself,
however, does not come into existence or
arise until after a chattel mortgage
agreement covering the newly contracted
debt is executed either by concluding a
fresh chattel mortgage or by amending the
old contract conformably with the form
prescribed by the :hattel 5ortgage /aw.
@efusal on the part of the borrower to
execute the agreement so as to cover the
after#incurred obligation can constitute an
act of default on the part of the borrower
of the financing agreement whereon the
promise is written but, of course, the
remedy of foreclosure can only cover the
debts extant at the time of constitution
and during the life of the chattel mortgage
sought to be foreclosed. (ACME SHOE%
RUBBER & PLASTIC VS. CA)
A stipulation in the chattel mortgage,
extending its scope and effect to after#
ac!uired property, is valid and binding
where the after#ac!uired property is in
renewal of, or in substitution for, goods on
hand when the mortgage was executed, or
is purchased with the proceeds of the sale
of such goods. A mortgage may, by express
stipulations, be drawn to cover goods put in
stock in place of others sold out from time
to time. A mortgage may be made to
include future ac!uisitions of goods to be
added to the original stock mortgaged, but
the mortgage must expressly provide that
future ac!uisitions shall be held as included
in the mortgage. Where a mortgage
covering the stock in trade, furniture, and
fixtures in the mortgagor1s store provides
that $all goods, stock in trade, furniture,
and fixtures hereafter purchased by the
mortgagor shall be included in and covered
by the mortgage,$ the mortgage covers all
after#ac!uired property of the classes
mentioned, and, upon foreclosure, such
property may be taken and sold by the
mortgagee the same as the property in
106
possession of the mortgagor at the time the
mortgage was executed. (TORRES VS.
LIMJAP)
In the instant case, defendant
corporation elected to foreclose its
mortgage upon default by the plaintiffs in
the payment of the agreed installments,
;aving chosen to foreclose the chattel
mortgage, and bought the purchased
vehicles at the public auction as the highest
bidder, it submitted itself to the
conse!uences of the law as specifically
mentioned, by which it is deemed to have
renounced any and all rights which it might
otherwise have under the promissory note
and the chattel mortgage as well as the
payment of the unpaid balance. (RIDAD VS.
FILIPINAS INVESTMENT)
There is also no legal provision nor
2urisprudence in our 2urisdiction which
makes a third person who secures the
fulfillment of another1s obligation by
mortgaging his own property to be solidarily
bound with the principal obligor. A chattel
mortgage may be $an accessory contract$ to
a contract of loan, but that fact alone does
not make a third#party mortgagor solidarily
bound with the principal debtor in fulfilling
the principal obligation that is, to pay the
loan. The signatory to the principal
contract#loan#remains to be primarily
bound. It is only upon the default of the
latter that the creditor may have recourse
on the mortgagors by foreclosing the
mortgaged properties in lieu of an action
for the recovery of the amount of the loan.
And the liability of the third#party
mortgagors extends only to the property
mortgaged. 'hould there be any deficiency,
the creditor has recourse on the principal
debtor. (CERNA VS. CA)
WAREHOUSE RECEIPTS LAW
Any deposit made with a bonded
warehouseman must necessarily be
governed by the provisions of Act .o. -C?-.
The kind or nature of the receipts issued by
him for the deposits is not very material,
much less decisive. Though it is desirable
that receipts issued by a bonded
warehouseman should conform to the
provisions of the Warehouseman @eceipts
/aw, said provisions are not mandatory,
and indispensable in the sense that if they
fell short of the re!uirement of the
Warehouse @eceipts Act, then the
commodities delivered for storage become
ordinary deposits and will not be governed
by the provisions of the "onded Warehouse
Act. &nder 'ection , of the Warehouse
@eceipts Act, the issuance of a warehouse
receipt in the form provided by it is merely
permissive and directory and not
obligatory. (GON#ALES VS. GO TIONG)
In conclusion, we hold that where a
warehouse receipt or !uedan is transferred
or endorsed to a creditor only to secure the
payment of a loan or debt, the transferee
or endorsee does not automatically become
the owner of the goods covered by the
warehouse receipt or !uedan but he merely
retains the right to keep and with the
consent of the owner to sell them so as to
satisfy the obligation from the proceeds of
the sale, this for the simple reason that the
transaction involved is not a sale but only a
mortgage or pledge, and that if the
property covered by the !uedans or
warehouse receipts is lost without the fault
or negligence of the mortgagee or pledgee
or the transferee or endorsee of the
warehouse receipt or !uedan, then said
goods are to be regarded as lost on account
of the real owner, mortgagor or pledgor.
The indorsement and delivery of the
warehouse receipts 6!uedans8 by @amos
and Loleta to petitioner was not to convey
$title$ to or ownership of the goods but to
secure 6by way of pledge8 the loans granted
to @amos and Loleta by petitioner. The
indorsement of the warehouse receipts
6!uedans8, to perfect the pledge, merely
constituted a symbolical or constructive
delivery of the possession of the thing thus
encumbered. (PNB VS. SA"O% JR.)
@egrettably, the factual settings do not
sufficiently indicate whether the demand
to obtain possession of the goods complied
with 'ection C of the law. The
presumption, nevertheless, would be that
the law was complied with, rather than
breached, by petitioner. &pon the other
hand, it would appear that the refusal of
private respondents to deliver the goods
was not anchored on a valid excuse, i.e.,
non#satisfaction of the warehouseman1s lien
over the goods, but on an adverse claim of
ownership. 9rivate respondents 2ustified
their refusal to deliver the goods, as stated
in their Answer with :ounterclaim and
Third#9arty :omplaint in :ivil :ase .o. ?+#
*-+7-, by claiming that they $are still the
legal owners of the sub2ect !uedans and
the !uantity of sugar represented therein.$
&nder the circumstances, this hardly
!ualified as a valid, legal excuse. The loss
of the warehouseman1s lien, however, does
not necessarily mean the extinguishment of
the obligation to pay the warehousing fees
and charges which continues to be a
personal liability of the owners, i.e., the
pledgors, not the pledgee, in this case. "ut
even as to the owners#pledgors, the
warehouseman fees and charges have
ceased to accrue from the date of the
re2ection by .oah1s Ark to heed the lawful
demand by petitioner for the release of the
goods. (PNB VS. SA"O% JR.)
Imperative is the right of the
warehouseman to demand payment of his
lien at this 2uncture, because, in
accordance with 'ection 7? of the
Warehouse @eceipts /aw, the
warehouseman loses his lien upon goods by
surrendering possession thereof. In other
words, the lien may be lost where the
warehouseman surrenders the possession of
the goods without re!uiring payment of his
lien, because a warehouseman1s lien is
possessory in nature. (PNB v. S0% J1.)
Where a warehouse receipt or !uedan is
transferred or endorsed to a creditor only
to secure the payment of a loan or debt,
the transferee or endorsee does not
automatically become the owner of the
goods covered by the warehouse receipt or
!uedan but he merely retains the right to
keep, and with the consent of the owner to
sell, them so as to satisfy the obligation
from the proceeds of the sale, this for the
simple reason that the transaction involved
is not a sale but only a mortgage or pledge,
and if the property covered by the !uedans
or warehouse receipts is lost later without
the fault or negligence of the mortgagee or
pledgee or the transferee or endorsee of
the warehouse receipt or !uedan, then said
goods are to be regarded as lost on account
of the real owner, mortgagor or pledgor.
(MARTINE# VS. PNB)
TRUST RECEIPTS LAW
As regards the first issue, the :ourt has
repeatedly upheld the validity of the Trust
@eceipts /aw and consistently declared that
the said law does not violate the
constitutional proscription against
imprisonment for non#payment of debts.
Aerily, 94 ,,* is a declaration by the
legislative authority that, as a matter of
public policy, the failure of a person to turn
over the proceeds of the sale of goods
covered by a trust receipt or to return said
goods if not sold is a public nuisance to be
abated by the imposition of penal
sanctions.
In fine, 94 ,,* is a valid exercise of police
power and is not repugnant to the
constitutional provision of non#
imprisonment for non#payment of debt.
In a similar vein, the case of 9eople vs.
.itafan 6supra8 held0 $The Trust @eceipts
/aw punishes the dishonesty and abuse of
confidence in the handling of money or
goods to the pre2udice of another
108
regardless of whether the latter is the
owner or not. The law does not seek to
enforce payment of a loan. Thus, there can
be no violation of the right against
imprisonment for non#payment of a debt.$
(TIOMICO VS. CA)
A letter of credit#trust receipt
arrangement is endowed with its own
distinctive features and characteristics.
&nder that set#up, a bank extends a loan
covered by the letter of :redit, with the
trust receipt as a security for the loan. In
other words, the transaction involves a loan
feature represented by the letter of credit,
and a security feature which is in the
covering trust receipt.
A trust receipt, therefore, is a security
agreement, pursuant to which a bank
ac!uires a $security interest= in the goods.
It secures an indebtedness and there can be
no such thing as security interest that
secures no obligation.
:ontrary to the allegation of the AI.T)/A',
I"AA did not become the real owner of the
goods. It was merely the holder of a
security title for the advances it had made
to the AI.T)/A'. The goods the AI.T)/A'
had purchased through I"AA financing
remain their own property and they hold it
at their own risk. The trust receipt
arrangement did not convert the I"AA into
an investor% the latter remained a lender
and creditor.$
(or the bank has previously extended a loan
which the //: represents to the importer,
and by that loan, the importer should be
the real owner of the goods. If under the
trust receipt, the bank is made to appear
as the owner, it was but an artificial
expedient, more of a legal fiction than
fact, for if it were go, it could dispose of
the goods in any manner it wants, which it
cannot do, 2ust to give consistency with the
purpose of the trust receipt of giving a
stronger security for the loan obtained by
the importer. To consider the bank as the
true owner from the inception of the
transaction would be to disregard the loan
feature thereof.
'ince the I"AA is not the factual owner of
the goods, the AI.T)/A' cannot 2ustifiably
claim that because they have surrendered
the goods to I"AA and subse!uently
deposited them in the custody of the court,
they are absolutely relieved of their
obligation to pay their loan because of their
inability to dispose of the goods. The fact
that they were unable to sell the seashells
in !uestion does not affect I"AA1s right to
recover the advances it had made under
the /etter of :redit. (VINTOLA VS. INSULAR
BANK)
The penal provisions of 9.4. .o. ,,*
apply even when the trust receipt issued
covers goods or items not destined for sale
or for use in manufacture, and would
include items obtained under a trust
receipt used to repair and maintain
e!uipment used in business. If the
beneficiary is not paid under such trust
receipt, the trustee is liable under the law.
(ALLIED BANKING CORP. VS. ORDOE#)
(rom the legal and 2urisprudential
standpoint it is clear that the security
interest of the entruster is not merely an
empty or idle title. To a certain extent,
such interest becomes a $lien$ on the goods
because the entruster1s advances will have
to be settled first before the entrustee can
consolidate his ownership over the goods. A
contrary view would be disastrous. (or to
refuse to recognie the title of the banker
under the trust receipt as security for the
advance of the purchase price would be to
strike down a bonafide and honest
transaction of great commercial benefit
and advantage founded upon a well#
recognied custom by which banking credit
is officially mobilied for manufacturers
and importers of small means.
"esides, as earlier stated, the law warrants
the validity of petitioner1s security interest
in the goods pursuant to the written terms
of the trust receipt as against all creditors
of the trust receipt agreement. The only
exception to the rule is when the
properties are in the hands of an innocent
purchaser for value and in good faith. The
records however do not show that the
winning bidder is such purchaser. .either
can private respondents plead preferential
claims to the properties as petitioner has
the primary right to them until its advances
are fully paid. (PRUDENTIAL BANK VS.
NLRC)
INSOLVENCY LAW
The provision of the above#!uoted
'ection -7, of the Insolvency /aw is very
clear#that attachments dissolved are those
levied within one 6,8 month next preceding
the commencement of the insolvency
proceedings and 2udgments vacated and set
aside are 2udgments entered in any action,
including 2udgment entered by default or
consent of the debtor, where the action
was filed within thirty 6-+8 days
immediately prior to the commencement of
the insolvency proceedings. In short, there
is cut off period##one 6,8 month in
attachment cases and thirty 6-+8 days, in
2udgments entered in actions commenced
prior to the insolvency proceedings. 'ection
G?, on the other hand, relied upon by
private respondents, provides for the right
of the plaintiff if the attachment is not
dissolved before the commencement of
proceedings in insolvency, or is dissolved by
an undertaking given by the defendant, if
the claim upon which the attachment suit
was commenced is proved against the
estate of the debtor. Therefore, there is no
conflict between the two provisions.
(RADIOLA-TOSHIBA VS. IAC)
INTELLECTUAL PROPERTY LAW
TRADEMARK
A word or a combination of words which
is merely descriptive of an article of trade,
or of its composition, characteristics, or
!ualities, cannot be appropriated and
protected as a trademark to the exclusion
of others. (ONG OI GUI VS. DIRECTOR%
PHILIPPINE PATENTS OFFICE% *) PHIL. )(.)
:ommon geometric shapes, such as
diamonds, are ordinarily not regarded as
indicia of the origin of goods, unless they
have ac!uired a secondary meaning.
(VICTORIAS MILLING CO. INC. VS. ONG SU%
(* SCRA '+()
)ne who has adopted and used a
trademark on his goods does not prevent
the adoption and use on the same
trademark by others for products which and
of a different description. 6FABERGE INC.
VS. INTERMEDIATE APPELLATE COURT% '&,
SCRA .&)+
A word or phrase originally incapable of
exclusive appropriation with reference to
an article on the market, because it is
geographically or otherwise descriptive,
might nevertheless have been used so long
and so exclusively by one producer with
reference to its article that, in that trade
and to that branch of the purchasing
public, the word or phrase has come to
mean that the article was his product.
6L"CEUM OF THE PHILIPPINES INC. VS.
COURT OF APPEALS% '&* SCRA )&+)
Although the word E'electa= may be an
ordinary or common word in the sense that
it may be used or employed by any one in
promoting his business or enterprise, once
adopted or coined in connection with one<s
business as an emblem, sign or device to
characterie its products, or as a badge of
authenticity, it may ac!uire a secondary
meaning as to be exclusively associated
with its products and business. In this
110
sense, its use by another may lead to
confusion in trade and cause damage to its
business. 6ARCE SONS AND CO. VS. SELECTA
BISCUIT CO. INC.% ET. AL% &&+ PHIL. /,/)
The trademark E/ionpas= for medicated
plaster cannot be registered because it is
confusingly similar to E'alonpas=, a
registered trademark also for medicated
plaster. When the two words are
pronounced, the sound effects are
confusingly similar. (MARVEX COMMERCIAL
CO. INC. VS. PETRA HAWPIA AND CO.% &/
SCRA &&(/)
The function of a trademark is to point
distinctively, either by its own meaning or
by association, to the origin or ownership of
the wares to which it is applied. EAng
Tibay= as used by the respondent to
designate his wares, had exactly performed
that function for twenty#two years before
the petitioner adopted it as a trademark in
her own business. >ven if EAng Tibay=
therefore, were not capable of exclusive
appropriation as a trademark, the
application of the doctrine of secondary
meaning could be sustained because, in any
event, by respondent<s long and exclusive
use of said phrase with reference to his
products and his business, it has ac!uired a
proprietary connotation. 6ANG VS.
TEODORO% (- PHIL. ,+)
Infringement of trademark is a form of
unfair competition. The universal test
!uestion for infringement is whether the
public is likely to be deceived. Actual
probable deception and confusion on the
part of the customers by reason of
defendant<s practices must always appear.
6ASIA BREWER" INC. VS. COURT OF
APPEALS% ''- SCRA -.()
The validity of a cause for infringement
is predicated upon colorable imitation. The
phrase Ecolorable imitation= denotes such a
close or ingenious imitation as to be
calculated to deceive ordinary persons, or
such resemblance to the original as to
deceive an ordinary purchaser giving such
attention as a purchaser usually gives, and
to cause him to purchase the one supposing
it to be the other. 6ETEPHA VS. DIRECTOR
OF PATENTS ET. AL% &) SCRA -*,)
If the competing trademark contains the
main or essential or dominant features of
another by reason of which, confusion and
deception are likely to result, then
infringement takes place% the duplication
or imitation is not necessary, a similarity in
the dominant features of the trademarks
would be sufficient. 6PHILIPPINE NUT
INDUSTR" INC. VS. STANDARD BRANDS INC.%
), SCRA ,(,)
In infringement or trademark cases in
the 9hilippines, particularly in ascertaining
whether one trademark is confusingly
similar to or is a colorable imitation of
another, no set rules can be deduced M each
case must be decided on its own merits.
(SOCIETE DES PRODUITS NESTLE S.A. VS.
COURT OF APPEALS% .,) SCRA '+()
Infringement of trademark depends on
whether the goods of the two contending
parties using the same trademark, such as
E>'')=, are so related as to lead the public
to be deceived. The trademark >'') which
the petitioner uses for its various
petroleum products can be used by another
as trademark for cigarettes as the two
classes of products flow through different
trade channels. (ESSO STANDARD E23014
I45. v. C6713 68 A9902:% &&) SCRA ..))
In determining whether the trademarks
are confusingly similar, a comparison of the
words is not the only determining factor.
The trademark in their entirety as they
appear in their respective labels or hang
tags must also be considered in relation to
the goods to which they are attached.
(FRUIT OF THE LOOM INC. VS. COURT OF
APPEALS% &.. SCRA -+,)
It has been held that if a mark is so
commonplace that it cannot be readily
distinguished from others, then it is
apparent that it cannot identify a
particular business% and he who first
adopted it cannot be in2ured by any
subse!uent appropriation or imitation by
others, and the public will not be deceived.
6PHILIPPINE REFINING CO. INC. VS. NG SAM%
&&, SCRA -(')
The :onvention of 9aris for the
9rotection of Industrial 9roperty, otherwise
known as the 9aris :onvention, is a
multilateral treaty that seeks to protect
industrial property consisting of patents,
utility models, industrial designs,
trademarks, service marks, trade names
and indications of source or appellations of
origin and at the same time aims to repress
unfair competition. The convention is
essentially a compact among various
countries which as members, have pledged
to accord to citiens of the other member
countries, trademark and other rights
comparable to those accorded their own
citiens by their domestic laws for an
effective protection against unfair
competition. 6MIRPURI VS. COURT OF
APPEALS% .&/ SCRA ,&))
A foreign corporation not doing business
in the 9hilippines needs no license to sue in
the 9hilippines for trademark violations.
The 9hilippine being a party to the 9aris
:onvention for the 9rotection of Industrial
9roperty, the right of a foreign corporation
to file suit in the 9hilippine courts to
protect its trademark is to be enforced. 6LA
CHEMISE LACOSTE VS. FERNANDE#% &'*
SCRA .(.)
A foreign corporation not doing business
in the 9hilippines may have the right to sue
before the 9hilippine courts but it may not
necessarily be entitled to protection due to
absence of actual use of the emblem in the
9hilippine market. 6PHILIP MORRIS INC. VS.
COURT OF APPEALS% ''- SCRA ,())
An unlicensed, unregistered foreign
corporation which has never done any
business in the 9hilippines, but is widely
and favorably known in the 9hilippines
through the use of its products bearing its
corporate and trade name, has a legal right
to maintain an action in the 9hilippines to
restrict the organiation of a corporation
whose sole purpose is to deal and trade in
the same goods as those of the foreign
corporation. 6CONVERSE RUBBER CORP. VS.
UNIVERSAL RUBBER PRODUCTS INC.% &-(
SCRA &,-)
Agreement giving distributor ownership
of packages does not necessarily get her
exclusive use of the trademark. The fact
that distributor spent substantial sums to
promote product covered by trademark is
not sufficient to vest ownership of the
trademark. (GABRIEL VS. PERE#% ,, SCRA
-+))
A certificate of registration of a mark or
trade name is prima facie evidence of the
validity of the registration, the registrant<s
ownership of the mark or trade name, and
of the registrant<s exclusive right to use the
same in connection with the goods,
business or services specified in the
certificate, sub2ect to any conditions and
limitations stated therein. (AMIGO
MANUFACTURING INC. VS. CLUETT
PEABOD" CO. INC.% .,- SCRA -.-)
In cases of confusion of business or
origin, the !uestion that usually arises is
whether the respective goods or services of
the senior user are so related as to likely
cause confusion of business or origin, and
thereby render the trademark or trade
112
name confusingly similar. Joods are related
when they belong to the same class or have
the same descriptive properties, when they
possess the same physical attributes or
essential characteristics with reference to
their form, composition, texture or !uality.
They may also be related because they
serve the same purpose. 6CANON
KABUSHIKI KAISHA A'. COURT OF APPEALS%
..) SCRA ')))
The reckoning point for the filing of a
petition for cancellation of certificate of
registration of trademark is not from the
alleged date of use but from the date the
certificate of registration was published in
the )fficial Jaette and issued to the
registrant. 6EMERALD GARMENT
MANUFACTURING CORP. VS. COURT OF
APPEALS% ',& SCRA )++)
The right to the exclusive use of a
corporate name with freedom from
infringement is determined by priority of
adoption.
In determining the existence of confusing
similarity in corporate name, the test is
whether the similarity is such as to mislead
a person using ordinary care and discretion.
6PHILIPS EXPORT B.V. VS. COURT OF
APPEALS% '+) SCRA -,()
Where an unreasonable period of time
had elapsed prior to the filing of a petition
for revival of the patent application due to
the negligence of the applicant<s counsel,
such inaction would result in the forfeiture
of the right to revive the patent
application. 6SCHWART# VS. COURT OF
APPEALS% .., SCRA -*.)
PATENTS
A person or entity who has not been
granted letters patent over an invention
and has not ac!uired any right of title
thereto either as assignee or as licensee,
has no cause of action for infringement
because the right to maintain an
infringement suit depends on the existence
of the patent. 6CRESSER PRECISSION
S"STENS INC. VS. COURT OF APPEALS% '/)
SCRA &.)
The ;6531<40 68 0=7<v2:043 provides
that an infringement also takes place when
a device appropriates a prior invention by
incorporating its innovative concept and,
although with some modification and
change, performs substantially the same
function in substantially the same way to
achieve substantially the same result. The
;6531<40 68 0=7<v2:043 thus re!uires
satisfaction of the function#means#and#
result test, the patentee having the burden
to show that all three components of such
e!uivalency test are met. (SMITH KLINE
BECKMAN CORPORATION v. COURT OF
APPEALS ET AL.)
To be able to effectively and legally
preclude others from copying and profiting
from the invention, a patent is a primordial
re!uirement. .o patent, no protection. The
ultimate goal of a patent system is to bring
new designs and technologies into the
public domain through disclosure. Ideas,
once disclosed to the public without the
protection of a valid patent, are sub2ect to
appropriation without significant restraint.
(PEARL & DEAN (PHIL.)% INCORPORATED v.
SHOEMART% INCORPORATED% 24; NORTH
EDSA MARKETING% INCORPORATED)
&nder the afore!uoted law, only the
patentee or his successors#in#interest may
file an action for infringement. The phrase
$anyone possessing any right, title or
interest in and to the patented invention$
upon which petitioner maintains its present
suit, refers only to the patentee1s
successors#in#interest, assignees or
grantees since actions for infringement of
patent may be brought in the name of the
person or persons interested, whether as
patentee, assignees, or as grantees, of the
exclusive right.
5oreover, there can be no infringement of
a patent until a patent has been issued,
since whatever right one has to the
invention covered by the patent arises
alone from the grant of patent. In short, a
person or entity who has not been granted
letters patent over an invention and has not
ac!uired any right or title thereto either as
assignee or as licensee, has no cause of
action for infringement because the right to
maintain an infringement suit depends on
the existence of the patent.
9etitioner admits it has no patent over its
aerial fue. Therefore, it has no legal basis
or cause of action to institute the petition
for in2unction and damages arising from the
alleged infringement by private
respondent. While petitioner claims to be
the first inventor of the aerial fue, still it
has no right of property over the same upon
which it can maintain a suit unless it
obtains a patent therefor. 6:@>'>@
9@>:I'). 'NT>5' A'. :A8
COPYRIGHT
:opyright, in the strict sense of the
term, is purely a statutory right. "eing a
mere statutory grant, the rights are limited
to what the statute confers. It may be
obtained and en2oyed only with respect to
the sub2ects and by the persons, and on
terms and conditions specified in the
statute. Accordingly, it can cover only the
works falling within the statutory
enumeration or description. 6PEARL & DEAN
(PHIL.)% INCORPORATED v. SHOEMART%
INCORPORATED% 24; NORTH EDSA
MARKETING% INCORPORATED)
The copyright does not extend to the
general concept or format of its dating
game show. (JOA!UIN VS. DRILON)
In determining the !uestion of
infringement, the amount of matter copied
from the copyrighted work is an important
consideration. To constitute infringement,
it is not necessary that the whole or even a
large portion of the work shall have been
copied. If so much is taken that the value
of the original is sensibly diminished, or the
labors of the original author are
substantially and to an in2urious extent
appropriated by another, that is sufficient
in point of law to constitute piracy.
(HABANA VS. ROBLES)
114

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