Rednotes Commercial Law

San Beda College of Law COMMERCIAL LAW 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 characterizes letters of credit, as distinguished from other accessory contracts, is the engage engagemen mentt of the issuing issuing bank to pay the seller seller once once the draft and the required required shipping 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. By this so-called "independence principle," the the bank bank dete determ rmin ines es comp compli lian ance ce with with the the lette letterr of credi creditt only only by exam examin inin ing g the the ship shippi ping ng documents presented; it is precluded from determining whether the main contract is actually accomplished or not. (BANK OF AMERICA VS. CA) f

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NEGOTIABLE INSTRUMENTS LAW

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NEGOTIABILITY  The weight of authority in the United States 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. For instance, such laws and regulations usually provide for not more more than than one endorsem endorsement ent;; paymen paymentt of money money orders orders may be withhe withheld ld under under a variet variety y of  circumstances. (PHIL. EDUC. CO. VS. SORIANO) w a L

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On 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)

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The indication of Fund 501 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 question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. (METROBANK VS. CA)

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San Beda College of Law COMMERCIAL LAW 

A negoti negotiable able instru instrumen mentt may, may, however however,, instea instead d of being being negoti negotiate ated, d, also also be assign assigned ed or transf transferr erred. ed. The legal legal conseq consequen uences ces of negoti negotiati ation on as distin distingui guishe shed d from from assign assignmen mentt 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 instrument: The The word wordss 'not 'not nego negoti tiab able, le,'' stamp stamped ed on the the face face of the the bill bill of ladin lading, g, did did not not dest destro roy y its 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 subject to the equities between the original parties. (SESBREÑO VS. CA) 

The essence of negotiability which characterizes 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 PAYABLE TO BEARER  B EARER   Where a check is made payable to the order of 'cash', the word cash 'does not purport to be the name of any person', 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. Just 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 acquires no interest with respect thereto until its delivery to him. Delivery 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. Moreover, such delivery must be intended to give effect to the instrument. (DEVELOPMENT (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 acquired 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 reimbursemen reimbursement, t, for, as found found by the court a quo and by the appellate court, 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 respondent had not been validly effected, the checks checks not having been properly and legitimately converted into cash. (JAI-ALAI VS. BPI)

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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 Bank 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 (23) checks were prepared, negotiated, and encash encashed, ed, the petitio petitioner ner was using using its own person personali alized zed checks checks,, instea instead d of the offici official al PNB Commercial blank checks. In the exercise of this special privilege, however, the petitioner failed to provide the needed security measures. Hence, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law because it was guilty of negligence

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COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS not only before the questioned checks were negotiated but even after the same had already been negotiated. (MWSS vs. 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 scrutinize checks deposited with it for the purpose of  determining determining their genuinenes genuinenesss and regularity. regularity. The collecting collecting bank being primarily primarily engaged 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. EQUITABLE BANK)  The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the d epositor 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 drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee drawee bank pays a person person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer) account only for properly payable items. Since 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 drawer's account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. However, 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 vs. CA)

 The petitioner is precluded from setting up the forgery, assuming there is a forgery, due to his own neglig negligenc ence e in entrus entrustin ting g to his secret secretary ary his credit credit cards cards and checkb checkbook ook includ including ing 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 unauthorized change in an instrument that purports to modify in any respect the obligation of a part party y or an unau unauth thor oriz ized ed addit additio ion n of word wordss or numb numbers ers or othe otherr chan change ge to an inco incomp mplet lete e instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instrument Law. A serial number is an item which which is not an essential essential requisite requisite for negotiability negotiability under Section Section 1 of  the NIL. (PNB vs. CA) 

The insertion of the words "Agent, Phil. National Bank," 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  On principle, a solidary accommodation maker who made payment-has the right to contribution, from his co-accommodation maker, in the absence of agreement to the contrary between them,

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San Beda College of Law COMMERCIAL LAW and subject to conditions imposed by law. This right springs from an implied promise between the accommodation makers to share equally the burdens that may ensue from their having consented to stamp their signatures on the promissory note. For 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 joint guarantors of the former. (SADAYA VS. SEVILLA)  The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the inst instru rume ment nt knew knew him him to be only only an acco accomm mmod odat atio ion n part party, y, does does not not incl includ ude e nor nor apply apply to corpor corporati ations ons wh which ich are accomm accommoda odatio tion n partie parties. s. This This is becaus because e the issue issue or indors indorsemen ementt of  negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Hence, 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 instrume instrument, nt, or the nature nature of the transact transaction ion,, is such such as to charg charge e the indorsee indorsee with know knowle ledge dge that that the the issu issue e or indo indors rseme ement nt of the the inst instru rume ment nt by the the corp corpor orat atio ion n is for for the the accommodation of another, he cannot recover against the corporation thereon. By 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 (CRISOLOGO-JOSE VS. CA) only if specifically authorized to do so (CRISOLOGO-JOSE 

To be sure, as regards an accommodation party (such as STEELWELD), 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 Section 29 of the law above quoted 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 vs. CA)

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In acco accomm mmod odat atio ion n tran transa sact ctio ions ns reco recogn gniz ized ed by the the Nego Negoti tiab able le Inst Instru rume ment ntss Law, Law, 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 accomm accommoda odated ted party. party. The latter, latter, in other other words, words, receiv receives es or realiz realizes es full full value value wh which ich the acco accomm mmod odat ated ed part party y then then must must repa repay y to the the acco accomm mmod odati ating ng part party, y, unles unlesss of cour course se the the acco accomm mmod odat atin ing g part party y inte intend nded ed to make make a dona donati tion on to the the acco accomm mmod odat ated ed part party. y. But But the 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. Having issued or indorsed the check, the accommodating party has warranted warranted to the holder in due course course that he will pay the same according according to its tenor.

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(TRAVEL-ON VS. CA)

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HOLDER IN DUE COURSE  As the holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no evidence that it acquired the check in good faith, it (payee) 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 acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The b urden was, therefore, placed upon it to show that notwithstanding the suspic suspiciou iouss circu circumst mstanc ances, es, it acquir acquired ed the check check in actual actual good good faith. faith. (DE OCAMP OCAMPO O VS.

GATCHALIAN) 

Admittedly, Admittedly, petitioner petitioner became the holder of the cashier's cashier's check as endorsed by Alexander Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier's 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 cashier's check obtained it from the issuing bank by fraud, or if there is some other

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COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS 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 question. (MESINA VS. IAC)

LIABILITY OF GENERAL INDORSER   "Recourse" means resort to a person who is secondarily l iable after the default of the person who is primarily liable. Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser; but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed Without qualification. A person who indorses without qualification 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. Appella Appellant nt Sambok Sambok's 's intent intention ion of indors indorsing ing the note note withou withoutt qualif qualifica icatio tion n is made made even more more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. The words added by said appellant do not limit his liability, but rather, confirm his obligation as a general indorser. (METROPOL VS. SAMBOK) 

The collectin collecting g bank bank or last last endors endorser er genera generally lly suffer sufferss the loss becaus because e it has the duty 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 question is a manager's check.

(BPI VS. CA AND NAPIZA) PRESENTMENT FOR PAYMENT/ACCEPTANCE  A letter of credit is defined as an engagement by a bank or other person made at the request of  a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 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 drafts are sight sight drafts drafts.. Presen Presentme tment nt for accepta acceptance nce is necess necessary ary only only in the cases cases expres expressly sly provided for in Section 143 of the Negotiable Instruments Law (NIL). (PRUDENTIAL BANK VS. IAC) 

Under Section 186 of the NIL, “ 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”. By current banking practice, a check becomes stale after more than 6 months or 180 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. Consequently, the withdrawal of the money from the bank to avoid liability on the checks cannot prejudice the rights of a holder in due course. (STATE INVESTMENT 

HOUSE VS. CA) 

In order to preserve the credit worthiness of chocks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once-to one who has an account with a bank; (c)

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San Beda College of Law COMMERCIAL LAW 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 inquire inquire if he has received the check pursuant pursuant to that purpose, otherwise, he is not a holder in due course. (BATAAN CIGAR & CIGARETTE FACTORY 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. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the the credi credito tor' r'ss unre unreas ason onab able le delay delay in pres presen entm tment ent.. The The acce accept ptan ance ce of a cheek cheek impli implies es 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 injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable negotiable instrument instrument is condition conditioned ed on its being cashed, except when through 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 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 prejudiced 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 YU vs. PHOENIX ASSURANCE CO. LTD 1CAR 2) 

The automati automatic c assign assignmen mentt of the policy to CKS under under the provisio provision n of the lease lease contra contract ct previously previously quoted is void for being contrary to law and/or and/or public policy. The proceeds of the fire insu insura ranc nce e poli policy cy thus thus righ rightfu tfully lly belo belong ng to the the spou spouse sess Nilo Nilo Cha Cha and and Stell Stella a Uy-Ch Uy-Cha a (her (herei ein n copetitioners), The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. (SPOUSES CHA vs.

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CA, 277 SCRA 690) 

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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. On 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 exting extinguis uished hed by the applic applicati ation on of the insura insurance nce procee proceeds ds to the mortgag mortgage e indebt indebtedn edness ess..

(GREPALIFE VS. CA & LEUTERIO) SUBROGATION 

The insurer can only be subrogated to only such rights as the insured may have. However if the insured, after receiving payment from the insurer, releases the wrongdoer who caused the loss, the insurer loses his rights against the latter. In such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the release was made with the consent of the insurer. (MANILA MAHOGANY MANUFACTURING CORP. vs. CA, 154 SCRA 650)

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Subrogation is a normal incident of indemnity insurance Upon 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 equity. 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 equitable 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 equity.

(MALAYAN INSURANCE VS. CA) 

There are a few recognized exceptions to this rule on subrogation. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation is defeated. Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured's 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 MALAYAN 

INSURANCE CORP. VS. CA) INCONTESTABILITY INCONTESTABILITY CLAUSE  Sectio Section n 48 of the Insura Insurance nce Code preclu precludes des the insurer insurer from from raisin raising g the defense defense of false false repres represent entati ations ons or concea concealme lment nt of materi material al facts facts insofa insofarr as health health and previo previous us diseas diseases es are concerned if the insurance has been in force for at least 2 years during the insured’s lifetime. The phrase “during the lifetime” in section 48 means that the policy is no longer considered in force after the insured has died. The key phrase in section 48 is for a period of 2 years. The insurer has 2 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 vs. CA 174 SCRA 403) MISCONDUCT OF INSURANCE AGENT 

Where the applicant signs the application in blank and authorizes 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. vs.

FELICIANO, 74PHIL 468) MARINE INSURANCE 

The fact that the subject 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. vs. CA 200 SCRA459) 

The fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance insurance and may not be used as a defense to recover on the policy. The cargo owner is required 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. (ROQUE vs. IAC, 139SCRA 597)

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Under 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.) loss or damage or expense proximately caused by delay; b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Also it covers all losses except such as arising from the fraud of the insured. (FILIPINO MERCHANTS INSURANCE CO. vs. CA, 179 SCRA 638)

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DOUBLE INSURANCE 

The insurer may not recover under an insurance policy if he has violated the conditions of the policy to the effect that he did not reveal the existence of other insurance policies over the same properties as required by the warranty appearing on the face of the policy. (UNION 

MANUFACTURING CO. INC. vs. PHILIPPINE GURANTY CO. INC., 47 SCRA 271) 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 vs. REVILLA, 92 SCRA 219) 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 INSURANCE CO. vs. CA 273 SCRA 262) AUTHORIZED DRIVER CLAUSE  The main purpose of the authorized driver clause is that a person other than the insured owner who drives the car with his person must be duly licensed and not disqualified 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 vs. INSURANCE COMMISSION, 100 SCRA 467)  The requirement in an “authorized 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 disqualified 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 vs. PYRAMID INSURANCE 

CO. INC., 161 SCRA 677) f

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Where a life insurance policy is made payable to one of the heirs of the person whose life is insu insure red, d, the the proc proceed eedss of the the poli policy cy on the the death death of the the insu insure red d belo belong ng excl exclus usiv ively ely to the 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 vs. DEL VAL, 29 PHIL 534) 

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The proceeds of a life insurance policy payable to the insured person’s estate, on which the premiums were paid by the conjugal partnership, constitute community property and belong onehalf to the husband exclusively, and the other half to the wife. If the premiums were paid partly with paraphernal and partly conjugal funds, the proceeds are in like proportion, paraphernal in part and conjugal in part. (BPI vs. POSADAS, 56 PHIL 215)

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According to the Article 2012 of the New Civil Code that any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy b y the person who cannot make a donation to him. Both are founded upon the same consideration which is liberality. (INSULAR LIFE vs. EBRADO 80 SCRA 181)

CASUALTY INSURANCE

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Where the contract provides for indemnity against liability to third persons, then t hird persons to whom the insured is liable, liable , can sue directly the insurer upon the occurrence of the injury or event upon which the liability depends. The purpose is to protect the injured person against the insolvency of the insured who causes such injury and to give him a certain beneficial interest in the proceeds of the policy. It is as if such injured person were especially named in person. (SHAFER vs.

 JUDGE, RTC, 167 SCRA 386) COMPULSORY MOTOR VEHICLE LAW INSURANCE 

Section 378 of the Insurance Code has established the following rules under the “no fault indemnity provision” 1.) a claim maybe made against one motor vehicle only; 2) 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; 3) in any other case [i.e.] if the victim was not an occupant of  the vehicle, the claim shall lie against the insurer of the directly offending vehicle; 4) 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. vs. ANCHETA 164 SCRA 144)

TRANSPORTATION LAWS GENERAL CONCEPTS  There are two aspects of a contract of common carriage, namely: a.) the contract to carry, at some future time, which contract contract is consensua consensuall and is necessarily necessarily perfected perfected by mere consent and b.) 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 AIRWAYS, INC. VS. CA) 

Art. 1732 of the New Civil Code 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 (sideline). It also avoids a distinction between a person or enterprise offering transp transpor ortati tation on servic service e on a regula regularr or schedu scheduled led basis basis and one offeri offering ng such such servic service e on an occasional, episodic or unscheduled basis. Neither does the law distinguish between a carrier offering its services to the general public that is the general community community or population population and one who offers services or solicits business business only from a narrow segment of the general population. A perso person n or enti entity ty is a comm common on carr carrie ierr even even if he did did not not secu secure re a Cert Certif ific icat ate e of Publi Public c Convenience. (DE GUZMAN VS. CA) 

One is a common carrier even if he has no fixed and publicly known route, maintains no VS. CA) terminals, and issues no tickets. ( ASIA LIGHTERAGE SHIPPING, INC. VS.

R e d N o te

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Art. 1732 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 is: 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 ca sual 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. ( FIRST 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. ( NATIONAL STEEL CORP. VS. CA)

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The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction, or deterioration and it is immaterial that the collision actually occurred in foreign waters. ( NDC vs. CA)

REGISTERED OWNER AND KABIT SYSTEM  The registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers passengers or third third persons persons caused by the operation of said vehicle, vehicle, even thought the same had been transferred to a third person. ( EREZO 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 penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Art. 1409 of the Civil Code. 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. ( LITA ENTERPRISES, INC. VS. IAC)  Where a jeepney is registered in the name of an authorized public operator but is actually owned by another and the same bumped somebody thru the negligence of its driver, such a jeepney can be sold at a public auction to satisfy the court’s award. It cannot be considered a “stranger’s property”. (SANTOS VS. SIBUG)

CARRIAGE OF GOODS Duty to Accept goods  Common carriers cannot lawfully decline to accept a particular class of goods for carriage to the prejudice 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. Mere prejudice or whim will not suffice. ( FISHER VS. YANGCO STEAMSHIP CO. ) Duty to exercise extraordinary diligence  Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods transported by them, and this liability lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered actually or constructively, by the carrier to the person who has a right to receive them. ( SARKIES TOURS PHILIPPINES, INV. VS. CA)

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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. ( TABACALERA INSURANCE 

CO. VS. NORTH FRONT SHIPPING SERVICES, INC.) w a L

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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. ( MACAM

VS. CA) 

After a common carrier’s status has passed from that of carrier to that of agent of consignee, loss of goods in its hands for cause beyond its control and without its negligence being proved reliev relieves es the carrier carrier of civil civil liabil liability ity for such such loss loss or damage. damage. ( SAMAR SAMAR MINING MINING CO. CO. INC. INC. VS.

NORDEUTSHER LLOYD)

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Owing to the high degree of diligence required 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. Mere 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.) 

Mere proof of delivery of goods to a carrier in good order and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. (COASTWISE LIGHTERAGE CORP. V. CA) 

Delive Delivery ry of goods goods to the custom custom author authoriti ities es is not not deliver delivery y to the consigne consignee. e. ( LU DO V.

BINAMIRA) DEFENSES  Where fortuitous event or force majeure is the immediate and proximate cause of the loss, the obligor is exempt from liability for non-performance. No extraordinary diligence by the carrier could have prevented the loss of the goods after they had been deposited in the warehouse of the Bureau of Customs. ( SERVANDO VS. PHILIPPINE STEAM

NAVIGATION CO.) 

Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently, that loss cannot be attributed to force majeure, but to the negligence of the officials. (EDGAR COKALIONG SHIPPING LINES, INC. VS. UCPB GENERAL INSURANCE COMPANY INC.) 

Fire may not be considered as a natural disaster or calamity as it arises almost invariably from some act of man or by human means. ( EASTERN SHIPPING LINES INC. VS. IAC)



To exculpate the carrier from liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or force in accordance with Art.1745 of the Civil Code. (BASCOS 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 minimize the loss before, during, and after the occurrence occurrence of the natural natural disaster. disaster. ( PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. VS.

MGG MARINE SERVICES, INC.) 

To absolve the common carrier from liability the public authority must be shown to have the power to issue the order or that it was lawful, or that it was issued under legal process of  authority. (GANZON 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 exception notwithstandi notwithstanding ng such condition condition,, he is not relieved relieved of liability for damage damage resulting resulting therefrom. (CALVO VS. UCPB GENERAL INSURANCE CO., INC. )

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 equivalent 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. ( JESUSA VDA DE NUECA, ET AL. VS.

MANILA RAILROAD COMPANY)

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The relation of carrier and passenger continues until the passenger has been landed at the port of destination and has left the vessel owner’s dock or premises. Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier’s carrier’s conveyance conveyance or had a reasonable reasonable opportunity opportunity to leave the carrier’s carrier’s premises. 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. (ABOITIZ SHIPPING CORPORATION VS. CA) 

A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, 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 e ntitled to all the rights and protection pertaining to such a contractual relation. (DANGWA 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 ought to be in pursua pursuance nce of the contract contract of carria carriage. ge. ( LIGHT LIGHT RAIL TRANSIT AUTHORITY AUTHORITY VS.

NAVIDAD) 

The relation of carrier and passenger does not cease at the moment the passenger alights from the carrier’s vehicle at a place selected by the carrier at the point of destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave the carrier’s premises. (LA MALLORCA VS. CA) 

A contract to transport passengers is a relationship imbued with public interest. Failure 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. However, this is not to say that common carriers are absolutely responsible for all injuries even if the same were caused by a fortuitous event. To rule otherwise would render the defense of force majeure, as an exception from any liability, illusory and ineffective. ( JAPAN AIRLINES VS. CA)

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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. ( PILAPIL VS. CA)



While a passenger is entitled to protection from personal violence by the carrier or its agents or employees, since the contract of transportation obligates the carrier to transport a passenger safely to his destination, the responsibility of the carrier extends only to those acts that the carrier could foresee or avoid through the exercise of the degree of care and diligence required of it.

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(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. 1741 of the Civil Code .( 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. ( PNR vs. CA)

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EXTRAORDINARY EXTRAORDINARY 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. ( STANDARD VACUUM OIL

COMPANY VS. LUZON STEVEDORING CO., INC.) 

The behavior of the captain of the “Don Juan”- playing mahjong 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- “the 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.” ( MECENAS VS. CA)



The common common carrie carrier’s r’s liabilit liability y for the death death or injur injuries ies to its passenge passengers rs 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 TAYABAS 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. By 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 injury that might be suffered by the passenger is right away attributable to the fault or negligence of the carrier. ( BATANGAS TRANSPORTATION COMPANY 

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. ( MALLARI, SR. VS. CA)



Fairness 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. Not to be considered lightly is the right to privacy of each passenger. He cannot be subjected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to indicate the contrary. ( NOCUM VS. LAGUNA TAYABAS BUS CO.) R e d N o te

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A common carrier is presumed at fault in he absence of a satisfactory explanation on how the airplane crash occurred. ( VDA. DE ABETO VS. PHIL. AI R 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 second is one providing providing for an unqualified unqualified limitation limitation of such liability to an agreed valuation. 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. ( H.E. HEACOCK 

CO. VS. MACONDRAY & CO.) 

While it may be true that petitioner had not singed the plane ticket, he is nevertheless bound by the provisions thereof. Such provisions have been held to be part of the contract of carriage, and valid and binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation. It is what is known as a contract of adhesion, in regards which it has been said that

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San Beda College of Law COMMERCIAL LAW 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 reject it entirely; if he adheres, he gives his consent. ( ONG YIU VS. CA ) 

The consignee by making claim for loss on the basis of the bill of lading, to all intents and purpos purposes es accepte accepted d said said bill. bill. Having Having done done so, so, he become becomess bound bound by all stipul stipulati ations ons contai contained ned therein whether on the front or at the back thereof. ( SEA-LAND SERVICE, INC. VS. IAC) 

Basic 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. Further, a contract fixing the sum that may be recovered by the owner or shipper for the loss, destr destruc uctio tion n or deter deterio iora rati tion on of the the goods goods is vali valid, d, if it is reas reason onab able le and and just just under under the the circumstances, and has been fairly and freely agreed upon. ( CITADEL LINES, INC. VS. CA) 

A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of  a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by Articles 1749 and 1750 of the Civil Code. The just 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. ( EVERETT 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. However 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. ( SALUDO, JR. VS.

CA) ACTIONS IN CASE OF BREACH OF CONTRACT OF CARRIAGE  The owners and driver of the bus may be made jointly and severally liable to the victims where their separate and distinct acts concurred to produce the same injury. ( FABRE, JR. VS CA) 

Where the contract of shipment contains a reasonable requirement of giving notice of loss or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. The fundamental purpose is not to relieve the carrier from just 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 injury. ( PHILIPPINE AMERICAN GENERAL INSURANCE INSURANCE CO., INC. VS. SWEET LINES, INC.)

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For 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 New Civil Code; either ten years for breach of a written contract or four years for quasi-delict, and not the rule on prescription in the COGSA. (ANG VS. AMERICAN STEAMSHIP AGENCIES INC.) w a L



“Loss” refers to the deterioration or disappearance of goods. Damages arising from delay or late delivery are not the damage or loss contemplated under the COGSA. ( MITSUI O.S.K. LINES LTD. VS.

CA) 

The coverage of the one-year prescriptive period under the COGSA includes the insurer of the goods. Otherwise, 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. ( FILIPINO MERCHANTS INSURANCE CO., INC. VS.

 ALEJANDRO)

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Under Sec. 3 (6) of the COGSA, only the carrier’s liability is extinguished if no suit is brought within one year. But 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. ( MAYER STEEL PIPE CORP.

VS. CA) 

A writt written en extraju extrajudic dicial ial demand by the creditor creditor does not toll the running running of the one-year 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 conn connec ecti tion on with with loss losses es rela related ted to mari mariti time me cont contra ract ctss is conf confin ined ed to the the vesse vessel, l, wh whic ich h is hypothecated hypothecated for such obligations obligations or which stands as the guaranty for their settlement. settlement. (ABOITIZ 

SHIPPING CORP. VS. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORP., LTD.) 

“No 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. ( MONARCH INSURANCE CO., INC. VS. CA)



Art. 587 of the Code of Commerce speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provision of the Civil Code on common carriers. (PHILIPPINE AMERICAN 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. Despit Despite e the total loss loss of the vessel vessel theref therefore ore,, its insuranc insurance e answer answerss for the damages damages that a shipowner or agent may be held liable for by reason of the death of its passenger. (VASQUEZ VS.

CA) 

The provisions of the Code of Commerce regarding maritime commerce have no room in the applic applicati ation on of the Workme Workmen’s n’s Compen Compensat sation ion Act. Act. Said Said Act create createss a liabili liability ty to compen compensat sate e employees employees or laborers laborers in cases of injury received by or inflicted 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. ( ABUEG VS. SAN 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. ( GOVERNMENT OF THE PHILIPPINES

R e d N o te

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.( PHILIPPINE 

SHIPPING CO. VS. GARCIA) 

In case of collision, abandonment of the vessel is necessary in order to limit the liability of the shipowner or the agent to the value of the vessel, its appurtenances and freightage earned in the voyage voyage in accord accordanc ance e with with Art.8 Art.837 37 of the Code Code of Commer Commerce. ce. The only only insta instanc nce e whe where re such such abandonment is dispensed with is when the vessel was entirely lost. LUZON STEVEDORING CORP.

VS. CA 

If the shipowner or agent may in any way be held civilly liable at all for injury to or death of  passengers arising form the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. ( YANGCO VS. LASERNA)

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The requisite 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. (RUBISO 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 requires on a stipulated ocean voyage. (INTER-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 should interf interfere ere and even displace displace the pilot, pilot, as wh when en the pilot pilot is obviou obviously sly incom incompet petent ent or intoxicated. (FAR EASTERN SHIPPING COMPANY 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. ( PLANTERS PRODUCTS,

INC. VS. CA) 

If the charter is a contract of affreightment which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship. ( CALTEX (PHILIPPINES), (PHILIPPINES),

INC. VS. SULPICIO LINES, INC.) 

Expenses Expenses incurred to refloat refloat a vessel, which accidentally accidentally ran aground, aground, in order to continue continue its voyage, do not constitute general average. Not 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 MAGSAYSAY, INC. VS. AGAN) AGAN) constitutes the true foundation of general average. ( A. MAGSAYSAY,

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Common carriers cannot limit their liability for injury or loss of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on averages under the Code of  Commerce cannot be applied in determining liability where there is negligence. ( AMERICAN HOME 

 ASSURANCE, COMPANY COMPANY VS. CA) 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 quitted 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 &

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GALINGER VS. SWEDISH EAST ASIATIC CO. LTD) WARSAW WARSAW CONVENTION CONVEN TION 

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 Civil Code and other pertinent laws. (CATHAY PACIFIC AIRWAYS, LTD. VS. CA)

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 AIRLINES, INC. VS CUENCA) CUENCA) 

The Warsaw Convention 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 miscon misconduc ductt of its employees employees,, or of some some partic particula ularr or excepti exceptiona onall type of damage damage.. ( ALITALIA  ALITALIA VS VS IAC)

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There There is intern internati ationa onall transp transpor ortat tation ion:: 1.) whe where re the place place of depart departur ure e and the place 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 2.) where the place of departure and the place of destination are within the territory of a single high contracting party party if there there is an agreed agreed stoppi stopping ng place place within within a territ territory ory subjec subjectt to the sovere sovereign ignty ty,, mand mandat ate e or auth author ority ity of anot another her powe powerr, even even thou though gh the the powe powerr is not not a part party y to the the convention. (MAPA VS. CA)



Under a general general pool partnership partnership agreement, agreement, the ticket-issuin ticket-issuing g airline airline is the principal 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. ( CHINA AIRLINES

VS. CHIOK0 ) CHIOK0 ) 

The forum of action provided in Art. 28(1) is a matter of jurisdiction rather than of venue. It is the passenger’s “ultimate destination” not “an agreed stopping place” that determines the country where suit is to be filed. (SANTOS III V. NORTHWEST )



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 Convention while a cause of action arising from the shabby and humiliating treatment received from the airline employees is not. ( UNITED AIRLINES VS. UY)

PUBLIC UTILITIES  A certification of public convenience is included in the term "property" in the broad sense of the term. Under the Public Service Law, 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. Hence, insofar as the interest of  the State 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. Howe However ver,, with with resp respect ect to othe otherr perso persons ns and and othe otherr publ public ic util utilit ities ies,, a cert certif ific icat ate e of publ public ic 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 bee n authorized to operate in competition with the former and those who invade the rights which the former has pursuant to the authority granted by the Public Service Commission. (COGEO-CUBAO (COGEO-CUBAO OPERATORS &

DRIVERS ASSOC. VS. CA) 

Nobody has the exclusive right to secure a franchise or a Certificate of Public Convenience. The paramount consideration should always be the public interest and public convenience. (VDA. DE 

LAT VS. PSC) 

Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be considered a continuat continuation ion of the highway. highway. While While a ferry boat service has been considered considered as a continuat continuation ion of  the highway when crossing rivers or even lakes, which are small body of waters - separating the

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San Beda College of Law COMMERCIAL LAW land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secur secure e a separa separate te CPC for the operatio operation n of an interis interislan land d or coastw coastwise ise shippi shipping ng servic service e in accordance with the provisions of law. Its CPC 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.) 

Section 19 (a) of the Public Service Act contemplates of failure to provide a service that is safe, proper or adequate and refusal to render any service which can reasonably be demanded and furnished. It refers specifically to the operator's inability to provide reliable vehicles to transport the riding public to their places of destination and to the failure to provide an adequate number of  units authorized under his franchise at all times to secure the public of sustained service. While the words "unsafe, inadequate and improper" may be broad enough to cover a lot of things, they must be interpreted in consonance with the purpose of the Public Service Law, which was specifically enacte enacted, d, among among other other things things,, to protec protectt the public public agains againstt unrea unreason sonable able charge chargess and poor poor inefficient service and to secure adequate sustained service for the public at the least possible costs. (MANZANAL VS. AUSEJO)

CORPORATION LAW ATTRIBUTES OF A CORPORATION  A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state acting according to law. It is logically inconceivable therefore therefore that it will have rights and privileges of a higher higher priority than that of its creator. creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, Certainly not excluding the judiciary, whenever called upon to do so. (TAYAG VS. BENGUET CONSOLIDATED,

INC.) 

For practi practical cal purpos purposes, es, franc franchis hises, es, so far as relati relating ng to corpor corporati ations ons,, are divisi divisible ble into into (1) corporate or general franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while the latter are certain rights and privileges conferred upon existing corporations such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. The primary primary franch franchise ise of a corpor corporati ation on,, that that is, the right right to exist exist as such, is vested vested 'in the individuals who compose the corporation and not in the corporation itself and cannot be conveyed in the absence of legislative authority so to do but the special or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property except such special or secondary franchises as are charged with a public use. (JRS BUSINESS CORP. VS. IMPERIAL INSURANCE, INC.)

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The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal in their application to all persons within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The word "person" includes aliens. Private corporations, likewise, are "persons" within the scope of the guaranties in so far as a s their property is concerned. (SMITH, BELL & CO. VS. NATIVIDAD) 

A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination. In Stoneh Stonehill ill,, et al. vs. Diokno Diokno,, et al., al., supra, supra, this Court Court implied impliedly ly recogn recognized ized the right right of a corporation to object against unreasonable searches and seizures. (BACHE & CO. VS. RUIZ)

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It is elementary that the right against self-incrimination has no application to juridical persons. While an individual individual may lawfully lawfully refuse refuse to answer incriminatin incriminating g questions questions unless protected by an immuni immunity ty statut statute, e, it does does not follow follow that that a corpor corporati ation, on, vested vested with with specia speciall privil privileges eges and franchises, may refuse to show its hand when charged with an abuse of such privileges. (BASECO vs.

PCGG) 

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of  its stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corpor corporati ation on ordin ordinari arily ly has no intere interest st in the individ individual ual proper property ty of its stockh stockhold olders ers unless unless transferred to the corporation, "even in the case of a one-man corporation". (SULO NG BAYAN, INC.

VS. GREGORIO ARANETA, INC.) 

The tenor of the NLRC judgme judgment nt and the impleme implementi nting ng writ writ is clear clear enough enough.. It direct directed ed Qualit Qualitran ranss Limous Limousine ine Servic Service, e, Inc. Inc. to reinst reinstate ate the discha discharge rged d employe employees es and pay them them full full backwages. Respondent, however, chose to "pierce the veil of corporate entity" usurping a power belo belong ngin ing g to the the cour courtt and and assu assume med d impr improv ovid iden entl tly y that that sinc since e the the comp compla lain inan antt is the the owner/president of Qualitrans Limousine Service, Inc., they are one and the same. It is a wellsettled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporatio corporation, n, since since the president, president, as individua individual, l, and the corporati corporation on are separate separate entities. entities. (CRUZ 

VS. DALISAY) 

Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of  said titles in favor of private respondents should stand undisturbed. (LIM VS. CA)



The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of  finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of  plaintiff's legal rights; and 3.The 3.The afores aforesaid aid contro controll and breach breach of duty duty must must proxim proximate ately ly cause cause the injury injury or unjust unjust loss loss complained of. The absence of any one of these elements prevents 'piercing the corporate veil.' In applying the 'instrumentality' or 'alter ego' doctrine, the courts are concerned with reality and not form, with how the corporati corporation on operated operated and the individual individual defendant's defendant's relationship relationship to that operation." operation."

(CONCEPT BUILDERS, INC. VS. NLRC) 

Furthermore, considering the nature of the legal services involved, whatever obligation said incorpora incorporators tors,, directors directors and officers officers of the corporati corporation on had incurred, incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal personal obligation, obligation, it is far-fetched far-fetched to allege that the corporatio corporation n is perpetuating perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. (FRANCISCO

MOTORS CORP. VS. CA)

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San Beda College of Law COMMERCIAL LAW 

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system. The statement in People v. Maneroand Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" humiliation" is an obiter dictum. dictum. On this score alone the award award for damages must be set aside, since RBS is a corporation. (ABS-CBN vs. CA)

 Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly expressly authorizes the recovery of moral moral damages in cases of libel, slander slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Moreover, Moreover, where the broadcast is libelous libelous  per se, the law implies implies damages.I damages.In n such such a case, case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. damages. Neither in such a case is the plaintiff required required to introduce evidence of  actual damages as a condition precedent to the recovery of some damages. In this case, the broadc broadcast astss are libelo libelous us  per se. Thus Thus,, AM AMEC EC is enti entitl tled ed to mora morall dama damage ges. s. (FILIPINAS

BROADCASTING NETWORK, INC. VS. AMEC-BCCM, JANUARY 21, 2005) Note: The bar exams covers only decisions promulgated by the SC up to June 2004. However, for 

 purposes of clarifying the conflicting decisions as to the entitlement of a corporation to moral damages, we hereby make reference to the case of Filipinas Broadcasting Network, Inc., vs. Ago Medical and Educational Center-Bicol Christian College of Medicine, G.R. No. 141994. January 17, 2005. 

An employee of a company or corporation engaged in illegal recruitment may be held liable as principal, together with his employer, if it is shown that he actively and consciously participated in illegal recruitment. It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. The corporation obviously acts, and can act, only by and through its human agents, and it is their conduct which the law must deter. The employee or agent of a corporation engaged in unlawf unlawful ul busines businesss natur naturally ally aids and abets in the carrying carrying on of such such busines businesss and will be prosecuted as principal if, with knowledge of the business, its purpose and effect, he consciously contributes contributes his efforts efforts to its conduct and promotion promotion,, however however slight his contribution contribution may be.

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(PEOPLE VS. CHOWDURY) 

In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which lit is a president as in fact them is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of a criminal liability for which the accused is made answerable must be clear and certain. (SIA VS. PEOPLE) Note: This case was decided at the time when P.D. 115 or the Trust Receipts Law was not yet in w a L

effect) KINDS OF CORPORATIONS 

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necess necessary ary adjun adjuncts cts of the Club to foster foster its purposes purposes and the profits profits derive derived d theref therefrom rom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit

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COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS does not make it a profit making club. As has been remarked, a club should always strive, whenever possible, to have a surplus (CIR VS. CLUB FILIPINO) 

The application of the doctrine of estoppel applies to a third party only when he tries to escape liab liabil ilit ity y on a cont contra ract ct from from wh whic ich h it had had bene benefi fited ted on the the irre irrele leva vant nt grou ground nd of defec defectiv tive e incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. (INT’L EXPRESS TRAVEL VS. CA)



The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. party. In the first first instan instance, ce, an uninc unincorp orpora orated ted associ associati ation, on, which which repres represent ented ed itself itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person person who relied in good faith on such representation representation.. It cannot cannot allege lack of personalit personality y to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. Technically, Technically, it is true that petitioner petitioner did not directly act on behalf of the corporation. corporation. However, However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. (LIM TONG LIM VS. PHILIPPINE FISHING GEAR INDUSTRIES) 

The doctri doctrine ne of corpor corporati ation on by estoppe estoppell advanc advanced ed by privat private e respon responden dentt canno cannott overr override ide jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or waived, enlarged or diminished by, any act or omission of  the parties, neither can it be conferred by the acquiescence of the court. Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business business relations with third persons. Where there is no third third person person involved involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered there is no corporation by estoppel. (LOZANO VS. DE LOS SANTOS) 

Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the SEC SEC wh whic ich h calls calls a corp corpor orat atio ion n into into bein being. g. The The immu immuni nity ty of colla collate tera rall atta attack ck is gran grante ted d to corporations 'claiming in good faith to be a corporation under this act.' Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. law. Unles Unlesss ther there e has has been been an evid eviden entt attem attempt pt to comp comply ly with with the the law law the the clai claim m to be a corporation 'under this act' could not be made in good faith. (HALL VS. PICCIO)

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COMPONENTS OF A CORPORATION CORPORATION 

A corporation, until organized, has no life and, therefore, no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of  corporation be ratified by the corporation if and when subsequently organized. (CAGAYAN FISHING

VS. SANDIKO) 

Where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of  directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. (BOARD OF LIQUIDATORS VS. HEIRS OF MAXIMO KALAW)

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BY-LAWS

San Beda College of Law COMMERCIAL LAW 

Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of  bylaws embodied in Section 46 of the Corporation Code, There is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. (LOYOLA GRAND VILLAS HOMEOWNERS

 ASSOC. VS. CA) CA) 

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

(GRACE CHRISTIAN HIGH SCHOOL VS. CA) 

Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being being in the exerci exercise se of managem management ent prerog prerogati ative ve or busine business ss judgme judgment. nt. However However this this right, right, extensive as it may be, cannot impair the obligation of existing contracts or rights. Presci Prescindi nding ng from from these these premis premises, es, privat private e respon responden dent's t's insist insistenc ence e that that it can legally legally dismis dismisss petitioner on the ground that his tenure has expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of tenure; hence, his services may only be terminated for causes provided by law. A contrary interpretation would not find justification in the laws or the Constituti Constitution. on. If we were to rule otherwise, otherwise, it would enable an employer to remove any employee employee from his employment by the simple expediency of amending its by-laws and providing that his/her (SALAFRANCA NCA VS. posi positi tion on shal shalll ceas cease e to exis existt upon upon the the occu occurr rren ence ce of a spec specif ifie ied d event event.. (SALAFRA

PHILAMLIFE) POWERS OF THE CORPORATION 

While as a rule an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law, there are however certain corporate acts that may be performed outside of the scope of  the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has been held that "although not expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business, and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality. (REPUBLIC VS. ACOJE MINING)

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Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. In the absence of a charter or bylaw provision to the contrary, contrary, the president is presumed to have the authority authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. (PEOPLE’S w a L

 AIRCARGO VS. CA) CA) 

Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law or statutory provisions, the same general principles of law which govern the relation of agency for a natural person person govern the officer officer or agent of a corporati corporation, on, of whatever whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their

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For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the respondent which is sought to be held; and (c) reliance thereon by the petitioner consistent with ordinary care and prudence. In this case, there is no evidence on record of specific acts made by the respondent showing or indicating that it had full knowledge of any representations made by Roxas to the petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a lien or burden thereon, or that the respondent allowed him to do so. (WOODCHILD

HOLDINGS VS. ROXAS ELECTRIC) LIABILITY OF DIRECTORS AND OFFICERS 

In Tramat Mercantile, Inc., vs. Court of Appeals, the Court has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When (1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) He agrees to hold himself personally and solidarity liable with the corporation; or (4) He is made, by a specific provision of law, to personally answer for his corporate action.

(SANTOS VS. NLRC) RIGHTS OF SHAREHOLDERS 

One of the rights of a stockholder is the right to participate in the control and management of  the corporation that is exercised through his vote. The right to vote inherent in and incidental to the ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the to vote his stock nor may the right be e ssentially impaired, either by the legislature or by the corpor corporati ation on witho without ut his consen consent, t, throug through h amendi amending ng the charte charter, r, or the by-law by-laws. s.

(CASTILLO VS. BALINGHASAY) 

While it may be true that the right of inspection inspection granted by Sec. 74 of the Corporation Corporation Code is not absolute, as when the stockholder is not acting in good faith and for a legitimate purpose; or when the demand is purely speculative or merely to satisfy curiosity, the same may not be said in the case of private respondent. This is because the impropriety of purpose such as will defeat enforcement must be set up (by) the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of  showing impropriety of purpose or motive. In the case at bar, bar, petiti petitione onerr failed failed to discha discharge rge the burden burden of proof proof to show show that that privat private e respondent's action in seeking examination of the corporate records was moved by unlawful or ill motivated designs which could appropriately call for a judicial protection against the exercise of  such right. Save for its unsubstantiated allegations, petitioner could offer no proof, nay, not even a scintilla of evidence that respondent Cojuangco, Jr., was motivated by bad faith; that the demand was for an illegitimate purpose or that the demand was impelled by speculation or idle curiosity. Surely, respondent's substantial shareholdings in the SMC and UCPB cannot be an object of mere curiosity. (REPUBLIC VS. SANDIGANBAYAN) SANDIGANBAYAN) 

The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders' meeting is necessary to consider it because additional issuance of shares of stocks does not need approval approval of the stockholders. stockholders. The by-laws of the corporation corporation itself states that 'the Board of Trustees shall, in accordance with law, provide for the issue and transfer of shares of  stock of the Institute and shall prescribe the form of the certificate of stock of the Institute'. Petitioner bewails the fact that in view of t he lack of notice to him of such subsequent issuance, he was not able to exercise exercise his right of pre-emption pre-emption over the unissued unissued shares. shares. However, However, the general general

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San Beda College of Law COMMERCIAL LAW rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate p roportionate part of the whole number of authorized shares. When the shares left unsubscribed are later reoffered, he cannot therefore claim a dilution of interest. (BENITO VS.

SEC) SHARES AND SUBSCRIPTIONS 

A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation – its shares of  stock. The real contracting parties to a subscription agreement are the corporation and the subscriber alone. Thus, a civil case for rescission on the ground of breach of contract filed by a third party in their personal capacities will not prosper. Only the corporation has the legal personality to file suit rescinding the subscription agreement with the subscriber inasmuch as it was the real party in interest therein. (ONG YONG VS. TIU) 

The usual practice practice is for the stockholder stockholder to sign the form on the back of the stock certificate. certificate. The certificate may thereafter be transferred from one person to another. If the holder of the certificat certificate e desires desires to assume assume the legal rights of a shareholder shareholder to enable him to vote at corporate corporate elections and to receive dividends, he fills up the blanks in the form by inserting his own name as transferee. Then he delivers the certificate to the secretary of the corporation so that the transfer may be entered in the corporation's books. The certificate is then surrendered and a new one issued to the transferee. That procedure cannot be followed in the instant case because, as already noted, the twenty shares shares in questi question on we Dot Dot covered covered by any certific certificate ate of stork stork in Po's Po's name. name. Moreov Moreover, er, the corporation has a claim on the said shares for the unpaid balance of Po's subscription. A stock subscription in a subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his subscription, as he would be to pay any other debt. The right of the corporation to demand payment is no less incontestable. (NAVA VS. PEERS) f

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 It may be argued that despite non-compliance with the requisite endorsement and delivery, the assignment assignment was valid between the parties, parties, meaning the private private respondents respondents as assignors assignors and the petitioners as assignees. While the assignment may be valid and binding on the petitioners and privat private e respon responden dents, ts, it does not necess necessari arily ly make make the transf transfer er effect effective ive.. Conseq Consequen uently, tly, the petitioners as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, for, and and will will not not be enti entitle tled d to divi divide dend nds, s, inso insofa farr as the the assi assign gned ed shar shares es are are conc concer erne ned. d. Parenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in question is resolved with finality. (RURAL BANK OF LIPA CITY VS. CA)

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Before a transferee may ask for the issuance of stock certificates, he must first cause the registration of the transfer and thereby enjoy the status of a stockholder insofar as the corporation is concerned. A corporate secretary may not be compelled to register transfers of shares on the basis merely of an indorsement of stock certificates. With more reason, a corporate secretary may not be compelled to issue stock certificates without such registration. (PONCE VS. ALSONS CEMENT 

CORP) 

Are attachments of shares of stock included in the term "transfer" as provided in Sec. 63 of the Corporation Code? We rule in the negative. As succinctly declared in the case of Monserrat v. Ceron, chattel mortgage over shares of stock need not be registered in the corporation's stock and transfer book inasmuch as chattel mortgage over shares of stock does not involve a "transfer of 

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(CHEMPHIL EXPORT VS. CA) DISSOLUTION AND LIQUIDATION 

The word "trustee" as used in the corporation statute must be understood in its general concept which could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by the corporation. The purpose in the transfer of the assets of the corporation to a trustee upon its dissolution is more for the protection of its creditor and stockholders. Debtors like the petitioners herein may not take advantage of the failure of the corporation to transfer its assets to a trustee, assuming it has any to transfer which petitioner has failed to show, in the first place. To sustain petitioners' contention would be to allow them to enrich themselves at the expense of another, which all enlightened legal systems condemn. (GELANO VS. CA)

FOREIGN CORPORATIONS 

As between between the partie partiess themse themselves lves,, R.A. R.A. No. 5455 does not declare declare as void void or invalid invalid the contracts entered into without at securing a license or certificate to do business in the Philippines. Neith Neither er does does it appe appear ar to inte intend nd to prev preven entt the the cour courts ts from from enfo enforc rcin ing g cont contra racts cts made made in contravention of its licensing provisions, There is no denying, though, that an "illegal situation," as the appellate court has put it, was created when the parties parties voluntari voluntarily ly contracte contracted d without without such license. The parties are charged with knowledge of the existing law at the time they enter into the contract and and at the the time time it is to beco become me oper operat ativ ive. e. More Moreov over er,, a pers person on is pres presum umed ed to be more more knowledgeable about his own state law than his alien or foreign contemporary. In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of R.A. No. 5455 at the time the contract was executed and at all times thereafter. This conclusion is compelled by t he fact that the same statute is now being propounded by the petitioner to bolster its claim. We, therefore, sustain the appellate court's view that "it was incumbent upon TOP-WELD to know whether or not IRTI and ECED were properly authorized to engage in business in the Philippines when they entered into the licensing and distributorship agreements." The very purpose of the law was circum circumven vented ted and evaded evaded wh when en the petitio petitioner ner entere entered d into into said said agreeme agreements nts despit despite e the prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case. (TOP-WELD MFG. VS. ECED) 

The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of  Section 144 of the Code. It is, therefore, not necessary to declare the contract null and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases. (HOME 

INSURANCE CO. VS. EASTERN SHIPPING) 

The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, However, under the aforequoted aforequoted provision, provision, no foreign foreign corporati corporation on shall shall be permitted permitted to transact transact business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall have the license required by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain any suit in local courts. As thus interpreted, any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business

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San Beda College of Law COMMERCIAL LAW in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in business in the Philippines. (COLUMBIA PICTURES VS. CA) 

More than the sheer number of transactions entered into, a clear and unmistakable intention on the part of petitioner to continue the body of its business in the Philippines is more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of the items covered by the receipts, which are part and parcel of its main product line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and object of  its business, pure and simple. Further, its grant and extension of 90-day credit terms to private respondent for every purchase made, unarguably shows an intention to continue transacting with private respondent, since in the usual course of commercial transactions, credit is extended only to customers in good standing or to those on whom there is an intention to maintain long-term relationship. (ERIKS PTE. LTD. VS. CA) 

We agree with the finding of the respondent court that petitioner is not suing on an isolated transaction as it claims to be, as it is very obvious from the deed of assignment and its relationships with Marcopper and Placer Dome, Inc. that its unmistakable intention is to continue the operations of Marcopper and shield its properties/assets from the reach of legitimate creditors, even those holding valid and executory court judgments against it. There is no other way for petitioner to recover its huge financial investments which it poured into Marcopper’s rehabilitation and the local situs where the Deeds of Assignment were executed, without petitioner continuing continuing to do business in the country. While petitioner may just be an assignee to the Deeds of Assignment, it may still fall within the meaning of “doing business” based on the ruling of the Supreme Court that “Where a single act or transactio transaction n however however is not merely incidental incidental or casual casual but indicates indicates the foreign foreign corporati corporation’s on’s intention to do other business in the Philippines, said single act or transaction constitutes doing or engaging in or transacting business in the Philippines.” (MR HOLDINGS, INC. VS. BAJAR) 

The true test (for doing business), however, seems tot be whether the foreign corporation is continuing the body of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Substance test) The second test is the continuity test, expressed thus: The term (doing business) implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in the progressive prosecution of, the purpose and objects of its organization. (AGILENT TECHNOLOGIES VS. INTEGRATED SILICON)

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The party is estopped from questioning the capacity of a foreign corporation to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporations and thereafter thereafter committed a breach breach of or sought to renege renege on its obligations. obligations. The rule relating relating to estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere debet – no person ought to derive any advantage from his own wrong. (EUROPEAN RESOURCES VS. IGNIEBURO) w a L

CORPORATE REHABILITATION  The issue of whether or not preferred creditors of distressed corporations stand on equal footing with with all all othe otherr cred credit itor orss gain gainss relev relevan ance ce and and mater materia iali lity ty only only upon upon the the appo appoin intm tmen entt of a management committee, rehabilitation receiver, board or body. (RCBC VS. IAC) 

The reason for suspending suspending actions actions for claims against the corporati corporation on should not be difficult difficult to discover. It is not really to enable the management committee or the rehabilitation receiver to

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COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS substitute the defendant in any pending action against it before any court, tribunal, board or body. Obviously, the real justification is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might duly hinder or prevent the “rescue” of the debtor company. (B.F. HOMES, INC. VS. CA cited 

in PAL VS. SPOUSES SADIC)

BANKING LAWS NEW CENTRAL BANK ACT must be rememb remembere ered d that that the Central Central Bank Bank of the. the. Philip Philippin pines es (now (now Bangko Bangko Sentral Sentral ng  It must Pilipinas), through the Monetary Board, 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 supervision and examinatio examination n over banks and non-bank non-bank financial financial instituti institutions ons performing performing quasiquasibanking functions, of which savings and loan associations, such as PESALA, form part of. (BUSUEGO

VS. CA) 

While admittedly the Central Bank 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 “preservation of the assets of  the bank (the reorganization thereof) and the restoration of its viability.” Such 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 Constitution. (FIRST PHIL.

INT’L BANK VS. CA) 

There is no requirement whether express or implied, that a hearing be first conducted before a banking institution may be placed under receivership. On the contrary, the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities liabilities.. They are: (a) an examination examination made by the examining examining department department of the Central Bank; (b) report by said department to the Monetary Board; and (c) 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 Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the protection of the banking institution. Stated otherwise, due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: 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) R e d N o te

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The purpose of the law in requiring that only the stockholders of record representing the majority 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 Board of  Directors 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 Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders. Common 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 majority of the shares for they are expected to be more object objective ive in determ determini ining ng wh wheth ether er the resolu resolutio tion n is plainl plainly y arbitr arbitrary ary and issued issued in bad faith. 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 duty it is to admi admini nist ster er the the asse assets ts for for the the bene benefi fitt of the the cred credit itor orss of the the bank bank.. Thus Thus,, the the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this

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San Beda College of Law COMMERCIAL LAW respec respect, t, the receiv receivers ership hip is equiva equivalen lentt to an injun injuncti ction on to restra restrain in the bank bank office officers rs from 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 Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken undertaken with judicial intervention intervention means that, as far as lawful and practicable, practicable, all claims claims against the insolvent bank should be filed in the liquidation proceeding. We explained therein the rationale behind the provision, i.e., the judicial liquidation 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 liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice 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 liquidation court should assist the Superintendent of Banks and regulate his operations.

(ONG VS. CA) SECRECY OF BANK DEPOSITS ACT  The lower court did not order an examination of or inquiry into the deposit of B & B Forest Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation 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 inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry 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 intention of Congress to enable debtors debtors to evade payment of their just debts, even if ordered ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank. (CHINA BANKING CORP. VS. ORTEGA) 

Before an in-camera inspection may be allowed of bank deposits, there must be a pending cases before a court of competent jurisdiction. Further, the account must be clearly identified, the inspec inspectio tion n limite limited d to the subject subject matter matter of the pendin pending g case case before before the court of compete competent nt jurisdiction. 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 Office of the Ombudsman is not a pending litigation to allow examination of  the respondent’s bank account. (MARQUEZ VS. DESIERTO)

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Thus, while Republic Act No. 1405 provides that bank deposits are "absolutely confidential . . . and [therefore] may not be examined, inquired or looked into," except in those cases enumerated therein, the Anti-Graft Law 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 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 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 2 of Republic Act No. 1405 declares bank deposits deposits to be "absolutely "absolutely confidential" confidential" it nevertheless nevertheless allows such disclosure disclosure in the following instances: (1) Upon written permission of the depositor; (2) In cases of impeachment; (2) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; (4) In cases where the money deposited is the subject of the litigation. Cases 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

COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS 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.GANCAYCO) 

The inquiry into illegally acquired property-or property NOT "legitimately acquired"-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 R.A. No. 3019 which quite categorically states that the term, "legiti "legitimat mately ely acquir acquired ed proper property ty of a public public office officerr or employ employee ee shall shall not includ include e proper property ty unlawfully acquired by the respondent, but its ownership is concealed by its being recorded in the name of, or held by, respondent's spouse, ascendants, descendants, relatives or any other persons." To sustain the petitioner's theory, and restrict the inquiry 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 light of the provisio provisions ns of the statutes statutes in quest question ion,, and would make availab available le to person personss in government who illegally acquire 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 obligations so long as these future debts are accurately accurately described, described, a chattel chattel mortgage, 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 commit commitmen mentt that that can be compell compelled ed upon, upon, the securi security ty itself, itself, however however,, does does not not come come into into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is execu executed ted eith either er by conc conclu ludi ding ng a fres fresh h chat chatte tell mort mortga gage ge or by amen amendi ding ng the the old old cont contra ract ct conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of  constitution and during the life of the chattel mortgage sought to be foreclosed. (ACME SHOE,

RUBBER & PLASTIC VS. CA) 

A stipulation in the chattel mortgage, extending its scope and effect to after-acquired property, is valid and binding where the after-acquired 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 acquisitions of goods to be added to the original stock mortgaged, but the mortgage must expressly provide that future acquisitions shall be held as included in the mortgage. Where a mortgage covering the stock in trade, furniture, and fixtures in the mortgagor's store provides that "all goods, stock in trade, furniture furniture,, and fixtures hereafter hereafter purchased by the mortgagor shall be included included in and covered by the mortgage," the mortgage covers all after-acquired property of the classes mentioned, and, upon foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed. (TORRES VS. LIMJAP) 

In the instant case, defendant corporation elected to foreclose its mortgage upon default by the plainti plaintiffs ffs in the paymen paymentt of the agreed agreed instal installmen lments, ts, Having Having chose chosen n to forecl foreclose ose the chatte chattell mortga mortgage, ge, and bought bought the purcha purchased sed vehicles vehicles at the public public auction auction as the highes highestt bidder, bidder, it submitted itself to the consequences 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 jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the

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San Beda College of Law COMMERCIAL LAW principal principal debtor in fulfilling fulfilling the principal principal obligation obligation that is, to pay the loan. The signatory 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. Should 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 No. 3893. 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 should confor conform m to the provis provision ionss of the Wareho Warehouse useman man Receipts Receipts Law, Law, said said provis provision ionss are not mandat mandatory ory,, and indispen indispensab sable le in the sense sense that that if they they fell fell short short of the requirem requirement ent of the Warehouse Receipts Act, then the commodities delivered for storage become ordinary deposits and will not be governed by the provisions of the Bonded Warehouse Act. Under Section 1 of the Warehouse Receipts Act, the issuance of a warehouse receipt in the form provided by it is merely permissive and directory and not obligatory. (GONZALES VS. GO TIONG) 

In conclusion, we hold that where a warehouse receipt or quedan 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 quedan 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 quedans 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 quedan, 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 (quedans) by Ramos and Zoleta to petitioner was not to convey "title" to or ownership of the goods but to secure (by way of pledge) the loans granted to Ramos and Zoleta by petitioner. The indorsement of the warehouse receipts (quedans), (quedans), to perfect perfect the pledge, merely constitut constituted ed a symbolical symbolical or construc constructive tive delivery of the possession of the thing thus encumbered. (PNB VS. SAYO, JR.) f

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Regrettably, the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with Section 8 of the law. The presumption, nevertheless, would be that the law was complied with, rather than breached, by petitioner. Upon the other hand, it would appear that the refusal of private private respondents respondents to deliver the goods was not anchored anchored on a valid excuse, i.e., non-satisfact non-satisfaction ion of the warehouseman' warehouseman'ss lien over the goods, but on an adverse adverse claim of ownership. Private respondents justified their refusal to deliver the goods, as stated in their Answer with Counterclaim and Third-Party Complaint in Civil Case No. 90-53023, by claiming that they "are still the legal owners of the subject quedans and the quantity of sugar represented therein." Under the circumstances, this hardly qualified as a valid, legal excuse. The loss of the warehouseman's lien, however, does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and charges have ceased to accrue from the date of the rejection by Noah's Ark to heed the lawful demand by petitioner for the release of the goods. (PNB VS. SAYO, JR.)  Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with Section 29 of the Warehouse Receipts Law, 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 requiring payment of his lien, because a warehouseman's lien is possessory in nature. (PNB vs. Se, Jr.)  Where a warehouse receipt or quedan 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 

COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS the goods covered by the warehouse receipt or quedan 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 quedans 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 quedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. (MARTINEZ VS. PNB)

TRUST RECEIPTS LAW  As regards the first issue, the Court has repeatedly upheld the validity of the Trust Receipts Law and consistently declared that the said law does not violate the constitutional proscription against imprisonment for non-payment of debts. Verily, PD 115 is a declaration by the legislative authority that, as a matter of public policy, the failure failure of a person to turn over the proceeds proceeds of the sale of goods covered covered by a trust receipt or to return said goods if not sold is a public nuisance to be abated by t he imposition of penal sanctions. In fine, PD 115 is a valid exercise of police power and is not repugnant to the constitutional provision of non-imprisonment for non-payment of debt. In a similar vein, the case of People vs. Nitafan (supra) held: "The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of a loan. Thus, there can be no violation of the right against imprisonment for non-payment of a debt."

(TIOMICO VS. CA) 

A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the letter of Credit, with the trust receipt as 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 acquires a "security interest” in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. Contrary to the allegation of the VINTOLAS, IBAA 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 VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor." For the bank has previously extended a loan which the L/C 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, just 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. Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently 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 question does not affect IBAA's right to recover the advances it had made under the Letter of Credit.

(VINTOLA VS. INSULAR BANK) 

The penal provisions of P.D. No. 115 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 equipment used in business. If the beneficiary is not paid (ALLIED BANKING BANKING CORP. CORP. VS. under under such such trus trustt rece receipt ipt,, the the trus trustee tee is liab liable le unde underr the the law. law. (ALLIED

ORDOÑEZ) 

From From the legal legal and jurispru jurispruden dentia tiall standp standpoin ointt it is clear clear that that the securi security ty inter interest est 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 entruster's advances will have to be settled first before the entrustee can

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San Beda College of Law COMMERCIAL LAW consolidate his ownership over the goods. A contrary view would be disastrous. For to refuse to recognize 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-recognized custom by which banking credit is officially mobilized for manufacturers and importers of small means. Besides, as earlier stated, the law warrants the validity of petitioner's 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. Neither 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 The prov provis isio ion n of the the abov above-q e-quo uoted ted Sect Sectio ion n 32, 32, of the the Inso Insolv lven ency cy Law Law is very very clea clearr-th that at attachments dissolved are those levied within one (1) month next preceding the commencement of  the insolvency proceedings and judgments vacated and set aside are judgments entered in any action, including judgment entered by default or consent of the debtor, where the action was filed within thirty (30) days immediately prior to the commencement of the insolvency proceedings. In short, there is cut off period--one (1) month in attachment cases and thirty (30) days, in judgments entered in actions commenced prior to the insolvency proceedings. Section 79, 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 (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 qualities, cannot be appropriated and protected as a trademark to the exclusion of others. (ONG OI GUI VS. DIRECTOR, PHILIPPINE PATENTS OFFICE, 96 PHIL. 673)

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Common geometric shapes, such as diamonds, are ordinarily not regarded as indicia of the origin of goods, unless they have acquired a secondary meaning. (VICTORIAS MILLING CO. INC. VS. ONG

SU, 79 SCRA 207)   One

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. ( FABERGE INC.

VS. INTERMEDIATE APPELLATE COURT, 215 SCRA 3160    A

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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. ( LYCEUM OF THE PHILIPPINES INC. VS. COURT OF APPEALS, 219 SCRA 610) 

Although the word “Selecta” 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 characterize its products, or as a badge of authenticity, it may acquire a secondary meaning as to be exclusively associated with its

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COMMERCIAL LAW 2005 CENTRALIZED B AR  OPERATIONS products products and business. In this sense, its use by another another may lead to confusion confusion in trade and cause cause AND CO. VS. SELECTA SELECTA BISCUIT CO. INC., INC., ET. AL, 110 PHIL. 858) damage to its business. ( ARCE SONS AND  The trademark “Lionpas” for medicated plaster cannot be registered because it is confusingly similar to “Salonpas”, 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., 18 SCRA 1178) 

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. “Ang 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. Even if “Ang Tibay” therefore, were not capable of exclusive appropriation as a trademark, the application of the doctrine of  secondary secondary meaning could be sustained sustained because, in any event, by respondent respondent’s ’s long and exclusive exclusive use of said phrase with reference to his products and his business, it has acquired a proprietary connotation. ( ANG VS. TEODORO, TEODORO, 74 PHIL. 50)  Infrin Infringem gement ent of tradem trademark ark is a form form of unfai unfairr compet competiti ition. on. The univer universal sal test test questi question on for infrin infringeme gement nt is wh wheth ether er the public public is likely likely to be deceiv deceived. ed. Actual Actual probabl probable e decepti deception on and confusion on the part of the customers by reason of defendant’s practices must always appear.  ASIA BREWERY INC. VS. COURT OF APPEALS, APPEALS, 224 SCRA 437) ( ASIA 

The validity of a cause for infringement is predicated upon colorable imitation. The phrase “colorable 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. (ETEPHA VS. DIRECTOR OF PATENTS ET. AL, 16 SCRA 495) 

If the competing competing trademark trademark contains the main or essential essential or dominant features features of another 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. (PHILIPPINE NUT INDUSTRY INC. VS. STANDARD BRANDS INC., 65 SCRA 575)

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In infringement or trademark cases in the Philippines, particularly in ascertaining whether one trademark is confusingly similar to or is a colorable imitation of another, no set rules can be deduced – each case must be decided on its own merits. (SOCIETE DES PRODUITS NESTLE S.A. VS.

COURT OF APPEALS, 356 SCRA 207) 

Infringement of trademark depends on whether the goods of the two contending parties using the same trademark, such as “ESSO”, are so related as to lead the public to be deceived. The trademark ESSO 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 Eastern Inc. vs. Court of Appeals, 116 SCRA 336) 

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, 133 SCRA 405)   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 injured by any subsequent appropriation or imitation by others, and the public will not be deceived. (PHILIPPINE REFINING CO. INC. VS. NG SAM, 115 SCRA 472) 

The Convention of Paris for the Protection of Industrial Property, otherwise known as the Paris Convention, is a multilateral treaty that seeks to protect industrial property consisting of patents, utility models, industrial designs, trademarks, service marks, trade names and indications of source

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San Beda College of Law COMMERCIAL LAW or appellations of origin and at the same time aims to repress unfair competition. The convention is essent essential ially ly a compac compactt among among variou variouss countr countries ies which which as member members, s, have have pledged pledged to accor accord d to citizens of the other member countries, trademark and other rights comparable to those accorded their own citizens by their domestic laws for an effective protection against unfair competition. (MIRPURI VS. COURT OF APPEALS, 318 SCRA 516)  A foreig foreign n corpor corporati ation on not doing business business in the Philippi Philippines nes needs no licens license e to sue in the Philippines Philippines for trademark violations. violations. The Philippine Philippine being a party to the Paris Convention Convention for the Protection of Industrial Property, the right of a foreign corporation to file suit in the Philippine courts to protect its trademark is to be enforced. ( LA CHEMISE LACOSTE VS. FERNANDEZ, 129 SCRA

373) 

A foreign corporation not doing business in the Philippines may have the right to sue before the Philippine courts but it may not necessarily be entitled to protection due to absence of actual use of the emblem in the Philippine market. ( PHILIP MORRIS INC. VS. COURT OF APPEALS, 224 SCRA

576) 

An unlice unlicense nsed, d, unr unregi egiste stered red foreig foreign n corpor corporati ation on which which has never never done done any busines businesss in the Philippines, but is widely and favorably known in the Philippines through the use of its products bearing its corporate and trade name, has a legal right to maintain an action in the Philippines to restrict the organization of a corporation whose sole purpose is to deal and trade in the same goods as those of the foreign corporation. ( CONVERSE RUBBER CORP. VS. UNIVERSAL RUBBER PRODUCTS

INC., 147 SCRA 154) 

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 ve st ownership of the trademark. (GABRIEL VS. PEREZ, 55 SCRA 406)

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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, subject to any conditions and limitations stated therein. (AMIGO MANUFACTURING INC.

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VS. CLUETT PEABODY CO. INC., 354 SCRA 434) 

In cases of confusion of business or origin, the question that usually arises is whether the respective goods or services of the senior user are so related as to likely cause confusion of business or origin, and thereby render the trademark or trade name confusingly similar. Goods 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 quality. They may also be related because they serve the same purpose. ( CANON  KABUSHIKI KAISH A VS. COURT OF APPEALS, 336 SCRA 266) 

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The reckoning reckoning point for the filing of a petition petition for cancellatio cancellation n of certificate certificate of registrati registration on of  trademark is not from the alleged date of use but from the date the certificate of registration was publ publis ishe hed d in the the Offi fficial cial Gaze Gazettte and and issu issued ed to the the regis egistr tran antt. ( EME EMERAL RALD D GARMEN GARMENT  T 

MANUFACTURING CORP. CORP. VS. COURT OF APPEALS, 251 SCRA 600)   The The

righ rightt to the the excl exclus usiv ive e use use of a corp corpor orat ate e name name with with freed freedom om from from infr infrin ingem gemen entt 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. ( PHILIPS EXPORT B.V.

VS. COURT OF APPEALS, 206 SCRA 457)

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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. ( SCHWARTZ VS. COURT OF APPEALS,

335 SCRA 493) PATENTS  A person or entity who has not been granted letters patent over an invention and has not acquired any right of title thereto either as assignee or as licensee, has no cause of action for infringemen infringementt because because the right to maintain maintain an infringem infringement ent suit depends on the existence existence of the patent. (CRESSER PRECISSION SYSTENS INC. VS. COURT OF APPEALS, 286 SCRA 13) The doctrine of equivalents provid provides es that that an infri infringem ngement ent also also takes takes place place whe when n a device 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 doctrine of equivalents thus requires satisfaction of the function-means-and-result test, the patentee having the burden to show that all three components of such equivalency test are met. (SMITH KLINE BECKMAN CORPORATION vs. COURT OF APPEALS ET 

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 AL.) 

To be able to effectively and legally preclude others from copying and profiting from the invention, a patent is a primordial requirement. No patent, no protection. The ultimate goal of a patent system is to bring new designs and technologies into the public domain through disclosure. Ideas, Ideas, once once disclo disclosed sed to the public without without the protecti protection on of a valid valid patent patent,, are subject subject to appropriation without significant restraint . (PEARL & DEAN (PHIL.), INCORPORATED vs. SHOEMART,

INCORPORATED, INCORPORATED, and NORTH EDSA MARKETING, INCORPORATED)  

Under the aforequoted 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 patentee's successorsin-interest, assignees or grantees since actions for infringement of patent may be brought in the name of the person or persons persons interested, interested, whether as patentee, patentee, assignees, assignees, or as grantees, of the exclusive right. Moreover, 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 acquired 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. Petitioner admits it has no patent over its aerial fuze. Therefore, it has no legal basis or cause of  action to institute the petition for injunction and damages arising from the alleged infringement by private respondent. While petitioner claims to be the first inventor of the aerial fuze, still it has no right of property over the same upon which it can maintain a suit unless it obtains a patent therefor. (CRESER PRECISON SYTEMS VS. CA)

COPYRIGHT  Copyright, in the strict sense of the term, is purely a statutory right. Being a mere statutory grant, the rights are limited to what the statute confers. It may be obtained and enjoyed only with respect to the subjects 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. PEARL & DEAN DEAN (PHIL. (PHIL.), ), INCOR INCORPO PORAT RATED ED vs. SHOEM SHOEMART ART,, INCOR INCORPO PORAT RATED, ED, and NORTH NORTH EDSA EDSA (PEARL

MARKETING, INCORPORATED) INCORPORATED) 

The copyright does not extend to the general concept or format of its dating game show.

(JOAQUIN VS. DRILON)

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In determining the question 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

San Beda College of Law COMMERCIAL LAW 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 injurious extent appropriated by another, that is sufficient in point of law to constitute piracy.

(HABANA VS. ROBLES)

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