jurisprudence in merchantile law

JURISPRUDENCE IN MERCHANTILE LAW

Code of Commerce

COMMON CARRIERS; Extraordinary Diligence under the Civil Code; From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible UNLESS the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are PRESUMED to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence. In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit. Their defense of fortuitous event or force majeure and evidence of seaworthiness by way of certification by the Phil. Coat Guard at the time of dry-docking and inspection could not overturn the presumption of fault or negligence. And further exoneration of MT Maysun's officers and crew by the Board of Marine Inquiry w/c merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts.

Delsan Transport Lines v. CA, GR127897, Nov. 15, 2001.

VESSEL; Acquisition; Under Art. 579 of the Code of Commerce, the acquisition of a vessel must appear on a written instrument, w/c shall not produce any effect w/ respect to third persons if not inscribed in the Registry of Vessels.

Tanogon v. Samson, GR 140889, May 9, 2002.

Same; Seaworthiness; Seaworthiness relates to a vessel's actual condition. Neither the granting of classification or the issuance of certificates establishes seaworthiness. Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owner's obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to seaworthiness.


Carriage of Goods By Sea Act

NOTICE OF CLAIM; Under Sec. 3, par. (6) of COGSA, Notice of claim need not be given if the state of the goods at the time of their receipt has been subject of a JOINT INSPECTION or SURVEY. Failure to file a notice of claim w/in 3 days WILL

Belgian Overseaes Chartering and Shipping

NOT BAR a recovery if it is nonetheless field w/in one year. This ONE-YEAR PRESCRIPTIVE PERIOD applies to the shipper, the consignee, the insurer of the goods or any legal holder of the Bill of Lading.

N.V. v. Phil. First Insurance, GR 143133, June 5, 2002.

BILL OF LADING; Two Functions; [1] It is a RECEIPT for the goods shipped. [2] It is a CONTRACT by w/c 3 parties (the shipper, the carrier, and the consignee) undertake specific responsibilities and assume stipulated obligations. The acceptance of the bill of lading by the shipper and the consignee, w/ full knowledge of its contents, gives rise to the PRESUMPTION that it constituted a perfect and binding contract. The stipulation in a bill of lading limiting to a certain sum the common carrier’s liability for loss or destruction of a cargo – unless the shipper or owner declares a greater value – is sanctioned by law. In this case, there was no stipulation in the bill of lading limiting the carrier’s liability. Neither did the shipper declare a higher valuation of the goods to be shipped. In light of the foregoing, petitioner’s liability should be computed based on the price per package and not on the per metric ton price declared in the Letter of Credit.

Belgian Overseaes Chartering and Shipping N.V. v. Phil. First Insurance, GR 143133, June 5, 2002.

Arrastre and Wharfage Bill

ARRASTRE; “Shipper’s Load and Count”; refers to a cargo placed on a vessel wherein the shipper is solely responsible for the loading of the container, while the carrier is oblivious of the contents of the shipment. Protection against pilferage is the consignee’s lookout.

Int’l. Container Terminal Services v. Prudential Guarrantee & Assurance Co., GR 134514, Dec. 8, 1999.

Same; Same; Under this arrangement, the arrastre is required only to deliver to the consignee the container van received from the shipper, with no obligation to verify or compare the contents thereof with those declared by the shipper.


LOSS, DAMAGE OR MISDELIVERY OF GOODS; Under its “Liability Clause”, a claim for reimbursement for loss, damage or misdelivery of goods must be filed w/in 15 days from the date the consignee learns of such problem.


Corpora-tion Law

CORPORATE NAME; Guidelines in choosing corporate name. The pertinent portion of the SEC Guidelines on Corporate Names states: xxx xxx “(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company, the proposed name must contain two other words different from the name of the company already registered.” Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name. Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which, petitioner argues, effectively distinguished it from respondent corporation. The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both petitioner and respondent corporations are using the same acronym — H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for "Haligi at Saligan ng Katotohanan." Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly similar to respondent's corporate name, thus making it even more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely descriptive of and pertaining to the members of respondent corporation. Significantly, the only difference between the corporate names of petitioner and respondent are the words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test of "reasonable care and observation" confusion may arise. Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find justification under the generic word rule. A contrary ruling would encourage other corporations to adopt verbatim and register an existing and protected corporate name, to the detriment of the public.

And mga Kaanib sa Iglesia ng Dios kay Kristo Hesus v. Iglesia ng Dios kay Cristo Jesus, GR 137592, Dec. 12, 2001.

Same; Primary Purpose. It is unbelievable for PFINA to acquire extremely valuable real estate in Quezon City for only P30.00 per square meter. In 1983, PFINA Mining and Exploration, Inc. was a mining company. It changed its corporate name to PFINA Properties, Inc., only on January 22, 1998, six (6) days before filing its petition-in-intervention with the CA. In its petition, PFINA claimed to have bought urban real estate in 1983, notwithstanding that at the time it was still a mining company which had no business dabbling in the highly speculative urban real estate trade.

Heirs of Pael v. CA, GR 133547, Dec. 7, 2001.

PRINCIPAL OFFICE; It cannot be disputed that petitioner's principal office is in Cebu City, per its amended articles of incorporation 15 and by-laws. An action for damages being a personal action, venue is determined pursuant to Rule 4, section 2 of the Rules of Court, providing for the venue of personal action - that all other actions may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff.

Davao Light & Power Co. v. CA, GR 111685, Aug. 20, 2001.

SEPARATE JURIDICAL PERSONALITY; A corporation, upon coming, into existence, is invested by law w/ a personality separate and distinct from the persons comprising it as well as from any other legal entity to w/c it may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of said corporation, and vice versa.

LBP v. CA, GR 127181, Sept. 4, 2001.

Same; Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), w/c had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to respondent.

PNB v. Andrada Electric & Eng’g. Co., GR 142936, April 17, 2002.

Same; A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. 12 It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. 13 This is basic.


Piercing the Veil of Corporate Fiction; The organization of subsidiary corporations as what was done here is usually resorted to for the

Reynoso, IV v. CA, GR 116124-25,

aggrupation of capital, the ability to cover more territory and population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporation device is used by the parent corporation to avoid its liability for legitimate business obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem.

Nov. 22, 2000.

Same; The MHC is an incorporator of MHICL and owns 50% of its capital stock is not enough reason to pierce the veil of corporation fiction between MHICL and MHC.

The Manila Hotel Corp. v. NLRC, GR 120077, Oct. 13, 2000.

Same; When the legal fiction of the separate corporate personality is abused, such as when the same is used for FRAUDULENT or WRONGFUL ends, the courts have not hesitated to pierce the corporate veil.

Francisco v. Mejia, GR 141617, Aug. 14, 2001; DBP v. CA, GR 126200, Aug 16, 2001.

Same; In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. In the absence of any malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. The mere fact that a stockholder owns a majority of the stock of the corporation is not a ground to conclude that said stockholder and corporation are one and the same.

LBP v. CA, 2001.

Same; Mere ownership of a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient ground fro disregarding the separate corporate personality.

Francisco and Merrlyland Dev. Corp. v. Mejia, GR 141617, Aug. 14, 2001; PNB v. Ritratto Group, Inc., GR 142616, July 31, 2001.

Same; Not because two foreign companies came from the same country and closely worked together on certain projects would the conclusion arise that one was the conduit of the other.

Marubeni Corp. v. Lirag, GR 130998, Aug. 10, 2001.

Same; A suit against the stockholders of OWNI is not a suit against OWNI. Failure to implead the

PCGG v. Sandiganba

corporations as defendants and merely annexing a list of such corporations to the complaints is a violation of their right to due process for it would in effect be disregarding their distinct and separate personality w/o a hearing.

yan, GR 119609-10, Sept. 21, 2001.

Same; The doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.

Vesagas v. CA, GR 142924, Dec. 5, 2001.

Same; The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. However, if a subsidiary is but a mere instrumentality of the parent-corporation, piercing the corporate veil is wanting. The recent case of PNB vs. Ritratto Group Inc., [G.R. No. 142616, July 31, 2001], outlines the circumstances which are useful in the determination of whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit:(a) The parent corporation owns all or most of the capital stock of the subsidiary.(b) The parent and subsidiary corporations have common directors or officers.(c) The parent corporation finances the subsidiary.(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.(e) The subsidiary has grossly inadequate capital.(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.(g) The subsidiary has substantially no business except w/ the parent corporation or no assets except those conveyed to or by the parent corporation.(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.(i) The parent corporation uses the property of the subsidiary as its own.(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation.(k) The formal legal requirements of the subsidiary are not observed.In this catena of circumstances, what is only extant in the records is the matter of stock ownership. There are no other factors indicative that petitioner is a mere instrumentality of Marcopper or Placer

MR Holdings, LTD v. Sheriff, GR 138104, April 11, 2002.

Dome. The mere fact that Placer Dome agreed, under the terms of the "Support and Standby Credit Agreement" to provide Marcopper with cash flow support in paying its obligations to ADB, does not mean that its personality has merged with that of Marcopper. This singular undertaking, performed by Placer Dome with its own stockholders in Canada and elsewhere, is not a sufficient ground to merge its corporate personality with Marcopper which has its own set of shareholders, dominated mostly by Filipino citizens. The same view applies to petitioner's payment of Marcopper's remaining debt to ADB. W/ the foregoing considerations and the absence of fraud in the transaction of the three foreign corporations, we find it improper to pierce the veil of corporate fiction — that equitable doctrine developed to address situations where the corporate personality of a corporation is abused or used for wrongful purposes.

Same; Well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled 15 only when it becomes a shield for fraud, illegality or inequity committed against third persons. Hence, any application of the doctrine of piercing the corporate veil should be done w/ caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. This Court has pierced the corporate veil to ward off a judgment credit, 22 to avoid inclusion of corporate assets as part of the estate of the decedent, 23 to escape liability arising from a debt, 24 or to perpetuate fraud and/or confuse legitimate issues 25 either to promote or to shield unfair objectives 26 or to cover up an otherwise blatant violation of the prohibition against forum-shopping. 27 Only in these and similar instances may the veil be pierced and disregarded. 28


Same; Mere Alter Ego; The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) CONTROL — not mere stock control, but complete domination — not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right (BREACH OF DUTY); and (3)


the said control and breach of duty must have proximately caused the injury or unjust loss complained of (PROXIMATE CAUSE).

CORPORATE POWERS; Exercised by the Board of Directors (Sec. 23 of the Corporation Code). Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected w/, the performance of authorized duties of such director, are held not binding on the corporation.

AF Realty & Dev., Inc. v. Dieselman Freight Services, GR 111448, Jan. 16, 2002.

CORPORATE OFFICERS; The general rule is that a corporate officer cannot be held personally liable w/ the corporation, whether civilly or otherwise, for the consequences of his acts done for and in behalf of the corporation, w/in the scope of his authority and in good faith. In such cases, the officer’s acts are properly attributed to the corporation. HOWEVER, if the officer has used the corporate fiction to defraud a third party, or has acted negligently, maliciously or in bad faith, then the corporate veil shall be lifted and he shall be held personally liable for the particular corporate obligation involved.

Francisco v. Mejia, supra.

Same; An “office” has been defined as a creation of the charter of a corporation, while an “officer” as a person elected by the directors or stockholders. On the other hand, an “employee” occupies no office and is generally employed not by action of the directors and stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. Where petitioner’s appointment as comptroller requires the approval and formal action of the IBC’s Board of Directors to become valid, then petitioner is a corporate officer whose dismissal may be subject of a controversy cognizable by the SEC under Sec. 5 (c) of PD 902-A, w/c includes controversies involving both election and appointment of corporate directors, trustees, officers, and managers. Had petitioner been an ordinary employee, such board action would not have been required.

Nacpil v. Int’l. Broadcasting Corp., GR 144767, March 21, 2002.

Same; Even if the position of Comptroller is not expressly mentioned among the officers of the IBC in its By-Laws is of no moment, because the IBC Board of Directors is empowered under the IBC By-Laws and Sec. 25 of the Corporation Code to appoint such other officers as it may deem necessary.


Same; The relationship of a person to a corporation, whether as officer or agent or employee, is not determined by the nature of the services performed but instead by the incidents of the relationship as they actually exist.

id.

POWERS OF OFFICERS; A perusal of the By-Laws Lee v. CA,

of MICO shows that the powers to borrow money fort he company and those mortgages, bonds, deeds of trust and negotiable instruments or securities secured by mortgages or pledges of property belonging to the company may be delegated by its Board of Directors to any of its standing committee, officer or agent. Hence, PBCom had every right to rely on the Certification issued by MICO’s corporate secretary that Chua Siok Suy was duly authorized to borrow money and obtain credit facilities in behalf of MICO from PBCom.

GR 117913, Feb. 1, 2002.

STOCKHOLDER; Share in Profits of the Corporation; In this case, the amount received by respondent was a loan and not a share in the profits of the corporation. There was no showing that respondent was a stockholder of H.L. Carlos Construction. His name does not appear in the Articles of Incorporation as well as the Organizational Profile of said company either as stockholder or officer. Not being a stockholder, he cannot be entitled to the profits or income of said corporation. Neither did respondent prove that he was an employee or an agent so as to be entitled to salaries or commissions from the corporation.

Carlos v. Abelardo, GR 146504, April 9, 2002.

Liability of Corporate Officers and Stockholders for the Obligations of the Corporation; As a legal entity, a corporation has a personality separate and distinct from its individual stockholders. The fiction of corporate entity will be set aside and the individual stockholders will be held liable for its obligations only if it shown that it is being used for fraudulent, unfair or illegal purposes.

Compania Maritima v. CA, GR 128452, Nov. 16, 1999.

Assumption of Liability of Another Corporation; As a RULE, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, EXCEPT when any of the ff. circumstances is present: [1] where the purchaser expressly or impliedly agrees to assume the debts; [2] where the transaction amounts to a consolidation or merger of the corporation; [3] where the purchasing corporation is merely a continuation of the selling corporation, and [4] where the transaction is fraudulently entered into in order to escape liability for debts. A corporation has a personality separate and distinct from the persons composing it, as well as from any other legal entity to w/c it may be related. In this case, the mere fact that the PNB acquired ownership or management of some assets of PASUMIL, w/c had earlier been foreclosed and purchased at the resulting public auction by the DBP, will not make PNB liable for the PASUMIL’s contractual debts to respondent. Thus, pierching the corporate veil is not warranted.


Director as Creditor of a Corporation. Where the corporations have directors and officers in

DBP v. CA, GR 126200,

common, there may be circumstances under which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where one corporation was 'insolvent and indebted to another, it has been held that the directors of the creditor corporation were disqualified, by reason of self-interest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness. In the same manner that ". . . when the corporation is insolvent, its directors who are its creditors can not secure to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of the directors, for the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors. Directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. When validity of these mortgages, to secure debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors.

Aug, 16, 2001.

STOCK TRANSFER; Not valid unless recorded in the books of the corporation. Until challenged in a proper proceeding, a stockholder of record has a right to participate and vote in any meeting of stockholders. A person who has purchased stock and who desires to be recognized as a stockholder for the purpose of voting must secure a standing by having the transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder but an outsider.

BLTB Co. v. Bitanga, GR 137934, Aug. 10, 2001.

Same; The requirement in Sec. 63 of the Corporation Code for registration of stock transfers is intended to protect the interest of the corporation and third persons who may be prejudiced by the transfer of the shares of stocks. Hence, as between the parties to the sale, the transfer shall be valid even if not recorded in the books of the corporation.

id., Justice Puno, dissenting.

PRE-EMPTIVE RIGHT; The purpose of the notice Republic v.

requirement in Article 10 of the ETPI Articles of Incorporation is to give the stockholders knowledge of the intended sale of shares of stock of the corporation, in order that they may exercise their preemptive right. Where it is shown that a stockholder had actual knowledge of the intended sale within the period prescribed to exercise the right, the notice requirement had been sufficiently met. In the case at bar, PCGG had actual knowledge of UNIMOLCO's offer to sell its shares of stock. In fact, it issued Resolution No. 96-142 enjoining the sale of the said shares of stock to Smart. Petitioner, thus, cannot feign lack of notice.

Sandiganbayan, GR 128606, Dec. 4, 2000.

Treasury Shares; Converting the sequestered shares in question to treasury shares will result in: [i] the outstanding shares so converted becoming property of the issuing corporation and will cease to earn dividends; [ii] the retained dividends on those share going to the issuing corporation as a whole; and [iii] the voting rights of those shares cannot be exercised; hence, the voting strength of the other shares remaining issued and outstanding being enhanced to the extent of the outstanding shares thus converted to treasury.

San Miguel Corp. v. Sandiganbayan, GR 104637-38, Sept. 14, 2000.

GOCC created pursuant to the Corporation Code of the Phils. are under the jurisdiction of the SEC.

PNCC v. Pabion, GR 131715, Dec. 8, 1999.

Securities and Exchange Commission (SEC) ; Jurisdiction ; In order that the commission can take cognizance of a case, the controversy must pertain to any of the following relationships: a) between the corporation, partnership or association and the public; b) between the corporation, partnership or association and its stockholders, partners, members, or officers; c) between the corporation, partnership, or association and the state as far as its franchise, permit or license to operate is concerned; and d) among the stockholders, partners or associates themselves. The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and the corporation, does not necessarily place the dispute within the loop of jurisdiction of the SEC. Jurisdiction should be determined by considering not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy.


Same; Same; The present dispute is intra-corporate in character. In the first place, the parties here involved are officers and members of the club. Respondents claim to be members of good standing of the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on the other hand, are its President and Vice-President, respectively. More significantly, the present conflict relates to, and in fact arose from, this relation between the parties.

id.

The subject of the complaint, namely, the legality of the expulsion from membership of the respondents and the validity of the amendments in the club's by-laws are, furthermore, within the Commission's jurisdiction.

Same; Same; Well to underscore is the date when the original complaint was filed at the SEC, which was March 26, 1997. On that date, the SEC still exercised quasi-judicial functions over this type of suits. It is axiomatic that jurisdiction is conferred by the Constitution and by the laws in force at the time of the commencement of the action. In particular, the Commission was thereupon empowered, under Sec. 5 of P.D. 902-A, to hear and decide cases involving intra-corporate disputes. The enactment of R.A. 8799, otherwise known as the Securities Regulation Code, however, transferred the jurisdiction to resolve intra-corporate controversies to courts of general jurisdiction or the appropriate Regional Trial Courts except “those w/c are pending cases involving intra-corporate disputes submitted for final resolution to be resolved w/in one (1) year from the enactment of this Code. The Commission shall likewise retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed." However, in A.M. No. 00-8-10-SC, wherein the SC "DIRECT(ed) the Court Administrator and the SEC to cause the actual transfer of the records of such cases and all other SEC cases affected by R.A. No. 8799 to the appropriate Regional Trial Courts . . ." The SC also issued another resolution designating certain branches of the Regional Trial Court to try and decide cases formerly cognizable by the SEC. Consequently, the case at bar should now be referred to the appropriate Regional Trial Court.

id.

Same; Same; Sec. 5.2 of the Securities Regulation Code (RA8799); Said law was signed into law on 19 July 2000, where the SEC jurisdiction over all cases enumerated in Sec. 5 of PD 902-A has been transferred to the RTC.


MERGER or CONSOLIDATION; A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another corporation that survives and continues the combined business. The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing them. For a valid merger or consolidation, the approval by the SEC of the articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the respective stockholders of the


constituent corporations. In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not followed.

Dummy Corporation; The claim that 2000 TRANSPORT is a dummy corporation for two (2) Korean nationals is a legal conclusion from allegations w/c would not even compel the adoption of such inference — It further appears that the two (2) Korean incorporators who appear to have subscribed to twenty percent (20%) of the authorized capital stock of the corporation had paid up eighty percent (80%) of the paid-in capital, thereby indicating that in fact, and for all intents and purposes, the Korean incorporators were in control of the corporation . . . Moreover, plaintiff was also able to secure a copy of the General Information Sheet for 1994 filed by [2000 Transport] w/ the SEC which shows that Sooja Park Lim, a Korean, is the Chairman and President of [2000 Transport] while Young Kon Jo, a Korean, is the Vice President of [2000 Transport] . . . Judicial notice of the Articles of Incorporation referred to in the allegations and attached as one of the annexes to the instant petition would show that the two (2) Korean nationals subscribed to only 1,000 shares out of the total 20,000 shares, w/c were fully paid up by them at P100.00 per share for P50,000.00 each. On its face, the Articles of Incorporation merely showed the subscription by the two (2) Korean nationals of only five percent (5%) of the capital stock and the full payment thereof in the total amount of P100,000.00. Since factual premises as well as legal conclusions w/c by judicial notice are determined to be false are not deemed admitted to be true for purposes of disposing of an objection on the ground of failure to state a cause of action, it was incumbent upon G & S to have alleged additional facts from w/c could be inferred that 2000 TRANSPORT was truly a front of the Korean shareholders.

G & S Transport Corp. v. CA, GR 120287, May 28, 2002.

INTRA-CORPORATE DISPUTE; Any controversy under Sec. 5, PD 902-A, two elements must be considered: (1) the status or relationship of the parties – that is, the controversy must arise “out of intra-corporate or partnership relations between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of w/c they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises; and (2) the nature of the question that is the subject of their controversy. This requires that the dispute among the parties be intrinsically connected w/ the regulation of the internal affairs of the corporation, partnership or association. However, under the Securities Regulation Code (RA 8799 enacted on July 19, 2000), the SEC jurisdiction over all cases enumerated under Sec. 5 of PD 902-A has been

Editor’s Note, Francis V. Sobreviñas

transferred to the courts of general jurisdiction or the appropriate RTC. But the SEC retains jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution and also over pending suspension of payment/rehabilitation cases filed as of 30 June 2000 until finally disposed.

Same; In this case, petitioners are not stockholders, members or associates of respondents. They are lot buyers and now homeowners in the subdivision developed by the respondent. The controversy is remotely related to the “regulation” of respondent corporation or to repondent’s “internal affairs”.

Arranza v. B.F. Homes, GR 131683, June 19, 2000.

Same; Sec. 5(b) of P.D. No. 902-A does not define what an intra-corporate controversy is, but case law has fashioned out two tests for determining what suit is cognizable by the SEC or the regular courts, and sometimes by the National Labor Relations Commission. The first test uses the enumeration in §5(b) of the relationships to determine jurisdiction, to wit:(1) Those between and among stockholders and members;(2) Those between and among stockholders and members, on one hands and the corporation, on the other hand; and(3) Those between the corporation and the State but only insofar as its franchise or right to exist as an entity is concerned.The second test, on the other hand, focuses on the nature of the controversy itself. Recent decisions of this Court consider not only the subject of their controversy but also the status of the parties.

Pascual v. CA, GR 138542, Aug. 25, 2000.

Same; Whether the complaint for illegal dismissal includes money claims, does not convert the issue into a simple labor problem. Clearly the issues raised by petitioner against IBC are matters that come w/in the area of corporate affairs and management and constitute a corporate controversy in contemplation of the Corporation Code.


RECEIVERSHIP; The power to overrule or invoke the previous acts of management or Board of Directors of an entity under receivership is w/in the receivers’ authority. When the acts of a previous receiver or management committee prove disadvantageous or inimical to the rehabilitation of a distressed corporation, the succeeding receiver or management committee may abrogate or cast aside such acts. However, that prerogative is not absolute. It should be exercised upon due consideration of all pertinent and relevant laws when public interest and welfare are involved.

Arranza v. B.F. Homes, GR 131683, June 19, 2000.

FOREIGN CORPORATIONS; There is no general rule or governing principle as to what constitute “doing” or “engaging in” or “transacting” business in the Philippines. Each case must be judge in the light of its peculiar circumstances. Participating in

Hutchison Ports Phils. td. V. SBMA, GR 131367, Aug. 31,

the bidding process (involving the opportunity to develop and operate a modern marine container terminal w/in the Subic Bay Freeport Zone) constitutes “doing business” because it shows the foreign corporation’s INTENTION to engage in business here for w/c a license is required. In this regard, it is the performance by a foreign corporation of the acts for w/c it was created, regardless of volume of business, which determines whether or not it should get a license to do business in the Philippines. The primary purpose of a license requirement is to compel a foreign corporation desiring to do business w/in the Philippines to submit itself to the jurisdiction of the Phil. Courts and to enable the government to regulate their activities in this country.

2000.

Same; Doing Business in the Phils.; The question whether or not a foreign corporation is doing business is dependent principally upon the facts and circumstances of each particular case, considered in the light of the purposes and language of the pertinent statute or statutes involved and of the general principles governing the jurisdictional authority of the state over such corporations. BP 68, otherwise known as "The Corporation Code of the Philippines," is silent as to what constitutes “doing" or "transacting" business in the Philippines. Fortunately, jurisprudence has supplied the deficiency and has held that the term "implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object for which the corporation was organized.” In Mentholatum Co. Inc., vs. Mangaliman [72 Phil. 524 (1941)], this Court laid down the test to determine whether a foreign company is "doing business," thus: " . . . The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for w/c it was organized or whether it has substantially retired from it and turned it over to another"; RA 7042, otherwise known as the "Foreign Investment Act of 1991," defines "doing business" as "The phrase 'doing business' shall include soliciting orders, service contracts, opening offices, whether called 'liaison' offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity, or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works; or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization; Provided, however, That the phrase 'doing business' shall not be deemed to include


mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor, nor having a nominee director or officer to represent its interests in such corporation, nor appointing a representative or distributor domiciled in the Philippines w/c transacts business in its own name and for its own account"; Likewise, Sec. 1 of RA 5455, provides that the phrase 'doing business' shall include soliciting orders, purchases, service contracts, opening offices, whether called 'liaison' offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization." There are other statutes defining the term "doing business" in the same tenor as those above-quoted, and as may be observed, one common denominator among them all is THE CONCEPT OF "CONTINUITY." In this case, petitioner’s participation in the Assignment Agreement and the Deed of Assignement is not “doing business in the Philippines.” At this early stage and w/ petitioner’s act or transactions limited to the assignment contracts, it cannot be said that it had performed acts intended to continue the business for w/c it was organized. To see through the present facts an intention on the part of the petitioner to start a series of business transaction is to rest on assumptions or probabilities falling short of actual proof. Courts should never base its judgments on a state of facts so inadequately developed that it cannot be determined where inference ends and conjecture begins. Petitioner was engaged only in isolated acts or transactions w/c are not regarded as a doing or carrying on of business. Typical examples of these are the making of a single contract, sale w/ the taking of a note and mortgage in the state to secure payment therefore, purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do any other business w/in the country.

Same; Right to Sue in Local Courts; The principles governing a foreign corporation's right to sue in local courts have long been settled by our Corporation Law. These principles may be condensed in three statements, to wit: a) if a foreign corporation does business in the Philippines w/o a license, it cannot sue before the Philippine courts; b) if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction; and c) if


a foreign corporation does business in the Philippines w/ the required license, it can sue before Philippine courts on any transaction. Apparently, it is not the absence of the prescribed license but the "doing (of) business" in the Philippines w/o such license w/c debars the foreign corporation from access to our courts.

Same; Same; As a general rule, unlicensed foreign corporations cannot file suits in the Phils. The licensing requirement, however, was never intended to favor domestic corporations who enter into solitary transactions w/ unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in the Phils. After contracting w/ a foreign corporation, a domestic firm is estopped from denying the former’s capacity to sue.

SBMA v. Universal Int’l. Group of Taiwan, GR 131680, Sept. 14, 2000.

Creation of Subsidiaries; DBP is not authorized by its charter to engage in the mining business. The creation of the 3 corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value.

DBP v. CA, GR 126200, Aug. 16, 2001.

DISSOLUTION; Voluntary Dissolution of Corporation where no Creditors are affected (Sec. 118, Corp. Code of the Phils.); The Corporation Code establishes the procedure and other formal requirements a corporation needs to follow in case it elects to dissolve and terminate its structure voluntarily and where no rights of creditors may possibly be prejudiced. The requirements mandated by the Corporation Code should have been STRICTLY COMPLIED WITH by the members of the club. The records reveal that no proof was offered by the petitioners with regard to the notice and publication requirements. Similarly wanting is the proof of the board members' certification. Lastly, and most important of all, the SEC Order of Dissolution was never submitted as evidence.


Insurance CONTRACT OF INSURANCE; Sec. 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur:1. The insured has an insurable interest;2. The insured is subject to a risk of loss by the happening of the designated peril;3. The insurer assumes the risk;4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and5. In consideration of the insurer's promise, the insured pays a premium.

PhilamCare Health System v. CA, GR 125678, March 18, 2002.

INDEMNITY INSURANCE; Sec. 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a

id.

person having an insurable interest against him, may be insured against.

LIFE INSURANCE; Every person has an insurable interest in the life and health of himself. Section 10 provides:Every person has an insurable interest in the life and health:(1) of himself, of his spouse and of his children;(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and(4) of any person upon whose life any estate or interest vested in him depends.

id.

Same; HEALTH CARE AGREEMENT; In the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.

id.

Same; CONCEALMENT; The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and

id.

convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Same; Same; Fraudulent intent on the part of the insured must be established by the insurer for the rescission of the contract of insurance.

GREPALIFE v. CA, GR 113899, Oct. 13, 1999.

Same; RESCISSION OF POLICY; Under Sec. 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:1. Prior notice of cancellation to insured;2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;4. Must state the grounds relied upon provided in Sec. 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based.

id.

Same; Same; Incontestability Clause; (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.

id.

Same; Same; BENEFICIARY; Payment; Petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased's hospitalization, medication and the professional fees of the attending physicians.

id.

Same; PAYMENT AND INTEREST; Under Section 242 of the Insurance Code, the refusal of the insurer to pay a life insurance claim within the period prescribed will entitle the beneficiary to collect interest on the proceeds "at the rate of twice the ceiling prescribed by the Monetary Board" for the duration of the delay, unless the refusal to pay is based on the ground that the claim is fraudulent. Fraud being the ground invoked by petitioner for refusing to honor the claim, no unreasonable delay in petitioner's decision to withhold payment.

Philam Life Assurance Co. v. CA, GR 126223, Nov. 15, 2000.

Same; Group Life Insurance; For Eligible Housing Loan Mortgagors; Mortgage Redemption Insurance – a device fort he protection of both the mortgagor and mortgagee.

GREPALIFE v. CA, GR 113899, Oct. 13, 1999.

FIRE INSURANCE; Fire Policy; Coverage; Considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on January 12, 1981, having been constructed sometime in 1978, petitioner should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but it did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of respondent Transworld which was an integral part of the four-span building occupied by Transworld. The coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.

Rizal Surety & Insurance v. CA, GR 112360, July 18, 2000.

Same; Identity of Property Insured; In construing the words used descriptive of a building insured, the GREATEST LIBERALITY is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill.

American Home Assurance Co. v. Tantuco Ent., GR 138941, Oct. 8, 2001.

WARRANTIES; It ought to be remembered that not only are warranties STRICTLY CONSTRUED

id.

against the insurer, but they should, likewise, by themselves be REASONABLY INTERPRETED. That reasonableness is to be ascertained in light of the factual conditions prevailing in each case. Here, we find that there is no more need for an internal hydrant considering that inside the burned building were: (1) numerous portable fire extinguishers, (2) an emergency fire engine, and (3) a fire hose which has a connection to one of the external hydrants.

SUBROGATION; The Payment made by the Insurer to the Assured: It operates as an equitable assignment to the former of all the remedies w/c the latter may have against the petitioner. The fact of payment grants the private respondent subrogatory right w/c enables it to exercise legal remedies that would otherwise be available to the insured as owner of the lost cargo against the petitioner common carrier.

Delsan Transport Lines v. CA, GR 127897, Nov. 15, 2001.

Same; Same; The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessel's seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right (under Article 2207 of the New Civil Code )w/c enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier. The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment by the insurance company of the insurance claim. Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the


Same; The Presentation of the Insurance Policy Necessary; The shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of

Home Insurance Corporation v. CA,

proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee.

Same; The presentation of the insurance policy NOT Necessary; The presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.


Negotia-ble Instrument Law

NEGOTIABLE INSTRUMENTS; it include promissory notes, bills of exchange and checks. Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable instruments.

Lee v. CA, GR 117913, Feb. 1, 2002.

RULE ON FORGERY; Checks; Under Sec. 23 of the NIL: When a signature is forged or made w/o the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an endorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank. The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee's endorsement was genuine before cashing the check.

Westmont Bank v. Ong, GR 132560, Jan. 30, 2002.

Letters of Credit

Modern Letters of Credit; Parties; They are usually not made between natural persons. They involve bank to bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods between, distant and unfamiliar buyers and sellers. It was an arrangement under w/c a bank, whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain documents are presented such as bills of lading accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural development in commercial banking. Parties to a commercial letter of credit include (a)

Lee v. CA, GR 117913, Feb. 1, 2002.

the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is usually the buyer's bank which actually issues the letter of credit, (d) the notifying bank which is the correspondent bank of the opening bank through, which it advises the beneficiary of the letter of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The services of the notifying bank must always be utilized if the letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and (g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit issued by the opening bank.

LETTER OF CREDIT-TRUST RECEIPT ARRANGEMENT; A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased. A trust receipt, therefor, is a document of security pursuant to w/c a bank acquires a "security interest" in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, w/ the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security feature w/c is in the covering trust receipt w/c secures an indebtedness.

Lee v. CA, GR 117913, Feb. 1, 2002.

Trust Receipt Law

Violation; The law is violated whenever the person in whose favor a trust receipt was issued failed: [1] to RETURN THE GOODS covered by the trust receipt; or [2] to RETURN THE PROCEEDS of the sale of the said goods. The foregoing acts constitute estafa punishable under Art. 315 (1)(b) of the RPC.

Metrobank v. Tonda, GR 134436, Aug. 16, 2000.

TRUST RECEIPTS AGREEMENT; The contracting parties may establish terms and conditions they may deem advisable, provided they are not contrary to law, morals or public order, such as provision for interest, service charges and penalties.

South City Homes v. BA Finance Corp., GR 135462, Dec. 7, 2001; Rizal Comm. Banking Corp v. Alfa RTW Manufacturing Corp., supra.

Not a Trust Receipt Transaction; In this case, the transaction between the parties was a simple loan, not a trust receipts agreement. Petitioners received the merchandise (materials) for their construction project. It was only a day after receipt of the merchandise that petitioners went to the bank to apply for a loan to pay for the merchandise for w/c the bank reqd. the execution of trust receipts.

Colinares v. CA, GR 90828, Sept. 5, 2000.

Banking Laws

Diligence Required; More than that of a good father of a family is required of banks when they act in their fiduciary capacity or as depositary. That degree of diligence is not expected of banks in commercial transactions that do not involve their fiduciary relationship w/ their depositors, such as the sale and issuance of foreign exchange demand draft.

Reyes v. CA, GR 118492, Aug. 15, 2001.

INTEREST RATE; Escalation Clause; Central Bank Circular 494 did not provide a legal basis for petitioner to unilaterally raise the interest rate on the loan.

Banco Filipino Savings and Mortgage Bank v. CA, GR 129227, May 30, 2000.

LIQUIDATION OF BANKS (Sec. 29, Central Bank Act); The exclusive jurisdiction of the liquidation court pertains only to the adjudication of claims against the bank. It does not cover the reverse situation where it is the bank w/c files a claim against another person or legal entity. A bank w/c had been ordered closed by the monetary board retains its juridical personality and can sue and be sued through its liquidator. The only limitation being that the prosecution or defense of the action must be done through the liquidator.

Manalo v. CA, GR 141297, Oct. 8, 2001.

PHILIPPINE FOREIGN CURRENCY DEPOSIT SYSTEM; Foreign Exchange Account; The Foreign Currency Deposit Act is inapplicable to the foreign currency accounts in question. Sec. 2, RA 6426 speaks of “deposit w/ such Philippine banks in good standing, as may . . . be designated by the Central Bank for the purpose.” The criminal cases filed against petitioners for violation of Circular No. 960 involved foreign currency accounts maintained in foreign banks.

Benedicto v. CA, GR 125359, Sept. 4, 2001.

CERTIFICATE OF DEPOSIT; A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. The principles governing other types of bank deposits are applicable to certificates of deposit, as are the rules governing promissory notes when they contain an unconditional promise to pay a sum certain of money absolutely. The principle that

FEBTC v. Querimit, GR 148582, Jan. 16, 2002.

payment, in order to discharge a debt, must be made to someone authorized to receive it is applicable to the payment of certificates of deposit. Thus, a bank will be protected in making payment to the holder of a certificate indorsed by the payee, unless it has notice of the invalidity of the indorsement or the holder's want of title. A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, w/o its production and surrender after proper indorsement. As a rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove payment. The debtor has the burden of showing w/ legal certainty that the obligation has been discharged by payment. In this case, the certificates of deposit were clearly marked payable to "bearer" w/c means, to "[t]he person in possession of an instrument, document of title or security payable to bearer or indorsed in blank. Petitioner should not have paid respondent's husband or any third party w/o requiring the surrender of the certificates of deposit. Petitioner claims that it did not demand the surrender of the subject certificates of deposit since respondent's husband was one of the bank's senior managers. But even long after respondent's husband had allegedly been paid respondent's deposit and before his retirement from service, petitioner bank never required him to deliver the certificates of deposit in question. Moreover, the accommodation given to respondent's husband was made in violation of the bank's policies and procedures. Thus, petitioner bank failed to exercise that degree of diligence required by the nature of its business. Because the business of banks is impressed w/ public interest, the degree of diligence required of banks is more than that of a good father of the family or of an ordinary business firm. The fiduciary nature of their relationship w/ their depositors requires them to treat the accounts of their clients with the highest degree of care. A bank is under obligation to treat the accounts of its depositors with meticulous care whether such accounts consist only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable. Petitioner failed to prove payment of the subject certificates of deposit issued to the respondent and, therefore, remains liable for the value of the dollar deposits indicated thereon w/ accrued interest.

Forged Check; As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee's signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. The theory of the rule is that the possession of the check on the forged or unauthorized indorsement

Westmont Bank v. Ong, GR 132560, Jan. 30, 2002.

is wrongful, and when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check.

Usury Law USURIOUS INTEREST; Usury may be defined as contracting for or receiving something in excess of the amount allowed by law for the forbearance of money, goods or things in action. The Usury Law prescribed that the legal rate of interest for the loan or forbearance of any money, goods or credits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to w/c is duly registered, in the absence of express contract as to such rate of interest, shall be 12% per annum. Any amount of interest paid or stipulated to be paid in excess of that fixed by law is considered usurious, therefore unlawful. In this case, at the time of the questioned transaction, Act No. 2655, as amended by P.D. 116, known as the Usury Law, was in full force and effect. It is elementary that the laws in force at the time the contract was made generally govern the effectivity of its provision. Indeed the contract of loan secured by the deed of real estate mortgage is usurious. As the P50,000 interest is clearly in excess of that w/c the law allows.

Sps. Puerto v. CA, GR 138210, June 6, 2002.

Same; Contracts and Stipulations; Under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The parties then must RESTORE what each had received from the other. Petitioners must pay the principal loan of P150T w/ legal interest at 12 % per annum from the date of demand by way of damages. Respondents must return petitioner’s property that had been invalidly foreclosed. The transfer certificate of title to the subject property is cancelled and a new one duly ordered issued in favor of the petitioners in the event the latter fails to satisfy their original obligation including payment of 12 % interest by way of damages.

id.

PAWNSHOP BUSINESS; Respondents want to impress that pawnshop owners like them grant a sizeable loan w/o requiring any interest and that after their generous offer to petitioner Esperanza who is in dire need of money, the latter would ask that she be charged 12 % interest per annum. However, what is more plausible is that, after finding themselves in dire financial straits, petitioners were amenable to any stipulation in the loan agreement, even tucking a P50T interest in the P200T stated principal amount. It is unlikely that respondent Eleuteria gave a loan in an amount much higher than the value of the security. In the pawnshop business, properties are pawned at a much lower price than their original value. Indeed,

id.

the mortgage contract did not stipulate for payment of any interest. However, to conceal usury, various devices have been adopted whereby the substance of the true agreement is withheld from what may be viewed on the written document. The cupidity of lenders and the willingness of borrowers to concede whatever may be demanded or to promise whatever may be exacted in order to obtain temporary relief from financial embarrassment, have resulted in a great variety of devices to evade the usury law. To frustrate such evasions the courts are compelled to look beyond the form of a transaction and consider its substance instead.

Same; “Installation paper purchase” transactions employed as a scheme to circumvent the law. The contracts should be declared void. In usurious loans, the creditor can always recover the debt. However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid.

Investors Finance Corp. v. Autoworld Sales Corp., GR 128990, Sept. 21, 2000.

Insolvency

RECEIVERSHIP AND LIQUIDATION PROCEEDINGS OF BANKS DECLARED INSOLVENT; The bank retains its juridical personality notwithstanding the closure of its business. Its corporate existence is assumed by the receiver or liquidator.

Phil. Veterans Bank v. NLRC, GR 130439, Oct. 26, 1999.

Revised Securities Act (PD 902-A)

SUSPENSION OF CLAIMS against a Corporation under Rehabilitation; Suspension of pending claims before any court, tribunal or Board, w/o distinction as to whether or not a creditor is secured or unsecured, upon the appointment of a management committee, rehabilitation receiver, board, body in accordance with the provisions pf PD 902-A.

Rizal Comm. Banking Corp. v. IAC, GR 74851, Dec. 9, 1999.

Credit Transac-tions

DISCOUNTING LINE; In the financing industry, the term "discounting line" means a credit facility w/ a financing company or bank, w/c allows a business entity to sell, on a continuing basis, its accounts receivable at a discount. The term "discount" means the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables w/c are still to mature at future dates. The financing company or bank w/c buys the receivables makes its profit out of the difference between the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides "Financing companies" are corporations . . . primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property."

Great Asian Sales Center Corp. v. CA, GR 105774, April 25, 2002.

Moreover, Section 1 (h) of the New Rules and Regulations adopted by the SEC to implement the Financing Company Act of 1998 states: "Discounting" is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value." In this case, the assignment of the checks is a sale, or more properly a discounting, of the checks and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law.

Same; The transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well w/in the purview of “investing, reinvesting or trading in securities” w/c an investment company is authorized to perform and does not constitute violation of the General Banking Act. Indubitably, what is prohibited by law is for investment companies to lend funds from the public through receipts of deposits, w/c is a function of banking institutions. Here, the funds supposedly “lent” to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws.

Bañas v. Asia Pacific Finance Corp., GR 128703, Oct. 18, 2000.

Same; Distinction between a Discounting Line and a Loan Accommodation; A fine distinction between a discounting line and a loan accommodation. If the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However, if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed.

Intellec-tual Property Code

TRADEMARKS; Protection of “Well-Known Trademarks: in the Philippines. The Philippines and the United States of America have acceded to the WTO Agreement. This Agreement has revolutionized international business and economic relations among states, and has propelled the world towards trade liberalization and economic globalization. Protectionism and isolationism belong to the past. Trade is no longer confined to a bilateral system. There is now "a new era of global economic cooperation, reflecting the widespread desire to operate in a fairer and more open multilateral trading system." Conformably, the State must reaffirm its commitment to the global community and take part in evolving a new international economic order at the dawn of the

Mirpuri v. CA, GR 114508, Nov. 19, 1999.

new millennium.

Same; Ordinarily, the ownership of a trademark or trade name is a property that the owner is entitled to protect as mandated by the Trademark Law. However, when a trademark is used by a party for a product in w/c the other party does not deal, the use of the same trademark on the latter’s product cannot be validly objected to. The certificate of registration confers upon the trademark owner the exclusive right to use its own symbol only to those goods specified in the certificate, subject to the conditions and limitations stated therein.

Canon Kabushiki Kaisha v. CA, GR 120900, July 20, 2000.

Paris Convention; Under the Convention of Paris for the Protection of Industrial Property, there is no automatic protection afforded an entity whose trade name is alleged to have been infringed through the use of that name as a trademark by a local entity. Guidelines for the implementation of Art. 6b of the Treaty of Paris. These conditions are:a) the mark must be internationally known;b) the subject of the right must be a trademark, not a patent or copyright or anything else; c) the mark must be for use in the same or similar kinds of goods; andd) the person claiming must be the owner of the mark (The Parties Convention Commentary on the Paris Convention. Article by Dr. Bogsch, Director General of the World Intellectual Property Organization, Geneva, Switzerland, 1985).

id.

PATENT LAW; Section 34, RA 165; Grounds for Compulsory licensing: (1) Any person may apply to the Director for the grant of a license under a particular patent at any time after the expiration of two years from the date of the grant of the patent, under any of the following circumstances: (a) If the patented invention is not being worked within the Philippines on a commercial scale, although capable of being so worked, without satisfactory reason;(b) If the demand of the patented article in the Philippines is not being met to an adequate extent and on reasonable terms;(c) If, by reason of refusal of the patentee to grant a license or licenses on reasonable terms, or by reason of the conditions attached by the patentee to licensee or to the purchase, lease or use of the patented article or working of the patented process or machine for production, the establishment of any new trade or industry in the Philippines is prevented, or the trade or industry therein is unduly restrained;(d) If the working of the invention within the country is being prevented or hindered by the importation of the patented article;(e) If the patented invention or article relates to food or medicine or manufactured substances which can be used as food or medicine, or is necessary for public health or public safety.(2) In any of the above cases, a compulsory

Smith Kline & French Lab. V. CA, GR 121267, Oct. 23, 2001.

license shall be granted to the petitioner provided that he has proved his capability to work the patented product or to make use of the patented product in the manufacture of a useful product, or to employ the patented process. (3) The term "worked" or "working" as used in this section means the manufacture and sale of the patented article, of patented machine, or the application of the patented process for production, in or by means of a definite and substantial establishment or organization in the Philippines and on a scale which is reasonable and adequate under the circumstances. Importation shall not constitute "working". In this case, the grant of the compulsory license satisfies the requirements of the foregoing provision. More than ten years have passed since the patent for Cimetidine was issued to petitioner and its predecessors-in-interest, and the compulsory license applied for by private respondent is for the use, manufacture and sale of a medicinal product. Furthermore, both the appellate court and the BPTTT found that private respondent had the capability to work Cimetidine or to make use thereof in the manufacture of a useful product.

Same; Section 34, RA 165 and Section A(2) of Article 5 of the Paris Convention; No inconsistency between Section 34 and the Paris Convention. Section A(2) of Article 5 of the Paris Conventional unequivocally and explicitly respects the right of member countries to adopt legislative measures to provide for the grant of compulsory licenses to prevent abuses which might result from the exercise of the exclusive rights conferred by the patent. An example provided of possible abuses is "failure to work;" however, as such, is merely supplied by way of an example, it is plain that the treaty does not preclude the inclusion of other forms of categories of abuses. Section 34 of R.A. No. 165, even if the Act was enacted prior to the Philippines' adhesion to the Convention, fits well within the aforequoted provisions of Article 5 of the Paris Convention. In the explanatory note of Bill No. 1156 which eventually became R.A. No. 165, the legislative intent in the grant of a compulsory license was not only to afford others an opportunity to provide the public with the quantity of the patented product, but also to prevent the growth of monopolies [Congressional Record, House of Representatives, 12 May 957, 998]. Certainly, the growth of monopolies was among the abuses which Section A, Article 5 of the Convention foresaw, and which our Congress likewise wished to prevent in enacting R.A. No. 165.

id.

Same; Royalty; Under Sections 35 and 35-B regarding grant of license and terms and conditions of compulsory license, respectively, in the absence of any agreement between the parties with respect to a compulsory license, the Director of the BPTTT may fix the terms thereof, including the rate of the royalty payable to the licensor. The

id.

law explicitly provides that the rate of royalty shall not exceed five percent (5%) of the net wholesale price. The rate of 2.5% of net wholesale price fixed by the Director of the BPTTT is in accord with the Patent Law and is reasonable.

PATENT; Revival of Patent Application; The petition could not be granted because of laches. Prior to the filing of the petition for revival of the patent application with the Bureau of Patents, an unreasonable period of time had lapsed due to the negligence of petitioners' counsel. By such inaction, petitioners were deemed to have forfeited their right to revive their applications for patent.

Schuartz v. CA, GR 113407, July 12, 2000.

COPYRIGHT; A person to be entitled to a copyright must be the original creator of the work. He must have created it by his own skill, labor and judgment without directly copying or evasively imitating the work of another. The grant of preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should be made with extreme caution. Its grant depends chiefly on the extent of doubt on the validity of the copyright, existence of infringement, and the damages sustained by such infringement. In our view, the copies of the certificates of copyright registered in the name of Ceroilfood Shandong sufficiently raise reasonable doubt. With such a doubt, the preliminary injunction is unavailing.

Ong v. CA, GR 130360, Aug. 15, 2001.

Public Utility

SHIPYARD; Indeed, Sec. 1, P.D. No. 666 dated March 5, 1975 explicitly stated that a "shipyard" was not a "public utility." However, Section 1 of P.D. No. 666 was expressly repealed by Section 20 of BP Blg. 391, the Investment Incentive Policy Act of 1983. Subsequently, EO No. 226, the Omnibus Investments Code of 1987, was issued and Section 85 thereof expressly repealed B.P. Blg. 391. The express repeal of B.P. Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666, declassifying the shipbuilding and ship repair industry as a public utility, as said executive order did not provide otherwise. When a law which expressly repeals a prior law is itself repealed, the law first repealed shall not be thereby revived unless expressly so provided. Consequently, when the APT drafted the ASBR sometime in 1993, P.D. No. 666 no longer existed in our statute books. While it is true that the repeal of a statute does not operate to impair rights that have become vested or accrued while the statute was in force, there are no vested rights of the parties that should be protected in the case at bar. The reason is simple: said decree was already inexistent when the ASBR was issued. A shipyard such as PHILSECO being a public utility as provided by law.

JG Summit Holdings v. CA, GR 124293, Nov. 20, 2000.

Same; Joint Venture; A Joint Venture is governed by the laws on contract and on partnership. A joint-venture that would engage in the business of operating a public utility, such as a shipyard, must observe the proportion of 60% - 40% Filipino-

id.

foreign capitalization.

“KABIT SYSTEM”; 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 them under his license, sometimes for a fee or percentage of the earnings. 9 Although the parties to such an agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil Code.

Lim v. CA, GR 125817, Jan. 16, 2003.

CERTIFICATE OF PUBLIC CONVENIENCE; “Kabit System”; One of the primary factors considered in the granting of a certificate of public convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising from accidents may be duly compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent use of a vehicle owned by another and operated under his license. If a registered owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no property with which to respond financially for the damage done. Thus, for the safety of passengers and public who may have been wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person has become the owner so that he may be thereby relieved of responsibility. Subsequent cases affirm such basic doctrine. It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force if the public at large is not deceived, much less involved.

id.

Same; Same; Certificate of Registration; When a passenger jeepney covered by a certificate of public convenience is sold to another who continues to operate it under the same certificate of public convenience under the so-called kabit system, and in the course thereof the vehicle meets an accident through the fault of another vehicle, the new owner of the passenger jeepney may sue for damages against the erring vehicle and in effect acquire a legal personality to sue.

Lim v. CA, GR 125817, Jan. 16, 2003.

Electric Consumption; Differential Billings; This is a case on the propriety of the imposition of differential billings on respondent Macro Textile Mills Corporation (MACRO) for unregistered consumption of electricity resulting from the tampering of Meralco's electric meter. PD 401 issued on March 1, 1974, penalizes unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered

MERALCO v. Macro textile Mills Corp., GR 126243, Jan. 18, 2002.

electrical meters. The decree was issued in answer to the "urgent need for putting an end" to illegal activities that "prejudice the economic well-being of both the companies concerned (such as the Manila Electric Company) and the consuming public." On December 8, 1994, Congress enacted RA 7832, known as the "Anti-electricity and Electric Transmission Lines/Materials Pilferage Act of 1994." The law penalizes tampering, installing or using a tampered electrical meter and shorting or shunting wire or any other device that interferes "with the proper or accurate registry or metering of electric current or otherwise results in its diversion in a manner whereby electricity is stolen or wasted." The law enumerates circumstances constituting prima facie evidence of illegal use of electricity that shall be the bases for the immediate disconnection of electric utility after due notice to the erring user, the holding of a preliminary investigation and the subsequent filing of information. The enactment of the law reiterated in concrete terms the government policy on energy conservation previously expressed in P.D. No. 401. If indeed an unusual electric consumption was reflected in the statements of account, considering its technical knowledge and vast experience in providing electric service, MERALCO could have easily verified any possible error. In case of such a mistake, the electric meters themselves should be inspected for possible defects or breakdowns and forthwith repaired and, if necessary, replaced. If MERALCO discovered that respondent tampered with the meters to alter the result of the reading, it may file the appropriate criminal complaint against respondent under Presidential Decree No. 401. The rationale behind this ruling is that public utilities should be put on notice, as a deterrent, that if they disregard their duty of keeping their electric meters in serviceable condition, they run the risk of forfeiting, by reason of their negligence, amounts originally due from their customers. We cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly the public utilities demand payment for the unrecorded electricity utilized when they could have remedied the situation immediately. MERALCO's failure to do so may encourage neglect of public utilities to the detriment of the consuming public. MERALCO, like any public utility company, is vested with vital public interest. MERALCO is impressed with certain obligations towards its consumers. Any omission on its part to perform such duties would be prejudicial to the public interest. Likewise, MERALCO is duty bound to explain to its customers the basis for arriving at a given billing especially so in cases of unregistered consumptions. Otherwise, consumers will stand piteously at the public utility's mercy. In the final analysis, MERALCO should bear the loss. Public service companies which do not exercise prudence in the discharge of their duties shall be made to bear the consequences of such oversight.

Same; Same; The mere presentation by Sps.

petitioners of a Contract to Sell w/ Assumption of Mortgage does not necessarily mean that they are no longer liable for the billing differential. There was no sufficient evidence to show that they had not been actually residing in the house before the date of the said document. Lorna herself admitted that they did not have any contract for electric service in their own name. Hence, petitioners effectively assumed the bills of the former occupants of the premises.

Quisumbing v. MERALCO, GR 142943, April 3, 2002.

Construc-tion Industry Arbitration Law (EO 1008)

JURISDICTION; Arbitration of Construction Contracts; EO 1008 vest upon the Construction Industry Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines.

Same; Arbitration Clause; A construction contract or submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission.

NIA v. CA, GR 129169, Nov. 17, 1999.

Radio Law LEGISLATIVE FRANCHISE; Only holders of legislative franchise may operate and manage a radio station. For violation of this provision alone, the NTC can prevent a party from broadcasting. Primary jurisdiction of the NTC upheld.

Crusaders’s Broadcasting System v. NTC, GR 139583, May 31, 2000.

jurisprudence in merchantile law

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