Zarah Case Doctrines

LEX LEONUM FRATERNITAS
Case Doctrines Commercial Law

Atty. Zara !illan"e#a$Castro
I Corporation Law
FELICIANO vs. Commission on Audit
Congress cannot enact a law creating a private corporation with a special
charter.
Local water districs are not private corporations because they are not created
under the Corporation Code. Local water districts exist by virtue of PD 198, which
constitutes their special charter.
ince under the Constitution only !"CCs #ay have special charters, Local
water districts can validly exist only if they are govern#ent owned or controlled.
$o clai# that local water districs are private corporations with a special
charter is to ad#it that their existence is constitutionally infir#.
Magsaysay-Labrador vs. CA
hareholders are in no legal sense owners of corporate property, which is
owned by the corporation as a distinct person.
Sulo ng ayan vs. Aran!ta
%bsent any showing of interest, a corporation has no personality to bring an
action to recover property belonging to its #e#bers or stoc&holders in their personal
capacities.
ataan S"ipyard and Engin!!ring Co.# In$. vs. %C&&
$he right of self'incri#ination has no application to (uridical persons.
)hile an individual #ay lawfully refuse to answer incri#inating *uestions
unless protected by an i##unity statute, it does not follw that a corporation, vested
with special privileges and franchises, #ay refuse to show its hand when charged
with an abuse of such privileges. $here is a reserved right on the part of the
legislature to in*uire if the corporation has abused its privileges.
Lu'uria (om!s vs. CA
By NI%%O LA&MA' and AN&ELO FERNANDO
San Se(astian Law
1
to disregard the separate (uridical personality of a corporation, the wrong
doing #ust be clearly and convincingly established, and that it cannot be presu#ed
Con$!pt uild!rs# in$. vs. NL)C
+o hard and fast rule can be accurately laid dwn, but certainly, there are
so#e probative factors of identity that will (ustify the application of the doctrine of
piecrcing the veil of corporate fiction, to wit,
1. stoc& ownership by one or co##on ownership of both corporations-
.. identity of directors and officers-
/. the #anner of &iiping the corporate boo&s and records-
0. the #ethods of conducting the business.
$he following are the tests in deter#ining the applicatbility of the doctrine of
piercing the veil of corporate fiction,
a. $here #ust be control, not #ere #a(ority or co#plete stoc& control, but
co#plete do#ination, not only of finances, but of policy, and business
practice in respect to the transaction attac&ed so that the corporate entity
as to this transaction had, at that ti#e, no separate #ind, will or existence
of its own-
b. uch control #ust have been used by the defendant to co##it fraud or
wrong, to perpetrate the violation of a statutory or other positive duty, or
dishonest and un(ust act in contravention of plaintiff1s legal rights- and
c. uch control and breach of duty #ust proxi#ately cause the in(ury to the
plaintiff.
*illar!y +ransit vs. F!rr!r
$he corporate veil #ay be pierced to enforce a non'co#petition clause
entered into by the controlling stoc&holder in his personal capacity, if the sa#e is
urged as a #eans of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circu#vention of statutes, the cachiev#ent or
perfection of a #onopoly or generally, the perpetration of &navery or a cri#e.
$he veil with which the law covers and isolates the corporation fro# the
#e#bers or stc&holders who co#pose it will be lifted to allow for its consideration
#erely as an aggregation of individuals.
Fransis$o Motors Corporation vs. CA
obligations of the stoc&holders are not the obligations of the corporation.
San Se(astian Law
2
%N vs. Andrada El!$tri$ and Engin!!ring Co.# In$.
$he corporate veil #ay be lifted obly if it has been used to shield
&ra$! C"ristian (ig"s$"ool vs. CA
% provision in the 2y'laws granting a per#anent seat in the 2"D is contrary
to the Corporation Code.
&o,ongw!i# -r. vs. SEC
% by'law provision that forbids a co#petitor to be elected as corporate
director is valid.
.!st!rn Institut! o/ +!$"nology vs. Salas
3e#bers of the board #ay receive co#pensation in addition to reasonable
per die#s, when they render services to the corporation in a capacity other than as
directors or trustees.
Na$pil vs. IC
$he 2"D #ay also be e#powered under the by'laws to create additional
officers as #ay be necessary.
%!opl!0s Air$argo and .ar!"ousing $o vs CA
4f a corporation &nowingly per#its one of its officers, or any other agent, to
act within the scope of an apparent authority, it holds hi# ut to the pyblic as
possessing the power to do those acts, and tus, the corporation will, as against any
one who has in god faith dealt with it through such agent, be estopped for# denying
the agent1s authority.
%rim! ."it! C!m!nt vs. IAC
% director of a corporation holds a position of trust and as such, he owes a
duty of loyalty to his corporation.
4n case his interests conflict with those of the corporation, he cannot sacrifice
the latter to his wn advantage or benefit.
"n the other hand, a director1s contract with his corporation is not at all
instances void or voidable. 4f the contract is fair and reasonable under the
San Se(astian Law
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circu#stances, it #ay be ratified by the stoc&holders provided a full discolosure of
his adverse interest is #ade.
Santos vs. NL)C
4n $ra#at 3erchantile vs. C%, the Court has collated the settled instances
when, without necessarily piercing the veil of corporate fiction, personal civil liability
can also be said to lawfully attach to a corporate director, trustee or officer, to wit,
1. he assents 5a6 to patently unlawful acts of the corporation or, 5b6 for
bad faith or gross negligence in directing its affairs, or 5c6 for conflict
of interest, resulting in da#ages to the corporation, its stoc&holders
or other persons-
.. he consents to the issuance of watered stoc&s or who, having
&nowledge thereof, does not fortwith file with the corporate
secretary his written ob(ection therto-
/. he agrees to hold hi#self personally and solidarily liable with the
corporation- or
0. he is #ade, by a specific provision of law, to personally answer for
his corporate action.
3ere ownership by a single stoc&holder or by another corporation of all or
nearly all of the capital stoc& of a corporation is not of itself sufficient groung for
disregarding the separate corporate personality.
S%S 1avid vs. Constru$tion Industry and Arbitration Committ!!
2ad faith exists when a #aterial deviation fro# the structural plan was #ade
without the clients being consulted first especially where it appears that the act was
done to lower the cost of contruction. 7ence, personal liability for da#ages could
attch to the officer of the construction co#pany.
Malayang Sma"an ng mga Manggagawa sa M. &r!!n/i!ld vs. )amos
4n labor cases, corporate directors and fficers are solidarily liable with the
corporation for the ter#ination of e#ploy#ent of corporate e#ployees done with
#alice or in bad faith.
Atrium Manag!m!nt Corporation vs. CA
$he act of issuing chec&s for the purpose of securing a loan to finance the
activities of the corporation is well within the a#bit of a valid corporate act, hence,
not an ultra vires act.
% treasure of a corporation whose negligence in signin a cnfir#anion letter for
rediscounting of crssed chec&s, &nowing fully will that the chec&s ere strictly
San Se(astian Law
4
enforsed for deposit only to the payee1s account and not to be further negotiated,
resulting in da#age to the corporatin #ay be personally liable therefore.
A Savings an, vs. SIA
$he certificate of non'foru# shopping re*uired by .C. Circular .8'91 #ay be
signed, by a specifically authori8ed lawyer who has personal &nowledge of the facts
to be disclosed in such docu#ent.
9nli&e natural persons, corporations #ay perfor# physical actions only
through properly delegated individuals, na#ely, its officers and:or agents.
Int!r-Asia Inv!stm!nt Industri!s# in$. vs. CA
%n officer of a corporation who is authori8ed to purchase the stoc& of another
corporation has the i#plied power to perfor# all other obligations areising therefro#
such as pay#ent of shares of stoc&.
Lapu-Lapu Foundation# in$. vs. CA
4f a corporation &onowingly per#its one of its officers to act within the scope
of an apparent authority, it holds hi# out to the public as possessing the power to do
those acts- and thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped for# denying the agent1s authority.
(ydro )!sour$!s Contra$tors Corporation vs. NIA
4t would be preposterous for the +4% ad#inistrator to have the power of
granting clai#s without the authority to verify the co#putation of such clai#s.
% corporation #ay be estopped fro# denying as against a third person the
authority of its officers or agents who have been clothed by it with ostensible or
apparent authority.
%lthough an officer or agent acts without or in excess of his actual authority
but acts within the scope of an apparent authorit with which the corporation has
clothed hi# by holding out or per#itteing hi# to appear as having such authority,
the corporation is bound thereby in foavor of a person who deals with hi# in good
faith in reliance on such apparent authority.
Mon/ort (!rmanos Agri$ultural 1!v!lopm!nt Corporation vs. Mon/ort III
$o correct the alleged error in the !eneral 4nfor#ation heet, the retained
accountant of the Corporation infor#ed the ;C the non'inclusison of the lawfully
elected directors was attributable to the oversight and not the fault of the
San Se(astian Law
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Corporation. $his belated atte#pt, however, did not erase the doubt as to whether
an election was indeed held.
2y the express #andate of the Corporation Code, ec. .<, all corporations
duly organi8ed pursuant thereto are re*uired to sub#it within the period stated
therein 5/= days6 to the ;C the na#es, nationalities, and residences of the
directors, trustees and officers elected.
Ly$!um o/ t"! %"ilippin!s vs. CA
$he fact that other schools use >Lyceu#? as part of their school1s na#e is not
a deceptive use thereof relative to Lyceu# of the Philippines.
9nder the doctrine of secondary #eaning, a word or phrase originally
incapable of exclusive appropriation with reference to an article appropriation with
relevance to an article on the #ar&et, because geographically or otherwise
descriptive, #ight nevertheless have been used so long and so exclusive by one
producer with reference to his article that, in that trade and to that brance to the
purchasing public, the wor& or phrase has co#e to #ean that the article was his
product.
Ang Mga 2aanib sa Igl!sia ng 1ios 2ay 2risto (!sus# (S2 vs. Igl!sia ng 1ios
Parties organi8ing a corporation #ust choose a na#e at their peril- and the
use of a na#e si#ilar adopted by another corporation, whether a business or a
nonprofit organi8ation, if #isleading or li&ely to in(ure in the exercise of its corporate
functions, regardless of intent, #ay be prevented by the corporation having prior
right, by a suit for in(unction against the new corporation to prevent the use of
na#e.
"rdering a religious society or corporation to change its corporate na#e is not
a violation of its constitutionally guaranteed right to religious freedo#. 4n so doing,
the ;C #erely co#pelled petitioner to abide by one of the ;C guifelines in the
approval of corporate na#es, na#ely its underta&ing to #anifest its willingness to
change its corporate na#e in the event another person, fir#, or entity has ac*uired
a prir right to use the said fir# na#e or one deceptively or confusingly si#ilar to it.
Industrial )!/ra$tori!s Corporation o/ t"! %"ilippin!s vs. CA
Confusing and deceptive si#ilarity of corporate na#es prohibited under
section 18 of the Corporation Code.
I& Summit (oldings vs. CA
San Se(astian Law
6
% public utility is a business or service engaged in regularly supplying the
public with so#e co##odity or service of public conse*uence such as electricity,
gas, water, transportation, telephone or telegraph service.
2y nature, a shipyard is not a public utility. % shipyard is a place or enclosure
where ships are built or repaired.
4ts nature dictates that it serves but a clientele who# it #ay wish or choose
to serve at its discretion. )hile it offers its facilities to whoever #ay wish to avail of
its services, a shipyard is not legally obliged to vender its services indiscri#inately to
the public.
3oung Auto Supply Co vs. CA
% corporation is in a #etaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation.
)!publi$ %lant!rs an, vs. Agana
Preferences granted to preferred stoc&holders do not give the# a lien upon
the property of the corporation not #a&e the# creditors of the corporation, the right
of the for#er being always subordinate to the latter.
hareholders, both co##on and preferred, are considered ris& ta&ers who
invest capital in the business and who can loo& only to what is left after corporate
debt and liabilities are fully paid.
Castillo vs. aling"sasay
ection < of the Corporation Code explicitly provides that no share #ay be
deprived of voting rights except those classified and issued as preferred or
redee#able shares, unless otherwise provided in this Code, and that there shall
always be a class or series of class which have co#plete voting rights.
$here is nothing in the articles of incorporation or an iota of evidence on
record that shows class >2? shares were categori8ed as either preferred or
redee#able shares.
Ni!lson and Company# in$. vs. L!panto Consolidat!d Mining Company
% share of stoc& co#ing fro# stc& dividends declared cannot be issued to one
who is not a stoc&holder of a corporation.
Islami$ 1ir!$torat! o/ t"! %"ilippin!s vs. CA
San Se(astian Law
7
% (uridical person cannot be considered essentially a for#al party to a case
where it was not duly represented by its legiti#ate governing board.
1!! vs. S!$
$he pre'e#ptive right of stoc&holders is recogni8ed only with respect to new
issue of shares, and not with respect to additional issues of originally authori8ed
shares.
Firm! vs. u,al Ent!rpris!s and 1!v!lopm!nt Corp.
% corporation can only exercise its powers and transact its business through
its board of directors and through its officers and agents when authori8ed by a board
resolution or its by'laws.
Loyola &rand *illas (om! own!rs 4sout"5 Asso$iation vs. CA
% corporation would not ipso facto lose its powers for failure to file the
re*uired by'laws.
C"ina an,ing Corporation vs. CA
4n order to be bound, a third party #ust have ac*uired &nowledge of the
pertinent by'laws at the ti#e the transaction or agree#ent between said third
person and the shareholder was entered into.
L!! vs. CA
4n order to be eligible as a director, what is #aterial is the legal title to, not
beneficial ownership of, the stoc& as appearing on the boo&s of the corporation.
% voting trust agree#ent results in the separation of the voting rihts of a
stoc&holder fro# his other riths such as the right to receive dividends and other
rights to which a stoc&holder #ay be entitled until the li*uidation of the corporation.
)!publi$ vs. Sandiganbayan 678 SC)A 96
PC!! cannot vote se*uestered shares except when there are >de#onstrably
weighty and defensible grounds? or >when essential to prevent disappearance or
wastage of corporate property?.
)!publi$ vs. COCOFE1
San Se(astian Law
8
$he govern#ent should be allowed to continue voting se*uestered 9CP2
shares inas#uch as they were purchased with cconut levy funds @ funds that are
pri#a facie public in character or, at the very least, are clearly affected with public
interest.
Evang!lista vs. Santos
4n a derivative suit, it is the corporation itself and not the plaintiff stoc&holder
that is the real party in interest, so that such da#ages as #ay be recovered shall
pertain to the corporation.
&o$"an vs. 3oung
Personal in(ury siffered by stoc&holders cannot dis*ualify the# fro# filing a
derivative suit.
4t #erely gives rise to an additional cause of action for da#ages against the
erring directors.
C"ua vs. CA
+ot every suit filed in behalf of the corporation is a derivative suit.
Aor a derivative suit to prosper, it is re*uired that the #inority stoc&holder
suing for and on behalf of the corppration #ust allege that he is suing on a
derivative cause of action on behalf of the corporation and all owther stoc&holder
si#ilarly situated who #ay which to (oin hi# in the suit.
4t is a condition sine *ua non that the corporation be i#pleaded as a party
because not only is the corporation an indispensable party, but it is also the present
rule that it #ust be served with process.
E'p!rtrav!l and +ours# in$. vs. CA
4n this age of #odern technology, the courts #ay ta&e (udicial notice that
business transations #ay be #ade by individuals through teleconferencig.
4n the Philippines, teleconferencing and video conferencing of #e#bers of
board of directors of private corporations is a reality, in light of B% +o. 8C9..
$he ;C issued ;C 3e#orandu# Circular +o 1D, on +ove#ber /=, .==1,
providing the guidelines to be co#nplied with related to such conferences.
Nava v. %!!rs Mar,!ting Corporation
San Se(astian Law
9
)here no stoc& certificate was issued to original subscriber representing that
portion of hi subscription which he paid for, the assign#ent of said subscriber1s
corporate share is effective only between the parties to the transaction and the
transferee cannot de#and fro# the corporation the issuance of certificate of stoc&
representing the paid subscribed shares.
Lim +ay v. CA

% #ere pledgee is not entitled to ownership of shares.
)ural an, o/ Lipa City v. CA
Delivery of the stoc& certificate duly endorsed by the owner is the operative
act of transfer of shares fro# the lawful owner to the transferee.
%on$! v. Alsons C!m!nt Corporation
% transfer of shares of stoc& not recorded in the stoc& and transfer boo& of
the corporation is non' existent as far as the corporation is concerned. 7ence, a
corporate secretary #ay not be co#pelled to issue stoc& certificates without such
registration.
Ong 3ong v. +iu
% subscription contract necessarily involves the corporation as one of the
contracting parties since the sub(ect #atter of the transaction is property owned by
the corporationEits shares of stoc&.
Considering therefore that the real contracting parties to the subscription
agree#ent were AL%D 5the corporation6 and the "ngs 5subscribers6 alone, a civil
case for rescission on the ground of breach of contract filed by the $49s
5stoc&holders6 in their personal capacities will not prosper.
Aurther#ore, to allow rescission disregards the separate (uridical personality
of AL%D 5the corporation6.
&on:al!s v. %N
% stoc&holder has the duty of showing good #otive or purpose for de#anding
an exa#ination of corporate boo&s. "ne who ac*uired one share of stoc& of a ban&
to be able to exa#ine its boo&s can hardly be said to have been #otivates with good
faith or proper purpose in de#anding inspection of the ban&1s transactions before he
beca#e a stoc&holder.
Asso$iat!d an, v. CA
$he #erger does not beco#e effective upon the #ere agree#ent of the
constituent corporations' the #erger shall be effective only upon the issuance by the
;C of a certificate of #erger.
San Se(astian Law
10
abst v. CA
4t is settled that in the #erger of two existing corporations, one of the
corporations survives and continues the business, while the other is dissolved and all
its rights, properties and liabilities are ac*uired by the surviving corporation.
Long v. asa
ection 91 of the Corporation Code provides that #e#bership shall be
ter#inated in the #anner and for the causes provided in the articles of incorporation
or the by' laws.
4n the case at bar, the petitioners really have no reason to bewail the lac& of
prior notice in the 2y' laws. $hey have waived such notice by adhering to those 2y'
laws. $hey beca#e #e#bers of the Church voluntarily. $hey entered into its
covenant and subscribed to its rules. 2y doing so, they are bound by their consent.
Conse*uently, the expulsion was not tained with any arbitrary treat#ent
fro# the #e#bers of the 2oard of Directors who, since 1988 up to %ugust /=, 199/,
or approxi#ately D years, have patiently exhorted and warned the dissident
#e#bers. $his long period of ti#e is #ore than ade*uate an opportunity for the
erring #e#bers and their followers to conte#plate upon their covenant with the
Church on their duty to protect and pro#ote its Principled of Aaith and not to violate
the#.
4t is a well settled principle in law that what due process conte#plates is
freedo# fro# arbitrariness, what it re *uires is fairness and (ustice, substance rather
than for#, being para#ount. )hat it prohibits is not the absence of previous notice
but the absolute absence thereof. % for#al or trial type hearing is not at all ti#es
and in all instances essential.
Sta. Clara (om!own!rs0 Asso$iation v. &aston
7o#eowners cannot be co#pelled to beco#e #e#bers of a ho#eowners1
association by the si#ple expedient of including the# in its %rticle of 4ncorporation
and 2y' laws without their express or i#plied consent, without violating the
constitutionally guaranteed freedo# of association.
%A1COM Condominium Corporation v. Ortigas C!nt!r Asso$iation# In$.
4f a#ong the ter#s and conditions in a deed of sale, there is a re*uire#ent
that the transferee #ust beco#e #e#ber of as association, the sa#e binds the
holder of the title and the whole world. 4t cannot be argued that there is a violation
of freedo# of association because the transferee was never forced to beco#e a
#e#ber of the association.
3anuel B. Dulay ;nterprises, 4nc. v. C%
Petitioner corporation is classified as a close corporation and conse*uently a
board resolution authori8ing the sale or #ortgage of the sub(ect property is not
necessary to bind the corporation for the action of its president. %t any rate, a
corporate action ta&en at a board #eeting without proper call or notice in a close
corporation is dee#ed ratified by the absent director unless the latter pro#ptly files
San Se(astian Law
11
his written ob(ection with the secretary of the corporation after having &nowledge of
the #eeting which, in this case, petitioner Firgilio Dulay failed to do.
San -uan Stru$tural and St!!l Fabri$ators# In$. v. CA
% corporation does not beco#e a close corporation (ust because a #an and
his wife owns 99.8<<G of its subscribed capital stoc&. o, too, a narrow distribution
of ownership does not, by itself, #a&e a close corporation.
Fa$iliti!s Manag!m!nt Corporation v. 1! La )osa
% foreign corporation not doing business in the Philippines #ay be sued here
for acts done against persons in the Philippines.
(om! Insuran$! Company v. East!rn S"ipping Lin!s
4nsofar as litigation is concerned, the foreign corporation or its assignee #ay
not #aintain any suit for the recovery of any debt, clai# or de#and whatever.
% contract entered into by a foreign insurance corporation not licensed to do
business in the Philippines is not void. $he statute does not fix any ti#e within which
foreign corporations shall co#ply with the %ct. 4f such contracts were void, no suits
could be prosecuted on the# in any court. $he pri#ary purpose of our statute is to
co#pel a foreign corporation desiring to do business within the state to sub#it itself
to the (urisdiction of the courts of their state.
M!nt"olatum Co.# In$. v. Mangiliman
$he true test to deter#ine whether a foreign co#pany is >doing business in
the Philippines? is whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organi8ed or whether it has
substantially retired fro# it and turned it over to another.
Eri,s %t!.# Ltd. v. CA
$he grant and extension of 9=' day credit ter#s by a foreign corporation to
do a do#estic corporation for every purchase #ade unarguably shows an intention
to continue transacting with the latter since in the usual course of co##ercial
transactions, credit extended only to custo#ers in good standing or to those on
who# there is an intension to #aintain long' ter# relationship.
3B 7oldings, 4nc. v. 2a(ar
)hile petitioner #ay (ust be an assignee to the Deed of %ssign#ent, it #ay
still fall within the #eaning of >doing business? based on the ruling of the upre#e
Court that >where a single act or transaction however is not #erely incidental or
casual but indicates the foreign corporation1s intention to do other business in the
Philippines, said single act or transaction constitutes doing or engaging in or
transacting business in the Philippines.
(ut$"ison %orts %"ilippin!s Limit!d v. SMA
San Se(astian Law
12
Participating in the bidding process constitutes >doing business? because it
shows the foreign corporation1s intention to engage in the business here. $he bidding
for the concession contract is but an exercise of the corporation1s reason for its
existence. 4t is the perfor#ance by a foreign corporation of the acts for which it was
created, regardless of the volu#es of business, that deter#ines whether a foreign
corporation needs license or not.
Ant"am Cosolidat!d v. CA

)here the three transactions indicate no intent by foreign corporation to
engage in a continuity of transactions, they do not constitute doing business- Aoreign
corporation not doing business in the Philippines is not re*uired to obtain a license to
do business to have the capacity to sue.
M!rrill Lyn$" Futur!s# In$. v. CA
% foreign corporation doing business in the Philippines #ay sue in the
Philippine courts although not authori8ed to do business here against a Philippine
citi8en who had contracted with and been benefited by said corporation.
Agil!nt +!$"nologi!s Singapor! 4%t!5 Ltd. v. Int!grat!d Sili$on +!$"nology
%"ilippin!s Corporation
4n the %gree#ent, the foreign co#pany1s activities in the Philippines were
confined to 516 #aintaining a stoc& of goods solely for the purpose of having the
sa#e processed by another co#pany- and 5.6 consign#ent of e*uip#ent with such
co#pany to be used in the processing of products for export. uch foreign
corporation cannot be considered doing business in the Philippines. 2y and large, to
constitute >doing business?, the activity to be underta&en in the Philippines is one
that is for profit' #a&ing. 9nder ection 1 of the 4#ple#enting Bules and
Begulations of the Aoreign 4nvest#ent %ct, the foregoing activities do not constitute
doing business in the Philippines.
$he general tests to deter#ine whether a foreign corporation id doing
business in the Philippines are,
1. ubstance $est' whether the foreign corporation is continuing the body of
the
business or enterprise for which it was organi8ed or
whether
it has substantially retired fro# it and turned it over to
another.
.. continuity test @ continuity of co##ercial dealings and arrange#ents, and
conte#plates, to that extent, the perfor#ance of acts or wor&s or the
exercise of so#e of the functions nor#ally incident to, and in the
progressive prosecution of the purpose and ob(ect of its organi8ation.
San Se(astian Law
13
E'p!rt +rav!l and +ours In$. vs. CA
2eing a residential agent of a foreign corporation does not #ean that he is
authori8ed to execute the re*uirste certificate against foru# shopping because hwne
a resident agent #a be aware of actions against hie principal 5a foreign corporation
doing business in the Philippines6, he #ay not be aware of actions initiated by its
principal, whether in the Philippines against a do#estic corporation or private
individual, or in the coutry where such corporation is organi8ed and registered ,
against a Philippine registered corporation or a Ailipino citi8en.
II - NE&O+IALE INS+);MEN+S
Fir!ston! +ir! and )ubb!r Company vs. CA
$he essence of negotiability which characteri8es a negotiable paper as a credit
instru#ent lies in its freedo# to circulate freely as a substitute for #oney.
Calt!' vs. CA
4n deter#ining the negotiability of an instru#ent, the instru#ent in its
entirety and what appears on its fact #ust be considered.
4t #ust co#ply with the re*uire#ents of sec. 1, %ct. +o. .=/1
%"ilippin! Edu$ation Company vs. CA
Postal #oney orders are not negotiable intru#ents.
4t does not contain ac unconditional pro#ise or order to pay re*uired in ec.
1 of the +4L.
Begulations and restrictions i#posedc on postal #oney orders are inconsisten
with the character of negotiable instru#ents.
+iba<ia# -r. vs. CA
% chec&, whther #anager1s chec& or ordinary chec&, is not legal ender, and
an oofer of a chec& in pay#ent of a debt is not a valid tender of pay#ent and #ay
be refused recept by the creditor.
%AL vs. CA
San Se(astian Law
14
% chec&, whether #anager1s chec& or ordinary chec&, is not legal tender, and
an offer of a chec& in pay#ent of a debt is not a valid tender of pa#ent and #ay be
refused receipt by the creditor.
S!sbr!no vs. CA
%n instru#ent thaough #ar&ed non'negotiable, #ay nevertheless be
assigned or transferred.
M!trban, vs. CA
$reasury warrants are non'negotiable instru#ent because there is an
indication of the fund as the source of pa#ent of the disburse#ent.
Ang +!, Lian vs. CA
% chec& payable to the order of >cash? is a chec& payable to bearer, and the
ban& #ay pay it to the person presenting it for pay#ent without the drawer1s
indorse#ent.
%N vs Manila Oil )!/ining And y produ$ts Company In$
Provisions in notes authori8ing attorbeys to appear and confess (udg#ents
against #a&ers should not be recogni8ed in this (urisdiction because the sa#e is
considered void for being against public policy.
7owever, sec. D of the +4L provides that the negotiable character of an
instru#ent therwise negotiable is not affected by a provision which authori8es
confession of (udg#ent if the instru#ent be not paid at #aturity.
4n other words, only the stipulation is avoided.
)!publi$ %lant!rs an, vs. CA
)here an instru#ent containing the words >4 pro#ise to pay? is isgned by
two or #ore persons, they are dee#ed to be (ointly and severally liable thereon.
$he phrase >and in his personal capacity? below the signatures of the #a&ers
in the note will not affect the liability of the #a&ers.
&SIS vs. CA
%n instru#ent that is payable to a specified person or entity is not negotiable
because the +4L re*uires that the instru#ent #ust be payable to order or the bearer.
San Se(astian Law
15
%n acco##odation party applies only to negotiable instru#ents.
Consolidat!d %lywood In$.# vs. IFC L!asing
4f an instru#ent is not negotiable, it can still be transferred but only throught
assign#ent. $he transferee is an assignee who #erely steps into the shoes of the
transferor.
1! la *i$toria vs. urgos
Delivery is defined as the transfer of the possession of the instru#ent by the
#a&er or draer with intent to transfer title to the payee and recogni8e hi# as the
holder therof.
)here chec&s due a govern#ent e#ployee have not yet been delivered to
hi#, they do not belong to hi# and still have the character of public funds.
Chec&s due a govern#ent e#ployee #ay not be garnsihed to satisfy
(udg#ent.
1!v!lopm!nt an, o/ )i:al vs. Sima .!i
$he delivery of chec&s in pay#ent of an obligation does not constitute
pay#ent unless they are cashed or their value is i#paired through the fault of the
creditor.
M!tropol 4a$olod5 Finan$ing vs. Sambo, Motors
>Becourse? #eans resort to a peson who is secondary liable after the default
of the person who is pri#ary liable.
4ndorsing the note >with recourse? #a&es a party a general indorser. $he
effect is that the note was indorsed withut *ualification.
&!mp!saw vs. CA
% drawee ban& who has paid a chec& on which an indorse#ent has been
forged cannot charge the drawer1s account for the a#ount of said chec&.
%n exception to this rule is where the drawer is guilty of such negligence
which causes the ban& to honor such chec&.
San Se(astian Law
16
%lthough a depositor owes a duty to his drawee ban& to exa#ine his cancelled
chec&s for forgery of his own signature, he has no si#ilar duty to forged
instru#ents.
$he negligence of a depositor which will prevent recovery of an unauthori8ed
pay#ent is based on failure of the depositor to act as a prudent business#an would
under the circu#stances.
1! O$ampo vs. &at$"alian
!ross negligence #ay a#ount to legal absence of good faith.
)here a holder1s title is defective or suspicius, it cannot be stated that the
payee ac*uired the chec& without the &nowledge of said defect in holder1s title, and
for this reason the presu#ption that it is a hlder in due cours or that it ac*uired the
instru#ent in good faith does not exist.
St!l$o Mar,!ting Corporation vs. CA
Lac& of notice of any infir#ity in the instru#ent r defect in the title of the
person negotiating it does not apply to an acco##odation party.
ataan Cigar and Cigarr!tt! Fa$tory vs. CA
% person who ta&es a crssed chec& without #a&ing further in*uiries is not a
holder in due course.
$he act of crossing a chec& produces the following effects,
a. the chec& #ay not be encashed but only deposited in the ban&,
b. the chec& #ay be negotiated only once @ to on e who has an account
with the ban&- and
c. the act of crossing the chec& serves as warning to the hlder that the
chec& has been issued for a definite purpose so that he #ust in*uire if
he has received the chec& pursuant to that purpose, otherwise, he is
not a holder in due course.
Stat! Inv!stm!nt (ous! vs. CA
$he fact that a chec& is #erely issued as security is not a ground for the
discharge of the instru#ent against a holder in due course.
%N vs. %i$orn!ll
$he drawee by accepting beco#es liable to the payee or his indorsee, and
also to the drawer hi#self. 2ut the drawer and acceptor are i##ediate parties to the
San Se(astian Law
17
consideration, and if the acceptance be without consideration, the drawer cannot
recover fro# the acceptor.
$he payee holds a different relation- he is a stranger to the transaction
between the drawer and the acceptor, and is therefore in a legal sense a re#ote
party.
4n a suit by hi# against the acceptor, the *uestion as to the consideration
between the drawer and the acceptor cannot be in*uired into.
$he payee or holder gives value to the drawer and if he is ignorant of the
e*uities between the drawer and acceptor, he is in the position of a bonafide
indorsee.
7ence, it is no defense to a suit against the acceptor draft which has been
discounted, and upon which #oney has been advanced by the plaintiff, that the draft
was accepted for the acco##odation of the drawer.
%!opl! o/ t"! %"ilippin!s vs. Mani!go
%c*uittal on reasonable doubt of the accused does nt operate to absolve the
sa#e fro# civil liability. appelant1s cnetntion that as #ere indorser, she #ay not be
#ade liable on account of the dishonor of the chec&s indorsed by her is untenable.
9nder the law, the holder or last indorsee of a negotiable instru#ent has the
right to >enforce pay#ent of the instru#ent for the full a#ount thereof against all
parties liable thereonf.?
Crisologo--os! vs. CA
% corporation cannot act as an acco##odation party.
$he issuance or indorse#ent of a negotiable intrue#nt by a corporation
without consideration and for acco##odation is ultra vires.
Salas vs. CA
Petitioner alleged that she issued the pro#issory note in *uestion based on
the alleged bad faith, fraud and #isrepresentation of the payee 5fraud in
induce#ent6.
9nfortunately, the note was later negotiated to a holder in due course.
7ence, such holder holds the instru#ent free fro# personal defenses
available to prior parties a#ong the#selves and #ay enforce pay#ent of the
instru#ent for the full a#ount thereof.
San Se(astian Law
18
%N vs. CA
%n alteration of the serial nu#ber of a chec& does not constitute #aterial
alteration because it does not alter the effect of the instur#etn, nor des it #odify in
any respect the obligation of a party thereto.
4t does not change the ite#s which aree re*uired to be stated under sec. 1 of
the +4L.
Asso$iat!d an, vs. CA
4n bearer instru#ents, the signature of the payee or holder is unnecessary to
pass title to the instru#ent. 7ence, the #a&er #ay still be liable to a holder in due
cours even if an indorse#ent was forged after the issuance of the note.
$he liability chain ends with the drawee ban& whose responsibility is to &now
the drawer1s signature since the latter is its custo#er.
&r!at East!rn Li/! Insuran$! $o. vs. (SC
4t is the obligation of the collecting ban& to rei#burse the drawee ban& the
value of the chec&s subse*uently found to contain forged indorse#ent of the payee.
$he reason is that the ban& with which the chec& was deposited has no right
to pay the su# stated therein to the forger or any one else upon a forged signature.
4t is the collecting ban&1s duty to &now that the indorse#ent is genuine before
cashing the chec&.
)!publi$ vs. Ebrada
$he indorser is liable on the insrue#tn although the signature of the payee is
forged because the indorser by his indore#ent guaranteed that the instru#ent is
genuine, therefore, i#pliedly, that the instru#ent is valid, otherwise, there wuld be
nothing for the indorser to guarantee.
%"ilippin! Comm!r$ial Int!rnational an, vs. CA
$he prescriptive period for the filing of a clai# based on negotiable
instru#ents is ten years fro# the ti#e the cause of action accrued.
4n case of chec&s, the action of the depositor against his drawee ban&
co##ences to run fro# the ti#e he is given notice of pay#ent.
San Se(astian Law
19
%apa vs. Au *al!n$ia
Aailure of the pay to encash a chec& for #ore than 1= years >undoubtedly
resulted in the i#pair#ent of the chec& through his unreasonable and unexplained
delay.
% lapse of 1= years will bar any action base on the chec&.
Far East )!ality Inv!tm!nt in$ vs. CA
4f the instru#ent is not presented for pay#ent within a reasonable ti#e after
issue, or last negotiation as the case #ay be, the persons secondarily liable are
discharged.
.ong vs. CA
)ith respect to chec&s, the C had ta&en cogni8ance of the current ban&ing
practice that a chec& beco#es stale after #ore than #onths or 18= days.
Int!rnational Corproat! an, vs. Sps. &u!$o
;ven assu#ing that present#ent is needed, failure to present for pay#ent
within a reasonable ti#e will resoult to the discharge of the drawer only to the extent
of the loss caused by the delay.
Aailure to present on ti#e, thus, does not totally wipe out all liability.
deifinitely, the original obligation to pay has not been erased.
Asia an,ing Corporation vs. -avi!r
)hen a negotiable instru#ent has been dishonored by non'acceptance or
nor'pay#net, notice of dishonor #ust be given to the drawer or indorser to who#
such notice is not given is discharged.
Ny$o Sal!s Corporation vs. A Finan$! Corporation
$he dishonor of an assigned chec& si#ply stresses its liability and the failure
to give a notice of dishonor will not discharge it fro# such liability.
N!w %a$i/i$ +imb!r vs. S!n!ris
Certification of chec& by drawee ban& is e*uivalent to acceptance.
San Se(astian Law
20
aid certification i#plies that the chec& is drawn upon sufficient funds un the
hands of the drawee, that they have been set apart for its satisfaction, and that they
shell be so applied whenever the chec& is presented for pay#ent.
%N vs. National City an, o/ N!w 3or,
$he certification of chec&s is a #eans in constant and extneseve use in the
business of ban&ing, and its effects and conse*ences are regulated by the law of
#erchant.
Sps. Moran vs. CA
Aailure of a ban& to pay the chec& of a #erchant or a trader, when deposit is
sufficient, entitles the drawer to substantial da#ages without any proof of actual
da#ages.
San Se(astian Law
21

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