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CASE DIGESTS

CASTILLON, ANNETTE CHARMAINE M.

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 INSURANCE LAW (PD 612, AS AMENDED BY RA 10607)
1
MA. LOURDES FLORENDO vs. PHILAM PLANS
G.R. No. 186983.February 12, 2012
J. Abad
Concealment

DOCTRINE: When Manuel signed the pension plan application, he adopted as his own the
written representations and declarations embodied in it. It is clear from these representations
that he concealed his chronic heart ailment and diabetes from Philam Plans.

FACTS: Manuel Florendo filed an application for comprehensive pension plan with respondent
Philam Plans, Inc. after some convincing by respondent Perla Abcede. Manuel signed the
application and left to Perla the task of supplying the information needed in the application.
Aside from pension benefits, the comprehensive pension plan also provided life insurance
coverage to Florendo. This was covered by a Group Master Policy that Philippine American Life
Insurance Company (Philam Life) issued to Philam Plans. Under the master policy, Philam Life
was to automatically provide life insurance coverage, including accidental death, to all who
signed up for Philam Plans comprehensive pension plan. If the plan holder died before the
maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid
premium until the pension plan matured, entitling the beneficiary to the maturity value of the
pension plan. Thereafter, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim
with Philam Plans for the payment of the benefits under her husband’s plan. Because Manuel
died before his pension plan matured and his wife was to get only the benefits of his life
insurance, Philam Plans forwarded her claim to Philam Life. Philam Plans wrote Lourdes a
letter, declining her claim. Philam Life found that Manuel was on maintenance medicine for his
heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was
taking insulin. Lourdes renewed her demand for payment under the plan but Philam Plans
rejected it, prompting her to file the present action against the pension plan company.

ISSUE: WON Manuel is guilty of concealing his illness when he kept blank and did not answer
the questions in his pension plan application regarding the ailments he suffered from.

RULING: YES. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan
application relating to his medical history, Philam Plans should have returned it to him for
completion. Since Philam Plans chose to approve the application just as it was, it cannot cry
concealment on Manuel’s part. Further, Lourdes adds that Philam Plans never queried Manuel
directly regarding the state of his health. Consequently, it could not blame him for not
mentioning it. But Lourdes is shifting to Philam Plans the burden of putting on the pension plan
application the true state of Manuel’s health. She forgets that since Philam Plans waived medical
examination for Manuel, it had to rely largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone that he had been under treatment for heart
condition and diabetes for more than five years preceding his submission of that application. But

Page | 1
he kept those crucial facts from Philam Plans. Besides, when Manuel signed the pension plan
application, he adopted as his own the written representations and declarations embodied in it. It
is clear from these representations that he concealed his chronic heart ailment and diabetes from
Philam Plans. The pertinent portion of his representations and declarations read as follows:

I hereby represent and declare to the best of my knowledge that:

(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give details in the space
provided for:

Date of confinement : ____________________________

Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________

Since Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes, the assumption is that he has never been treated for
the said illnesses in the last five years preceding his application. This is implicit from the phrase
If your answer to any of the statements above (specifically, the statement: I have never been
treated for heart condition or diabetes) reveal otherwise, please give details in the space provided
for. But this is untrue since he had been on Coumadin, a treatment for venous thrombosis, and
insulin, a drug used in the treatment of diabetes mellitus, at that time.

2
MALAYAN INSURANCE CO., INC. vs. PHIL. FIRST INSURANCE CO., INC., AND
REPUTABLE FORWARDER SERVICES, INC.
G.R. No. 184300. July 11, 2012
J. Reyes
Double Insurance

DOCTRINE: In order for double insurance to arise the following must be present: 1. The
person insured is the same; 2. Two or more insurers insuring separately; 3. There is identity of
subject matter; 4. There is identity of interest insured; and 5. There is identity of the risk or peril
insured against.

FACTS: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the former’s products to its customers, dealers or salesmen.
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its

Page | 2
own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other
products usual or incidental to the insured’s business while the same were being transported or
shipped in the Philippines. The policy covers all risks of direct physical loss or damage from any
external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle. On
December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out,
however, that the contract was not signed by Wyeth’s representative/s. Nevertheless, it was
admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the
parties and, as previously stated, the same contract of carriage had been annually executed by the
parties every year since 1989. Under the contract, Reputable undertook to answer for “all risks
with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction,
or damage of the goods/products due to any and all causes whatsoever, including theft, robbery,
flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in
transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY”. The
contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, on
February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner
Malayan for the amount of P1,000,000.00. On October 6, 1994, during the effectivity of the
Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant
formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in
Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was
hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers
should they refuse to turn over the truck and its contents to the said highway robbers. The
hijacked truck was recovered two weeks later without its cargo. Malayan questions its liability
based on sections 5 and 12 of the SR Policy.

ISSUE: Whether or not there is double insurance in this case such that either Section 5 or
Section 12 of the SR Policy may be applied.

RULING: No. By the express provision of Section 93 of the Insurance Code, double insurance
exists where the same person is insured by several insurers separately in respect to the same
subject and interest. The requisites in order for double insurance to arise are as follows: 1. The
person insured is the same; 2. Two or more insurers insuring separately; 3. There is identity of
subject matter; 4. There is identity of interest insured; and 5. There is identity of the risk or peril
insured against. In the present case, while it is true that the Marine Policy and the SR Policy were
both issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered the
same peril insured against, it is, however, beyond cavil that the said policies were issued to two
different persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines
First under its Marine Policy, while Reputable is the recognized insured of Malayan under the
SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth
pursuant merely to the stipulated requirement under its contract of carriage with the latter does
not make Reputable a mere agent of Wyeth in obtaining the said SR Policy. The interest of
Wyeth over the property subject matter of both insurance contracts is also different and distinct
from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal
and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by
Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which
may become the basis of the latter’s liability in case of loss or damage to the property and falls
within the contemplation of Section 15 of the Insurance Code. Therefore, even though the two

Page | 3
concerned insurance policies were issued over the same goods and cover the same risk, there
arises no double insurance since they were issued to two different persons/entities having distinct
insurable interests. Necessarily, over insurance by double insurance cannot likewise exist.
Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy
can be applied.

3
MALAYAN INS. CO., INC. vs. RODELIO ALBERTO & ENRICO ALBERTO REYES
G.R. No. 194320. February 1, 2012
J. Velasco
Subrogation

DOCTRINE: Subrogation is the substitution of one person by another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities.

FACTS: On December 17, 1995, an accident occurred at the corner of EDSA and Ayala
Avenue, Makati City, involving four (4) vehicles, a Nissan Bus operated by Aladdin Transit, an
Isuzu Tanker, a Fuzo Cargo Truck and a Mitsubishi Galant. Previously, particularly on
December 15, 1994, Malayan Insurance issued Car Insurance Policy in favor of First Malayan
Leasing and Finance Corporation (the assured), insuring the aforementioned Mitsubishi Galant
against third party liability, own damage and theft, among others. Having insured the vehicle
against such risks, Malayan Insurance claimed in its Complaint that it paid the damages
sustained by the assured. Maintaining that it has been subrogated to the rights and interests of the
assured by operation of law upon its payment to the latter, Malayan Insurance sent several
demand letters to respondents Alberto and Enrico Reyes, the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the
assured. When respondents refused to settle their liability, Malayan Insurance was constrained to
file a complaint for damages for gross negligence against respondents. Trial court ruled in favor
of Malayan Insurance and declared respondents liable for damages. CA reversed and ruled that
the evidence on record has failed to establish not only negligence on the part of respondents, but
also compliance with the other requisites and the consequent right of Malayan Insurance to
subrogation.

ISSUE: Whether the subrogation of malayan insurance has passed compliance and requisites as
provided under pertinent laws.

RULING: Yes. Subrogation is the substitution of one person by another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies or securities. The principle covers a situation wherein
an insurer has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor,
and he may use all means that the creditor could employ to enforce payment. Payment by the
insurer to the insured operates as an equitable assignment to the insurer of all the remedies that
the insured may have against the third party whose negligence or wrongful act caused the loss.

Page | 4
The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the
mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity,
and good conscience, ought to pay. Respondents in this case failed to object to the petitioner’s
presentation of evidence. As a rule, failure to object to the offered evidence renders it admissible,
and the court cannot, on its own, disregard such evidence. The claim check voucher and the
Release of Claim and Subrogation Receipt presented by Malayan Insurance are already part of
the evidence on record and since it is not disputed that the insurance company, indeed, paid the
assured, then there is a valid subrogation.

4
MALAYAN INSURANCE CO., INC vs. PAPA CO., LTD. (PHIL. BR.)
G.R. No. 200784. August 7, 2013
J. Mendoza
Insurance (Fire Insurance)

DOCTRINE: Under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured.

FACTS: On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance
Policy to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo
Precision Phils. Bldg. PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for
Fifteen Million Pesos (₱15,000,000.00) and effective for a period of one (1) year, was procured
by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of the insured
machineries and equipment. After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an “as is” basis. Pursuant thereto, a renewal
policy, Fire Insurance Policy, was issued by Malayan to PAP Co. for the period May 13, 1997 to
May 13, 1998. On October 12, 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim
with Malayan in the amount insured. Malayan denied the claim upon the ground that, at the time
of the loss, the insured machineries and equipment were transferred by PAP Co. to a location
different from that indicated in the policy. Specifically, that the insured machineries were
transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Phase, PEZA,
Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid
liability as it was informed of the transfer by RCBC, the party duty-bound to relay such
information. However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co.
filed the complaint below against Malayan. RTC handed down its decision, ordering Malayan to
pay PAP Company Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as
for attorney’s fees. Not contented, Malayan appealed the RTC decision to the CA basically
arguing that the trial court erred in ordering it to indemnify PAP for the loss of the subject
machineries since the latter, without notice and/or consent, transferred the same to a location
different from that indicated in the fire insurance policy. CA rendered the assailed decision
which affirmed the RTC decision but deleted the attorney’s fees.

Page | 5
ISSUE: Whether Malayan cannot be held liable under the insurance contract because PAP
committed concealment, misrepresentation and breach of an affirmative warranty under the
renewal policy when it transferred the location of the insured properties without informing it.

RULING: The Court agrees with the position of Malayan that it cannot be held liable for the
loss of the insured properties under the fire insurance policy. The policy expressly stated that the
insured properties were located at “Sanyo Precision Phils. Building, EPZA, Rosario, Cavite”;
that before its expiration, the policy was renewed on an “as is” basis for another year or until
May 13, 1998; that the subject properties were later transferred to the Pace Factory also in
PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out
at the Pace Factory which totally burned the insured properties.

The policy forbade the removal of the insured properties unless sanctioned by Malayan
Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by the
insured, without the insurer’s consent, would free the latter from any liability.

The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal.
The records are bereft of any convincing and concrete evidence that Malayan was notified of the
transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has
combed the records and found nothing that would show that Malayan was duly notified of the
transfer of the insured properties.

What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer
to RCBC, the entity which made the referral and the named beneficiary in the policy. Malayan
and RCBC might have been sister companies, but such fact did not make one an agent of the
other. The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent
and bind the said insurance company. After the referral, PAP dealt directly with Malayan.

It can also be said that with the transfer of the location of the subject properties, without notice
and without Malayan’s consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance
Code provides:
A neglect to communicate that which a party knows and ought to communicate, is
called a concealment. Under Section 27 of the Insurance Code, “a concealment entitles the
injured party to rescind a contract of insurance.”

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides:
An alteration in the use or condition of a thing insured from that to which it is limited
by the policy made without the consent of the insurer, within the control of the insured,
and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when
the following conditions are present, to wit:

Page | 6
 1. The policy limits the use or condition of the thing insured;
2. There is an alteration in said use or condition;
3. The alteration is without the consent of the insurer;
4. The alteration is made by means within the insured’s control; and
5. The alteration increases the risk of loss

In the case at bench, all these circumstances are present. It was clearly established that the
renewal policy stipulated that the insured properties were located at the Sanyo factory; that PAP
removed the properties without the consent of Malayan; and that the alteration of the location
increased the risk of loss.

5
UNITED MERCHANTS CORPORATION vs. COUNTRY BANKERS INS. CORP.
G.R. No. 198588. July 11, 2012
J. Carpio
Insurance (Fire Insurance)

DOCTRINE: In fire insurance policy, which contains provisions that a fraudulent discrepancy
between the actual loss and that claimed in the proof of loss voids the insurance policy. Mere
filing such a claim will exonerate the insurer.

FACTS: United Merchants Corporation’s (UMC) General Manager Alfredo Tan insured UMC’s
stock in trade of Christmas lights against fire with defendant Country Bankers Insurance
Corporation (CBIC) for P15,000,000.00 which was subsequently increased in P50,000,000.00.
Under Condition No. 15 of the Insurance Policy, if the claim be in any respect fraudulent, or if
any false declaration be made or used in support thereof, or if any fraudulent means or devices
are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy; or if
the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the
benefits under the Policy shall be forfeited. In 1996, fire gutted the warehouse rented by UMC.
UMC demanded for at least 50% payment of its claim from CBIC. However, such claim was
rejected by CBIC due to the breach of Condition No. 15 of the Insurance Policy. UMC filed a
complaint against CBIC. CBIC alleged that UMC’s claim was fraudulent because UMC’s
Statement of Inventory showed that it had no stocks in trade as of December 31, 1995, and that
UMC’s suspicious purchases for the year 1996 did not even amount to P25,000,000.00.

ISSUE: Whether UMC violated the Condition No. 15 of the Insurance Policy, thus, forfeited
whatever benefits it may be entitled from the Fire Insurance Policy.

RULING: YES. Where a fire insurance policy provides that “if the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent
means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit
under the Policy,” and the evidence is conclusive that the proof of claim which the insured
submitted was false and fraudulent both as to the kind, quality and amount of the goods and their
value destroyed by the fire, such a proof of claim is a bar against the insured from recovering on
the policy even for the amount of his actual loss. In the present case, the invoices revealed that

Page | 7
the stocks in trade purchased for 1996 amounts to P20,000,000.00 which were purchased in one
month. Thus, UMC needs to prove purchases amounting to P30,000,000.00 worth of stocks in
trade for 1995 and prior years. However, in the Statement of Inventory submitted to the BIR,
which is considered an entry of official records, UMC stated that it had no stocks in trade as of
December 31, 1995. In its defense, UMC alleged that it did not include as stocks in trade the raw
materials to be assembled as Christmas lights, which it had on December 31, 1995. However, as
proof of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers
only stock in trade. It has long been settled that a false and material statement made with an
intent to deceive and defraud voids an insurance policy. The Insurance Code provides that “a
policy may declare that a violation of specified provisions thereof shall avoid it.” Thus, in fire
insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a
fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such claim will exonerate the insurer. Considering that all
circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of
fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever
benefits it may be entitled under the Insurance Policy, including its insurance claim.

6
FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME
INSURANCE CORPORATION) vs. CHEVRON PHILIPPINES, INC. (formerly known as
CALTEX [PHILIPPINES], INC.)
G.R. No. 177839. January 18, 2012
J. Villarama Jr.
Surety

DOCTRINE: A surety contract should be read and interpreted together with the contract
entered into between the creditor and the principal. It is merely a collateral one; its basis is the
principal contract or undertaking which it secures.

FACTS: Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued
petitioner First Lepanto-Taisho Insurance Corporation (now known as FLT Prime Insurance
Corporation) for the payment of unpaid oil and petroleum purchases made by its distributor
Fumitechniks Corporation (Fumitechniks). Fumitechniks, represented by Ma. Lourdes Apostol,
had applied for and was issued Surety Bond FLTICG (16) No. 01012 by First Lepanto for the
amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance with the
requirement for the grant of a credit line with Chevron to guarantee payment/remittance of the
cost of fuel products withdrawn within the stipulated time in accordance with the terms and
conditions of the agreement. Fumitechniks defaulted on its obligation. Chevron notified First
Lepanto of Fumitechniks’ unpaid purchases. Fumitechniks, through its counsel, wrote First
Lepanto’s counsel informing that it cannot submit the requested agreement since no such
agreement was executed between Fumitechniks and Chevron. First Lepanto advised Chevron of
the non-existence of the principal agreement as confirmed by Fumitechniks. It explained that
being an accessory contract, the bond cannot exist without a principal agreement as it is essential
that the copy of the basic contract be submitted to the proposed surety for the appreciation of the
extent of the obligation to be covered by the bond applied for. Alleging that First Lepanto

Page | 8
unjustifiably refused to heed its demand for payment, Chevron filed a case, praying for judgment
ordering petitioner to pay the sum of P15,080,030.30, plus interest, costs and attorney’s fees
equivalent to ten percent of the total obligation. The RTC ruled in favor of First Lepanto. RTC
found that the terms and conditions of the oral credit line agreement between Chevron and
Fumitechniks have not been relayed to petitioner and neither were the same conveyed even
during trial. Since the surety bond is a mere accessory contract, the RTC concluded that the bond
cannot stand in the absence of the written agreement secured thereby. The CA ruled in favor
Chevron. According to the appellate court, petitioner cannot insist on the submission of a written
agreement to be attached to the surety bond considering that respondent was not aware of such
requirement and unwritten company policy.

ISSUE: Whether First Lepanto-Taisho Insurance Corporation is liable as surety to Chevron

Philippines, Inc., the creditor, for the surety bond in the absence of a written contract with the
principal?

RULING: NO. The law is clear that a surety contract should be read and interpreted together
with the contract entered into between the creditor and the principal.

Respondent is charged with notice of the specified form of the agreement or at least the
disclosure of basic terms and conditions of its distributorship and credit agreements with its
client Fumitechniks after its acceptance of the bond delivered by the latter. However, it never
made any effort to relay those terms and conditions of its contract with Fumitechniks upon the
commencement of its transactions with said client, which obligations are covered by the surety
bond issued by petitioner. Contrary to respondents assertion, there is no indication in the records
that petitioner had actual knowledge of its alleged business practice of not having written
contracts with distributors; and even assuming petitioner was aware of such practice, the bond
issued to Fumitechniks and accepted by respondent specifically referred to a written agreement.

Section 176 of the Insurance Code states:

“Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor
and shall be limited to the amount of the bond. It is determined strictly by the terms of the
contract of suretyship in relation to the principal contract between the obligor and the
obligee.” (Emphasis supplied.)

A surety contract is merely a collateral one, its basis is the principal contract or undertaking
which it secures. Necessarily, the stipulations in such principal agreement must at least be
communicated or made known to the surety particularly in this case where the bond expressly
guarantees the payment of respondents fuel products withdrawn by Fumitechniks in accordance
with the terms and conditions of their agreement. The bond specifically makes reference to a
written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. Moreover,
being an onerous undertaking, a surety agreement is strictly construed against the creditor, and
every doubt is resolved in favor of the solidary debtor. Having accepted the bond, respondent as
creditor must be held bound by the recital in the surety bond that the terms and conditions of its
distributorship contract be reduced in writing or at the very least communicated in writing to the

Page | 9
surety. Such non-compliance by the creditor (respondent) impacts not on the validity or legality
of the surety contract but on the creditor’s right to demand performance.

It bears stressing that the contract of suretyship imports entire good faith and confidence between
the parties in regard to the whole transaction, although it has been said that the creditor does not
stand as a fiduciary in his relation to the surety. The creditor is generally held bound to a faithful
observance of the rights of the surety and to the performance of every duty necessary for the
protection of those rights. Moreover, in this jurisdiction, obligations arising from contracts have
the force of law between the parties and should be complied with in good faith.

The petition is partly granted. The Decision of the CA is reversed and set aside. The Decision of
RTC Makati dismissing Chevron’s complaint and First Lepanto’s counterclaim is reinstated and
upheld.

7
PARAMOUNT INSURANCE CORPORATION vs. SPOUSES YVES and MARIA
TERESA REMONDEULAZ
G.R. No. 173773. November 28, 2012
J. Peralta
Theft Clause

DOCTRINE: When one takes the motor vehicle of another without the latter’s consent even if
the motor vehicle is later returned, there is theft – there being intent to gain as the use of the
thing unlawfully taken constitutes gain. The principal distinction between the two crimes is that
in theft the thing is taken while in estafa the accused receives the property and converts it to his
own use or benefit. However, there may be theft even if the accused has possession of the
property. If he was entrusted only with the material or physical (natural) or de facto possession
of the thing, his misappropriation of the same constitutes theft, but if he has the juridical
possession of the thing his conversion of the same constitutes embezzlement or estafa.

FACTS: Respondents’ car was unlawfully taken while covered by a comprehensive motor
vehicle insurance policy issued by petitioner. Respondents reported the theft to the PNP and
alleged that a certain Ricardo Sales took possession of the subject vehicle to add accessories and
improvements thereon, however, Sales failed to return the subject vehicle within the agreed
three-day period. Respondents notified petitioner but the latter denied the claim for
reimbursement for the lost vehicle on the ground that the said loss could not fall within the
concept of the "theft clause" under the insurance policy.

ISSUE: Whether the loss the vehicle falls within the concept of the "theft clause" under the
insurance policy.

RULING: In People v. Bustinera, this Court had the occasion to interpret the "theft clause" of an
insurance policy. The Court explained that when one takes the motor vehicle of another without
the latter’s consent even if the motor vehicle is later returned, there is theft – there being intent to
gain as the use of the thing unlawfully taken constitutes gain. Also, in Malayan Insurance Co.,
Inc. v. CA, this Court held that the taking of a vehicle by another person without the permission

Page | 10
or authority from the owner thereof is sufficient to place it within the ambit of the word theft as
contemplated in the policy, and is therefore, compensable.

In Santos v. People, the Court therein clarified the distinction between the crime of Estafa and
Theft, to wit:
x x x The principal distinction between the two crimes is that in theft the thing is taken
while in estafa the accused receives the property and converts it to his own use or benefit.
However, there may be theft even if the accused has possession of the property. If he was
entrusted only with the material or physical (natural) or de facto possession of the thing, his
misappropriation of the same constitutes theft, but if he has the juridical possession of the
thing his conversion of the same constitutes embezzlement or estafa.

In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is apparent
that the taking of repondents’ vehicle by Sales is without any consent or authority from the
former.

Records would show that respondents entrusted possession of their vehicle only to the extent that
Sales will introduce repairs and improvements thereon, and not to permanently deprive them of
possession thereof. Since, Theft can also be committed through misappropriation, the fact that
Sales failed to return the subject vehicle to respondents constitutes Qualified Theft. Hence,
petitioner is liable under the policy for the loss of respondents’ vehicle under the "theft clause."

8
ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR
G.R. No. 198174. September 2, 2013
J. Peralta
Theft Clause

DOCTRINE: The insurance company, subject to the limits of liability, is obligated to indemnify
the insured against theft. Said provision does not qualify as to who would commit the theft. Thus,
even if the same is committed by the driver of the insured, there being no categorical declaration
of exception, the same must be covered.

FACTS: Respondent Arsenia Castor (ARSENIA) entered into a contract of insurance of Motor
Car Policy, with petitioner Alpha Insurance (ALPHA), involving her motor vehicle, a Toyota
Revo DLX DSL. The contract of insurance obligates the petitioner ALPHA to pay the
respondent (ARSENIA) the amount of ₱630,000.00 in case of loss or damage to the said vehicle
during the period covered.

Respondent ARSENIA instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the
above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer
returned the motor vehicle to respondent and despite diligent efforts to locate the same, said
efforts proved futile. Resultantly, respondent promptly reported the incident to the police and
concomitantly notified petitioner of the said loss and demanded payment of the insurance
proceeds.

Page | 11
Petitioner ALPHA denied the insurance claim of respondent ARSENIA, stating among others,
thus:
Upon verification of the documents submitted, particularly the Police Report and your
Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you. We
would like to invite you on the provision of the Policy under Exceptions to Section-III, which
we quote:
1.) The Company shall not be liable for: (4) Any malicious damage caused by the
Insured, any member of his family or by "A PERSON IN THE INSURED’S
SERVICE."

Respondent ASRSENIA reiterated her claim and argued that the exception refers to damage of
the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim
remains firm.

Respondent ARSENIA filed a Complaint for Sum of Money with Damages against petitioner
ALPHA before the Regional Trial Court (RTC), which ruled in favor of respondent ARSENIA.
The CA rendered a Decision affirming in toto the RTC of Quezon City’s decision.

Hence, the present petition wherein petitioner ALPHA argued that the word "damage," under
paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person, property
or reputation, and should be construed to cover malicious "loss" as in "theft."
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for: Loss or Damage in respect of any claim or
series of claims arising out of one event, the first amount of each and every loss for each and
every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the
Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a minimum
deductible amount of Php3,000.00; Consequential loss, depreciation, wear and tear, mechanical
or electrical breakdowns, failures or breakages; Damage to tires, unless the Schedule Vehicle is
damaged at the same time; Any malicious damage caused by the Insured, any member of his
family or by a person in the Insured’s service.

Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s
driver is excluded from the policy.

ISSUE: WON the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver
is excluded from the policy.

RULING: NO. Theft perpetrated by the driver of the insured is not an exception to the coverage
from the insurance policy, since Section III thereof did not qualify as to who would commit the
theft. The insurance company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would commit the theft. Thus,
even if the same is committed by the driver of the insured, there being no categorical declaration
of exception, the same must be covered.

9
MALAYAN INSURANCE CO., INC. vs. PHILS. FIRST INSURANCE CO., INC.

Page | 12
 G.R. No. 184300. July 11, 2012
J. Carpio
Other Insurance Clause

DOCTRINE: Even if two insurance policies were issued over the same goods and cover the
same risk, there arises no double insurance if they were issued to two different persons/entities
having distinct insurable interests.

FACTS: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the former’s products to its customers, dealers or salesmen.

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its
own products. The policy covers all risks of direct physical loss or damage from any external
cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. Under the
contract, Reputable undertook to answer for “all risks with respect to the goods and shall be
liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due
to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning,
and other force majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY.”

The contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, on
February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner
Malayan.

Unfortunately, on October 6, 1994 the truck carrying Wyeth’s products was hijacked by about 10
armed men. On March 8, 1995, Philippines First, after due investigation and adjustment, and
pursuant to the Marine Policy, paid Wyeth as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the
payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable.
Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered
in the SR Policy. According to Reputable, it was validly insured with Malayan with respect to
the lost products under the latter’s Insurance and that the SR Policy covered the risk of robbery
or hijacking.

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy,
the insurance does not cover any loss or damage to property which at the time of the happening
of such loss or damage is insured by any marine policy and that the SR Policy expressly
excluded third-party liability.

Page | 13
ISSUE: Whether the two concerned insurance policies were issued over the same goods and
cover the same risk constitutes double insurance thereby holding Malayan not liable.

RULING: No, there is no double insurance since they were issued to two different
persons/entities having distinct insurable interests. By the express provision of Section 93 of the
Insurance Code, double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. The requisites in order for double insurance
to arise are as follows:
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued
over the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril
insured against, it is, however, beyond cavil that the said policies were issued to two different
persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First
under its Marine Policy, while Reputable is the recognized insured of Malayan under the SR
Policy.

The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely
to the stipulated requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy. The interest of Wyeth over the
property subject matter of both insurance contracts is also different and distinct from that of
Reputable’s. The policy issued by Philippines First was in consideration of the legal and/or
equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan
to Reputable was over the latter’s insurable interest over the safety of the goods, which may
become the basis of the latter’s liability in case of loss or damage to the property and falls within
the contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were issued over the same goods
and cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double
insurance cannot likewise exist.

10
LOADSTAR SHIPPING COMPANY INCORPORATED VS. MALAYAN INSURANCE
COMPANY INCORPORATED
GR. No. 185565. November 26, 2014
J. Reyes
Subrogation

DOCTRINE: Exception to the general rule of the right of subrogation.

Page | 14
FACTS: Loadstar Shipping and Philippine Associated Smelting and Refining Corporation
(PASAR) entered into a Contract of Affreightment for domestic bulk transport of the latter’s
copper concentrates.

Copper concentrates were loaded in 2 Cargos Hold of MV “Bobcat”, a marine vessel owned by
Loadstar International and was operated by Loadstar Shipping under a charter party agreement.
The cargo was insured with Malayan Insurance Company, Inc. (Malayan). MV “Bobcat” then
sailed from La Union to Leyte. Upon inspection when the vessel arrived at Leyte, it was found
that the copper concentrates from Cargo No. 2 were contaminated by seawater. Consequently
PASAR rejected the contaminated copper concentrates and sent a formal notice of claim in the
amount of [P] 37M to Loadstar Shipping. Upon a final report by an Elite Surveyor, it
recommended the amount of Php 32M payment to the assured (PASAR) as adjusted. On the
basis of such recommendation, Malayan paid PASAR the said amount.

Come November 2000, Malayan informed Loadstar of a prospective buyer for the damaged
copper concentrates and the opportunity to refer other salvage buyers to PASAR. Further
Malayan wrote Loadstar Shipping informing the latter of the acceptance of PASAR’s proposal to
take the damaged copper concentrates at a residual value of US$90,000.00. Loadstar Shipping
wrote Malayan requesting for the reversal of its decision to accept PASAR’s proposal and the
conduct of a public bidding to allow Loadstar Shipping to match or top PASAR’s bid by 10%.
On January 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the
amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement
from Loadstar Shipping, which refused to comply. Consequently, Malayan instituted with the
RTC a complaint for damages. Malayan mainly alleged that as a direct and natural consequence
of the unseaworthiness of the vessel, PASAR suffered loss of the cargo. It prayed for the amount
of PHP 33M, representing actual damages plus legal interest.

After trial, the RTC ruled in favor of Loadstar. It held that the vessel was seaworthy at the time
of loading and that the damage was attributable to the perils of the sea (natural disaster) and not
due to the fault or negligence of Loadstar Shipping. Further it found that Loadstar was not
afforded the opportunity to object or participate or nominate a participant in the sale of the
contaminated copper concentrates to lessen the damages to be paid. No record was presented to
show that a public bidding was conducted. Malayan sold the contaminated copper concentrates
to PASAR at a low price then paid PASAR the total value of the damaged concentrate without
deducting anything from the claim.

Upon appeal, The CA reversed the decision of the RTC, and ruled in favor of MALAYAN. It
ordered Loadstar to pay Malayan. Hence this appeal.

ISSUE: Whether Malayan’s payment to PASAR, entitled Malayan the right to recover by virtue
of subrogation.

HELD: NO, The SC set aside the ruling of the CA and reinstated the ruling of the RTC.

Page | 15
The court explained that Malayan’s claim against the petitioners is based on subrogation to the
rights possessed by PASAR as consignee of the allegedly damaged goods. The right of
subrogation stems from Article 2207 of the New Civil Code which states:
“Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.”

“The right of subrogation 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 of the insurance
claim by the insurer.”

The right of subrogation is however, not absolute. “There are a few recognized exceptions to this
rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for
the loss or damage, from liability, the insurer’s right of subrogation is defeated. x x x Similarly,
where the insurer pays the assured the value of the lost goods without notifying the carrier who
has in good faith settled the assured’s claim for loss, the settlement is binding on both the assured
and the insurer, and the latter cannot bring an action against the carrier on his right of
subrogation. x x x And where the insurer pays the assured for a loss which is not a risk covered
by the policy, thereby effecting ‘voluntary payment,’ the former has no right of subrogation
against the third party liable for the loss x x x.”

The rights of a subrogee cannot be superior to the rights possessed by a subrogor. “Subrogation
is the substitution of one person in the place of another with reference to a lawful claim or right,
so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The rights to which the subrogee succeeds are the same as,
but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any
claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed
to a right not possessed by the subrogor.

A subrogee in effect steps into the shoes of the insured and can recover only if the insured
likewise could have recovered.”

Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually
suffered from. If there is no loss or injury, then there is no obligation on the part of the insurer to
indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is
not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to
seek recompense from the alleged wrongdoer. This is because the supposed subrogor did not
possess the right to be indemnified and therefore, no right to collect is passed on to the subrogee.

In conclusion the court found that Malayan did not adduce proof of pecuniary loss to PASAR,
for which PASAR was questionably indemnified therefore concluding that Malayan has no right
to collect from Loadstar.

Page | 16
 TRANSPORTATION LAW
1
SULPICIO LINES INC. V NAPOLEON SISANTE
GR No. 172682. July 27, 2016
J. Bersamin
Moral Damages

DOCTRINE: Moral damages may be awarded if the contractual breach is found to be wanton
and deliberately injurious, or if the one responsible acted fraudulently or with malice or bad
faith.

FACTS: The M/V Princess of the Orient, a passenger vessel owned and operated by the
petitioner, sank near Fortune Island in Batangas. There were 388 recorded passengers to which
150 were lost.

Napoleon Sesante, then a member of the Philippine National Police (PNP) and a lawyer, was one
of the passengers who survived the sinking. He sued the petitioner for breach of contract and
damages. In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of the
Orient due to its having been cleared to sail from the Port of Manila by the proper authorities;
that the sinking had been due to force majeure; that it had not been negligent; and that its officers
and crew had also not been negligent because they had made preparations to abandon the vessel
because they had launched life rafts and had provided the passengers assistance in that regard.

RTC rendered judgement in favor of plaintiff Napoleon Sesante and ordered defendant to pay
temperate and moral damages.

The RTC observed that the petitioner, being negligent, was liable to Sesante pursuant to Articles
1739 and 1759 of the Civil Code.

The CA reduced the award of the temperate damages to the approximate cost of Sesante's lost
personal belongings and held that petitioner remained civilly liable.

The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on
the seaworthiness of M/V Princess of the Orient. Yet, the findings of the BMI directly
contradicted the petitioner's attribution, as the BMI found that petitioner’s fault was the
immediate and proximate cause ofthe sinking due to the Captain's erroneous maneuvers of the
M/V Princess of the Orient minutes before shesunk.

ISSUE: Whether or not the petitioner is liable for moral damages.

RULING: Yes. The Court awarded moral damages due to the totality of the negligence by the
officers and crew of the Princess of the Orient coupled with the seeming indifference of the
petitioner to render assistance to Sesante. The petitioner argues that moral damages could be
meted against a common carrier only in the following instances, to wit: (1) in the situations
enumerated by Article 2201 of the Civil Code; (2) in cases of the death of a passenger; or (3)

Page | 17
where there was bad faith on the part of the common carrier. It contendsthat none of these
instances obtained herein; hence, the award should be deleted.We agree with the petitioner that
moral damages may be recovered in an action upon breach ofcontract of carriage only when: (a)
death of a passenger results, or (b) it is proved that the carrier was guilty of fraud and bad faith,
even if death does not result. However, moral damages may be awarded if the contractual breach
is found to be wanton and deliberately injurious, or if the one responsible acted fraudulently or
with malice or bad faith.The negligent acts of the officers and crew of M/V Princess of the
Orient could not be ignored inview of the extraordinary duty of the common carrier to ensure the
safety of the passengers. The totality ofthe negligence by the officers and crew of M/V Princess
of the Orient, coupled with the seeming indifference of the petitioner to render assistance to
Sesante, warranted the award of moral damages.

2
BERNALES V NORTHWEST AIRLINES
GR No. 182395. October 5, 2015
J. Brion
Moral Damages

DOCTRINE: Moral damages predicated upon a breach of a carriage contract is only

recoverable in instances where the mishap results in the death of a passenger, or where the
carrier is guilty of fraud or bad faith. Bad faith is not simple negligence or bad judgment; it
involves ill intentions and a conscious design to do a wrongful act for a dishonest purpose.

FACTS: On October 1, 2002 the petitioner Mario T. Bernales and other several prominent
personalities from Bicol were on their way to Honolulu, Hawaii as the delegates of a trade and
tourism mission for the province. They were economy class passengers of Northwest Airlines
Flight No. 10 from Manila to Honolulu via Narita, Japan. They arrived at Narita International
Airport at around 11:00pm. That same day their connecting flight bound to Hawaii was
scheduled at 8:40 pm.

At around 6:00 p.m., a typhoon hit Japan, leading to the cancellation of most flights, including
NWA Flight No. 10. However, NWA did not cancel Flight No. 22, also bound for Honolulu
later that night, to minimize delays and to accommodate stranded passengers in case the
typhoon would subside.

The delegates opted to be wait-listed for Flight No. 22. As per NWA policy that affected
passengers are protected in their booking for the next available flight in case of cancellations.
The petitioner was placed last in the wait-list as he was the last economy class passenger to
check in for Flight No. 10. To ensure departure before the 1:00 a.m. curfew, NWA gave out
"dummy" boarding passes to the wait-listed passengers even before the priority passengers
boarded the plane.

At around 9:00 p.m., the storm subsided and the airport resumed its operations. Ordinarily, NRT
has an 11:00 p.m. cut-off for flights to give the city a reprieve from airplane noise. On this day,
the Narita Airport Authority extended the airplane curfew to 1:00 a.m., in order to

Page | 18
accommodate the delayed flights and to make up for lost time. This opened up the possibility
that the petitioner's group could still push through to Honolulu.

The passengers of Flight 22 were called for boarding at around 11:00 p.m. and the delegates
boarded the shuttle taking them to the airplane. But before the shuttle bus could leave, NWA
Customer Service Agent Tsuruki Ohashi entered the shuttle and informed the petitioner that he
could not take Flight 22 as no available seat was left for him.

The RTC believed the petitioner's version of events and blamed the respondent for: (1) the
humiliation caused by Eddie Tanno; (2) the failure to billet the passengers to a nearby hotel; and
(3) for causing the petitioner to miss his scheduled obligations in Honolulu. The RTC awarded
him P10,000,000.00 as moral damages, P2,000,000.00 as exemplary damages, P530,000.00 as
attorney's fees. NWA appealed the case to the CA.

The CA held that: (1) moral damages cannot be awarded in breaches of contracts of carriage
except in cases of the death of a passenger or when the common carrier acted in bad faith; (2)
the typhoon was the real and proximate cause of the cancellation of flights and NWA's failure to
bring the petitioner to Honolulu in time; (3) the petitioner's accusation that Mr. Ohashi verbally
abused him is not believable and contrary to ordinary human experience; (4) the airline cannot
be responsible for the remarks of Eddie Tanno, a fellow passenger; and (5) 1,500 other
passengers similarly experienced the discomfort of spending the night at the airport, and NWA
did not maliciously single him out. The CA concluded that NWA did not act in bad faith;
therefore, there was no basis to grant moral and exemplary damages.

ISSUE: Whether or not NWA breached the contract of carriage and is liable for moral
damages?

HELD: No. Under the carriage contract, NWA had the obligation to transport the petitioner
from Narita International Airport to Honolulu, Hawaii, on 1 October 2002 at 8:40 p.m. NWA
failed to perform this duty because a strong typhoon hit Japan that evening, forcing widespread
flight cancellations. Nevertheless, NWA attempted to fly the petitioner to Honolulu on a later
flight after the typhoon passed. This attempt failed because NWA was prevented by the
mandatory airport curfew. NWA was only able to fulfill its obligation at 3:35 p.m. the following
day. The primary cause of NWA's delay in the fulfillment of its obligation was the unusually
strong typhoon that struck Japan that evening. We take notice that this was Typhoon Higos, one
of the most powerful typhoons to hit Japan as of that date. Typhoon Higos resulted in the
cancellation of more than 200 flights. From this perspective, we cannot attribute bad faith or ill
motives on NWA for cancelling Flight No. 10. Pushing through would have recklessly
endangered the lives of the passengers and the crew. Evidently, the real and proximate cause of
NWA's breach of contract was a fortuitous event.

Moreover, NWA demonstrated good faith when it exerted its best efforts to accommodate the
delayed Flight No. 10 passengers on Flight No. 22. While Flight No. 22 also failed to leave, the
failure was caused by the 1:00 p.m. Narita curfew. Again, we cannot attribute malice on NWA
for the cancellation of Flight No. 22.

Page | 19
The arrival of Typhoon Higos was an extraordinary and unavoidable event. Its occurrence made
it impossible for NWA to bring the petitioner to Honolulu in time for his commitments. We
cannot hold the respondent liable for a breach of contract resulting from a fortuitous event.
Moreover, we find that NWA did not act in bad faith or in a wanton, fraudulent, reckless, or
oppressive manner. On the contrary, it exerted its best efforts to accommodate the petitioner on
Flight No. 22 and to lessen the petitioner's discomfort when he and the other passengers were
left to pass the night at the terminal. Thus, the CA did not err in dismissing the complaint.

Moral damages predicated upon a breach of a carriage contract is only recoverable in instances
where the mishap results in the death of a passenger, or where the carrier is guilty of fraud or
bad faith. Bad faith is not simple negligence or bad judgment; it involves ill intentions and a
conscious design to do a wrongful act for a dishonest purpose.

3
G.V. FLORIDA TRANSPORT, INC. V HEIRS OF ROMEO L. BATTUNG, JR.
GR No. 208802. October 14, 2015
J. Perlas-Bernabe
Liability

DOCTRINE: A common carrier is responsible for injuries suffered by a passenger on account

of the willful acts or negligence of other passengers or of strangers, if the common carrier's
employees through the exercise of the diligence of a good father of a family could have
prevented or stopped the act or omission.

FACTS: Battung boarded the bus of petitioner in Delfin Albano, Isabela, bound for Manila. He
was seated at the first row behind the driver and slept during the ride. Battung was seated at the
first row behind the driver and slept during the ride. When the bus reached the Philippine
Carabao Center in Muñoz, Nueva Ecija, the bus driver, Duplio, stopped the bus and alighted to
check the tires. At this point, a man who was seated at the fourth row of the bus stood up, shot
Battung at his head, and then left with a companion. The bus conductor, Daraoay, notified
Duplio of the incident and thereafter, brought Romeo to the hospital, but the latter was
pronounced dead on arrival. Hence, respondents filed a complaint on July 15, 2008 for damages
in the aggregate amount of P1,826,000.00 based on a breach of contract of carriage against
petitioner, Duplio, and Baraoay (petitioner, et al.) before the RTC, docketed as Civil Case No.
22-1103.

ISSUE: Whether petitioner is liable for damages arising from culpa contractual.

RULING: No. Where, as in the instant case, the injury sustained by the petitioner was in no
way due to any defect in the means of transport or in the method of transporting or to the
negligent or wilful acts of [the common carrier'sl employees, and therefore involving no issue of
negligence in its duty to provide safe and suitable [care] as well as competent employees, with
the injury arising wholly from causes created by strangers over which the carrier had no control
or even knowledge or could not have prevented, the presumption is rebutted and the carrier is
not and ought not to be held liable. To rule otherwise would make the common carrier the

Page | 20
insurer of the absolute safety of its passengers which is not the intention of the lawmakers. The
case involves the death of Battung wholly caused by the surreptitious act of a co-passenger who,
after consummating such crime, hurriedly alighted from the vehicle. The law exacts from
common carriers (i.e., those persons, corporations, firms, or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public) the highest degree of diligence (i.e.,
extraordinary diligence) in ensuring the safety of its passengers.

Articles 1733 and 1755 of the Civil Code state:

Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all the circumstances
of each case.

Art. 1755. A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with
a due regard for all the circumstances.

In this relation, Article 1756 of the Civil Code provides that "[i]n case of death of or injuries to
passengers, common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as prescribed in Articles 1733 and
1755." This disputable presumption may also be overcome by a showing that the accident was
caused by a fortuitous event. The foregoing provisions notwithstanding, it should be pointed out
that the law does not make the common carrier an insurer of the absolute safety of its
passengers. While the law requires the highest degree of diligence from common carriers in the
safe transport of their passengers and creates a presumption of negligence against them, it does
not, however, make the carrier an insurer of the absolute safety of its passengers. Article 1755
of the Civil Code qualifies the duty of extraordinary care, vigilance[,] and precaution in the
carriage of passengers by common carriers to only such as human care and foresight can
provide. What constitutes compliance with said duty is adjudged with due regard to all the
circumstances. Article 1756 of the Civil Code, in creating a presumption of fault or negligence
on the part of the common carrier when its passenger is injured, merely relieves the latter, for
the time being, from introducing evidence to fasten the negligence on the former, because the
presumption stands in the place of evidence. Being a mere presumption, however, the same is
rebuttable by proof that the common carrier had exercised extraordinary diligence as required
by law in the performance of its contractual obligation, or that the injury suffered by the
passenger was solely due to a fortuitous event. In fine, we can only infer from the law the
intention of the Code Commission and Congress to curb the recklessness of drivers and
operators of common carriers in the conduct of their business. Thus, it is clear that neither the
law nor the nature of the business of a transportation company makes it an insurer of the
passenger's safety, but that its liability for personal injuries sustained by its passenger rests upon
its negligence, its failure to exercise the degree of diligence that the law requires.

Therefore, it is imperative for a party claiming against a common carrier under the above-said
provisions to show that the injury or death to the passenger/s arose from the negligence of the

Page | 21
common carrier and/or its employees in providing safe transport to its passengers. Since
Battung's death was caused by a co-passenger, the applicable provision is Article 1763 of the
Civil Code, which states that: "a common carrier is responsible for injuries suffered by a
passenger on account of the willful acts or negligence of other passengers or of strangers, if the
common carrier's employees through the exercise of the diligence of a good father of a family
could have prevented or stopped the act or omission."

At bar, no danger i.e. intelligent reports from law enforcement agents that certain lawless
elements were planning to hijack and burn some of its buses, as to impel petitioner or its
employees to implement heightened security measures to ensure the safety of its passengers.
There was also no showing that during the course of the trip, Battung's killer made suspicious
actions which would have forewarned petitioner's employees of the need to conduct thorough
checks on him or any of the passengers.

4
MARINA PORT SERVICES, INC. V AMERICAN HOME ASSURANCE
CORPORATION
GR No. 201822. August 12, 2015
J. Del Castillo
Damages

DOCTRINE: When the thing deposited is delivered closed and sealed, the depositary must
return it in the same condition, and he shall be liable for damages should the seal or lock be
broken through his fault.

FACTS: On September 21, 1989, Countercorp Trading PTE., Ltd. shipped from Singapore to
the Philippines 10 container vans of soft wheat flour with seals intact on board the vessel M/V
Uni Fortune. The shipment was insured against all risks by AHAC and consigned to MSC
Distributor (MSC). Upon arrival at the Manila South Harbor on September 25, 1989, the
shipment was discharged in good and complete order condition and with safety seals in place to
the custody of the arrastre operator, MPSI. After unloading and prior to hauling, agents of the
Bureau of Customs officially broke the seals, opened the container vans, and examined the
shipment for tax evaluation in the presence of MSC's broker and checker. Thereafter, the
customs inspector closed the container vans and refastened them with safety wire seals while
MSC's broker padlocked the same. MPSI then placed the said container vans in a back-to-back
arrangement at the delivery area of the harbor's container yard where they were watched over by
the security guards of MPSI and of the Philippine Ports Authority.

On October 10, 1989, MSC's representative, AD's Customs Services (ACS), took out five
container vans for delivery to MSC. At the compound's exit, MPSI issued to ACS the
corresponding gate passes for the vans indicating its turnover of the subject shipment to MSC.
However, upon receipt of the container vans at its warehouse, MSC discovered substantial
shortages in the number of bags of flour delivered. Hence, it filed a formal claim for loss with
MPSI. From October 12 to 14, 1989 and pursuant to the gate passes issued by MPSI, ACS took
out the remaining five container vans from the container yard and delivered them to MSC. Upon

Page | 22
receipt, MSC once more discovered substantial shortages. Thus, MSC filed another claim with
MPSI. Per MSC, the total number of the missing bags of flour was 1,650 with a value of
£257,083.00. MPSI denied both claims of MSC. As a result, MSC sought insurance indemnity
for the lost cargoes from AHAC. AHAC paid MSC the value of the missing bags of flour after
finding the tetter's claim in order. In turn, MSC issued a subrogation receipt in favor of AHAC.
Thereafter, AHAC filed a Complaint for damages against MPSI before the RTC.

RTC dismissed the complaint. It held that while there was indeed a shortage of 1,650 sacks of
soft wheat flour, AHAC's evidence failed to clearly show that the loss happened while the
subject shipment was still under MPSI's responsibility.

The CA stressed that in a claim for loss filed by a consignee, the burden of proof to show due
compliance with the obligation to deliver the goods to the appropriate party devolves upon the
arrastre operator. In consonance with this, a presumption of fault or negligence for the loss of the
goods arises against the arrastre operator pursuant to Articles 1265 and 1981 of the Civil Code.
In this case, the CA found that MPSI failed to discharge such burden and to rebut the
aforementioned presumption.

ISSUE: The core issue to be resolved in this case is whether MPSI is liable for the loss of the
bags of flour.

RULING: No, MPSI cannot be held liable for the loss of the bags of flour. Article 1981.
When the thing deposited is delivered closed and sealed, the depositary must return it in the same
condition, and he shall be liable for damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is proof to the contrary. As regards
the value of the thing deposited, the statement of the depositor shall be accepted, when the
forcible opening is imputable to the depositary, should there be no proof to the contrary.
However, the courts may pass upon the credibility of the depositor with respect to the value
claimed by him. When the seal or lock is broken, with or without the depositary's fault, he shall
keep the secret of the deposit.

However, no such presumption arises in this case considering that it was not sufficiently shown
that the container vans were re-opened or that their locks and seals were broken for the second
time. As may be recalled, the container vans were opened by a customs official for examination
of the subject shipment and were thereafter resealed with safety wires. While this fact is not
disputed by both parties, AHAC alleges that the container vans were re-opened and this gave
way to the alleged pilferage. The Court notes, however, that AHAC based such allegation solely
on the survey report of the Manila Adjuster & Surveyors Company (MASCO). There being no
other competent evidence that the container vans were reopened or that their locks and seals
were broken for the second time, MPSI cannot be held liable for damages due to the alleged loss
of the bags of flour pursuant to Article 1981 of the Civil Code. At any rate, MPSI cannot just the
same be held liable for the missing bags of flour since the consigned goods were shipped under
"Shipper's Load and Count" arrangement. "This means that the shipper was solely responsible
for the loading of the container, while the carrier was oblivious to the contents of the shipment.
Protection against pilferage of the shipment was the consignee's lookout. The arrastre operator

Page | 23
was, like any ordinary depositary, duty-bound to take good care of the goods received from the
vessel and to turn the same over to the party entitled to their possession, subject to such
qualifications as may have validly been imposed in the contract between the parties. The arrastre
operator was not required to verify the contents of the container received and to compare them
with those declared by the shipper because, as earlier stated, the cargo was at the shipper's load
and count. The arrastre operator was expected to deliver to the consignee only the container
received from the carrier.”

5
LORENZO SHIPPING CORPORATION V NATIONAL POWER CORPORATION
GR No. 181683. October 7, 2015
J. Leonen
Damages

DOCTRINE: Common Carriers are mandated to show extraordinary diligence in the conduct
of transport

FACTS: Lorenzo Shipping is the owner and operator of the commercial vessel MV Lorcon
Luzon. National Power Corporation is the owner of Power Barge 104, "a non-propelled power
plant barge. The said power barge was berthed and stationed at the Makar Wharf in General
Santos City when the MV Lorcon Luzon "hit and rammed Power Barge 104." At the time of the
incident, Captain Mariano Villarias (Captain Villarias) served as the Master of the MV Lorcon
Luzon. However, the MV Lorcon Luzon was then being piloted by Captain Homer Yape
(Captain Yape), a Harbor Pilot from the General Santos City pilotage district. As underscored by
Lorenzo Shipping, the MV Lorcon Luzon was under Captain Yape's pilotage as it was
mandatory to yield navigational control to the Harbor Pilot while docking. Testifying before the
Board of Marine Inquiry, Captain Villarias recalled that while the MV Lorcon Luzon was under
Captain Yape's pilotage, he nevertheless "always"[13] remained at the side of Captain Yape. He
likewise affirmed that he heard and knew of Captain Yape's orders, "because I have to repeat his
order." As the MV Lorcon Luzon was docking, Captain Yape ordered the vessel to proceed
"slow ahead," making it move at the speed of about one (1) knot. As it moved closer to dock,
Captain Yape gave the order "dead slow ahead," making the vessel move even slower. He then
ordered the engine stopped. As the MV Lorcon Luzon moved "precariously close" to the wharf,
Captain Yape ordered the vessel to move backward, i.e., go "slow astern," and subsequently "full
astern." Despite his orders, the engine failed to timely respond. Thus, Captain Yape ordered the
dropping of the anchor. Despite this, the MV Lorcon Luzon rammed into Power Barge 104.
Following this incident, Nelson Homena, Plant Manager of Power Barge 104, filed a Marine
Protest before the Board of Marine Inquiry. Captain Villarias also filed his own Marine Protest.
For his part, Captain Yape filed a Marine Accident Report. The Board of Marine Inquiry
conducted joint hearings on the Marine Protests and Captain Yape's report. To forestall the
prescription of its cause of action for damages, National Power Corporation filed before the
Quezon City Regional Trial Court a Complaint for Damages against Lorenzo Shipping. In its
September 14, 2007 Decision, the Court of Appeals reversed and set aside the February 18, 2002
Decision of the Regional Trial Court and entered another judgment ordering Lorenzo Shipping to
pay National Power Corporation the amount of P876,286.00 as actual damages and P50,000.00

Page | 24
as attorney's fees and expenses of litigation. In its February 12, 2008 Amended Decision, the
Court of Appeals amended its September 14, 2007 Decision to award National Power
Corporation the amount of P300,000.00 as temperate damages in lieu of the original award of
P876,286.00 as actual damages. In its September 17, 2008 Resolution, the Court of Appeals
denied National Power Corporation's Motion for Reconsideration. The February 18, 2002
Decision of the Regional Trial Court dismissed National Power Corporation's Complaint for
damages against Lorenzo Shipping

ISSUE: (1) Whether Lorenzo Shipping Corporation is liable for the damage sustained by Power
Barge 104 when the MV Lorcon Luzon rammed into it, considering that at the time of the
ramming, the MV Lorcon Luzon was under mandatory pilotage by Captain Yape. (2) Assuming
that liability is to be attributed to Lorenzo Shipping, what damages, if any, may be awarded to
National Power Corporation.

RULING: It is not disputed that the MV Lorcon Luzon, a vessel owned and operated by
Lorenzo Shipping, rammed into Power Barge 104 while attempting to dock at the Makar Wharf.
Likewise, it is not disputed that when it rammed into Power Barge No. 104, the MV Lorcon
Luzon was being piloted by Captain Yape. What is in dispute is whether Captain Yape's pilotage
suffices to absolve Lorenzo Shipping of liability. A master or captain, for purposes of maritime
commerce, is one who has command of a vessel. A captain commonly performs three (3) distinct
roles: (1) he is a general agent of the shipowner; (2) he is also commander and technical director
of the vessel; and (3) he is a representative of the country under whose flag he navigates. Of
these roles, by far the most important is the role performed by the captain as commander of the
vessel; for such role (which, to our mind, is analogous to that of "Chief Executive Officer"
[CEO] of a present-day corporate enterprise) has to do with the operation and preservation of the
vessel during its voyage and the protection of the passengers (if any) and crew and cargo. In his
role as general agent of the shipowner, the captain has authority to sign bills of lading, carry
goods aboard and deal with the freight earned, agree upon rates and decide whether to take
cargo. The ship captain, as agent of the shipowner, has legal authority to enter into contracts with
respect to the vessel and the trading of the vessel, subject to applicable limitations established by
statute, contract or instructions and regulations of the shipowner. To the captain is committed the
governance, care and management of the vessel. Clearly, the captain is vested with both
management and fiduciary functions.

Accordingly, it is settled that Harbor Pilots are liable only to the extent that they can perform
their function through the officers and crew of the piloted vessel. Where there is failure by the
officers and crew to adhere to their orders, Harbor Pilots cannot be held liable. In Far Eastern
Shipping Co. V. Court of Appeals, this court explained the intertwined responsibilities of pilots
and masters:
Where a compulsory pilot is in charge of a ship, the master being required to permit him
to navigate it, if the master observes that the pilot is incompetent or physically incapable,
then it is the duty of the master to refuse to permit the pilot to act. But if no such reasons
are present, then the master is justified in relying upon the pilot, but not blindly. Under
the circumstances of this case, if a situation arose where the master, exercising that
reasonable vigilance which the master of a ship should exercise, observed, or should have

Page | 25
 observed, that the pilot was so navigating the vessel that she was going, or was likely to
go, into danger, and there was in the exercise of reasonable care and vigilance an
opportunity for the master to intervene so as to save the ship from danger, the master
should have acted accordingly. The master of a vessel must exercise a degree of vigilance
commensurate with the circumstances.

Thus, contrary to Lorenzo Shipping's assertion, the MV Lorcon Luzon's having been piloted by
Captain Yape at the time of the ramming does not automatically absolve Lorenzo Shipping of
liability. Clearing it of liability requires a demonstration of how the Master, Captain Villarias,
conducted himself in those moments when it became apparent that the MV Lorcon Luzon's
engine had stopped and Captain Yape's orders to go "slow astern" and "full astern" were not
being heeded.

6
SPS. TEODORO and NANETTE PEREÑA, vs. SPS. NICOLAS and TERESITA L.
ZARATE, PHILIPPINE NATIONAL RAILWAYS, and the CA
G.R. No. 157917. August 29, 2012
J. Bersamin
Transportation Law - Common Carrier

DOCTRINE: The true test for a common carrier is not the quantity or extent of the business
actually transacted, or the number and character of the conveyances used in the activity, but
whether the undertaking is (1) a part of the activity engaged in by the carrier (2) that he has held
out to the general public as (3) his business or occupation. The common carrier is bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.

FACTS: The Pereñas were engaged in the business of transporting students from their respective
residences to Don Bosco and back. The Zarates contracted the Pereñas to transport Aaron, their
son, to and from Don Bosco. Considering that the students were due at Don Bosco by 7:15 a.m.,
and that they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the
narrow path underneath the Magallanes Interchange. At the time, the narrow path was marked by
piles of construction materials and parked passenger jeepneys, and the railroad crossing in the
narrow path had no railroad warning signs, or watchmen, or other responsible persons manning
the crossing. At about the time the van was to traverse the railroad crossing, a PNR train was in
the vicinity of the Magallanes Interchange travelling northbound. As the train neared the railroad
crossing the train hit the rear end of the van, and the impact threw nine of the 12 students in the
rear, including Aaron, out of the van. Aaron landed in the path of the train instantaneously killing
him. Alano fled the scene on board the train and did not wait for the police investigator to arrive.
Zarates commenced this action for damages against Alfaro, the Pereñas, PNR and Alano. RTC
rendered judgment in favor of the plaintiff and against the defendants ordering them to jointly
and severally pay the plaintiffs. CA affirmed.

ISSUE: Whether the spouses Pereña operate a common carrier and hence should be held
solidarily liable with PNR.

Page | 26
RULING: Yes. The true test for a common carrier is not the quantity or extent of the business
actually transacted, or the number and character of the conveyances used in the activity, but
whether the undertaking is a part of the activity engaged in by the carrier that he has held out to
the general public as his business or occupation. If the undertaking is a single transaction, not a
part of the general business or occupation engaged in, as advertised and held out to the general
public, the individual or the entity rendering such service is a private, not a common, carrier.
Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a
fee. Despite catering to a limited clientèle, the Pereñas operated as a common carrier because
they held themselves out as a ready transportation indiscriminately to the students of a particular
school living within or near where they operated the service and for a fee. Given the nature of the
business and for reasons of public policy, the common carrier is bound “to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.” To successfully fend off liability in an
action upon the death or injury to a passenger, the common carrier must prove his or its
observance of that extraordinary diligence; otherwise, the legal presumption that he or it was at
fault or acted negligently would stand. No device, whether by stipulation, posting of notices,
statements on tickets, or otherwise, may dispense with or lessen the responsibility of the common
carrier as defined under Article 1755 of the Civil Code. Here, the glaring omissions of care on
the part of the van driver constituted negligence

7
PHIL-NIPPON KYOEI v. ROSALIA T. GUDELOSAO
GR No. 181375. July 13, 2016
J. Jardaleza
Limited Liability

DOCTRINE: Casualty insurance may cover liability or loss arising from accident or
mishap.1âwphi1 In a liability insurance, the insurer assumes the obligation to pay third party in
whose favor the liability of the insured arises. On the other hand, personal accident insurance
refers to insurance against death or injury by accident or accidental means. In an accidental
death policy, the accident causing the death is the thing insured against.

FACTS: Phil-Nippon Kyoei, Corp., a domestic shipping corporation purchased a "Ro-Ro"

passenger/cargo vessel "MV Mahlia" in Japan in February 2003. For the vessel's one month
conduction voyage from Japan to the Philippines, petitioner, as local principal, and Top Ever
Marine Management Maritime Co., Ltd. (TMCL), as foreign principal, hired Edwin C.
Gudelosao, Virgilio A. Tancontian, and six other crewmembers. They were hired through the
local manning agency of TMCL, Top Ever Marine Management Philippine Corporation
(TEMMPC). TEMMPC, through their president and general manager, Capt. Oscar Orbeta (Capt.
Orbeta), and the eight crewmembers signed separate contracts of employment. Petitioner secured

Page | 27
a Marine Insurance Policy (Maritime Policy No. 00001) from SSSICI over the vessel for
P10,800,000.00 against loss, damage, and third party liability or expense, arising from the
occurrence of the perils of the sea for the voyage of the vessel from Onomichi, Japan to
Batangas, Philippines. This Marine Insurance Policy included Personal Accident Policies for the
eight crewmembers for P3,240,000.00 each in case of accidental death or injury. On February
24, 2003, while still within Japanese waters, the vessel sank due to extreme bad weather
condition. Only Chief Engineer Nilo Macasling survived the incident while the rest of the
crewmembers, including Gudelosao and Tancontian, perished. Respondents, as heirs and
beneficiaries of Gudelosao and Tancontian, filed separate complaints for death benefits and other
damages against peti... tioner, TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with the Arbitration
Branch of the National Labor Relations Commission (NLRC).

ISSUE: Whether the doctrine of real and hypothecary nature of maritime law (also known as the
limited liability rule) applies in favor of petitioner.

RULING: Doctrine of limited liability is not applicable to claims under POEA-SEC. Article 837
applies the limited liability rule in cases of collision. Meanwhile, Articles 587 and 590 embody
the universal principle of limited liability in all cases wherein the shipowner or agent may be
properly held liable for the negligent or illicit acts of the captain. These articles precisely intend
to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and
freightage earned in the voyage, provided that the owner or agent abandons the vessel. When the
vessel is totally lost, in which case abandonment is not required because there is no vessel to
abandon, the liability of the shipowner or agent for damages is extinguished.
Nonetheless, the limited liability rule is not absolute and is without exceptions. It does not apply
in cases: (1) where the injury or death to a passenger is due either to the fault of the shipowner,
or to the concurring negligence of the shipowner and the captain; (2) where the vessel is insured;
and (3) in workmen's compensation claims. The real and hypothecary nature of the liability of
the shipowner or agent embodied in the provisions of the Maritime Law, Book III, Code of
Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages
during the medieval ages, attended by innumerable hazards and perils. To offset against these
adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a ship to the
vessel, equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned
the ship, equipment, and freight, his liability was extinguished. But the provisions of the Code of
Commerce invoked by appellant have no room in the application of the Workmen's
Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or
death of, a passenger by or through the misconduct of the captain or master of the ship; nor the
liability for the loss of the ship as a result of collision; nor the responsibility for wages of the
crew, but a liability created by a statute to compensate employees and laborers in cases of injury
received by or inflicted upon them, while engaged in the performance of their work or
employment, or the heirs and dependents of such laborers and employees in the event of death
caused by their employment. We see no reason why the above doctrine should not apply here.
Thus, the claim for death benefits under the POEA-SEC is the same species as the workmen's
compensation claims under the Labor Code - both of which belong to a different realm from that

Page | 28
of Maritime Law. Therefore, the limited liability rule does not apply to petitioner's liability under
the POEA-SEC.
8
TORRES-MADRID BROKERAGE, INC., vs. FEB MITSUI MARINE INSURANCE CO.,
INC. AND BENJAMIN P. MANALASTAS, DOING BUSINESS UNDER THE NAME OF
BMT TRUCKING SERVICES
G.R. No. 194121. July 11, 2016
J. Leonen
Common Carrier

DOCTRINE: A brokerage may be considered a common carrier if it also undertakes to deliver

the goods for its customers.

FACTS: Sony had engaged Torres-Madrid Brokerage Inc (TMBI) in facilitating, processing,
withdrawing and delivering the shipment of various electronic goods (from Thailand and
Malaysia) from the port of Manila to its warehouse in Binan, Laguna. TMBI subcontracted BMT
Trucking services since it did not own any delivery truck which Sony did not object to the
arrangement. 4 trucks left BMT’s garage but only 3 arrived at the warehouse. One truck was
found abandoned. Both the driver and the shipment were missing. TMBI filed a complaint for
“hijacking”.

Sony filed an insurance claim with the Mitsui, the insurer of the goods. After being subrogated to
Sony’s rights, Mitsui sent a demand letter to TMBI for payment of the lost goods. TMBI
impleaded BMT as it was due to BMT’s negligence as the proximate cause of the loss. Also, it
added that in the event it is held liable to Mitsui for the loss, it should be reimbursed by BMT.
RTC and CA- found TMBI and BMT jointly and solidary liable to pay Mitsui.

ARGUMENTS OF TMBI- Denies being a common carrier because it did not own a single
truck and the service that it offered was limited to the processing of paperwork and blames BMT
as it had the full control and custody of the cargo when it was lost. And BMT being a common
carrier is presumed negligent and shall be responsible for the loss.

ARGUMENTS OF BMT- That it observed the required standard of care and hijacking was a
fortuitous event.

ARGUMENTS OF MITSUI - The incident cannot be considered force majeure; that TMBI is a
common carrier and its brokerage service includes the eventual delivery of the cargo to the
consignee.

ISSUE: Whether or not TMBI and BMT are solidarily liable.

RULING: BROKERAGE MAY BE CONSIDERED COMMON CARRIER.

Common carriers are persons, corporations, firms or associations engaged in the business of
transporting passengers or goods or both, by land, water, or air, for compensation, offering
theirservices to the public. They are bound to observe extraordinary diligence in the vigilance
over the goods and in the safety of their passengers. For all other cases- such as theft or robbery-

Page | 29
a common carrier is presumed to have been at fault or to have acted negligently, unless it can
prove that it observed extraordinary diligence. Simply put theft or robbery is not considered
fortuitous event. A common carrier to be absolved of its liability for a resulting loss:
If it proves that it exercised extraordinary diligence in transporting and safekeeping the goods; If
it stipulated with the shipper or owner of the goods to limit its liability for the loss, destruction or
deterioration of the goods to a degree less than extraordinary diligence. However, a robbery
attended by “grave or irresistible force” is a fortuitous event that absolves the common carrier
from liability.

TMBI failed to successfully establish that it had acted with extraordinary diligence and TMBI’s
current theory that hijacking was attended by force is untenable. TMBI AND BMT ARE NOT
SOLIDARILY LIABLE TO MITSUI. Article 2194. The responsibility of two or more persons
who are liable for quasi delict is solidary.
However, TMBI and BMT cannot be solidarily liable as TMBI’s liability did not stem from a
quasidelict but from its breach of contract or culpa contractual while Mitsui’s action against
BMT could only rise from quasi-delict or culpa aquiliana.

THIRD PARTY MAY RECOVER FROM A COMMON CARRIER FOR QUASI-DELICT

BUT MUST PROVE ACTUAL NEGLIGENCE.

Since there is no direct contractual relationship existed between Sony/Mitsui and BMT, the
former’s cause of action against the latter could arise only from quasi-delict, a third party
suffering damage from the action of another due to the latter’s fault or negligence.

In culpa contractual, the plaintiff only needs to establish the existence of the contract and its
failure to perform the obligation and it can only free from liability by proving that observed
extraordinary diligence. In culpa aquiliana, the plaintiff must establish the defendant’s fault or
negligence because this is the very basis of the action. The defendant may absolve by proving
that he observed the diligence of a good father of a family to prevent the damage.

In this case, Mitsui did not sue BMT, much less prove any negligence on its part. If BMT has
entered the picture at all, it is because TMBI sued it for reimbursement for the liability that
TMBI might incur from its contract of carriage. Accordingly, no basis to hold BMT liable to
Mitsui. So, TMBI is liable to Mitsui. In turn, TMBI is entitled to reimbursement from BMT due
to the latter’s own breach of contract with TMBI.

9
TRAVEL & TOURS ADVISERS, INC. V. ALBERTO CRUZ, SR.
G.R. NO. 199282. March 14, 2016
Negligence

DOCTRINE: When an injury is caused by the negligence of an employee there instantly arises
a presumption of the law that there was negligence on the part of the employer either in the
selection of his employee or in the supervision over him after such selection.

Page | 30
FACTS: Respondent Edgar Hernandez was driving an Isuzu Passenger Jitney (jeepney) that he
owns along Angeles-Magalang Road, Barangay San Francisco, Magalang, Pampanga, on
January 9, 1998, around 7:50 p.m. Meanwhile,. a Daewoo passenger bus (RCJ Bus Lines) owned
by petitioner Travel and Tours Advisers, Inc. and driven by Edgar Calaycay travelled in the same
direction as that of respondent Edgar Hernandez vehicle. Thereafter, the bus bumped the rear
portion of the jeepney causing it to ram into an acacia tree which resulted in the death of Alberto
Cruz, Jr. and the serious physical injuries of Virginia Muñoz.

Thus, respondents Edgar Hernandez, Virginia Muñoz and Alberto Cruz, Sr., father of the
deceased Alberto Cruz, Jr., filed a complaint for damages, docketed as Civil Case No. 9006
before the RTC claiming that the collision was due to the reckless, negligent and imprudent
manner by which Edgar Calaycay was driving the bus, in complete disregard to existing traffic
laws, rules and regulations, and praying that judgment be rendered ordering Edgar Calaycay and
petitioner Travel & Tours Advisers, Inc. to pay them.

For its defense, the petitioner claimed that it exercised the diligence of a good father of a family
in the selection and supervision of its employee Edgar Calaycay and further argued that it was
Edgar Hernandez who was driving his passenger jeepney in a reckless and imprudent manner by
suddenly entering the lane of the petitioner's bus without seeing to it that the road was clear for
him to enter said lane. In addition, petitioner alleged that at the time of the incident, Edgar
Hernandez violated his franchise by travelling along an unauthorized line/route and that the
jeepney was overloaded with passengers, and the deceased Alberto Cruz, Jr. was clinging at the
back thereof.

ISSUE: Whether the contributory negligence of the jeepney driver will still make him entitled to
damages?

RULING: Yes. But petitioner’s liability is mitigated.

At the time of the vehicular accident, the jeepney was in violation of its allowed route as found
by the RTC and the CA, hence, the owner and driver of the jeepney likewise, are guilty of
negligence as defined under Article 2179 of the Civil Code, which reads as follows: When the
plaintiffs negligence was the immediate and proximate cause of his injury, he cannot recover
damages. But if his negligence was only contributory, the immediate and proximate cause of the
injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.

The petitioner and its driver, therefore, are not solely liable for the damages caused to the
victims. The petitioner must thus be held liable only for the damages actually caused by his
negligence.21 It is, therefore, proper to mitigate the liability of the petitioner and its driver. The
determination of the mitigation of the defendant's liability varies depending on the circumstances
of each case.

In the present case, it has been established that the proximate cause of the death of Alberto Cruz,
Jr. is the negligence of petitioner's bus driver, with the contributory negligence of respondent
Edgar Hernandez, the driver and owner of the jeepney, hence, the heirs of Alberto Cruz, Jr. shall

Page | 31
recover damages of only 50% of the award from petitioner and its driver. Necessarily, 50% shall
be bourne by respondent Edgar Hernandez.

10
PHILAM INSURANCE COMPANY vs. HEUNG-A SHIPPING CORPORATION
GR No. 187701. Jul 23, 2014
Contract Of Affreightment

DOCTRINE: A charter party has two types. First, it could be a contract of affreightment
whereby the use of shipping space on vessels is leased in part or as a whole, to carry goods for
others. Second, charter by demise or bareboat charter under which the whole vessel is let to the
charterer with a transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants.

FACTS: Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from Jinsuk
Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of Ovaltine Power 18
Glaminated plastic packaging material. In order to ship the goods to the Philippines, JINSUK
engaged the services of Protop Shipping Corporation (PROTOP), a freight forwarder likewise
based in South Korea, to forward the goods to their consignee, NOVARTIS. Based on Bill of
Lading issued by PROTOP, the cargo was on freight prepaid basis and on "shipper’s load and
count" which means that the "container [was] packed with cargo by one shipper where the
quantity, description and condition of the cargo is the sole responsibility of the shipper."
Likewise stated in the bill of lading is the name Sagawa Express Phils., Inc., (SAGAWA)
designated as the entity in the Philippines which will obtain the delivery contract. PROTOP
shipped the cargo through Dongnama Shipping Co. Ltd. (DONGNAMA) which in turn loaded
the same on M/V Heung-A Bangkok V-019 owned and operated by Heung-A Shipping
Corporation, (HEUNG-A). Wallem Philippines Shipping, Inc. (WALLEM) is the ship agent of
HEUNG-A in the Philippines. NOVARTIS insured the shipment with Philam Insurance
Company, Inc. (PHILAM, now Chartis Philippines Insurance, Inc.) under All Risk Marine Open
Insurance Policy against all loss, damage, liability, or expense before, during transit and even
after the discharge of the shipment from the carrying vessel until its complete delivery to the
consignee’s premises. The shipment reached NOVARTIS’ premises and was thereupon
inspected by the company’s Senior Laboratory Technician.

Caparoso found the container van locked with its load intact. After opening the same, she
inspected its contents and discovered that the boxes of the shipment were wet and damp.
Caparoso rejected the entire shipment. All 17 pallets of the 184 cartons/rolls contained in the sea
van were found wet/water damaged. NOVARTIS demanded indemnification for the
lost/damaged shipment from PROTOP, SAGAWA, ATI and STEPHANIE but was denied.
Insurance claims were, thus, filed with PHILAM which paid the insured value of the shipment.
PHILAM sent a demand letter to WALLEM for reimbursement of the insurance claims paid to
NOVARTIS. When WALLEM ignored the demand, PHILAM impleaded it as additional
defendant in an Amended Complaint. PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and
HEUNG-A denied liability for the lost/damaged shipment. RTC ruled that the damage to the
shipment occurred onboard the vessel while in transit from Korea to the Philippines. The RTC
discounted the slot charter agreement between HEUNG-A and DONGNAMA, and held that it

Page | 32
did not bind the consignee who was not a party thereto. The RTC further observed that HEUNG-
A failed to present evidence showing that it exercised the diligence required of a common carrier
in ensuring the safety of the shipment. CA agreed with the RTC that PROTOP, HEUNG-A and
WALLEM are liable for the damaged shipment. The fact that HEUNG-A was not a party to the
bill of lading did not negate the existence of a contract of carriage between HEUNG-A and/or
WALLEM and NOVARTIS. A bill of lading is not indispensable for the creation of a contract of
carriage. By agreeing to transport the goods contained in the sea van provided by DONGNAMA,
HEUNG-A impliedly entered into a contract of carriage with NOVARTIS with whom the goods
were consigned. Hence, it assumed the obligations of a common carrier to observe extraordinary
diligence in the vigilance over the goods transported by it. Further the Slot Charter Agreement
did not change HEUNG-A’s character as a common carrier.

ISSUE: Whether or not HEUNG-A remained responsible as the carrier, hence, answerable for
the damages incurred by the goods received for transportation.

RULING: Yes. A charter party has been defined as a contract by which an entire ship, orsome
principal part thereof, is let by the owner to another person for a specified time or use; a contract
of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a
merchant or other person for the conveyance of goods, on a particular voyage, in consideration
of the payment of freight. A charter party has two types. First, it could be a contract of
affreightment whereby the use of shipping space on vessels is leased in part or as a whole, to
carry goods for others. The charter-party provides for the hire of vessel only, either for a
determinate period of time (time charter) or for a single or consecutive voyage (voyage charter).
The ship owner supplies the ship’s stores, pay for the wages of the master and the crew, and
defray the expenses for the maintenance of the ship. The voyage remains under the responsibility
of the carrier and it is answerable for the loss of goods received for transportation. The charterer
is free from liability to third persons in respect of the ship. Second, charter by demise or bareboat
charter under which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master and
the crew, who are his servants. The charterer mans the vessel with his own people and becomes,
in effect, the owner for the voyage or service stipulated and hence liable for damages or loss
sustained by the goods transported.

Clearly then, despite its contract of affreightment with DONGNAMA, HEUNG-A remained
responsible as the carrier, hence, answerable for the damages incurred by the goods received for
transportation. "Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of
the goods and the passengers they transport. Thus, common carriers are required to render
service with the greatest skill and foresight and ‘to use all reasonable means to ascertain the
nature and characteristics of the goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires.’" Common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed such diligence." Further, under
Article 1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods should

Page | 33
be caused by the faulty nature of the containers, the common carrier must exercise due diligence
to forestall or lessen the loss.

CORPORATION LAW
1
STRONGHOLD INSURANCE COMPANY, INC. V. CUENCA, ET AL.
G.R. No. 173297. 6 March 2013

FACTS: Marañon filed a complaint with an application for the issuance of a writ of preliminary
attachment in the RTC against the Cuencas and Tayactac for the collection of a sum of money
and damages. Enforcing the writ of preliminary attachment, the sheriff levied upon the
equipment, supplies, materials and various other personal property belonging to Arc Cuisine,
Inc., to which the respondents where stockholders. But the levied properties were ordered by the
CA to be delivered back to the Cuencas and Tayactac due to the damages sustained from the
enforcement of the writ.

During the inventory, however, the levied properties were reportedly lost and allegedly seen in a
bakeshop owned by Maranon. Cuencas and Tayactac prayed that said attached properties be
immediately deliver to them; Stronghold Insurance be directed to pay them the damages under
the surety bond for P1 Million; Marañon be held personally liable to them considering the
insufficiency of the amount of the surety bond; and the latter to be held liable for moral and
exemplary damages, as well as attorney’s fees.

ISSUE: Whether the Cuencas and Tayactac can recover damages arising from the wrongful
attachment of the assets of Arc Cuisine, Inc.

RULING: NO. The SC held that only Arc Cuisine, Inc. had the right under the substantive law
to claim and recover such damages. The Cuencas and Tayactac cannot recover damages because
they are not the real-party in interest. Accordingly, a person , to be a real party in interest in
whose name an action must be prosecuted, should appear to be the present real owner of the right
sought to be enforced, that is, his interest must be a present substantial interest, not a mere
expectancy, or a future, contingent, subordinate, or consequential interest.

There is no dispute that the properties subject to the levy on attachment belonged to Arc Cuisine,
Inc. alone, not to the Cuencas and Tayactac in their own right. They were only stockholders of
Arc Cuisine, Inc., which had a personality distinct and separate from that of any or all of them.
The damages occasioned to the properties by the levy on attachment, wrongful or not, prejudiced
Arc Cuisine, Inc., not them.

Given the separate and distinct legal personality of Arc Cuisine, Inc., the Cuencas and Tayactac
lacked the legal personality to claim the damages sustained from the levy of the former’s
properties.

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 2
TORRES V. RURAL BANK OF SAN JUAN INC., ET AL.
G.R. NO. 184520. 13 MARCH 2013

FACTS: The petitioner was initially hired by RBSJI as Personnel and Marketing Manager in
1991. In June 1996, the petitioner was offered the position of Vice-President for RBSJI’s newly
created department, Allied Business Ventures. He accepted the offer and concomitantly
relinquished his post.

On September 24, 1996, the petitioner was temporarily assigned as the manager of RBSJI’s N.
Domingo branch in view of the resignation of Jacinto Figueroa. On September 27, 1996, Jacinto
requested the petitioner to sign a standard employment clearance pertaining to his
accountabilities with RBSJI. When the petitioner declined his request, Jacinto threw a fit and
shouted foul invectives. To pacify him, the petitioner bargained to issue a clearance but only for
Jacinto’s paid cash advances and salary loan.

The unauthorized issuance of a clearance to Jacinto whose accountabilities were yet to be audited
led to the petitioner’s dismissal.

The petitioner insists that the alleged loss of trust and confidence in him is a mere subterfuge to
cover the respondents’ ploy to oust him out of RBSJI. On the other hand, the respondents invoke
the ratiocinations of the CA that they were justified in losing the trust and confidence reposed on
the petitioner since he failed to exercise the degree of care expected of his managerial position.
The LA ruled in the petitioner’s favor. The respondents disagreed with the LA and appealed to
the NLRC, which reversed the LA’s ruling. The petitioner sought reconsideration and the NLRC
reversed its decision. CA reversed the NLRC decision favoring respondents.

Among other things, solidary liability of individual respondents as corporate officers was
emphasized for petitioner’s illegal dismissal.

ISSUE: Whether respondents should be solidarily liable with the corporation for illegally
dismissing the petitioner without justifiable cause evidencing bad faith.

RULING: NO. The solidary liability of individual respondents as corporate officers must be
recalled. The individual respondents cannot be made solidarily liable with RBSJI for the illegal
dismissal. Time and again, the Court has held that a corporation has its own legal personality
separate and distinct from those of its stockholders, directors or officers.

Hence, absent any evidence that they have exceeded their authority, corporate officers are not
personally liable for their official acts. Corporate directors and officers may be held solidarily
liable with the corporation for the termination of employment only if done with malice or in bad
faith. As discussed above, the acts imputed to the respondents do not support a finding of bad
faith.

Page | 35
In addition, the lack of a valid cause for the dismissal of an employee does not ipso facto mean
that the corporate officers acted with malice or bad faith. There must be an independent proof of
malice or bad faith, which is absent in the case at bar.

3
PALM AVENUE HOLDING CO., INC. V. SANDIGANBAYAN
G.R. No. 173082, 6 August 2014

FACTS: Through a writ of sequestration dated October 27, 1986, the Presidential Commission
on Good Government (PCGG) sequestered all the assets, properties, records, and documents of
the Palm Companies. Said sequestered assets included 16,237,339 Benguet Corporation shares of
stock, registered in the name of the Palm Companies.

The PCGG had relied on a letter from the Palm Companies’ Attorney-in-Fact, Jose S. Sandejas,
specifically identifying Benjamin “Kokoy” Romualdez, a known crony of former President
Ferdinand E. Marcos, as the beneficial owner of the Benguet Corporation shares in the Palm
Companies’ name.

The Republic, represented by the PCGG, filed a complaint with the Sandiganbayan but did not
initially implead the Palm Companies as defendants. However, the Sandiganbayan issued a
Resolution dated June 16, 1989 where it ordered said companies to be impleaded. The Court
subsequently affirmed this order to implead in G.R. No. 90667 on November 5, 1991.

On September 22, 2006, the Palm Companies filed a Motion to Release Sequestered Funds with
the Sandiganbayan. In a Resolution dated January 18, 2007, the Sandiganbayan granted said
motion. On May 29, 2007, the companies filed a Motion for Bill of Particulars to direct the
Republic to submit a bill of particulars regarding matters in the amended complaint which were
not alleged with certainty or particularity.

ISSUE: Whether the writ of sequestration issued against Palm Corporation is valid.

RULING: NO. The writ of sequestration issued against Pal Corporation is not valid. The Court
has held, that failure to implead these 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 be, in
effect, disregarding their distinct and separate personality without a hearing.

Here, the writ of sequestration issued against the assets of the Palm Companies is not valid
because the suit in Civil Case No. 0035 against Benjamin Romualdez as shareholder in the Palm
Companies is not a suit against the latter.

Here, the Palm Companies were merely mentioned as Item Nos. 47 and 48, Annex A of the
Complaint, as among the corporations where defendant Romualdez owns shares of stocks.
Furthermore, while the writ of sequestration was issued on October 27, 1986, the Palm
Companies were impleaded in the case only in 1997, or already a decade from the ratification of
the Constitution in 1987, way beyond the prescribed period.

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 4
FVR SKILLS AND SERVICES EXPONENTS, INC. (SKIILEX) V. SEVA
G.R. 200857, 22 October 2014

FACTS: The twenty-eight (28) respondents in this case were employees of petitioner FVR Skills
and Services Exponents, Inc. (petitioner), an independent contractor engaged in the business of
providing janitorial and other manpower services to its clients. On April 21, 2008, the petitioner
entered into a Contract of Janitorial Service (service contract) with Robinsons Land Corporation
(Robinsons). Pursuant to this, the respondents were deployed to Robinsons.

Halfway through the service contract, the petitioner asked the respondents to execute individual
contracts which stipulated that their respective employments shall end on December 31, 2008,
unless earlier terminated. When petitioner and Robinsons no longer extended their contract of
janitorial services, petitioner dismissed the respondents as they were project employees whose
duration of employment was dependent on the petitioner’s service contract with Robinsons.

The respondents responded to the termination of their employment by filing a complaint for
illegal dismissal with the NLRC. They argued that they were not project employees; they were
regular employees who may only be dismissed for just or authorized causes. The LA ruled in the
petitioner’s favor. The respondents disagreed with the LA and appealed to the NLRC, which
reversed the LA’s ruling, and held that they were regular employees. The CA dismissed the
petitioner’s certiorari petition and affirmed the NLRC’s decision.

Moreover, CA held that petitioners Fulgencio V. Rana (Rana) and Monina R. Burgos (Burgos),
the president and general manager of FVR Skills and Services Exponents, Inc., respectively, are
solidarily liable with the corporation for the payment of the respondents’ monetary awards. As
corporate officers, they acted in bad faith when they intimidated the respondents in the course of
asking them to sign their individual employment contracts.

ISSUE: Whether Petitioners Rana and Burgos, the president and general manager of FVR Skills
and Services Exponents, Inc are solidarily liable with the corporation.

RULING: NO. Even though the respondents are regular employees, not project employees, the
respondents failed to allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith.
They did not specifically allege in their complaint that Rana and Burgos willfully and knowingly
assented to the petitioner’s patently unlawful act of forcing the respondents to sign the dubious
employment contracts in exchange for their salaries. The respondents also failed to prove that
Rana and Burgos had been guilty of gross negligence or bad faith in directing the affairs of the
corporation.

To hold an officer personally liable for the debts of the corporation, and thus pierce the veil of
corporate fiction, it is necessary to clearly and convincingly establish the bad faith or
wrongdoing of such officer, since bad faith is never presumed.

Page | 37
Because the respondents were not able to clearly show the definite participation of Burgos and
Rana in their illegal dismissal, we uphold the general rule that corporate officers are not
personally liable for the money claims of the discharged employees, unless they acted with
evident malice and bad faith in terminating their employment.

5
VDA. DE ROXAS, REPRESENTED BY ROXAS-CRUZ V. OUR LADY’S
FOUNDATION INC.
G.R. No. 182378, 6 March 2013

FACTS: Salve Dealca Latosa filed before the RTC a Complaint for the recovery of ownership of
a portion of her residential land. According to her, Atty. Henry Amado Roxas (Roxas),
represented by petitioner herein, encroached on a quarter of her property by arbitrarily extending
his concrete fence beyond the correct limits.

In his Answer, Roxas imputed the blame to respondent Our Lady’s Village Foundation, Inc.,
now Our Lady’s Foundation, Inc. (OLFI). He then filed a Third-Party Complaint against
respondent and claimed that he only occupied the adjoining portion in order to get the equivalent
area of what he had lost when OLFI trimmed his property for the subdivision road. The RTC
admitted the Third-Party Complaint and proceeded to trial on the merits.

After considering the evidence of all the parties, the trial court held that Latosa had established
her claim of encroachment by a preponderance of evidence. It found that Roxas occupied a total
of 112 square meters of Latosa’s lots, and that, in turn, OLFI trimmed his property by 92 square
meters.

To collect the aforementioned amount, Notices of Garnishmentwere then issued by the sheriff to
the managers of the Development Bank of the Philippines and the United Coconut Planters Bank
for them to garnish the account of Bishop Robert Arcilla-Maullon (Arcilla-Maullon), OLFI’s
general manager.

The CA nullified the Notices of Garnishment issued against the bank accounts of Arcilla-
Maullon. It noted that since the general manager of OLFI was not impleaded in the proceedings,
he could not be held personally liable for the obligation of the corporation.

Before this court, petitioner argues that because OLFI is a dummy corporation, the bank accounts
of its general manager can be garnished to collect the judgment obligation of respondent.

ISSUE: Whether it is proper to issue the Notices of Garnishment against the bank accounts of
Arcilla-Maullon as OLFI’s general manager.

RULING: NO, Arcilla-Maullon cannot be held personally liable for the obligation of the
corporation.

To hold the general manager of OLFI liable, petitioner claims that it is a mere business conduit
of Arcilla-Maullon, hence, the corporation does not maintain a bank account separate and

Page | 38
distinct from the bank accounts of its members. In support of this claim, petitioner submits that
because OLFI did not rebut the attack on its legal personality, as alleged in petitioner’s
Opposition and Comments on the Motion to Quash Notice/Writ of Garnishment, respondent
effectively admitted by its silence that it was a mere dummy corporation. This argument does not
persuade us, for any piercing of the corporate veil has to be done with caution. Save for its
rhetoric, petitioner fails to adduce any evidence that would prove OLFI’s status as a dummy
corporation.

In any event, in order for us to hold Arcilla-Maullon personally liable alone for the debts of the
corporation and thus pierce the veil of corporate fiction, we have required that the bad faith of
the officer must first be established clearly and convincingly.Petitioner, however, has failed to
include any submission pertaining to any wrongdoing of the general manager. Necessarily, it
would be unjust to hold the latter personally liable.

Therefore, we refuse to allow the execution of a corporate judgment debt against the general
manager of the corporation, since in no legal sense is he the owner of the corporate
property.Consequently, this Court sustains the CA in nullifying the Notices of Garnishment
against his bank accounts.

6
PNB V. HYDRO RESOURCES CONTRACTORS CORPORATION
G.R. No. 165730, 13 March 2013

FACTS: Petitioners DBP and PNB foreclosed on certain mortgages made on the properties of
Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and
PNB acquired substantially all the assets of MMIC and resumed the business operations of the
defunct MMIC by organizing NMIC.DBP and PNB owned 57% and 43% of the shares of
NMIC, respectively, except for five qualifying shares. The members of the Board of Directors of
NMIC, were either from DBP or PNB.

Subsequently, NMIC engaged the services of Hercon, Inc. After computing the payments already
made by NMIC, Hercon, Inc.found that NMIC still has an unpaid balance. Hercon, Inc. made
several demands on NMIC, including a letter of final demand and when these were not heeded, a
complaint for sum of money was filed in the RTC seeking to hold petitioners NMIC, DBP, and
PNB solidarily liable for the amount owing Hercon, Inc.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.

Thereafter, President Corazon C. Aquino issued Proclamation No. 50 creating the APT for the
expeditious disposition and privatization of certain government corporations and/or the assets
thereof. Pursuant to the said Proclamation, DBP and PNB executed their respective deeds of
transfer in favor of the National Government assigning, transferring and conveying certain assets
and liabilities, including their respective stakes in NMIC. In turn and on even date, the National
Government transferred the said assets and liabilities to the APT as trustee under a Trust

Page | 39
Agreement. Thus, the complaint was amended for the second time to implead and include the
APT as a defendant.

In its answer,NMIC claimed that HRCC had no cause of action. It also asserted that its contract
with HRCC was entered into by its then President without any authority. Moreover, the said
contract allegedly failed to comply with laws, rules and regulations concerning government
contracts. NMIC further claimed that the contract amount was manifestly excessive and grossly
disadvantageous to the government. NMIC made counterclaims for the amounts already paid to
Hercon, Inc.

DBP, PNB, and APT all invoked lack of cause of action and the defense of being a separate
juridicial personality of NMIC.

After trial, the RTC as well as the CA rendered a Decision in favor of HRCC. Both Courts
pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC.

The respective motions for reconsideration of DBP, PNB, and APT were denied.Hence, these
consolidated petitions.

ISSUE: Whether or not there is sufficient ground to pierce the veil of corporate fiction.

RULING: NO, the doctrine cannot be invoked.

In Sarona v. National Labor Relations Commission has defined the scope of application of the
doctrine of piercing the corporate veil:

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat
of public convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.

At the same time, Case law lays down a three-pronged test to determine the application of the
doctrine piercing the corporate veil based on the alter ego theory, which is also known as the
instrumentality theory, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
Page | 40
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.

The absence of any of these elements prevents piercing the corporate veil.

In applying the alter ego doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation.With
respect to the control element, it refers not to paper or formal control by majority or even
complete stock control but actual control which amounts to “such domination of finances,
policies and practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal.” In addition, the control must be
shown to have been exercised at the time the acts complained of took place.

While ownership by one corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by themselves and without
more, however, these circumstances are insufficient to establish an alter ego relationship or
connection between DBP and PNB on the one hand and NMIC on the other hand, that will
justify the puncturing of the latter’s corporate cover. This Court has declared that “mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality.” This Court has likewise ruled that the “existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations.”

In this case, nothing in the records shows that the corporate finances, policies and practices of
NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to have
no separate mind, will or existence of its own but a mere conduit for DBP and PNB. On the
contrary, the evidence establishes that HRCC knew and acted on the knowledge that it was
dealing with NMIC, not with NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s
predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road construction
program was addressed to and accepted by NMIC. The various billing reports, progress reports,
statements of accounts and communications of Hercon, Inc./HRCC regarding NMIC’s mine
stripping and road construction program in 1985 concerned NMIC and NMIC’s officers, without
any indication of or reference to the control exercised by DBP and/or PNB over NMIC’s affairs,
policies and practices. Also, DBP and PNB maintain an address different from that of NMIC.
There was insufficient proof of interlocking directorates. There was not even an allegation of
similarity of corporate officers. Instead of evidence that DBP and PNB assumed and controlled
the management of NMIC, HRCC’s evidence shows that NMIC operated as a distinct entity
endowed with its own legal personality.

In relation to the second element, to disregard the separate juridical personality of a corporation,
the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and
convincingly established; it cannot be presumed. Without a demonstration that any of the evils
sought to be prevented by the doctrine is present, it does not apply. There being a total absence
of evidence pointing to a fraudulent, illegal or unfair act committed against HRCC by DBP and

Page | 41
PNB under the guise of NMIC, there is no basis to hold that NMIC was a mere alter ego of DBP
and PNB.

As regards the third element, in the absence of both control by DBP and PNB of NMIC and
fraud or fundamental unfairness perpetuated by DBP and PNB through the corporate cover of
NMIC, no harm could be said to have been proximately caused by DBP and PNB on HRCC for
which HRCC could hold DBP and PNB solidarily liable with NMIC.

Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT
as transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP
and PNB are held liable, the APT incurs no liability for the judgment indebtedness of NMIC. As
such assignee, therefore, the APT incurs no liability with respect to NMIC other than whatever
liabilities may be imputable to its assignors, DBP and PNB.

Thus, only NMIC as a distinct and separate legal entity is liable to pay its corporate obligation to
HRCC.

7
REPUBLIC V. MEGA PACIFIC ESOLUTIONS, INC.
G.R. No. 184666, 27 June 2016

FACTS: Petitioner entered into a contract with the respondent for the latter to provide the means
for the automation of the 2004 elections. However, such contract was declared null and void as
the respondent was not the winning bidder, and likewise failed to meet the standards stated in
RA 8436, which provided for such automated elections. To recoup its losses petitioner seeks to
attach not only the properties of the respondent but also those of the private respondents. The
private respondents contend that such attachment is improper as they were not parties to the
proceeding in which the contract was declared void.

ISSUE: May the properties of the private respondents be subject to attachment?

RULING: Yes, they may be subject to attachment.

Veil-piercing in fraud cases requires that the legal fiction of separate juridical personality is used
for fraudulent or wrongful ends. For reasons discussed below, We see red flags of fraudulent
schemes in public procurement, all of which were established in the 2004 Decision, the totality
of which strongly indicate that MPEI was a sham corporation formed merely for the purpose of
perpetrating a fraudulent scheme. The red flags are as follows: (1) overly narrow specifications;
(2) unjustified recommendations and unjustified winning bidders; (3) failure to meet the terms of
the contract; and (4) shell or fictitious company

1. We identified a red flag of rigged bidding in the form of overly narrow specifications. As
already discussed, the accuracy requirement of 99.9995 percent was set up by COMELEC
bidding rules.

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This Court recognized that this rating was “too high and was a sure indication of fraud in the
bidding, designed to eliminate fair competition.” Indeed, “the essence of public bidding is
violated by the practice of requiring very high standards or unrealistic specifications that cannot
be met. . . only to water them down after the bid has been award(ed).

2. The red flags of questionable recommendation and unjustified awards are raised in this case.
As earlier discussed, the project was awarded to MPC, which proved to be a nonentity.

It was MPEI that actually participated in the bidding process, but it was not qualified to be a
bidder in the first place.Moreover, its ACMs failed the accuracy requirement set by COMELEC.
Yet, MPC – the nonentity – obtained a favorable recommendation from the BAC, and the
automation contract was awarded to the former.

3. Failure to meet contract terms. As mentioned earlier, this Court already found the ACMs to be
below the standards set by the COMELEC.

4. Shell companies have no significant assets, staff or operational capacity. They pose a serious
red flag as a bidder on public contracts, because they often hide the interests of project or
government officials, concealing a conflict of interest and opportunities for money
laundering. Also, by definition, they have no experience.

MPEI qualifies as a shell or fictitious company. It was nonexistent at the time of the invitation to
bid; to be precise, it was incorporated only 11 days before the bidding. It was a newly formed
corporation and, as such, had no track record to speak of.The totality of the red flags found in
this case leads Us to the inevitable conclusion that MPEI was nothing but a sham corporation
formed for the purpose of defrauding petitioner.We have consistently held that when the notion
of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons.

Thus, considering that We find it justified to pierce the corporate veil in the case before Us,
MPEI must, perforce, be treated as a mere association of persons whose assets are unshielded by
corporate fiction.

8
ERSON ANG LEE V. SAMAHANG MANGGAGAWANG SUPER LAMINATION
G.R. No. 196816, 21 November 2016

FACTS: Respondent filed for a petition for a certification election to represent all the rank and
file employees of Petitioner’s Super Lamination Services.Petitioner moves that the same must be
dismissed as a majority of the persons who were enumerated in the list of members and officers
of Union A were not its employees, but were employed by either Express Lamination or Express
Coat.

Respondent claimed that while the questioned employees might have been assigned to perform
work at the other companies, they were all under one management’s direct control and
supervision. The Med-Arbiter ruled in favor of the Petitioner but was overturned by the DOLE

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whose ruling was later affirmed by the CA. The DOLE found that Super Lamination, Express
Lamination, and Express Coat were sister companies that had a common human resource
department responsible for hiring and disciplining the employees of the three companies. The
same department was found to have also given them daily instructions on how to go about their
work and where to report for work. It also found that the three companies involved constantly
rotated their workers, and that the latter’s identification cards had only one signatory. To the
DOLE, these circumstances showed that the companies were engaged in a work-pooling scheme,
in light of which they might be considered as one and the same entity for the purpose of
determining the appropriate bargaining unit in a certification election.

ISSUE: Was piercing of the corporate veil applicable in this case?

RULING: Yes, it was applicable.

A settled formulation of the doctrine of piercing the corporate veil is that when two business
enterprises are owned, conducted, and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that these two
entities are distinct and treat them as identical or as one and the same.Super Lamination, Express
Lamination, and Express Coat are under the control and management of the same party –
petitioner Ang Lee. In effect, the employees of these three companies have petitioner as their
common employer, as shown by the following facts:

1. Super Lamination, Express Lamination, and Express Coat were engaged in the same business
of providing lamination services to the public as admitted by petitioner in his petition.

2. The three establishments operated and hired employees through a common human resource
department as found by DOLE in a clarificatory hearing. Though it was not clear which company
the human resource department was officially attached to, petitioner admits in his petition that
such department was shared by the three companies for purposes of convenience.

3. The workers of all three companies were constantly rotated and periodically assigned to Super
Lamination or Express Lamination or Express Coat to perform the same or similar tasks. This
finding was further affirmed when petitioner admitted in his petition before us that the Super
Lamination had entered into a work-pooling agreement with the two other companies and shared
a number of their employees.

4. DOLE found and the CA affirmed that the common human resource department imposed
disciplinary sanctions and directed the daily performance of all the members of Unions A, B, and
.

5. Super Lamination included in its payroll and SSS registration not just its own employees, but
also the supposed employees of Express Lamination and Express Coat. This much was admitted
by petitioner in his Motion to Dismiss which was affirmed by the Med-Arbiter in the latter’s
Order.

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6. Petitioner admitted that Super Lamination had issued and signed the identification cards of
employees who were actually working for Express Lamination and Express Coat.

7. Super Lamination, Express Lamination, and Express Coat were represented by the same
counsel who interposed the same arguments in their motions before the Med-Arbiters and
DOLE.

We hold that if we allow petitioner and the two other companies to continue obstructing the
holding of the election in this manner, their employees and their respective unions will never
have a chance to choose their bargaining representative. We take note that all three
establishments were unorganized. That is, no union therein was ever duly recognized or certified
as a bargaining representative. Therefore, it is only proper that, in order to safeguard the right of
the workers and Unions A, B, and C to engage in collective bargaining, the corporate veil of
Express Lamination and Express Coat must be pierced.

9
VETERANS FOUNDATION OF THE PHILIPPINES V. MONTENEJO
G.R. No. 184819, 29 November 2017

FACTS: Veteran’s Federation of the Philippines (VFP) is a national federation of associations of

Filipino war veterans created in 1960. In 1967, through the government’s Proclamation No. 192,
VFP was able to obtain control and possession of a vast parcel of land located in Taguig. VFP
eventually developed said land into an industrial complex, which is now known as the VFP
Industrial Area (VFPIA). VFP Management and Development Corporation (VMDC), on the
other hand, is a private management company.

VFP entered into a management agreement with VMDC. Under the said agreement, VMDC was
to assume exclusive management and operation of the VFPIA in exchange for forty percent
(40%) of the lease rentals generated from the area. In managing and operating the VFPIA,
VMDC hired its own personnel and employees. Among those hired by VMDC were respondents.

The management agreement between VFP and VMDC had a term of five (5) years and is
renewable for another five (5) years. Subsequently, both parties acceded to extend the
agreement.The agreement was again extended by VFP and VMDC albeit only on a month-to-
month basis.

Then, in November 1999, the VFP board passed a resolution terminating the management
agreement effective December 31, 1999. VMDC conceded to the termination and eventually
agreed to turn over to VFP the possession of all buildings, equipment and other properties
necessary to the operation of the VFPIA. On January 3, 2000, the President of VMDC issued a
memorandum informing the company’s employees of the termination of their services effective
at the close of office hours on January 31, 2000 in view of the termination of the management
agreement.On January 31, 2000, VMDC dismissed all of its employees and paid each his or her
separation pay.

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ISSUE: Whether the doctrine of piercing the veil of corporate fiction applies to the case.

RULING: No. The doctrine of piercing the veil of corporate fiction is a legal precept that allows
a corporation’s separate personality to be disregarded under certain circumstances, so that a
corporation and its stockholders or members, or a corporation and another related corporation
could be treated as a single entity. The doctrine is an equitable principle, it being meant to apply
only in situations where the separate corporate personality of a corporation is being abused or
being used for wrongful purposes. Piercing the veil of corporate entity is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend a
crime. It is done only when a corporation is a mere alter ego or business conduit of a person or
another corporation.

Test to determine when it would be proper to apply the doctrine of piercing the veil of corporate
fiction:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

The absence of any one of these elements prevents piercing the corporate veil.

10
SEC V. PRICE RICHARDSON CORP
G.R. No. 197032, 26 July 2017

FACTS: A former employee of Price Richardson Corporation, Michelle S. Avelino, executed a

sworn affidavit at the NBI’s Interpol Division, alleging that Price Richardson was engaged in
boiler room operations, wherein the company sells non-existent stocks to investors using high
pressure sales tactics. On The SEC filed before the DOJ its complaint against Price Richardson.
The SEC alleged that Price Richardson was neither licensed nor registered to engage in the
business of buying and selling securities within the Philippines or act as salesman, or an
associated person of any broker or dealer. As shown by the seized documents and equipment,
Price Richardson engaged in seeking clients for the buying and selling of securities, thereby
violating Sections 26.3 and 28 of the Securities Regulation Code. State Prosecutor Reyes issued
a Resolution, dismissing the SEC’s Complaint for lack of probable cause. The SEC filed a
petition for certiorari before the Court of Appeals. CA held that there was no grave abuse of
discretion on the part of Secretary Gonzales when he affirmed State Prosecutor Reyes’

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Resolutions, which found no probable cause to file an information. Hence, the present petition by
the SEC.

ISSUE: Whether there is probable cause to indict respondents for violation of Sections 26.3 and
28 of the Securities Regulation Code.

RULING: A corporation’s personality is separate and distinct from its officers, directors, and
shareholders. To be held criminally liable for the acts of a corporation, there must be a showing
that its officers, directors, and shareholders actively participated in or had the power to prevent
the wrongful act. The evidence gathered by petitioner and the statement of respondent Price
Richardson are facts sufficient enough to support a reasonable belief that respondent is probably
guilty of the offense charged.

However, respondents Velarde-Albert and Resnick cannot be indicted for violations of the
Securities Regulation Code and the Revised Penal Code.Petitioner failed to allege the specific
acts of respondents Velarde-Albert and Resnick that could be interpreted as participation in the
alleged violations. There was also no showing, based on the complaints, that they were deemed
responsible for Price Richardson’s violations.

SECURITIES REGULATION CODE (RA 8799)

1
BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN,
vs, SALLY GO a.k.a. SALLY GO-BANGAYAN,.
G.R. No. 168644. February 16, 2010
PERALTA, J.

DOCTRINE: The inquiry into bank deposits allowable under R.A. No. 1405 must be premised
on the fact that the money deposited in the account is itself the subject of the action.

FACTS: Sally was employed as a cashier by a company run by her husband, Ricardo. Ricardo
charged Sally with Estafa/ Qualified Theft due to the latter’s misappropriation of the company’s
funds. Sally allegedly deposited the checks issue by the customers to her personal bank account
in Security Bank. The prosecution presented the testimony of Marasigan, a representative of
Security Bank. Marasigan said that Sally credited the amounts to her personal deposit account.
Sally moved to suppress the testimony of Marasigan on the ground of confidentiality under R.A.
1405.

ISSUE: Whether the admission of Marasigan’s testimony on the particulars of Sally’s account
with Security Bank, as well as of the corresponding evidence of the checks allegedly deposited in
said account, constitutes an unallowable inquiry under R.A. 1405.

RULING: YES.R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding
and at the same time encourage the people to deposit their money in banking institutions, so that

Page | 47
it may be utilized by way of authorized loans and thereby assist in economic development.
Owing to this piece of legislation, the confidentiality of bank deposits remains to be a basic state
policy in the Philippines. Section 2 of the law institutionalized this policy by characterizing as
absolutely confidential in general all deposits of whatever nature with banks and other financial
institutions in the country. In taking exclusion from the coverage of the confidentiality rule,
petitioner in the instant case posits that the account maintained by respondent with Security Bank
contains the proceeds of the checks that she has fraudulently appropriated to herself and, thus,
falls under one of the exceptions in Section 2 of R.A. No. 1405, that the money kept in said
account is the subject matter in litigation. What indeed constitutes the subject matter in litigation
in relation to Section 2 of R.A. No. 1405 has been pointedly and amply addressed in Union Bank
of the Philippines v. Court of Appeals, in which the Court noted that the inquiry into bank
deposits allowable under R.A. No. 1405 must be premised on the fact that the money deposited
in the account is itself the subject of the action. Given this perspective, we deduce that the
subject matter of the action in the case at bar is to be determined from the indictment that charges
respondent with the offense, and not from the evidence sought by the prosecution to be admitted
into the records. In the criminal Information filed with the trial court, respondent, unqualifiedly
and in plain language, is charged with qualified theft by abusing petitioners trust and confidence
and stealing cash. The said Information makes no factual allegation that in some material way
involves the checks subject of the testimonial and documentary evidence sought to be
suppressed. Neither do the allegations in said Information make mention of the supposed bank
account in which the funds represented by the checks have allegedly been kept.

2
CARMEN LL. INTENGAN, ROSARIO LL. NERI, and RITA P. BRAWNER vs. COURT
OF APPEALS, DEPARTMENT OF JUSTICE, AZIZ RAJKOTWALA, WILLIAM
FERGUSON, JOVEN REYES, and VIC LIM,
G.R. No. 128996, February 15, 2002
DE LEON, JR., J.

DOCTRINE: Thus, under R.A. No. 6426 there is only a single exception to the secrecy of
foreign currency deposits, that is, disclosure is allowed only upon the written permission of the
depositor.

FACTS: Citibank filed a complaint against two of its officers, Santos and Genuino. The two
appeared to have been actively engaged in business endeavors that were in conflict with the
business of the bank. They caused existing clients/depositors to divert their money from Citibank
to products offered by other companies. Intengan, Neri and Brawner are some of clients who
have long standing accounts with Citibank, N.A. As evidence, Lim, the Vice-President of
Citibank, annexed bank records purporting to establish the deception practiced by Santos and
Genuino. Some of the documents pertained to the dollar deposits of the petitioners. The Court of
Appeals held that the disclosure of deposits was necessary to establish the allegation that Santos
and Genuino had violated Section 31 of the Corporation Code in acquiring any interest adverse
to the corporation in respect of any matter which has been reposed in him in confidence. In
assailing the appellate courts findings, petitioners assert that the disclosure of their bank records
was unwarranted and illegal.

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ISSUE: Whether the disclosure of the bank records was illegal.

RULING: YES.The accounts in question are U.S. dollar deposits; consequently, the applicable
law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the Foreign
Currency Deposit Act of the Philippines. Thus, under R.A. No. 6426 there is only a single
exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the
written permission of the depositor. Incidentally, the acts of private respondents complained of
happened before the enactment on September 29, 2001 of R.A. No. 9160 otherwise known as the
Anti-Money Laundering Act of 2001. A case for violation of Republic Act No. 6426 should have
been the proper case brought against private respondents. Private respondents Lim and Reyes
admitted that they had disclosed details of petitioners dollar deposits without the latters written
permission. It does not matter if that such disclosure was necessary to establish Citibank’s case
against Dante L. Santos and Marilou Genuino. Lim’s act of disclosing details of petitioners bank
records regarding their foreign currency deposits, with the authority of Reyes, would appear to
belong to that species of criminal acts punishable by special laws, called malum prohibitum.

3
CHINA BANKING CORPORATION vs. THE HONORABLE COURT OF APPEALS, et.
al.
G.R. No. 140687. December 18, 2006
Chico-Nazario, J.

DOCTRINE: All things considered and in view of the distinctive circumstances attendant to the
present case, we are constrained to render a limited pro hac vice ruling. Clearly it was not the
intent of the legislature when it enacted the law on secrecy on foreign currency deposits to
perpetuate injustice. This Court is of the view that the allowance of the inquiry would be in
accord with the rudiments of fair play, the upholding of fairness in our judicial system and would
be an avoidance of delay and time-wasteful and circuitous way of administering justice.

FACTS: Jose Gotianuy and Mary Margaret Dee (the latter’s daughter) are co-payees of various
Citibank checks. Mary Margaret Dee withdrew these checks from Citibank but she alleged that
she withdrew the funds from Citibank upon the instruction of her father Jose Gotianuy and that
the funds belonged exclusively to the latter. Consequently, these checks were endorsed by Mary
Margaret Dee at the dorsal portion; and (5) Jose Gotianuy discovered that these checks were
deposited with China Bank as shown by the stamp of China Bank at the dorsal side of the
checks. A Complaint for recovery of sums of money and annulment of sales of real
properties and shares of stock docketed was filed by Jose Joseph Gotianuy against his son-in-
law, George Dee, and his daughter, Mary Margaret. Upon motion, the trial court issued a
subpoena to CristotaLabios and Isabel Yap, employees of China Bank, to testify on the case. A
MR was filed but was denied. Subsequently, upon a petition for certiorari before the CA, the
latter denied the petition reasoning that the law specifically encompasses only the money or
funds in foreign currency deposited in a bank. Thus, the coverage of the law extends only to the
foreign currency deposit in the CBC account where Mary Margaret Dee deposited the Citibank
checks in question and nothing more.

Page | 49
ISSUE: Whether or not Court of Appeals has interpreted the provision of Section 8 of R.A.
6426, as amended, otherwise known as the Foreign Currency Deposit Act, in a manner contrary
to the legislative purpose, that is, to provide absolute confidentiality of whatever information
relative to the foreign currency deposit.

RULING: NO.As the owner of the funds unlawfully taken and which are undisputably now
deposited with China Bank, Jose Gotianuy has the right to inquire into the said deposits.A
depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of
business, to be placed to his credit and subject to his check or the beneficiary of the funds held
by the bank as trustee. It must be remembered that in the complaint of Jose Gotianuy, he alleged
that his US dollar deposits with Citibank were illegally taken from him. On the other hand, China
Bank employee Cristuta Labios testified that Mary Margaret Dee came to China Bank and
deposited the money of Jose Gotianuy in Citibank US dollar checks to the dollar account of her
sister Adrienne Chu. This fortifies our conclusion that an inquiry into the said deposit at China
Bank is justified. At the very least, Jose Gotianuy as the owner of these funds is entitled to a
hearing on the whereabouts of these funds.

4
DOÑA ADELA EXPORT INTERNATIONAL, INC. vs. TRADE AND INVESTMENT
DEVELOPMENT CORPORATION (TIDCORP), AND THE BANK OF THE
PHILIPPINE ISLANDS (BPI)
G.R. No.201931. February 11, 2015
VILLARAMA, JR., J.

DOCTRINE: Corollarily, the stipulation in the Joint Motion to Approve Compromise

Agreement that petitioner waives its right to confidentiality of its bank deposits requires the
approval and conformity of Atty. Gonzales as receiver since all the property, money, estate and
effects of petitioner have been assigned and conveyed to her and she has the right to recover all
the estate, assets, debts and claims belonging to or due to the insolvent debtor.

FACTS: Petitioner was declared insolvent. The petitioner agreed to enter into a compromise
agreement with its creditors. TIDCORP and BPI agreed to approve the Dacion En Pago by
Compromise Agreement with the following terms: WAIVER OF CONFIDENTIALITY. – The
petitioner and the members of its Board of Directors shall waive all rights to confidentiality
provided under the provisions of Republic Act No. 1405, as amended, otherwise known as the
Law on Secrecy of Bank Deposits, and Republic Act No. 8791, otherwise known as The General
Banking Law of 2000.

Petitioner asserts that express and written waiver from the depositor concerned is
required by law before any third person or entity is allowed to examine bank deposits or bank
records. According to petitioner, it is not a party to the compromise agreement between BPI and
TIDCORP and its silence or acquiescence is not tantamount to an admission that binds it to the
compromise agreement of the creditors especially the waiver of confidentiality of bank deposits.
While Respondent TIDCORP contends that the waiver of confidentiality under Republic Act
(R.A.) Nos. 1405 and 8791 does not require the express or written consent of the depositor. It is

Page | 50
TIDCORP’s position that upon declaration of insolvency, the insolvency court obtains complete
jurisdiction over the insolvent’s property which includes the authority to issue orders to look into
the insolvent’s bank deposits. Since bank deposits are considered debts owed by the banks to the
petitioner, the receiver is empowered to recover them even without petitioner’s express or
written consent, said TIDCORP.

ISSUE: Whether the compromise agreement is binding on the petitioner.

RULING: NO. In this case, the Joint Motion to Approve Agreement was executed by BPI and
TIDCORP only. There was no written consent given by petitioner or its representative, Epifanio
Ramos, Jr., that petitioner is waiving the confidentiality of its bank deposits. Neither can
petitioner be deemed to have given its permission by failure to interpose its objection during the
proceedings. The norm is that a waiver must not only be voluntary, but must have been made
knowingly, intelligently, and with sufficient awareness of the relevant circumstances and likely
consequences. There must be persuasive evidence to show an actual intention to relinquish the
right. Mere silence on the part of the holder of the right should not be construed as a surrender
thereof; the courts must indulge every reasonable presumption against the existence and validity
of such waiver.

5
JOSEPH VICTOR G. EJERCITO, Petitioner, vs. SANDIGANBAYAN (Special Division)
and PEOPLE OF THE PHILIPPINES
G.R. Nos. 157294-95. November 30, 2006

DOCTRINE: An examination of the law shows that the term “deposits” used therein is to be
understood broadly and not limited only to accounts which give rise to a creditor-debtor
relationship between the depositor and the bank. The policy behind the law is laid down in
Section 1. If the money deposited under an account may be used by banks for authorized loans to
third persons, then such account, regardless of whether it creates a creditor-debtor relationship
between the depositor and the bank, falls under the category of accounts which the law
precisely seeks to protect for the purpose of boosting the economic development of the
country. Trust Account No. 858 is, without doubt, one such account. The Trust Agreement
between petitioner and Urban Bank provides that the trust account covers “deposit, placement
or investment of funds” by Urban Bank for and in behalf of petitioner. The money deposited
under Trust Account No. 858, was, therefore, intended not merely to remain with the bank but to
be invested by it elsewhere. To hold that this type of account is not protected by R.A. 1405 would
encourage private hoarding of funds that could otherwise be invested by banks in other ventures,
contrary to the policy behind the law.

FACTS: Three resolutions were issued in the Criminal Case, "People of the Philippines v.
Joseph Ejercito Estrada, et al.," for plunder. In said case, the Special Prosecution Panelfiled
before the Sandiganbayan a Request for Issuance of Subpoena DucesTecum for the issuance
of a subpoena directing the President of Export and Industry Bank (EIB, formerly Urban
Bank) or his/her authorized representative to produce various documents during the hearings.

Page | 51
The Special Prosecution Panel also filed a Request for Issuance of Subpoena DucesTecum/Ad
Testificandum directed to the authorized representative of Equitable-PCI Bank to produce
statements of account pertaining to certain accounts in the name of "Jose Velarde" and to testify
thereon.

The SB granted both requests and subpoenas were accordingly issued. The Special Prosecution
Panel filed still another Request for Issuance of Subpoena Duces Tecum/Ad Testificandum
for the President of EIB or his/her authorized representative to produce the same documents
subject of the first Subpoena DucesTecum and to testify thereon on the hearings
scheduled and subsequent dates until completion of the testimony. The request was
likewise granted by the Sandiganbayan. Petitioner, unassisted by counsel, thus filed a Motion to
Quash Subpoena DucesTecum/Ad Testificandum the subpoenas previously issued to the
President of the EIB. In his Motion to Quash, petitioner claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not fall under any of the
exceptions stated therein. He further claimed that the specific identification of documents in the
questioned subpoenas, including details on dates and amounts, could only have been made
possible by an earlier illegal disclosure thereof by the EIB and the Philippine Deposit Insurance
Corporation (PDIC) in its capacity as receiver of the then Urban Bank.

Before the Motion to Quash was resolved by the Sandiganbayan, the prosecution filed another
Request for the Issuance of Subpoena DucesTecum/Ad Testificandum, again to direct the
President of the EIB to produce, on the hearings the same documents. The prosecution also filed
a Request for the Issuance of Subpoena DucesTecum/Ad Testificandum directed to Aurora C.
Baldoz, Vice President-CR-II of the PDIC for her to produce the various documents. The
subpoenas prayed for in both requests were issued by the Sandiganbayan. The petitioner filed
various motions to quash the various Subpoenas DucesTecum/Ad Testificandum
previously issued, but were denied. In connection with the Criminal Case for plunder, the Special
Prosecution Panel filed before the Sandiganbayan a request for issuance of Subpoena
DucesTecum/Ad Testificandum for the production of various documents relating to the said
case. Resolutions have been issued by the Sandiganbayan granting the request. The petitioner
filed for Motion to Quash; however, it was denied. Consequently, petitioner filed Motion for
Reconsideration seeking a reconsideration of the Resolutions, but it was denied. Hence, the
present petition for certiorari under Rule 65 assailing the Sandiganbayan Resolutions denying
petitioner Joseph Victor G. Ejercito’s Motions to Quash Subpoenas DucesTecum/Ad
Testificandum, and Resolution denying his Motion for Reconsideration of the first two
resolutions.

ISSUES:
1. Whether or not petitioner’s Trust Account No. 858 is covered by the term "deposit" as
used in R.A. 1405;
2. Whether or not petitioner’s Trust Account No. 858 and Savings Account No. 0116-
17345-9 are protected by R.A. 1405; and
3. Whether or not the "extremely-detailed" information contained in the Special Prosecution
Panel’s requests for subpoena was obtained through a prior illegal disclosure of
petitioner’s bank accounts, in violation of the "fruit of the poisonous tree" doctrine.

Page | 52
RULING:
1. Yes, trust account is covered by the term “deposit” as used in RA 1405.

An examination of the law shows that the term “deposits” used therein is to be
understood broadly and not limited only to accounts which give rise to a creditor-debtor
relationship between the depositor and the bank. The policy behind the law is laid down
in Section 1. If the money deposited under an account may be used by banks for
authorized loans to third persons, then such account, regardless of whether it creates a
creditor-debtor relationship between the depositor and the bank, falls under the category
of accounts which the law precisely seeks to protect for the purpose of boosting the
economic development of the country.

Trust Account No. 858 is, without doubt, one such account. The Trust Agreement
between petitioner and Urban Bank provides that the trust account covers “deposit,
placement or investment of funds” by Urban Bank for and in behalf of petitioner. The
money deposited under Trust Account No. 858, was, therefore, intended not merely to
remain with the bank but to be invested by it elsewhere. To hold that this type of account
is not protected by R.A. 1405 would encourage private hoarding of funds that could
otherwise be invested by banks in other ventures, contrary to the policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term “deposits” was
intended to be understood broadly. The phrase “of whatever nature” proscribes any
restrictive interpretation of “deposits.” Moreover, it is clear from the immediately quoted
provision that, generally, the law applies not only to money which is deposited but also to
those which are invested. This further shows that the law was not intended to apply only
to “deposits” in the strict sense of the word. Otherwise, there would have been no need to
add the phrase “or invested.” Clearly, therefore, R.A. 1405 is broad enough to cover
Trust Account No. 858.2
2. No, it is not protected by such law.

Petitioner contends that since plunder is neither bribery nor dereliction of duty, his
accounts are not excepted from the protection of R.A. 1405. The Court disagrees. Cases
for plunder involve unexplained wealth.Furthermore, cases of unexplained wealth are
similar to cases of bribery or dereliction of duty and no reason is seen why these two
classes of cases cannot be excepted from the rule making bank deposits confidential. The
policy as to one cannot be different from the policy as to the other. This policy expresses
the notion that a public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, so far as relevant to his duty, is
open to public scrutiny.

The crime of bribery and the overt acts constitutive of plunder are crimes committed by
public officers, and in either case the noble idea that “a public office is a public trust and
any person who enters upon its discharge does so with the full knowledge that his life, so
far as relevant to his duty, is open to public scrutiny” applies with equal force.

Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases
of bribery must also apply to cases of plunder.

Page | 53
 3. No, the application of fruit of poisonous tree doctrine is misplaced. Petitioner relies on
Marquez v. Desierto where the Court held:

We rule that before an in camera inspection may be allowed there must be a pending case
before a court of competent jurisdiction. Further, the account must be clearly identified,
the inspection limited to the subject matter of the pending case before the court of
competent jurisdiction. The bank personnel and the account holder must be notified to be
present during the inspection, and such inspection may cover only the account identified
in the pending case. (Underscoring supplied) As no plunder case against then President
Estrada had yet been filed before a court of competent jurisdiction at the time the
Ombudsman conducted an investigation, petitioner concludes that the information about
his bank accounts were acquired illegally, hence, it may not be lawfully used to facilitate
a subsequent inquiry into the same bank accounts.

Petitioner’s attempt to make the exclusionary rule applicable to the instant case fails.
R.A. 1405, it bears noting, nowhere provides that an unlawful examination of bank
accounts shall render the evidence obtained therefrom inadmissible in evidence. Section 5
of R.A. 1405 only states that "[a]ny violation of this law will subject the offender upon
conviction, to an imprisonment of not more than five years or a fine of not more than
twenty thousand pesos or both, in the discretion of the court." Even assuming arguendo,
however, that the exclusionary rule applies in principle to cases involving R.A. 1405, the
Court finds no reason to apply the same in this particular case.

6
GOVERNMENT SERVICE INSURANCE SYSTEM, vs. THE HONORABLE 15th
DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF KOREA,
TONG YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK OF
THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC.
G.R. No. 189206. June 8, 2011
PEREZ, J.

DOCTRINE: The lone exception to the non-disclosure of foreign currency deposits, under
Republic Act No. 6426, is disclosure upon the written permission of the depositor.

FACTS: A collection of sum of money with damages filed by Industrial Bank of Korea, Tong
Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and
Westmont Bank (Banks) against Domsat Holdings, Inc. and the GSIS. Said case stemmed from a
Loan Agreement, whereby the said banks agreed to lend United States (U.S.) $11 Million to
Domsat for the purpose of financing the lease and/or purchase of a Gorizon Satellite from the
International Organization of Space Communications (Intersputnik).Domsat obtained a surety
bond from GSIS to secure the payment of the loan from the Banks. When Domsat failed to pay
the loan, GSIS refused to comply with its obligation reasoning that Domsat, with Westmont
Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of
Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch
of Westmont Bank. In the course of the hearing, GSIS requested for the issuance of a subpoena

Page | 54
duces tecum to the custodian of records of Westmont Bank. A motion to quash was filed by the
said banks on the ground that request for the documents will violate the Law on Secrecy of Bank
Deposits. RTC denied the motion to quash. However, Court of Appeals declared that Domsat’s
deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank Secrecy Law. GSIS
insists that Domsat’s deposit with Westmont Bank can be examined based on Republic Act No.
1405 or the "Law on Secrecy of Bank Deposits," which allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of the litigation.

ISSUE: Whether the US$11,000,000.00 deposit in the account of respondent Domsat in

Westmont Bank is covered by the secrecy of bank deposit.

RULING: Yes.Presidential Decree No. 1246, provides, Section 8. Secrecy of Foreign Currency
Deposits. States that All foreign currency deposits authorized under this Act, as amended by
Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in no instance shall foreign currency
deposits be examined, inquired or looked into by any person, government official, bureau or
office whether judicial or administrative or legislative or any other entity whether public or
private. Applying the said provision, absent the written permission from Domsat, Westmont
Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might
expose itself to criminal liability under the same act.

7
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural
Guardian, and Spouses FEDERICO N. SALVACION, JR., and EVELINA E.
SALVACION vs. CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING
CORPORATION and GREG BARTELLI y NORTHCOTT
G.R. No. 94723. August 21, 1997
TORRES, JR., J.

DOCTRINE: If we rule that the questioned Section 113 of Central Bank Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever, is applicable to a foreign
transient, injustice would result especially to a citizen aggrieved by a foreign guest

FACTS: Greg Bartelli, an American tourist, was arrested for committing four counts of rape and
serious illegal detention against Karen Salvacion. Police recovered from him several dollar
checks and a dollar account in the China Banking Corp. Trial court awarded Salvacion moral,
exemplary and attorney’s fees amounting to almost P1,000,000.00. Salvacion tried to execute the
judgment on the dollar deposit of Bartelli with the China Banking Corp. but the latter refused
arguing that Section 11 of Central Bank Circular No. 960 exempts foreign currency deposits
from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.

Page | 55
ISSUE: Whether Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act
No. 6426, as amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?

RULING: NO.The SC adopted the comment of the Solicitor General who argued that the
Offshore Banking System and the Foreign Currency Deposit System were designed to draw
deposits from foreign lenders and investors and, subsequently, to give the latter protection.
However, the foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws because
such depositor stays only for a few days in the country and, therefore, will maintain his deposit
in the bank only for a short time. Considering that Bartelli is just a tourist or a transient, he is not
entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246
against attachment, garnishment or other court processes.

8
LOURDES T. MARQUEZ, in her capacity as Branch Manager, Union Bank of the
Philippines, petitioners, vs. HON. ANIANO A. DESIERTO
G.R. No. 135882. June 27, 2001
PARDO, J.

DOCTRINE: We rule that before an in camera inspection may be allowed, there must be a
pending case before a court of competent jurisdiction. Further, the account must be clearly
identified, the inspection limited to the subject matter of the pending case before the court of
competent jurisdiction. The bank personnel and the account holder must be notified to be present
during the inspection, and such inspection may cover only the account identified in the pending
case.

FACTS: The present case originated from Fact-Finding and Intelligence Bureau (FFIB) v.
Amado Lagdameo, et. al. Petitioner Marquez, the manager of Union Bank of the Philippines,
Vargas branch, received an Order from the Ombudsman Aniano A. Desierto to produce several
bank documents for purposes of inspection in camerarelative to various accounts maintained at
Union Bank of the Philippines. Later on, petitioner together with Union Bank of the Philippines,
filed a petition for declaratory relief, prohibition and injunction before the RTC alleging that
clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405, Sections 2 and 3.
Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and other
persons acting under his authority were continuously harassing her to produce the bank
documents relative to the accounts in question.

ISSUE: Whether the order of the Ombudsman to have an in camerainspection of the questioned
account is allowed as an exception to the law on secrecy of bank deposits (R. A. No. 1405).

RULING: NO. The order of the Ombudsman to produce for in camera inspection the subject
accounts with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending
investigation at the Office of the Ombudsman against Amado Lagdameo, et. al. for violation of
R. A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the Public
Estates Authority and AMARI. In Union Bank of the Philippines v. Court of Appeals, we held

Page | 56
that Section 2 of the Law on Secrecy of Bank Deposits, as amended, declares bank deposits to be
absolutely confidential except:

(1) In an examination made in the course of a special or general examination of a bank

that is specifically authorized by the Monetary Board after being satisfied that there is reasonable
ground to believe that a bank fraud or serious irregularity has been or is being committed and
that it is necessary to look into the deposit to establish such fraud or irregularity,

(2) In an examination made by an independent auditor hired by the bank to conduct its
regular audit provided that the examination is for audit purposes only and the results thereof shall
be for the exclusive use of the bank,

(3) Upon written permission of the depositor,

(4) In cases of impeachment,

(5) Upon order of a competent court in cases of bribery or dereliction of duty of public
officials, or

(6) In cases where the money deposited or invested is the subject matter of the litigation

In the case at bar, there is yet no pending litigation before any court of competent
authority. What exists is an investigation by the office of the Ombudsman. In short, what the
Office of the Ombudsman would wish to do is to fish for additional evidence to formally charge
Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court
which would warrant the opening of the bank account for inspection.

9
OFFICE OF THE OMBUDSMAN, petitioner, vs. HON. FRANCISCO B. IBAY, et. al.
G. R. No. 137538. September 3, 2001
QUISUMBING, J.

DOCTRINE: In Marquez vs. Desierto, we ruled that before an in camera inspection of bank
accounts may be allowed, there must be a pending case before a court of competent jurisdiction.

FACTS: This case is a continuance of the Marquez vs. Desierto case. Petitioner in this case
questioned the jurisdiction of the public respondent in entertaining the petition for declaratory
relief filed by the petitioner.

ISSUE: Whether in camera inspection of bank accounts are allowed.

RULING: NO. Before an in camera inspection of bank accounts may be allowed, there must be
a pending case before a court of competent jurisdiction. Further, the account must be clearly
identified, and the inspection limited to the subject matter of the pending case before the court of
competent jurisdiction. The bank personnel and the account holder must be notified to be present
during the inspection, and such inspection may cover only the account identified in the pending

Page | 57
case. In the present case, since there is no pending litigation yet before a court of competent
authority, but only an investigation by the Ombudsman on the so-called scam, any order for the
opening of the bank account for inspection is clearly premature and legally unjustified.

10
EMMANUEL C. OÑATE and ECON HOLDINGS CORPORATION, vs. HON. ZUES C.
ABROGAR, as Presiding Judge of Branch 150 of the Regional Trial Court of Makati, and
SUN LIFE ASSURANCE COMPANY OF CANADA
G.R. No. 107303. February 23, 1995
NOCON, J.

DOCTRINE: Whether the transaction is considered a sale or money placement does not make
the money the "subject matter of litigation" within the meaning of Sec. 2 of Republic Act No.
1405 which prohibits the disclosure or inquiry into bank deposits except "in cases where the
money deposited or invested is the subject matter of litigation."

FACTS: Sun Life filed a complaint for sum of money against Onate, Econ Holdings and
Brunner Development. Sun Life alleges that Onate, as president of Econ, offered to sell 46
million worth of treasury bills at a discounted price. Sun Life paid the price by means of a check
payable to Brunner. Brunner, through its president Diño, issued to it a receipt with undertaking to
deliver the treasury bills to Sun Life. Brunner and Diño delivered instead a promissory note, in
which it was made to appear that the transaction was a money placement instead of sale of
treasury bills. Sun Life moved to examine the accounts and ledgers of Brunner Development at
Urban Bank and BPI.

ISSUE: Whether the money paid can be considered as a subject matter of litigation within the
meaning of RA 1405.

RULING: NO.Thus the issue is whether the money paid to Brunner was the consideration for
the sale of treasury bills, as Sun Life claims, or whether it was money intended for placement, as
petitioners allege. Petitioners do not deny receipt of P39,526,500.82 from Sun Life. Hence,
whether the transaction is considered a sale or money placement does not make the money the
"subject matter of litigation" within the meaning of Sec. 2 of Republic Act No. 1405 which
prohibits the disclosure or inquiry into bank deposits except "in cases where the money deposited
or invested is the subject matter of litigation." Nor will it matter whether the money was
"swindled" as Sun Life contends.

THE NEW CENTRAL BANK ACT (RA 7653, AS AMENDED

BY RA 11211
1
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE SHAREHOLDERS
OF EUROCREDIT COMMUNITY BANK vs. THE MONETARY BOARD OF THE

Page | 58
 BANGKO SENTRAL NG PILIPINAS AND THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION
G.R. No. 191424. August 7, 2013
Mendoza, J

DOCTRINE: The Monetary Board under R.A. 7653 has been invested with more power of
closure and placement of a bank under receivership for insolvency or illiquidity or because of
the bank’s continuance in business world probably results in the loss to depositors or creditors.
To address the growing concerns in the banking industry, the legislature has sufficiently
empowered the Monetary Board to effectively monitor and supervise and financial institutions
and if circumstances warrant, to forbid them to do business, to take over their management or to
place them under receivership. Thus any act of the Monetary Board placing bank receivership,
conservatorship or liquidation may not be restrained or set aside except on a petition for
certiorari.

FACTS: Petitioner Vivas and his principals acquired the controlling interest in Rural Bank
Faire, a bank whose corporate life has already expired. BSP authorized extending the banks’
corporate life and was later renamed to EuroCredit Community Bank (ECBI). Through a series
of examinations conducted by the BSP, the findings bore that ECBI was illiquid, insolvent, and
was performing transactions which are considered unsafe and unsound banking practices.
Consequently ECBI was placed under receivership. Petitioner contends that the
implementation of the questioned resolution was tainted with arbitrariness and bad faith,
stressing that ECBI was placed under receivership without due and prior hearing in violation
of his and the bank’s right to due process. The petitioner files for prohibition with prayer for the
issuance of a status quo ante order or writ of preliminary injunction ordering the respondents to
desist from closing EuroCredit Community Bank, Incorporated (ECBI) and from pursuing the
receivership thereof. The petition likewise prays that the management and operation of ECBI be
restored to its Board of Directors (BOD) and its officers. Vivas files a petition for prohibition
with prayer for the issuance of a status quo ante order or writ of preliminary injunction ordering
the respondents to desist from closing EuroCredit Community Bank, Incorporated (ECBI) and
from pursuing the receivership thereof. The petition likewise prays that the management and
operation of ECBI be restored to its Board of Directors (BOD) and its officers. The Supreme
Court said to begin with, Vivas availed of the wrong remedy. The MB issued Resolution
No. 276, dated March 4, 2010, in the exercise of its power under R.A. No. 7653. Under Section
30 thereof, any act of the MB placing a bank under conservatorship, receivership or liquidation
may not be restrained or set aside except on a petition for certiorari. The Petition Should Have
Been Filed in the CA. Even if treated as a petition for certiorari, the petition should have
been filed with the CA. (Doctrine of Hierarchy of Courts)

ISSUE: Whether or not ECBI was entitled to due and prior hearing before its being placed under
receivership and whether or not MB placing bank under conservatorship, receivership or
liquidation may not be restrained or set aside?

RULING: The Court has taken this into account, but it appears from all over the records that
ECBI was given every opportunity to be heard and improve on its financial standing. The records
disclose that BSP officials and examiners met with the representatives of ECBI, including Vivas,

Page | 59
and discussed their findings.34 There were also reminders that ECBI submit its financial audit
reports for the years 2007 and 2008 with a warning that failure to submit them and a written
explanation of such omission shall result in the imposition of a monetary penalty.35 More
importantly, ECBI was heard on its motion for reconsideration. For failure of ECBI to comply,
the MB came out with Resolution No. 1548 denying its request for reconsideration of
Resolution No. 726. Having been heard on its motion for reconsideration, ECBI cannot claim
that it was deprived of its right under the Rural Bank Act. At any rate, if circumstances warrant
it, the MB may forbid a bank from doing business and place it under receivership without prior
notice and hearing. In the case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-
Valenzuela, the Court reiterated the doctrine of “close now, hear later,” stating that it was
justified as a measure for the protection of the public interest. Thus:

The “close now, hear later” doctrine has already been justified as a measure for the protection
of the public interest. Swift action is called for on the part of the BSP when it finds that a
bank is in dire straits. Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by
the bank depositors, creditors, and stockholders, who all deserve the protection of the
government.

The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation
of the bank’s assets and as a valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public. Swift, adequate and determined actions must be taken
against financially distressed and mismanaged banks by government agencies lest the public
faith in the banking system deteriorate to the prejudice of the national economy.

The Monetary Board under R.A. 7653 has been invested with more power of closure and
placement of a bank under receivership for insolvency or illiquidity or because of the bank’s
continuance in business world probably results in the loss to depositors or creditors. To address
the growing concerns in the banking industry, the legislature has sufficiently empowered the
Monetary Board to effectively monitor and supervise and financial institutions and if
circumstances warrant, to forbid them to do business, to take over their management or to place
them under receivership. Thus any act of the Monetary Board placing bank receivership,
conservatorship or liquidation may not be restrained or set aside except on a petition for
certiorari.
2
APEX BANCRIGHTS HOLDINGS, INC. vs. BANGKO SENTRAL NG PILIPINAS
and PDIC
G.R. No. 214866. October 2, 2017
J. Perlas-Bernabe

DOCTRINE: Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary
Board, to make an independent determination of whether a bank may still be rehabilitated
or not. As expressly stated in the afore-cited provision, once the receiver determines that
rehabilitation is no longer feasible, the Monetary Board is simply obligated to “(a) notify in
writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with

Page | 60
liquidation.” Suffice it to say that if the law had indeed intended that the Monetary
Board make a separate and distinct factual determination before it can order the liquidation
of a bank or quasi-bank, then there should have been a provision to that effect. There
being none, it can safely be concluded that the Monetary Board is not so requird when the
PDIC has already made such determination.

FACTS: Export and Industry Bank (EIB) entered into a three-way merger with Urban Bank,
Inc. (UBI) and Urbancorp Investments, Inc. (UII) in an attempt to rehabilitate UBI which
was then under receivership. Following the said merger, EIB itself encountered financial
difficulties which prompte PDIC to extend financial assistance to it. However, EIB still failed
to overcome its financial problems, thereby causing PDIC to release additional financial
assistance to it. Despite this, EIB failed to comply with the BSP's capital requirements,
causing EIB's stockholders to commence the process of selling the bank. BDO's expressed
its interest in acquiring EIB. However, BDO’s acquisition of EIB did not proceed and the
latter's financial condition worsened. EIB 's president and chairman voluntarily turned-
over the full control of EIB to BSP, and informed the latter that the former will
declare a bank holiday on April 27,
2012. On April 26, 2012, the BSP, through the Monetary Board, issued Resolution No. 6868
prohibiting EIB from doing business in the Philippines and placing it under the receivership
of PDIC, in accordance with Section 30 of The New Central Bank Act. Accordingly, PDIC
took over EIB. PDIC submitted its initial receivership report to the Monetary Board which
contained its finding that EIB can be rehabilitated or permitted to resume business; provided,
that a bidding for its rehabilitation would be conducted, and that the following conditions
would be met: (a) there are qualified interested banks that will comply with the parameters
for rehabilitation of a closed bank, capital strengthening, liquidity, sustainability and
viability of operations, and strengthening of bank governance; and (b) all parties
(including creditors and stockholders) agree to the rehabilitation and the revised
payment terms and conditions of outstanding liabilities. Accordingly, the Monetary Board
issued Resolution No. 1317 noting PDIC's initial report, and its request to extend the period
within which to submit the final determination of whether or not EIB can be rehabilitated.
Two consequent public biddings were held and both did not materialize as no bids were
submitted. PDIC informed BSP that EIB can hardly be rehabilitated. The Monetary Board
passed Resolution 571 directing PDIC to proceed with the liquidation of EIB.

Petitioners, who are stockholders representing the majority stock of EIB, filed a petition
for certiorari before the CA challenging Resolution No. 571. In essence, petitioners blame
PDIC for the failure to rehabilitate EIB. In defense, PDIC countered that petitioners were
already estopped from assailing the placement of EIB under receivership and its eventual
liquidation since they had already surrendered full control of the bank to the BSP as early
as April 26, 2012. For its part, BSP maintained that it had ample factual and legal bases to
order EIB's liquidation.

CA dismissed the petition for lack of merit.

Page | 61
ISSUE: Whether or not the CA correctly ruled that the Monetary Board did not
gravely abuse its discretion in issuing Resolution No. 571 which directed the PDIC to
proceed with the liquidation of EIB.

HELD: No, the Monetary Board did not gravely abuse its discretion when it directed
PDIC to proceed with the liquidation of EIB. Section 30 of RA 7653 provides for the
grounds to place banks and quasi banks under receivership and liquidation. It provides
that “The actions of the Monetary Board taken under this section or under Section 29 of this
Act shall be final and executory, and may not be restrained or set aside by the court except on
petition for certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of jurisdiction.”

It is settled that the power and authority of the Monetary Board to close banks and
liquidate them thereafter when public interest so requires is an exercise of the police power
of the State. To recount, after the Monetary Board issued Resolution No. 686 which placed
EIB under the receivership of PDIC, the latter submitted its initial findings to the
Monetary Board, stating that EIB can be rehabilitated or permitted to resume business;
provided, that a bidding for its rehabilitation would be conducted, and that the above-cited
conditions would be met.

Petitioners cannot insist that the Monetary Board must first make its own independent
finding that the bank could no longer be rehabilitated before ordering the liquidation of a
bank.

As correctly held by the CA, nothing in Section 30 of RA 7653 requires the BSP, through
the Monetary Board, to make an independent determination of whether a bank may still
be rehabilitated or not. As expressly stated in the afore-cited provision, once the receiver
determines that rehabilitation is no longer feasible, the Monetary Board is simply obligated
to “(a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to
proceed with liquidation.” Suffice it to say that if the law had indeed intended that the
Monetary Board make a separate and distinct factual determination before it can order the
liquidation of a bank or quasi-bank, then there should have been a provision to that effect.
There being none, it can safely be concluded that the Monetary Board is not so required
when the PDIC has already made such determination.

It must be stressed that the BSP, in its capacity as government regulator of banks, and
the PDIC, as statutory receiver of banks under RA 7653, are the principal agencies mandated
by law to determine the financial viability of banks and quasi-banks, and facilitate the
receivership and liquidation of closed financial institutions, upon a factual determination
of the latter's insolvency.

3
Banco Filipino Savings and Mortgage Bank v. Bangko Sentral ng Pilipinas
G.R. No. 200678. June 4, 2018
Leonen, J.

Page | 62
DOCTRINE: A closed bank under receivership can only sue or be sued through its receiver, the
Philippine Deposit Insurance Corporation (PDIC). Hence, the petition filed by the petitioner
bank which has been placed under receivership is dismissible as it did not join PDIC as a party
to the case.

FACTS: Petitioner bank has been placed under receivership when it filed a Petition for
Certiorari with the Supreme Court. Said Petition was assailed by the respondent that contended
that the same should be dismissed outright for being led without Philippine Deposit Insurance
Corporation's authority. It asserts that petitioner was placed under receivership on March 17,
2011, and thus, petitioner's Executive Committee would have had no authority to sign for or on
behalf of petitioner absent the authority of its receiver, Philippine Deposit Insurance Corporation.
They also point out that both the Philippine Deposit Insurance Corporation Charter and Republic
Act No. 7653 categorically state that the authority to file suits or retain counsels for closed banks
is vested in the receiver. Thus, the verification and certification of non-forum shopping signed by
petitioner's Executive Committee has no legal effect.

ISSUE: Whether or not petitioner Banco Filipino, as a closed bank under receivership, could file
this Petition for Review without joining its statutory receiver, the Philippine Deposit Insurance
Corporation, as a party to the case.

RULING: A closed bank under receivership can only sue or be sued through its receiver, the
Philippine Deposit Insurance Corporation. Under Republic Act No. 7653, when the Monetary
Board finds a bank insolvent, it may "summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution." The relationship between the Philippine
Deposit Insurance Corporation and a closed bank is fiduciary in nature. Section 30 of Republic
Act No. 7653 directs the receiver of a closed bank to "immediately gather and take charge of all
the assets and liabilities of the institution" and "administer the same for the benefit of its
creditors." The law likewise grants the receiver "the general powers of a receiver under the
Revised Rules of Court." Under Rule 59, Section 6 of the Rules of Court, "a receiver shall have
the power to bring and defend, in such capacity, actions in his [or her] own name." Thus,
Republic Act No. 7653 provides that the receiver shall also "in the name of the institution, and
with the assistance of counsel as [it] may retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action against, the institution."
Considering that the receiver has the power to take charge of all the assets of the closed bank and
to institute for or defend any action against it, only the receiver, in its fiduciary capacity, may sue
and be sued on behalf of the closed bank. When petitioner was placed under receivership, the
powers of its Board of Directors and its officers were suspended. Thus, its Board of Directors
could not have validly authorized its Executive Vice Presidents to file the suit on its behalf. The
Petition, not having been properly verified, is considered an unsigned pleading. 124 124 A defect
in the certification of non-forum shopping is likewise fatal to petitioner's cause. 125 125
Considering that the Petition was led by signatories who were not validly authorized to do so, the
Petition does not produce any legal effect. Being an unauthorized pleading, this Court never
validly acquired jurisdiction over the case. The Petition, therefore, must be dismissed.

Page | 63
 4
Bangko Sentral ng Pilipinas vs. Banco Filipino Savings and Mortgage Bank
2018
J. De Castro
DOCTRINE: The prevailing party may move for the execution of a final and executory
judgment as a matter of right within five years from the entry of judgment. If no motion is filed
within this period, the judgment is converted to a mere right of action and can only be enforced
by instituting a complaint for the revival of judgment in regular court within 10 years from
finality of judgment.

BSP, the independent central monetary authority established by the law, is still given sufficient
independence and latitude to carry out its mandate.

FACTS: In MB Resolution No. 955 dated July 27, 1984, the Central Bank-Monetary Board
(CB-MB) placed Banco Filipino Savings and Mortgage Bank (BFSMB) under conservatorship
of one Basilio Estanislao.
Eventually, pursuant to another resolution, MB Resolution No. 75 dated January 25, 1985, the
CB-MB ordered the closure of BFSMB on the ground that the latter was found to be "insolvent
and that its continuance in business would involve probable loss to its depositors and creditors x
x x."

On February 28, 1985, BFSMB filed before the Court a petition for certiorari and mandamus
under Rule 65 of the Rules of Court seeking to annul MB Resolution No. 75 "as made without or
in excess of jurisdiction or with grave abuse of discretion x x." The petition was docketed as
G.R. No. 70054 entitled, "Banco Filipino Savings and Mortgage Bank v. The Monetary Board,
Central Bank of the Philippines, Jose B. Fernandez, Carlota P. Valenzuela, Arnulfo B. Aurellano
and Ramon V. Tiaoqui," which was later consolidated with eight other cases.
In a consolidated Decision dated December 11, 1991, the Court, among others, annulled and set
aside MB Resolution No. 75, and ordered the CB-MB to allow BFSMB to resume business.

Less than two years thereafter, or on July 6, 1993, Republic Act No. 7653, otherwise known as
The New Central Bank Act of 1993, took effect. This new law abolished the CB and a new
central monetary authority was established known as Bangko Sentral ng Pilipinas. But also under
the said law, the CB will continue to exist under the name Central Bank-Board of Liquidators
(CB-BOL) for the sole purpose of administering and liquidating the assets and liabilities of the
CB that were not transferred to the BSP.
During meeting held on November 6, 1993, the BSP-MB, resolved: “1. To allow the Banco
Filipino Savings and Mortgage Bank (BFSMB) to reopen, subject to submission of its proposed
organization including the list of officers and its plan of operations.”

Thus, on July 1, 1994, BFSMB reopened and resumed business under the comptrollership of the
BSP.
Sometime in December 2002, BFSMB experienced massive withdrawals. Thus, BFSMB applied
for emergency financial assistance from the BSP to maintain liquidity.

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BFSMB's business plan was premised on the assertion that, having "stepped into the shoes of the
old Central Bank," the BSP was obligated to "reorganize" it (BFSMB) through the following: (i)
restoring its 89 branches that used to operate prior to its closure in 1985; and (ii) extending
financial support that are not subjected to stringent requirements.
In reply thereto, however, BSP-MB stated that it had no basis to act on the business plan
considering that the latter appeared to have been taken up and approved by BFSMB's Executive
Committee, and not by its Board of Directors, and because of BFSMB's insistence that BSP-MB
are the successors-in-interest of CB-MB, "an allegation that [BSP-MB] have consistently denied
in x x x previous communications x x x [and which issue] is still subject to contest in pending
[court] proceedings."

Hence, on July 14, 2004, BFSMB filed Petition for Revival of Judgment to enforce the Decision
of the Court in G.R. No. 70054 that became final and executory on February 4, 1992. Said
petition was filed against the CB-MB, represented by the CB- BOL, and the BSP-MB.

BSP-MB and CB-BOL separately moved to dismiss the petition. The RTC denied the motions to
dismiss.
Aggrieved, BSP-MB and CB-BOL went to the Court of Appeals via separate petitions for
certiorari. The CA dismissed BSP-MB’s petition for certiorari. However, another Division of the
CA granted CB-BOL’s petition and ordered the dismissal of BFSMB's Petition for Revival of
Judgment.

BFSMB insists that the passage of RA No. 7653 tolled the period of prescription because it
rendered the enforceability of the judgment sought to be revived uncertain, i.e., when the
enforceability of a final judgment becomes uncertain, the period for such purpose is tolled and
prescription does not operate. Further, it asserts that the partial performance by BSP of the
subject judgment obligation further tolled the running period.

ISSUES: WoN the passage of RA No. 7653 tolled the period of prescription

RULING: NO. First of all, contrary to BF's proposal, there was no vacuum created with the
passage of R.A. 7653 that would render BF uncertain as against whom it can enforce its rights.
All powers, duties and functions vested by law in the Central Bank of the Philippines were
deemed transferred to the BSP. The law provides that all references to the Central Bank of the
Philippines in any law or special charters shall be deemed to refer to the BSP. Further, R.A. 7653
states that any asset or liability of the Central Bank not transferred to the Bangko Sentral shall be
retained and administered, disposed of and liquidated by the Central Bank itself which shall
continue to exist as the CB Board of Liquidators or CB-BOL. In other words, the entities where
the assets and liabilities of the Central Bank have been transferred are readily identifiable. There
is, thus, no reason for BF to use, as an excuse for its delay to file an action to revive judgment,
the creation of the BSP as the new central monetary authority. It is apparent that there has been
merely transfer of interest between the two entities, with the organization made more efficient by
the creation of a body known as the CB-BOL.

And worth noting is the fact that when BFSMB finally filed the petition for revival of judgment
in 2004, it filed it against both the BSP-MB and CB-BOL. BFSMB could have done the same

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and filed the action against both entities anytime within the ten year prescriptive period if it was
really unsure which of the two to go against.
WoN, absent prescription, BFSMB‘s petition for revival of judgment must be dismissed

YES. The judgment obligation had already been extinguished through performance.
Thus, what this Court obliged CB-MB to do was: (1) to reorganize, and (2) to reopen BFSMB.
Such reorganization and reopening, however, were imposed with conditions, to wit: (1) that they
be done under the comptrollership of the CB-MB; and (2) the reorganization of BFSMB should
be done under conditions to be prescribed by the CB-MB. Note further, that the comptrollership
and imposition of certain conditions by CBMB were to be accomplished within a period, i.e.,
"until such time that petitioner bank can continue in business with safety to its creditors,
depositors and the general public." But most importantly, nothing in the dispositive of the subject
decision specified and enumerated how CB-MB was to reorganize BFSMB, or what conditions
would be imposed in furtherance thereof.

On this point, We agree with BSP-MB that, "the reliefs prayed for by BFSMB cannot be
mandated by judicial compulsion through a mere revival of judgment considering that they lie
within the discretion of the BSP-MB taking into account sound banking principles." Verily,
nothing changed with the enactment of Republic Act No. 7653. BSP, the independent central
monetary authority established by the law, is still given sufficient independence and latitude to
carry out its mandate.

It is evident that the judgment obligation imposed by the Decision in G.R. No. 70054 had already
been extinguished through its performance - BFSMB had been reopened and reorganized under
the comptrollership of the BSP -MB, which comptrollership lasted until January 20, 2000, upon
the agreement of BSP-MB and BFSMB to implement the Memorandum of Agreement dated
December 20, 1999, to wit: “7.
The parties undertake to perform the following acts to implement this AGREEMENT and its
purposes: (a) Within thirty (30) days from execution of this AGREEMENT, BANGKO
SENTRAL shall lift the comptrollership over BANCO FILIPINO and deliver to the latter all
collaterals in its custody. The government securities remaining in the custody of the designated
comptrollers shall be released upon the signing of this AGREEMENT.”

5
CU v. SMALL BUSINESS GUARANTEE AND FINANCE CORP
G.R. No. 211222. August 7, 2017
Caguioa, J.

DOCTRINE: A criminal case for violation of BP 22 against a bank placed under receivership
by the Monetary Board may be dismissed for the demandability of the obligation to be performed
has been suspended.

FACTS: Golden 7 Bank (G7 Bank) was granted a credit line worth Php 50 million by
respondent Small Business Guarantee and Finance Corp. The bank’s officers, herein petitioner
Fidel Cu, Allan Cu and others were made signatories to the loan documents including the

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postdated checks which were issued in payment for the drawdowns on the credit line. BSP placed
G7 Bank under receivership by the Philippine Deposit Insurance Corporation (PDIC). PDIC
eventually took over the bank’s premises, per the closure order issued by the Monetary Board. In
effect, the Deputy Receiver of PDIC took over the bank and issued a cease and desist order
which allowed PDIC to close all of G7 Bank’s deposit accounts with other banks. The postdated
checks issued by Cu the matured and when SB Corp deposited the same to its account
with the LBP Makati Branch, they were all dishonored for the reason that the account was
already closed. SB Corp sent demand letters to Cu, demanding payment. Despite such, Cu failed
to comply thus SB Corp filed a criminal complaint against Cu and others for violation of
BP 22. A petition for assistance in the liquidation of G7 Bank’s assets was then filed by PDIC
in the Naga City court.

The MeTC dismissed the BP 22 cases, and the dismissal was upheld by the RTC, by the reason
that the appointment of a receiver operates to suspend the authority of the bank and its officers to
intermeddle with its own property and transfer its assets to make do the payment with SB
Corp. The CA reversed the ruling, hence Cu’s petition.

ISSUE: Whether the criminal case for BP 22 against the bank officers should be dismissed due
to the order for receivership and despite a subsequent pending petition for assistance for
liquidation.

RULING: YES, the SC found that both the MeTC and the RTC acted correctly when it ordered
the dismissal of the BP 22 cases against Cu. The Court found that:

(1) the closure of G7 Bank, placing it under receivership per Monetary Board Orders and the
filing of the petition for assistance in the liquidation proceedings effectively suspended the
demandabililty of the loan, thus the BP 22 case cannot proceed and was properly dismissed; and

(2) the filing of a petition for assistance in liquidation by PDIC as receiver as a result of the
Monetary Bank’s order for closure made it legally impossible for Cu to comply with his
obligation with SB Corp, thus the filing was clearly in bad faith

It applied the doctrine in the case of Gidwani v. People, in which the demandability of the
payment for the embroidery services rendered by the exporter was “suspended” by an SEC
order, which ordered the account from which the payments were to be drawn against, to be
closed, after the exporter filed a petition for declaration of a state of suspension of payments.

“In other words, the SEC Order also created a suspensive condition. When a contract is subject
to a suspensive condition, its birth takes place or its effectivity commences only if and when
the event that constitutes the condition happens or is fulfilled. Thus, at the time the payee
presented the September and October 1997 checks for encashment, it had no right to do so,
as there was yet no obligation due from the exporter, through its President.” “Consequently,
because there was a suspension of the exporter's obligations, its President may not be held liable
for civil obligations of the corporation covered by the bank checks at the time this case arose.
However, it must be emphasized that the President's non•liability should not prejudice the
right of the payee to pursue its claim through the remedies available to it, subject to the

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SEC proceedings regarding the application for corporate rehabilitation.” The Court pointed out
that that G7 Bank was placed under receivership prior to the demand of the payments. This
means that when SB Corp. deposited the postdated checks, it was surely aware that G7 Bank
was already under receivership and PDIC had already taken over the bank by virtue of the
Monetary Board’s closure thereof. SB Corp clearly acted in bad faith because it was aware
that it was legally impossible for Cu to fund those checks on the dates indicated therein,
which were all past G7 Bank’s closure because all the bank accounts of G7 Bank were closed by
PDIC.

Further, the effect of a petition for assistance in the liquidation of a cloased bank is that it gives
the liquidation court the exclusive jurisdiction to adjudicate disputed claims against the closed
bank, assist in the individual liabilities of the stockholders, directors, and officers, and decide on
all other issues as may be material to implement the distribution plan adopted by the PDIC for
general application to all closed banks.

Considering the amount to be received by SB Corp was not yet determine as the liquidation
proceeding was still pending, the debtor’s obligation to pay or perform is suspended. This
however, does not preclude the proper filing of claims in the liquidation proceedings.

6
FEDERAL EXPRESS CORP. V. ANTONINO
G.R. No. 199455. June 27, 2018
Leonen, J.

DOCTRINE: It is settled in jurisprudence that checks, being only negotiable instruments, are
only substitutes for money and are not legal tender; more so when the check has a named payee
and is not payable to bearer. An order instrument, which has to be endorsed by the payee
before it may be negotiated, cannot be a negotiable instrument equivalent to cash.

FACTS: In November 2003, monthly common charges on the unit situated in New York, USA
and owned by respondent Eliza Antonino became due. These charges were for the period
of July 2003 to November 2003, and were for a total amount of US$9,742.81. On December
2003, respondents Luwalhati and Eliza were in the Philippines. As the monthly common charges
on the Unit had become due, they decided to send several Citibank checks to Sison, who was
based in New York. Citibank checks allegedly amounting to US$17,726.18 for the payment of
monthly charges and US$11,619.35 for the payment of real estate taxes were sent by Luwalhati
through FedEx with Account No. x2546-4948-1 and Tracking No. 8442 4588 4268. The package
was addressed to Sison who was tasked to deliver the checks payable to MaxwellKates, Inc. and
to the New York County Department of Finance. Sison allegedly did not receive the package,
resulting in the non-payment of Luwalhati and Eliza's obligations and the foreclosure of the Unit.
After several follow-ups, Sison was informed that the package was delivered to her neighbor but
there was no signed receipt. On March 14, 2004, respondents, through their counsel, sent a
demand letter to FedEx for payment of damages due to the non-delivery of the package, but
FedEx refused to heed their demand. Hence, on April 5, 2004, they led their Complaint for
damages.

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FedEx contended that it should be absolved of liability as the respondents shipped prohibited
items and misdeclared these items as "documents." It pointed to conditions under its Air Waybill
prohibiting the "transportation of money (including but not limited to coins or negotiable
instruments equivalent to cash such as endorsed stocks and bonds)."

ISSUE: Whether or not the Citibank checks are considered money, within the prohibition of
FedEx’s Air Waybill.

RULING: The prohibition has a singular object: money. What follows the phrase "transportation
of money "is a phrase enclosed in parentheses, and commencing with the words "including but
not limited to." The additional phrase, enclosed as it is in parentheses, is not the object of
the prohibition, but merely a postscript to the word "money." Moreover, its introductory words
"including but not limited to" signify that the items that follow are illustrative examples; they
are not qualifiers that are integral to or inseverable from "money." Despite the utterance of the
enclosed phrase, the singular prohibition remains: money. Money is "what is generally
acceptable in exchange for goods." It can take many forms, most commonly as coins and
banknotes. Despite its myriad forms, its key element is its general acceptability. Laws usually
define what can be considered as a generally acceptable medium of exchange.

It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes
for money and are not legal tender; more so when the check has a named payee and is not
payable to bearer. In Philippine Airlines, Inc. v. Court of Appeals, the Court ruled that the
payment of a check to the sheriff did not satisfy the judgment debt as checks are not
considered legal tender. This has been maintained in other cases decided by the Supreme Court.

The Air Waybill's prohibition mentions "negotiable instruments" only in the course of making an
example. Thus, they are not prohibited items themselves. Moreover, the illustrative example
does not even pertain to negotiable instruments per se but to "negotiable instruments
equivalent to cash." The checks involved here are payable to specific payees, Maxwell-Kates,
Inc. and the New York County Department of Finance. Thus, they are order instruments.
They are not payable to their bearer. Order instruments differ from bearer instruments in
their manner of negotiation: Under Section 30 of the Negotiable Instruments Law, an order
instrument requires an indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require an indorsement to be
validly negotiated. There is no question that checks, whether payable to order or to bearer, so
long as they comply with the requirements under Section 1 of the Negotiable Instruments Law,
are negotiable instruments. The more relevant consideration is whether checks with a specified
payee are negotiable instruments equivalent to cash, as contemplated in the example added to the
Air Waybill's prohibition. The Court thinks they are not. An order instrument, which has to be
endorsed by the payee before it may be negotiated, cannot be a negotiable instrument equivalent
to cash. It is worth emphasizing that the instruments given as further examples under the Air
Waybill must be endorsed to be considered equivalent to cash.

7
RURAL BANK OF SAN MIGUEL, ET AL. VS. MONETARY BOARD, ET AL.,
G.R. 150886. FEBRUARY 16, 2007

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DOCTRINE: Section 30 of the BSP Law merely requires a report, not an examination, by the
head of the supervising or examining department before a bank could be closed.

FACTS: On the basis of the comptrollership/monitoring report as of October 31, 1999 as

reported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in his
memorandum dated January 20, 2000, which report showed that [RBSM] (a) is unable to pay its
liabilities as they become due in the ordinary course of business; (b) cannot continue in business
without involving probable losses to its depositors and creditors; that the management of the
bank had been accordingly informed of the need to infuse additional capital to place the bank in
a solvent financial condition and was given adequate time within which to make the required
infusion and that no infusion of adequate fresh capital was made, Monetary Board (MB), the
governing board of respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105
prohibiting RBSM from doing business in the Philippines, placing it under receivership and
designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver.

ISSUE: Petitioners argue that Resolution No. 105 was bereft of any basis considering that no
complete examination had been conducted before it was issued. This case essentially boils down
to one core issue: whether Section 30 of RA 7653 (also known as the New Central Bank Act)
and applicable jurisprudence require a current and complete examination of the bank before it
can be closed and placed under receivership.

HELD: In RA 7653, only a "report” of the head of the supervising or examining department" is
necessary. It is an established rule in statutory construction that where the words of a statute are
clear, plain and free from ambiguity, it must be given its literal meaning and applied without
attempted interpretation. Laying down the requisites for the closure of a bank under the law is
the prerogative of the legislature and what its wisdom dictates. The lawmakers could have easily
retained the word "examination" (and in the process also preserved the jurisprudence attached to
it) but they did not and instead opted to use the word "report." The insistence on an examination
is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a
requirement when such is not supported by the language of the law.

8
So v. Philippine Deposit Insurance Corp.
G.R. No. 230020. March 19, 2018
J. Tijam

DOCTRINE: PDIC exercises judicial discretion and judgment in determining whether a

claimant is entitled to a deposit insurance claim, which determination results from its
investigation of facts and weighing of evidence presented before it. Noteworthy also is the fact
that the law considers PDIC's action as final and executory and may be reviewed only on the
ground of grave abuse of discretion.

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FACTS: Petitioner Peter So (So) opened an account with the Cooperative Rural Bank Bulacan
(CRBB) amounting to P300,000, for which he was assigned the Special Incentive Savings
Account (SISA) No. 05-15712-1.

On the same year, however, So learned that CRBB closed its operations and was placed under
Philippine Deposit Insurance Corporation's (PDIC's) receivership. This prompted So, together
with other depositors, to file an insurance claim with the PDIC. Acting upon such claim, PDIC
sent a letter/notice requiring So to submit additional documents, which So averred of having
complied with. Upon investigation, the PDIC found that So’s account originated from and was
funded by the proceeds of a terminated SISA (mother account), jointly owned by a certain Reyes
family. Thus, based on the determination that So's account was among the product of the
splitting of the said mother account which is prohibited by law, PDIC denied So's claim for
payment of deposit insurance. So then filed a Request for Reconsideration, which was likewise
denied by the PDIC. Aggrieved, So filed a Petition for Certiorari under Rule 65 before the
RTC.RTC upheld the factual findings and conclusions of the PDIC. According to the RTC,
based on the records, the PDIC correctly denied So's claim for insurance on the ground of
splitting of deposits which is prohibited by law. RTC also declared that, pursuant to its Charter
(RA 3591), PDIC is empowered to determine and pass upon the validity of the insurance
deposits claims, it being the deposit insurer. As such, when it rules on such claims, it is
exercising a quasi-judicial function. Thus, it was held that petitioner's remedy to the dismissal of
his claim is to file a petition for certiorari with the Court of Appeals under Section 4, Rule 65,
stating that if the petition involves the acts or omissions of a quasi-judicial agency, unless
otherwise provided by law or the rules, it shall be filed in and cognizable only by the Court of
Appeals (CA).

ISSUE: Whether or not RTC have jurisdiction over a petition for certiorari filed under Rule 65,
assailing the PDIC's denial of a deposit insurance claim.

RULING: NO. PDIC was created under RA 3591 as an insurer of deposits in all banks entitled
to the benefits of insurance under the said Act to promote and safeguard the interests of the
depositing public. As such, PDIC has the duty and authority to determine the validity of and
grant or deny deposit insurance claims. Section 16(a) of its Charter, as amended, provides that
PDIC shall commence the determination of insured deposits due the depositors of a closed bank
upon its actual take over of the closed bank. Also, Section 1 of PDIC's Regulatory Issuance No.
2011-03, provides that as it is tasked to promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on all insured deposits,
and in helping develop a sound and stable banking system at all times, PDIC shall pay all
legitimate deposits held by bona fide depositors and provide a mechanism by which depositors
may seek reconsideration from its decision, denying a deposit insurance claim. Further, it bears
stressing that as stated in Section 4(f) of its Charter, as amended, PDIC's action, such as denying
a deposit insurance claim, is considered as final and executory and may be reviewed by the court
only through a petition for certiorari on the ground of grave abuse of discretion.

Considering the foregoing, the legislative intent in creating the PDIC as a quasi-judicial agency
is clearly manifest. Accordingly, the actions of the Corporation taken under Section 5(g) shall be
final and executory, and may only be restrained or set aside by the Court of Appeals, upon

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appropriate petition for certiorari on the ground that the action was taken in excess of
jurisdiction or with such grave abuse of discretion as to amount to a lack or excess of
jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of
denial of claim for deposit insurance.

As it stands, the controversy as to which court has jurisdiction over a petition for certiorari filed
to question the PDIC's action is already settled.

9
Spouses Chugani v Philippine Deposit Insurance Corp.
G.R. No. 230037. March 19, 2018
J. Tijam

DOCTRINE: The PDIC was created by Republic Act (R.A.) No. 3591 as an insurer of deposits
in all banks entitled to the benefits of insurance under the PDIC Charter to promote and
safeguard the interests of the depositing public by way of providing permanent and continuing
insurance coverage of all insured deposits. In order for the claim for deposit insurance with the
PDIC may prosper, it is necessary that the corresponding deposit must be placed in the insured
bank. In the case at bar, upon investigation by the PDIC, it was discovered that the money
allegedly placed by the petitioners in RBMI was in fact credited to the personal account of the
president of RBMI, hence, they could not be construed as valid liabilities of RBMI to petitioners.

FACTS: Petitioners Spouses Chugani, signified their intention to open Time Deposits with
Rural Bank of Mawab (Davao), Inc., (RBMI) through inter-branch deposits to the accounts of
RBMI maintained in Metrobank and China Bank- Tagum, Davao Branches. Thereafter,
Certificates of Time Deposits (CTDs) and Official Receipts were issued to Spouses Chugani.

Sometime in September 2011, Spouses Chugani came to know that the Monetary Board of the
Bangko Sentral ng Pilipinas placed RBMI under receivership and thereafter closed the latter.
Spouses Chugani, then filed claims for insurance of their time deposits.

Respondent Philippine Deposit Insurance Corporation (PDIC) denied the claims on the following
grounds: 1.) based on bank records submitted by RBMI, Spouses Chugani’s deposit accounts are
not part of RBMI's outstanding deposit liabilities; 2.) the time deposits of Spouses Chugani are
fraudulent and their CTDs were not duly issued by RBMI, but were mere replicas of unissued
CTD's in the inventory submitted by RBMI to PDIC; and 3.) the amounts purportedly deposited
by the petitioners were credited to the personal account of the president of RBMI, hence, they
could not be construed as valid liabilities of RBMI. Spouses Chugani filed a request for
reconsideration of PDIC's denial of their claim. PDIC however rejected the same. Hence,
Spouses Chugani filed a Petition for Certiorari under Rule 65 of the Rules of Court with the
Regional Trial Court (RTC).

RTC issued an Order dismissing the Petition for Certiorari filed by Spouses Chugani for lack of
jurisdiction. Aggrieved, Spouses Chugani appealed the RTC's Decision to the Court of Appeals
(CA). Meanwhile, CA denied the appeal of Spouses Chugani ruling that, RTC has no jurisdiction

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over the Petitions for Certiorari filed by the petitioners questioning the PDIC's denial of their
claim for deposit insurance.

ISSUES: Whether or not RTC has jurisdiction over the Petitions for Certiorari questioning
PDIC’S denial of Spouses Chugani’s claim for deposit. Whether or not PDIC acted in grave
abuse of discretion in denying the claim for deposit insurance.

RULING: NO. The RTC has no jurisdiction. Consistent with Section 4,Rule 65, the CA has the
jurisdiction to rule on the alleged grave abuse of discretion of the PDIC. Therefore, the CA is
correct when it held that the RTC has no jurisdiction over the Petitions for Certiorari filed by the
petitioners questioning the PDIC's denial of their claim for deposit insurance. Nevertheless, any
question as to where the petition for certiorari should be filed to question PDIC's decision on
claims for deposit insurance has been put to rest by R.A. No. 10846. Section 7 therein provides:

xxxx

"The actions of the Corporation taken under Section 5(g) shall be final and executory, and may
only be restrained or set aside by the Court of Appeals, upon appropriate petition for certiorari on
the ground that the action was taken in excess of jurisdiction or with such grave abuse of
discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari may only be
filed within thirty (30) days from notice of denial of claim for deposit insurance”.

NO. PDIC did not acted in grave abuse of discretion.

Based on its charter, the PDIC has the duty to grant or deny claims for deposit insurance. Upon
investigation by the PDIC, it was discovered that 1) the money allegedly placed by the
petitioners in RBMI was in fact credited to the personal account of the president of RBMI,
hence, they could not be construed as valid liabilities of RBMI to petitioners; 2) based on bank
records and the certified list of the bank's outstanding deposit liabilities, the alleged deposits of
petitioners are not part of RBMI's outstanding liabilities; and 3) the CTDs are not validly issued
by RBMI, but were mere replicas of the unissued and unused CTDs still included in the
inventory of RBMI. Considering the above disquisitions, it is sufficiently established that the
PDIC, did not commit any grave abuse of discretion in denying petitioners' claim for deposit
insurance as the same were validly grounded on the facts, law and regulations issued by the
PDIC.

10
SPOUSES JAIME AND MATILDE POON v. PRIME SAVINGS BANK REPRESENTED
BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS STATUTORY
LIQUIDATOR
G.R. No. 183794. June 13, 2016
Sereno. J.,

FACTS: The petitioners owned a commercial building. They executed a 10-year contract of
lease over building with respondent Prime Savings Bank for the latter to use it as a branch office.
They agreed to a fixed monthly rental with an advance payment. The contract also provided:

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Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR shall
have the right to terminate the lease ...x x x The LESSOR shall thereupon have the right to enter
into a new contract with another party. All advanced rentals shall be forfeited in favor of the
LESSOR. Three years later, the BSP placed respondent under receivership of the PDIC and
eventually ordered its litigation. The respondent vacated petitioner’s building and PDIC then
demanded return of the advance rentals. Petitioners refused to return the advanced rentals. Thus
respondent commenced this case for rescission of contract and recovery of sum of money.
The RTC ruled in favor of Petitioners and ordered the partial rescission of the contract insofar as
the advance payment was forfeited. It held that the PDIC’s closure of their business was a
fortuitous event. The CA affirmed but applied Art. 1229 instead.

ISSUE:

1. Whether or not respondent may avail of the remedy of rescission.

2. Whether or not the closure of respondent’s business is a fortuitous event.
3. Whether or not the forfeiture of the advance rentals was a penal clause.
4. Whether or not the penalty may be equitably reduced.

RULING:
1. YES. Respondents are entitled to rescission. The legal remedy of rescission is by no means
limited to the situations covered in Arts. 1381 and 1382. The New Civil Code actually uses the
term “rescission” in two different contexts. The first refers to breach of contract under Art. 1191,
also known as the remedy of “resolution”; the second is rescission by reason of lesion or
economic prejudice under Art. 1381. The first is a principal action based on breach of a party,
while the second is a subsidiary action. From the allegations of the complaint, it is clear that
respondent’s right of action rests on the alleged abuse of petitioner’s right under the contract on
the theory that petitioner tenaciously enforced their right to forfeit the advanced rentals which
was in bad faith since they knew that respondent was already insolvent. IN other words,
respondents are seeking rescission under Art. 1191.

2. NO. The closure of respondent’s business was neither a fortuitous or unforeseen event. In this
case, for it to be considered a fortuitous event, there has to be bad faith or arbitrariness on the
part of the BSP. Instead, its decision to place respondent under receivership and liquidation was
pursuant to R.A. No. 7653, moreover, respondent was partially accountable for closure of its
banking business. Neither is this case, a case of unforeseen event under Art. 1267. After all,
parties to a contract are presumed to have assumed the risks of unfavorable developments. It is
only in absolutely exceptional changes of circumstance therefore that equity demands assistance
for the debtor. In Tagaytay Realty vs. Gacutan the requisites for the application of Art. 1267 are:
1. The event could not have been foreseen at the time of the execution of the contract.
2. It makes performance of the contract extremely difficult but not impossible.
3. It must not be due to the act of any of the parties.
4. The contract is for a future prestation.
The case explains that mere inconvenience, unexpected impediments, increased expenses or even
pecuniary inability to fulfill an engagement will not relieve the obligor from an undertaking that
it has knowingly and freely contracted. In this case, the first and third requisites are lacking.

Page | 74
Since the lease was for 10 years, the parties should have considered the possibility of closure of
business.

3. YES. The forfeiture clause in the contract is penal in nature. A provision is a penal clause if it
calls for the forfeiture of any remaining deposit still in the possession of the lessor without
prejudice to any other obligation still owing, in the event of the termination or cancellation of the
agreement by reason of the lessee’s violation of any of the terms and conditions thereof. This
kind of agreement may be validly entered into the by the parties. In this case, it is evident that the
stipulation on the forfeiture of advance rentals is a penal in the sense that it provides for
liquidated damages. The penalty for the premature termination of the contract works both ways.
The penalty was to compel respondent to complete the 10-year term of the lease. Petitioners, too
were similarly obliged to ensure the peaceful use of the building by respondent for the duration
of the lease under paid of losing the remaining advance rentals paid by the respondent.

4. YES. A reduction of the penalty agreed upon by the parties is warranted under Article 1229 of
the New Civil Code.

The general rule is that courts have no power to ease the burden of obligations voluntarily
assumed by parties, just because things did not turn out as expected at the inception of the
contract. It must be noted that this case was initiated by the PDIC in furtherance of its statutory
role as the fiduciary of Prime Savings Bank. As the state-appointed receiver and liquidator, the
PDIC is mandated to recover and conserve the assets of the foreclosed bank on behalf of the
latter's depositors and creditors. In other words, at stake in this case are not just the rights of
petitioners and the correlative liabilities of respondent lessee. Over and above those rights and
liabilities is the interest of innocent debtors and creditors of a delinquent bank establishment.
These overriding considerations justify the 50% reduction of the penalty agreed upon by
petitioners and respondent lessee in keeping with Article 1229 of the Civil Code, which provides
for an equitable reduction of the penalty in some cases.
Under the circumstances, it is neither fair nor reasonable to deprive depositors and creditors of
what could be their last chance to recoup whatever bank assets or receivables the PDIC can still
legally recover. Strict adherence to the doctrine of freedom of contracts, at the expense of the
rights of innocent creditors and investors, will only work injustice rather than promote justice in
this case.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The
Court of Appeals Decision dated 29 November 2007 and its Resolution dated 10 July 2008 in
CA-G.R. CV No. 75349 are hereby MODIFIED in that legal interest at the rate of 6% per annum
is imposed on the monetary award computed from the finality of this Decision until full payment.

SECRECY OF BANK DEPOSITS (RA 1405, AS AMENDED,

AND RA 6426, AS AMENDED)
1
GO V. DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC.
G.R. No. 194024. 25 April 2012

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FACTS: Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered
individual owners of condominium units in Phoenix Heights Condominium located at H.
Javier/Canley Road, Bo. Bagong Ilog, Pasig City, Metro Manila. In August 2008, petitioners, as
condominium unit-owners, filed a complaint7 before the HLURB against DPDCI for unsound
business practices and violation of the MDDR. The case was docketed as REM- 080508-13906.
They alleged that DPDCI committed misrepresentation in their circulated flyers and brochures as
to the facilities or amenities that would be available in the condominium and failed to perform its
obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public
concerning the facilities in the condominium. It alleged that the brochure attached to the
complaint was “a mere preparatory draft” and not the official one actually distributed to the
public, and that the said brochure contained a disclaimer as to the binding effect of the supposed
offers therein. Also, DPDCI questioned the petitioners’ personality to sue as the action was a
derivative suit. After due hearing, the HLURB rendered its decision8 in favor of petitioners.

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the
controversy did not fall within the scope of the administrative agency’s authority under P.D. No.
957. The HLURB not only relied heavily on the brochures which, according to the CA, did not
set out an enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of
the MDDR to support its finding of contractual violation.

ISSUE: Whether or not the HLURB has jurisdiction over the complaint filed by petitioners.

RULING: The petition fails.

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by
law and determined by the allegations in the complaint which comprise a concise statement of
the ultimate facts constituting the plaintiff’s cause of action. The nature of an action, as well as
which court or body has jurisdiction over it, is determined based on the allegations contained in
the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover
upon all or some of the claims asserted therein. The averments in the complaint and the character
of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint,
jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover
upon all or some of the claims asserted therein. Thus, it was ruled that the jurisdiction of the
HLURB to hear and decide cases is determined by the nature of the cause of action, the subject
matter or property involved and the parties.

In this case, the complaint filed by petitioners alleged causes of action that apparently are not
cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal
of the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly
constituted acts of PHCC – the April 29, 2005 Agreement27 entered into by PHCC with DPDCI
and its Board Resolution28 which authorized the acceptance of the proposed
offsetting/settlement of DPDCI’s indebtedness and approval of the conversion of certain units
from saleable to common areas. All these were approved by the HLURB.

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 2
MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION V. CULLEN
G.R. NO. 181416, 11 NOVEMBER 2013

FACTS: Respondent Robert H. Cullen purchased from MLHI condominium Unit.

On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E.
Dimayuga, demanded from respondent payment for alleged unpaid association dues and
assessments amounting to ₱145,567.42. Respondent disputed this demand claiming that he had
been religiously paying his dues shown by the fact that he was previously elected president and
director of petitioner. Petitioner, on the other hand, claimed that respondent’s obligation was a
carry-over of that of MLHI.

Consequently, respondent was prevented from exercising his right to vote and be voted for
during the 2002 election of petitioner’s Board of Directors.6 Respondent thus clarified from
MLHI the veracity of petitioner’s claim, but MLHI allegedly claimed that the same had already
been settled. This prompted respondent to demand from petitioner an explanation why he was
considered a delinquent payer despite the settlement of the obligation. Petitioner failed to make
such explanation. Hence, the Complaint for Damages filed by respondent against petitioner and
MLHI.

ISSUE: Whether or not the controversy involve intra-corporate issues as would fall within the
jurisdiction of the RTC sitting as a special commercial court or an ordinary action for damages
within the jurisdiction of regular court.

RULING: In determining whether a dispute constitutes an intra-corporate controversy, the Court

uses two tests, namely, the relationship test and the nature of the controversy test.

An intra-corporate controversy is one which pertains to any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the State insofar as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves.22 Thus,
under the relationship test, the existence of any of the above intra-corporate relations makes the
case intra-corporate.

Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It
obviously arose from the intra-corporate relations between the parties, and the questions
involved pertain to their rights and obligations under the Corporation Code and matters relating
to the regulation of the corporation.

Admittedly, petitioner is a condominium corporation duly organized and existing under

Philippine laws, charged with the management of the Medical Plaza Makati. Respondent, on the
other hand, is the registered owner of Unit No. 1201 and is thus a stockholder/member of the
condominium corporation. Clearly, there is an intra-corporate relationship between the
corporation and a stockholder/member.

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Being corporate in nature, the issues should be threshed out before the RTC sitting as a special
commercial court.

3
COSARE V. BROADCOM ASIA, INC.
G.R. No. 201298, 5 February 2014

FACTS: Cosare claimed that sometime in April 1993, he was employed as a salesman by
Arevalo, who was then in the business of selling broadcast equipment needed by television
networks and production houses. In December 2000, Arevalo set up the company Broadcom, still
to continue the business of trading communication and broadcast equipment. Cosare was named
an incorporator of Broadcom, having been assigned 100 shares of stock with par value of ₱1.00
per share.5 In October 2001, Cosare was promoted to the position of Assistant Vice President for
Sales (AVP for Sales) and Head of the Technical Coordination

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for
Sales and thus, became Cosare’s immediate superior. On March 23, 2009, Cosare sent a
confidential memo to Arevalo to inform him of the anomalies which were alledgedly being
committed by Abiog against the company. Apparently, Arevalo failed to act on Cosare’s
accusations. Cosare claimed that he was instead called for a meeting by Arevalo on March 25,
2009, wherein he was asked to tender his resignation in exchange for “financial assistance” in the
amount of ₱300,000.00. Cosare refused to comply with the directive.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s Manager
for Finance and Administration, a memo signed by Arevalo, charging him of serious misconduct
and willful breach of trust.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told
to merely wait outside the office building for further instructions. On April 3, 2009, Cosare filed
the subject labor complaint, claiming that he was constructively dismissed from employment by
the respondents. In refuting Cosare’s complaint, the respondents argued that Cosare was neither
illegally suspended nor dismissed from employment.

ISSUE: Whether or not the instant suit is an intra-corporate controversy, whereas such is within
the jurisdiction of the RTC.

RULING: It is not an intra-corporate controversy. Settled jurisprudence, however, qualifies that

when the dispute involves a charge of illegal dismissal, the action may fall under the jurisdiction
of the LAs upon whose jurisdiction, as a rule, falls termination disputes and claims for damages
arising from employer-employee relations as provided in Article 217 of the Labor Code.
Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an officer of
Broadcom at the time the subject controversy developed failed to necessarily make the case an
intra-corporate dispute.

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 SECURITIES AND EXCHANGE COMMISSION V. SUBIC BAY GOLF AND
COUNTRY CLUB, INC.
G.R. No. 179047, 11 March 2015

FACTS: On April 25, 1996, SBGCCI and UIGDC entered into a Development Agreement.
UIGDC agreed to “finance, construct and develop the [golf course], for and in consideration of
the payment by [SBGCCI] of its 1,530 (SBGCCI) shares of stock.” Upon SBGCCI’s application,
the Securities and Exchange Commission issued an Order for the Registration of 3,000 no par
value shares of SBGCCI on July 8, 1996. SBGCCI was issued a Certificate of Permit to Offer
Securities for Sale to the Public of its 1,530 no par value proprietary shares on August 9, 1996.
The shares were sold at P425,000.00 per share. SBGCCI would use the proceeds of the sale of
securities to pay UIGDC for the development of the golf course.

Complainants Regina Filart (Filart) and Margarita Villareal (Villareal) informed the Securities
and Exchange Commission that they had been asking UIGDC for the refund of their payment for
their SBGCCI shares. UIGDC did not act on their requests. They alleged that they purchased the
shares in 1996 based on the promise of SBGCCI and UIGDC to deliver what has been agreed
upon by the parties.

Villareal and Filart also claimed that despite SBGCCI’s and UIGDC’s failure to deliver the
promised amenities, they started to charge them monthly dues. They also never received any
billing statement from them until they were sent a demand notice to pay the alleged back dues.
They were threatened that their shares would be auctioned off if their alleged back dues would
not be paid.1Villareal and Filart prayed for relief from the “terrible situation [they found
themselves] in.” They also prayed that their letter be accepted “as a formal complaint against
Universal International Group Development Corporation for breach of promise/contract with its
investors who put in hard-earned money believing that they would deliver what their brochures
promised to deliver.”

The Corporation Finance Department found that Filart and Villareal invested in the golf course
because of SBGCCI and UIGDC’s representation that a 27-hole, world-class golf course would
be developed. It also found that SBGCCI and UIGDC failed to comply with their commitments
and representations as stated in their prospectus so the Corporation Finance Department ordered
the return of the purchase price of shares.

SBGCCI and UIGDC filed a Petition for Review35 of the Corporation Finance Department’s
Order before the Securities and Exchange Commission. SBGCCI and UIGDC assailed the
Corporation Finance Department’s and the Securities and Exchange Commission’s authority to
order a refund of investments. They also assailed its jurisdiction over the case, which according
to SBGCCI and UIGDC involved an intra-corporate dispute.

ISSUE: Who between the SEC and RTC has jurisdiction over the case.

RULING: Section 5.2 of Republic Act No. 8799 provides:

Page | 79
The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional
Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the
Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until fully disposed.

Hence, actions pertaining to intra-corporate disputes should be filed directly before designated
Regional Trial Courts. Intra-corporate disputes brought before other courts or tribunals are
dismissible for lack of jurisdiction. This case involves corporate rights and obligations. The
nature of the action — whether it involves corporate rights and obligations — is determined by
the allegations and reliefs in the complaint.

Villareal and Filart’s right to a refund of the value of their shares was based on SBGCCI and
UIGDC’s alleged failure to abide by their representations in their prospectus. Specifically,
Villareal and Filart alleged in their letter-complaint that the world-class golf course that was
promised to them when they purchased shares did not materialize. This is an intra-corporate
matter that is under the designated Regional Trial Court’s jurisdiction. It involves the
determination of a shareholder’s rights under the Corporation Code or other intra-corporate rules
when the corporation or association fails to fulfill its obligations. However, even though the
Complaint filed before the Securities and Exchange Commission contains allegations that are
intra-corporate in nature, it does not necessarily oust the Securities and Exchange Commission of
its regulatory and administrative jurisdiction to determine and act if there were administrative
violations committed.

The Securities and Exchange Commission is organized in line with the policy of encouraging
and protecting investments. It also administers the Securities Regulation Code,75 which was
enacted to “promote the development of the capital market, protect investors, ensure full and fair
disclosure about securities, [and] minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create distortions in the free market.”
Pursuant to these policies, the Securities and Exchange Commission is given regulatory powers
and “absolute jurisdiction, supervision and control over all corporations, partnerships’ or
associations. . . .”

In relation to securities, the Securities and Exchange Commission’s regulatory power pertains to
the approval and rejection, and suspension or revocation, of applications for registration of
securities for, among others, violations of the law, fraud, and misrepresentations.

5
ABAD V. PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION

Page | 80
 G.R. No. 200620. 18 March 2015

FACTS: Respondent PHILCOMSAT owns 81% of the outstanding capital stock of Philcomsat
Holdings Corporation (PHC). The majority shareholders of PHILCOMSAT are also the seven
families who have owned and controlled POTC. The PCGG nominees have aligned with the
Nieto family against the group of Africa and Ilusorio (Africa-Bildner), in the ensuing battle for
control over the respective boards of POTC, PHILCOMSAT and PHC. During the stockholders’
meeting of POTC & Philcomsat, Locsin, Andal and Nieto, Jr. were also elected as Directors,
they did not accept their election. Instead, the Nieto-PCGG group held another stockholders’
meeting for PHILCOMSAT. Immediately after the stockholders’ meeting, an organizational
meeting was held, and Nieto, Jr. and Locsin were respectively elected as Chairman and President
of PHILCOMSAT. At the same meeting, they issued a proxy in favor of Nieto, Jr. and/or Locsin
authorizing them to represent PHILCOMSAT and vote the PHILCOMSAT shares in the
stockholders’ meeting of PHC.

Thereafter, the two factions took various legal steps including the filing of suits and countersuits
to gain legitimacy for their respective election as directors and officers of POTC and
PHILCOMSAT. Africa in his capacity as President and CEO of PHILCOMSAT, and as
stockholder in his own right, wrote the board and management of PHC that PHILCOMSAT will
exercise its right of inspection over the books, records, papers, etc. pertinent to the business
transactions of PHC for the 3rd quarter of 2005, specifically the company’s financial documents.

PHILCOMSAT filed in the RTC a Complaint for Inspection of Books against the incumbent
PHC directors and/or officers, to enforce its right under Sections 74 and 75 of the Corporation
Code of the Philippines. The RTC dismissed the complaint for lack of jurisdiction. Citing Del
Moral v. Republic of the Philippines and Olaguer v. RTC, said court ruled that it is the
Sandiganbayan which has jurisdiction considering that plaintiff is a sequestered corporation of
the Republic through the PCGG alleging a right of inspection over PHC but which right or
authority was being raised as a defense by the defendants.

ISSUES:

1. Whether it is the Sandiganbayan or RTC which has jurisdiction over an intra-corporate

controversy;
2. Whether Africa-Bildner group has controlling interest in Philcomsat.

RULING:

1. Upon the enactment of Republic Act No. 8799 (The Securities Regulation Code), effective on
August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and the other cases
enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court pursuant
to Section 5.2 of the law, which provides:

5.2. The Commission’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional

Page | 81
Trial Court; Provided, That the Supreme Court in the exercise of its authority may designate the
Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intra- corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until finally disposed.

In the case at bar, the complaint concerns PHILCOMSAT’s demand to exercise its right of
inspection as stockholder of PHC but which petitioners refused on the ground of the ongoing
power struggle within POTC and PHILCOMSAT that supposedly prevents PHC from
recognizing PHILCOMSAT’s representative (Africa) as possessing such right or authority from
the legitimate directors and officers. Clearly, the controversy is intra-corporate in nature as they
arose out of intra-corporate relations between and among stockholders, and between stockholders
and the corporation.

2. Applying the ruling in G.R. No. 141796 and G.R. No. 141804 to Civil Case No. 04-1049, the
RTC (Branch 138) correctly concluded that the Nieto-PCGG Group, because it did not have the
majority control of POTC, could not have validly convened and held the stockholders’ meeting
and election of POTC officers on August 5, 2004 during which Nieto, Jr. and PCGG
representative Guy De Leon were respectively elected as President and Chairman; and that there
could not be a valid authority for Nieto, Jr. and/or Locsin to vote the proxies of the group in the
PHILCOMSAT meeting.

For the same reason, the POTC proxies used by Nieto, Jr. and Locsin to elect themselves
respectively as Chairman and President of PHILCOMSAT; and the PHILCOMSAT proxies used
by Nieto, Jr. and Locsin in the August 31, 2004 PHC elections to elect themselves respectively
as President and Acting Chairman of PHC, were all invalid for not having the support of the
majority shareholders of said corporations.

6
SECURITIES AND EXCHANGE COMMISSION V. SANTOS
G.R. No. 195542, 19 March 2014

FACTS: Sometime in 2007, yet another investment scam was exposed with the disappearance of
its primary perpetrator, Micheal H.K. Liew, a self–styled financial guru and Chairman of the
Board of Directors of Performance Investment Products Corporation (PIPC–BVI), a foreign
corporation registered in the British Virgin Islands. To do business in the Philippines, PIPC–BVI
incorporated herein as Philippine International Planning Center Corporation (PIPC Corporation).

Because the head of PIPC Corporation had gone missing and with it the monies and investment
of a significant number of investors, the SEC was flooded with complaints from 31 individuals
against PIPC Corporation, its directors, officers, employees, agents and brokers for alleged
violation of certain provisions of the SRC, including Section 28 thereof. Santos was charged in
the complaints in her capacity as investment consultant of PIPC Corporation, who actively
engaged in the solicitation and recruitment of investors. She induced private complainants
Lorenzo and Sy, to invest their monies in PIPC Corporation.

Page | 82
On her defense, Santos alleged that she was merely an employee of PIPC thus should not be
personally liable.

ISSUES: Whether or not Santos violated Sec. 28 of SRC which punishes unregistered broker or
dealer who engage in business of buying or selling securities.

RULING: There is no question that Santos was in the employ of PIPC Corporation and/or
PIPC–BVI, a corporation which sold or offered for sale unregistered securities in the Philippines.
To escape probable culpability, Santos claims that she was a mere clerical employee of PIPC
Corporation and/or PIPC–BVI and was never an agent or salesman who actually solicited the
sale of or sold unregistered securities issued by PIPC Corporation and/or PIPC–BVI.

Solicitation is the act of seeking or asking for business or information; it is not a commitment to
an agreement.
Santos, by the very nature of her function as what she now unaffectedly calls an information
provider, brought about the sale of securities made by PIPC Corporation and/or PIPC–BVI to
certain individuals, specifically private complainants Sy and Lorenzo by providing information
on the investment products of PIPC Corporation and/or PIPC–BVI with the end in view of PIPC
Corporation closing a sale.

While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s investments, Santos
procured the sale of these unregistered securities to the 2 complainants by providing information
on the investment products being offered for sale by PIPC Corporation and/or PIPC–BVI and
convincing them to invest therein. Thus, Santos violated Sec. 28 of SRC.

7
BENEDICTO-MUNOZ V. CACHO-OLIVARES
G.R. No. 179121, 9 November 2015

FACTS: Respondents claimed that Cuaycong, a salesman in securities, had engaged in

fraudulent and deceitful activities with the complicity and knowledge of the defendant stock
market brokerage firms, and the other individual defendants resulting in the loss of respondents’
investments. Respondent Cacho-Olivares also furnished the PSE with copies of letter-complaints
which alleged that the brokerage firms committed massive stock market fraud on her and her
family. The PSE-CRG stated though that the subject brokerage firms may have committed
administrative and procedural lapses in violation of the Revised Securities Act and/or existing
SEC Rules.

Parenthetically the Cuaycong brothers, had filed earlier a case for Consignation and Damages
against respondents. Cuaycong admitted that he was in possession of the funds owned by
respondents in the total amount of Php 7,040,645.2215 and offered to deposit the same with the
court. In his defense, he alleged that he acted as fund manager for the respondents, who knew
that he commingled their funds with those of his other clients.

In a Joint Manifestation, the Cuaycong brothers and the respondents manifested that they had
amicably settled their differences and entered into a Compromise Agreement. The trial court

Page | 83
conducted a clarificatory hearing where respondents manifested their intention to pursue the case
against the remaining defendants. However, the trial court holds that Cuaycong brothers were
indispensable parties sued with the other defendants, under a common cause of action, the trial
court dismissed the Amended and Supplemental Complaint.

ISSUES: Whether the dismissal of the case as against the Cuaycong brothers benefits the other
defendants.

RULING: Yes. The Original Complaint and the Amended and Supplemental Complaint allege
the same essential cause of action against the Cuaycong brothers and the petitioners-that is, stock
market fraud committed by Cuaycong principally through misappropriation, with the complicity
and indispensable cooperation of the defendant stock market brokerage firms and the individual
defendants. Thus, as with the Original Complaint, the allegations of the Amended and
Supplemental Complaint, though they dropped the Cuaycong brothers as defendants, and refer to
them now as “erstwhile defendants,” nevertheless still plead that the acts and omissions of
petitioners and the Cuaycong brothers are inextricably connected and interrelated.

The foregoing allegations plead the substantive unity in the alleged fraud and deceit that the
Cuaycong brothers and the petitioners committed against respondents, which resulted in a single
injury-the loss of investments in the amount of Php 7,040,645.22. Each of the petitioners
performed an indispensable act that aided and abetted the illegal activities of the Cuaycong
brothers, without which the latter would not be able to successfully consummate their fraudulent
scheme. In their Appellants’ Brief, respondents acknowledged that conspiracy existed between
the Cuaycong brothers and the petitioners.

The inseparability of the liabilities of the Cuaycong brothers and the petitioners finds further
support in law. Section 58 of the Securities Regulation Code punishes persons primarily liable
for fraudulent transactions. Here, the allegations of both the Original Complaint and the
Amended and Supplemental Complaint show that Cuaycong is the main actor in the
misappropriation of the money and shares of stock of the respondents. He is the person primarily
liable under Section 58, while petitioners who substantially assisted and indispensably
cooperated in the conduct of his wrongful acts are the aiders or abettors under Sections 51.4 and
51.5. Cuaycong and the petitioners engaged in a “transaction, practice or course of business
which operates or would operate as a fraud or deceit” upon the respondents.” Thus, Cuaycong
and the petitioners should be held solidarity liable for the resulting damage to the respondents.
Respondents cannot condone Cuaycong’s liability and proceed only against his aiders or abettors
because the liability of the latter are tied up with the former. Liability attaches to the aider or
abettor precisely because of the existence of the liability of the person primarily liable.

8
YOSHIZAKI V. JOY TRAINING CENTER OF AURORA, INC.
G.R. No. 174978, 31 July 2013

FACTS: Respondent Joy Training is a non-stock, non-profit religious educational institution.

The spouses Richard and Linda Johnson, members of the Board of Trustees of the former, sold

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the real properties, a Wrangler jeep, and other personal properties in favor of the spouses Sally
and Yoshio Yoshizaki.

Joy Training filed an action for the Cancellation of Sales and Damages with prayer for the
issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction against the
spouses Yoshizaki and the spouses Johnson. In the complaint, Joy Training alleged that the
spouses Johnson sold its properties without the requisite authority from the board of directors. It
assailed the validity of a board resolution which purportedly granted the spouses Johnson the
authority to sell its real properties; and that only a minority of the board authorized the sale
through the resolution.

Petitioner avers that the RTC has no jurisdiction over the case and points out that the complaint
was principally for the nullification of a corporate act. The transfer of the SEC’s original and
exclusive jurisdiction to the RTC does not have any retroactive application because jurisdiction
is a substantive matter. On the other hand, Joy Training takes the opposite view that the RTC has
jurisdiction over the case. It posits that the action is essentially for recovery of property and is
therefore a case cognizable by the RTC.

ISSUE: Whether the RTC has jurisdiction over the present case, and whether there is a contract
of agency between the spouses Johnson and Joy Training.

RULING: The RTC has jurisdiction over disputes concerning the application of the Civil Code.

The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to
nullify the sale of the real properties on the ground that there was no contract of agency between
Joy Training and the spouses Johnson. This was beyond the ambit of the SEC’s original and
exclusive jurisdiction prior to the enactment of Republic Act No. 8799 which only took effect on
August 3, 2000. The determination of the existence of a contract of agency and the validity of a
contract of sale requires the application of the relevant provisions of the Civil Code. It is a well-
settled rule that “disputes concerning the application of the Civil Code are properly cognizable
by courts of general jurisdiction.” Indeed, no special skill requiring the SEC’s technical expertise
is necessary for the disposition of this issue and of this case.

There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel
of land with its improvements.

As a general rule, a contract of agency may be oral. However, it must be written when the law
requires a specific form.33 Specifically, Article 1874 of the Civil Code provides that the contract
of agency must be written for the validity of the sale of a piece of land or any interest therein.
Otherwise, the sale shall be void. A related provision, Article 1878 of the Civil Code, states that
special powers of attorney are necessary to convey real rights over immovable properties. The
special power of attorney mandated by law must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the authorized act.

The above documents do not convince us of the existence of the contract of agency to sell the
real properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses

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Johnson. The title does not explicitly confer to the spouses Johnson the authority to sell the
parcel of land and the building thereon. Moreover, the phrase “Rep. by Sps. RICHARD A.
JOHNSON and LINDA S. JOHNSON” only means that the spouses Johnson represented Joy
Training in land registration.

9
SECURITIES AND EXCHANGE COMMISSION, V. CJH DEVELOPMENT
CORPORATION
G.R. No. 210316, 28 November 2016

FACTS: Herein respondent CJH Development Corporation (CJHDC) is a duly organized

domestic corporation which is engaged in the acquisition, development, sale, lease and
management of real estate and any improvements thereon or any interest and right therein.
CJHDC entered into a Lease Agreement (Agreement) with the Bases Conversion and
Development Authority (BCDA) for the development into a public tourism complex, multiple-
use forest watershed and human resource development center, of a 247-hectare property within
the John Hay Special Economic Zone in Baguio City. Subsequently, CJHDC came up with a
development plan and put it into effect. Part of such development plan was the construction of
two condominium-hotels (condotels) which it named as “The Manor” and “The Suites”. The
residential units in these condotels were then offered for sale to the general public by means of
two schemes. The first is a straight purchase and sale contract, and the second scheme involved
the sale of the unit with an added option to avail of a “leaseback” or a “money-back”
arrangement. The buyers who opt for the “leaseback” arrangement will receive either a
proportionate share in seventy percent (70%) of the annual income derived from the hotel
operation of the pooled rooms or a guaranteed eight percent (8%) return on their investment. The
BCDA requested the SEC to conduct an investigation into the operations of CJHDC and CJHSC
on the belief that the “leaseback” or “money-back” arrangements they are offering to the public
is, in essence, investment contracts which are considered as securities under Republic Act No.
8799, otherwise known as the Securities Regulation Code (SRC). Subsequently, the SEC’s
Corporation Finance Department (CFD) issued a Memorandum indicating its opinion that the
“leaseback” arrangements offered by respondents to the public are investment contracts.

ISSUE: Whether the respondents failed to exhaust all administrative remedies available to them
and that the leaseback or money-scheme involves a question of fact which is within the
jurisdiction of the SEC.

RULING: The sale of “The Manor” or “The Suites” units to the general public under the
“leaseback” or “money-back” scheme is a form of investment contract or sale of securities,
which is not a pure question of law. On the contrary, it involves a question of fact that falls under
the primary jurisdiction of the SEC. Under the doctrine of primary administrative jurisdiction,
courts will not determine a controversy where the issues for resolution demand the exercise of
sound administrative discretion requiring the special knowledge, experience, and services of the
administrative tribunal to determine technical and intricate matters of fact, which under a
regulatory scheme have been placed within the special competence of such tribunal or agency.

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In other words, if a case is such that its determination requires the expertise, specialized training,
and knowledge of an administrative body, relief must first be obtained in an administrative
proceeding before resort to the court is had even if the matter may well be within the latter’s
proper jurisdiction. The objective of the doctrine of primary jurisdiction is to guide the court in
determining whether it should refrain from exercising its jurisdiction until after an administrative
agency has determined some question or some aspect of some question arising in the proceeding
before the court. In the instant case, the resolution of the issue as to whether respondents’ scheme
of selling the subject condotel units is tantamount to an investment contract and/or sale of
securities, as defined under the SRC, requires the expertise and technical knowledge of the SEC
being the government agency which is tasked to enforce and implement the provisions of the
said Code as well as its implementing rules and regulations. In fact, after the issuance of the
CDO, the SEC is yet to hear from respondents and receive evidence from them regarding this
issue. Nonetheless, respondents prematurely filed an appeal with the CA, which erroneously
gave due course to it in disregard of the doctrines of exhaustion of administrative remedies and
primary jurisdiction.

Furthermore, as mentioned above, the SEC through its EPD, conducted an investigation upon
request of the BCDA. The EPD dispatched a team of SEC employees, who posed as
representatives of interested buyers, to the John Hay Special Economic Zone in Baguio City.
There, the team members were able to talk to CJHDC’s Director of Sales, who, not only
explained to them the straight and leaseback agreements, but also gave the team copies of
marketing material, as well as sample contracts, indicating that respondents are indeed selling the
subject units either on a straight purchase or leaseback agreement. Lastly, the Court neither
agrees with the ruling of the CA that there is nothing in the assailed CDO which shows that the
acts sought to be restrained therein operate as a fraud on investors. The SEC arrived at a
preliminary finding that respondents are engaged in the business of selling securities without the
proper registration issued by the Commission. Based on this initial finding, respondents’ act of
selling unregistered securities would necessarily operate as a fraud on investors as it deceives the
investing public by making it appear that respondents have authority to deal on such securities.
As correctly cited by the SEC, Section 8.1 of the SRC clearly states that securities shall not be
sold or offered for sale or distribution within the Philippines without a registration statement duly
filed with and approved by the SEC and that prior to such sale, information on the securities, in
such form and with such substance as the SEC may prescribe, shall be made available to each
prospective buyer. The Court agrees with the SEC that the purpose of this provision is to afford
the public protection from investing in worthless securities.

10
DY TEBAN TRADING, INC. V. DY
G.R. No. 185647, 26 July 2017

FACTS: DTTI is a domestic closed corporation owned by the Dy siblings. Due to certain
disagreements relating to its management, DTTI instituted an action for injunction against
respondents for alleged squandering cash sales from the branch. This was docketed as an intra-
corporate case. Respondents, on the other hand, filed an action for dissolution of the corporation.
The RTC heard the cases jointly.

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The action for the dissolution of the corporation was, however, eventually dismissed due to the
respondents’ failure to pay the proper docket fees. However, neither Atty. Go nor Atty. Rabor
attended the hearing for respondents. No motion for postponement was also filed. Atty. Asis thus
moved that respondents be declared to have waived their right to cross-examine Lorencio, who
was DTTI’s last witness. He also asked for 15 days within which to file his written formal offer
of evidence. The RTC granted this motion and issued an Order.

RTC ruled in favor of DTTI relying solely on documents presented by the petitioner and ordered
injunction against the corporation. CA remanded the case back to the RTC. The respondents
challenge the jurisdiction of the RTC in taking cognizance of the action for injunction as an
intra-corporate case. According to respondents, since the action for injunction does not involve
an intra-corporate dispute, the RTC, sitting as a commercial court, lacked jurisdiction. Its
decision on the case is therefore void.

ISSUE: Whether the action filed before the RTC was an intra-corporate case properly heard by
the RTC acting as a special commercial court?

RULING: Section 5 of the Securities Regulation Code transferred the jurisdiction of the
Securities and Exchange Commission (SEC) over intracorporate disputes to RTCs designated by
the Supreme Court as commercial courts. The existence of an intra-corporate dispute must be
properly alleged in a complaint filed before a commercial court because the allegations in the
complaint determine a tribunal’s jurisdiction over the subject matter. This means that the
complaint must make out a case that meets both the relationship and the nature of the
controversy tests.

Under the relationship test, a dispute is intra-corporate if it is: (1) between the corporation,
partnership or association and the public; (2) between the corporation, partnership or association
and the state insofar as its franchise, permit or license to operate is concerned; (3) between the
corporation, partnership or association and its stockholders, partners, members or officers; and
(4) among the stockholders, partners or associates themselves. The nature of the controversy test,
on the other hand, requires that the dispute itself must be intrinsically connected with the
regulation of the corporation, partnership or association.

Applying the foregoing tests, we agree with the CA that the complaint filed by DTTI before the
RTC was a civil action for injunction and not an intra-corporate dispute.

Our jurisdiction recognizes a civil action for injunction. It is a suit brought for the purpose of
enjoining the defendant, perpetually or for a particular time, from the commission or continuance
of a specific act, or his or her compulsion to continue performance of a particular act. As a civil
action, it falls within the general jurisdiction of the RTCs.

Nevertheless, we disagree with respondents’ contention that the RTC, sitting as a commercial
court, had no jurisdiction over the civil action for injunction filed by DTTI. Thus, that DTTI’s
civil action for injunction was raffled to, and heard by, an RTC sitting as a commercial court, is
more an issue of procedure than one of jurisdiction. Gonzales, in fact, directs that when an
ordinary civil case is mistakenly raffled to a branch designated as a Special Commercial Court,

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the remedy is to refer said case to the Executive Judge for re-docketing and re-raffling among
“all courts of the same RTC (including its designated special branches which, by statute, are
equally capable of exercising general jurisdiction same as regular branches), as provided for
under existing rules.”

ELECTRONIC COMMERCE ACT (RA 8792)

1
VIRGILIO O. GARCILLANO vs.THE HOUSE OF REPRESENTATIVES
COMMITTEES ON PUBLIC INFORMATION, PUBLIC ORDER AND SAFETY,
NATIONAL DEFENSE AND SECURITY, INFORMATION AND COMMUNICATIONS
TECHNOLOGY, and SUFFRAGE AND ELECTORAL REFORMS
G.R. No. 170338; December 23, 2008

FACTS: The case arose after the notorious “Hello Garci” tapes ostensibly containing a
wiretapped conversation purportedly between the President of the Philippines and a high-ranking
official of the Commission on Elections (COMELEC) surfaced and became the subject of heated
legislative hearings conducted separately by committees of both Houses of Congress. However,
it was later decided that the Senate cannot be allowed to continue with the conduct of the
questioned legislative inquiry without duly published rules of procedure, in clear derogation of
the constitutional requirement. The respondents admit in their pleadings and even on oral
argument that the Senate Rules of Procedure Governing Inquiries in Aid of Legislation had been
published in newspapers of general circulation only in 1995 and in 2006. With respect to the
present Senate of the 14th Congress, however, of which the term of half of its members
commenced on June 30, 2007, no effort was undertaken for the publication of these rules when
they first opened their session. Respondents justify their non-observance of the constitutionally
mandated publication by arguing that the rules have never been amended since 1995 and, despite
that, they are published in booklet form available to anyone for free, and accessible to the public
at the Senate’s internet web page.

ISSUE: Whether or not the publication of the Rules or Procedure in the website of the Senate is
sufficient under the Tañada v. Tuvera ruling which requires publication either in the Official
Gazette or in a newspaper of general circulation?

RULING: The Court does not agree. The absence of any amendment to the rules cannot justify
the Senate’s defiance of the clear and unambiguous language of Section 21, Article VI of the
Constitution. The organic law instructs, without more, that the Senate or its committees may
conduct inquiries in aid of legislation only in accordance with duly published rules of procedure,
and does not make any distinction whether or not these rules have undergone amendments or
revision. The constitutional mandate to publish the said rules prevails over any custom, practice
or tradition followed by the Senate. The invocation by the respondents of the provisions of R.A.
No. 8792, otherwise known as the Electronic Commerce Act of 2000, to support their claim of
valid publication through the internet is all the more incorrect. R.A. 8792 considers an electronic
data message or an electronic document as the functional equivalent of a written document only

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for evidentiary purposes. In other words, the law merely recognizes the admissibility in evidence
(for their being the original) of electronic data messages and/or electronic documents. It does not
make the internet a medium for publishing laws, rules and regulations. Given this discussion, the
respondent Senate Committees, therefore, could not, in violation of the Constitution, use its
unpublished rules in the legislative inquiry subject of these consolidated cases. The conduct of
inquiries in aid of legislation by the Senate has to be deferred until it shall have caused the
publication of the rules, because it can do so only “in accordance with its duly published rules of
procedure.”
2
MCC INDUSTRIAL SALES CORP. vs. SSANGYONG CORPORATION
G.R. No. 170633. October 17, 2007

FACTS: Petitioner MCC Industrial Sales (MCC), a domestic corporation with office at Binondo,
Manila, is engaged in the business of importing and wholesaling stainless steel products. One of
its suppliers is the Ssangyong Corporation (Ssangyong), an international trading company with
head office in Seoul, South Korea and regional headquarters in Makati City, Philippines. The
two corporations conducted business through telephone calls and facsimile or telecopy
transmissions. Ssangyong would send the pro forma invoices containing the details of the steel
product order to MCC; if the latter conforms thereto, its representative affixes his signature on
the faxed copy and sends it back to Ssangyong, again by fax. Following the failure of MCC to
open a letters of credit to facilitate the payment of imported stainless steel products, Ssangyong
through counsel wrote a letter to MCC, on September 11, 2000, canceling the sales contract
under ST2-POSTS0401-1 /ST2-POSTS0401-2, and demanding payment of US$97,317.37
representing losses, warehousing expenses, interests and charges. Ssangyong then filed, on
November 16, 2001, a civil action for damages due to breach of contract against defendants
MCC, Sanyo Seiki and Gregory Chan before the Regional Trial Court of Makati City. In its
complaint, Ssangyong alleged that defendants breached their contract when they refused to open
the L/C in the amount of US$170,000.00 for the remaining 100MT of steel under Pro
Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2. After Ssangyong rested its
case, defendants filed a Demurrer to Evidence alleging that Ssangyong failed to present the
original copies of the pro forma invoices on which the civil action was based. In an Order dated
April 24, 2003, the court denied the demurrer, ruling that the documentary evidence presented
had already been admitted in the December 16, 2002 Orde and their admissibility finds support
in Republic Act (R.A.) No. 8792, otherwise known as the Electronic Commerce Act of 2000.
According to the aforesaid Order, considering that both testimonial and documentary evidence
tended to substantiate the material allegations in the complaint, Ssangyong's evidence sufficed
for purposes of a prima facie case.

ISSUE: Whether the print-out and/or photocopies of facsimile transmissions are electronic
evidence and admissible in evidence as such?

RULING: R.A. No. 8792, otherwise known as the Electronic Commerce Act of 2000, considers
an electronic data message or an electronic document as the functional equivalent of a written
document for evidentiary purposes. The Rules on Electronic Evidence regards an electronic
document as admissible in evidence if it complies with the rules on admissibility prescribed by
the Rules of Court and related laws, and is authenticated in the manner prescribed by the said

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Rules. An electronic document is also the equivalent of an original document under the Best
Evidence Rule, if it is a printout or output readable by sight or other means, shown to reflect the
data accurately. Thus, to be admissible in evidence as an electronic data message or to be
considered as the functional equivalent of an original document under the Best Evidence Rule,
the writing must foremost be an "electronic data message" or an "electronic document." In an
ordinary facsimile transmission, there exists an original paper-based information or data that is
scanned, sent through a phone line, and re-printed at the receiving end. Be it noted that in
enacting the Electronic Commerce Act of 2000, Congress intended virtual or paperless writings
to be the functional equivalent and to have the same legal function as paper-based
documents. Further, in a virtual or paperless environment, technically, there is no original copy
to speak of, as all direct printouts of the virtual reality are the same, in all respects, and are
considered as originals. Ineluctably, the law's definition of "electronic data message," which, as
aforesaid, is interchangeable with "electronic document," could not have included facsimile
transmissions, which have an original paper-based copy as sent and a paper-based
facsimile copy as received. These two copies are distinct from each other, and have different
legal effects. While Congress anticipated future developments in communications and computer
technology when it drafted the law, it excluded the early forms of technology, like telegraph,
telex and telecopy (except computer-generated faxes, which is a newer development as
compared to the ordinary fax machine to fax machine transmission), when it defined the term
"electronic data message."We, therefore, conclude that the terms "electronic data message" and
"electronic document," as defined under the Electronic Commerce Act of 2000, do not include a
facsimile transmission. Accordingly, a facsimile transmission cannot be considered as electronic
evidence. It is not the functional equivalent of an original under the Best Evidence Rule and is
not admissible as electronic evidence. Since a facsimile transmission is not an "electronic data
message" or an "electronic document," and cannot be considered as electronic evidence by the
Court, with greater reason is a photocopy of such a fax transmission not electronic evidence. In
the present case, therefore, Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2
(Exhibits "E" and "F"), which are mere photocopies of the original fax transmittals, are not
electronic evidence, contrary to the position of both the trial and the appellate courts.

3
G.R. No: 239088, April 3, 2019
Spouses John T. Sy and Leny N. Sy, And Valentino T. Sy, petitioners
VS.
Ma. Lourdes De Vera-Navarro and Benjaemy Ho Tan Landholdings, Inc., herein
represented by Grace T. Molina, in her capacity as corporate secretary, respondents

FACTS: The controversy arose when on May 31, 2006, petitioner John, for himself and in
representation of his co-owners, borrowed ₱3,720,000.00 from respondent De Vera-Navarro,
secured by a Real Estate Mortgage Contract (Mortgage Contract) over the subject
property.Petitioners Sps. Sy then alleged that immediately after the execution of the Mortgage
Contract, as per usual practice, respondent De Vera-Navarro asked petitioner John to execute an
undated Deed of Absolute Sale with a stated consideration in the amount of ₱5,000,000.00,
supposedly for the purpose of providing additional security for the loan. Petitioners Sps. Sy also
claimed that petitioner John and respondent De Vera-Navarro verbally agreed that the mode of

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payment for the said loan would be respondent De Vera-Navarro's collection of rental payments
from the tenants of the subject property in the total amount of ₱70,000.00 per month for five
years.

Afterwards, to the surprise of petitioner John, he was informed by respondent BHTLI through a
letter from its representative that the ownership of the subject property had been transferred to
respondent De Vera-Navarro; that a TCT, i.e., TCT T-199, 288, was issued in favor of
respondent De Vera-Navarro; and that respondent BHTLI was demanding that the petitioners
Sps. Sy vacate the subject property.

Upon learning this, one of the co-owners, petitioner Valentino, caused the annotation of an
adverse claim on TCT T-199, 288. Thereafter, a Deed of Absolute Sale was executed by
respondent De Vera-Navarro in favor of respondent BHTLI and a new title was issued in favor
of respondent BHTLI.

Petitioners Sps. Sy claimed that they are the rightful owners of the subject property since the
undated Deed of Absolute Sale executed purportedly between petitioner John and respondent De
Vera-Navarro is allegedly null and void, and that, despite the execution of the Deed of Absolute
Sale dated March 30, 2011 by respondent De Vera-Navarro in favor of respondent BHTLI, the
latter has no right to own the property as it was allegedly not a buyer in good faith.

For its part, respondent BHTLI alleged that it is a buyer in good faith since the sale
between it and respondent De Vera-Navarro over the subject property was supposedly
consummated on March 14, 2011, or 10 days prior to the annotation of the adverse claim on
March 24, 2011. Since it was supposedly not aware of any infirmity involving the subject
property, respondent BHTLI alleged that it should be treated as a buyer in good faith.

ISSUE: 1. Whether or not the transaction between petitioner John and respondent De Vera-
Navarro was a valid contract of sale and not an equitable mortgage
2. Whether or not respondent BHTLI was a buyer in good faith

HELD:

1. It is an equitable mortgage.

The purported contract of sale between petitioner John and respondent De Vera-Navarro
is an equitable mortgage and not a legitimate contract of sale. Article 1604 of the Civil
Code, in turn, provides that the abovementioned badges of an equitable mortgage apply
to a contract purporting to be an absolute sale, such as in the instant case.

Applying the foregoing to the instant case, the Court finds that the presence of at least
four badges of an equitable mortgage creates a very strong presumption that the
purported contract of sale entered between petitioner John and respondent De Vera-
Navarro is an equitable mortgage. First, it is not disputed by any party that the supposed
vendor of the subject property, petitioner John, remains to be in possession of the subject

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 property despite purportedly selling the latter to respondent De Vera-Navarro. It is
uncanny for a supposed buyer to desist from taking possession over property which
he/she has already purchased. Second, the purchase price of the purported sale indicated
in the undated Deed of Absolute Sale is inadequate. Third, the evidence on record shows
that respondent De Vera-Navarro retained for herself the supposed purchase price. Aside
from the testimony of petitioner John that no consideration was paid at all for the
supposed contract of sale, the RTC also noted that no proof was presented by respondent
De Vera-Navarro that she actually parted with the sum of ₱5,000,000.00 in favor of
petitioner John pursuant to the undated Deed of Absolute Sale. Fourth, from the evidence
presented by petitioners Sps. Sy, it is established that the real intention of the parties is
for the purported contract of sale to merely secure the payment of their debt owing to
respondent De Vera- Navarro. The Court indubitably finds that the purported contract of
sale entered into by petitioner John and respondent De Vera-Navarro is in truth and in
fact an equitable mortgage. Hence, with the undated Deed of Absolute Sale being null
and void, as it is in fact an equitable mortgage, the prevailing agreement governing
petitioner John and respondent De Vera-Navarro is the loan agreement secured by the
Mortgage Contract entered into by the parties.

2. No. Respondent BHTLI is NOT a buyer in good faith.

The Court finds that respondent BHTLI failed to discharge such burden. Instead of
showing good faith on the part of respondent BHTLI, the incontrovertible facts establish
respondent BHTLI's status as a buyer in bad faith. The Court has held that actual lack of
knowledge of the flaw in title by one's transferor is not enough to constitute a buyer in
good faith where there are circumstances that should put a party on guard, such as the
presence of occupants in the subject property. Again, it is not disputed that petitioners
Sps. Sy have been in continuing possession of the subject property. Yet, this fact did not
prompt respondent BHTLI to investigate further as to the contract of sale it entered with
respondent De Vera-Navarro. Further, respondent BHTLI cannot seriously feign
ignorance of any infirmity, considering that prior to its entering into the Deed of Absolute
Sale dated March 30, 2011 with respondent De Vera-Navarro, petitioner Valentino had
already caused on March 24, 2011 the annotation of an adverse claim on TCT T-199,288.

Therefore, contrary to the CA's findings m its assailed Decision, respondent BHTLI is not
a buyer in good faith.

4
G.R. No: 212740, NOVEMBER 13, 2019
Spouses Celia Francisco and Danilo Francisco., petitioner
VS.
Albina Battung, respondent.
A. REYES JR., J:

FACTS: Spouses Francisco and Albina Battung entered into a Deed of Conditional Sale, the
latter being the seller, involving a parcel of land in Cagayan for P346,000 and payable under

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installment basis. On April 2003, respondent filed an aciton for unlawful detainer with damages
of which the MTCC ordering the petitioner to vacate the premises and consider the payments as
rent. The RTC affirmed the MTCC decision. The CA nullified and dismissed the complaint.

The petitioners contend that the stopping and refusal of payment was by virtue of them
discovering that such land was already titled and sold by the respondent to another person.
However they manifested their intention to pay the balance upon knowledge of the cancellation
of the first transaction. Despite this, petitioners still failed to pay.

Respondent averred that she had a hard time collecting from the petitioners and the discovery by
the petitioners may be tolerated had it not been for her discovery of Celia’s cheating regarding
the figures. She further averred that such discovery by the petitioners was an alibi to not pay
despite the steps to correct the mistake. In her counterclaim, she maintained that the Deed is a
contract to sell where the ownership or title is retained by the seller and is passed only upon the
full payment of the purchase price.

RTC: rendered a decision in favor of the petitioners ruling that it was a contract of sale.
CA: reversed the decision and ruled the agreement as a contract to sell.

ISSUE: Whether or not the agreement is a contract of sale or contract to sell.

RULING: YES.

In Reyes vs Tuparan, this Court declared in categorical terms that where the vendor promises to
execute a deed of absolute sale upon the completion by the vendee of the payment of the price,
the contract is only a contract to sell. The stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price.

In the case at bar, it is not disputed, in fact both parties agreed that the deed of sale shall only be
executed upon payment of the remaining balance of the purchase price. Thus pursuant to the
above jurisprudence, we similarly declare that the transaction entered into by the parties is a
contract to sell.

5
G.R. No. 215614, March 27, 2019
CARMELITA V. DIZON, petitioner
VS.
JOSE LUIS K. MATTI, JR., respondent.
CAGUIOA, J:

FACTS: A Deed of Absolute Sale was allegedly executed on February 24, 2000 by Carmelita
Dizon in favor of Jose Luis Matti, Jr. It was duly notarized and the subject property which was a
townhouse located at Block 2, Lot 48, Veraville Allegria Townhomes, San Antonio Road, Talon

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IV, Las Pinas City and registered in the Register of Deeds of Las Pinas City in the name of
Carmelita Dizon, was fully paid by Matti, Jr. On the same month, before the alleged execution of
the Deed, the said townhouse was offered for sale by a certain Zenaida Acleto, a real estate
agent, and a certain Mrs. Basilica Estaris to Matti, Jr. A physical inspection of the subject
townhouse was made and all the original documents of the said property including the original
Owner’s Duplicate Certificate of Title No. 58674 was shown. However, these documents were
shown to be fake and falsified by the Las Pinas City Assessor’s Office when he went to update
the real estate taxes and get a new Tax Declaration for Dizon’s property and by the Register of
Deeds when he went to have a copy of the Owner’s Duplicate Copy of the title. A certificate was
issued by the Register of Deeds attesting that the same is fake. Hence, a Complaint for Specific
Performance was filed by Matti, Jr. against Dizon.

Dizon contended that Matti, Jr. has no cause of action against her because she did not transfer
ownership of her property to Matti, Jr. nor did she participate in the negotiation, preparation, and
execution. She did not also sign the same Deed. It is because it is legally and physically
impossible for her to do so since she is working in London as a nurse during the period of
October 20, 1999 and only went back on November 9, 2000. She likewise do not personally
know Acleto and Estaris.

Regional Trial Court (RTC) of Las Pinas City: dismissed the Complaint and ruled in favor of
Dizon. The trial court resolved that Dizon could not have signed the Deed of Absolute Sale
which purportedly transferred the subject townhouse covered by TCT No. T-58674 to Matti, Jr.
Thus, making the sale invalid and should be declared null and void. Dizon sufficiently proved
that she was not here in the Philippines when the said execution of the Deed were made as
attested by one of her witnesses, Jeoffrey Valix, a confidential agent and travel records verifier
from the Bureau of Immigration and by the Certification from BID (Bureau of Immigration and
Deportation). This was in contrary to Matti, Jr.’s mere allegations. Motion for Reconsideration
by Matti, Jr. was likewise denied.

CA: reversed the Decision and ruled in favor of Matti, Jr. to which the CA held that the evidence
of Dizon were not sufficient to refute the presumption of regularity of a notarized document. The
appellate court added that allegations of forgery cannot be presumed and that a claim of forgery
cannot accepted without an examination of signatures conducted by an expert witness. Motion
for Reconsideration by Dizon was denied. Hence, this Petition.

ISSUE: Whether or not the sale of subject property purportedly entered into by Dizon and Matti,
Jr. is valid on the basis of the presumption of regularity of the supposedly notarized Deed of
Absolute Sale.

RULING: No, the sale is INVALID.

The Supreme Court (SC), using the case of Suntay vs. CA and Tan vs. Mandap, held that
“though the notarization of the deed of sale in question vests in its favor the presumption of
regularity, it is not the intention nor the function of the notary public to validate and make
binding an instrument never, in the first place, intended to have any binding legal effect upon the

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parties thereto. The intention of the parties still and always is the primary consideration in
determining the true nature of a contract” and that an “apparently valid notarization of document
does not guarantee its validity.” The presumption of regularity can be refuted by a clear, strong,
and convincing evidence.

In this case, there were pieces of clear, strong, and convincing evidence which were enough to
refute the presumption of regularity of an alleged notarized Deed of Absolute Sale. The
testimony of Dizon’s brother and an agent of the Bureau of Immigration corroborates Dizon’s
testimony that she was not in the Philippines when the alleged execution of the Deed. Public
documents like Passport, Certification with an attached Travel Record, and Letter/Certification
of Employment issued by the employer of Dizon substantiates her claim. The Certification issued
by the notarial records of the Office of the Clerk of Court, Paranaque City, certified that no
notarized Deed of Absolute Sale exists in the notarial records and noting also the Register of
Deeds’ certification that Matti, Jr.’s copy of the Owner’s Duplicate Copy of the TCT No. T-
58674 is fake.

The Court held also that resort to document examiners are dispensable and not mandatory. A
finding of forgery does not depend on the testimony of handwriting experts. As jurisprudence
grants judges the prerogative to exercise independent judgment on the issue of authenticity of
signatures based on the entirety of evidence, the RTC did not err in holding that the signature of
Dizon in the Deed of Absolute Sale was a forgery on the ground of physical impossibility,
despite the lack of expert testimony scrutinizing the authenticity of the signature in question.
Moreover, Jr. did not have any witnesses aside from him to corroborate his testimony and there
is also a serious doubt in the veracity of his testimony such as the inconsistency of his testimony
regarding the place where Dizon and him allegedly met. He could not even describe Dizon’s
physical appearance during the alleged execution of the Deed. Hence, the Court was convinced
that Dizon did not sell the property to Matti, Jr. and that the Deed of Absolute Sale is a sham and
fictitious document which should be declared as null and void.

6
G.R. No: 199766, April 10, 2019
Generoso Sepe, petitioner
VS.
Heirs Of Anastacia* Kilang, rep. by her children Maria, Donata, Feliciana, Dominga and
Severo all surnamed Solijon, respondents

FACTS: In a complaint instituted on May 16, 2002, respondents Heirs of Anastacia Kilang,
represented by her children Maria, Donata, Feliciana, Dominga and SeveroSolijon (respondents),
sought the nullification of: (1) Deed of Sale of a Registered Land dated November 18, 1992
(DOS) executed by Anastacia Kilang (Anastacia) with marital consent of Fabian Solijon (Fabian)
in favor of spouses GenerosoSepe (Generoso or petitioner) and Gaudencia D. Sepe (spouses
Sepe); (2) Confirmation of Sale dated December 17, 1992 (COS) executed by respondents,
except Dominga; and (3) Transfer Certificate of Title No. (TCT) T-35367 registered in the
names of spouses Sepe; and for recovery of title, possession with damages.

Page | 96
The complaint alleged that the late Anastacia, who was then an 84-year old, illiterate, rheumatic
and bedridden mother, agreed to the offer of petitioner to undertake the subdivision of her land in
Cabawan District, Tagbilaran City under TCT T-10069 in consideration for one lot in the
subdivision and a first preference to buy any portion that might be for sale; but taking advantage
of the ignorance of respondents' family, petitioner managed to have the DOS executed and
misled Feliciana and Donata into believing that the document was the instrument of subdivision.

By the DOS, Anastacia, with her husband's consent, purportedly sold her paraphernal propertyto
spouses Sepe for ₱15,000.00.On December 14, 1992, Anastacia executed a notarized Notice of
Adverse Claim, wherein she claimed that "the second duplicate copy of [TCT T-10069] was lost
sometimes (sic) on the first week of December 1992, and [was] found in the possession of one
GenerosoSepe x xx without the knowledge and consent of the owner"and the "parcel of land was
never sold nor encumbered to anybody else."On December 17, 1992, respondents, save
Dominga, executed the COS for a consideration of P40,000.00, wherein they confirmed
absolutely and irrevocably the sale of the subject lot situated at Barrio Gaboc (now Cabawan
District) made and executed by their parents, Anastacia and Fabian, in favor of spouses Sepe,
and warranted to defend their rights and peaceful possession of the subject lot.Anastacia
executed a notarized Notice of Withdrawal of Adverse Claim, wherein she alleged that she was
made to sign an Adverse Claim by Dominga and Donata; she did not understand its contents; and
she remembered that she had "already sold the same land to [spouses Sepe] on November 18,
1992 before Atty. Gaspar S. Rulona x xx;" the Adverse Claim was an error; and she wanted "the
same withdrawn, so that the DEED OF SALE OF THE LAND COVERING TCT NO. T-10069,
[would push] through, and the title so issued in favor of the [vendees spouses Sepe]."On the
same day, TCT T-10069 in the name of Anastacia was cancelled and TCT T-35367 was issued in
the names of spouses Sepe.On October 20, 1993, Anastacia died. On December 21, 1998,
respondents, represented by Maria, filed a case for nullification of the sale and the TCT issued to
petitioner.

ISSUE: Whether or not there was no consideration for the sale.

HELD: Yes.

Petitioner's reliance on the DOS as proof that the sale contemplated therein was supported by
sufficient consideration is not without legal basis.The disputable presumption of existence and
legality of the cause or consideration inherent in every contract supports his stance.

Article 1354 of the Civil Code provides: "Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the contrary." Otherwise stated, the
law presumes that even if the contract does not state a cause, one exists and is lawful; and it is
incumbent on the party impugning the contract to prove the contrary. If the cause is stated in the
contract and it is shown to be false, then it is incumbent upon the party enforcing the contract to
prove the legality of the cause.
In Mangahas v. Brobio, the Court stated that the presumption of sufficient consideration can be
overcome by preponderance of evidence and that mere assertion that the contract has no
consideration is not enough, viz.:

Page | 97
 A contract is presumed to be supported by cause or consideration. The presumption
that a contract has sufficient consideration cannot be overthrown by a mere assertion
that it has no consideration. To overcome the presumption, the alleged lack of
consideration must be shown by preponderance of evidence. The burden to prove lack
of consideration rests upon whoever alleges it, which, in the present case, is
respondent.

Aside from the presumption of sufficient consideration working in favor of petitioner, the
acknowledgment of the DOS before a notary public makes it a public document.

Being a public document, the evidence to be presented to contradict the facts stated in the DOS,
which include the payment of the consideration, must be more than merely preponderant.

Given the foregoing, the Court is not persuaded by the CA's postulation that the oral refutation
by respondents Feliciana and Maria of the consideration stated in the DOS has reached the
threshold of the required quantum of proof of clear and convincing evidence. Their mere oral
declaration that no consideration was paid to their mother Anastacia is simply not enough given
the presence of the following notarized and public documents in petitioner's favor.

The Court moreover agrees with the RTC's observation that respondents should have questioned
the DOS during the lifetime of their mother Anastacia given that she was the only person who
could confirm or refute its genuineness and contents. It must be recalled that Anastacia died on
October 20, 1993, about nine months after she executed the Notice of Withdrawal of Adverse
Claim and the issuance of TCT T-35367 in the names of spouses Sepe. Indeed, the most credible
person who could attest that no consideration was paid by spouses Sepe in connection with the
DOS was Anastacia.

Where a document, like a deed of sale, duly acknowledged before a notary public is disputed, the
parties thereto are in the best position to refute its execution and contents. Their testimonies are
crucial in order to establish the required proof of clear and convincing evidence to overcome the
presumptions in favor of public documents. Oral declarations by non-parties which contradict the
contents of notarial documents should be evaluated and admitted with extreme caution in order
not to erode their status and significance as public documents.

Furthermore, the COS executed by 4 of the 5 children of Anastacia, which is supported by a

valuable consideration, bolsters petitioner's cause. It is noted that Dominga, who is not a
signatory to the COS, did not testify for respondents. Indeed, respondents have ratified and
confirmed the sale of the subject lot by their parents to spouses Sepe. Again, their claim that the
amount they received from spouses Sepe was a Christmas gift to them, aside from being
incredible as held by the RTC, is not clear and convincing evidence to overcome the facts stated
in the COS.

7
G.R. No. 201193, June 10, 2019
TRANQUILINO AGBAYANI, petitioner

Page | 98
 VS.
LUPA REALTY HOLDING CORPORATION, respondent.
CAGUIOA, J:

FACTS: Tranquilino, already residing in America, filed a Complaint for Reivindicacion,

Cancellation of Title and Document with Damages against Lupa Realty Holding Corporation. It
was alleged that during the time that Tranquilino’s family member, Vernold went to pay the real
estate taxes on a property located in Sta. Ana, Cagayan registered under the name of Tranquilino,
was told that Lupa Realty was already the new owner thereof and that the tax declaration had
already been transferred to its name. Tranquilino further alleged that upon verifying with the
Registry of Deeds for Cagayan, Vernold discovered that the subject property was already
registered in the name of Lupa Realty under TCT No. T-109129 pursuant to a Deed of Absolute
Sale purportedly executed by Tranquilino on 29 October 1997 in favor of Lupa Realty, in
consideration of the sum of P425,500.00.

In his complaint, Tranquilino denied having executed said Deed of Absolute Sale, insisting that
his signature thereon must be a forgery because he was in America on 29 October 1997.
Accordingly, [he] prayed for the cancellation of Lupa Realty's TCT No. T-109129 and the
reinstatement of OCT No. P-46041 in his name, plus damages.

In its Answer, Lupa Realty countered that contrary to the allegation of Tranquilino that he never
sold the subject property, he sold the same to his brother, Nonito Agbayani who sold the subject
property to Moriel Urdas. According to Lupa Realty, it acquired the subject property not from
Tranquilino but from Moriel

Lupa Realty further insisted that it was an innocent purchaser for value and in good faith. Lupa
Realty explained that it was Moriel and his mother who registered the sale in the Registry of
Deeds, as shown by the Affidavit executed by Moriel's mother. According to Lupa Realty, it had
no idea that Moriel and his mother had used a falsified deed of sale with Tranquilino's forged
signature in registering the sale. Thus, Lupa Realty filed a third-party complaint against Moriel
to enforce the latter's warranty of a valid title and peaceful possession against the claims of third
persons.

ISSUE: Whether or not the Lupa Realty has a right of an innocent purchaser for value.

RULING: No.

The RTC found that the 1992 Deed Absolute Sale (DAS) between Tranquilino and Nonito was
established by preponderance of evidence to be a falsified document; the 1997 DAS between
Tranquilino and Lupa Realty was also falsified; and Lupa Realty was not an IPV. On the other
hand, the CA ruled that the 1992 DAS was valid because Tranquilino was unable to prove that
his signature therein was forged. The CA did not, however, rule squarely on whether the 1997
DAS was falsified and whether Lupa Realty was an IPV.

Page | 99
Upon weighing the pieces of evidence, it is indeed a fact that the 1997 DAS is sham or spurious.
To note, these are: (1) the similarity of its notarial details' with those of the DAS Moriel-Lupa
Realty; (2) the recital that it pertained to the land covered by "Original Certificate of Title No. P-
26619 with Homestead Patent No. 119163" and not to Tranquilino's OCT No. P-46041 with Free
Patent No. 587747; (3) the inclusion of Lupa Realty, represented by its President, Roberto P.
Alingog, as a party and the CTC details of Roberto P. Alingog, but who is not made a signatory
thereto; (4) the identity of its date of execution with that of the DAS Moriel-Lupa Realty; and (5)
the identity of the notary public's details in both 1997 DAS and the DAS Moriel-Lupa Realty.
In addition, the Court does not lose sight of the fact that there is uncontested evidence that
Tranquilino could not have signed the 1997 DAS because he had left for California, U.S.A. in
April, 1989.

It is likewise significant to note the fact that Lupa Realty did not even have the 1997 DAS
marked and offered as its evidence is a very strong indication of its falsity. In the Formal Offer
of Documentary Exhibits of Lupa Realty, the 1997 DAS was not marked and offered as one of
its exhibits. If the 1997 DAS was truly executed by Tranquilino and is genuine, why did not
Lupa Realty have it marked and offered as its documentary exhibit? The answer is obvious:
because Lupa Realty wanted to distance itself therefrom because it might be accused as being
complicit with Moriel and/or his mother in falsifying the 1997 DAS.

Article 1409(2) of the Civil Code provides that contracts "which are
absolutely simulated or fictitious" are inexistent and void from the beginning.
It is also provided in Article 1346 that "[a]n absolutely simulated or fictitious
contract is void."

With the pronouncement that there could not have been a valid sale of the subject land to Lupa
Realty, the latter cannot qualify as an IPV. Also, the Court totally agrees with the RTC that:

x x x [Lupa Realty] is a corporation whose business is, as apparent in its

business name, mainly concern[ed with] real estate, thus, it is incredible that it
would entirely leave the transfer of the title into the hands of Moriel x x x and
his mother. It is expected that it would exert due diligence in its transactions,
it being in the realty business. x x x

Evidently, in allowing the falsified 1997 DAS to cause the cancellation of Tranquilino's OCT
and the issuance of a TCT in its name, Lupa Realty acted in bad faith.

8
NATIONAL POWER CORPORATION vs. HON. RAMON G. CODILLA, JR., Presiding
Judge, RTC of Cebu, Br. 19, BANGPAI SHIPPING COMPANY, and WALLEM
SHIPPING, INCORPORATED
G.R. No. 170491. April 4, 2007
Chico-Nazario, J.

Page | 100
FACTS: M/V Dibena Win, a vessel of foreign registry owned and operated by private
respondent Bangpai Shipping, Co., allegedly bumped and damaged petitioner’s Power Barge
209. Petitioner filed before the RTC a complaint for damages against Bangpai Shipping Co., for
the alleged damages caused on petitioner’s power barges. In the course of the proceedings,
plaintiff was given the opportunity by the trial court to present originals of the Xerox or of the
photocopies of the documents it offered but it never produced the originals. The plaintiff
attempted to justify the admission of the photocopies by contending that "the photocopies offered
are equivalent to the original of the document" on the basis of the Electronic Evidence.

ISSUE: Whether or not photocopied materials can be admissible as evidence

RULING: PETITION DENIED.

"(h) "Electronic document" refers to information or the representation of information, data,

figures, symbols or other models of written expression, described or however represented, by
which a right is established or an obligation extinguished, or by which a fact may be proved and
affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced
electronically. It includes digitally signed documents and any printout, readable by sight or other
means which accurately reflects the electronic data message or electronic document. For the
purpose of these Rules, the term "electronic document" may be used interchangeably with
"electronic data message".
The information in those Xerox or photocopies was not received, recorded, retrieved or produced
electronically. Moreover, such electronic evidence must be authenticated (Sections 1 and 2, Rule
5, Rules on Electronic Evidence), which the plaintiff failed to do. Finally, the required Affidavit
to prove the admissibility and evidentiary weight of the alleged electronic evidence (Sec. 1, Rule
9, Ibid) was not executed, much less presented in evidence. The Xerox or photocopies offered
should, therefore, be stricken off the record. Aside from their being not properly identified by
any competent witness, the loss of the principals thereof was not established by any competent
proof. X X X

On the other hand, an "electronic document" refers to information or the representation of

information, data, figures, symbols or other models of written expression, described or however
represented, by which a right is established or an obligation extinguished, or by which a fact may
be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved or
produced electronically. It includes digitally signed documents and any printout, readable by
sight or other means which accurately reflects the electronic data message or electronic
document.

The rules use the word "information" to define an electronic document received, recorded,
transmitted, stored, processed, retrieved or produced electronically. This would suggest that an
electronic document is relevant only in terms of the information contained therein, similar to any
other document, which is presented in evidence as proof of its contents. However, what
differentiates an electronic document from a paper-based document is the manner by which the
information is processed; clearly, the information contained in an electronic document is
received, recorded, transmitted, stored, processed, retrieved or produced electronically.

Page | 101
A perusal of the information contained in the photocopies submitted by petitioner will reveal that
not all of the contents therein, such as the signatures of the persons who purportedly signed the
documents, may be recorded or produced electronically. By no stretch of the imagination can a
person’s signature affixed manually be considered as information electronically received,
recorded, transmitted, stored, processed, retrieved or produced. Hence, the argument of petitioner
that since these paper printouts were produced through an electronic process, then these
photocopies are electronic documents as defined in the Rules on Electronic Evidence is
obviously an erroneous, if not preposterous, interpretation of the law. Having thus declared that
the offered photocopies are not tantamount to electronic documents, it is consequential that the
same may not be considered as the functional equivalent of their original as decreed in the law.

10
TORRES vs. PAGCOR
G.R. No. 193531. December 14, 2011

FACTS:Petitioner was a Slot Machine Operations Supervisor (SMOS) of respondent Philippine

Amusement and Gaming Corporation (PAGCOR). On the basis of an alleged intelligence report
of padding of the Credit Meter Readings (CMR) of the slot machines at PAGCOR-Hyatt Manila,
then Casino Filipino-Hyatt (CF Hyatt), which involved the slot machine and internal security
personnel of respondent PAGCOR, and in connivance with slot machine customers, respondent
PAGCOR's Corporate Investigation Unit (CIU) allegedly conducted an investigation to verify
the veracity of such report. The CIU discovered the scheme of CMR padding which was
committed by adding zero after the first digit of the actual CMR of a slot machine or adding a
digit before the first digit of the actual CMR, e.g., a slot machine with an actual CMR
of P5,000.00 will be issued a CMR receipt with the amount of eitherP50,000.00
or P35,000.00. Based on the CIU's investigation of all the CMR receipts and slot machine
jackpot slips issued by CF Hyatt for the months of February and March 2007, the CIU identified
the members of the syndicate who were responsible for such CMR padding, which included
herein petitioner. On the same day, another Memorandum of Charges signed by Rogelio Y.
Bangsil, Jr., Senior Branch Manager, CF Hyatt Manila, was issued to petitioner informing him of
the charge of dishonesty (padding of anomalous SM jackpot receipts). Petitioner was then
required to explain in writing within seventy-two (72) hours from receipt thereof why he should
not be sanctioned or dismissed. Petitioner was placed under preventive suspension effective
immediately until further orders. On May 7, 2007, petitioner wrote Manager Bangsil a letter
explanation/refutation of the charges against him. He denied any involvement or participation in
any fraudulent manipulation of the CMR or padding of the slot machine receipts, and he asked
for a formal investigation of the accusations against him.

On August 4, 2007, petitioner received a letter dated August 2, 2007 from Atty. Lizette F.
Mortel, Managing Head of PAGCOR's Human Resource and Development Department,
dismissing him from the service.

On September 14, 2007, petitioner filed with the CSC a Complaint against PAGCOR and its
Chairman Efraim Genuino for illegal dismissal, non-payment of backwages and other benefits.
The complaint alleged among other things, that he tried to persuade respondent PAGCOR to
review and reverse its decision in a letter of reconsideration dated August 13, 2007 addressed to

Page | 102
the Chairman, the members of the Board of Directors and the Merit Systems Protection Board
and that no resolution was issued on his letter reconsideration. Thereafter, the CSC dismissed the
complaint on the ground that the same has already prescribed. After the denial of his Motion for
Reconsideration, Torres elevated the case to the Court of Appeals, which likewise dismissed his
petition on the same ground. Hence, this appeal.

ISSUE: Whether or not the sending of his letter of reconsideration by means of a fax machine is
a valid mode of filing a letter of reconsideration?

RULING: A motion for reconsideration may either be filed by mail or personal delivery. When
a motion for reconsideration was sent by mail, the same shall be deemed filed on the date shown
by the postmark on the envelope which shall be attached to the records of the case. On the other
hand, in case of personal delivery, the motion is deemed filed on the date stamped thereon by the
proper office. And the movant has 15 days from receipt of the decision within which to file a
motion for reconsideration or an appeal therefrom. Petitioner received a copy of the letter/notice
of dismissal on August 4, 2007; thus, the motion for reconsideration should have been submitted
either by mail or by personal delivery on or before August 19, 2007. However, records do not
show that petitioner had filed his motion for reconsideration. In fact, the CSC found that the non-
receipt of petitioner's letter reconsideration was duly supported by certifications issued by
PAGCOR employees.

Even assuming arguendo that petitioner indeed submitted a letter reconsideration which he
claims was sent through a facsimile transmission, such letter reconsideration did not toll the
period to appeal. The mode used by petitioner in filing his reconsideration is not sanctioned by
the Uniform Rules on Administrative Cases in the Civil Service. As we stated earlier, the motion
for reconsideration may be filed only in two ways, either by mail or personal delivery.

In Garvida v. Sales, Jr., we found inadmissible in evidence the filing of pleadings through fax
machines and ruled that:

A facsimile or fax transmission is a process involving the transmission and reproduction of

printed and graphic matter by scanning an original copy, one elemental area at a time, and
representing the shade or tone of each area by a specified amount of electric current. The current
is transmitted as a signal over regular telephone lines or via microwave relay and is used by the
receiver to reproduce an image of the elemental area in the proper position and the correct shade.
The receiver is equipped with a stylus or other device that produces a printed record on paper
referred to as a facsimile.

xxx A facsimile is not a genuine and authentic pleading. It is, at best, an exact copy preserving
all the marks of an original. Without the original, there is no way of determining on its face
whether the facsimile pleading is genuine and authentic and was originally signed by the party
and his counsel. It may, in fact, be a sham pleading.xxx

Moreover, a facsimile transmission is not considered as an electronic evidence under the

Electronic Commerce Act. In MCC Industrial Sales Corporation v. Ssangyong Corporation, We

Page | 103
determined the question of whether the original facsimile transmissions are "electronic data
messages" or "electronic documents" within the context of the Electronic Commerce Act.
We, therefore, conclude that the terms "electronic data message" and "electronic document," as
defined under the Electronic Commerce Act of 2000, do not include a facsimile transmission.
Accordingly, a facsimile transmission cannot be considered as electronic evidence. It is not the
functional equivalent of an original under the Best Evidence Rule and is not admissible as
electronic evidence.

GENERAL BANKING LAW OF 2000 (RA 8791)

1
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO OLAGUER, vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman,
GOVERNOR ARMANDO TETANGCO, JR., and its incumbent members:
JUANITA AMATONG, ALFREDO ANTONIO, PETER FAVILA, NELLY
VILLAFUERTE, IGNACIO BUNYE and CESAR PURISIMA
G.R. No. 192986. January 15, 2013
J. Reyes

DOCTRINE: CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law but
simply suspended the latter’s effectivity”; that “a [CB] Circular cannot repeal a law, [for] only
a law can repeal another law”; that “by virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective”; and “Usury has been legally non-existent in our jurisdiction. Interest can
now be charged as lender and borrower may agree upon.”

FACTS: Petitioner “Advocates for Truth in Lending, Inc.” (AFTIL) is a nonprofit, non-stock
corporation organized to engage in pro bono concerns and activities relating to money lending
issues. It was incorporated on July 9, 2010, and a month later, it filed this petition, joined by its
founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen. R.A. No. 265,
which created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the CB-
MB to, among others, set the maximum interest rates which banks may charge for all types of
loans and other credit operations, within limits prescribed by the Usury Law. On March 17,
1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving the CB-MB
authority to prescribe different maximum rates of interest which may be imposed for a loan or
renewal thereof or the forbearance of any money, goods or credits, provided that the changes are
effected gradually and announced in advance. In its Resolution No. 2224 dated December 3,
1982, the CB-MB issued CB Circular No. 905, Series of 1982, effective on January 1, 1983.
Section 1 of the Circular, under its General Provisions, removed the ceilings on interest rates on
loans or forbearance of any money, goods or credits. On June 14, 1993, President Fidel V.
Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas (BSP) to
replace the CB. Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D.
No. 1684, the CB-MB was authorized only to prescribe or set the maximum rates of interest for a
loan or renewal thereof or for the forbearance of any money, goods or credits, and to change
such rates whenever warranted by prevailing economic and social conditions, the changes to be
effected gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB

Page | 104
to lift or suspend the limits of interest on all credit transactions, when it issued CB Circular No.
905. They further insist that under Section 109 of R.A. No. 265, the authority of the CBMB was
clearly only to fix the banks’ maximum rates of interest, but always within the limits prescribed
by the Usury Law. They further claim that just weeks after the issuance of CB Circular No. 905,
the benchmark 91-day Treasury bills (T-bills), then known as “Jobo” bills shot up to 40% per
annum, as a result.

ISSUE: Whether the CB-MB has the authority to lift or suspend the limits of interest on all
credit transactions, when it issued CB Circular No. 905.

RULING: Yes. The power of the CB to effectively suspend the Usury Law pursuant to P.D. No.
1684 has long been recognized and upheld in many cases. As the Court explained in the
landmark case of Medel v. CA, 299 SCRA 481 (1998), citing several cases, CB Circular No. 905
“did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s
effectivity”; that “a [CB] Circular cannot repeal a law, [for] only a law can repeal another law”;
that “by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective”; and
“Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon.” In this case, by lifting the interest ceiling, CB Circular No. 905
merely upheld the parties’ freedom of contract to agree freely on the rate of interest. The Court
cited Article 1306 of the New Civil Code, under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. It is settled that nothing in
CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets. Nonetheless,
the nullity of the stipulation of usurious interest does not affect the lender’s right to recover the
principal of a loan, nor affect the other terms thereof.

2
LUCIA BARRAMEDA VDA. DE BALLESTEROS vs. RURAL BANK OF CANAMAN
INC., PDIC
G.R. No. 176260. November 24, 2010
J. Mendoza

DOCTRINE: 1. The rule on adherence of jurisdiction is not absolute and has exceptions. One of
the exceptions is that when the change in jurisdiction is curative in character. 2. The cited Morfe
case held that “after the Monetary Board has declared that a bank is insolvent and has ordered it
to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in trust for
the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a
preference over another by an attachment, execution or otherwise.” 3. Lucia’s complaint
involving annulment of deed of mortgage and damages falls within the purview of a disputed
claim in contemplation of Section 30 of R.A. 7653 (The New Central Bank Act). The jurisdiction
should be lodged with the liquidation court. 4. Disputed claims” refers to all claims, whether they
be against the assets of the insolvent bank, for specific performance, breach of contract,
damages, or whatever. Lucia’s action being a claim against RBCI can properly be consolidated
with the liquidation proceedings before the RTC-Makati. 5. A liquidation proceeding is a single

Page | 105
proceeding which consists of a number of cases properly classified as “claims.” It is basically a
two-phased proceeding. The first phase is concerned with the approval and disapproval of
claims. Upon the approval of the petition seeking the assistance of the proper court in the
liquidation of a closed entity, all money claims against the bank are required to be filed with the
liquidation court. This phase may end with the declaration by the liquidation court that the claim
is not proper or without basis. On the other hand, it may also end with the liquidation court
allowing the claim. In the latter case, the claim shall be classified whether it is ordinary or
preferred, and thereafter included Liquidator. In either case, the order allowing or disallowing a
particular claim is final order, and may be appealed by the party aggrieved thereby. The second
phase involves the approval by the Court of the distribution plan prepared by the duly appointed
liquidator. The distribution plan specifies in detail the total amount available for distribution to
creditors whose claim were earlier allowed. The Order finally disposes of the issue of how much
property is available for disposal. Moreover, it ushers in the final phase of the liquidation
proceeding—payment of all allowed claims in accordance with the order of legal priority and the
approved distribution plan. 6. Regular courts do not have jurisdiction over actions filed by
claimants against an insolvent bank, unless there is a clear showing that the action taken by the
BSP, through the Monetary Board, in the closure of financial institutions was in excess of
jurisdiction, or with grave abuse of discretion.

FACTS: Petitioner Lucia Barrameda Vda. De Ballesteros (Lucia) filed a complaint for
Annulment of Deed of Extrajudicial Partition, Deed of Mortgage and Damages against her
children, Roy, Rito, Amy, Arabel, Rico, Abe, Ponce Rex and Adden, all surnamed Ballesteros,
and the Rural Bank of Canaman, Inc. (RBCI) before the RTC-Iriga. Lucia alleged that her
deceased husband, Eugenio, left two (2) parcels of land (Parcel A and B), - that without her
knowledge and consent, her children executed a deed of extrajudicial partition and waiver of the
estate of her husband wherein all the heirs, including Lucia, agreed to allot the two parcels to
Rico Ballesteros (Rico); - that subsequently Rico mortgaged Parcel B to RBCI - then RCBI
foreclosed the mortgage to settle the loan, - that Lucia was occupying Parcel B and had no other
place to live During the pre-trial, RBCIs counsel filed a motion to withdraw after being informed
that PDIC would handle the case as RBCI had already been closed and placed under the
receivership of the PDIC. PDIC filed a motion to dismiss on the ground that the RTC-Iriga has
no jurisdiction over the subject matter of the action. RBCI stated that pursuant to Section 30,
Republic Act No. 7653 (RA No. 7653), otherwise known as the New Central Bank Act, the
RTC-Makati, already constituted itself, per its Order dated August 10, 2001, as the liquidation
court to assist PDIC in undertaking the liquidation of RBCI. Thus, the subject matter of Civil
Case No. IR-3128 fell within the exclusive jurisdiction of such liquidation court. RTC-Iriga
issued an order granting the Motion to Dismiss on the ground of no jurisdiction over the subject
matter of the action. In the case of Hernandez (G.R. No. L-29791) it was held that the liquidation
court shall have jurisdiction to adjudicate all claims against the bank whether they be against
assets of the insolvent bank, for Specific Performance, Breach of Contract, Damages or
whatever.

ISSUE: Whether a liquidation court can take cognizance of a case wherein the main cause of
action is not a simple money claim against a bank ordered closed, placed under receivership of
the PDIC, and undergoing a liquidation proceeding.

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RULING: Yes, a liquidation court can take cognizance of a case. (3 key take away: Section 30,
R.A. 7653 jurisdiction, concept of disputed claim and liquidation proceeding) Lucias argument,
that the RTC-Iriga is vested with jurisdiction to continue trying case until its final disposition,
evidently falls out from a strained interpretation of the law and jurisprudence. The Court
recognizes the doctrine on adherence of jurisdiction. However, such principle is not without
exceptions. One of the exceptions is that when the change in jurisdiction is curative in character
(Garcia v. Martinez, Calderon, Sr. v. CA, Atlas Fertilizer Corporation v. Navarro, Abad v. RTC
of Manila). Section 30, R.A. 7653 is curative in character when it declared that the liquidation
court shall have jurisdiction in the same proceedings to assist in the adjudication of the disputed
claims against the Bank. The requirement that all claims against the bank be pursued in the
liquidation proceedings filed by the Central Bank is intended to prevent multiplicity of actions
against the insolvent bank and designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and
arbitrariness (citing Ong v. CA). The lawmaking body contemplated that for convenience, only
one court, if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendents of Banks and regulate his operations (citing
Central Bank, et al. v. CA).

3
PDIC vs. BIR
G.R. No. 172892. June 13, 2013
J. Leonardo-De Castro

DOCTRINE: A tax clearance is not a prerequisite to the approval of the project of distribution
of the assets of a bank under liquidation by the Philippine Deposit Insurance Corporation.

FACTS: The Monetary Board of the BSP prohibited the Rural Bank of Tuba (Benguet), Inc.
(RBTI) from doing business in the Philippines, placed it under receivership in accordance with
Section 30 of Republic Act No. 7653 or the New Central Bank Act, and designated the PDIC as
receiver. PDIC conducted an evaluation of RBTI’s financial condition and determined that RBTI
remained insolvent. Thus, the Monetary Board issued Resolution directing PDIC to proceed with
the liquidation of RBTI. Accordingly and pursuant to Section 30 of the New Central Bank Act,
PDIC filed in the RTC a petition for assistance in the liquidation of RBTI. RTC gave the petition
due course and approved it. BIR intervened as one of the creditors of RBTI. BIR prayed that the
proceedings be suspended until PDIC has secured a tax clearance required under Section 52(C)
of Republic Act No. 8424 or the Tax Reform Act of 1997. RTC granted BIR’s motion. PDIC
moved for partial reconsideration of the Order and argued that Section 52(C) of the Tax Code of
1997 does not cover closed banking institutions as the liquidation of closed banks is governed by
Section 30 of the New Central Bank Act. The motion was denied.

ISSUE: Whether or not a bank placed under liquidation has to secure a tax clearance from the
BIR before the liquidation court can approve the project of distribution of the assets of the bank.

RULING: NO. A tax clearance is not a prerequisite to the approval of the project of distribution
of the assets of a bank under liquidation by the Philippine Deposit Insurance Corporation (PDIC)
for the following reasons: (1) Section 52(C) of the National Internal Revenue Code of 1997

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pertains only to a regulation of the relationship between the Securities and Exchange
Commission (SEC) and the Bureau of Internal Revenue (BIR) with respect to corporations
contemplating dissolution or reorganization. On the other hand, banks under liquidation by the
PDIC as ordered by the Monetary Board constitute a special case governed by the special rules
and procedures provided under Section 30 of the New Central Bank Act, which does not require
that a tax clearance be secured from the BIR; (2) Only a final tax return is required to satisfy the
interest of the BIR in the liquidation of a closed bank, which is the determination of the tax
liabilities of a bank under liquidation by the PDIC. In view of the timeline of the liquidation
proceedings under Section 30 of the New Central Bank Act, it is unreasonable for the liquidation
court to require that a tax clearance be first secured as a condition for the approval of project of
distribution of a bank under liquidation; (3) It is not for the courts to fill in any gap in current
statutes and regulations as to the relations among the BIR, the Bangko Sentral ng Pilipinas and
the PDIC. It is up to the legislature to address the matter through appropriate legislation, and to
the executive to provide the regulations for its implementation; and (4) Section 30 of the New
Central Bank Act expressly provides that debts and liabilities of the bank under liquidation are to
be paid in accordance with the rules on concurrence and preference of credit under the Civil
Code. Duties, taxes, and fees due the Government enjoy priority only when they are with
reference to a specific movable property, under Article 2241(1) of the Civil Code, or immovable
property, under Article 2242(1) of the same Code. However, with reference to the other real and
personal property of the debtor, sometimes referred to as “free property,” the taxes and
assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of
the Civil Code, such as the corporate income tax, will come only in ninth place in the order of
preference. If a tax clearance shall be required before the project of distribution of the assets of a
bank under liquidation may be approved, then its tax liabilities will be given absolute preference
in all instances, including those that do not fall under Articles 2241(1) and 2242(1) of the Civil
Code.

4
PEOPLE OF THE PHILIPPINES vs. ESTRADA
G.R. No. 164368. April 2, 2009
J. Brion

DOCTRINE: Estrada could not be said to have intended his signing as Jose Velarde to be for
public consumption by the fact alone that Lacquian and Chua were also inside the room at that
time. The same holds true for Estradas alleged representations with Ortaliza and Dichavez,
assuming the evidence for these representations to be admissible. All of Estradas representations
to these people were made in privacy and in secrecy, with no iota of intention of publicity.

FACTS: An Information for plunder was filed with the Sandiganbayan against respondent
Estrada, among other accused. A separate Information for illegal use of alias was likewise filed
against Estrada. During the trial, it was alleged by the officers of Philippine Commercial and
Industrial Bank (PCIB) Clarissa G. Ocampo (Ocampo) and Atty. Manuel Curato (Curato) that
Estrada opened a numbered trust account (Trust Account C-163) with PCIB and signed as Jose
Velarde (his alias) in the account opening documents in the presence of Lacquian (chief of staff)
and Chua (lawyer friend).

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ISSUE: WON Estrada intended to be publicly known as Jose Velarde when he opened his Trust
account.

RULING: NO. To our mind, the presence of Lacquian and Chua when Estrada signed as Jose
Velarde and opened Trust Account No. C-163 does not necessarily indicate his intention to be
publicly known henceforth as Jose Velarde. In relation to Estrada, Lacquian and Chua were not
part of the public who had no access to Estradas privacy and to the confidential matters that
transpired in Malacaan where he sat as President; Lacquian was the Chief of Staff with whom he
shared matters of the highest and strictest confidence, while Chua was a lawyerfriend bound by
his oath of office and ties of friendship to keep and maintain the privacy and secrecy of his
affairs. Thus, Estrada could not be said to have intended his signing as Jose Velarde to be for
public consumption by the fact alone that Lacquian and Chua were also inside the room at that
time. The same holds true for Estradas alleged representations with Ortaliza and Dichavez,
assuming the evidence for these representations to be admissible. All of Estradas representations
to these people were made in privacy and in secrecy, with no iota of intention of publicity. We
have consistently ruled that bank deposits under R.A. No. 1405 (the Secrecy of Bank Deposits
Law) are statutorily protected or recognized zones of privacy. Given the private nature of
Estradas act of signing the documents as Jose Velarde related to the opening of the trust account,
the People cannot claim that there was already a public use of alias when Ocampo and Curato
witnessed the signing. We need not even consider here the impact of the obligations imposed by
R.A. No.1405 on the bank officers; what is essentially significant is the privacy situation that is
necessarily implied in these kinds of transactions. This statutorily guaranteed privacy and
secrecy effectively negate a conclusion that the transaction was done publicly or with the intent
to use the alias publicly. The enactment of R.A. No.9160, on the other hand, is a significant
development only because it clearly manifests that prior to its enactment, numbered accounts or
anonymous accounts were permitted banking transactions, whether they be allowed by law or by
a mere banking regulation. To be sure, an indictment against Estrada using this relatively recent
law cannot be maintained without violating the constitutional prohibition on the enactment and
use of ex post facto laws.

5
REPUBLIC vs. GLASGOW CREDIT AND COLLECTION SERVICES, INC.
G.R. No. 170281. January 18, 2008
J. Corona

DOCTRINE: RA 9160, as amended, and its implementing rules and regulations lay down two
conditions when applying for civil forfeiture: (1) when there is a suspicious transaction report or
a covered transaction report deemed suspicious after investigation by the AMLC and (2) the
court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report.

FACTS: The Republic filed a complaint in the RTC Manila for civil forfeiture of assets (with
urgent plea for issuance of temporary restraining order [TRO] and/or writ of preliminary
injunction) against the bank deposits in account number CA-005-10-000121-5 maintained by
Glasgow in CSBI. The case, filed pursuant to RA 9160 (the AntiMoney Laundering Act of
2001), as amended. Acting on the Republic’s urgent plea for the issuance of a TRO, the

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executive judge of RTC Manila issued a 72- hour TRO dated July 21, 2003. The case was
thereafter raffled to Branch 47 and the hearing on the application for issuance of a writ of
preliminary injunction was set on August 4, 2003. After hearing, the trial court issued an order
granting the issuance of a writ of preliminary injunction. Meanwhile, summons to Glasgow was
returned “unserved” as it could no longer be found at its last known address. The Republic filed a
verified omnibus motion for (a) issuance of alias summons and (b) leave of court to serve
summons by publication. The trial court directed the issuance of alias summons. However, no
mention was made of the motion for leave of court to serve summons by publication. In January
30, 2004, the trial court archived the case allegedly for failure of the Republic to serve the alias
summons. The Republic filed an ex parte omnibus motion to (a) reinstate the case and (b) resolve
its pending motion for leave of court to serve summons by publication. In an order dated May
31, 2004, the trial court ordered the reinstatement of the case and directed the Republic to serve
the alias summons on Glasgow and CSBI within 15 days. However, it did not resolve the
Republic’s motion for leave of court to serve summons by publication declaring: “Until and
unless a return is made on the alias summons, any action on [the Republic’s] motion for leave of
court to serve summons by publication would be untenable if not premature.” On July 12, 2004,
the Republic (through the Office of the Solicitor General [OSG]) received a copy of the sheriff’s
return dated June 30, 2004 stating that the alias summons was returned “unserved” as Glasgow
was no longer holding office at the given address since July 2002 and left no forwarding address.
Meanwhile, the Republic’s motion for leave of court to serve summons by publication remained
unresolved. Thus, on August 11, 2005, the Republic filed a manifestation and ex parte motion to
resolve its motion for leave of court to serve summons by publication. On August 12, 2005, the
OSG received a copy of Glasgow’s “Motion to Dismiss (By Way of Special Appearance)” dated
August 11, 2005. It alleged that (1) the court had no jurisdiction over its person as summons had
not yet been served on it; (2) the complaint was premature and stated no cause of action as there
was still no conviction for estafa or other criminal violations implicating Glasgow and (3) there
was failure to prosecute on the part of the Republic. The Republic opposed Glasgow’s motion to
dismiss. It contended that its suit was an action quasi in rem where jurisdiction over the person of
the defendant was not a prerequisite to confer jurisdiction on the court. It asserted that prior
conviction for unlawful activity was not a precondition to the filing of a civil forfeiture case and
that its complaint alleged ultimate facts sufficient to establish a cause of action. It denied that it
failed to prosecute the case. On October 27, 2005, the trial court issued the assailed order. It
dismissed the case on the following grounds: (1) improper venue as it should have been filed in
the RTC of Pasig where CSBI, the depository bank of the account sought to be forfeited, was
located; (2) insufficiency of the complaint in form and substance and (3) failure to prosecute. It
lifted the writ of preliminary injunction and directed CSBI to release to Glasgow or its
authorized representative the funds in CA-00510-000121-5.

ISSUE: Whether the complaint for civil forfeiture was correctly dismissed on grounds of
improper venue, insufficiency in form and substance and failure to prosecute.

RULING: NO. Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture,
therefore, the venue of civil forfeiture cases is any RTC of the judicial region where the
monetary instrument, property or proceeds representing, involving, or relating to an unlawful
activity or to a money laundering offense are located. Pasig City, where the account sought to be
forfeited in this case is situated, is within the National Capital Judicial Region (NCJR). Clearly,

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the complaint for civil forfeiture of the account may be filed in any RTC of the NCJR. Since the
RTC Manila is one of the RTCs of the NCJR, it was a proper venue of the Republic’s complaint
for civil forfeiture of Glasgow’s account. RA 9160, as amended, and its implementing rules and
regulations lay down two conditions when applying for civil forfeiture: (1) when there is a
suspicious transaction report or a covered transaction report deemed suspicious after
investigation by the AMLC and (2) the court has, in a petition filed for the purpose, ordered the
seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related
to said report. It is the preliminary seizure of the property in question which brings it within the
reach of the judicial process. It is actually within the court’s possession when it is submitted to
the process of the court. The injunctive writ issued on August 8, 2003 removed account no. CA-
005-10-000121- 5 from the effective control of either Glasgow or CSBI or their representatives
or agents and subjected it to the process of the court.

6
BANGKO SENTRAL NG PILIPINAS v. FELICIANO P. LEGASPI
G.R. No. 205966. March 02, 2016
PERALTA, J.

DOCTRINE: Under Republic Act No. 7653, or the New Central Bank Act, the BSP Governor is
authorized to represent the Bangko Sentral, either personally or through counsel, including
private counsel, as may be authorized by the Monetary Board, in any legal proceedings, action
or specialized legal studies. Under the same law, the BSP Governor may also delegate his power
to represent the BSP to other officers upon his own responsibility.

FACTS: Petitioner BSP filed a Complaint for annulment of title, revocation of certificate and
damages (with application for TRO/writ of preliminary injunction) against Secretary Jose L.
Atienza, Jr., Luningning G. De Leon, Engr. Ramon C. Angelo, Jr., Ex-Mayor Matilde A. Legaspi
and respondent Feliciano P. Legaspi before the RTC of Malolos, Bulacan. Respondent, together
with his fellow defendants, filed their Answer to the complaint. Thereafter, the RTC issued an
Order mandating the issuance of preliminary injunction, enjoining the construction, development
and/or operation of a dumpsite or landfill in Barangay San Mateo, Norzagaray, Bulacan, in an
area allegedly covered by OCT No. P858/Free Patent No. 257917, the property subject of the
complaint. Herein respondent Legaspi filed a Motion to Dismiss alleging that the RTC did not
acquire jurisdiction over the person of the petitioner BSP because the suit is unauthorized by
petitioner BSP itself and that the counsel representing petitioner BSP is not authorized and thus
cannot bind the same petitioner. In addition, respondent Legaspi asserted that the complaint was
initiated without the authority of the Monetary Board and that the complaint was not prepared
and signed by the Office of the Solicitor General (OSG), the statutory counsel of government
agencies. In opposing the Motion to Dismiss, petitioner BSP argued that the complaint was filed
pursuant to Monetary Board Resolution No. 8865. Petitioner BSP further claimed that it is not
precluded from being represented by a private counsel of its own choice. In denying the Motion
to Dismiss, the RTC ruled that it had acquired jurisdiction over the person of the petitioner when
the latter filed with the court the Complaint. Furthermore, the RTC adjudged that in suits
involving the BSP, the Monetary Board may authorize the Governor to represent it personally or
through counsel, even a private counsel, and the authority to represent the BSP may be delegated
to any other officer thereof. It took into account the Monetary Board Resolution No. 900

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containing the Board's approval of the recommendation of the Asset Management Department
(AMD) to engage the services of Ongkiko Kalaw Manhit and Acorda Law Offices (OKMA
Law). Respondent Legaspi filed a motion for reconsideration, adding as its argument that the
RTC failed to acquire jurisdiction over the action because the complaint, a real action, failed to
allege the assessed value of the subject property. As an opposition to respondent Legaspi's
additional contention, petitioner BSP claimed that since the subject property contains an area of
4,838,736 square meters, it is unthinkable that said property would have an assessed value of less
than P20,000.00 which is within the jurisdiction of the Municipal Trial Courts. Petitioner BSP
further stated that a tax declaration showing the assessed value of P28,538,900.00 and latest
zonal value of P145,162,080.00 was attached to the complaint. RTC likewise denied respondent
Legaspi's motion for reconsideration. Respondent Legaspi elevated the case to the CA via a
petition for certiorari under Rule 65 of the Rules of Court. CA granted respondent’s motion and
dismissed BSP’s complaint.

ISSUES: 1. Whether or not The Regional Trial Court of Malolos City has exclusive original
jurisdiction over the subject matter of the action. 2. Whether or not BSP can lawfully engaged
the services of a private counsel.

RULING: 1. The RTC has exclusive original jurisdiction over the case. Under Batas Pambansa
Bilang 129, as amended by Republic Act No. 7691, the RTC has exclusive original jurisdiction
over civil actions which involve title to possession of real property, or any interest therein, where
the assessed value of the property involved exceeds Twenty Thousand Pesos (P20,000.00).
Petitioner BSP insists that the property involved has an assessed value of more than P20,000.00,
as shown in a Tax Declaration attached to the complaint. Incidentally, the complaint, on its face,
is devoid of any amount that would confer jurisdiction over the RTC. The non-inclusion on the
face of the complaint of the amount of the property, however, is not fatal because attached in the
complaint is a tax declaration (Annex "N" in the complaint) of the property in question showing
that it has an assessed value of P215,320.00. It must be emphasized that annexes to a complaint
are deemed part of, and should be considered together with the complaint. Since a copy of the
tax declaration, which is a public record, was attached to the complaint, the same document is
already considered as on file with the court, thus, the court can now take judicial notice of such.
2. BSP can lawfully engage the services of a private counsel.

7
FEDERAL EXPRESS CORP. V. ANTONINO
G.R. No. 199455. June 27, 2018,
Leonen, J

DOCTRINE: It is settled in jurisprudence that checks, being only negotiable instruments, are
only substitutes for money and are not legal tender; more so when the check has a named payee
and is not payable to bearer. An order instrument, which has to be endorsed by the payee before
it may be negotiated, cannot be a negotiable instrument equivalent to cash.
FACTS: In November 2003, monthly common charges on the unit situated in New York, USA
and owned by respondent Eliza Antonino became due. These charges were for the period of July
2003 to November 2003, and were for a total amount of US$9,742.81. On December 2003,
respondents Luwalhati and Eliza were in the Philippines. As the monthly common charges on the

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Unit had become due, they decided to send several Citibank checks to Sison, who was based in
New York. Citibank checks allegedly amounting to US$17,726.18 for the payment of monthly
charges and US$11,619.35 for the payment of real estate taxes were sent by Luwalhati through
FedEx with Account No. x2546-4948-1 and Tracking No. 8442 4588 4268. The package was
addressed to Sison who was tasked to deliver the checks payable to MaxwellKates, Inc. and to
the New York County Department of Finance. Sison allegedly did not receive the package,
resulting in the non-payment of Luwalhati and Eliza's obligations and the foreclosure of the Unit.
After several follow-ups, Sison was informed that the package was delivered to her neighbor but
there was no signed receipt. On March 14, 2004, respondents, through their counsel, sent a
demand letter to FedEx for payment of damages due to the non-delivery of the package, but
FedEx refused to heed their demand. Hence, on April 5, 2004, they led their Complaint for
damages. FedEx contended that it should be absolved of liability as the respondents shipped
prohibited items and misdeclared these items as "documents." It pointed to conditions under its
Air Waybill prohibiting the "transportation of money (including but not limited to coins or
negotiable instruments equivalent to cash such as endorsed stocks and bonds)."

ISSUE: Whether or not the Citibank checks are considered money, within the prohibition of
FedEx’s Air Waybill.

RULING: The prohibition has a singular object: money. What follows the phrase "transportation
of money " is a phrase enclosed in parentheses, and commencing with the words "including but
not limited to." The additional phrase, enclosed as it is in parentheses, is not the object of the
prohibition, but merely a postscript to the word "money." Moreover, its introductory words
"including but not limited to" signify that the items that follow are illustrative examples; they are
not qualifiers that are integral to or inseverable from "money." Despite the utterance of the
enclosed phrase, the singular prohibition remains: money. Money is "what is generally
acceptable in exchange for goods." It can take many forms, most commonly as coins and
banknotes. Despite its myriad forms, its key element is its general acceptability. Laws usually
define what can be considered as a generally acceptable medium of exchange. It is settled in
jurisprudence that checks, being only negotiable instruments, are only substitutes for money and
are not legal tender; more so when the check has a named payee and is not payable to bearer. In
Philippine Airlines, Inc. v. Court of Appeals, the Court ruled that the payment of a check to the
sheriff did not satisfy the judgment debt as checks are not considered legal tender. This has been
maintained in other cases decided by the Supreme Court. The Air Waybill's prohibition mentions
"negotiable instruments" only in the course of making an example. Thus, they are not prohibited
items themselves. Moreover, the illustrative example does not even pertain to negotiable
instruments per se but to "negotiable instruments equivalent to cash." The checks involved here
are payable to specific payees, Maxwell-Kates, Inc. and the New York County Department of
Finance. Thus, they are order instruments. They are not payable to their bearer. Order
instruments differ from bearer instruments in their manner of negotiation: Under Section 30 of
the Negotiable Instruments Law, an order instrument requires an indorsement from the payee or
holder before it may be validly negotiated. A bearer instrument, on the other hand, does not
require an indorsement to be validly negotiated. There is no question that checks, whether
payable to order or to bearer, so long as they comply with the requirements under Section 1 of
the Negotiable Instruments Law, are negotiable instruments. The more relevant consideration is
whether checks with a specified payee are negotiable instruments equivalent to cash, as

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contemplated in the example added to the Air Waybill's prohibition. The Court thinks they are
not. An order instrument, which has to be endorsed by the payee before it may be negotiated,
cannot be a negotiable instrument equivalent to cash. It is worth emphasizing that the
instruments given as further examples under the Air Waybill must be endorsed to be considered
equivalent to cash.

8
PHILAM INSURANCE COMPANY vs. HEUNG-A SHIPPING CORPORATION
GR No. 187701. Jul 23, 2014
Contract Of Affreightment

DOCTRINE: A charter party has two types. First, it could be a contract of affreightment
whereby the use of shipping space on vessels is leased in part or as a whole, to carry goods for
others. Second, charter by demise or bareboat charter under which the whole vessel is let to the
charterer with a transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants.

FACTS: Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from Jinsuk
Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of Ovaltine Power 18
Glaminated plastic packaging material. In order to ship the goods to the Philippines, JINSUK
engaged the services of Protop Shipping Corporation (PROTOP), a freight forwarder likewise
based in South Korea, to forward the goods to their consignee, NOVARTIS. Based on Bill of
Lading issued by PROTOP, the cargo was on freight prepaid basis and on "shipper’s load and
count" which means that the "container [was] packed with cargo by one shipper where the
quantity, description and condition of the cargo is the sole responsibility of the shipper."
Likewise stated in the bill of lading is the name Sagawa Express Phils., Inc., (SAGAWA)
designated as the entity in the Philippines which will obtain the delivery contract. PROTOP
shipped the cargo through Dongnama Shipping Co. Ltd. (DONGNAMA) which in turn loaded
the same on M/V Heung-A Bangkok V-019 owned and operated by Heung-A Shipping
Corporation, (HEUNG-A). Wallem Philippines Shipping, Inc. (WALLEM) is the ship agent of
HEUNG-A in the Philippines. NOVARTIS insured the shipment with Philam Insurance
Company, Inc. (PHILAM, now Chartis Philippines Insurance, Inc.) under All Risk Marine Open
Insurance Policy against all loss, damage, liability, or expense before, during transit and even
after the discharge of the shipment from the carrying vessel until its complete delivery to the
consignee’s premises. The shipment reached NOVARTIS’ premises and was thereupon
inspected by the company’s Senior Laboratory Technician.

Caparoso found the container van locked with its load intact. After opening the same, she
inspected its contents and discovered that the boxes of the shipment were wet and damp.
Caparoso rejected the entire shipment. All 17 pallets of the 184 cartons/rolls contained in the sea
van were found wet/water damaged. NOVARTIS demanded indemnification for the
lost/damaged shipment from PROTOP, SAGAWA, ATI and STEPHANIE but was denied.
Insurance claims were, thus, filed with PHILAM which paid the insured value of the shipment.
PHILAM sent a demand letter to WALLEM for reimbursement of the insurance claims paid to
NOVARTIS. When WALLEM ignored the demand, PHILAM impleaded it as additional

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defendant in an Amended Complaint. PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and
HEUNG-A denied liability for the lost/damaged shipment. RTC ruled that the damage to the
shipment occurred onboard the vessel while in transit from Korea to the Philippines. The RTC
discounted the slot charter agreement between HEUNG-A and DONGNAMA, and held that it
did not bind the consignee who was not a party thereto. The RTC further observed that HEUNG-
A failed to present evidence showing that it exercised the diligence required of a common carrier
in ensuring the safety of the shipment. CA agreed with the RTC that PROTOP, HEUNG-A and
WALLEM are liable for the damaged shipment. The fact that HEUNG-A was not a party to the
bill of lading did not negate the existence of a contract of carriage between HEUNG-A and/or
WALLEM and NOVARTIS. A bill of lading is not indispensable for the creation of a contract of
carriage. By agreeing to transport the goods contained in the sea van provided by DONGNAMA,
HEUNG-A impliedly entered into a contract of carriage with NOVARTIS with whom the goods
were consigned. Hence, it assumed the obligations of a common carrier to observe extraordinary
diligence in the vigilance over the goods transported by it. Further the Slot Charter Agreement
did not change HEUNG-A’s character as a common carrier.

ISSUE: Whether or not HEUNG-A remained responsible as the carrier, hence, answerable for
the damages incurred by the goods received for transportation.

RULING: Yes. A charter party has been defined as a contract by which an entire ship, orsome
principal part thereof, is let by the owner to another person for a specified time or use; a contract
of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a
merchant or other person for the conveyance of goods, on a particular voyage, in consideration
of the payment of freight. A charter party has two types. First, it could be a contract of
affreightment whereby the use of shipping space on vessels is leased in part or as a whole, to
carry goods for others. The charter-party provides for the hire of vessel only, either for a
determinate period of time (time charter) or for a single or consecutive voyage (voyage charter).
The ship owner supplies the ship’s stores, pay for the wages of the master and the crew, and
defray the expenses for the maintenance of the ship. The voyage remains under the responsibility
of the carrier and it is answerable for the loss of goods received for transportation. The charterer
is free from liability to third persons in respect of the ship. Second, charter by demise or bareboat
charter under which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master and
the crew, who are his servants. The charterer mans the vessel with his own people and becomes,
in effect, the owner for the voyage or service stipulated and hence liable for damages or loss
sustained by the goods transported.

Clearly then, despite its contract of affreightment with DONGNAMA, HEUNG-A remained
responsible as the carrier, hence, answerable for the damages incurred by the goods received for
transportation. "Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of
the goods and the passengers they transport. Thus, common carriers are required to render
service with the greatest skill and foresight and ‘to use all reasonable means to ascertain the
nature and characteristics of the goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires.’" Common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods they transported

Page | 115
deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed such diligence." Further, under
Article 1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods should
be caused by the faulty nature of the containers, the common carrier must exercise due diligence
to forestall or lessen the loss.

9
Halley v. Printwell, Inc.
G.R. No. 154549, 30 May 2011

FACTS: The petitioner was an incorporator and original director of BMPI which had an
authorized capital stock of three million pesos divided into 300,000 shares each with a par value
of ten pesos of which 75,000 were initially subscribed. Printwell engaged in commercial and
industrial printing. BMPI commissioned Printwell for theprinting of the magazine Philippines,
Inc. (together with wrappers and subscription cards) thatBMPI published and sold. For that
purpose, Printwell extended 30-day credit accommodations to BMPI.

BMPI placed with Printwell several orders on credit, evidence by invoices and delivery receipts.
Considering that BMPI paid only 25,000 pesos, printwell sued BMPI for the collection of the
unpaid balance in the RTC. Printwell amended the complaint in order to implead as defendants
all the original stockholders and incorporators to recover on their unpaid
subscriptions.Defendants filed a consolidated answer averring that they all had paid their
subscriptions in full; that BMPI had a separate personality from those of its stockholders. To
prove payment of their subscriptions, the defendant stockholders submitted in evidence BMPI
official receipt, an audit report, BMPI balance sheet and income statement, income tax return,
journal vouchers, cash deposit slips and BPI savings account passbook in the name of BMPI.

ISSUE: Whether the propriety of disregarding the separate personalities of BMPI and its
stockholders by piercing the thin veil that separated them.

RULING: Although a corporation has a personality separate and distinct from those of its
stockholders, directors, or officers, such separate and distinct personality is merely a fiction
created by law for the sake of convenience and to promote the ends of justice.

The corporate personality may be disregarded, and the individuals composing the corporation
will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or
illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the
sole benefit of the stockholders.

As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason
to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord
prime importance to the separate personality of the corporation, disregarding the corporate
personality only after the wrongdoing is first clearly and convincingly established. It thus
behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil
shall be done.

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Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can
it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege
onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by
misrepresenting the solvency of BMPI to Printwell, her personal liability, together with that of
her co-defendants, remained because the CA found her and the other defendant stockholders to
be in charge of the operations of BMPI at the time the unpaid obligation was transacted and
incurred, to wit:In the case at bench, it is undisputed that BMPI made several orders on credit
from appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of ₱291,342.76 (Record pp. 3-5, Annex “A”) which facts
were never denied by appellants’ stockholders that they owe(d) appellee the amount of
₱291,342.76.

The said goods were delivered to and received by BMPI but it failed to pay its overdue account
to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was
also during this time that appellants stockholders were in charge of the operation of BMPI
despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly
benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay
appellee of its liability, hence appellee in order to protect its right can collect from the appellants
stockholders regarding theirunpaid subscriptions. To deny appellee from recovering from
appellants would place appellee ina limbo on where to assert their right to collect from BMPI
since the stockholders who areappellants herein are availing the defense of corporate fiction to
evade payment of its obligations.

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
obligations to pay, and whether or not she induced Printwell to transact with BMPI were not
good defenses in the suit.

10
RET. LT. GEN. JACINTO C. LIGOT, ET. AL. vs. REPUBLIC
G.R. No. 176944. March 6, 2013
J. Corona

DOCTRINE: There are only two requisites for the issuance of a freeze order: (1) the application
ex parte by the AMLC and (2) the determination of probable cause by the CA. The freeze order
shall be for a period of twenty (20) days unless extended by the court. The effectivity of a freeze
order may be extended by the CA for a period not exceeding six months. However, should it
become completely necessary for the Republic to further extend the duration of the freeze order,
it should file the necessary motion before the expiration of the sixmonth period and explain the
reason or reasons for its failure to file an appropriate case and justify the period of extension
sought.

FACTS: Gen. Ligot was an officer of AFP for 33 years and 2 months. In 2005, the Office of the
Ombudsman sent a letter to AMLC recommending that AMLC conduct an investigation on Gen.
Ligot and his family for possible violation of AMLA (RA No. 9160). The Ombudsman attached
the complaint it filed against Ligots for violation of perjury, of RA No. 3019 where it declared
that the assets registered in Gen. Ligot’s name, as well as those in his brother (Yambao), wife’s

Page | 117
and children’s names, to be illegally obtained and unexplained wealth (Gen. Ligot’s assets are
grossly disproportionate to his income). Pursuant to such recommendation, AMLC conducted a
financial investigation, which revealed the existence of the Ligots’ various bank accounts with
several financial institutions. AMLC then issued a resolution directing the Executive Director of
the AMLC to file an application for a freeze order against the properties of Lt. Gen. Ligot and
the members of his family with the CA. CA issued a freeze order against the Ligots’ and
Yambao’s various bank accounts, web accounts and vehicles, valid for a period of 20 days from
the date of issuance. Upon an Urgent Motion for Extension of Effectivity of Freeze Order filed
by the Republic, the CA extended the freeze order over the Ligots’ various bank accounts and
personal properties "until after all the appropriate proceedings and/or investigations being
conducted are terminated." Ligots questioned this extension arguing that, the freeze order should
be lifted considering that: (a) no predicate crime has been proven to support the freeze order’s
issuance; and (b) the freeze order expired six months after it was issued on July 5, 2005.

ISSUES:
1. WON the CA correctly issued the freeze order.
2. WON the CA correctly extend the freeze order until the termination of the investigation or
proceedings against Ligots.

RULING:
1. Yes. Under Sec 10 of AMLA, there are only two requisites for the issuance of a freeze order:
(1) the application ex parte by the AMLC and (2) the determination of probable cause by the CA,
that any monetary instrument or property is in any way related to an unlawful activity as defined
in Section 3(i) of AMLA and/or money laundering offense. The freeze order shall be for a period
of twenty (20) days unless extended by the court. Thus, contrary to the Ligots’ claim, a freeze
order is not dependent on a separate criminal charge, much less does it depend on a conviction.
Here, AMLC’s verified allegations in its ex parte application, based on the complaint filed by the
Ombudsman against Ligot and his family for violations of the Anti-Graft and Corrupt Practices
Act, clearly sustain the CA’s finding that probable cause exists that the monetary instruments
subject of the freeze order are related to, or are the product of, an unlawful activity. Hence, the
freeze order was validly issued.

2. No, while AMLA is silent on the maximum period of time that the freeze order can be
extended by the CA, Section 55 of the Rule in Civil Forfeiture Cases qualifies the grant of
extension "for a period not exceeding six months". Also, the SC issued A.M. No. 05-11-04-SC,
limiting the effectivity of an extended freeze order to six months this is to prevent the CA, from
extending a freeze order indefinitely or to an unreasonable amount of time which carries serious
implications on an individual’s substantive right to due process. Thus, as a rule, the effectivity of
a freeze order may be extended by the CA for a period not exceeding six months. Before or upon
the lapse of this period, ideally, the Republic should have already filed a case for civil forfeiture
against the property owner with the proper courts and accordingly secure an asset preservation
order or it should have filed the necessary information. Otherwise, the property owner should
already be able to fully enjoy his property without any legal process affecting it. However,
should it become completely necessary for the Republic to further extend the duration of the
freeze order, it should file the necessary motion before the expiration of the six-month period and

Page | 118
explain the reason or reasons for its failure to file an appropriate case and justify the period of
extension sought.

Here, the Republic has not offered any explanation why it took six years (from the time it
secured a freeze order) before a civil forfeiture case was filed in court, despite the clear tenor of
the Rule in Civil Forfeiture Cases allowing the extension of a freeze order for only a period of
six months. Cearly, the continued extension of the freeze order beyond the six-month period
violated the Ligot’s right to due process; thus, the CA decision should be reversed.

PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT (RA

3591, AS AMENDED)

1
G.R. No: 227520, June 17, 2019
A.S. Topacio Construction Corporation and Spouses Augusto S. Topacio and Antoinetta B.
Topacio, petitioner
VS.
PCI Leasing and Finance Inc., respondent.
B. REYES JR., J:

FACTS: AS Topacio Construction Corporation (ASTCC) is a domestic corporation engaged in

general construction. Augusto S. Topacio (Augusto) and Antoinetta B. Topacio (Antoinetta),
collectively referred to as the Spouses Topacio, are the President and Corporate Secretary of
ASTCC. On May 20, 1997, PCI Leasing and Finance, Inc., now BDO Leasing and Finance, Inc.,
(respondent) and ASTCC, through Augusto, entered into a lease contract denominated as Lease
Agreement No. 0236 (Lease Agreement) covering chattels/personal properties (subject
equipment).

On May 21, 1997, the Spouses Topacio executed in favor of respondent a Continuing Guaranty
of Lease Obligation (CGL0). According to respondent, the spouses bound themselves to be
jointly and severally liable for the entire obligation under the said continuing guaranty.

ASTCC failed to pay several installments of rentals due under the lease. This led respondent to
demand payment of the entire unpaid balance of the obligation, which, as of January 18, 1999,
amounted to P3,226,513.41 plus penalty charges of P244,878.51.

Sometime in March 1999, ASTCC voluntarily surrendered to respondent the subject equipment.
However, petitioners failed and refused to pay the said obligation. As a result, respondent
instituted an action for collection of sumof money. The complaint was raffled to Branch 78 of
the Quezon City Regional Trial Court (Branch 78). Simultaneous with the filing of their pre-trial
brief, the Spouses Topacio moved to dismiss the complaint as against them. They claimed that
they were not real parties in interest because they merely acted in their capacity as officers of the
corporation.

Page | 119
RTC: On the issue of the joint and solidary liability of the petitioners, it held that the CA already
ruled that they are indeed jointly and solidarily liable on account of the CGLO executed by the
Spouses Topacio in favor of respondent. It saw no compelling reason to disturb this
pronouncement of the CA.

CA: It affirmed the RTC's finding that the Spouses Topacio are jointly and severally liable with
ASTCC. It noted that while they signed the Lease Agreement in their official capacity, they can
be held personally liable by virtue of the CGLO they executed in favor of respondent. Further, it
noted that the May 21, 2004 CA Decision in CA-G.R. CV No. 76747, which held that the
Spouses Topacio may be held jointly and severally liable with ASTCC, has attained finality. The
principle of the law of the case applies.

ISSUE: Whether or not the spouses are solidarily liable?

RULING: YES.

Petitioners insist that the Spouses Topacio cannot be held jointly and severally liable with
ASTCC because they signed the lease agreement in their capacity as corporate officers of
ASTCC. However, the May 21, 2004 Decision of the CA squarely passed upon the issue of
whether the Spouses Topacio are solidarily liable with ASTCC by virtue of the CGLO they
signed.

It specifically discussed whether the same was executed by the Spouses Topacio in their capacity
as corporate officers or as individuals. These were answered in the affirmative by the May 21,
2004 Decision. The said decision constitutes the controlling legal rule between the parties and it
continues to be the law of the case herein.

2
G.R. No.: 237246, July 29, 2019
HAYDEN KHO, SR., petitioner
VS.
DOLORES G. MAGBANUA, respondents

FACTS: A complaint for illegal dismissal was filed by respondents before the Labor Arbiter
against Holy Face Cell Corporation (Corporation), Tres Pares Fast Food (Tres Pares), and the
Corporation's stockholders, including Spouses Kho).

For their part, Spouses Kho argued that they had no employer-employee relationship with
respondents, as the latter's employer was the Corporation, and that they cannot be held liable for
the acts of the Corporation.

LABOR ARBITER: ruled that Kho, whom respondents alleged to be the President of the
Corporation at the time of the closure and which allegation was not denied by Kho, should be
held solidarity liable for respondents' claims.

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NLRC: reversed and set aside the LA Decision and dismissed the complaint as against Kho.

CA: reversed and set aside the NLRC ruling, and accordingly, held the Corporation and Kho
solidarily liable for the payment of respondents.

ISSUE: Whether or not the CA is correct

HELD: NO

The NLRC ruling must be reinstated. A plain reading of the Corporation's GIS for the years 2007
and 2008 show that Kho was not the Corporation's President as he was merely its Treasurer,
while the GIS for the year 2009 indicates that he is no longer a corporate officer of the
Corporation.

More importantly, aside from respondents' bare allegations; there is a dearth of evidence on
record that would indicate that Kho was a corporate officer at the time the restaurant, where
respondents worked, closed down. Verily, absent any finding that Kho was a corporate officer of
the Corporation who willfully and knowingly assented to patently unlawful acts of the latter, he
cannot be held personally liable for the corporate liabilities arising from the instant case.

3
G.R. No. 232251. FEBRUARY 20, 2019
PEOPLE OF THE PHILIPPINES, petitioner
vs.
OOI HOCK GUAN, respondent

FACTS: Ooi Hock Guan (Hock) was charged with the crime of Illegal Transportation of
Dangerous Drugs, defined and penalized under Section 5, Article II of Republic Act No. 9165,
otherwise known as the Comprehensive Dangerous Drugs Act of 2002.

Aggrieved, Hock appealed the case before the Court of Appeals (CA). On December 22, 2016,
the CA in its Decision, affirmed the RTC's conviction of Hock, holding that the prosecution was
able to prove the elements of the crimes charged. Hock filed a Notice of Appeal.

While the case is still pending, CSupt. Marites D. Lucefio, Chief, Inmate Documents and
Processing Division, Bureau of Corrections, informed the Court in a letter dated January 21,
2019 that Hock had died on November 13, 2015 due to "Shock Prob. Multifactorial" as
evidenced by his Certificate of Death issued by the Office of the Civil Registrar General.

ISSUE: Whether or not the recovery of the civil liability ex delicto is extinguished.

RULING: YES.

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Article 89 of the Revised Penal Code provides that criminal liability is totally extinguished by
the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability
therefor is extinguished only when the death of the offender occurs before final judgment.

The Court explained in People v. Toukyo, citing People Bayotas, the implications of an accused-
appellant's death prior to final judgment:

l. Death of the accused pending appeal of his conviction extinguishes his criminal
liability as well as the civil liability based solely thereon. As opined by Justice
Regalado, in this regard, "the death of the accused prior to final judgment
terminates his criminal liability and only the civil liability directly arising from
and based solely on the offense committed, i.e., civil liability ex delicto in senso
strictiore.

2. Corollarily, the claim for civil liability survives notwithstanding the death of
accused, if the same may also be predicated on a source of obligation other than
delict. Article 1157 of the Civil Code enumerates these other sources of obligation
from which the civil liability may arise as a result of the same act or omission: a)
Law b) Contracts c) Quasi-contracts d) xxx e) Quasi-delicts

4
G.R. No: 187262, January 10, 2019
ENGINEERING GEOSCIENCE, INC., petitioner,
VS.
PHILIPPINE SAVINGS BANK, respondents.
CARPIO, J:

FACTS: EGI obtained a loan from PSBank. The former, through its President, Jose Rolando
Santos, executed a Real Estate Mortgage in favor of PSBank over two parcels of land as a
security for the loan.

EGI was only able to make partial payments on its loan as it fell due, and after paying only half
of the amortizations, EGI made no further payments. Thus, PSBank invoked the acceleration
clause under the promissory note and sent a demand letter for full payment of its loan obligation
but to no avail. This prompted PSBank to file a petition for extrajudicial foreclosure of
Mortgage. The Foreclosure sale was set however the same did not push through on account of
the Complaint with Prayer for Writ of Preliminary Injunction and Restraining Order filed by EGI
and was granted by the trial court. Before the case materialized into a full-blown trial, PSBank
and EGI submitted a Joint Motion for Approval of Compromise Agreement dated December 29,
1992, which was approved by the Trial Court.

Page | 122
Notwithsanding the court-approved Compromise Agreement, EGI still failed to comply with the
terms and conditions thereof. Thus, petitioner PSBank was constrained to file a Motion for
Execution of the trial court’s decision on their Compromise Agreement. Accordingly, a Writ of
Execution dated July 18, 1994 was issued in favor of PSBank. However, before the same could
be served, the trial court issued an order to let the implementation of the same be held in
abeyance until further orders from the Court. EGI in a pleading, raised for the first time the
alleged lack of authority of its former president, Jose Rolando Santos, to enter into the
Compromise Agreement reduced in the Decision dated January 12, 1993.

Respondent pairing Judge Ma. Theresa Dela Torre Yadao issued the now challenged Order
reversing the trial courts order and declaring the Compromise Agreement dated December 29,
1992 as null and void. A motion for reconsideration filed by PSBank was denied.

CA: reversed the trial court’s decision and upheld the validity of the Compromise Agreement.

ISSUE: Whether or not the CA erred in reversing the trial court’s decision and upheld the
validity of the Compromise Agreement.

RULING: No.

The SC agree with EGI that there is nothing in the records that shows that Santos had the express
authority to represent EGI in filing a complaint before the trial court, or even enter into any
compromise agreement on behalf of EGI. Aside from its bare allegations, PSBank was not able
to present any evidence which would show that Santos indeed had the authority to represent EGI.
PSBank was not able to show any evidence of a board authority, a special power of attorney, or
even a secretary's certificate that EGI issued in favor of Santos. Neither was PSBank able to
show that it was not necessary for Santos to present a Board Resolution that authorizes him to
file the Complaint and enter into the Compromise Agreement because EGI's By-Laws expressly
authorize him to do so. However, in its eagerness to repudiate Santos' acts, EGI failed to
substantiate how and when Santos lost his status as Company President, and how Santos was
able to proceed with his misrepresentations before the Board of Directors regarding the payment
of the loan obligation. The promissory notes from 1984 to 1990 were all signed by Santos as
EGI's President. EGI did not bother to inform PSBank about the change in Santos' status despite
previously holding him out as a person with authority to transact in its name. EGI also did not
address how it will comply with the terms of the loan obligation. Moreover, in the same manner
that EGI has been decrying the lack of explicit authority from its Board of Directors, we also
expect nothing less than minutes of a Board Meeting, or even a Board Resolution, which
removed Santos as Company President, or denounced his lack of authority to act in EGI's name.

Without actually accusing its former president of fraud, EGI would want to impress upon the
courts that its former president acted fraudulently in filing the complaint against PSBank before
the trial court and in subsequently entering into the compromise agreement without proper
authorization from EGI's board of directors. Thus, it is EGI's theory that the trial court never
acquired jurisdiction over it.

Page | 123
However, it must be borne in mind that he who alleges fraud must prove it for basic is the rule
that actori incumbit onus probandi. It is an aged-old rule in civil cases that he who alleges a fact
has the burden of proving it and a mere allegation is not evidence. Fraud is never presumed, but
must be established by clear and convincing evidence. Outside its bare allegation of fraud and
the absence of a special power of attorney and/or secretary's certificate, EGI never advanced any
evidence to show how and why its former president deliberately concealed from its board of
directors the complaint filed before the trial court and the subsequent compromise agreement.

EGI does not repudiate the act of Santos in signing the Promissory Notes; in fact, EGI made
partial payments, offering the authority of Santos to borrow and sign the Promissory Notes. EGI,
however, repudiates the act of Santos in entering into the Compromise Agreement extending the
repayment of the loan under the Promissory Notes, which extension is actually beneficial to EGI.
In fact, the Compromise Agreement bought time for EGI to pay the loan under the Promissory
Notes but EGI still failed to pay. Having availed of benefits under the Compromise Agreement,
EGI is estopped from repudiating it.

5
G.R. No: 210683, January 8, 2019
Dr. Consolacion S. Callang, petitioner
VS.
Commission On Audit, respondents.
REYES, J:

FACTS: District Supervisor of Bambang Dist. 1, Bayombong, Nueva Vizcaya, Department of

Education, Dr. Consolacion Callang, encashed various checks for the payment of the 2005 Year-
End Bonus and Cash Gift of the teaching and non-teaching personnel of the said district. Not the
entire amount was handed out because not all personnel were present. Callang wanted to entrust
the remaining cash to Rizalino Lubong, the District Statistician, for safekeeping, but the latter
refused, prompting her to bring the money home instead.

While she was on board a jeepney, one of her co-passengers declared a robbery while the vehicle
was traversing the National Highway in Macate, Bambang, Nueva Vizcaya. The robber took the
bag of money Callang was carrying as well as her personal belongings. The passengers of the
robbed jeepney immediately reported the incident to the authorities. In the same vein, Callang
notified the Schools Division Superintendent (SDS) volunteering to be submitted for inquiry.

In a letter, Callang informed the Audit Team Leader, Bambang District I, DepEd, Nueva Vizcaya
regarding the robbery and asked for assistance to support her request for relief from money
accountability.

In 2011 Memorandum, the Audit Team Leader opined that Callang was not negligent in the loss
of funds and her request for Relief of Cash Accountability should be granted. The Supervising
Auditor agreed with the ATL’s findings that there was no negligence on the part of Callang for
the loss of money as it was caused by the robbery incident.

Page | 124
However, the Officer-in-Charge-Regional Director (OIC-RD) of COA Regional Office,
Tuguegarao City opined otherwise. The COA Adjudication and Settlement Board (COA-ASB)
affirmed the findings of the OIC-RD in its decision finding negligence on the part of Callang.

Aggrieved, Callang filed a petition for review before the COA. The COA in its Decision
affirmed the COA-ASB Decision. The COA explained that Callang failed to provide adequate
precautionary and safety measures to protect the government funds under her custody. The COA
also highlighted that negligence can be attributed to Callang due to the fact that she opted to
bring the money home even if there was a safety deposit box in her office.

ISSUE: Whether or not the COA committed grave abuse of discretion and grave error in issuing
the decision finding Callang negligent in the loss of the government fund through the robbery
incident.

RULING: Yes.
Negligence depends on the factual circumstances of the case.

Section 105 of Presidential Decree (P.D.) No. 1445 provides that officers accountable for
government property or funds shall be liable in case of its loss, damage or deterioration
occasioned by negligence in the keeping or use thereof. Absent any showing that the accountable
officer acted negligently in the handling of government funds, he or she is not liable for its value
and should be relieved from any accountability. Stated otherwise, accountable officers are still
liable for the funds under their custody even if the loss was caused by force majeure should their
own negligence contribute to it.

In a case decided by this court, “Negligence is the omission to do something that a

reasonable man, guided upon those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent man and [a] reasonable man
could not do. Stated otherwise, negligence is want of care required by the
circumstances. Negligence is, therefore, a relative or comparative concept. Its application
depends upon the situation the parties are in, and the degree of care and vigilance which the
prevailing circumstances reasonably require. Conformably with this understanding of
negligence, the diligence the law requires of an individual to observe and exercise varies
according to the nature of the situation in which she happens to be, and the importance of the act
that she has to perform.”

In ascribing negligence on Callang, the COA noted that she: (1) opted to have her lunch at a fast-
food restaurant instead of going back directly to her school; (2) brought home the money in spite
of the existence of a safety cabinet in her office; and (3) stopped by her granddaughter's school
before going to her office the following day. A careful review of the records, however, would
show that there is no substantial evidence to support Callang's alleged negligence.

Taken in isolation, the fact that Callang brought the money home under her custody would
appear to be a negligent act rendering her liable for the loss due to the robbery. However, when
the surrounding circumstances are considered, Callang acted prudently when she decided against

Page | 125
leaving the money in her office and instead bring the funds home. In fact, she would have been
negligent had she opted to leave the money in the office knowing that it had no safety vault but
only a steel cabinet.

In the present case, Callang had sufficient reason not to leave the money inside the steel cabinet
in her office. This is especially true considering that her office had been victimized by burglars
in the past. Without a safety vault, a would-be intruder would not find it difficult to force open
the steel cabinet and steal the money deposited therein. Consequently, Callang's decision to bring
the money home was the reasonable and responsible choice given the situation. The fact that she
was robbed on her way to work the following day was beyond her control.

Hence, the Decision of the Commission on Audit is REVERSED and SET ASIDE. The Request
for Relief from Money Accountability of petitioner Dr. Consolacion S. Callang is GRANTED.

5
G.R. No. 225433, August 28, 2019
LARA'S GIFTS & DECORS, INC., petitioner
VS.
MIDTOWN INDUSTRIAL SALES, INC., respondent.
CARPIO, J:

FACTS: Petitioner Lara's Gifts & Decors, Inc. (petitioner) is engaged in the business of
manufacturing, selling, and exporting handicraft products. On the other hand, respondent
Midtown Industrial Sales, Inc. (respondent) is engaged in the business of selling industrial and
construction materials, and petitioner is one of respondent's customers. Respondent alleged that
petitioner purchased from respondent various industrial and construction materials in the total
amount of P1,263,104.22. The purchases were on a sixty (60)-day credit term, with the condition
that 24% interest per annum would be charged on all accounts overdue, as stated in the sales
invoices. Petitioner paid for its purchases by issuing several Chinabank postdated checks in favor
of respondent. However, when respondent deposited the Chinabank checks on their maturity
dates, the checks bounced. After repeated demands from respondent, petitioner replaced the
bounced checks with new postdated Export and Industry Bank checks to which were likewise
dishonored for being "Drawn Against Insufficient Funds," and subsequently, for "Account
Closed." Respondent sent a demand letter informing that the checks were dishonored and
demanding that petitioner settle its accounts.

Petitioner defaulted prompting respondent to file a complaint for Sum of Money with Prayer for
Attachment against petitioner. The former admitted the fact that it did purchased some items
however, most of the deliveries made were substandard and of poor quality. Petitioner alleged
that the checks it issued for payment were not for value because not all of the materials delivered
by respondent were received in good order and condition. Thus, when petitioner used the raw
materials, the finished product allegedly did not pass the standards required by petitioner's
buyers from the United States (US) who rejected the products. Furthermore, due to the economic
recession in the US, subsequent orders made by petitioner's US buyers were canceled. Petitioner

Page | 126
claimed that on 19 February 2008, a fire razed its factory and office, destroying its equipment,
machineries, and inventories, including those rejected by the US buyers.

RTC: Ruled in favor of Midtown Industrial Sales.

CA: Affirmed the decision of the RTC.

ISSUE: 1. Whether or not [lara's gifts & decors, inc.] Is in default of its contractual obligations.
2. Whether or not articles 1192 and 1283 of the civil code are applicable in the present
case.

RULING: 1. Yes

Petitioner admits that it made purchases amounting to P1,263,104.22, but that the materials
delivered were substandard or of poor quality. In effect, petitioner is alleging fraud in the
transactions, which petitioner is bound to substantiate. Whoever alleges fraud or mistake
affecting a transaction must substantiate his allegation and has the burden of proof. As found by
the trial court and the appellate court, petitioner failed to substantiate its claim that the materials
delivered by respondent did not comply with the specifications required or that the materials
were substandard and of poor quality.

The best evidence of the transaction between petitioner and respondent are the sales invoices and
the checks issued by petitioner as payments for the materials purchased. The sales invoices show
that petitioner, through its authorized staff or employees, acknowledged receipt of the deliveries
without protest. The sales invoices clearly stated that petitioner "RECEIVED MERCHANDISE
IN GOOD ORDER & CONDITION." Furthermore, petitioner admits issuing the postdated
checks as payment for the materials delivered. The postdated checks were subsequently
dishonored for being "drawn against insufficient funds" or for "account closed." Petitioner insists
that the checks were issued without valuable consideration since most of the materials delivered
did not comply with the required specifications. However, other than its bare allegation that the
materials delivered were substandard and of poor quality, petitioner failed to prove or
substantiate its claims. As found by the trial court, none of petitioner's witnesses was able to
present proof that the materials delivered were substandard or of poor quality.

2. No.

Articles 1192 and 1283 of the Civil Code read:

Art 1192 In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts fit cannot be
determined which of the parties first violated the contract the same shall be
deemed extinguished, and each shall bear his own damages.

Art 1283 If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said damages and
the amount thereof.

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As previously discussed, petitioner failed to substantiate its claims that the materials delivered
were substandard or of poor quality. Thus, petitioner cannot demand either a tempering of its
liability or an offset of damages.

6
G.R. No: 208543, February 11, 2019
Goodland Company, Inc., petitioner
VS.
Banco De Oro-Unibank, Inc., and Goodgold Realty And Development Corporation,
respondents.
DEL CASTILLO, J:

FACTS: Petitioner Goodland Company, Inc. (Goodland), a duly registered domestic

corporation, is the registered owner of a property in Makati City, covered by Transfer Certificate
of Title.

In 1999, Gilbert Guy (Guy), on behalf of petitioner Goodland, Richgold Realty Corporation
(Richgold), Smartnet Philippines, Inc. (Smartnet), and respondent Goodgold Realty
Development Corporation (Goodgold), secured loans and credit facilities from Equitable PCI
Bank, Inc. (EPCI) now Banco De Oro Unibank, Inc. (BDO). The debtor corporations, however,
failed to pay the monthly interest on the loan obligation. Thus, they offered to pay their loan
through a dacion en pago. Accordingly, on July 30, 2004, EPCI wrote a letter agreement
confirming that the property in Makati City, covered by TCT No. 218470, registered under the
name of respondent Goodgold, shall be applied as full payment of the loan obligation of the
debtor corporations at a dacion price of P245 million. A Deed of Cession of Property in Payment
of Debt (Dacion En Pago) was thereafter executed. However, despite the execution of
the Dacion En Pago, EPCI was not able to cause the transfer of the title under its name due to
the alleged fraudulent refusal of respondent Goodgold to turn over the transfer documents.

In 2009, BDO filed before the RTC a Complaint for Sum of Money with Application for
Preliminary Attachment against Guy and other debtor corporations. Respondent BDO alleged
that petitioner Goodland and the other debtor corporations, through Guy, obtained loans from
EPCI; that they are guilty of fraud in the performance of their obligation to EPCI, now
respondent BDO; that Guy, who was the controlling stockholder of the debtor corporations,
conspired with the debtor corporations to cause the commencement of negotiations with EPCI
regarding the dacion of the property owned by respondent Goodgold only for the purpose of
fraudulently delaying and ultimately evading the settlement or collection of their loan
obligations; that because of their misrepresentation, the maturity dates of their loan obligations
were extended; that despite the execution of the Dacion En Pago, they refused to submit the

Page | 128
required transfer documents; that as of August 31, 2008, they were liable to pay the total amount
of P409,927,978.78; that there was no sufficient security for the loan obligations

RTC: granted the attachment and accordingly caused the attachment on various properties of the
debtor. Petitioner Goodland and Richgold filed a Motion to Lift the attachment and to stop
implementation thereof on account of excessive attachment. The RTC in an order discharged the
properties of Guy and Goodland on the ground that the properties of respondent Goodgold were
sufficient to cover the claims of BDO.

Goodgold and BDO both moved for reconsideration but were denied. Thus, BDO elevated the
matter to the CA.

CA: rendered a decision granting the BDO’s Petition. The CA reinstated the attachment on the
property of respondent Goodland and Guy. However, as to the properties of respondent
Goodgold, the CA ruled that there was no sufficient basis to include the same in the writ, except
for the property subject of the Dacion En Pago.

ISSUE: Whether or not the writ of preliminary attachment on petitioner’s property is null and
void because of the failure to show fraudulent intent on the part of defendants and that the
reinstatement of the attachment violates the rule against excessive attachment as the remaining
attached property of co-defendant goodgold is more than sufficient to satisfy bdo's claim in the
event of an adverse judgment.

RULING: The Petition lacks merit.

Litis pendentia is a ground for the dismissal of an action when there is another action pending
between the same parties involving the same cause of action, thus, rendering the second action
unnecessary and vexatious. It exists when the following requisites concur:
1. Identity of parties or of representation in both cases,
2. Identity of rights asserted and relief prayed for,
3. The relief must be founded on the same facts and the same basis, and
4. Identity in the two preceding particulars should be such that any judgment which may
be rendered in the other action, will, regardless of which party is successful, amount
to res judicata on the action under consideration.

Res judicata, on the other hand, exists if the following requisites concur: "(1) the former
judgment or order must be final; (2) the judgment or order must be on the merits; (3) it must
have been rendered by a court having jurisdiction over the subject matter and the parties; (4)
there must be, between the first and the second action, identity of parties, of subject matter and
cause of action."

In this case, the Court finds that the CA correctly dismissed the Petition for Certiorari, docketed
as CA-G.R. SP No. 119327, on the ground of litis pendentia. As aptly found by the CA, the
parties and issues raised in the said case were identical to that of CA-G.R. SP No. 117223. In
CA-G.R. SP No. 117223, respondent BDO sought to reinstate the attachment of the properties of
Guy on the ground that the remaining attached properties were insufficient to secure its claim. In

Page | 129
CA-G.R. SP No. 119327, petitioner Goodland claimed that its attached property should be
discharged as the total current market value of the attached properties of its co-defendants were
more than enough to cover the amount claimed by respondent BDO. Clearly, both petitions
for certiorari raised as an issue the sufficiency or insufficiency of the attached properties. The
resolution of the said issue in CA-G.R. SP No. 117223 thus prevented the CA in CA G.R. SP No.
119327 from resolving the same issue.

In fact, the dismissal was inevitable as the argument of petitioner Goodland, that the attached
properties of respondent Goodgold were sufficient to cover the amount sought to be collected by
respondent BDO, no longer holds water because of the issuance of the June 6, 2011 Decision in
CA-G.R. SP No. 117223 discharging the properties of respondent Goodgold, except for TCT No.
218470. The failure of petitioner Goodland to move for a reconsideration or to file an appeal
likewise sealed its fate as it is now bound by the June 6, 2011 Decision. Though petitioner timely
availed of petition for certiorari to assail the Orders of the RTC, the CA still had no choice but to
dismiss the said petition for certiorari on the ground of litis pendentia, now res judicata in view
of the finality of the June 6, 2011 Decision.

7
G.R. No. 224466. March 27, 2019
KAREN NUÑEZ VITO, LYNETTE NUÑEZ MASINDA, WARREN NUÑEZ, and
ALDEN NUÑEZ, petitioner
vs.
NORMA MOISES-PALMA, respondent
CAGUIOA, J.

FACTS: Vicentico, who was then suffering from diabetes, borrowed P30,000.00 from Rosita
Moises (Rosita) and as security, executed a real estate mortgage over his lot. Since Rosita had no
money, the funds came from Norma Moises-Palma (Norma), Rosita's daughter. According to
petitioners, the P30,000.00 loan of Vicentico was subsequently paid as evidenced by an Affidavit
Authorizing Release of Mortgage (AARM).Upon Vicentico's death on September 27, 1994, the
subject lot was transmitted to his heirs.

On June 28, 1995, Norma was able to have all petitioners, except Alden, sign a Deed of
Adjudication and Sale (DAS) wherein petitioners purportedly sold to Norma their respective pro
indiviso shares in the subject lot for P50,000.00, but the DAS reflected P30,000.00 as the
consideration in order to reduce the amount to be paid for capital gains tax and documentary
stamp tax. After the execution of the DAS, Norma immediately took possession of the subject
lot.

Instead of paying cash, Norma executed a Promissory Note (PN) on July 1, 1995 in favor of
petitioners whereby she obligated herself to pay P50,000.00, which "amount represents the cost
of a parcel of land [Norma] bought from them. Upon prodding of petitioners, Norma executed an
Acknowledgment of Debt (AOD) dated February 22, 2007, whereby she admitted that she owed
petitioners P50,000.00, representing the purchase price of the DAS.

Page | 130
Despite non-payment of the purchase price and the absence of Alden's signature on the DAS,
Norma was able to cause the registration of the document with the Register of Deeds on August
2, 2005.

On July 10, 2006, Alden instituted a case against respondent for Annulment of Transfer
Certificate of, Declaring Deed of Adjudication and Sale Null and Void, Partition, Reconveyance
and Recovery of Possession of a Portion of Land with Damages docketed as Civil Case No. 499
before the MTC. During the pendency of this case, Alden and Norma entered into a Compromise
Agreement (Compromise Agreement) on September 7, 2006, whereby Alden agreed to respect
Norma's ownership and possession of 85.8 square meters of the subject lot, the share being
claimed by him.

ISSUE: Whether or not Dacion en Pago is present.

RULING: NO.

Stated in the last paragraph of the DAS wherein the Real Estate Mortgage (REM) which
Vicentico executed was "cancell[ed] and considered null and void and no effect" that a dation in
payment might have been intended by the parties therein. Under Article 1245 of the Civil Code,
there is dation in payment when property is alienated to the creditor in satisfaction of a debt in
money and is governed by the law of sales.

This scheme was affirmed by Laceriano N. Moises (Laceriano), the brother of Norma, who
testified on direct examination that his uncle Vicentico together with his wife mortgaged Lot
2159-A, the subject lot, to his mother Rosita for the amount of P30,000.00 and the source of the
amount came from his younger sister Norma, and that since no payment was made regarding the
P30,000.00, Vicentico and Placida offset the subject lot for their indebtedness. While the DAS
seems to suggest a dation in payment, the subsequent actuations of the parties, especially Norma,
negate the same or the contemplated offset. If the DAS was intended to be a dation in payment,
the execution of the PN and AOD by Norma as well as the Compromise Agreement by Alden
and Norma on September 7, 2006, whereby Alden agreed, for an agreed consideration, to respect
Norma's ownership and possession of 85.8 square meters of the subject lot, the share being
claimed by him, shows an opposite declaration, i.e., there was no dation in payment or offset.
If the intention by the parties was that the heirs of Vicentico were ceding the subject lot to
Norma as payment of the P30,000.00 loan of their father to Rosita, it would be out of the
ordinary for Norma to execute a PN two days after the DAS, acknowledging her indebtedness of
the P50,000.00 to them, promising to pay the same within a specified period, and declaring
against her interest that the said amount represented the "cost" of the land that she bought from
them. Subsequently, in 2007, it would be unlikely for her to execute the AOD wherein she

Page | 131
acknowledged that she owed Karen, Warren and Lynette P50,000.00 if the consideration of the
DAS was Vicentico's indebtedness of P30,000.00. Alden was no longer included because by then
Norma had already paid the P88,000.00 which she agreed to pay him pursuant to their
Compromise Agreement. And, Norma should have insisted in the case filed by Alden against her
that there was an offset of his father's loan to her, through Rosita, her mother.

Furthermore, in the AARM, a duly notarized document which the heirs of Rosita executed in
July 2005, they acknowledged that: "[they] are releasing this Real Estate Mortgage, the fact
being that the late Vicentico Nunez had already paid [their] late mother indebtedness of THIRTY
THOUSAND PESOS (P30,000.00) [and] absolving the late Vicentico Nunez of any liabilities
whatsoever." Indeed, as claimed by petitioners in the Petition, the P30,000.00 loan of their father
Vicentico had been paid as duly acknowledged in a registered public instrument by the heirs of
Rosita, including Norma.Thus, there is preponderant evidence that supports the finding that the
DAS was not intended by the parties to be a dation in payment. And, even assuming that the
DAS was a dation in payment, the documents that were subsequently executed had the effect of
novating the same.

8
G.R. No. 226088, February 27, 2019
FOOD FEST LAND, INC. and JOYFOODS CORPORATION, petitioner
vs.
ROMUALDO C. SIAPNO, TEODORO C. SIAPNO, JR. and FELIPE C. SIAPNO,
respondent
PERALTA, J:

FACTS: The Siapnos entered into a Contract of Lease with Food Fest, a local corporation who
wanted to lease a parcel of land owned by the former to be used as the site of a fast food
restaurant for 15 years, with the right of Food Court to pre-terminate the said lease.

Food Fest proceeded to build and operate its restaurant within the leased land. Later, Food Fest
assigned all its rights and obligations under the Contract of Lease to Tucky Foods, which
thereafter assigned the same to Joyfoods Corporation. Food Fest and its assignees paid rent at as
prescribed in the Contract of Lease, and consistently observed the rental escalation clause in said
contract from the 2nd to the 5th year. However, from the 6th up to the 10th year of the lease, the
escalation clause was not observed. At the start of the 11th year, the Siapnos called the attention
of Food Fest and Joyfoods to enforce the rental escalation clause for that year, informing them of
the new lease rate per month, subject to negotiation.

This was acknowledged by Food Fest and Joyfoods, but proposed the reduced rate of P80,000
per month, which was rejected by the Siapnos. Likewise, the proposal for the reduced rate of
P85,000 per month was also rejected. On the 12th year, Joyfoods sent a letter to the Siapnos to
pre-terminate its lease, due to severe and irreversible business losses. Afterwards, the Siapnos
lodged before the RTC a Complaint for Sum of Money against Food Fest and Joyfoods, mainly
to seek payment of the sum of P988,907 from the latter, which the former referred to as the

Page | 132
“escalation” for the past 2 years, representing the balance of the rentals due under the Contract
of Lease.

RTC: rendered a Decision in favor of the Siapnos. The MR of Food Fest and Joyfoods was
denied by the RTC.

CA: dismissed the appeal and affirmed the decision of the RTC.

ISSUES: Whether or not Joyfoods should be solely liable for the unpaid balance due to
novation.

RULINGS: NO.

The court rejects the plea to limit the liability for the unpaid balance solely with Joyfoods.
Food Fest and Joyfoods' plea is, in substance, an invocation of the concept of novation —
particularly, novation of an obligation by the substitution of the person of the debtor. Their basic
assertion is that the assignment by Food Fest of its rights and obligations under the Contract of
Lease to Tucky Foods, and the assignment by Tucky Foods of the same rights and obligations to
Joyfoods, ought to have resulted in Food Fest's release from its obligations under the Contract of
Lease and its substitution therein by Joyfoods.

Novation of an obligation by substituting the person of the debtor, as the term suggests, entails
the replacement of the debtor by a third person. When validly made, it releases the debtor from
the obligation which is then assumed by the third person as the new debtor. To validly effect
such kind of novation, however, it is not enough for the debtor to merely assign his debt to a
third person, or for the latter to assume the debt of the former; the consent of the creditor to the
substitution of the debtor is essential and must be had. As Article 1293 of the Civil Code
provides:

ARTICLE 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the will
of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in articles 1236 and 1237.

Facts do not show that respondents had expressly consented in writing to the substitution of Food
Fest by Joyfoods. The consent of respondents to such substitution has to be in writing, in light of
the non-waiver clause of the Contract of Lease. As can be recalled, the non-waiver clause of the
Contract of Lease required the parties thereto to express any waiver of their rights under said
contract in writing lest their waiver be considered null.

Verily, without the consent of the respondents — conveyed in the form required under the
Contract of Lease — there can be no substitution of Food Fest by Joyfoods. On this score alone,
Food Fest and Joyfoods' plea is dismissible.

9
G.R. No. 197722. August 14, 2019
Page | 133
 JOCELYN MODOMO and DR. ROMY MODOMO, petitioner
vs.
SPOUSES MOISES P. LAYUG, JR., respondent
CAGUIOA, J.

FACTS: Spouses Layug are the owners of a parcel of land in Makati. The subject property was
leased to Spouses Modomo for 7 years. Modomo agreed to pay the amount of P170,000 as
monthly rentals, subject to an escalation of 10% for the 2nd and 3rd year, 15% on the fourth and
fifth year and 20% on the sixth and seventh year. It was also agreed by the parties that real estate
taxes on the property shall be paid by Modomo. Subsequently, Modomo defaulted in the
payment of the escalation of rental fees. They also failed to pay their rentals for the succeeding
year which would have been paid in advance as well as the real estate taxes due on the property.
Demand letters was sent to Modomo demanding they settle their unpaid monthly rentals but to
no avail. A letter was sent to Modomo terminating the Contract of Lease and a demand for the
spouses to vacate the premises.

Spouses Layug instituted the ejectment suit. Spouses Modomo alleged that considering that
Jocelyn Modomo had introduced improvements on the property, based on their conversation,
Spouses Layug agreed to reduce the monthly rentals to P150,000 and the non-imposition of the
escalation clause and the real estate tax provision. This was in view of the improvements in the
premises amounting to P2,000,000,000. However, despite the reminder of their previous
agreement, Layug imposed the escalation. Spouses Modomo also alleged that the Contract of
Lease has been novated in view of the subsequent oral agreements of the parties.

MeTC: rendered a judgment ordering Spouses Modomo to immediately surrender the peaceful
possession of the leased property with the improvements thereon and dismissed their
counterclaim.

RTC: affirmed the findings of the MeTC.

CA: held that Spouses Modomo failed to establish the concurrence of the requisites necessary to
extinguish or modify a Contract of Lease by way of novation.

ISSUE: Whether or not the provisions of the Contract of Lease governing rental fees, escalation
and real estate tax payment have been partially novated by the parties’ alleged subsequent verbal
agreement.

RULING: NO.

The Contract of Lease provides for governing rental fees, escalation and real estate tax payment
have been partially novated by the parties’ alleged subsequent verbal agreement.

While the records bear sufficient evidence to show the subsequent modification of the monthly
rental fee, no similar evidence exists on record to warrant the non-imposition of the provisions
on annual escalation and proportional payment of real estate tax.

Page | 134
Spouses Modomo alludes to the existence of a partial novation, governed by Article 1291 of the
Civil Code which states:

ART. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor.

While the Civil Code permits the subsequent modification of existing obligations, these
obligations cannot be deemed modified in the absence of clear evidence to this effect. Novation
is never presumed, and the animus novandi, whether total or partial, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
Accordingly, the burden to show the existence of novation lies on the party alleging the same.
Applying the foregoing principles, the Court finds that while there has been a modificatory
novation of the Contract of Lease through the parties' subsequent verbal agreement, such
novation relates solely to the lowering of the monthly rental fee from Php170,000.00 to
Php150,000.00. Finally, any doubt as to the modification of the monthly rental fee is dispelled by
the statements in Spouses Layug's Comment to the Petition which unequivocally confirm such
modification.

10
G.R. No. 225007. July 24, 2019
SAN MIGUEL FOODS, INC. AND JAMES A. VINOYA, petitioner
vs.
ERNESTO RAOUL V. MAGTUTO, respondent
CARPIO, J.

FACTS: Ernesto Raoul V. Magtuto (Magtuto), a businessman engaged in growing broiler chicks
and doing business under the name Alyssandra Farms, attended a gathering of broiler chick
growers of Swift Foods, Inc., which was closing operations in Bicol at the end of the year 2002.
Those in attendance were broiler chick growers and some employees of Swift Foods, Inc. and
representatives of petitioner San Miguel Foods, Inc. (SMFI), a company engaged in the business
of breeding and hatching broiler chickens, poultry processing, and manufacturing of poultry and
livestock feeds.

Magtuto and Vinoya arrived at an agreement. Vinoya told Magtuto that he can be accommodated
as a broiler chick grower of SMFI only if excess chicks would be available from the SMFI
hatchery located in Laguna. They did not execute a written contract. However, Vinoya showed
Magtuto a copy of SMFI's standard Broiler Chicken Contract Growing Agreement and told

Page | 135
Magtuto that he is bound by the same terms and conditions as their regular contract growers and
Magtuto agreed.

To guarantee the faithful performance by Magtuto of his obligations as a grower and for the
protection of both parties, Magtuto gave SMFI the amount of P72,000, as cash bond, equivalent
to two successive grows of P36,000 per grow where P1 for every chick delivered would be
deducted from Magtuto's account.

Magtuto and Vinoya did not discuss how long the agreement would last but for the months of
October and November 2002, and January and April 2003, SMFI delivered chicks to Magtuto
four times consisting of 36,000 chicks per delivery. After every harvest, SMFI paid Magtuto a
grower's fee for his service of growing the chicks for the company.

Then sometime in June 2003, on the fifth delivery, the broiler chicks delivered by SMFI was
short of 4,000 heads. Instead of 36,000 broiler chicks, SMFI only delivered 32,000 chicks.
Magtuto reported this to Vinoya. Vinoya replied and told Magtuto that there were no more
excess chicks to give due to the low supply from the hatchery and the decline in the demand of
chicken in the market because of the influx of cheap chicken coming from other countries.
Magtuto demanded that Vinoya deliver more chicks in order to make use of his facility to the
maximum capacity but Vinoya said that he was only being accommodated and their priority
would be the official contract growers of SMFI.

After several exchange of messages, Magtuto felt that Vinoya responded arrogantly and in an
insulting manner instead of addressing his query; thus, Magtuto went straight to SMFI and sent a
letter-complaint dated 12 June 2003 addressed to Ogilvie expressing his dissatisfaction with
Vinoya's alleged "arrogance, incompetence and unprofessional attitude." Ogilvie, however, did
not take any action on the matter.

ISSUE: Whether or not there is a perfected contract.

RULING: YES.

For a contract to be valid, it must have the following essential elements: (1) consent of the
contracting parties; (2) objects certain, which is the subject matter of the contract; and (3) cause
of the obligation which is established. Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause, which are to constitute the contract. The contract is
perfected at the moment there is a meeting of the minds upon the thing that is the object of the
contract and the price.

In the case at bar, all the essential elements are present. Magtuto entered into an agreement with
Vinoya for the growing of broiler chicks. They agreed that SMFI would provide the day-old
chicks, feeds, medicines, materials and technical support, while Magtuto would be given a
certain period to grow the chicks and keep them healthy. Afterwards, SMFI would harvest the

Page | 136
chicks and Magtuto would be paid a grower's fee depending on the number of chicks harvested.
The chicks delivered by SMFI and grown by Magtuto constitute the object or subject matter of
the contract and the grower's fee is the consideration.

Thus, a contract, once perfected, is generally binding in whatever form, whether written or oral,
it may have been entered into, provided the essential requisites for its validity are present.

FINANCIAL REHABILITATION, INSOLVENCY,

LIQUIDATION AND SUSPENSION OF PAYMENTS (RA
10142, FR RULES [A.M. NO. 12-12-11-SC], AND FLSP
RULES [A.M. NO.15-04-06-SC])

1
G.R. NO: 212674, March 25, 2019
Central Visayas Finance Corporation, petitioner
VS.
Spouses Eliezer Adlawan And Leila Adlawan, And Spousesm Eliezer Adalwan, Sr. And
Elena Adlawan, respondents.
DEL CASTILLO, J:

FACTS: Eliezer and Leila Adlawan obtained a loan from Central Visayas Finance Corporation
covered by a promissory note, Chattel Mortgage over a dump truck and a continuing guaranty
executed by respondents Eliezer Sr. and Elena Adlawan.

Eliezer and Leila failed to pay the loan prompting petitioner to file an action against respondents
for replevin before the RTC of Cebu, docketed as Civil Case No. CEB-22294.

The trial court ruled in petitioner’s favor, and respondents were ordered to deliver possession of
the dump truck, then petitioner foreclosed on the chattel mortgage and caused the sale at public
auction. Apparently, the proceeds of the auction sale was insufficient to cover the whole
obligation.

The petitioner then commenced a second case before the RTC- Civil Case No. CEB-24841- this
time for collection of sum of money and/or deficiency judgment relative to respondent’s
supposed unpaid balance on their loan. This time, petitioner sought to hold respondents Eliezer,
Sr. and Elena Adlawan liable on their continuing guaranty.

RTC: Dismissed the case for having been barred by Res Judicata.

CA: Affirmed the lower court’s decision.

Page | 137
ISSUE: Whether or not the petitioner can hold the respondents liable under their continuing
guaranty for the deficiency.

RULING: Petitioner's final claim to reversal is that there could be no identity of causes of action
between Civil Case No. CEB-22294 and Civil Case No. CEB-24841 since the latter case was
instituted for the specific purpose of recovering the deficiency from respondents Eliezer, Sr. and
Elena Adlawan, who were supposedly liable as guarantors on the continuing guaranty that
accompanied the loan agreement between petitioner and respondents Eliezer and Leila Adlawan.
However, with the final resolution of Civil Case No. CEB-22294, petitioner's cause of action
against respondents Eliezer, Sr. and Elena Adlawan is likewise barred.

The contract of guaranty is merely accessory to a principal obligation; it cannot survive without
the latter. Under Article 2076 of the Civil Code, "(t)he obligation of the guarantor is extinguished
at the same time as that of the debtor, and for the same causes as all other obligations." The
resolution of Civil Case No. CEB-22294 and the consequent satisfaction of petitioner's claim
therein bars further recovery via a deficiency judgment as against respondents Eliezer and Leila
Adlawan, who are deemed to have paid their loan obligation. For this reason, their obligation has
been extinguished which should, in turn, operate to the benefit of their corespondents, Eliezer,
Sr. and Elena Adlawan whose liability is based on guaranty, a mere accessory contract to the
loan obligation that cannot survive after the extinguishment of the latter.

2
G.R. No. 239986, July 08, 2019
ROMA FE C. VILLALON, petitioner
VS.
RURAL BANK OF AGOO, INC., respondent.
PERALTA, J:

FACTS: Spouses Alviar obtained a separate loan from both Rural Bank of Agoo, Inc. (RBAI)
and Roma Villalon (Villalon) secured by the same real estate mortgage over a residential lot and
house of the spouses covered by Tax Declaration located at Barangay I, San Fernando, La Union.
Both real estate mortgage were registered in the Register of Deeds.

Spouses Alviar failed to pay their loan to both RBAI and to Villalon. An extrajudicial
foreclosure was resorted to by RBAI. The foreclosure sale was reset to several dates. Villalon, on
the other hand, applied for the extrajudicial foreclosure of the mortgaged realties. The
foreclosure sale was conducted on June 26, wherein Villalon was declared as the highest bidder,
with a bid of P1,050,000.00. A Certificate of Sale of Real Property was issued to Villalon on
June 27, 2002, and the same was registered with the Register of Deeds on July 5, 2002.

On June 16, 2004, the foreclosure sale initiated by RBAI finally pushed through. RBAI was the
highest bidder and the corresponding Certificate of Sale was issued to it. On October 14, 2005,
RBAI paid the requisite fees, but despite its request, the Certificate of Absolute Deed of Sale was
not issued to it.

Page | 138
On the other hand, a Certificate of Absolute Definitive Sale was issued on August 6, 2007 to
Villalon, who had been in physical possession of the property since its foreclosure in 2002.
Villalon had it declared for taxation purposes in her business name "Villalon Lending Investor,"
and had paid realty taxes for the same.

Upon discovering this, RBAI filed a Complaint for recovery of sum of money and damages
before the Regional Trial Court (RTC) of Agoo, La Union against Villalon and the Spouses
Alviar, claiming principally from Villalon, and alternatively from the Spouses Alviar, the
amount of P750,818.34. RBAI alleged that since the mortgage of the said real properties in its
favor is earlier than the mortgage to Villalon, then RBAI is the first mortgagee/superior lien
holder, while Villalon is only the second mortgagee/subordinate encumbrancer/subordinate lien
holder. While the second mortgagee can foreclose ahead of the first mortgagee, RBAI claimed
that the proceeds of the sale should be used to satisfy first the loan obtained from the first
mortgagee. In other words, RBAFs claim of P750,818.34 should be satisfied from the amount of
P1,050,000.00, the bid of Villalon. Despite demand for Villalon to remit or deliver the said
amount of P750,818.34, the latter refused. In the event that Villalon would not be held liable for
or would be unable to pay the said amount, RBAI averred that the Spouses Alviar should be
ordered to pay the amount of P750,818.34.

RTC: Ordered the Spouses Alviar to pay RBAI the sum of P750,818.34, plus interest of
12% per annum and attorney's fees in the amount of P50,000.00. The complaint against Villalon
was dismissed.

CA: Granted RBAI's appeal and set aside the decision of the RTC. It held that the RTC erred in
dismissing the complaint against Villalon. According to the CA, RBAI has a cause of action
against Villalon for it is enforcing its first lien or superior lien over the property on the basis of
its prior mortgage as against Villalon, the second mortgagee or junior encumbrancer. Although
the complaint is captioned as one for recovery of sum of money, the allegations in the complaint
clearly show that RBAI is asserting its right as a superior lienholder.
ISSUE: Whether or not RBAI has the better right over the REM or the proceeds from the
forclosure of the said REM.

RULING: Yes.

It is clear that RBAI's mortgage was first constituted over the unregistered real properties of the
Spouses Alviar on May 18, 1998 and was, likewise, registered with the RD on the same day. On
the other hand, Villalon's mortgage over the said properties was executed on July 30, 2000 and
registered with the RD on July 6, 2001. Considering that RBAI's mortgage was created and
registered much ahead of time than that of Villalon, RBAI's mortgage should be preferred. Thus,
as correctly pointed out by the CA, the proper foreclosure of the first mortgage by RBAI gave,
not only the first mortgagee, but also subsequent lienholders like Villalon, the right to redeem the
property within the statutory period.

Further, Villalon cannot be deemed to be a third party with a better right, as provided for in Act
No. 3344, as amended by Section 113 of Presidential Decree No. 1529, simply because she is a
second mortgagee whose rights are strictly subordinate to the superior lien of the first mortgagee,

Page | 139
RBAI. A second mortgagee of an unregistered land has to wait until after the debtor's obligation
to the first mortgagee has been fully satisfied. Hence, notwithstanding that Villalon was first to
foreclose; to have been issued a Certificate of Absolute Definitive Sale of Real Property; and is
now in possession of the property as even the tax declaration is already in her name - these
circumstances will not defeat the rights of RBAI whose mortgage was created and registered
much ahead than that of Villalon. At most, Villalon, being a second mortgagee/junior
encumbrancer, has only the right to redeem the property from RBAI, the first mortgagee.
The extrajudicial foreclosure of real estate mortgage, as in this case, is governed by Act No.
3135, as amended by Act No. 4118. Section 6 thereof provides:

Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any time within the term of one
year from and after the date of the sale; and such redemption shall be governed by the provisions
of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

Thus, in order for Villalon to acquire full rights over the properties subject of the mortgage, she
must first redeem them by paying off: (1) the bid price of RBAI in the auction sale, which is
P341,830.94; (2) the interest on the bid price, computed at one percent (1%) per month; and (3)
the assessments or taxes, if any, paid by the purchaser, with the same interest rate.

Petitioner cannot escape the fact that when she caused the mortgage to be entered in the Registry,
RBAI's lien over the property was already registered as early as May 18, 1998. Thus, she cannot
claim to have acted in good faith as when she caused its mortgage to be entered in the Registry, it
was presumed to have become aware of and taken its mortgage subject to RBAI's lien over the
property. This is because registration is the operative act that binds or affects the land insofar as
third persons are concerned. It is upon registration that there is notice to the whole world.

3
G.R. NO. 242718. FEBRUARY 18, 2019
ADORACION Z. BELO, petitioner
vs.
ANITA DIMA-SAN JUAN, REYNAN SAN JUAN, RYAN SAN JUAN AND ANALYN
SAN JUAN, respondent,
(NOTICE)

FACTS: Adoracion Z. Belo, petitioner extended a loan in favor of the respondents secured by
real property. The circumstances on the case at bar reflect badges of a pactum commissorium
even without a stipulation for a creditor’s automatic appropriation of the mortgaged property. It
highlighted the following: the non-foreclosure and the fact that the dacion en pago and the
mortgage contract being inextricably linked because a) the dacion en pago contract was executed
by reason of the same loan extended by the petitioner to the respondents and; b) the subject of

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the dacion en pago was the same property used collateral for the same loan, without any other
additional consideration.

ISSUE: Whether or not foreclosure of the mortgage property is preferred over the the transfer of
the property by virtue of dacion en pago.

RULING: Foreclosure of the Mortgage Property is Preferred

The Supreme Court applied the previous ruling in Sps. Martires v. Chua, considering that the
disputed property was mortgaged to secure the payment of the mortgagor’s obligation, the most
logical and practical thing that she could have done, if she is unable to pay her debt, is to wait for
it to be foreclosed. She stands to lose less of the value of the subject property if the same is
foreclosed, rather than if the title thereto is directly transferred to the mortgagees.

This is so because in foreclosure, unlike in the present case where ownership of the property was
assigned to the mortgagee, the mortgagor can still claim the balance from the proceeds of the
foreclosure sale, if there any. In such a case, she could still recover a portion of the value of the
subject property rather than losing it completely by assigning its ownership to the mortgagees.

4
G.R. No. 206709, February 6, 2019
Vdm Trading, Inc. and Spouses Luis and Nena Domingo, represented by their Attorney-In-
Fact, Atty. F. William L. Villareal, petitioner
VS.
Carungcong and Wack Wack Twin Towers Condominium Association, Inc., respondents.
CAGUIOA, J:

FACTS: Petitioner VDM is the owner of Unit 2208B-1 located at Wack Wack Twin Towers
Condominium at Wack Wack Road, Mandaluyong City. Petitioner Nena Domingo, the majority
stockholder of petitioner VDM, and her husband, petitioner Luis Domingo, are the actual
occupants of the Unit. In December 1998, while the petitioners Sps. Domingo were in the United
States, petitioner Nena's sister, Nancy Lagman-Castillo, discovered that soapy water was heavily
penetrating through the ceiling of the Unit. With the leak persisting for several days, Lagman-
Castillo reported the matter with the petitioners Sps. Domingo's counsel and attorney-in-fact,
Atty. William Villareal, as well as respondent Wack Wack's building administrator.

Atty. Villareal allegedly met with respondent Wack Wack's Acting Property Manager, Arlene
Cruz, who supposedly revealed that she previously conducted an inspection on the Unit and
found that the strong leak apparently came from Unit 2308B-1, which is located directly above
the Unit. Unit 2308B-1 is owned by respondent Carungcong, but was being leased by Tan at that
time. Cruz allegedly explained that Unit 2308B-1's balcony, which was being utilized as a
laundry area, had unauthorized piping and plumbing works installed therein, which were in
violation of respondent Wack Wack's rules and regulations, as well as the building's original
plans.

Page | 141
On behalf of the petitioners Sps. Domingo, Atty. Villareal sent a letter demanding that
respondents Wack Wack and Carungcong make restoration works and/or pay for the damages
caused upon the Unit.

When no action was taken by respondents Wack Wack and Carungcong after the lapse of a
considerable length of time, Atty. Villareal allegedly sent another letter dated September 1, 1999
to respondents Wack Wack, Carungcong, and Tan, as well as Golden Dragon Real Estate
Corporation, the developer of the Condominium, demanding that repairs be made on the Unit.
Subsequently, repair works on the Unit were referred to M. Laher Construction for a quotation.

ISSUE: Whether or not respondent Carungcong should be held liable under quasi-delict.

RULING: No. Elements are not present.

A quasi-delict has the following elements:

a) the damage suffered by the plaintiff;

b) the act or omission of the defendant supposedly constituting fault or negligence; and
c) the causal connection between the act and the damage sustained by the plaintiff, or
proximate cause.

A perusal of the evidence on record shows that the foregoing elements of a quasi-delict are
absent insofar as respondents Carungcong and Wack Wack are concerned.The full extent of the
damage caused to the petitioners' Unit was not sufficiently proven. Aside from the purely self-
serving testimony of Atty. Villareal, the sole witness of the petitioners who is also the petitioners'
counsel, there was no sufficient evidence presented to show the extent of the damage caused to
the Unit.

Fault or negligence on the part of respondents Carungcong and Wack Wack was not proven. As
regards the second element of a quasi-delict, a careful perusal of the evidence on record shows
that the petitioners failed to present even a shred of evidence that there was fault or negligence
on the part of the respondents Carungcong and Wack Wack.

The Court has held that in a cause of action based on quasi-delict, the negligence or fault should
be clearly established as it is the basis of the action. The burden of proof is thus placed on the
plaintiff, as it is the duty of a party to present evidence on the facts in issue necessary to establish
his claim or defense by the amount of evidence required by law. Therefore, if the plaintiff
alleged in his complaint that he was damaged because of the negligent acts of the defendant, he
has the burden of proving such negligence.

Applying the foregoing in the instant case, the burden of proving fault or negligence was clearly
not discharged by the petitioners. As to the supposed fault or negligence of respondent
Carungcong, while it is undisputed that plumbing works were done on the balcony of the unit
owned by respondent Carungcong, there is no evidence presented that suggests that such

Page | 142
plumbing works were illegally or negligently made. The petitioners could not even point out
what specific rule or regulation was supposedly violated by respondent Carungcong or her
lessee, Tan, in undertaking the plumbing works. There was no proof offered showing that such
plumbing works were even prohibited, disallowed, or undertaken in a negligent manner.

With respect to the supposed negligence on the part of respondent Wack Wack, the petitioners do
not even dispute that under the Amended Master Deed, respondent Wack Wack holds title over
and exercises maintenance and supervision only with respect to the common areas. It is also not
disputed that the maintenance and repair of the condominium units shall be made solely on the
account of the unit owners, with each unit owner being "responsible for all the damages to any
other Units and/or to any portion of the Projects resulting from his failure to effect the required
maintenance and repairs of his unit."

Proximate cause between the supposed damage caused and the plumbing works undertaken was
not established.

To constitute quasi-delict, the alleged fault or negligence committed by the defendant must be
the proximate cause of the damage or injury suffered by the plaintiff.

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred. Stated in simple terms, it must be proven that the supposed fault or negligence
committed by the respondents, i.e., the undertaking of plumbing works on Unit 2308B-1, was the
cause of the damage to the Unit. Such was not proven by the petitioners.

5
. G.R. No. 223134, August 14, 2019
VICENTE G. HENSON, JR., petitioner
VS.
UCPB GENERAL INSURANCE CO., INC., respondent
PERLAS-BERNABE, J.

Facts: NASCL leased the front portion of the ground floor of a 2- storey building owned by
Vicente. In 1999, NASCL gave up its initial lease and instead, leased the right front portion of
the ground floor and the entire 2nd floor of the said building, and made renovations with the
building's piping assembly. Meanwhile, Copylandia moved in to the ground floor.

On May 9, 2006, a water leak occurred in the building and damaged Copylandia's various
equipment, causing injury to it in the amount of P2,062,640.00. As the said equipment were
insured with UCPB General Insurance, Copylandia filed a claim with the former. Eventually, the
two parties settled on November 2, 2006 for P1,326,342.76. This resulted in UCPB's subrogation
to the rights of Copylandia over all claims and demands arising from the said incident. On May
20, 2010, UCPB demanded from NASCL for the payment of the claim, but to no avail. Thus, it

Page | 143
filed a complaint for damages against NASCL, among others. Meanwhile, sometime in 2010,
Vicente transferred the ownership of the building to Citrinne Holdings, Inc. (CHI), where he is a
stockholder and the President.

On October 6, 2011, UCPB filed an Amended Complaint, impleading CHI as a party-defendant

to the case, as the new owner of the building. However, on April 21, 2014, UCPB filed a Motion
to Admit Attached Amended Complaint, praying that Vicente, instead of CHI, be impleaded as a
party-defendant to the case, considering that Vicente was then the owner of the building when
the water leak damage incident happened. CHI opposed the motion principally on the ground of
prescription, arguing that since UCPB’s cause of action is based on quasi-delict, it must be
brought within 4 years from its accrual on May 9, 2006.

RTC: ruled in favor of UCPB, that its cause of action arose when it paid Copylandia's insurance
claim and became subrogated to the rights and claims of the latter in connection with the water
leak damage incident. Since UCPB was merely enforcing its right of subrogation, the
prescriptive period is 10 years based on an obligation created by law reckoned from the date of
Copylandia's indemnification, or on November 2, 2006. As such, UCPB's claim against Vicente
has yet to prescribe when it sought to include the latter as party-defendant on April 21, 2014.

CA: affirmed the ruling of the RTC.

Issue: Whether UCPB's claim has yet to prescribe.

Ruling: NO.

The Court must heretofore abandon the ruling in Vector that an insurer may file an action
against the tortfeasor within 10 years from the time the insurer indemnifies the
insured. Following the principles of subrogation, the insurer only steps into the shoes of the
insured and therefore, for purposes of prescription, inherits only the remaining
period within which the insured may file an action against the wrongdoer. To be sure, the
prescriptive period of the action that the insured may file against the wrongdoer begins at the
time that the tort was committed, and the loss/injury occurred against the insured. The
indemnification of the insured by the insurer only allows it to be subrogated to the former's rights
and does not create a new reckoning point for the cause of action that the insured originally has
against the wrongdoer.

Be that as it may, it should, however, be clarified that this Court's abandonment of

the Vector doctrine should be prospective in application because judicial decisions applying or
interpreting the laws or the Constitution, until reversed, shall form part of the legal system of the
Philippines. In this case, it is undisputed that the water leak damage incident, which gave rise to
Copylandia's cause of action against any possible defendants, including NASCL and petitioner,
happened on May 9, 2006. As this incident gave rise to an obligation classified as a quasi-delict,
Copylandia would have only had four 4 years, or until May 9, 2010, within which to file a suit to

Page | 144
recover damages. When Copylandia's rights were transferred to respondent by virtue of the
latter's payment of the former's insurance claim on November 2, 2006, as evidenced by the Loss
and Subrogation Receipt, respondent was likewise bound by the same prescriptive period. Since
it was only on: (a) May 20, 2010 when respondent made an extrajudicial demand to NASCL,
and thereafter, filed its complaint; (b) October 6, 2011 when respondent amended its complaint
to implead CHI as party-defendant; and (c) April 21, 2014 when respondent moved to further
amend the complaint in order to implead petitioner as party-defendant in lieu of CHI,
prescription - if adjudged under the present parameters of legal subrogation under this Decision -
should have already set in.

However, it must be recognized that the prevailing rule applicable to the pertinent events of this
case is Vector. Hence, as the amended complaint impleading petitioner was filed on April 21,
2014, which is within ten years from the time respondent indemnified Copylandia for its
injury/loss, the case cannot be said to have prescribed under Vector.

6
G.R. No: 199562, January 16, 2019
Bank of the Philippine Islands and Ana C. Gonzales, petitioner
VS.
Spouses Fernando V. Quiaoit and Nora L. Quiaoit, respondents.
CARPIO, J:

FACTS: Fernando Quiaoit maintains peso and dollar accounts with the BPI Greenhills-
Crossroads Branch. Fernando, through Lambayong, encashed for US$20,000. In a complaint
filed by Fernando and his wife Nora L. Quiaoit (Nora) against BPI, they alleged that Lambayong
did not count the US$20,000 that she received because the money was placed in a large Manila
envelope. They also alleged that BPI did not inform Lambayong that the dollar bills were marked
with its "chapa" and the bank did not issue any receipt containing the serial number of the bills.
Lambayong delivered the dollar bills to the spouses Quiaoit in US$100 denomination in
US$10,000 per bundle. Nora, wife of Fernando then purchased plane tickets worth US$13,100
for their travel abroad, using part of the US$20,000 bills withdrawn from BPI.

The spouses Quiaoit left the Philippines for Jerusalem and Europe. Nora handcarried US$6,900
during the tour. The spouses Quiaoit alleged that, Nora was placed in a shameful and
embarrassing situation when several banks in Madrid, Spain refused to exchange some of the
US$100 bills because they were counterfeit. Nora was also threatened that she would be taken to
the police station when she tried to purchase an item in a shop with the dollar bills. The spouses
Quiaoit were also informed by their friends, a priest and a nun, that the US dollar bills they gave
them were refused by third persons for being counterfeit. Their aunt, Elisa Galan, also returned,
via DHL, the five US$100 bills they gave her and advised them that they were not accepted for
deposit by foreign banks for being counterfeit.

The spouses Quiaoit alleged that BPI failed in its duty to ensure that the foreign currency bills it
furnishes its clients are genuine. According to them, they suffered public embarrassment,

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humiliation, and possible imprisonment in a foreign country due to BPI's negligence and bad
faith.

RTC: Ruled in favor of the Spouses

CA: Affirmed the decision of the RTC. Ruled that BPI did not follow the normal banking
procedure of listing the serial numbers of the dollar bills considering the reasonable length of
time from the time Fernando advised them of the withdrawal until Lambayong's actual
encashment of the check. The Court of Appeals noted that BPI only listed down the serial
numbers of the dollar bills when Fernando, through Edgardo, withdrew his remaining money
from the bank. According to the Court of Appeals, BPI had been negligent in not listing down
the serial numbers of the dollar bills. The Court of Appeals further ruled that, assuming BPI had
not been negligent, it had the last clear chance or the last opportunity to avert the injury incurred
by the spouses Quiaoit abroad. The Court of Appeals ruled that BPI was the proximate,
immediate, and efficient cause of the loss incurred by the spouses Quiaoit.

ISSUE: Whether BPI exercised due diligence in handling the withdrawal of the US dollar bills;

RULING: Yes.

In Spouses Carbonell v. Metropolitan Bank and Trust Company, the Court emphasized that the
General Banking Act of 2000 demands of banks the highest standards of integrity and
performance. The Court ruled that banks are under obligation to treat the accounts of their
depositors with meticulous care. The Court ruled that the bank's compliance with this degree of
diligence has to be determined in accordance with the particular circumstances of each case. In
this case, BPI failed to exercise the highest degree of diligence that is not only expected but
required of a banking institution.

BPI insists that there is no law requiring it to list down the serial numbers of the dollar bills.
However, it is well-settled that the diligence required of banks is more than that of a good father
of a family. Banks are required to exercise the highest degree of diligence in its banking
transactions. In releasing the dollar bills without listing down their serial numbers, BPI failed to
exercise the highest degree of care and diligence required of it. BPI exposed not only its client
but also itself to the situation that led to this case. Had BPI listed down the serial numbers, BPI's
presentation of a copy of such listed serial numbers would establish whether the returned 44
dollar bills came from BPI or not.

The SC agree with the Court of Appeals that the action of BPI is the proximate cause of the loss
suffered by the spouses Quiaoit. Proximate cause is defined as the cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces injury and without
which the result would not have occurred. Granting that Lambayong counted the two bundles of
the US$100 bills she received from the bank, there was no way for her, or for the spouses
Quiaoit, to determine whether the dollar bills were genuine or counterfeit. They did not have the
expertise to verify the genuineness of the bills, and they were not informed about the "chapa" on
the bills so that they could have checked the same. BPI cannot pass the burden on the spouses

Page | 146
Quiaoit to verify the genuineness of the bills, even if they did not check or count the dollar bills
in their possession while they were abroad.

As pointed out by the Court of Appeals, BPI had the last clear chance to prove that all the dollar
bills it issued to the spouses Quiaoit were genuine and that the counterfeit bills did not come
from it if only it listed down the serial numbers of the bills. BPI's lapses in processing the
transaction fall below the extraordinary diligence required of it as a banking institution. Hence, it
must bear the consequences of its action.

7
G.R. No: 199766, April 10, 2019
Generoso Sepe, petitioner
VS.
Heirs Of Anastacia* Kilang, rep. by her children Maria, Donata, Feliciana, Dominga and
Severo all surnamed Solijon, respondents

FACTS: In a complaint instituted on May 16, 2002, respondents Heirs of Anastacia Kilang,
represented by her children Maria, Donata, Feliciana, Dominga and SeveroSolijon (respondents),
sought the nullification of: (1) Deed of Sale of a Registered Land dated November 18, 1992
(DOS) executed by Anastacia Kilang (Anastacia) with marital consent of Fabian Solijon (Fabian)
in favor of spouses GenerosoSepe (Generoso or petitioner) and Gaudencia D. Sepe (spouses
Sepe); (2) Confirmation of Sale dated December 17, 1992 (COS) executed by respondents,
except Dominga; and (3) Transfer Certificate of Title No. (TCT) T-35367 registered in the
names of spouses Sepe; and for recovery of title, possession with damages.

The complaint alleged that the late Anastacia, who was then an 84-year old, illiterate, rheumatic
and bedridden mother, agreed to the offer of petitioner to undertake the subdivision of her land in
Cabawan District, Tagbilaran City under TCT T-10069 in consideration for one lot in the
subdivision and a first preference to buy any portion that might be for sale; but taking advantage
of the ignorance of respondents' family, petitioner managed to have the DOS executed and
misled Feliciana and Donata into believing that the document was the instrument of subdivision.

By the DOS, Anastacia, with her husband's consent, purportedly sold her paraphernal propertyto
spouses Sepe for ₱15,000.00.On December 14, 1992, Anastacia executed a notarized Notice of
Adverse Claim, wherein she claimed that "the second duplicate copy of [TCT T-10069] was lost
sometimes (sic) on the first week of December 1992, and [was] found in the possession of one
GenerosoSepe x xx without the knowledge and consent of the owner"and the "parcel of land was
never sold nor encumbered to anybody else."On December 17, 1992, respondents, save
Dominga, executed the COS for a consideration of P40,000.00, wherein they confirmed
absolutely and irrevocably the sale of the subject lot situated at Barrio Gaboc (now Cabawan
District) made and executed by their parents, Anastacia and Fabian, in favor of spouses Sepe,
and warranted to defend their rights and peaceful possession of the subject lot.Anastacia
executed a notarized Notice of Withdrawal of Adverse Claim, wherein she alleged that she was
made to sign an Adverse Claim by Dominga and Donata; she did not understand its contents; and
she remembered that she had "already sold the same land to [spouses Sepe] on November 18,

Page | 147
1992 before Atty. Gaspar S. Rulona x xx;" the Adverse Claim was an error; and she wanted "the
same withdrawn, so that the DEED OF SALE OF THE LAND COVERING TCT NO. T-10069,
[would push] through, and the title so issued in favor of the [vendees spouses Sepe]."On the
same day, TCT T-10069 in the name of Anastacia was cancelled and TCT T-35367 was issued in
the names of spouses Sepe.On October 20, 1993, Anastacia died. On December 21, 1998,
respondents, represented by Maria, filed a case for nullification of the sale and the TCT issued to
petitioner.

ISSUE: Whether or not there was no consideration for the sale.

HELD: Yes.

Petitioner's reliance on the DOS as proof that the sale contemplated therein was supported by
sufficient consideration is not without legal basis.The disputable presumption of existence and
legality of the cause or consideration inherent in every contract supports his stance.

Article 1354 of the Civil Code provides: "Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the contrary." Otherwise stated, the
law presumes that even if the contract does not state a cause, one exists and is lawful; and it is
incumbent on the party impugning the contract to prove the contrary. If the cause is stated in the
contract and it is shown to be false, then it is incumbent upon the party enforcing the contract to
prove the legality of the cause.
In Mangahas v. Brobio, the Court stated that the presumption of sufficient consideration can be
overcome by preponderance of evidence and that mere assertion that the contract has no
consideration is not enough, viz.:

A contract is presumed to be supported by cause or consideration. The presumption

that a contract has sufficient consideration cannot be overthrown by a mere assertion
that it has no consideration. To overcome the presumption, the alleged lack of
consideration must be shown by preponderance of evidence. The burden to prove lack
of consideration rests upon whoever alleges it, which, in the present case, is
respondent.

Aside from the presumption of sufficient consideration working in favor of petitioner, the
acknowledgment of the DOS before a notary public makes it a public document.

Being a public document, the evidence to be presented to contradict the facts stated in the DOS,
which include the payment of the consideration, must be more than merely preponderant.

Given the foregoing, the Court is not persuaded by the CA's postulation that the oral refutation
by respondents Feliciana and Maria of the consideration stated in the DOS has reached the
threshold of the required quantum of proof of clear and convincing evidence. Their mere oral
declaration that no consideration was paid to their mother Anastacia is simply not enough given
the presence of the following notarized and public documents in petitioner's favor.

Page | 148
The Court moreover agrees with the RTC's observation that respondents should have questioned
the DOS during the lifetime of their mother Anastacia given that she was the only person who
could confirm or refute its genuineness and contents. It must be recalled that Anastacia died on
October 20, 1993, about nine months after she executed the Notice of Withdrawal of Adverse
Claim and the issuance of TCT T-35367 in the names of spouses Sepe. Indeed, the most credible
person who could attest that no consideration was paid by spouses Sepe in connection with the
DOS was Anastacia.

Where a document, like a deed of sale, duly acknowledged before a notary public is disputed, the
parties thereto are in the best position to refute its execution and contents. Their testimonies are
crucial in order to establish the required proof of clear and convincing evidence to overcome the
presumptions in favor of public documents. Oral declarations by non-parties which contradict the
contents of notarial documents should be evaluated and admitted with extreme caution in order
not to erode their status and significance as public documents.

Furthermore, the COS executed by 4 of the 5 children of Anastacia, which is supported by a

valuable consideration, bolsters petitioner's cause. It is noted that Dominga, who is not a
signatory to the COS, did not testify for respondents. Indeed, respondents have ratified and
confirmed the sale of the subject lot by their parents to spouses Sepe. Again, their claim that the
amount they received from spouses Sepe was a Christmas gift to them, aside from being
incredible as held by the RTC, is not clear and convincing evidence to overcome the facts stated
in the COS.

8
G.R. No. 201193, June 10, 2019
TRANQUILINO AGBAYANI, petitioner
VS.
LUPA REALTY HOLDING CORPORATION, respondent.
CAGUIOA, J:

FACTS: Tranquilino, already residing in America, filed a Complaint for Reivindicacion,

Cancellation of Title and Document with Damages against Lupa Realty Holding Corporation. It
was alleged that during the time that Tranquilino’s family member, Vernold went to pay the real
estate taxes on a property located in Sta. Ana, Cagayan registered under the name of Tranquilino,
was told that Lupa Realty was already the new owner thereof and that the tax declaration had
already been transferred to its name. Tranquilino further alleged that upon verifying with the
Registry of Deeds for Cagayan, Vernold discovered that the subject property was already
registered in the name of Lupa Realty under TCT No. T-109129 pursuant to a Deed of Absolute
Sale purportedly executed by Tranquilino on 29 October 1997 in favor of Lupa Realty, in
consideration of the sum of P425,500.00.

In his complaint, Tranquilino denied having executed said Deed of Absolute Sale, insisting that
his signature thereon must be a forgery because he was in America on 29 October 1997.
Accordingly, [he] prayed for the cancellation of Lupa Realty's TCT No. T-109129 and the
reinstatement of OCT No. P-46041 in his name, plus damages.

Page | 149
In its Answer, Lupa Realty countered that contrary to the allegation of Tranquilino that he never
sold the subject property, he sold the same to his brother, Nonito Agbayani who sold the subject
property to Moriel Urdas. According to Lupa Realty, it acquired the subject property not from
Tranquilino but from Moriel

Lupa Realty further insisted that it was an innocent purchaser for value and in good faith. Lupa
Realty explained that it was Moriel and his mother who registered the sale in the Registry of
Deeds, as shown by the Affidavit executed by Moriel's mother. According to Lupa Realty, it had
no idea that Moriel and his mother had used a falsified deed of sale with Tranquilino's forged
signature in registering the sale. Thus, Lupa Realty filed a third-party complaint against Moriel
to enforce the latter's warranty of a valid title and peaceful possession against the claims of third
persons.

ISSUE: Whether or not the Lupa Realty has a right of an innocent purchaser for value.

RULING: No.

The RTC found that the 1992 Deed Absolute Sale (DAS) between Tranquilino and Nonito was
established by preponderance of evidence to be a falsified document; the 1997 DAS between
Tranquilino and Lupa Realty was also falsified; and Lupa Realty was not an IPV. On the other
hand, the CA ruled that the 1992 DAS was valid because Tranquilino was unable to prove that
his signature therein was forged. The CA did not, however, rule squarely on whether the 1997
DAS was falsified and whether Lupa Realty was an IPV.

Upon weighing the pieces of evidence, it is indeed a fact that the 1997 DAS is sham or spurious.
To note, these are: (1) the similarity of its notarial details' with those of the DAS Moriel-Lupa
Realty; (2) the recital that it pertained to the land covered by "Original Certificate of Title No. P-
26619 with Homestead Patent No. 119163" and not to Tranquilino's OCT No. P-46041 with Free
Patent No. 587747; (3) the inclusion of Lupa Realty, represented by its President, Roberto P.
Alingog, as a party and the CTC details of Roberto P. Alingog, but who is not made a signatory
thereto; (4) the identity of its date of execution with that of the DAS Moriel-Lupa Realty; and (5)
the identity of the notary public's details in both 1997 DAS and the DAS Moriel-Lupa Realty.
In addition, the Court does not lose sight of the fact that there is uncontested evidence that
Tranquilino could not have signed the 1997 DAS because he had left for California, U.S.A. in
April, 1989.

It is likewise significant to note the fact that Lupa Realty did not even have the 1997 DAS
marked and offered as its evidence is a very strong indication of its falsity. In the Formal Offer
of Documentary Exhibits of Lupa Realty, the 1997 DAS was not marked and offered as one of
its exhibits. If the 1997 DAS was truly executed by Tranquilino and is genuine, why did not
Lupa Realty have it marked and offered as its documentary exhibit? The answer is obvious:
because Lupa Realty wanted to distance itself therefrom because it might be accused as being
complicit with Moriel and/or his mother in falsifying the 1997 DAS.

Page | 150
 Article 1409(2) of the Civil Code provides that contracts "which are
absolutely simulated or fictitious" are inexistent and void from the beginning.
It is also provided in Article 1346 that "[a]n absolutely simulated or fictitious
contract is void."

With the pronouncement that there could not have been a valid sale of the subject land to Lupa
Realty, the latter cannot qualify as an IPV. Also, the Court totally agrees with the RTC that:

x x x [Lupa Realty] is a corporation whose business is, as apparent in its

business name, mainly concern[ed with] real estate, thus, it is incredible that it
would entirely leave the transfer of the title into the hands of Moriel x x x and
his mother. It is expected that it would exert due diligence in its transactions,
it being in the realty business. x x x

Evidently, in allowing the falsified 1997 DAS to cause the cancellation of Tranquilino's OCT
and the issuance of a TCT in its name, Lupa Realty acted in bad faith.

9
G.R. No. 230923, July 08, 2019
BDO UNIBANK, INC., petitioner
VS.
FRANCISCO PUA, respondent.
CARPIO, J:

FACTS: Petitioner is a domestic expanded commercial bank duly organized and authorized to
perform trust or agency functions and services as an investment manager through its Trust
Department. On the other hand, Francisco Pua (respondent) is a client of petitioner and is
engaged in business under the trade name and style of "Trends & Innovation Marketing."

Petitioner entered into an Investment Management Agreement (IMA) with Ernesto Ang, Edgard
Ang, Trilogy Properties, Lucia and/or Sharlene Po. In the IMA, petitioner is tasked to act as the
agent and investment manager for the money of the said persons (Original Funders).

Thereafter, respondent, through petitioner, borrowed the sum of P41,500,000.00 from the funds
invested by the Original Funders.

Respondent delivered two checks in the aggregate sum of P41,500,000.00. The aforesaid checks
were drawn against the account name 7-21450065-1, Metrobank General Santos-Santiago Blvd.
Branch and payable to the order of petitioner. On the same date, respondent informed petitioner
that Efrain de Mayo was the new funder under the account name for IMA placement.

Unfortunately, the checks given by respondent to petitioner were dishonored when they were
presented for payment, on account of the fact that they were drawn against a closed account.

Page | 151
Hence, petitioner demanded payment from respondent. However, despite repeated demands, no
payment was made by respondent. Thus, petitioner filed a complaint-affidavit for estafa by
means of deceit against respondent.

For his part, as stated in his counter-affidavit, respondent admitted that he had an obligation
under the contract of loan, which he executed with petitioner. However, he argued that, while he
represented to the officers of petitioner that R. Makmur was interested in replacing the
investments of the Original Funders, he did not deceive nor convince petitioner to release the
Original Funders, prior to the clearing of the personal checks of R. Makmur. According to
respondent, petitioner had the sole discretion to replace and accept a funder. He further
contended that he was not a party to the IMA between petitioner and its prospective funders.

Respondent pointed out that he had nothing to gain from the change of funder and lamented that
the situation was more disadvantageous to him, since there was no funder anymore to the loan
that he had made.

RTC: Dismissed the estafa case against the respondent.

CA: Dismissed the appeal and affirmed the Order of the RTC

ISSUE: Whether or not the Respondent is free from any liability from the said transaction.

RULING: NO. Respondent may be absolved from the criminal aspect but not from civil
liability.

It bears stressing and it is not disputed that, in the present case, the Original Funders are the
creditors and respondent is the debtor. The Original Funders were paid by petitioner which
advanced the payment to the Original Funders of their investments, prior to the clearing of the
new funder's checks. This is a case of payment by a third party, petitioner, to the creditor,
Original Funders, for the benefit of respondent, who is the debtor.

Hence, the Original Funders assigned their credit to petitioner, when the latter paid the former.

Article 1236 of the Civil Code provides the following:

Article 1236. The creditor is not bound to accept payment or performance by a

third person who has no interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.

In the instant case, petitioner paid the Original Funders for the benefit of respondent, with the
knowledge of the latter. Accordingly, petitioner under the law possesses the rights of
reimbursement and subrogation, i.e., to recover what it has paid and to acquire all the rights of
the Original Funders.

Page | 152
Article 1303 of the Civil Code particularly provides that the effect of legal subrogation is to
transfer to the new creditor the credit and all the rights and actions that could have been
exercised by the former creditor either against the debtor or against third persons. Thus,
petitioner has every right to proceed civilly against respondent.

10
G.R. No. 220826, March 27, 2019
HUN HYUNG PARK, petitioner
VS.
EUNG WON CHOI, respondent.
CAGUIOA, J:

FACTS: Park extended a loan to Choi. The latter now issued a check in favor of the former as
payment for the loan. Park attempted to deposit the check to his bank account but the same was
returned to him dishonored for having been drawn against a closed account. He, through counsel,
sent a letter to Choi informing the latter of the dishonored check. Based on the registry return
receipt attached to Park's Complaint-Affidavit, and as stipulated by Choi during the pre-trial
conference, Choi received the demand letter on through a certain Ina Soliven. Nevertheless, Choi
failed to resolve the dishonored check.

With the loan remaining unpaid, Park instituted a complaint against Choi for estafa and violation
of B.P. 22.

MeTC: Dismissed the criminal complaint. In his appeal, Park contended that the dismissal of the
criminal case should not carry with it the dismissal of the civil aspect of the case.

RTC: Granted Park's appeal. It held that while the evidence presented was insufficient to prove
Choi's criminal liability for B.P. 22, it did not altogether extinguish his civil liability.

CA: Dismissed Park's petition on procedural grounds

ISSUE: Whether or not Choi is civilly liable, up to what extent.

RULING: Yes. Choi is liable to pay Park the principal amount of P1,875,000.00 and
corresponding legal interests thereon.

Suffice it to state that based on the records, it is clear that Choi is liable to Park for the loan
extended by the latter to him. This is so because, Choi in his Counter-Affidavit, already admitted
that he borrowed money from Park, arguing only regarding the extent of his liability — i.e., that
what he owed was P1,500,000.00 and not P1,875,000.00. Choi himself having admitted liability,
the only question that remains for the Court to resolve is the extent of such liability.

In this regard, the Court finds that Choi is liable to pay Park the face value of the check in the
amount of P1,875,000.00 as principal. The Court notes that the only bases relied upon by Choi in

Page | 153
support of his contention that P1,500,000.00 is the principal and P375,000.00 to be the interest
are his own allegations in his Counter-Affidavit. Without more, Choi's bare allegations on the
terms of the loan fail to persuade. This is so because in accordance with Article 1956 of the Civil
Code, no interest shall be due unless it has been expressly stipulated in writing. Here, without
further proof of any express agreement that P375,000.00 of the P1,875,000.00 pertains to
interest, the Court is predisposed, based on the facts of the case, to rule that the entire principal
amount owed by Choi to Park is the face value of the check, or P1,875,000.00.

In an attempt to further minimize liability, Choi raises the defense of payment and insists that he
already paid the sum of P1,590,000.00 (P1,500,000.00 as principal and P90,000.00 as interest),
and that the remaining amount that he owes Park is P285,000.00.

The law requires in civil cases that the party who alleges a fact has the burden of proving it.
Section 1, Rule 131 of the Rules of Court provides that the burden of proof is the duty of a party
to prove the truth of his claim or defense, or any fact in issue by the amount of evidence required
by law. In this case, the burden of proof is on the respondents because they allege an affirmative
defense, namely payment. As a rule, one who pleads payment has the burden of proving it.

A final note on interest. There are two types of interest - monetary interest and compensatory
interest. Interest as a compensation fixed by the parties for the use or forbearance of money is
referred to as monetary interest, while interest that may be imposed by law or by courts as
penalty for damages is referred to as compensatory interest. Right to interest therefore arises only
by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on
which interest is demanded.

Inasmuch as the parties did not execute a written loan agreement, and consequently, did not
stipulate on the imposition of interest, Article 1956 of the Civil Code, which states that "[n]o
interest shall be due unless it has been expressly stipulated in writing," operates to preclude the
imposition and running of monetary interest on the principal. In other words, no monetary
interest having been agreed upon between the parties, none accrues in favor of Park.

Nevertheless, the moment a debtor incurs in delay in the payment of a sum of money, the
creditor is entitled to the payment of interest as indemnity for damages arising out of that delay.
Article 2209 of the Civil Code provides that: "[i]f the obligation consists in the payment of sum
of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent (6%) per annum."

To be clear, however, Article 2212 of the Civil Code, which provides that "[i]nterest due shall
earn legal interest from the time it is judicially demanded, although the obligation may be silent
upon this point," does not apply because "interest due" in Article 2212 refers only
to accrued interest. A look at the counterpart provision of Article 2212 of the new Civil Code,
Article 1109 of the old Civil Code, supports this. It provides:

Art. 1109. Accrued interest shall draw interest at the legal rate from the time the suit is filed for
its recovery, even if the obligation should have been silent on this point.

Page | 154
Respondent Eung Won Choi is hereby ordered to pay Petitioner Hun Hyung Park the amount of
One Million Eight Hundred Seventy-Five Thousand Pesos (P1,875,000.00) representing the
principal amount of the unpaid PNB Check No. 0077133 dated August 28, 1999, with legal
interest at the rate of twelve percent (12%) per annum from May 19, 2000, the date of
extrajudicial demand, until June 30, 2013; and thereafter, six percent (6%) per annum until
this Decision becomes final and executory.

Further, this sum shall further earn interest at the rate of six percent (6%) per annum from the
date of finality of this Decision until full payment, in accordance with the Monetary Board of the
Bangko Sentral ng Pilipinas Circular No. 799

INTELLECTUAL PROPERTY CODE (RA 8293) PATENTS,

TRADEMARKS & COPYRIGHTS
1
CENTURY CHINESE MEDICINE CO., ET AL. VS. PEOPLE OF THE PHILIPPINES
AND LING NA LAU
G.R. No. 188526. November 11, 2013

FACTS: Respondent Ling Na Lau (doing business under the name and style Worldwide
Pharmacy) is the sole distributor and registered trademark owner of TOP GEL T.G. & DEVICE
OF A LEAF papaya whitening soap (Certificate of Registration 4-2000-009881 issued by the
IPO for a period of 10 years from August 24, 2003) November 7, 2005  Ping Na Lau or
“Ping”, (her representative) wrote a letter addressed to NBI Director Wycoco thru Atty. Yap and
Agent Furing, requesting assistance for an investigation on several drugstores which were selling
counterfeit whitening papaya soaps bearing the general appearance of their products
Agent Furing was assigned to the case and he executed an affidavit stating that he conducted his
own investigation that on No. 9 and 10, 2005 (together with a certain Esmael), they were able to
buy whitening soaps bearing the trademark "TOP-GEL", "T.G." & "DEVICE OF A LEAF" with
corresponding receipts from a list of drugstores which included herein petitioners; while
conducting the investigation and test buys, he was able to confirm Ping's complaint to be true as
he personally saw commercial quantities of whitening soap bearing the said trademarks being
displayed and offered for sale at the said drugstores; he and Esmael took the purchased items to
the NBI, and Ping, as the authorized representative and expert of Worldwide Pharmacy in
determining counterfeit and unauthorized reproductions of its products, personally examined the
purchased samples; that on Nov. 18, 2005, the whitening soaps bearing the trademarks "TOP-
GEL", "T.G." & "DEVICE OF A LEAF" from the subject drugstores were indeed counterfeit.
Esmael also executed an affidavit corroborating Agent Furing’s statement.
November 21, 2005  Agent Furing applied for the issuance of search warrants before the RTC
Makati against petitioners and other establishments for violations of Sec. 168 and 155, both in
relation to Section 170 of Republic Act (RA) No. 8293, otherwise known as the Intellectual

Page | 155
Property Code of the Philippines. Section 168, in relation to Section 170, penalizes unfair
competition; while Section 155, in relation to Section 170, punishes trademark infringement
November 23, 2005  after conducting searching questions upon Agent Furing and his
witnesses, the RTC granted the applications and issued Search Warrants for both unfair
competition and trademark infringements
December 5, 2005  Agent Furing filed his Consolidated Return of Search Warrants
December 8, 2005  petitioners collective filed motion to quash the search warrants due to
forum shopping and the existence of a prejudicial question
Benjamin Yu (Yu) is the sole owner and distributor of the product known as "TOP-GEL"; and
there was a prejudicial question posed in Civil Case No. 05-54747 entitled Zenna Chemical
Industry v. Ling Na Lau, et al., pending in Branch 93 of the RTC of Quezon City, which is a case
filed by Yu against respondent for damages due to infringement of trademark/tradename, unfair
competition with prayer for the immediate issuance of a temporary restraining order and/or
preliminary prohibitory injunction.
January 9, 2006  opposition by respondent (non-existence of forum-shopping; Yu is not a
party-respondent in these cases and the pendency of the civil case filed by him is immaterial and
irrelevant; Yu cannot be considered the sole owner and distributor of "TOP GEL T.G. &
DEVICE OF A LEAF.")
During the pendency of the case (on April 20, 2006)  Respondent filed a Submission in
relation to the Motion to Quash attaching an Order dated March 21, 2006 of the IPO in IPV Case
No. 10-2005-00001 filed by respondent against Yu, doing business under the name and style of
MCA Manufacturing and Heidi S. Cua, proprietor of South Ocean Chinese Drug Stores for
trademark infringement and/or unfair competition and damages with prayer for preliminary
injunction
Order approved therein the parties' Joint Motion to Approve Compromise Agreement filed on
March 8, 2006 (contents include the ff:
Respondents acknowledge the exclusive right of Complainant over the trademark TOP GEL T.G.
& DEVICE OF A LEAF for use on papaya whitening soap
Respondents acknowledge the appointment by Zenna Chemical Industry Co., Ltd. of
Complainant as the exclusive Philippine distributor of its products under the tradename and
trademark TOP GEL MCA & MCA DEVICE (A SQUARE DEVICE CONSISTING OF A
STYLIZED REPRESENTATION OF A LETTER "M" ISSUED OVER THE LETTER "CA")
Respondents admit having used the tradename and trademark aforesaid but after having realized
that Complainant is the legitimate assignee of TOP GEL MCA & MCA DEVICE and the
registered owner of TOP GEL T.G. & DEVICE OF A LEAF, now undertake to voluntarily cease
and desist from using the aforesaid tradename and trademark and further undertake not to
manufacture, sell, distribute, and otherwise compete with Complainant, now and at anytime in
the future, any papaya whitening soap using or bearing a mark or name identical or confusingly
similar to, or constituting a colorable imitation of, the tradename and trademark TOP GEL MCA
& MCA DEVICE and/or TOP GEL T.G. & DEVICE OF A LEAF as registered and described
above
Respondents further undertake to withdraw and/or dismiss their counterclaim and petition to
cancel and/or revoke Registration No. 4-2000-009881 issued to Complainant and also further
undertake to pull out within 45 days from approval of the Compromise Agreement all their
products bearing a mark or name identical or confusingly similar to, or constituting a colorable

Page | 156
imitation of, the tradename and trademark TOP GEL MCA & MCA DEVICE and/or TOP GEL
T.G. & DEVICE OF A LEAF, from the market nationwide
Respondents finally agree and undertake to pay Complainant liquidated damages in the amount
of 500k for every breach or violation of any of the foregoing undertakings which complainant
may enforce by securing a writ of execution from this Office

ISSUE: WON the CA erred in reversing the RTC's quashal of the assailed search warrants

HELD: petition no merit. The applications for the issuance of the assailed search warrants were
for violations of Sections 155 and 168, both in relation to Section 170 of Republic Act (RA) No.
8293, otherwise known as the Intellectual Property Code of the Philippines. Section 155, in
relation to Section 170, punishes trademark infringement; while Section 168, in relation to
Section 170, penalizes unfair competition SC agrees with the CA that A.M. No. 02-1-06-SC,
which provides for the Rules on the Issuance of the Search and Seizure in Civil Actions for
Infringement of Intellectual Property Rights, is not applicable in this case as the search warrants
were not applied based thereon, but in anticipation of criminal actions for violation of intellectual
property rights under RA 8293. It was established that respondent had asked the NBI for
assistance to conduct investigation and search warrant implementation for possible apprehension
of several drugstore owners selling imitation or counterfeit TOP GEL T.G. & DEVICE OF A
LEAF papaya whitening soap. Also, in his affidavit to support his application for the issuance of
the search warrants, NBI Agent Furing stated that "the items to be seized will be used as relevant
evidence in the criminal actions that are likely to be instituted." Hence, Rule 126 of the Rules of
Criminal Procedure appliesSEC. 3.Personal property to be seized. — A search warrant may be
issued for the search and seizure of personal property:
(a)Subject of the offense;
(b)Stolen or embezzled and other proceeds or fruits of the offense; or
(c)Used or intended to be used as the means of committing an offense. ASHaDT
SEC. 4.Requisites for issuing search warrant. — A search warrant shall not issue except upon
probable cause in connection with one specific offense to be determined personally by the judge
after examination under oath or affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched and the things to be seized which
may be anywhere in the Philippines.
SEC. 5.Examination of complainant; record. — The judge must, before issuing the warrant,
personally examine in the form of searching questions and answers, in writing and under oath,
the complainant and the witnesses he may produce on facts personally known to them and attach
to the record their sworn statements together with the affidavits submitted.
A core requisite before a warrant shall validly issue is the existence of a probable cause,
meaning "the existence of such facts and circumstances which would lead a reasonably discreet
and prudent man to believe that an offense has been committed and that the objects sought in
connection with the offense are in the place to be searched."
When the law speaks of facts, the reference is to facts, data or information personally known to
the applicant and the witnesses he may present. Absent the element of personal knowledge by the
applicant or his witnesses of the facts upon which the issuance of a search warrant may be
justified, the warrant is deemed not based on probable cause and is a nullity, its issuance being,
in legal contemplation, arbitrary

Page | 157
The determination of probable cause does not call for the application of rules and standards of
proof that a judgment of conviction requires after trial on the merits  just concerned with
concerned with probability, not absolute or even moral certainty; no need to present proof
beyond reasonable doubt

In the case at bar:

The affidavits of NBI Agent Furing and his witnesses, Esmael and Ling, clearly showed that they
are seeking protection for the trademark "TOP GEL T.G. and DEVICE OF A LEAF" registered
to respondent under Certificate of Registration 4-2000-009881 issued by the IPO on August 24,
2003, and no other. While petitioners claim that the product they are distributing was owned by
Yu with the trademark TOP GEL MCA and MCA DEVISE under Certificate of Registration 4-
1996-109957, it was different from the trademark TOP GEL T.G. and DEVICE OF A LEAF
subject of the application.
Based on the foregoing, it is clear that the requisites for the issuance of the search warrants had
been complied with and that there is probable cause to believe that an offense had been
committed and that the objects sought in connection with the offense were in the places to be
searched. The offense pertains to the alleged violations committed by respondents-appellees
upon the intellectual property rights of herein private complainant-appellant, as holder of the
trademark TOP GEL T.G. & DEVICE OF A LEAF under Certificate of Registration No. 4-
2000-009881, issued on August 24, 2003 by the Intellectual Property Office.

2
WILLAWARE PRODUCTS V. JESICHRIS MANUFACTURING
G.R. NO. 195549. SEPTEMBER 03, 2014

FACTS: Manufacuring Company (Jesichris) alleges in its complaint for damages for unfair
competition that it is a company engaged in the manufacture and distribution of plastic and metal
products. It pioneered the use of plastic in place of rubber in the manufacture of automotive
underchassis parts such as spring eye bushing, stabiliser bushing, and others. Willaware
Products Corporation, on the other hand is engaged in the manufacture of kitchenware items
made of plastic and metal, has an office with physical proximity to its office, and in view of the
fact that some of its employees had transferred to it, Jesichris discovered that Willaware had
been manufacturing and distributing the same automotive parts with exactly similar design, same
material and colours as Jesichris manufactures and distributes, but at a lower price. Willware
deliberately copied its product designs which constitute unfair competition. It thus prayed for
damages in terms of unrealised profits in the amount of P2Million. On the other hand,
Willaware, in its defense, denied all the allegations in the complaint except as to the proximity of
their office to that of Jesichris, and that some of its employees transferred to Willaware. As an
affirmative defense, Willaware posits that there was no unfair competition as the plastic products
were mere reproductions of the original parts which merely conform to their original designs and
specifications. Thus, Jesichris cannot claim that it originated the use of the plastic automotive
parts, and even assuming that it did so, it still has no exclusive right to sell these products since
it has no patent over these products. In fact, other establishments were offering them for sale.

RULING: Prefatorily, we would like to stress that the instant case falls under Article 28 of the
Civil Code on human relations, and not unfair competition under Republic Act No. 8293,⁠1 as

Page | 158
the present suit is a damage suit and the products are not covered by patent registration. A
fortiori, the existence of patent registration is immaterial in the present case. The concept of
“unfair competition” under Article 28 is very much broader than that covered by intellectual
property laws. Under the present article, which follows the extended concept of “unfair
competition” in American jurisdictions, the term covers even cases of discovery of trade secrets
of a competitor, bribery of his employees, misrepresentation of all kinds, interference with the
fulfillment of a competitor’s contracts, or any malicious interference with the latter’s business.⁠
it is clear that what is being sought to be prevented is not competition per se but the use of
unjust, oppressive or high- handed methods which may deprive others of a fair chance to engage
in business or to earn a living. Plainly, what the law prohibits is unfair competition and not
competition where the means used are fair and legitimate. In order to qualify the competition as
“unfair,” it must have two characteristics: (1) it must involve an injury to a competitor or trade
rival, and (2) it must involve acts which are characterized as “contrary to good conscience,” or
“shocking to judicial sensibilities,” or otherwise unlawful; in the language of our law, these
include force, intimidation, deceit, machination or any other unjust, oppressive or high-handed
method. The public injury or interest is a minor factor; the essence of the matter appears to be a
private wrong perpetrated by unconscionable means⁠3.
Here, both characteristics are present.
First, both parties are competitors or trade rivals, both being engaged in the manufacture of
plastic-made automotive parts. Second, the acts of the petitioner were clearly “contrary to good
conscience” as petitioner admitted having employed respondent’s former employees, deliberately
copied respondent’s products and even went to the extent of selling these products to
respondent’s customers.
Another point we observe is that Yabut, who used to be a warehouse and delivery man of
[respondent], was fired because he was blamed of spying in favor of [petitioner]. Despite this
accusation, he did not get angry. Later on, he applied for and was hired by [petitioner] for the
same position he occupied with [respondent].These sequence of events relating to his
employment by [petitioner] is suspect too like the situation with De Guzman.
Thus, it is evident that petitioner is engaged in unfair competition as shown by his act of
suddenly shifting his business from manufacturing kitchenware to plastic-made automotive parts;
his luring the employees of the respondent to transfer to his employ and trying to discover the
trade secrets of the respondent.
Moreover, when a person starts an opposing place of business, not for the sake of profit to
himself, but regardless of loss and for the sole purpose of driving his competitor out of business
so that later on he can take advantage of the effects of his malevolent purpose, he is guilty of
want on wrong.

3
UFC PHILIPPINES, INC. VS FIESTA BARRIO MANUFACTURING CORPORATION
G.R. 198889, January 20, 2016

FACTS: On April 4, 2002, FBMC filed an application for the mark “Papa Boy & Device” for
goods under Class 30, specifically for lechon sauce. The Intellectual Property Office published
said application for opposition in the IP Phil e-Gazette released on September 8, 2006.

Page | 159
On December 11, 2006, UFC filed with the IPO-BLA a verified notice of opposition to the
application alleging that: The mark “PAPA” was derived from the name Neri Papa which was 1st
used in 1954; Certificate of Reg of PAPA was issued on August 14, 1983 and renewed on
October 28, 2005 after it expired on August 11, 2003; “PAPA BANANA CATSUP LABEL” was
registered in August 11, 1983 and renewed in November 15, 2006 after its expiration; “PAPA
KETSARAP” was registered on August 23, 1985 and was renewed on August 23, 2005; “Papa
Boy & Device” is identical to “PAPA” which is duly registered, particularly the dominant
feature; That the dominant feature of “PAPA Boy & Device”, which is the “PAPA” of UFC,
confusion and deception would result, particularly product confusion and confusion as to its
origin;

FBMC argued that there is no likelihood of confusion. It states that: there was no likelihood of
confusion since “PAPAKETSARAP” is limited to products covered by its registration which is
class 30 for banana sauce while “Papa Boy” in lechon sauce; “Papa Boy” is the dominant mark
while the dominant feature of “PAPAKETSARAP” are the words “PAPA” and “KETSARAP”
and the word “KETSARAP” is more prominently printed and displayed in the foreground than
the word “PAPA” for which opposer’s reference to the dominancy test fails; “PAPA Boy” would
not damage “MANG TOMAS”; “PAPA Boy” differs in overall sound, spelling, meaning, style,
configuration, presentation, and appearance to “PAPAKETSARAP”; “PAPA Boy” is unrelated
and noncompeting to “PAPAKETSARAP” hence registration of marks covering un-related goods
is applicable.

Case was brought to IPO-BLA which rendered in favor of UFC. An appeal was made by FBMC
to IPO Director General which dismissed it.

Petition was made to CA which reversed the decision of IPO-BLA and IPO-DG. CA stated that
“Papa Boy” is not confusingly similar to “papaketsarap” and “papa banana catsup”. It stated that:
although the word “papa” is prominent, the trademark should be taken as a whole and not
piecemeal, since the difference of the marks is noticeable and that UFC’s is labeled as banana
sauce, while BFMC is labeled as lechon sauce; the consumers cannot be confused over the 2
marks, since, Barrio Fiesta was indicated clearly identifying the manufacturer of the lechon
sauce; consumers cannot be confused on the products since UFC’s product is banana sauce
which is clearly physically distinguished from BFMC’s product of lechon sauce; papa is a term
of endearment for one’s father, hence, UFC cannot claim exclusive ownership over the term.

Hence, petition to the SC by UFC.

ISSUE: WON CA erred in applying the holistic test to determine if there is confusing similarity
between marks.

WON CA erred in stating that there is no likelihood of confusion between marks.

WON the expiration of “PAPA” and “PAPA BANANA CATSUP LABEL” which was expired
and renewed later than registration of “PAPA Boy” be a bar for the latter’s registration.

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WON UFC can claim exclusive ownership and use of “PAPA” since it is a common term of
endearment for one’s
father.

RULING: Yes. The Court held it to be so. The Court time and time again applied the dominancy
test in determining the likelihood of confusion. It is true, since, the test of dominancy is
explicitly incorporated into law in Sec. 155.1 of RA 8293. In the case at bar, since RA 8293 took
effect on January 1, 1998 which is way before the issue occurred, dominancy test would then be
applied.

Yes. While the CA stated that there wouldn’t likely be confusion from the consumers on buying
either products, but that only refers to product confusion. According to the SC, there are 2 types
of confusion: product confusion; and origin confusion. Product confusion refers to the likely
chance that the consumer would be induced to purchase a product believing it to be the other,
while origin confusion refers to the likely chance that consumers would be deceived that a
product originated from the registrant of an earlier product.

Sec. 123 of the IP Code provides:

A mark cannot be registered of it:
d. Is identical with a registered mark belonging to a different proprietor or a marj with an earlier
filing or priority date, in respect of:
i. the same goods or services; or
ii. closely related goods or services; or
iii. if it nearly resembles such a mark as to be likely to deceive or cause confusion

A scrutiny of UFC and BFMC’s marks would show that IPO-BLA and IPO-DG correctly found
the word “PAPA” as the dominant feature of “PAPA KETSARAP”. “Ketsarap” cannot be the
dominant feature of the mark as it merely describes the product. “PAPA” is also the dominant
feature of “PAPA BOY & DEVICE” since the word “PAPA” is written on top of and before the
other words such that it is the 1st word that catches the eyes.

No.A certificate of registration of a mark is prima facie evidence of the validity of the
registration, the registrant’s ownership of the mark, and of the registrant’s exclusive right to use
the same in connection with the goods and those that are related thereto specified in the
certificate. In the case at bar, though BFMC’s mark was 1st to file for application on April 4,
2002 which is prior to the late file for renewal of “PAPA” and “PAPA LABEL DESIGN” which
is on 2005 and 2006 respectively. UFC however was able to secure registration for the mark
“PAPA KETSARAP” on August 23, 1985 and that its renewal was timely filed on August 23,
2005. Hence, “PAPA KETSARAP” was still prior to “PAPA BOY & DEVICE”.

Yes. The Merriam-Webster dictionary defines “papa” simply as “a person’s father.” A person’s
father has no logical connection with catsup products, hence, “PAPA” is an arbitrary mark
capable of being registered, as it is distinctive, which comes from a family name that started the
brand. Furthermore, what was registered was not the word “papa” as defined in the dictionary,
but the word “papa” as the last name of the original owner of the brand.

Page | 161
 4
WILTON DY and/or PHILITES ELECTRONIC & LIGHTING PRODUCTS v
KONINKLIJKE PHILIPS ELECTRONICS, N.V.
G.R. No. 186088. March 22, 2017
SERENO,C J.:

DOCTRINE: A trademark is "any distinctive word, name, symbol, emblem, sign, or device, or
any combination thereof, adopted and used by a manufacturer or merchant on his goods to
identify and distinguish them from those manufactured, sold, or dealt by others." It is
"intellectual property deserving protection by law," and "susceptible to registration if it is
crafted fancifully or arbitrarily and is capable of identifying and distinguishing the goods of one
manufacturer or seller from those of another.

FACTS: On March 2006, Koninklijke Philips Electronics, N .V. ("PHILIPS") opposed the
trademark application of petitioner PHILITES on the ground that PHILITES' registration will
mislead the public over an identical or confusingly similar mark of PHILIPS, which is registered
and internationally well-known mark specifically invoking the provisions of Section 123 of the
Intellectual Property Law of the Philippines which states that a mark cannot be registered if it Is
identical with a registered mark belonging to a different proprietor or a mark with an earlier
filing or priority date xxx is identical with, or confusingly similar to, or constitutes a translation
of a mark which is considered by the competent authority of the Philippines to be well-known
internationally and in the Philippines, whether or not it is registered here, as being already the
mark of a person other than the applicant for registration, and used for identical or similar goods
or services: Provided, That in determining whether a mark is well known, account shall be taken
of the knowledge of the relevant sector of the public, rather than of the public at large, including
knowledge in the Philippines which has been obtained as a result of the promotion of the mark.
Petitioner filed its answer denying the allegations made by the respondent. IPP-BLA denied the
opposition of the respondent which, later on was upheld by IPP-DG. On appeal to the Court of
Appeals, the appellate court reversed the decision finding the trademark applied by the petitioner
is confusingly similar with that of respondent’s registered trademark and packaging. Also, the
appellate court belied asseveration that the mark 'PHILITES' is a coined or arbitrary mark from
the words 'Philippines' and 'lights stating that of all the marks that petitioner could possibly
think of for his light bulbs, it is odd that the latter chose a mark with the letters 'PHILI,' which
are the same prevalent or dominant five letters found in respondent's trademark 'PHILIPS' for the
same products, light bulbs.

ISSUE/S: WoN the mark applied for by petitioner is identical or confusingly similar with that of
respondent?

RULING: AFFIRMATIVE. A trademark is "any distinctive word, name, symbol, emblem, sign,
or device, or any combination thereof, adopted and used by a manufacturer or merchant on his
goods to identify and distinguish them from those manufactured, sold, or dealt by others." It is
"intellectual property deserving protection by law," and "susceptible to registration if it is crafted

Page | 162
fancifully or arbitrarily and is capable of identifying and distinguishing the goods of one
manufacturer or seller from those of another.
In determining similarity and likelihood of confusion, jurisprudence has developed two tests: the
dominancy test, and the holistic or totality test.

On one hand, the dominancy test focuses on "the similarity of the prevalent or dominant features
of the competing trademarks that might cause confusion, mistake, and deception in the mind of
the purchasing public. Duplication or imitation is not necessary; neither is it required that the
mark sought to be registered suggests an effort to imitate. Given more consideration are the aural
and visual impressions created by the marks on the buyers of goods, giving little weight to
factors like prices, quality, sales outlets, and market segments. Applying the dominancy test, the
Supreme Court upheld the CA in ruling that there is uncanny resemblance or confusing similarity
between the trademarks applied for by respondent with that of petitioner's registered trademark.
An examination of the trademarks shows that their dominant or prevalent feature is the five-letter
"PHILI", "PHILIPS" for petitioner, and "PHILITES" for respondent. The marks are confusingly
similar with each other such that an ordinary purchaser can conclude an association or relation
between the marks.

On the other hand, the holistic or totality test necessitates a "consideration of the entirety of the
marks as applied to the products, including the labels and packaging, in determining confusing
similarity. The discerning eye of the observer must focus not only on the predominant words, but
also on the other features appearing on both labels so that the observer may draw conclusion on
whether one is confusingly similar to the other." Applying the test in the case, SC agrees with the
appellate court that a comparison between petitioner's registered trademark "PHILIPS'' as used in
the wrapper or packaging of its light bulbs and that of respondent's applied for trademark
"PHILITES" as depicted in the container or actual wrapper/packaging of the latter's light bulbs
will readily show that there is a strong similitude and likeness between the two trademarks that
will likely cause deception or confusion to the purchasing public. The fact that the parties'
wrapper or packaging reflects negligible differences considering the use of a slightly different
font and hue of the yellow is of no moment because taken in their entirety, respondent's
trademark "PHILITES" will likely cause confusion or deception to the ordinary purchaser with a
modicum of intelligence. DENIED.

5
SHANG PROPERTIES vs. ST. FRANCIS DEVELOPMENT CORPORATION
G.R. No. 190706.July 21, 2014

FACTS: St. Francis Development Corporation, a corporation engaged in real estate business and
the developer of the St. Francis Square Commercial Center in Ortigas, filed an intellectual
property violation case for unfair competition, false or fraudulent declaration, and for damages
against Shang Properties Realty Corporation before the IPO – Bureau of Legal Affairs (BLA)
arising from the latter’s use and filing of applications for the registration of the marks “The St.
Francis Towers” and “The St. Francis Shangri-La Place”. Respondent alleges that, it has gained
substantial goodwill with the public that consumers and traders closely identify the said mark
with its property development projects, thus, petitioners could not have the mark "THE ST.
FRANCIS TOWERS" registered in their names, and that petitioners’ use of the marks "THE ST.

Page | 163
FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" in their own real estate
development projects constitutes unfair competition as well as false or fraudulent declaration.
The real estate development projects of the aforementioned companies are located along the
streets bearing the name “St. Francis,” particularly, St. Francis Avenue and St. Francis, both
within the vicinity of the Ortigas Center. BLA found that petitioners committed acts of unfair
competition against respondent by its use of the mark "THE ST. FRANCIS TOWERS" but not
with its use of the mark "THE ST. FRANCIS SHANGRI-LA PLACE." It, however, refused to
award damages in the latter’s favor, considering that there was no evidence presented to
substantiate the amount of damages it suffered due to the former’s acts. The BLA found that
"ST. FRANCIS," being a name of a Catholic saint, may be considered as an arbitrary mark
capable of registration.

IPO Director General reversed the BLA’s finding that petitioners committed unfair competition
through their use of the mark "THE ST. FRANCIS TOWERS," thus dismissing such charge. CA,
however, found petitioners guilty of unfair competition not only with respect to their use of the
mark "THE ST. FRANCIS TOWERS" but also of the mark "THE ST. FRANCIS SHANGRI-LA
PLACE." Accordingly, it ordered petitioners to cease and desist from using "ST. FRANCIS"
singly or as part of a composite mark, as well as to jointly and severally pay respondent a fine in
the amount of ₱200,000.00. The CA did not adhere to the IPO Director-General’s finding that
the mark "ST. FRANCIS" is geographically descriptive, and ruled that respondent – which has
exclusively and continuously used the mark "ST. FRANCIS" for more than a decade, and, hence,
gained substantial goodwill and reputation thereby – is very much entitled to be protected against
the indiscriminate usage by other companies of the trademark/name it has so painstakingly tried
to establish and maintain. Further, the CA stated that even on the assumption that "ST.
FRANCIS" was indeed a geographically descriptive mark, adequate protection must still be
given to respondent pursuant to the Doctrine of Secondary Meaning

ISSUE: Whether or not “St. Francis”, a geographically-descriptive term, can be registered as a

mark under the Intellectual Property (IP) Code of the Philippines.

RULING: NO. The term is ineligible for trademark registration. In general, a geographically-
descriptive mark, because of its general public domain classification, is perceptibly disqualified
from trademark registration. Section 123.1(j) of the IP Code provides that a mark cannot be
registered if it “consists exclusively of signs or of indications that may serve in trade to designate
the kind, quality, quantity, intended purpose, value, geographical origin, time or production of
the goods or rendering of the services, or other characteristics of the goods or services”, because
these “descriptive geographical terms are in the ‘public domain’ simply because every seller
should have the right to inform customers of the geographical origin of his or her goods or
services. ‘Geographically descriptive term’ is defined as any noun or adjective that designates a
geographical location on earth, such as continents, nations, regions, states, cities, streets and
addresses, areas of cities, rivers, or any other location referred to by a recognized name, that are
regarded by buyers as descriptive of the geographic location of origin of the goods or services.
Thus, if the mark sought to be registered is the name of the place or region from which the goods
actually come, then the geographic term is probably used in a descriptive sense. Hence, the term
is ineligible for trademark registration.

Page | 164
 Is there an exception to the rule? A geographically descriptive mark can still be registered
if the same has acquired a secondary meaning. This means, that a descriptive mark no longer
causes the public to associate the goods with a particular place, but to associate the goods with a
particular source (seller or producer). It must be shown that the purchasers come to immediately
associate the mark with only the seller or producer of the goods. In other words, the mark itself
has acquired another meaning no longer that of a particular place, but it has come to mean that
the goods or services are that of the seller or producer.

Under Section 123.234 of the IP Code, specific requirements have to be met in order to
conclude that a geographically descriptive mark has acquired secondary meaning, to wit: (a) the
secondary meaning must have arisen as a result of substantial commercial use of a mark in the
Philippines; (b) such use must result in the distinctiveness of the mark insofar as the goods or the
products are concerned; and (c) proof of substantially exclusive and continuous commercial use
in the Philippines for five (5) years before the date on which the claim of distinctiveness is made.

In the instant case, the Supreme Court held that the use of the marks “The St. Francis
Towers” and “The St. Francis Shangri-La Place” was meant only to identify, or at least associate,
the real estate projects with its geographical location. Considering that both companies are
business competitors engaged in real estate or property development, providing goods and
services directly connected thereto, there can be no description of its geographical origin as
precise and accurate as that of the name of the place where they are situated.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2009 of
the Court of Appeals in CA-G.R. SP No. 105425 is hereby REVERSED and SET ASIDE.
Accordingly, the Decision dated September 3, 2008 of the Intellectual Property Office-Director
General is REINSTATED.

6
E.I. Dupont De Nemours and Co. (assignee of inventors David Carino, Jonas Duncia and
Pancras Wong) v. IPO Director Emma Francisco, Bureau of Patents Director Efipanio
Velasco, Therapharma, Inc.
GR 174379. August 31, 2016
J. Leonen

FACTS: Petitioner is a Delaware- based corporation. In 1987, petitioner filed an application for
PH patent before Bureau of Patents.
Said application was for Angiotensin II Receptor Blocking Imidazole (losartan), an invention
related to the treatment of hypertension and congestive heart failure. The product (under the
brandnames Cozaar and Hyzaar) was produced and marketed by Merck, Sharpe, and Dohme
Corporation, licensee of petitioner.
Said application was handled by a Filipino lawyer, Atty. Nicanor Mapili.
In 2000, petitioner’s new counsel, Ortega, et al., sent the IPO a letter requesting that an office
action be issued on the petitioner’s patent application.
On January 30, 2002, IPO Patent Examiner sent an office action (Paper No. 2) stating that there
were no documents shown that the authority to prosecute the patent application was transferred

Page | 165
from Atty. Mapili to Ortega, et al. Hence, an official revocation of Power of Attorney of Atty.
Mapili and appointment of Ortega, et al. by petitioner is required before further action can be
undertaken on the patent application. Also, it was noted by the Examiner that the application was
deemed abandoned since it took 13 years for petitioner to request for an office action.
On May 29, 2002, petitioner replied to Paper No. 2 by submitting a Power of Attorney
authorizing Ortega, et al. to handle its patent application.
Petitioner also filed petition for revival of its patent application.
In its petition, they argued that it was only in 1996 that they became aware of Atty. Mapili’s
death when its senior-level lawyer visited PH, and that it was only on January 30, 2002, that it
received a notice of abandonment sent by IPO (Paper No. 2).
On April 18, 2002, Director of Patents denied the petition for revival for having been filed out of
time. It ruled that although it appears that Atty. Mapili was remiss in his obligations as counsel
for the petitioner, the abandoned application cannot be revived because of the limitations
provided in Rule 115 of Revised Rules of Practice.
Petitioner appealed to Director-General of IPO. On August 26, 2002, said appeal was denied.
On November 21, 2003, petitioner appealed to CA.
On August 31, 2004, CA granted the appeal allowing the revival of the patent application. CA
believed that petitioner should be accorded some relief from the gross negligence of its former
counsel, Atty. Mapili.
IPO moved to reconsider. Meanwhile, Therapharma moved for leave to intervene arguing that
CA’s decision affected its “vested” rights to sell its own product. Therapharma alleged that it
was granted application by BFAD for a losartan product “Lifezar,” a medication for
hypertension, and that prior to its application, it made sure that no patent application for similar
products exists and that petitioner’s application was considered abandoned by the Bureau of
Patents.
In January 2006, CA granted the motion for leave to intervene of Therapharma.
Petitioner moved to reconsider. In August 2006, CA reversed its August 31, 2004 decision ruling
that the public interest would be prejudiced by the revival of petitioner’s patent application. CA
held that petitioner and Atty. Mapili were inexcusably negligent. CA also found that
Therapharma had already invested P20M to develop its own losartan product.
On October 19, 2006, petitioner filed the present case. Petitioner argues that it was not negligent
in the prosecution of its patent application since it was Atty. Mapili or his heirs who failed to
inform it of crucial developments with regard to its patent application. It argues that as a client in
a foreign country, it does not have immediate supervision over its local counsel so it should not
be bound by its counsel's negligence.

ISSUE: WON the patent application of petitioner should be revived.

RULING: NO. Under Chapter VII, Section 1 ll(a) of the 1962 Revised Rules of Practice, a
patent application is deemed abandoned if the applicant fails to prosecute the application within
4 months from the date of the mailing of the notice of the last action by the Bureau of Patents,
Trademarks, and Technology Transfer, and not from applicant's actual notice.
Sec. 113 of 1962 Revised Rules of Practice, an abandoned patent application may only be
revived within 4 months from the date of abandonment, provided it is shown to the satisfaction
of the Director that the delay was unavoidable. An application not revived within the specified
period shall be deemed forfeited.

Page | 166
Sec. 113 has since been superseded by Section 133.4 of the Intellectual Property Code, Rule 930
of the Rules and Regulations on Inventions, and Rule 929 of the Revised Implementing Rules
and Regulations for Patents, Utility Models and Industrial Design. The period of four (4) months
from the date of abandonment, however, remains unchanged.
According to the records of the Bureau of Patents, Trademarks, and Technology Transfer
Chemical Examining Division, petitioner filed its patent application on July 10, 1987. It was
assigned to an examiner on June 7, 1988. An Office Action was mailed to Atty. Mapili, on July
19, 1988. Because petitioner failed to respond within the allowable period, the application was
deemed abandoned on September 20, 1988. Under Sec. 113, petitioner had until January 20,
1989 to file for a revival of the patent application. Its Petition for Revival, however, was filed on
May 29, 2002, 13 years after the date of abandonment.
Even if the delay was unavoidable, or the failure to prosecute was due to fraud, accident,
mistake, or excusable negligence, or the petition was accompanied by a complete proposed
response, or all fees were paid, the same would still be denied since these regulations only
provide a 4-month period within which to file for the revival of the application. The rules do not
provide any exception that could extend this four (4)-month period to 13 years. Petitioner’s
patent application, therefore, should not be revived since it was filed beyond the allowable
period.
Even assuming that the 4-month period could be extended, petitioner was inexcussably negligent
in the prosecution of its patent application. Negligence is inexcusable if its commission could
have been avoided through ordinary diligence and prudence. It is also settled that negligence of
counsel binds the client as this "ensures against the resulting uncertainty and tentativeness of
proceedings if clients were allowed to merely disown their counsels' conduct."
Petitioner's resident agent, Atty. Mapili, was undoubtedly negligent in failing to respond to the
Office Action sent by the Bureau of Patents, Trademarks, and Technology Transfer on June 19,
1988. Because of his negligence, petitioner's patent application was declared abandoned. He was
again negligent when he failed to revive the abandoned application within 4 months from the
date of abandonment.
Petitioner tries to disown Atty. Mapili 's conduct by arguing that it was not informed of the
abandonment of its patent application or of Atty. Mapili's death. By its own evidence, however,
petitioner requested a status update from Atty. Mapili only on July 18, 1995, 8 years after the
filing of its application. It alleged that it only found out about Atty. Mapili 's death sometime in
March 1996, as a result of its senior patent attorney's visit to the Philippines. Although it was in
petitioner's discretion as a foreign client to put its complete trust and confidence on its local
resident agent, there was a correlative duty on its part to be diligent in keeping itself updated on
the progress of its patent applications. Its failure to be informed of the abandonment of its patent
application was caused by its own lack of prudence.
In Bernardo v. CA, "no prudent party will leave the fate of his case entirely to his lawyer. It is
the duty of a party-litigant to be in contact with his counsel from time to time in order to be
informed of the progress of his case." Even if Atty. Mapili's death prevented petitioner from
submitting a petition for revival on time, it was clearly negligent when it subsequently failed to
immediately apprise itself of the status of its patent application.
Furthermore, contrary to the posturing of petitioner, Schuartz is applicable. Petitioner attempts to
distinguish itself from Schuartz by arguing that the petitioners in Schuartz had actual notice of
abandonment while petitioner here was only able to have actual notice when it received Paper
No. 2.

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The 4-month period in Sec. 111 of the 1962 Revised Rules of Practice, however, is not counted
from actual notice of abandonment but from mailing of the notice. Since it appears from the
Intellectual Property Office's records that a notice of abandonment was mailed to petitioner's
resident agent on July 19, 1988, the time for taking action is counted from this period.
Petitioner's patent application cannot be revived simply because the period for revival has
already lapsed and no extension of this period is provided for by the 1962 Revised Rules of
Practice.

7
GREAT WHITE SHARK ENTERPRISES, INC. V. DANILO M. CARALDE, JR.
GR No. 192294. November 21, 2012
Perlas-Bernabe, J.

DOCTRINE: A trademark device is susceptible to registration if it is crafted fancifully or

arbitrarily and is capable of identifying and distinguishing the goods of one manufacturer or
seller from those of another. Apart from its commercial utility, the benchmark of trademark
registrability is distinctiveness.

FACTS: Respondent Danilo M. Caralde, Jr. filed before the Bureau of Legal Affairs (BLA), IPO
a trademark application seeking to register the mark “SHARK & LOGO” for his manufactured
goods. Petitioner Great White Shark Enterprises, Inc., a foreign corporation domiciled in Florida,
USA, opposed the application claiming to be the owner of the mark consisting of a
representation of shark in color, known as “GREG NORMAN LOGO”. It alleged that, being a
world-famous mark, the confusing similarity between the two marks is likely to deceive or
confuse the purchasing public into believing that Caralde's goods originated from it. Pending the
proceedings, Great White Shark’s trademark application was granted.

The BLA Director rejected Caralde’s application ruling that the illustration of a shark is a
dominant feature in both marks such that the two competing marks are at least strikingly similar
to each other, hence, the likelihood of confusion of goods is likely to occur. Moreover, the goods
of the competing marks fall under the same class of goods. The IPO Director General affirmed
the rejection of Caralde’s application.

The CA reversed the decision and directed the IPO to grant Caralde’s application. It found no
confusing similarity between the subject marks notwithstanding that both contained the shape of
a shark as their dominant feature. It observed that Caralde's mark is more fanciful and colorful,
and contains several elements which are easily distinguishable from that of the Great White
Shark. It further opined that considering their price disparity, there is no likelihood of confusion
as they travel in different channels of trade.

ISSUE: Whether the respondent’s mark is confusingly similar to petitioner’s registered mark.

HELD: NO. The Court finds no confusing similarity between the subject marks. A trademark
device is susceptible to registration if it is crafted fancifully or arbitrarily and is capable of
identifying and distinguishing the goods of one manufacturer or seller from those of another.
Apart from its commercial utility, the benchmark of trademark registrability is distinctiveness.

Page | 168
While both marks use the shape of a shark, the Court noted distinct visual and aural differences
between them. In Great White Shark's "GREG NORMAN LOGO," there is an outline of a shark
formed with the use of green, yellow, blue and red lines/strokes. In contrast, the shark in
Caralde's "SHARK & LOGO" mark is illustrated in letters outlined in the form of a shark. In
addition, the latter mark includes several more elements such as the word "SHARK" in a
different font underneath the shark outline, layers of waves, and a tree on the right side, and
liberally used the color blue with some parts in red, yellow, green and white.

The visual dissimilarities between the two marks are evident and significant, negating the
possibility of confusion in the minds of the ordinary purchaser, especially considering the
distinct aural difference between the marks.

Finally, there being no confusing similarity between the subject marks, the matter of whether
Great White Shark’s mark is a well-known mark becomes unnecessary.

8
DIVINA PALAO v. FLORENTINO INTERNATIONAL, INC.
G.R. No. 186967. January 18, 2019

FACTS: The Intellectual Property Office (IPO) issued Letters Patent No. UM-7789 in favor of
Divina Palao. Letters Patent No. UM-7789 pertained to "A Ceramic Tile Installation on Non-
Concrete Substrate Base Surfaces Adapted to Form Part of Furniture, Architectural Components
and the Like." Florentino III International, Inc.'s (Florentino) filed a Peition for Cancellation of
Letters Patent No. UM-7789. Florentino claimed that the utility model covered by Letters Patent
No. UM-7789 was not original, new, or patentable, as it had been publicly known or used in the
Philippines. The Bureau of Legal Affairs of the Intellectual Property Office denied Florentino's
Petition for Cancellation because Florentino failed to establish that the utility model subject of
Letters Patent No. UM-7789 was publicly known or used before Palao' s application for a patent.

Florentino appealed to the Office of the Director General of the Intellectual Property Office. This
appeal's Verification and Certification of Non-Forum Shopping was signed by Atty. John Labsky
P. Maximo (Atty. Maximo) of the firm Balgos and Perez. However, Florentino failed to attach to
its appeal a secretary's certificate or board resolution authorizing Balgos and Perez to sign the
Verification and Certification of Non-Forum Shopping. The IPO required Florentino to submit
proof that Atty. Maximo was authorized to sign the Verification and Certification of Non-Forum
Shopping. Florentino then complied by submitting a Certificate showing its counsel’s authority
to sign. The IPO Director General, however, dismissed Florentino’s appeal because he noted that
that the Secretary's Certificate pertained to an August 14, 2008 Resolution issued by Florentino' s
Board of Directors, and reasoned that the same Certificate failed to establish the authority of
Florentino's counsel to sign the Verification and Certification of Non-Forum Shopping as of the
date of the filing of Florentino's appeal (i.e., on July 30, 2008). On appeal, the CA reversed the
decision of the IPO Director General stating that Florentino substantially complied with the
requirement of executing a Verification and Certification of Non-Forum Shopping.

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ISSUE: Whether Florentino sufficiently complied with the requirement of executing a
Verification and Certification of Non-Forum Shopping for its appeal before the IPO Director
General.

RULING: The SC held that Florentino sufficiently complied with the requirement of executing
a Verification and Certification of Non-Forum Shopping for its appeal before the IPO Director
General. The need for a certification of non-forum shopping to be attached to respondent's appeal
before the Office of the Director General of the Intellectual Property Office is established. These
requirements notwithstanding, the Intellectual Property Office's own Regulations on Inter Partes
Proceedings (which governs petitions for cancellations of a mark, patent, utility model, industrial
design, opposition to registration of a mark and compulsory licensing, and which were in effect
when respondent filed its appeal) specify that the Intellectual Property Office "shall not be bound
by the strict technical rules of procedure and evidence. "
This rule is in keeping with the general principle that administrative bodies are not strictly bound
by technical rules of procedure. Administrative bodies are not bound by the technical niceties of
law and procedure and the rules obtaining in courts of law. Administrative tribunals exercising
quasi-judicial powers are unfettered by the rigidity of certain procedural requirements, subject to
the observance of fundamental and essential requirements of due process in justiciable cases
presented before them. In administrative proceedings, technical rules of procedure and evidence
are not strictly applied and administrative due process cannot be fully equated with due process
in its strict judicial sense. Here, Florentino's counsel, Balgos and Perez, has been representing
Florentino (and signing documents for it) "since the original Petition for Cancellation of Letter
Patent No. UM-7789 was filed." Thus, its act of signing for Florentino, on appeal before the
Director General of the Intellectual Property Office, was not an aberration. It was a mere
continuation of what it had previously done. It is reasonable, therefore-consistent with the
precept of liberally applying procedural rules in administrative proceedings, and with the room
allowed by jurisprudence for substantial compliance with respect to the rule on certifications of
non-forum shopping-to construe the error committed by respondent as a venial lapse that should
not be fatal to its cause.

9
DIAZ VS PEOPLE OF THE PHILIPPINES
G.R. No. 180677. February 18, 2013

FACTS: Levi Strauss Philippines, Inc. (Levi’s Philippines) is a licensee of Levi’s. After
receiving information that Diaz was selling counterfeit LEVI’S 501 jeans in his tailoring shops in
Almanza and Talon, Las Piñas City, Levi’s Philippines hired a private investigation group to
verify the information. Surveillance and the purchase of jeans from the tailoring shops of Diaz
established that the jeans bought from the tailoring shops of Diaz were counterfeit or imitations
of LEVI’S 501. Levi’s Philippines then sought the assistance of the National Bureau of
Investigation (NBI) for purposes of applying for a search warrant against Diaz to be served at his
tailoring shops. The search warrants were issued in due course. Armed with the search warrants,
NBI agents searched the tailoring shops of Diaz and seized several fake LEVI’S 501 jeans from
them. Levi’s Philippines claimed that it did not authorize the making and selling of the seized
jeans; that each of the jeans were mere imitations of genuine LEVI’S 501 jeans by each of them
bearing the registered trademarks, like the arcuate design, the tab, and the leather patch; and that

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the seized jeans could be mistaken for original LEVI’S 501 jeans due to the placement of the
arcuate, tab, and two-horse leather patch. Diaz stated that he did not manufacture Levi’s jeans,
and that he used the label “LS Jeans Tailoring” in the jeans that he made and sold; that the label
“LS Jeans Tailoring” was registered with the Intellectual Property Office; that his shops received
clothes for sewing or repair; that his shops offered made-to-order jeans, whose styles or designs
were done in accordance with instructions of the customers; that since the time his shops began
operating in 1992, he had received no notice or warning regarding his operations; that the jeans
he produced were easily recognizable because the label “LS Jeans Tailoring,” and the names of
the customers were placed inside the pockets, and each of the jeans had an “LSJT” red tab; that
“LS” stood for “Latest Style;” and that the leather patch on his jeans had two buffaloes, not two
horses.

ISSUE: Whether or not Diaz is liable for trademark infringement.

RULING: No. Section 155 of R.A. No. 8293 defines the acts that constitute infringement of
trademark, viz:

Remedies; Infringement. — Any person who shall, without the consent of the owner of the
registered mark:
155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a
registered mark or the same container or a dominant feature thereof in connection with the sale,
offering for sale, distribution, advertising of any goods or services including other preparatory
steps necessary to carry out the sale of any goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to deceive; or
155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant
feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements intended to be used in
commerce upon or in connection with the sale, offering for sale, distribution, or advertising of
goods or services on or in connection with which such use is likely to cause confusion, or to
cause mistake, or to deceive, shall be liable in a civil action for infringement by the registrant for
the remedies hereinafter set forth: Provided, That the infringement takes place at the moment
any of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether
there is actual sale of goods or services using the infringing material.
The elements of the offense of trademark infringement under the Intellectual Property Code are,
therefore, the following:
The trademark being infringed is registered in the Intellectual Property Office;
The trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer;
The infringing mark is used in connection with the sale, offering for sale, or advertising of any
goods, business or services; or the infringing mark is applied to labels, signs, prints, packages,
wrappers, receptacles or advertisements intended to be used upon or in connection with such
goods, business or services;
The use or application of the infringing mark is likely to cause confusion or mistake or to
deceive purchasers or others as to the goods or services themselves or as to the source or origin
of such goods or services or the identity of such business; and
The use or application of the infringing mark is without the consent of the trademark owner or
the assignee thereof.

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As can be seen, the likelihood of confusion is the gravamen of the offense of trademark
infringement. There are two tests to determine likelihood of confusion, namely: the dominancy
test, and the holistic test. The contrasting concept of these tests was explained in Societes Des
Produits Nestle, S.A. v. Dy, Jr., thus:
x x x. The dominancy test focuses on the similarity of the main, prevalent or essential features of
the competing trademarks that might cause confusion. Infringement takes place when the
competing trademark contains the essential features of another. Imitation or an effort to
imitate is unnecessary. The question is whether the use of the marks is likely to cause confusion
or deceive purchasers.
The holistic test considers the entirety of the marks, including labels and packaging, in
determining confusing similarity. The focus is not only on the predominant words but also on
the other features appearing on the labels.
The holistic test is applicable here considering that the herein criminal cases also involved
trademark infringement in relation to jeans products. Accordingly, the jeans trademarks of Levi’s
Philippines and Diaz must be considered as a whole in determining the likelihood of confusion
between them. The maong pants or jeans made and sold by Levi’s Philippines, which included
LEVI’S 501, were very popular in the Philippines. The consuming public knew that the original
LEVI’S 501 jeans were under a foreign brand and quite expensive. Such jeans could be
purchased only in malls or boutiques as ready-to-wear items, and were not available in tailoring
shops like those of Diaz’s as well as not acquired on a “made-to-order” basis. Under the
circumstances, the consuming public could easily discern if the jeans were original or fake
LEVI’S 501, or were manufactured by other brands of jeans.
Given the foregoing, it should be plain that there was no likelihood of confusion between the
trademarks involved. Thereby, the evidence of guilt did not satisfy the quantum of proof required
for a criminal conviction, which is proof beyond reasonable doubt. According to Section 2, Rule
133 of the Rules of Court, proof beyond a reasonable doubt does not mean such a degree of
proof as, excluding possibility of error, produces absolute certainty. Moral certainty only is
required, or that degree of proof which produces conviction in an unprejudiced mind.
Consequently, Diaz should be acquitted of the charges.

10
SOCIETE DES PRODUITS, NESTLE, S.A. V. PUREGOLD PRICE CLUB, INC.
G.R. NO. 217194. SEPTEMBER 6, 2017

FACTS: Petitioner Societe des Produits Nestle, S.A. (Nestle) is a corporation organized and
existing under the laws of Switzerland which is engaged in the business of marketing and selling
of coffee, ice cream, chocolates, cereals, sauces, soups, condiment mixes, dairy and non-dairy
products, etc. Respondent Puregold Price Club, Inc. (Puregold) is a corporation organized under
Philippine law which is engaged in the business of trading goods such as consumer goods on
wholesale or on retail basis. On 14 June 2007, Puregold filed an application for the registration
of the trademark “COFFEE MATCH” with the Intellectual Property Office (IPO). The
registration was filed by Puregold for use on coffee, tea, cocoa, sugar, artificial coffee, flour and
preparations made from cereals, bread, pastry and confectionery, and honey under Class 30 of
the International Classification of Goods. On 5 December 2008, Nestle filed an opposition
against Puregold’s application for registration. Nestle alleged that it is the exclusive owner of the
“COFFEE-MATE” trademark and that there is confusing similarity between the “COFFEE-

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MATE” trademark and Puregold’s “COFFEE MATCH” application. Nestle alleged that
“COFFEE-MATE” has been declared an internationally well-known mark and Puregold’s use of
“COFFEE MATCH” would indicate a connection with the goods covered in Nestle’s “COFFEE-
MATE” mark because of its distinct similarity. Nestle claimed that it would suffer damages if the
application were granted since Puregold’s “COFFEE MATCH” would likely mislead the public
that the mark originated from Nestle. The Decision of the Bureau of Legal Affairs-Intellectual
Property Office In a Decision dated 16 April 2012, the Bureau of Legal Affairs-Intellectual
Property Office (BLA-IPO) dismissed Nestle’s opposition. The BLA-IPO ruled that Nestle’s
opposition was defective because the verification and certification against forum shopping
attached to Nestle’s opposition did not include a board of directors’ resolution or secretary’s
certificate stating Mr. Dennis Jose R. Barot’s (Barot) authority to act on behalf of Nestle. The
BLA-IPO ruled that the defect in Nestle’s opposition was sufficient ground to dismiss.
The BLA-IPO held that the word “COFFEE” as a mark, or as part of a trademark, which is used
on coffee and similar or closely related goods, is not unique or highly distinctive. Nestle
combined the word “COFFEE” with the word “-MATE,” while Puregold combined the word
“COFFEE” with the word “MATCH.” The BLA-IPO ruled that while both Nestle’s “-MATE”
and Puregold’s “MATCH” contain the same first three letters, the last two in Puregold’s mark
rendered a visual and aural character that makes it easily distinguishable from Nestle’s
“COFFEE-MATE.” Also, the letter “M” in Puregold’s mark is written as an upper case character
and the eyes of a consumer would not be confused or deceived by Nestle’s “COFFEE-MATE”
where the letter “M” is written in lower case. Consequently, the BLA-IPO held that the
consumer cannot mistake the mark and the products of Nestle as those of Puregold’s.

ISSUE:

WON the petitioner filed the appeal within the reglementary period.
WON the case was properly dismissed on the ground of lack of certification for non-forum
shopping.

RULING:
A. YES. The Decision of the ODG-IPO was received by Nestle’s substituted counsel on 14
March 2014. On 27 March 2014, within the 15-day reglementary period provided for by Section
4 of Rule 43, Nestle filed a Motion for Extension of Time to file Verified Petition for Review
(motion for extension) with the CA. In a Resolution dated 3 April 2014, the CA granted Nestle’s
motion for extension and gave Nestle until 13 April 2014 to file its petition for review. The
resolution states:
The Court GRANTS petitioner’s Motion for Extension of Time to File Verified Petition for
Review and gives petitioner until April 13, 2014 within which to do so.
Since 13 April 2014 fell on a Sunday, Nestle had until 14 April 2014, which was the next
working day, within which to file the petition for review. Nestle did file the petition for review
with the CA on 14 April 2014. Accordingly, the CA committed a grave error when it ruled that
Nestle’s petition for review was filed beyond the prescribed period. cAaDHT

B. YES. Nestle, itself, acknowledged in this petition the absence of a board resolution or
secretary’s certificate issued by the board of directors of Nestle to prove the authority of Barot to
sign the certification against forum shopping on behalf of Nestle, to wit: “[t]hus, while there is

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no board resolution and/or secretary’s certificate to prove the authority of Dennis Jose R. Barot
to file the petition and Verification/Certification of Non-Forum Shopping on behalf of petitioner-
corporation, there is a Power of Attorney evidencing such authority.” The power of attorney
submitted by Nestle in favor of Barot was signed by Céline Jorge. However, the authority of
Céline Jorge to sign the power of attorney on behalf of Nestle, allowing Barot to represent
Nestle, was not accompanied by a board resolution or secretary’s certificate from Nestle showing
that Céline Jorge was authorized by the board of directors of Nestle to execute the power of
attorney in favor of Barot. In Development Bank of the Philippines v. Court of Appeals, this
Court held that the failure to attach a copy of a board resolution proving the authority of the
representative to sign the certification against forum shopping was fatal to its petition and was
sufficient ground to dismiss since the courts are not expected to take judicial notice of board
resolutions or secretary’s certificates issued by corporations, to wit:
What petitioners failed to explain, however, is their failure to attach a certified true copy of
Resolution No. 0912 to their petition for certiorari in CA-G.R. SP No. 60838. Their omission is
fatal to their case. Courts are not, after all, expected to take judicial notice of corporate board
resolutions or a corporate officer’s authority to represent a corporation. To be sure, petitioners’
failure to submit proof that Atty. Demecillo has been authorized by the DBP to file the petition is
a “sufficient ground for the dismissal thereof.” (Emphasis supplied)
Accordingly, the CA did not err in ruling that the petition for review should be dismissed due to
the failure of Nestle to comply with the proper execution of the certification against forum
shopping required by Section 5, Rule 7 of the Rules of Court.

ANTI-MONEY LAUNDERING ACT (RA 9160, AS AMENDED)

1
Philippine Deposit Insurance Corp. v. Gidwani
G.R. No. 234616, June 20, 2018, Velasco, Jr., J.

DOCTRINE: Money laundering is a crime whereby the proceeds of an unlawful activity are
transacted, thereby making them appear to have originated from legitimate sources.

FACTS: Respondent was charged with estafa through falsification under Art. 315(2)(a) in
relation to Arts. 172(1) and 171(4) of the Revised Penal Code and for money laundering as
defined in Section 4(a) of AMLA upon discovery by PDIC that the respondent, together with 86
other individuals fraudulently declared that they are the bona fide owners of 471 deposits with
the legacy banks which were ordered closed and put under receivership in order to claim
insurance proceeds from PDIC. These purported depositors, in conspiracy with Manu Gidwani
(Manu), falsified official documents by making the untruthful statement of ownership in their
deposit insurance claims which representations were relied upon by PDIC. As a result, it released
to them the deposit insurance proceeds amounting to P98,733,690.21, of which P97,733,690.21,
was deposited to the RCBC account of Manu. PDIC alleges that the government suffered
damage when it discovered upon investigation that Manu was the sole beneficial owner of the
bank accounts.

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When the case reached the Court of Appeals (CA), it dismissed the complaints due to lack of
probable cause and held that the Secretary of Justice (SoJ) gravely abused his discretion in
finding probable cause.

ISSUE: Whether or not the CA erred in dismissing the complaint for lack of probable cause.

RULING: Yes. Money laundering as defined in Section 4 (a) of RA 9160 is:

Section 4.
Money Laundering Offense. — Money laundering is a crime whereby the proceeds of an
unlawful activity are transacted, thereby making them appear to have originated from
legitimate sources. It is committed by the following: a. Any person knowing that any
monetary instrument or property represents, involves, or relates to the proceeds of any
unlawful activity, transacts or attempts to transact said monetary instrument or property.

It must be recalled that the criminal case is still in the stage of preliminary investigation. The
investigation is advisedly called preliminary, because it is yet to be followed by the trial proper
in a court of law. The occasion is not for the full and exhaustive display of the parties since the
function of the investigating prosecutor is not to determine the guilt or innocence of an accused.

In this case, there exists probable cause to support the complaints since the PDIC reportedly
discovered that there was only one beneficial owner of the 471 bank accounts with the Legacy
Banks of the 86 individual depositors — respondent Manu. To illustrate, PDIC reportedly
discovered that 142 of these 471 accounts, with the total amount of P20,966,439.09, were in the
names of helpers and rank-and-file employees of the Gidwani spouses who do not have the
financial capacity to deposit the amounts recorded under their names. That such individuals
reported either respondent Manu's office or business address as their own further arouses serious
suspicion on the true ownership of the funds deposited. It gives the impression that they had been
used by respondent as dummies, and their purported ownership mere subterfuge, in order to
increase the amount of his protected deposit.
2
REPUBLIC OF THE PHILIPPINES v JOCELYN BOLANTE
G.R. No. 186717. April 17, 2017

FACTS: In April 2005, the Philippine National Bank (PNB) submitted to the Anti-Money
Laundering Council (AMLC) a series of suspicious transaction reports involving the accounts
of Livelihood Corporation (LIVECOR), Molugan Foundation (Molugan), and Assembly of
Gracious Samaritans, Inc. (AGS). According to the reports, LIVECOR transferred to
Molugan a total amount of' ₱172.6 million in a span of 15 months from 2004 to 2005. On 30
April 2004, LIVECOR transferred ₱40 million to AGS, which received another P38 million
from Molugan on the same day. Curiously, AGS returned the P38 million to Molugan also
on the same day. The transactions were reported '"suspicious" because they had no underlying
legal or trade obligation, purpose or economic justification; nor were they commensurate
to the business or financial capacity of Molugan and AGS, which were both lowly capitalized
at P50,000 each.

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On 7 March 2006, the Senate furnished the AMLC a copy of its Committee Report No. 54.
Committee Report No. 54 narrated that former Undersecretary of Agriculture Jocelyn I.
Bolante (Bolante) requested the Department of Budget and Management to release to the
Department of Agriculture the amount of ₱728 million for the purchase of farm inputs under
the Ginintuang Masaganang Ani Program. This amount was used to purchase liquid fertilizers
from Freshan Philippines, Inc., which were then distributed to local government units and
congressional districts beginning January
2004. Based on the Audit Report prepared by the Commission on Audit (COA), the use of the
funds was characterized by massive irregularities, overpricing, violations of the procurement
law and wanton wastage of scarce government resources.

Committee Report No. 54 also stated that at the time that he served as Undersecretary
of Agriculture, Bolante was also appointed by President Gloria Macapagal Arroyo as acting
Chairman of LIVECOR.

The AMLC issued Resolution No. 75 finding probable cause to believe that the accounts of
LIVECOR, Molugan and AGS - the subjects of the suspicious transaction reports submitted by
PNB - were related to what became known as the "fertilizer fund scam." The pertinent portion
of Resolution No.
75
provides:

Under the foregoing circumstances, there is probable cause to believe that the
accounts of the foundations and its officers are related to the fertilizer fund scam. The
release of the amount of ₱728 million for the purchase of farm inputs to the
Department of Agriculture was made by Undersecretary Bolante. Undersecretary
Bolante was the Acting Chairman of LIVECOR. LIVECOR transferred huge
amounts of money to Molugan and AGS, while the latter foundations transferred
money to each other. Mr. [Samuel S.] Bombeo was the President, Secretary, and
Treasurer of Molugan. He, therefore, played a key role in these transactions. On the
other hand, Mr. [Ariel] Panganiban was the signatory to the account or
AGS. Without his participation, these transactions could not have been possible.

The acts involved in the "fertilizer scam" may constitute violation of Section 3(e) of
Republic
Act No. 3019, x x x as well as violation or Republic Act No. 7080 (Plunder).

Thus, the AMLC authorized the filing of a petition for the issuance of an order allowing an
inquiry into the six accounts of LIVECOR, Molugan, AGS, Samuel S. Bombeo and Ariel
Panganiban.

The petition was filed ex parte before the RTC and docketed as AMLC SP Case No. 06-
003. On 17
November 2006, the trial court found probable cause and issued the Order prayed for. It
allowed the AMLC to inquire into and examine the six bank deposits or investments and the
related web of
accou
nts.

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 On 14 February 2008, the Supreme Court promulgated Republic v. Eugenio. It ruled that when
the legislature crafted Section 11 25 of R.A. 9160 (Anti Money Laundering Act of 2001), as
amended, it did not intend to authorize ex parte proceedings for the issuance of a bank inquiry
order by the CA. Thus, a bank inquiry order cannot be issued unless notice is given to the
account holders. That notice would allow them the opportunity to contest the issuance of the
order.

In view of this development, the AMLC issued Resolution No. 40. It authorized the filing of a
petition for the issuance of a freeze order against the 70 accounts found to be related to the
fertilizer fund scam. Hence, the Republic filed an Ex Parte Petition docketed as CA-G.R.
AMLC No. 00014 before the CA, seeking the issuance of a freeze order against the 70
accounts.

In the meantime, the Republic filed an Ex Parte Application docketed as AMLC Case No. 07-
001 before the RTC. Drawing on the authority provided by the AMLC through Resolution No.
90, the ex parte application sought the issuance of an order allowing an inquiry into the 70
accounts.

The RTC found probable cause and issued the Order prayed for. It allowed the AMLC to
inquire into and examine the 70 bank deposits or investments and the related web of accounts.
On 20 October 2008, the Supreme Court denied with finality the motion for reconsideration
filed by the Republic in Eugenio. The Court reiterated that Section 11 of R.A. 9160, as then
worded, did not allow a bank inquiry order to be issued ex parte; and that the concerns of the
Republic about the consequences of this ruling could be more properly lodged in the
legislature.

Thus, in order to comply with the ruling in Eugenio, the Republic filed an Amended and
Supplemental Application in AMLC Case No. 07- 001 before the RTC. The Republic sought,
after notice to the account holders, the issuance of an order allowing an inquiry into the
original 70 accounts plus the six bank accounts that were the subject of AMLC SP Case No.
06-003. A summary hearing thereon ensued.

ISSUES:
1. Whether an ex parte bank inquiry order may now be issued. (YES)

2. Whether the RTC committed grave abuse of discretion in ruling that there
exists no probable cause to allow an inquiry into the total of 76 deposits and
investments of respondents.(NO)
RULING:

1
.
Presently, while Eugenio still provides much needed guidance in the resolution of issues
relating to the freeze and bank inquiry orders, the Decision in that case no longer
applies insofar as it

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requires that notice be given to the account holders before a bank inquiry order
may be
issued. Upon the enactment of R.A. 10167 on 18 June 2012, Section 11 of R.A. 9160 was
further amended to allow the AMLC to file an ex parte application for an order allowing
an inquiry into bank deposits and investments. Section 11 of R.A. 9160 now reads:

Section 11. Authority to Inquire into Bank Deposits. - Notwithstanding the

provisions of
Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic
Act No.
8791, and other laws, the AMLC may inquire into or examine any particular deposit or
investment, including related accounts, with any banking institution or non-bank
financial
institution upon order of any competent court based on an ex parte application in
cases of
violations of this Act, when it has been established that there is probable cause that the
deposits or investments, including related accounts involved, are related to an unlawful
activity as defined in Section 3(i) hereof or a money laundering offense under Section
4 hereof; except that no court order shall be required in cases involving activities
defined in Section 3(i)(1 ), (2 ), and (12) hereof and felonies or offenses of a nature
similar to those mentioned in Section 3(i)(l ), (2), and (12), which are Punishable under
the penal laws of other countries, and terrorism and conspiracy to commit
terrorism as defined and penalized under Republic Act No. 9372.

The Court of Appeals shall act on the application to inquire in lo or examine any depositor or
investment with any banking institution or nonbank financial institution within twenty-four
(24) hours from filing of the application.

To ensure compliance with this Act, the Bangko Sentral ng Pilipinas may, in the course of a
periodic or special examination, check the compliance of a Covered institution with the
requirements of the AMLA and its implementing rules and regulations.

A court order ex parte must first be obtained before the AMLC can inquire into these
related Accounts: Provided, That the procedure for the ex parte application of the ex parte
court order for the principal account shall be the same with that of the related accounts.

The authority to inquire into or examine the main account and the related accounts shall
comply with the requirements of Article III, Sections 2 and 3 of the 1987 Constitution.

2
.
In the issuance of a bank inquiry order, the power to determine the existence of probable
cause is lodged in the trial court. As we ruled in Eugenio:

Section 11 itself requires that it be established that "there is probable cause that
the deposits or investments are related to unlawful activities," and it obviously is

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 the court which stands as arbiter whether there is indeed such probable cause.
The process of
inquiring into the existence of probable cause would involve the function of
determination reposed on the trial court. Determination clearly implies a function of
adjudication on the part of the trial court, and not a mechanical application of a
standard predetermination by some other body. The word "determination'' implies
deliberation and is, in normal legal contemplation, equivalent to ''the decision of a
court of justice."

The court receiving the application for inquiry order cannot simply take the AMLC's word
that probable cause exists that the deposits or investments are related to an unlawful
activity. It will have to exercise its own determinative function in order to be convinced of
such fact.

For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be able to
show specific facts and circumstances that provide a link between an unlawful activity or a
money laundering offense, on the one hand, and the account or monetary instrument or
property sought to be examined on the other hand. In this case, the RTC found the evidence
presented by the AMLC wanting. For its part, the latter insists that the RTC's determination
was tainted with grave abuse of discretion for ignoring the glaring existence of probable cause
that the subject bank deposits and investments were related to an unlawful activity.

Grave abuse of discretion is present where power is exercised in an arbitrary or despotic

manner by reason of passion, prejudice or personal hostility, that is so patent and gross as to
amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined or to
act at all in contemplation of law. For certiorari to lie, it must be shown that there was a
capricious, arbitrary and whimsical exercise of power - the very antithesis of the judicial
prerogative.

We find no reason to conclude that the RTC determined the existence of probable cause, or
lack thereof, in an arbitrary and whimsical manner.

To repeat, the application for the issuance of a bank inquiry order was supported by only
two pieces of evidence: Senate Committee Report No. 54 and the testimony of witness Thelma
Espina.

We have had occasion to rule that reports of the Senate stand on the same level as other pieces
of evidence submitted by the parties, and that the facts and arguments presented therein should
undergo the same level of judicial scrutiny and analysis. As courts have the discretion to
accept or reject them, no grave error can be ascribed to the RTC for rejecting and refusing to
give probative value to Senate Committee Report No. 54.

3
G.R. No. 212107, January 28, 2019
KEIHIN-EVERETT FORWARDING CO., INC., petitioner
VS.
TOKIO MARINE MALAYAN INSURANCE CO., INIC., respondent

Page | 179
 REYES JR., J:

FACTS: In 2005, Honda Trading Phils. Ecozone Corporation (Honda Trading) ordered 80
bundles of Aluminum Alloy Ingots from PT Molten Aluminum Producer Indonesia (PT
Molten). PT Molten loaded the goods in two container vans with Serial Nos. TEXU 389360-5
and GATU 040516-3 which were, in turn, received in Jakarta, Indonesia by Nippon Express Co.,
Ltd. for shipment to Manila.

Honda Trading engaged the services of petitioner Keihin-Everett to clear and withdraw the cargo
from the pier and to transport and deliver the same to its warehouse at the Laguna Technopark in
Biñan, Laguna. They likewise insured the entire shipment with Tokio Marine & Nichido Fire
Insurance Co., Inc. (TMNFIC) under Policy No. 83-00143689.

The shipment arrived in Manila and was accordingly offloaded from the ocean liner and
temporarily stored at the CY Area of the Manila International Port pending release by the
Customs Authority.

The shipment was caused to be released from the pier by petitioner Keihin-Everett and turned
over to respondent Sunfreight Forwarders for delivery to Honda Trading. En route to the latter's
warehouse, the truck carrying the containers was hijacked and the container van with Serial No.
TEXU 389360-5 was reportedly taken away. Although said container van was subsequently
found in the vicinity of the Manila North Cemetery and later towed to the compound of the
Metro Manila Development Authority (MMDA), it appears that the contents thereof were no
longer retrieved. Only the container van with Serial No. GATU 040516-3 reached the
warehouse. As a consequence, Honda Trading suffered losses in the total amount of
P2,121,917.04, representing the value of the lost 40 bundles of Aluminum Alloy Ingots.

Claiming to have paid Honda Trading's insurance claim for the loss it suffered, respondent Tokio
Marine commenced the instant suit on October 10, 2006 with the filing of its complaint for
damages against petitioner Keihin-Everett. Respondent Tokio Marine maintained that it had been
subrogated to all the rights and causes of action pertaining to Honda Trading. Served with
summons, petitioner Keihin-Everett denied liability for the lost shipment on the ground that the
loss thereof occurred while the same was in the possession of respondent Sunfreight Forwarders.

RTC: Ruled that petitioner Keihin-Everett and respondent Sunfreight Forwarders jointly and
severally liable to pay respondent Tokio Marine's claim in the sum of P1,589,556.60, together
with the legal interest due thereon and attorney's fees amounting to P100,000.00. The RTC found
the driver of Sunfreight Forwarders as the cause of the evil caused. Under Article 2180 of the
Civil Code, it provides: "Employers shall be liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks, even though the former are
not engaged in any business or industry." Thus, Sunfreight Forwarders is hereby held liable for
the loss of the subject cargoes with Keihin-Everett, being a common carrier. In case, Keihin-
Everett pays for the amount, it has a right of reimbursement from Sunfreight Forwarders.

Page | 180
CA: Modified the ruling of the RTC insofar as the solidary liability of Keihin-Everett and
Sunfreight Forwarders is concerned. The CA went to rule that solidarity is never presumed.
There is solidary liability when the obligation so states, or when the law or the nature of the
obligation requires the same. Thus, because of the lack of privity between Honda Trading and
Sunfreight Forwarders, the latter cannot simply be held jointly and severally liable with Keihin-
Everett for Tokio Marine's claim as subrogee.

ISSUE: Whether or not Keihin-Everett and Sunfreight Forwarders are solidarily liable.

RULING: NO.

We likewise agree with the CA that the liability of Keihin-Everett and Sunfreight Forwarders are
not solidary. There is solidary liability only when the obligation expressly so states, when the
law so provides, or when the nature of the obligation so requires. Thus, under Article 2194 of the
Civil Code, liability of two or more persons is solidary in quasi-delicts. But in this case, Keihin-
Everett's liability to Honda Trading (to which Tokio Marine had been subrogated as an insurer)
stemmed not from quasi-delict, but from its breach of contract of carriage. Sunfreight
Forwarders was only impleaded in the case when Keihin-Everett filed a third-party complaint
against it. As mentioned earlier, there was no direct contractual relationship between Sunfreight
Forwarders and Honda Trading. Accordingly, there was no basis to directly hold Sunfreight
Forwarders liable to Honda Trading for breach of contract. If at all, Honda Trading can hold
Sunfreight Forwarders for quasi-delict which is not the action filed in the instant case.

It is not expected however that Keihin-Everett must shoulder the entire loss. The case of Torres-
Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc. is instructive. The said case
involves a similar set of facts as that of the instant case such that the shipper (Sony) engaged the
services of common carrier (TMBI), to facilitate the release of its shipment and deliver the goods
to its warehouse, who, in turn, subcontracted a portion of its obligation to another common
carrier (BMT). The Court ruled:

We do not hereby say that TMBI must absorb the loss. By subcontracting the
cargo delivery to BMT, TMBI entered into its own contract of carriage with a
fellow common carrier.

The cargo was lost after its transfer to BMT's custody based on its contract of
carriage with TMBI. Following Article 1735, BMT is presumed to be at fault.
Since BMT failed to prove that it observed extraordinary diligence in the
performance of its obligation to TMBI, it is liable to TMBI for breach of their
contract of carriage.

In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the
contract of carriage. In turn, TMBI is entitled to reimbursement from BMT due to
the latter's own breach of its contract of carriage with TMBI. x x x

Page | 181
 G.R. No. 198849, August 07, 2019
CAMP JOHN HAY DEVELOPMENT CORPORATION, petitioner,
VS.
CHARTER CHEMICAL AND COATING CORPORATION, respondent.
LEONEN, J.

FACTS: Camp John Hay Development entered into a Contractor’s Agreement with Charter
Chemical, it was tasked to complete the interior and exterior painting works of Camp John Hay
Manor for the contract price of P15,500,000.00. This was inclusive of the price of two (2)-studio
type units at Camp John Hay Suites, the total amount of which would be based on the units
chosen by Charter Chemical. Later on, the contract price was reduced to P13,239,734.16, for
which Camp John Hay Development paid P7,339,734.16. The balance of P5,900,000.00 was
ought to be settled by offsetting the price of the two (2) studio units. In 2003, Charter Chemical
completed the painting works. Charter Chemical demanded the execution of the deed of sale and
delivery of the titles of the two (2) units in September 2004, with a follow-up in April 2005.

In June 2005, Camp John Hay Development and Charter Chemical executed contracts to sell,
obliging the former to deliver to the latter said units. Consequently, Camp John Hay
Development issued certifications to Charter Chemical that the two (2) units were fully paid
under their offsetting scheme. However, the units were not delivered because the construction of
Camp John Hay Suites was not yet complete.

Camp John Hay Development again failed to complete its construction. Due to the subsisting
construction delay, Charter Chemical, through counsel, wrote Camp John Hay Development,
demanding that it transfer the units or pay the value of these units in the sum of P6,996,517.48.

When it felt that further demands would be futile, Charter Chemical, filed before the
Construction Industry Arbitration Commission a Request for Arbitration under the arbitration
clause in the Contractor’s Agreement.

The Construction Industry Arbitration Commission: ordered Camp John Hay Development
to pay the amounts of P5,900,000.00, the monetary value of the two (2) units in Camp John Hay
Suites, and P590,000.00 as attorney’s fees. The arbitral tribunal ruled that Charter Chemical was
entitled to its claim for the value of the two (2) units because Camp John Hay Development
failed to deliver the units within the targeted completion date. It also ruled that the courts should
not fix the period for the delivery of the subject units as provided for in Article 1197 of the Civil
Code because the reciprocal nature of the contract itself provides for the period of their delivery.
Moreover, CIAC can fix the period if necessary.

The CA: affirmed the arbitral tribunal’s award. It held that the arbitration clause in the
Contractor’s Agreement was neither modified nor superseded by the contracts to sell, which
were merely devices by which to transfer possession and title over the units to Charter Chemical.
The Contractor’s Agreement, it noted, remained the principal covenant.

ISSUE: Whether or not Rescission under Art. 1191 of the Civil Code is a proper remedy.

Page | 182
RULING: Rescission is proper. The court cannot fix the period in this case.

Rescission on account of breach of reciprocal obligations is provided under Article 1191 of the
Civil Code.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

This provision refers to rescission applicable to reciprocal obligations. It is invoked when

there is noncompliance by one (1) of the contracting parties in case of reciprocal obligations.
“Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed simultaneously such that the performance of
one is conditioned upon the simultaneous fulfillment of the other.” Rescission under Article 1191
will be ordered when a party to a contract fails to comply with his or her obligation. Rescission
“is a principal action that is immediately available to the party at the time that the reciprocal
obligation was breached.” The right of rescission of a party to an obligation under Article 1191
of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with what is incumbent upon him,
the obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission. Resolution grants the injured
party the option to pursue, as principal actions, either a rescission or specific performance of the
obligation, with payment of damages in either case.

Rescission of the contract is sanctioned here. Under the contract, petitioner and
respondent have reciprocal obligations. Respondent, for its part, was bound to render painting
services for petitioner’s property. This was completed by respondent in 2003, after which it was
belatedly issued a clearance in 2005. Meanwhile, in accordance with the Contractor’s
Agreement, petitioner paid part of the contract price with the remaining balance to be paid
through offsetting of two (2) Camp John Hay Suites units. However, despite incessant demands
from respondent, petitioner failed to deliver these units because their construction had yet to be
completed. The law, then, gives respondent the right to seek rescission because petitioner could
not comply with what is incumbent upon it.

Page | 183
The law and jurisprudence are clear. When the obligor cannot comply with its obligation, the
obligee may exercise its right to rescind the obligation, and the courts will order the rescission in
the absence of any just cause to fix the period. Here, lacking any reasonable explanation and just
cause for the fixing of the period for petitioner’s noncompliance, the rescission of the obligation
is justified. Although rescission repeals the contract from its inception, it does not disregard all
the consequences that the contract has created. What mutual rescission entails is “the return of
the benefits that each party may have received as a result of the contract.”

Here, it is clear that only petitioner benefited from the contract. Respondent has already
performed the painting works in 2003, and it was accepted by petitioner as satisfactory. Since
this service cannot be undone and petitioner has already enjoyed the value of the painting
services over the years, respondent is entitled to the payment of the painting services with
interest in accordance with Articles 1191 and 2210 of the Civil Code. The interest shall be
computed from the date of extrajudicial demand by respondent in accordance with Article 1169
of the Civil Code.

5
G.R. NO: 220008, February 20, 2019
SOCORRO T. CLEMENTE, AS SUBSTITUTED BY SALVADOR T. CLEMENTE,
petitioner
VS.
REPUBLIC OF THE PHILIPPINES (DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, REGION IV-A), respondents
CARPIO, J:

FACTS: Municipal Mayor Amado A. Clemente (Mayor Clemente), Dr. Vicente A. Clemente,
Judge Ramon A. Clemente, and Milagros A. Clemente (Clemente Siblings) were the owners of a
parcel of land. During their lifetime, they executed a Deed of Donation dated 16 March 1963
over a one hectare portion of their property in favor of the Republic of the Philippines solely for
hospital site only and for no other else, where a Government Hospital shall be constructed.

Pursuant with the Deed of Donation, the construction of a building for a hospital was started in
the following year. However, for reasons unknown, the construction was never completed and
only its foundation remains today.

Socorro and Rosario Clemente wrote to District Engineer of Quezon asking for information on
the development of the government hospital. She wrote a subsequent letter restating their inquiry
and consultation where the District Engineer informed her that the DPWH no longer had a plan
to construct a hospital at the site and that the DPWH had no budget for the hospital construction.

Almost 41 years after the Deed of Donation was executed, Socorro as heir and successor-in-
interest of Mayor Clemente, filed a Complaint, and subsequently an Amended Complaint, for
Revocation of Donation, Reconveyance and Recovery of Possession alleging that the Republic
of the Philippines failed to comply with the condition imposed on the Deed of Donation, which

Page | 184
was to use the property “solely for hospital site only and for no other else, where a [government
[h]ospital shall be constructed.”

RTC: rendered its decision dismissing the case on the ground of prematurity. It held that since
the parties did not fix the period within which to comply with the condition, but a period was
indeed intended, the Court may fix the period for the performance of the donee’s obligation,
under Article 1197 of the Civil Code. However, since Socorro failed to pray for the fixing of the
period, the RTC dismissed the case.

Petitioner filed for a motion for reconsideration but the same was denied.

CA: likewise denied the appeal. A Motion for Partial Reconsideration is likewise denied.

ISSUE: Whether or not the donation may be revoked.

RULING: Yes.

The nature of the donation made by the Clemente Siblings is a donation subject to a
condition – the condition being the construction of a government hospital and the use of the
Subject Property solely for hospital purposes. Upon the non-fulfillment of the condition, the
donation may be revoked and all the rights already acquired by the donee shall be deemed lost
and extinguished. This is a resolutory condition because it is demandable at once by the done but
the non-fulfillment of the condition gives the donor the right to revoke the donation.

In this case, upon the execution of the Deed of Donation and the acceptance of such
donation in the same instrument, ownership was transferred to the Republic, as evidenced by the
new certificate of title issued in the name of the Province of Quezon. Because the condition in
the Deed of Donation is a resolutory condition, until the donation is revoked, it remains
valid. However, for the donation to remain valid, the donee must comply with its obligation to
construct a government hospital and use the Subject Property as a hospital site. The failure to do
so gives the donor the right to revoke the donation. Article 764 of the Civil Code provides:

Art. 764. The donation shall be revoked at the instance of the donor, when the donee
fails to comply with any of the conditions which the former imposed upon the latter.

In this case, the property donated shall be returned to the donor, the alienations made
by the donee and the mortgages imposed thereon by him being void, with the limitations
established, with regard to third persons, by the Mortgage Law and the Land
Registration Laws.

This action shall prescribe after four years from the non-compliance with the
condition, may be transmitted to the heirs of the donor, and may be exercised against the
donee's heirs.

The SC disagreed with the argument of the respondent that the obligation to construct a
hospital was fulfilled when respondent started to construct a hospital. It is clear from the records

Page | 185
that the donee failed to comply with its obligation to construct a government hospital and to use
the premises as a hospital site.

When the parties provided in the Deed of Donation that the donee should construct a
government hospital, their intention was to have such hospital built and completed, and to have a
functioning hospital on the Subject Property. This can be evidenced by the accompanying words
in the Deed of Donation – "solely for hospital site only and for no other else, where a
[g]overnment [h]ospital shall be constructed." The condition imposed upon the donee has two
parts – first, to construct a government hospital, and second, to use the Subject Property solely as
a hospital site. The argument of respondent that the mere construction of the foundation of a
building complies with the condition that a government hospital be constructed on the Subject
Property is specious. A foundation of a building is obviously not a government hospital. The
other condition in the Deed of Donation, which is to use the Subject Property solely as a hospital
site, is also not complied with when the Subject Property is left idle, which means the Subject
Property is not being used as a hospital site. The foundation of a building cannot function as a
hospital site. Thus, even if we are to consider, for the sake of argument, that the construction of
the foundation of a hospital building is enough to comply with the obligation to construct a
government hospital, the subsequent abandonment of the construction results in the non-
compliance with the second part of the donee's obligation – which is to use the Subject Property
solely as a hospital site.

Based on the foregoing, we find that the donee failed to comply with the resolutory condition
imposed in the Deed of Donation.

6
G.R. No. 210641, March 27, 2019
DOMESTIC PETROLEUM RETAILER CORPORATION, petitioner
VS.
MANILA INTERNATIONAL AIRPORT AUTHORITY, respondent.
CAGUIOA, J:

FACTS: Petitioner and Respondent entered into a Contract of Lease whereby the former leased
from the latter a parcel of land and a building. The Petitioner was religiously paying its dues,
however when the Respondent passed Resolution No. 98-30 which mandates the increase in the
rentals paid by its concessionaires and lessees.

Petitioner initially refused to pay the increased rentals which was decreed without prior notice
and hearing but still, Respondent demanded its payment of an amount as rental in arrears which
was based on the increase prescribed in Resolution No. 98-30 with 2% interest compounded
monthly.

Petitioner protested in writing to Respondent regarding the increased rentals and the
computation. However, it also signified its intention to comply in good faith with the terms and
conditions of the lease contract by paying the amount due.

Page | 186
In the said case, the Court nullified Resolution Nos. 98-30 and 99-11 issued by respondent
MIAA for non-observance of the notice and hearing requirements for the fixing rates required by
the Administrative Code. Petitioner advised Respondent of its intention to stop paying the
increased rental rate, and on January 1, 2006, it stopped paying the increased rental rate, but still
continued paying the original rental rate prescribed in the lease contract.

Thereafter, Respondent required the payment of P645,216.21 allegedly representing the balance
of the rentals from January up to June 2006. Petitioner sent its reply to Respondent denying the
unpaid obligation, reiterating that the rental could no longer be computed based on the nullified
Resolution No. 98-30 and demanding a refund for its overpayment. To which, Respondent
ignored prompting the Petitioner to send a final written demand.

RTC: Ruled in favor of petitioner DPRC.

CA: Affirmed the RTC's Decision holding respondent MIAA liable to petitioner DPR

CA found that the liability of respondent MIAA to petitioner DPRC for overpaid monthly rentals
was in the nature of a quasi-contract of solutio indebiti. CA held that "the claim of refund must
be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the Civil
Code. It found that, despite the records showing that petitioner DPRC made overpayment in
monthly rentals from December 11, 1998 up to December 5, 2005, such claim could not be fully
awarded to petitioner DPRC due to prescription. The claim for refund must be made within six
(6) years from date of payment. Since Petitioner demanded the refund of the increase in monthly
rentals mistakenly paid only on July 27, 2006 and filed this case before the lower court only on
December 23, 2008, it can recover only those paid during the period from January 9, 2003 to
December 5, 2005. Hence, the instant Petition.

ISSUE: Whether or not the CA was correct in amending the RTC's Decision, modifying the
amount of respondent MIAA's liability from the full amount of P9,593,179.87 to just
P3,839,643.05 plus legal interest at 12% per annum computed from the time of extra-judicial
demand on July 27, 2006, on the basis of the application of the six-year prescriptive period
governing the quasi-contract of solutio indebiti.

RULING: No. Elements of Solution Indebiti are not present.

In order to establish the application of solutio indebiti in a given situation, two conditions must
concur: (1) a payment is made when there exists no binding relation between the payor who has
no duty to pay, and the person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause. In the instant case, the Court finds that
the essential requisites of solutio indebiti are not present.

It is undisputed by all parties that Respondent and Petitioner are mutually bound to each other
under a Contract of Lease. Hence, having the juridical relationship of a lessor-lessee, it cannot be
said that in the instant case, the overpayment of monthly rentals was made when there existed no

Page | 187
binding juridical tie or relation between the pay or, i.e., Petitioner, and the person who received
the payment, i.e., Respondent.

The Court finds that the cause of action of Petitioner is based on the violation of a contractual
stipulation in the parties' Contract of Lease, and not due to the existence of a quasi-contract. By
filing its Complaint, Petitioner invoked the Contract of Lease and alleged that Respondent
violated the aforementioned contractual stipulation, considering that the latter imposed a price
escalation of monthly rentals despite reneging on its contractual obligation to first issue a valid
Administrative Order and give Petitioner prior notice. Just because the Contract of Lease in itself
may be silent as to its entitlement to a refund does not mean that such claim for refund is not
provided for in the contract and cannot be asserted by it.

It must be stressed that applicable laws form part of, and are read into, contracts without need for
any express reference thereto. Furthermore, it cannot be said that Petitioner’s payments in
monthly rentals from December 11, 1998 up to December 5, 2005 in observance with the
subsequently nullified Resolution No. 98-30 were made due to mistake on its part. The Petitioner
deliberately made the payments in accordance with respondent MIAA's Resolution No. 98-30,
albeit under protest. It also signified its intention to comply in good faith with the terms and
conditions of the lease contract by paying the amount charged in accordance with Resolution No.
98-30 despite registering its objection to its validity.

Solutio indebiti applies when payment was made on the erroneous belief of facts or law that such
payment is due. In the case at hand, Petitioner’s overpayment of rentals from 1998 to 2005 was
not made by sheer inadvertence of the facts or the misconstruction and misapplication of the law.
Petitioner did not make payment because it mistakenly and inadvertently believed that the
increase in rentals instituted by the subsequently voided Resolution No. 98-30 was indeed due
and demandable. From the very beginning, it was consistent in its belief that the increased rentals
were not due as Resolution No. 98-30 was, in its view, void.

Therefore, with the absence of the two essential requisites of solutio indebiti in the instant case,
Petitioner’s cause of action is not based on the quasi-contract of solutio indebiti.

7
REPUBLIC OF THE PHILIPPINES VS. GLASGOW CREDIT AND COLLECTION
SERVICES, INC. and CITYSTATE SAVINGS BANK, INC.
G.R. No. 170281 January 18, 2008

FACTS: On July 18, 2003, petitioner filed a complaint for civil forfeiture of assets with the
RTC of Manila against the bank deposits in account number CS – 005-10-000121-5 maintained
by GLASGOW in CSBI. The case was filed pursuant to RA 9160 or the Anti-Money Laundering
Act of 2001.On July 21, 2003, the RTC of Manila issued a 72-hour TRO. And on August 8, 2003
a writ of preliminary injunction was issued. Meanwhile, summons to GLASGOW was returned
“unserved” as it could no longer be found at its last known address. On October 8, 2003,

Page | 188
petitioner filed a verified omnibus motion for a) issuance of alias summons and b) leave of court
to serve summons by publication. On October 15, 2003, the trial court directed the issuance of
alias summons. No mention was made of the motion for leave of court to serve summons by
publication. On January 30, 2004, the trial court archived the case for failure of the Republic to
serve alias summons. The Republic filed an ex parte omnibus motion to reinstate the case and
resolve the motion for leave of court to serve summons by publication. On May 31, 2004, the
trial court ordered the reinstatement of the case directing the Republic to serve the alias
summons to Glasgow and CSBI within 15 days. On July 12, 2004, petitioner received a copy of
the sheriff’s return stating that the alias summons was returned “unserved” as GLASGOW was
no longer holding office at the given address since July 2002. On October 17, 2005, the trial
court dismissed the case on the grounds of 1) improper venue 2) insufficiency of the complaint in
form and substance and 3) failure to prosecute and lifted the writ of preliminary injunction.
Petitioner filed a petition for review.

ISSUE: Whether or not the complaint for civil forfeiture was properly instituted.

RULING: Sec. 12 (a) of RA 9160 provides two conditions when applying for civil forfeiture:
when there is suspicious transaction report or a covered transaction report deemed suspicious
after investigation by the AMLC; the court has, in a petition filed for the purpose; ordered the
seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related
to said report. The writ of preliminary injuction issued on August 8, 2003 removed account no.
CA-005-10-000121-5 from the effective control of either GLASGOW or CSBI or their
representatives or agents and subjected it to the process of the court. Since this account was
covered by several suspicious reports and placed under the control of the trial court upon the
issuance of the writ, the conditions provided in Section 12 (a) of RA 9160 were satisfied. The
petitioner properly instituted the complaint for civil forfeiture.

8
REPUBLIC OF THE PHILIPPINES VS. CABRINI GREEN & ROSS, INC.,
G.R. No. 154522, May 5, 2006

FACTS: Anti-Money Laundering Council issued a freeze order in various bank accounts found
to be related to the unlawful activities of the respondents. Under RA 9160, the freeze order shall
be effective for 15 days “unless extended by the court”. Before the expiration of the said freeze
order, AMCL filed a various petitions for the extension of the freeze orders to the Court of
Appeals with the belief that the power of the Court of Appeals to issue Temporary Restraining
Order (TRO) and Writ of Injunction against freeze orders carries with it the power to extend the
effectivity of the same.

The Court of appeals dismissed the said petitions. It uniformly ruled that it was not vested by RA
9160 the authority to extend the effectivity of freeze orders.

ISSUE: Whether the Court of Appeals has the authority to extend the effectivity of freeze orders
issued by the AMLC.

Page | 189
RULING: YES. During the pendency of the case a Congress enacted RA 9194 An Act
Amending Republic Act No. 9160, Otherwise Known as the "Anti-Money Laundering Act of
2001").6 It amended Section 10 of RA 9160 as follows:

SEC. 7. Section 10 of [RA 9160] is hereby amended to read as follows:

SEC. 10. Freezing of Monetary Instrument or Property. – The Court of Appeals, upon
application ex parte by the AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity as defined in
Sec. 3(i) hereof, may issue a freeze order which shall be effective immediately. The freeze order
shall be for a period of twenty (20) days unless extended by the court.

Section 12 of RA 9194 further provides:

SEC 12. Transitory Provision. – Existing freeze orders issued by the AMLC shall remain in force
for a period of thirty (30) days after the effectivity of this Act, unless extended by the Court of
Appeals. On April 3, 2003, the Office of the Solicitor General filed a Very Urgent Motion to
Remand the Cases to the Honorable Court of Appeals (with Prayer for Issuance of
Temporary Restraining Order and/or Writ of Preliminary Injunction). The OSG prayed to
remand the cases to CA pursuant to RA 9194. It also prayed for the issuance of TRO on 29
pending cases in the CA involving the same issue. On April 21, 2003, the CA issued TRO in the
said cases. Respondents, the concerned banks, and all persons acting in their behalf were directed
to give full force and effect to existing freeze orders until further orders from this Court.
Furthermore, on May 5, 2003, OSG informed the court that CA issued a resolution granting
extension of freeze order which is the subject of GR. No. 154694. Hence, the OSG prayed for the
dismissal of the said case and the remand of GR. Nos. G.R. Nos. 154522, 155554 and 155711 to
the CA.

The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CA over the
extension of freeze orders. As the law now stands, it is solely the CA which has the authority to
issue a freeze order as well as to extend its effectivity. It also has the exclusive jurisdiction to
extend existing freeze orders previously issued by the AMLC vis-à-vis accounts and deposits
related to money-laundering activities.

9
RET. LT. GEN. JACINTO C. LIGOT, ERLINDA Y. LIGOT, PAULO Y. LIGOT, RIZA
Y. LIGOT, and MIGUEL Y. LIGOT, v. REPUBLIC OF THE PHILIPPINES, represented
by the ANTI-MONEY LAUNDERING COUNCIL
G.R. No. 176944, March 6, 2013
BRION, J.

DOCTRINE: Based on Section 10 of R.A 9160, there are only two requisites for the issuance of
a freeze order: (1) the application ex parte by the AMLC and (2) the determination of probable
cause by the CA.

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FACTS: Republic of the Philippines, represented by the Anti-Money Laundering Council
(AMLC), filed an Urgent Ex-Parte Application for the issuance of a freeze order with the CA
against certain monetary instruments and properties of the Ret. Lt. Gen Ligot, pursuant to Anti-
Money Laundering Act of 2001based on the February 1, 2005 letter of the Office of the
Ombudsman for possible violation ofAnti-Graft and Corrupt Practices Act. AMLC issued
Resolution No. 52, Series of 2005, directing the AMLC Secretariat to file an application for a
freeze order against the properties of Lt. Gen. Ligot and the members of his family with the CA
and the appellate court granted the application ruling that probable cause existed that an unlawful
activity and/or money laundering offense had been committed by Lt. Gen. Ligot and his family,
and that the properties sought to be frozen are related to the unlawful activity or money
laundering offense. Ligots filed a motion to lift the extended freeze order, principally arguing
that it deprived them of their property without due process and it also punished them before their
guilt could be proven.

ISSUE: Whether the freeze order deprived them of their property and due process since it
was issued even before their guilt was proven.

RULING: NO.The legal basis for the issuance of a freeze order is Section 10 of RA No. 9160,
as amended by RA No. 9194, which states the Court of Appeals, upon application ex parte by the
AMLC and after determination that probable cause exists that any monetary instrument or
property is in any way related to an unlawful activity, may issue a freeze order which shall be
effective immediately. The freeze order shall be for a period of twenty (20) days unless extended
by the court.

As defined in the law, the probable cause required for the issuance of a freeze order refers
to such facts and circumstances which would lead a reasonably discreet, prudent or cautious man
to believe that an unlawful activity and/or a money laundering offense is about to be, is being or
has been committed and that the account or any monetary instrument or property subject thereof
sought to be frozen is in any way related to said unlawful activity and/or money laundering
offense.Since these assets are grossly disproportionate to Lt. Gen. Ligot’s income, as well as the
lack of any evidence that the Ligots have other sources of income, the CA properly found that
probable cause exists that these funds have been illegally acquired.

10
SUBIDO PAGENTE CERTEZA MENDOZA AND BINAY LAW OFFICES VS. THE
COURT OF APPEALS, ET AL.
G.R. No. 216914. December 6, 2016

FACTS: In 2015, a year before the 2016 presidential elections, reports abounded on the
supposed disproportionate wealth of then Vice President Jejomar Binay and the rest of his
family, some of whom were likewise elected public officers. The Office of the
Ombudsman and the Senate conducted investigations and inquiries thereon. From various news
reports announcing the inquiry into then Vice President Binay's bank accounts, including
accounts of members of his family, petitioner Subido Pagente Certeza Mendoza & Binay
Law Firm (SPCMB) was most concerned with the article published in the Manila Times on 25
February 2015 entitled "Inspect Binay Bank Accounts" stating that Anti-Money

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Laundering Council (AMLC) asked the Court of Appeals (CA) to allow the Council to peek into
the bank accounts of the law office linked to the Binay family, the Subido Pagente Certeza
Mendoza & Binay Law Firm, where the Vice President's daughter Abigail was a former partner.
The following day, 26 February 2015, SPCMB wrote public respondent, Presiding Justice of the
CA, Andres B. Reyes, Jr requesting for a copy of the ex-parte application for bank examination
filed by respondent AMLC and all other pleadings, motions, orders, resolutions, and processes
issued by the respondent court of appealsin relation thereto. In response, the Presiding
justice Reyes wrote SPCMB denying its request. By 8 March 2015, the Manila Times published
another article entitled, "CA orders probe of Binay 's assets" reporting that the appellate court
had issued a Resolution granting the ex-parte application of the AMLC to examine the bank
accounts of SPCMB. Forestalled in the CA thus alleging that it had no ordinary, plain, speedy,
and adequate remedy to protect its rights and interests in the purported ongoing unconstitutional
examination of its bank accounts by public respondent Anti-Money Laundering Council
(AMLC), SPCMB undertook direct resort to this Court via this petition for certiorari and
prohibition.

ISSUES:

1. Whether or not the ex-parte application and inquiry by the AMLC into certain bank deposits
and investments violate substantive and procedural due process. (NO)
2. Whether or not the ex-parte application and inquiry by the AMLC into certain bank deposits
and investments violate the constitutional right to privacy. (NO)
3. Whether or not the owner of the bank account is precluded from ascertaining from the CA,
postissuance of the bank inquiry order ex-parte, if his account is indeed the subject of an
examination. (NO)

RULING:
1. The right to due process has two aspects: (1) substantive which deals with the extrinsic and
intrinsic validity of the law; and (2) procedural which delves into the rules government must
follow before it deprives a person of its life, liberty or property.

Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into
certain bank deposits and investments does not violate substantive due process, there
being no physical seizure of property involved at that stage. It is the preliminary and actual
seizure of the bank deposits or investments in question which brings these within reach of the
judicial process, specifically a determination that the seizure violated due process. SPCMB's
constitutional right to procedural due process is likewise not violated by the ex-parte application
and inquiry by the AMLC into certain bank deposits and investments. AMLC does not possess
quasi-judicial powers and hence, it has no adjudicatory power. AMLC's investigation of money
laundering offenses and its determination of possible money laundering offenses,
specifically its inquiry into certain bank accounts allowed by court order, does not transform it
into an investigative body exercising quasi-judicial powers.

2. In the case of Rep. of the Phils. v. Hon. Judge Eugenio, Jr., et al. (Eugenio), the court laid
down the following principle:

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a. The Constitution did not allocate specific rights peculiar to bank deposits;
b. The general rule of absolute confidentiality is simply statutory, i.e. not specified in the
Constitution;
c. Exceptions to the general rule of absolute confidentiality have been carved out by
the
Legislature which legislation have been sustained, albeit subjected to heightened scrutiny by the
courts; and
d. One such legislated exception is Section 11 of the AMLA.
Taken into account Section 11 of the AMLA, the Court found nothing arbitrary in the allowance
and authorization to AMLC to undertake an inquiry into certain bank accounts or deposits.
Instead, the Court found that it provides safeguards before a bank inquiry order is issued,
ensuring adherence to the general state policy of preserving the absolutely confidential nature of
Philippine bank accounts:
e. The AMLC is required to establish probable cause as basis for its ex-parte application for
bank inquiry order;
f. The CA, independent of the AMLC's demonstration of probable cause, itself makes a finding
of probable cause that the deposits or investments are related to an unlawful activity under
Section 3(i) or a money laundering offense under Section 4 of the AMLA;
g. A bank inquiry court order ex-parte for related accounts is preceded by a bank inquiry court
order ex-parte for the principal account which court order ex-parte for related accounts
isseparately based on probable cause that such related account is materially linked to the
principal account inquired into; and
h. The authority to inquire into or examine the main or principal account and the related accounts
shall comply with the requirements of Article III, Sections 2 and 3 of the Constitution.
Bound by these requirements for issuance of a bank inquiry order under Section 11 of the
AMLA, the Court are hard pressed to declare that it violates SPCMB's right to privacy.

3. Nonetheless, although the bank inquiry order ex-parte passes constitutional muster, there is
nothing in Section 11 nor the implementing rules and regulations of the AMLA which prohibits
the owner of the bank account, as in this instance SPCMB, to ascertain from the CA,
post issuance of the bank inquiry order ex-parte, if his account is indeed the subject of an
examination. Considering the safeguards under Section 11 preceding the issuance of such an
order, the Court find that there is nothing therein which precludes the owner of the account from
challenging the basis for the issuance thereof.
Note, however, that the allowance to question the bank inquiry order herein is tied to the
appellate court's issuance of a freeze order on the principal accounts. The occasion for the
issuance of the freeze order upon the actual physical seizure of the investigated and inquired into
bank account, calls into motions the opportunity for the bank account owner to then question, not
just probable cause for the issuance of the freeze order under Section 10, but, to begin with, the
determination of probable cause for an ex-parte bank inquiry order into a purported related
account under Section 11. To emphasize, this allowance to the owner of the bank account to
question the bank inquiry order is granted only after issuance of the freeze order physically
seizing the subject bank account. It cannot be undertaken prior to the issuance of the freeze
order.

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All told, the Court affirms the constitutionality of Section 11 of the AMLA allowing the ex-parte
application by the AMLC for authority to inquire into, and examine, certain bank deposits and
investments.

The ex-parte inquiry shall be upon probable cause that the deposits or investments are related to
an unlawful activity as defined in Section 3(i) of the law or a money laundering offense under
Section 4 of the same law. To effect the limit on the ex-parte inquiry, the petition under oath for
authority to inquire, must, akin to the requirement of a petition for freeze order enumerated in
Title VIII of A.M. No. 05-11-,04-SC, contain the name and address of the respondent; the
grounds relied upon for the issuance of the order of inquiry; and the supporting evidence that the
subject bank deposit are in any way related to or involved in an unlawful activity.
If the CA finds no substantial merit in the petition, it shall dismiss the petition outright stating the
specific reasons for such denial. If found meritorious and there is a subsequent petition for freeze
order, the proceedings shall be governed by the existing Rules on Petitions for Freeze Order in
the CA. From the issuance of a freeze order, the party aggrieved by the ruling of the court may
appeal to the Supreme Court by petition for review on certiorari under Rule 45 of the Rules of
Court raising all pertinent questions of law and issues, including the propriety of the issuance of
a bank inquiry order. The appeal shall not stay the enforcement of the subject decision or final
order unless the Supreme Court directs otherwise.

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