Lasallian Commission on Bar Operations 2018
Justice Del Castillo Digests
Chel Sy
LCBO Chairperson
Nico Garcia
LCBO Vice Chair for
Steph Griar
LCBO Vice Chair for
Pat Costales
LCBO Executive Secretary
Ces Naga
LCBO Executive Treasurer
Tet Valeza
Academic Affairs
Tetel Guillermo
Negotiable Instruments Law
Subject Head
Janine Tutanes
Rod Zantua
Academic Affairs Deputy
Louise Dadivas
Corporation Law Subject
Thad Taliño
Mercantile Law Chairperson
Vin Delgado
Intellectual Property Law
Subject Head
Renzo Santos
Mercantile Law Deputy
Chesca Cabral
Transportation Law Subject
Keren Del Rosario
Insurance Subject Head
Jiro Dela Rosa
Banking Subject Head
Isa Hernandez
Special Commercial Laws
Subject Head
Mercantile Law
Justice Del Castillo Digests
G.R. No. 167567 | 22 September 2010
Completion and Delivery
DOCTRINE: When a check is delivered, the intent/purpose of the act of delivery determines whether the
same is given effect or given merely as a security. The first situation transfers ownership to the payee, while
the latter does not.
• Puzon was a dealer of San Miguel beer products, buying the same on credit.
• To ensure payment, and as a business practice, San Miguel required Puzon to issue postdated
checks equivalent to the value of the products purchased on credit.
• The checks are then returned after full payment of the value of the transaction.
• Following this arrangement, Puzon purchased products to which he issued two checks to cover
the transaction.
• A month later, Puzon visited San Miguel’s Sales Office to reconcile his account with the latter.
Puzon allegedly requested to see one of the checks. When he got hold of both checks (attached to
a bond paper), he immediately left the office, bringing the check with him.
• San Miguel then sent a demand letter asking for the checks back. After being ignored, San Miguel
filed a criminal complaint for theft against Puzon.
• DOJ dismissed the case on the ground that the non-payment of a debt cannot give rise to a criminal
case. It also established that the relationship between the two is one of creditor-debtor.
• CA found that the postdated checks issued were merely as a security of his purchases and not
intended to be encashed. It concluded that SMC did not acquire ownership of the checks.
• San Miguel then argued that the checks’ ownership were transferred to it because they were issued
in payment of the purchases and not merely for security.
ISSUE: Whether or not the delivery of the checks to SMC vested it ownership over the checks.
HELD: No, the delivery of the check did not make SMC the owner thereof. The check was not given as
payment, there being no intent to give effect to the instrument.
“Delivery” as a term used in Sec. 12 means that the party delivering did so for the purpose of
giving effect thereto. Otherwise, it cannot be said that there has been delivery of the negotiable
instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to
the instrument completely and irrevocably. The purpose of the delivery will determine if
ownership is transferred:
(1) If the purpose is the give effect to the instrument, title or ownership transfers upon
(2) If the intent to give effect is missing, ownership is retained by the person who delivered.
• The check was only meant to cover the transactions in the meantime, and Puzon was to pay for the
transaction by some other means other than the check.
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Justice Del Castillo Digests
G.R. No. 175350 | 13 June 2012
Liabilities of Acceptor
• Banks have the duty to scrutinize the checks deposited with it, for a determination of their
genuineness and regularity. The law holds banks to a high standard because banks hold themselves
out to the public as experts in the field.
• The nature of crossed checks should place a bank on notice that it should exercise more caution or
expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized
the holder to deposit the same in a different account
• Special Steel Products (SSP) sells steel products. International Copra Export Corp. (Interco) is it’s
regular customer. Jose Uy is Interco’s employee in charge of purchasing department, and son-inlaw of Interco’s majority stockholder.
• In 1991, SSP sold welding electrodes to Interco. Corresponding Sales Invoices were issued for the
• In payment for the welding electrodes, Interco issued 3 Equitable checks payable to the order of
SSP. Each check was crossed with the notation “account payee only.”
• The case records disclose that Uy presented each crossed check to Equitable, claiming that he had
good title over them. The records do not identify the signatory for the checks, nor explain how Uy
came into possession of the checks.
• Uy demanded the deposit of the checks to his personal accounts with Equitable, which was allowed
by Equitable on the assumption that Uy – as the son-in-law of the majority stockholder, was acting
pursuant to Interco’s orders. Equitable also relied on his status as a valued client.
• SSP then reminded Interco of the unpaid welding electrodes. Interco replied saying it already
issued 3 checks payable to SSP.
• After Interco found out about Uy’s scheme, it issued 3 more checks covering the payment but only
some of the interest amount, it not being the cause of the delay.
• SSP then filed a complaint for damages and writ of preliminary attachment against Uy and
Equitable alleging negligence on Equitable’s part when they ignored the restrictive nature of the
checks and the subsequent depositing of the amount in Uy’s account.
• Equitable moved to dismiss for lack of cause of action, maintaining that, since Equitable and SSP
did not enter into any contract, the former cannot be liable for actual damages. Equitable further
argued that it is not liable because it accepted the 3 crossed checks in good faith.
o Due to Uy’s close relations with the drawer of the checks, it had basis to assume that the
drawer authorized Uy to countermand the original order.
• The RTC ruled that the crossed checks belonged solely to the payee named therein, SSPI. Since SSPI
did not authorize anyone to receive payment in its behalf, Uy clearly had no title to the checks and
Equitable had no right to accept the said checks from Uy.
o Equitable was negligent in permitting Uy to deposit the checks in his account without
verifying Uy’s right to endorse the crossed checks.
o It reiterated that banks have the duty to scrutinize the checks deposited with it, for a
determination of their genuineness and regularity. The law holds banks to a high standard
because banks hold themselves out to the public as experts in the field.
ISSUE: Whether or not Equitable is grossly negligent when it allowed Uy’s demands in having the checks
deposited to his personal account?
Mercantile Law
Justice Del Castillo Digests
HELD: Yes, banks have the duty to scrutinize the checks deposited with it, for a determination of their
genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to
the public as experts in the field.
• The checks that Interco issued in favor of SSP were all crossed, made payable to SSP’s order, and
contained the notation “account payee only.” This creates a reasonable expectation that the payee
alone would receive the proceeds of the checks and that diversion of the checks would be averted.
This expectation arises from the accepted banking practice that crossed checks are intended for
deposit in the named payee’s account only and no other.
• At the very least, the nature of crossed checks should place a bank on notice that it should exercise
more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check
has authorized the holder to deposit the same in a different account.
• Since the banking business is impressed with public interest, the trust and confidence of the public
in it is of paramount importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it.”
G.R. No. 171406 | 4 April 2011
Characteristics/Nature of Insurance Contracts
DOCTRINE: The presentation in evidence of the marine insurance policy is not indispensable before the
insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its
subrogatory right.
• Shandong Weifang Soda Ash Plant shipped on board the vessel MV Jinlian I 60,000 plastic bags of
soda ash dense (each bag weighing 50 kg) from China to Manila.
• The shipment has an invoice value of US$456,000, and was insured by Malayan Insurance
Company under a marine policy.
• Upon arrival of the shipment at Manila, the stevedores of petitioner Asian Terminals unloaded the
shipment and brought them to an open storage area for temporary storage and safekeeping
pending clearance from the Bureau of Customs.
• Upon completion of clearance, around 2,702 bags were found to be in bad order condition.
• The stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for
transport and delivery to consignee.
• After unloading all the bags, a total of 2,881 bags were in bad condition due to spillage, caking, and
hardening of the contents
• Respondent, as insurer, paid the value of the lost/damaged cargoes to the consignee in the amount
of Php 643,600.25
• A complaint for damages was filed by respondent-insurer, as subrogee of the consignee against
the shipper Inchcape Shipping Services, cargo broker MEC Customs Broker, and petitioner
stevedoring company Asian Terminals, Inc.
ISSUE: Whether or not the non-presentation of the marine insurance policy is fatal in recovering the value
under the policy.
HELD: No, the non-presentation of the insurance contract or policy does not render such as fatal; the
subrogation receipt is sufficient to establish a relationship.
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Justice Del Castillo Digests
As ruled in the case of Delsan Transport Lines, Inc. v. Court of Appeals, we ruled that: the
presentation in evidence of the marine insurance policy is not indispensable in this case before the
insurer may recover from the common carrier the insured value of the lost cargo in the exercise of
its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the
relationship of herein private respondent as insurer and the assured shipper of the lost cargo, but
also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance claim.
G.R. No. 175666 | 29 July 2013
Rescission of Insurance Contracts
DOCTRINE: Section 48 of the Insurance Code gives an insurer is given two years from the effectivity of a
life insurance contract and while the insured is alive — to discover or prove that the policy is void ab initio
or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent
• Sotero took out a life insurance on her own life designating respondent Aban as the beneficiary for
the amount of Php 100,000.
• When the insurance policy was in force for more than 2 years and 7 months, Sotero died.
• Aban, the beneficiary, filed a claim for the insurance.
• Petitioner-Insurer denied the claim.
○ It was claimed that Sotero was not the one who took the insurance because he was illiterate
and sickly at the time of the supposed signing of the insurance contract.
• Insurer filed an action to rescind the insurance contract on the ground of fraud.
• Insurer presented their own insurance underwriter who claimed that it is not Sotero who signed
the insurance policy.
• RTC granted Aban’s motion to dismiss.
• CA affirmed the decision of the RTC.
ISSUE: Whether or not Insurance Contract should be rescinded
HELD: No, the insurance contract in this case cannot be rescinded because it is already bared by
prescription. Section 48 regulates both the actions of the insurers and prospective takers of life insurance.
Under the Insurance Code, the insurer is given 2 years from the effectivity of a life insurance contract and
while the insured is alive.
▪ This gives insurers enough time to inquire whether the policy was obtained by fraud, concealment,
or misrepresentation. On the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered — thus deterring them from venturing into such
nefarious enterprise. At the same time, legitimate policy holders are absolutely protected from
unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by
allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer
be set up after the two-year period expires as ordained under the law.
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Justice Del Castillo Digests
G.R. No. 195176 | 18 April 2016
Characteristics/Nature of Insurance Contracts
(1) The reinstatement of an insurance contract shall be reckoned from the date when the
same was approved by the insurer.
(2) A contract of insurance, being a contract of adhesion, should be resolved against the
insurer in case of obscurities/ambiguities in its language.
• Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life. Felipe did not
declare any illness or adverse medical condition. Insular Life thereafter issued him a policy with a
face value of Php 1 million. This took effect on June 22, 1997.
• Felipe’s policy lapsed due to nonpayment of the premium covering the period from June 22, 1999
to June 23, 2000.
• On Sept. 7, 1999, Felipe applied for the reinstatement of his policy and paid Php 25,020.00 as
premium. The new policy had identical information as to that of the original policy.
• Insular Life advised Felipe that his application for reinstatement may only be considered if he
agreed to certain conditions such as payment of additional premium and the cancellation of the
riders pertaining to premium waiver and accidental death benefits, wherein Felipe agreed to those
Insular Life issued an Endorsement, which reads:
○ This certifies that as agreed by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made on
the policy effective June 22, 1999.
• Felipe paid the annual premiums for the years 2000 to 2002.
• On Sept. 22, 2001, Felipe died.
• The respondents filed with Insular Life a claim for the benefits under the reinstated policy. But it
was denied by Insular, and it rescinded the policy because of concealment and misrepresentation
by Felipe.
• The respondents instituted an action for specific performance with damages.
• RTC: Ruled in favor of respondents. It stated that any ambiguity in an insurance contract must be
construed in favor of the insured and against the insurer. It also held that the reinstated insurance
policy had already become incontestable by the time of Felipe's death on Sept. 22, 2001 since more
than 2 years had already lapsed from the date of the policy's reinstatement on June 22, 1999.
• CA: Upheld the decision of the RTC
ISSUE: Whether or not the reinstated life insurance policy was already considered incontestable at the
time of Felipe’s death.
HELD: Yes. The insurance contract is considered to have been reinstated on June 22, 1999. The
reinstatement of an insurance contract should be reckoned from the date when the same was approved by
the insurer.
• The date of last reinstatement mentioned in Sec. 48 of the Insurance Code pertains to the date that
the insurer approved the application for reinstatement.
Mercantile Law
Justice Del Castillo Digests
Therefore, the insurance contract was deemed to be reinstated on June 22, 1999 and considered as
incontestable at the time of Felipe’s death on Sept. 22, 2001.
ISSUE: Whether or not insurance contracts are strictly construed against the insurer.
HELD: Yes, ambiguity should be taken against Insular Life – it being the insurer.
• In the Endorsement, there is an ambiguity in the phrase “effective June 22, 1999” where it is not
clear if it refers to the reinstatement of the policy or to the phrase “changes are made in the policy”.
Given the obscurity in the language, the construction favorable to the accused should be applied,
in line with the rule on the interpretation of insurance contracts which by nature are contracts of
• In light of the ambiguity in the insurance documents to this case, this Court adopts the
interpretation favorable to the insured in determining the date when the reinstatement was
G.R. No. 204736 | 28 November 2016
Rescission of Insurance Contracts
DOCTRINE: The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer.
• Manulife instituted a Complaint for Rescission of Insurance Contracts against Ybañez and the BPI
Family Savings Bank (BPI Family).
○ It was alleged that the Insurance Policies which Manulife issued in favor of Dr.
Gumersindo Ybañez (insured), were void due to concealment or misrepresentation of
material facts in the latter's applications for life insurance.
○ For this reason, Manulife accordingly denied Hermenegilda's death claims and refunded
the premiums that the insured paid on the subject insurance policies.
• In her Answer, Hermenegilda (beneficiary) countered that:
○ Manulife's own insurance agent, Monteclaros assured that there would be no problem
regarding the application for the insurance policy.
○ In fact, it was Monteclaros who filled up everything in the questionnaire, so that all that
the insured needed to do was signed and it's done.
○ It was also Monteclaros who herself checked in advance all the boxes that the insured was
required to answer.
○ Manulife accepted the insured's application, and now that a claim for the benefits is made,
Manulife now says that the insured misrepresented and concealed his past illnesses.
➢ In the form filled up by Dr. Lumapas, Manulife's company physician, the insured
checked the column which says ''yes" to the question: Have you seen a doctor, or had
treatment operation on hospital case during the last five years?
○ Hermenegilda asserts that Manulife ought to have noted the fact that the insured was at
that time already 65 years old, that he had a previous operation, and that his health was
"below average.
ISSUE: Whether or not there was concealment.
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Justice Del Castillo Digests
HELD: No. Manulife failed to prove concealment on the part of the insured. The RTC correctly held that
the medical records that might have established the insured’s purported misrepresentation/s or
concealment/s was inadmissible for being hearsay, given the fact that Manulife failed to present the
physician or any responsible official who could confirm or attest to the due execution and authenticity of
the alleged medical records. For failure of Manulife to prove intent to defraud on the part of the insured, it
cannot validly sue for rescission of insurance contracts.
G.R. No. 170125 | 9 March 2011
Common Carriers
DOCTRINE: Acquittal of a common carrier’s employee in a criminal case does not release the common
carrier from civil liability.
• The incident happened on the night of March 1995, when the taxicab boarding Ochoa was
traversing along EDSA flyover. The taxicab was supposed to take over a cargo truck but the space
was narrow so this caused the car to turn over to the left. The taxicab hit the railing throwing itself
off the flyover and fell on the middle surface of EDSA.
• Ochoa was declared dead on arrival from the accident.
• This caused his heirs to demand damages from G&S, but it was unheeded.
• Hence a complaint for damages was filed on the ground of breach of contract of common carriage.
It was alleged that a common carrier is under legal obligation to observe and exercise extraordinary
diligence in transporting is passengers to their destination safely and securely. Yet, G&S failed to
exercise that in this case.
• The defense of G&S from escaping liability is fortuitous event. Arguing that the proximate cause
of Ochoa’s death was the fault of another van that bumped the taxicab, causing it to fall off the flyover..
ISSUE: Whether or not acquittal of employee in a criminal case excuses the employer-common carrier from
being civilly liable
HELD: No, in a contract of carriage, it is presumed that the common carrier is at fault or is negligent when
a passenger dies or is injured.
▪ In fact, there is even no need for the court to make an express finding of fault or negligence on the
part of the common carrier. This statutory presumption may only be overcome by evidence that
the carrier exercised extraordinary diligence. Unfortunately, G&S miserably failed to overcome this
▪ Having established that, the civil liability of a common carrier is separate and distinct from the
criminal case. The liability of a common carrier arises from breach of contract of carriage and from
its negligence in selection and supervision of employees.
▪ Therefore, acquittal of the driver in a criminal case is not acquittal of the employer in a civil case
for damages.
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G.R. No. 201822 | 12 August 2015
Common Carriers
DOCTRINE: When there is claim for loss filed by the consignee or the insurer as subrogee, the arrastre
operator must establish that it observed the required diligence in handling the shipment.
• 10 container vans of soft wheat flour were insured against all risks by AHAC and consigned to
MSC Distributor.
• Shipment was discharged in good and complete order condition with arrastre operator, MPSI.
• After breaking the seals and examining the shipment for tax evaluation purposes by the Bureau of
Customs, MPSI issued gate passes to AD’s Customs Services (ACS) for turnover of 5 container
• When it was delivered to MSC, the latter discovered substantial shortages in the number of bags
of flour delivered. Hence, filing of formal claim for loss with MPSI.
• Upon receipt of MSC of the remaining 5 container vans, it once more discovered substantial
shortages. Hence, it filed another claim with MPSI.
• AHAC paid MSC the value of P257,083 of the 1,650 missing bags. It filed a complaint against MPSI.
• RTC dismissed AHAC’s complaint. It ruled that AHAC's evidence failed to clearly show that the
loss happened while the subject shipment was still under MPSI's responsibility.
• CA reversed the decision of the RTC and ruled 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 Arts. 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: Whether or not MPSI is liable for the loss of the bags of flour.
HELD: No, MPSI was able to prove delivery of shipment to MSC in good and complete condition.
• It presented 10 gate passes signed by ACS which serves as evidence of receipt of shipment in good
order and condition. The testimonies of MPSI’s employees who were directly involved in the
processing of the subject shipment established that such shipment to ACS was in good and
complete condition and with lock and seals intact.
• It is clear that ACS accepted the container vans on behalf of MSC without any qualification. Its
claim that stripping of container van is not allowed in pier area is a mere allegation without proof.
• There was no other competent evidence that the container vans were reopened or that their locks
and seals were broken for the second time, thus MPSI cannot be held liable for damages.
G.R. No. 203902 | 19 July 2017
Safety of Passengers
DOCTRINE: As a general rule, moral damages are not recoverable in an action for damages predicated on
breach of contract of carriage.
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Petitioners filed with RTC of Urdaneta, Pangasinan a complaint against Philippine Rabbit Bus due
to a collision with the latter’s bus driven by Saylan, and an Isuzu truck driven by Willy Urez,
registered to Rogelio Cuyton.
Petitioner Dionisio was one of the passengers of the bus. As a result of the collision, his right arm
was amputated.
Petitioner is claiming moral and actual damages for the loss of Dionisio’s right arm, arguing that it
caused physical suffering, mental anguish, besmirched reputation, social humiliation, and similar
injury to his person.
RTC ruled in favour of petitioners, stating that Saylan was negligent in driving the bus and that
Philippine Rabbit Bus failed to observe the diligence of a good father of the family in the selection
and supervision of its drivers. Hence, Saylan and Philippine Rabbit Bus are jointly and severally
CA affirmed the decision of the RTC but deleted the award of moral damages and ruled that
Philippine Rabbit Bus is solely liable.
ISSUE: Whether or not the award of moral damages and actual damages can be recovered.
HELD: No, petitioner cannot be rewarded moral damages because it failed to prove fraud and bad faith on
the part of Philippine Rabbit Bus. Neither can they claim actual damages because they failed to present
evidence based on loss or impairment of earning capacity.
• As to moral damages, they are not recoverable in an action for damages predicated on breach of
contract of carriage. The exceptions to that would be in cases of mishap which resulted to death of
passenger, or when the carrier is guilty of fraud or bad faith. This case however did not fall under
any of the exceptions since no proof was presented to that effect.
• As to actual damages, documentary evidence is necessary to substantiate the claim for damages
for loss of earning capacity. Exception to this rule is when the deceased was earning less than
minimum wage, either through self-employment or as daily worker. In this case, the petitioner
failed to present evidence to prove their claim.
G.R. No. 206468| 2 August 2017
Safety of Passengers
DOCTRINE: In an action for breach of contract of carriage, moral damages may be recovered only when
a) death of a passenger results; or b) the carrier was guilty of fraud and bad faith even if death does not
• Petitioners (mother and daughter) were passengers of the Amianan Bus Line bus driven by Quitan
and operated by Quiñones .
• On their way to their destination, the bus crashed into a truck parked at the shoulder of the road
which led to the injury of the petitioners.
• They claimed a breach of the contract of carriage, contending that the reckless and negligent
driving caused the collision. Consequently, they prayed for moral, exemplary and temperate
• Respondents countered by alleging that during the incident, Quitan was careful and prudent, and
the incident was due to the negligence of the truck driver who parked the truck at the roadside
right after the curve without installing any early warning device. Moreover, they also added that
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they exercised due diligence in the selection of their employees by making their drivers attend road
safety seminars.
To support her claim for moral damages, Petitioner Judith testified that she suffered sleepless
nights since she worried about the result and possible effect of her operation.
RTC ordered the respondents to pay petitioners moral and exemplary damages.
CA reversed the decision of the RTC and ruled that respondents did not dispute that they were
liable for breach of contract of carriage; in fact, they paid for the medical and hospital expenses of
petitioners. Nonetheless, the CA deleted the award of moral damages because petitioners failed to
prove that respondents acted fraudulently or in bad faith, as shown by the fact that respondents
paid petitioners' medical and hospitalization expenses. The CA held that, since no moral damages
was awarded, then there was no basis to grant exemplary damages.
ISSUE: Whether or not the petitioners are entitled to moral damages.
HELD: No, in an action for breach of contract, moral damages may be recovered only when a) death of a
passenger results; or b) the carrier was guilty of fraud and bad faith even if death does not result. In this
case, such circumstances were not present.
• Petitioners propounded on the negligence of respondents, but did not discuss or impute fraud or
bad faith, or such gross negligence which would amount to bad faith, against respondents.
• There being neither allegation nor proof that respondents acted in fraud or in bad faith in
performing their duties arising from their contract of carriage, they are then not liable for moral
G.R. No. 172822 | 18 December 2009
Bill of Lading
DOCTRINE: As a general rule, a consignee is not privy to the Bill of Lading unless any of the following
instances occur: a) There is an agency relationship between the shipper and the consignee b) When the
consignee demands the fulfillment of the stipulation of the bill drawn up in its favor c) Unequivocal
acceptance of the bill of lading delivered to the consignee with full knowledge of its contents
• Shin Yang is named the consignee of secondhand cars to be shipped in Manila through Hanjin
Busan’s Vessel. The goods then arrived in Manila.
• MOF Company, being Hanjin’s exclusive general agent in Manila, demanded from Shin Yang the
payment of ocean freight, documentation fee, and terminal handling charges.
• Shin Yang refused payment saying that it was not privy to the contract of afreightment. It argued
being merely a consolidator and not the ultimate consignee. Also forwarded by Shin Yang is that
the bill of lading named under it was prepared without its consent. If any, the freight charges are
born by the shipper and not the consignee.
• Hence a complaint for collection of sum of money.
• MeTC favored MOF.
• RTC affirmed.
• CA reversed and dismissed MOF’s case because no other evidence were presented but the Bill of
Lading. Only when the bill of lading is accepted can the contract between parties be perfected. In
this case, Shin Yang did not accept the Bill of Lading and disowned the shipment.
ISSUE: Whether or not a consignee who is not a signatory to the bill of lading is bound by the stipulations
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HELD: No, because MOF was unable to prove the instances where Shin Yang may be bound.
▪ Bill of lading is drawn up by the shipper/consignor and the carrier without intervention of
consignee. However, it does not necessarily mean that the consignee could not be bound thereof.
▪ In this case, Shin Yang denied in all its pleadings that it is the consignee of the goods and the
instances mentioned were not present. Therefore, the burden to prove that Shin Yang is bound by
the Bill of Lading is upon MOF. However, MOF failed to prove the same. Hence, Shin Yang could
not be ordered to pay the obligation of a consignee as required in the Bill.
G.R. No. 168757|09 January 2011
Corporate Juridical Personality
DOCTRINE: To determine whether a case involves an intra-corporate controversy, two elements must concur: (a)
the status or relationship of the parties, and (2) the nature of the question that is the subject of their controversy.
▪ Sangu Philippines, Inc. is engaged in the business of providing manpower for general services, like janitors,
janitresses and other maintenance personnel, to various clients. Renato Real was its manager.
▪ Real together with 29 others who were either janitors, janitresses, leadmen and maintenance men of Sangu,
filed for illegal dismissal against Sangu and Kiichi Abe, (Vice-President and General Manager)
▪ Real was removed from his position as Manager through a board resolution adopted by Sangu’s BOD. He
was not notified of such the Board Meeting. He just received a letter that he has been terminated from service
o Continuous absences at his post at Ogino Philippines, Inc. for several months which was
detrimental to the corporation’s operation;
o Loss of trust and confidence; and
o To cut down operational expenses to reduce further losses being experienced by respondent
▪ Sangu’s defense:
o Real committed gross acts of misconduct detrimental to the company;
o He is always absent himself from work without informing the corporation of his whereabouts and
that he would come to the office only to collect his salaries;
o While apparently drunk, he went to the premises of one of Sangu’s clients, Epson and engaged in
a heated argument with the employees therein; and
o Real also established a company engaged in the same business as Sangu and submitted proposals
for janitorial services to two of its clients.
▪ LA: There was illegal dismissal and it ordered Sangu to reinstate complainants to their former positions
without loss of seniority rights and other privileges and to pay their full backwages from the time of their
dismissal until actually reinstated
▪ NLRC: Real is a stockholder and a corporate officer. Hence, his action is an intra-corporate controversy over
which the LA has no jurisdiction.
ISSUE: Whether or not the Real’s complaint for illegal dismissal constitutes an intra-corporate controversy and thus,
beyond the jurisdiction of the Labor Arbiter?
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HELD: No, this is a clear case of termination of employment which is a labor controversy and not an intra-corporate
▪ Applying the Relationship Test: the number of corporate officers is thus limited by law (Corporation Code)
and by the corporation’s by-laws. In this case, there is no proof that Real’s appointment was made
pursuant to Sangu’s By-Laws. No copy of board resolution appointing him as Manager or any other
document showing that he was appointed to said position by action of the board was submitted by Sangu.
While Sangu repeatedly claim that Real was appointed as Manager pursuant to the corporations By-Laws,
there are inconsistencies in their allegations as to how petitioner was placed in said position, coupled by the
fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by
action or with approval of the board. It has been consistently held that [a]n office is created by the charter of
the corporation and the officer is elected (or appointed) by the directors or stockholders.
▪ Applying the Nature of Controversy Test: Real’s continuous absences in his post relates to his performance
as Manager. Second, Sangu’s loss of trust and confidence in Real stemmed from his alleged acts of
establishing a company engaged in the same line of business and submitting proposals to the latter’s clients
while he was still serving as its Manager. Third, when Real sought for reinstatement, he wanted to recover
his position as Manager, a position which declared to be not a corporate position. He is not trying to recover
a seat in the board of directors or to any appointive or elective corporate position which has been declared
vacant by the board.
G.R. No. 167751| 2 March 2011
Corporate Juridical Personality
DOCTRINE: Corporate officers cannot be held solidarily liable with the corporation except if such
officers acted in bad faith and gross negligence.
• Harpoon, a company engaged in ship building and ship repair, with Rosit as its President and
CEO, originally hired Francisco in 1992 as its Yard Supervisor tasked to oversee and supervise all
projects of the company.
• Francisco averred that he was unceremoniously dismissed by Rosit. He was informed that the
company could no longer afford his salary and that he would be paid his separation pay and
accrued commissions. A few days later, however, Francisco was barred from entering the company
• Harpoon explained that Rosit indeed talked to Francisco on June 15, 2001 not to dismiss him but
only to remind and warn him of his excessive absences and tardiness, as evinced by his Time Card
covering the period June 1-15, 2001.
• LA: Ruled that Francisco was validly dismissed for unjustified absences and tardiness.
• NLRC: Reversed such ruling stating that Francisco only incurred 3 absences which cannot be
considered as gross or habitual.
• CA: Affirmed the NLRC’s decision and further ruled that Rosit acted in bad faith and should be
held solidarily liable.
ISSUE: Whether or not Rosit, as President and CEO, should be held solidarily liable with Harpoon.
HELD: No, as ruled in MAM Realty Development Corporation v. NLRC, obligations incurred by corporate
officers, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they
represent. As such, they should not be generally held jointly and solidarily liable with the corporation.
▪ The Court, however, cited circumstances when solidary liabilities may be imposed, as exceptions
o When directors and trustees or, in appropriate cases, the officers of a corporation
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vote for or assent to [patently] unlawful acts of the corporation
act in bad faith or with gross negligence in directing the corporate affairs
are guilty of conflict of interest to the prejudice of the corporation, its stockholders
or members, and other persons.
o When the director or officer has consented to the issuance of watered stock or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto.
o When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation.
o When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.
The general rule is grounded on the theory that a corporation has a legal personality separate and
distinct from the persons comprising it. To warrant the piercing of the veil of corporate fiction, the
officers’ bad faith or wrongdoing must be established clearly and convincingly as bad faith is never
G.R. No. 170770|9 January 2013
Board of Directors/Intra-Corporate Disputes
(1) A corporation’s board of directors is not rendered functus officio by its dissolution. The
board of directors still has actual legal authority to direct the affairs of the corporation with
respect to the winding up and liquidation of corporate affairs.
(2) A cause of action involving an intra-corporate controversy remains and must be filed as
an intra-corporate dispute despite the subsequent dissolution of the corporation.
• Oct. 5, 2004: Vitaliano filed in his individual capacity and on behalf of FQB+7 a Complaint for
intra-corporate dispute, injunction, inspection of corporate books and records, and damages,
against Nathaniel D. Bocobo, Priscila D. Bocobo, and Antonio De Villa.
o Vitaliano discovered a General Information Sheet (GIS) of FQB+7 in the records. This GIS
was filed by the heirs of Francisco Q. Bocobo’s, Nathaniel (President) and Priscila
o GIS reported that FQB+7’s stockholders held their annual meeting on Sept. 3, 2002.
o There were substantive changes found in the GIS respecting the composition of directors
and subscribers of FQB+7 which prompted Vitaliano to write to the "real" Board of
Directors (the directors reflected in the Articles of Incorporation) represented by Fidel
Aguirre. The first GIS did not include Nathaniel and Priscilla.
o Vitaliano asked the "real" Board to rectify what he perceived as erroneous entries in the
GIS, and to allow him to inspect the corporate books and records. The "real" Board
allegedly ignored Vitaliano’s request.
o Antonio was appointed by Nathaniel as attorney-in-fact and sought to take over the
corporate farm in Quezon. But this was prevented by Fidel.
o Nathaniel’s, Priscila’s, and Antonio’s continuous representation of the corporation as a
usurpation of the management powers and prerogatives of the "real" Board of Directors is
the subject of the complaint.
ISSUE: Whether or not a corporation’s board is rendered functus officio after dissolution?
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HELD: No, a corporation’s board of directors is not rendered functus officio by its dissolution. Since Sec.
122 allows a corporation to continue its existence for a limited purpose, necessarily there must be a board
that will continue acting for and on behalf of the dissolved corporation for that purpose. The board of
directors still has actual legal authority to direct the affairs of the corporation with respect to the winding
up and liquidation of corporate affairs.
• Sec. 122 of the Corporation Code prohibits a dissolved corporation from continuing its business,
but allows it to continue with a limited personality in order to settle and close its affairs, including
its complete liquidation.
• In fact, Sec. 122 authorizes the dissolved corporation’s board of directors to conduct its liquidation
within 3 years from its dissolution. Jurisprudence has even recognized the board’s authority to act
as trustee for persons in interest beyond the said 3-year period.
ISSUE: Whether or not the RTC has jurisdiction over an intra-corporate dispute involving a dissolved
HELD: Yes, RTC has jurisdiction over intra-corporate disputes involving dissolved corporations. RA 8799
has conferred jurisdiction of intra-corporate disputes with the RTC.
▪ In Intra-corporate disputes, the case:
a. must arise out of intra-corporate or partnership relations; and
b. the nature of the question subject of the controversy must be such that it is intrinsically
connected with the regulation of the corporation or the enforcement of the parties’ rights
and obligations under the Corporation Code and the internal regulatory rules of the
▪ So long as these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as a
special commercial court, has jurisdiction over it.
▪ In this case, 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.
G.R. No. 195289 | 24 September 2014
Corporate Rehabilitation
DOCTRINE: Intervention is a prohibited pleading under the Rules of Procedure On Corporate
Rehabilitation. However, when a creditor’s standing or status would be somewhat downgraded, they
should be given the opportunity to be heard by way of comment or opposition to afford them due process.
• WGC filed a Petition for Rehabilitation with Prayer for Suspension of Payments, Actions and
Proceedings before the RTC
• WGC incurred loans amounting to Php 2.66 billion from RBC and other banks and entities such as
Trade and Investment Development Corporation of the Philippines (TIDCORP). RBC is both a
secured and unsecured creditor while TIDCORP is a secured creditor.
• RTC gave due course to the Petition for Rehabilitation and directed the receiver to evaluate the
rehabilitation plan submitted by WGC and thereafter submit his recommendations thereon. It
proposed a pari passu or equal sharing between the secured and unsecured creditors of the proceeds
from WGC’s cash flow made available for debt servicing.
• TIDCORP took exception to the proposed pari passu sharing:
o as a secured creditor, it should enjoy preference over unsecured creditors.
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WGC violated its Indemnity Agreement with TIDCORP which required that while the
agreement subsisted, WGC shall not incur new debts without TIDCORP’s approval by
obtaining additional loans without the knowledge and consent of the latter.
RBC filed an Opposition to TIDCORP’s Comment:
o Both secured and unsecured creditors stand on equal footing and that it is only when
rehabilitation is no longer feasible and liquidation is the remaining option that secured
creditors shall enjoy preference over unsecured creditors
RTC approved WGC’s rehabilitation plan
TIDCORP filed CA-G.R. SP No. 104141 (Petition for Review)
RBC filed an Urgent Motion for Intervention
o Intervention is a prohibited pleading under Rule 3, Section 1 par 2 (g) of the Rules of
Procedure On Corporate Rehabilitation
o RBC may not resort to intervention as a substitute for a lost appeal, occasioned by its failure
to file a Petition for Review within fifteen (15) days from notice of the trial court’s June 6,
2008 Order – which is the sanctioned procedure under Rule 8,Section 2 of the Rules of
Procedure on Corporate Rehabilitation
ISSUE: Whether or not RBS, as an unsecured creditor, may resort to intervene in corporate rehabilitation
HELD: No, intervention is not a proper remedy as it is not allowed under the Rules of Procedure on
Corporate Rehabilitation. However, the Court directed to allow RBC to file its comment and participate in
CA-G.R. SP No. 104141
• Rule 3, Section 5 of the Rules of Procedure on Corporate Rehabilitation: the review of any order or
decision of the rehabilitation court or on appeal therefrom shall be in accordance with the Rules of
Court, unless otherwise provided.
• There is no visible objection to RBC’s participation in CA-G.R. SP No. 104141 as it stands to be
injured or benefited by the outcome of TIDCORP’s Petition for Review. It should be noted that RBC
is both a secured and unsecured creditor of WGC.
• TIDCORP’s Petition for Review in CA-G.R. SP No. 104141 undoubtedly affects not merely the
rights of RBC but of all the other WGC creditors as well, as their standing or status as creditors
would be somewhat downgraded and the manner of recovery of their respective credits will be
altered if TIDCORP’s prayer is granted. Hence, if TIDCORP’s arguments are to be considered and
its remedies granted, the other creditors should be given the opportunity to be heard by way of
comment or opposition; they are entitled to due process.
• The nature of TIDCORP’s Petition in CA-G.R. SP No. 104141 is such that the other creditors like
RBC must be allowed to participate in the proceedings. They have an interest in the controversy
where a final decree would necessarily affect their rights.
• CA could have ordered RBC to file its comment in CA-G.R. SP No. 104141 and allowed to
participate therein. If TIDCORP must pursue its Petition for Review, then RBC should be allowed
to comment and participate in the proceedings.
G.R. No. 206649| 20 July 2016
Derivative Suits
DOCTRINE: The stockholder should have exerted all reasonable efforts to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to
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obtain the relief he desires with particularity in the complaint as one of the requirements of filing a
derivative suit.
• Kingsville Construction and Development Corporation (Kingsville) and Kings Properties
Corporation (KPC) entered into a project agreement with Fil-Estate Properties, Inc. (FEPI)
o FEPI agreed to finance and cause the development of several parcels of land owned by
Kingsville into Forest Hills Residential Estates and Golf and Country Club (first-class
residential area/golf-course/commercial center)
o FEPI was tasked to incorporate Forest Hills Golf and Country Club, Inc. (FHGCCI) with
an authorized stock of 3,600 shares and to perform the development and construction work
and other undertakings as full payment of its subscription to the authorized capital stock
of the club.
o The remaining shares of the should be retained by Kingsville in exchange for the parcels
of land used for the golf course development.
• FEPI assigned its rights and obligations over the project to Fil-Estate Golf Development, Inc.
• Madrid purchased two Class "A" shares at the secondary price of Php 380,000 each and applied for
a membership to the club for Php 25,000. Due to the delayed construction of the second 18-Hole
Golf Course, Madrid wrote two demand letters to the BOD of FHGCCI to initiate the appropriate
legal action against FEPI and FEGDI. BOD failed and/or refused to act on the demand letters.
• Madrid on behalf of FHGCCI, filed with the RTC a Complaint for Specific Performance with
Damages against FEPI and FEGDI (derivative suit)
• FEPI and FEGDI’s argument:
o no cause of action; FHGCCI failed to state the contractual and/or legal bases of their
alleged obligation;
o that no prior demand was made to them;
o action is not a proper derivative suit as FHGCCI failed to exhaust all remedies available
under the articles of incorporation and by-laws; and
o FHGCCI failed to implead its BOD as indispensable parties.
• RTC: dismissed the case for lack of jurisdiction
ISSUE: Whether or not RTC has jurisdiction over derivative suits and intra-corporate disputes?
HELD: Yes, RTC has jurisdiction over derivative suits under RA 8799. However, the RTC in this case is
not a Special Commercial Court.
• A derivative suit is a remedy designed by equity as a principal defense of the minority shareholders
against the abuses of the majority. Under the Corporation Code, the corporation's power to sue is
lodged with its board of directors or trustees. However, when its officials refuse to sue or are the
ones to be sued, or hold control of the corporation, an individual stockholder may be permitted to
institute a derivative suit to enforce a corporate cause of action on behalf of a corporation in order
to protect or vindicate its rights. In such actions, the corporation is the real party in interest, while
the stockholder suing on behalf of the corporation is only a nominal party. Hence, the derivative
suit for specific performance against FEPI and FEGDI falls under the jurisdiction of special
commercial courts.
• However, the fact that FHGCCI denominated the Complaint as a derivative suit for specific
performance is sufficient reason for the RTC to dismiss it for lack of jurisdiction, as the RTC where
the Complaint was raffled is not a special commercial court. Upon the enactment of RA No. 8799,
jurisdiction over intra-corporate disputes including derivatives suits is now vested in the RTCs
designated as special commercial courts by this Court pursuant to A.M. No. 00- 11-03-SC.
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If the RTC has no internal branch designated as a Special Commercial Court, the proper recourse
is to refer the case to the nearest RTC with a designated Special Commercial Court branch within
the judicial region. Upon referral, the RTC to which the case was referred to should re-docket the
case as a commercial case. And if the said RTC has only one branch designated as a Special
Commercial Court, it should assign the case to the sole special branch.
ISSUE: Whether or not the derivative suit is proper in this case?
HELD: No, the derivative suit is not proper for failure to exhaust all remedies available.
• It is apparent on the face of the Complaint that FHGCCI failed to comply with the requisites for a
valid derivative suit. For a derivative suit to prosper, it is required that:
o The minority stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the corporation and
all other stockholders similarly situated who may wish to join him in the suit
o The stockholder "should have exerted all reasonable efforts to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires [and that such fact is alleged] with
particularity in the complaint.
o The stockholder is also required "to allege, explicitly or otherwise, the fact that there were
no appraisal rights available for the acts complained of, as well as a categorical statement
that the suit is not a nuisance or a harassment suit."
• In this case, Madrid, as a shareholder of FHGCCI, failed to allege that he exerted all reasonable
efforts to exhaust all remedies available under the articles of incorporation, by-laws, or rules
governing the corporation; that no appraisal rights are available for the acts or acts complained of;
and that the suit is not a nuisance or a harassment suit.
G.R. No. 202639 | 9 November 2016
Board of Directors
DOCTRINE: The Board of Directors of a corporation is generally a policy making body, and it is of
common knowledge and practice that the board of directors is not directly engaged or charged with the
running of the recurring business affairs of the corporation.
▪ Federated LPG Dealers Association sought assistance from the PNP in the investigation and
prosecution of certain persons and establishments within Metro Manila reportedly committing acts
violative of BP 33, as amended by PD 1865, to wit:
o refilling of LPG without any written authorization from the companies which own the LPG
o underfilling of LPG products or possession of underfilled LPG cylinders for the purpose
of sale, distribution, transportation, exchange or barter; and
o refilling LPG cylinders without giving any receipt therefor.
▪ A test-buy operation was held and further investigations revealed that they were underfilled by
0.4 kg to 1.3 kg.
▪ Complaints-Affidavits against the officers of ACCS Ideal Gas Corporation, namely: Antonio G. Del
Rosario and, respondents Ma. Cristina L. Del Rosario, Celso E. Escobido II, and Shiela M. Escobido
were filed for illegal trading of petroleum products and for underfilling of LPG cylinders under
Section 2(a) and 2(c), respectively, of BP 33, as amended.
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THE DOJ approved the finding of probable cause against Antonio only for the charge of illegal
trading. It also ruled that the other respondents may not be prosecuted for the offense because the
law specifies the persons to be charged in case where violations of B.P. Blg. 33 are committed by a
corporation. The record fails to disclose who among the respondents were the president, officer
charged with the management of the business affairs of ACCS Ideal Gas, or the employee
responsible for the commission of the offense.
The CA affirmed this decision.
ISSUE: Whether or not respondents, as members of the BOD of ACCS, can be criminally prosecuted for
the violating provisions of B.P. Blg. 33?
HELD: No, a member of the Board of Directors of a corporation, cannot, by mere reason of such
membership, be held liable for the corporation’s probable violation of BP 33.
▪ Section 4(3) of BP 33, as amended provides that:
“When the offender is a corporation, partnership, or other juridical person, the president,
the general manager, managing partner, or such other officer charged with the
management of the business affairs thereof, or employee responsible for the violation shall
be criminally liable.”
• As ruled in the case of Ty v. NBI Supervising Agent De Jemil, a member of the Board of Directors of
a corporation, cannot, by mere reason of such membership, be held liable for the corporation’s
probable violation of BP 33. If one is not the President, General Manager or Managing Partner, it is
imperative that it first be shown that he/she falls under the catch-all "such other officer charged with
the management of the business affairs," before he/she can prosecuted. However, it must be stressed,
that the matter of being an officer charged with the management of the business affairs is a factual
issue which must be alleged and supported by evidence.
• Clearly, therefore, it is only Antonio who undisputedly was the General Manager - a position
among those expressly mentioned as criminally liable under Section 4(3) of BP 33, as amended can be prosecuted for ACCS' perceived violations of the said law.
G.R. No. 210032| 25 April 2017
Piercing the Veil of Corporate Fiction
DOCTRINE: Piercing the veil of corporate fiction is allowed where a corporation is a mere alter ego or a
conduit of a person, or another corporation.
• Illegal dismissal complaint filed by Edilberto Lequin (Lequin) et. al against Dutch Movers, Inc.
(DMI) and/or spouses Cesar Lee and Yolanda Lee, the alleged President/Owner, and Manager:
o DMI (domestic corporation): engaged in hauling liquefied petroleum gas, employed
Lequin as truck driver and the rest of complainants as helpers
o 12/28/2004: Cesar Lee informed them that DMI would cease its hauling operation for no
reason. They requested DMI to issue a formal notice regarding the matter but to no avail.
o DOLE NCR issued a certification (upon request by Lequin) that DMI did not file any notice
of business closure.
o Hence, complainants argued that they were illegally dismissed as their termination was
without cause and only on the pretext of closure.
• LA: dismissed the case for lack of cause of action.
• NLRC: reversed and set aside the LA Decision. There was an illegal dismissal. DMI is liable. (The
decision became final and executory)
• Lequin et. al filed a Motion for Writ of Execution but they discovered that DMI no longer operates.
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Sps. Lee, who owned, managed, and operated DMI, continued to work at Toyota Alabang
which they also own and operate.
The Articles of Incorporation of DMI ironically did not include Sps. Lee as its directors or
officers and those named directors and officers were persons unknown to them.
DMI did not file any notice of business closure, and the creation and operation of DMI was
attended with fraud making it convenient for Sps. Lee to evade their legal obligations.
Lequin et. al prayed that Sps. Lee and the officers named in DMI's AOI (Sps. Smith) be
impleaded and be held solidarity liable with DMI in paying the judgment awards.
ISSUE: Whether or not there was a legal basis to pierce the veil of corporate fiction of DMI and hold Sps.
Lee liable?
HELD: Yes, the veil of corporate fiction may be pierced attaching personal liability against responsible
person if the corporation's personality "is used to defeat public convenience, justify wrong, protect fraud
or defend crime, or is used as a device to defeat the labor laws. Piercing the veil of corporate fiction is
allowed where a corporation is a mere alter ego or a conduit of a person, or another corporation.
• In this case, the veil of corporate fiction must be pierced because the peculiarity of the situation
shows that Sps. Lee controlled DMI and they actively participated in its operation such that DMI
existed not as a separate entity but only as business conduit of Sps. Lee. They controlled DMI by
making it appear to have no mind of its own and used DMI as shield in evading legal liabilities,
including payment of the judgment awards in favor of Lequin et. al.
• The Court considered the ff. circumstances:
o Sps. Lee along with DMI collectively raised arguments on the illegal dismissal case against
o They were aware of and disclosed the circumstances surrounding Lequin’s employment,
and propounded arguments refuting that they were illegally dismissed.
o They revealed the annual compensation of Lequin et. al and their length of service
o They also set up the defense that Lequin et. al were merely project employees and were
not terminated but that DMI's contract with its client was discontinued resulting in the
absence of hauling projects.
o Sps. Smith’s services as lawyers had long been dispensed by the Sps. Lee and had no hand
whatsoever in the management of the company. After the incorporation they assigned and
transferred all their purported participation in the company to Sps. Lee who acted as
managers and are the real owners of the corporation.
G.R. No. 162336 | 1 February 2010
Restrictions on Bank Exposure to DOSRI
DOCTRINE: Violation of DOSRI law and Estafa under the RPC may be prosecuted simultaneously.
• The Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP), through its
officers, transmitted a letter to Jovencito Zuo, the Chief State Prosecutor of the Department of
Justice (DOJ). The said letter were accompanied with five affidavits which would allegedly serve
as basis for filing criminal charges for Estafa thru Falsification of Commercial Documents, in
relation to P.D. No. 1689, and for Violation of Sec. 83 of R.A. 337, as amended, against the petitioner
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The five affidavits, along with other documents stated that Sps. Enrico and Amalia Carlos
appeared to have an outstanding loan of Php 8 million with the Rural Bank of San Miguel
(RBSM), but had never applied nor received such loan; and that it was petitioner, who was
the president of RBSM, who had ordered, facilitated, and received the proceeds of the
loans; and that the said Php 8 million loan had never been authorized by the RBSM Board
of Directors and no report thereof had been submitted to the Department of Rural Banks,
Supervision and Examination Sector of the BSP.
The State Prosecutor acted on the letters as well the annexes that were transmitted by the BSP.
o The first information filed against petitioner was for the crime of Estafa through
falsification of commercial documents. It alleged that petitioner, in abuse of the confidence
reposed in him as president of RBSM, caused the falsification of a number of loan
documents, making it appear that one Enrico Carlos filled up the same, and thereby
succeeded in securing a loan and converting the loan proceeds for his personal gain and
o The second information filed against petitioner was for the violation of Sec. 83 of R.A. 337
as amended. The said provision refers to the prohibition against DOSRI loans. The
information alleged that, in his capacity as president of RBSM, petitioner indirectly secured
an Php 8 Million loan with RBSM, for his personal use and benefit, without the written
consent and approval of RBSM’s Board of Directors, without entering the said transaction
into the bank’s records, and without transmitting a copy of the transaction to the
supervising department of the BSP.
Upon the basis of the two informations, petitioner moved to quash them on two grounds, namely:
that the court had no jurisdiction over the offense charged, and that the facts charged do not
constitute an offense.
o (Related to Banking law): On to the second ground, petitioner contended that the
commission of Estafa under Art. 315 of the RPC is inherently incompatible with the
violation of DOSRI law under Sec. 83 of R.A. 337, as amended. Thus a person cannot be
charged for both offenses. Petitioner argues that a violation of DOSRI law requires the
offender to obtain a loan from his bank, without complying with the procedural,
reportorial, or ceiling requirements. On the other hand, Estafa requires the offender to
misappropriate or convert something that he holds in trust, or on commission, or for
administration, or under any obligation involving the duty to return the same.
ISSUE: Whether or not a loan transaction within the ambit of DOSRI law could be the subject of Estafa
under Art. 315 of the RPC?
HELD: Yes, the filing of a case for violation of the DOSRI law does not bar a subsequent case for Estafa
under the RPC.
▪ As to the Estafa: The bank money which came to the possession of petitioner was money held in
trust or administration by him for the bank, in his fiduciary capacity as the President of said bank.
It is not accurate to say that petitioner became the owner of the Php. 8 million because it was the
proceeds of a loan. That would have been correct if the bank knowingly extended the loan to
petitioner himself. But that is not the case here. According to the information for Estafa, the loan
was supposed to be for another person, a certain Enrico Carlos; petitioner, through falsification,
made it appear that said Enrico Carlos applied for the loan when in fact he (Enrico Carlos) did not.
Through such fraudulent device, petitioner obtained the loan proceeds and converted the same.
Under these circumstances, it cannot be said that petitioner became the legal owner of the Php 8
million. Thus, petitioner remained the bank’s fiduciary with respect to that money, which makes
it capable of misappropriation or conversion in his hands.
▪ As to the DOSRI violation: Petitioner is liable due to the reason that he indirectly borrowed the Php
8 Million from RBSM. (DOSRI law prohibits the direct and indirect borrowing of a bank’s DOSRI
without compliance with the requirements) Petitioner indirectly borrowed from RBSM in his
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capacity as its president, knowing fully well that the same has been done by him without the
written consent and approval of the majority of the board of directors, and which consent and
approval the said accused deliberately failed to obtain and enter the same in the records of RBSM
and transmit a copy thereof to BSP’s supervising and examining department, by using Enrico
Carlos’ name, the latter having no knowledge of the said loan, and once in possession of the said
Php 8 Million, petitioner converted the same to his own personal use and benefit.
G.R. No. 173259 | 25 July 2011
Diligence Required of Banks
DOCTRINE: As between the bank and its depositor, where the bank’s negligence is the proximate cause
of the loss and the depositor is guilty of contributory negligence, the greater proportion of the loss shall be
borne by the bank. (Banks are imbued with public interest. They must exercise a degree higher than bonus
▪ Respondent is a depositor of PNB where the former owned a savings/current account (combo
account) and a dollar savings account. The president, Felipe Cruz and the secretary-treasurer,
Angelita Cruz were the named signatories for the said accounts.
▪ While both the signatories were out of the country, applications for cashier’s check and manager’s
check bearing Felipe’s signature were presented and subsequently approved by PNB. The first
check was for Php 9,950,000.00, payable to a certain Gene B. Sangalang and the other check was for
Php 3,260,500.31 payable to one Paul Bautista. The amounts of the said checks were debited by
PNB against respondent’s combo account.
▪ Upon the return of the signatories, Angelita noticed the amounts deducted and stated that such
were fraudulently debited. Angelita then requested PNB to credit the amounts deducted but PNB
refused prompting Angelita to file a case for damages.
o PNB countered stating lack of cause of action. It alleged that it exercised due diligence in
handling the combo account of respondent. The applications for the manager’s and
cashier’s check have passed through the standard bank procedures and it was only after
finding no infirmity that these applications were given due course. In fact, it was
respondent’s accountant the confirmed the regularity of the transaction. The delay of the
respondent in picking up and going over the bank statements was the proximate cause of
its self-proclaimed injury. Had respondent been conscientious in this regard, the alleged
chicanery would have been detected early on and Caparas effectively prevented from
absconding with its millions. It prayed for the dismissal of the complaint.
ISSUE: Whether or not PNB shall suffer the loss?
HELD: Yes, banking institutions are required the utmost level of diligence as compared to the depositor.
As correctly found by the CA, PNB failed to make the proper verification because the applications for the managers
check do not bear the signature of the bank verifier.
▪ Gallego admitted that PNB’s employees received training on detecting forgeries from the NBI. However,
Emmanuel Guzman, then NBI senior document examiner, testified, as an expert witness, that the forged
signatures in the subject applications for managers check contained noticeable and significant differences
from the genuine signatures of FFCCI’s authorized signatories and that the forgeries should have been
detected or observed by a trained signature verifier of any bank.
Mercantile Law
Justice Del Castillo Digests
Given the foregoing, we find no reversible error in the findings of the CA that PNB was negligent in the
handling of FFCCI’s combo account, specifically, with respect to PNB’s failure to detect the forgeries in the
subject applications for managers check which could have prevented the loss.
As we have often ruled, the banking business is impressed with public trust. A higher degree of
diligence is imposed on banks relative to the handling of their affairs than that of an ordinary
business enterprise. Thus, the degree of responsibility, care and trustworthiness expected of their
officials and employees is far greater than those of ordinary officers and employees in other
G.R. No. 181126 | 15 June 2011
Financial Rehabilitation and Insolvency Act
DOCTRINE: Being placed under corporate rehabilitation and having a receiver appointed to carry out the
rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover
its unlawfully detained property.
▪ ASB commenced an action for unlawful detainer against Umale to recover previously leased
▪ Umale argues that the ASB is incapacitated to file the suit considering it had been placed under
receivership by the SEC and a rehabilitation receiver had been duly appointed. The rehabilitation
receiver has the power to take possession, control and custody of the debtor’s assets. Thus, the
receiver is the real party-in-interest.
▪ MTC: Dismissed the complaint of ASB.
▪ RTC: ruled that ASB retained all its corporate powers, including the power to sue, despite the
appointment of a rehabilitation receiver. Citing the Interim Rules, the it noted that the
rehabilitation receiver was not granted therein the power to file complaints on behalf of the
▪ CA: affirmed the decision of the RTC.
ISSUE: Whether or not a receiver has the exclusive right to sue in behalf of a corporation undergoing
HELD: No, being placed under corporate rehabilitation and having a receiver appointed to carry out the
rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover
its unlawfully detained property.
▪ A corporation is granted the power to sue in its own name unless specifically revoked by another
law. Corporate rehabilitation imposes several restrictions on the debtor corporation, most of which
concern the disposition or encumbrance of corporate assets. None, however, touch on its right to
sue for the recovery of assets and collection of receivables.
▪ The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering
business as a going concern, because the assets of a business are often more valuable when so
maintained than they would be when liquidated. This concept of preserving the corporations
business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or
debtor-in-place. This means that the debtor corporation, through its Board of Directors and
corporate officers, remains in control of its business and properties, subject only to the monitoring
of the appointed rehabilitating receiver.
Mercantile Law
Justice Del Castillo Digests
The receiver has to be notified of the developments of the case so that corporate assets would be
managed in accordance with the approved rehabilitation plan.
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