Mercantile LawMUST READ CASES (MERCANTILE LAW)

SPECIAL COMMERCIAL LAWSLetters of Credit

1. Reliance Commodities, Inc. Vs. Daewoo Industrial Co. Ltd., 228 SCRA 545 (1993)Where there was a meeting of the minds between the buyer and the seller regarding the sale of foundry pig iron to be paid for under a letter of credit, the failure of the buyer to open the letter of credit did not prevent the perfection of the contract and neither did such failure extinguish the contract. The opening of the letter of credit was not a condition precedent for the birth of obligation of the buyer to purchase the foundry pig iron from the seller. Where the buyer fails to open the letter of credit, as stipulated, the seller or exporter is entitled to claim damages for such breach. Damages for failure to open the letter of credit may include the loss of profit which the seller would have reasonably made had the transaction been carried out2. Rodzssen Supply Company, Inc. vs. Far East Bank and Trust Company, 357 SCRA 618 (2001)An issuing bank which paid the beneficiary of an expired letter of credit can recover payment from the applicant which obtained the goods from the beneficiary to prevent unjust enrichment.3. Transfield Philippines, Inc. vs. Luzon Hydro Corp. 443 SCRA 307 (2004)Where the applicant entered into a Turnkey contract whereby it undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station, the performance of which is secured by a standby letter of credit, the resort to arbitration by the applicant/ contractor to arbitration to determine if the latter is guilty of delay does not preclude the beneficiary to draw on the letter of credit upon its issuance of a certification of default because whether or not the issuance of certification of default amounted to fraud was not raised in the lower court and the parties did not stipulate that all dispute regarding delay should first be settled through arbitration before the beneficiary would be allowed to call upon the letter of credit. If the drawing upon the letter of credit was wrongful due to the non-existence of the fact of default, the right of the applicant to seek indemnification for damages it suffered would not normally be foreclosed pursuant to general principle of law.4. MWSS vs. Hon. Daway, 432 SCRA 559 (2004)The stay order issued by the rehabilitation court pursuant to the Interim Rules of Corporate Rehabilitation does not apply to the beneficiary of the letter of credit against the banks that issued it because the prohibition on the enforcement of claims against the debtor, guarantors or sureties of the debtors does not extend to the claims against the issuing bank in a letter of credit. Letters of credit are primary obligations and not accessory contracts and while they are security arrangements, they are not thereby converted into contracts of guaranty.5. Metrobank v. Ley Construction and Development Corporation, G.R. No. 185590, December 03, 2014The legal rights of the Bank and the correlative legal duty of LCDC have not been sufficiently established by the Bank in view of the failure of the Banks evidence to show the provisions and conditions that govern its legal relationship with LCDC, particularly the absence of the provisions and conditions supposedly printed at the back of the Application and Agreement for Commercial Letter of Credit. Even assuming arguendo that there was no impropriety in the negotiation of the Letter of Credit and the Banks cause of action was simply for the collection of what it paid under said Letter of Credit, the Bank did not discharge its burden to prove every element of its cause of action against LCDC.6. Bank of the Philippine Islands vs. De Reny Fabric Industries, Inc. 35 SCRA 253 (1970)A buyer who applied for a letter of credit to pay for imported dyestuffs must reimburse the issuing bank which paid the beneficiary, even if the shipment contained colored chalks. Banks are not required to investigate if the contract underlying the letter of credit has been fulfilled or not because in a transaction involving letter of credit, banks deal only with documents and not with goods. 7. Bank of America vs. Court of Appeals, 228 SCRA 357 (1993)When the notifying bank entered into a discounting arrangement with the beneficiary, it acts independently as a negotiating bank. As such, the negotiating bank has a right to recourse against the issuer bank and until reimbursement is obtained, the beneficiary, as the drawer of the draft, continues to assume a contingent liability thereon.8. LBP vs. Monets Export and Manufacturing Corp., 452 SCRA 173 (2005)The issuing bank is not liable for damages even if the shipment did not conform to the specifications of the applicant. Under the independence principle, the obligation of the issuing bank to pay the beneficiary arises once the latter is able to submit the stipulated documents under the letter of credit. Hence, the bank is not liable for damages even if the shipment did not conform to the specifications of the applicant. 9. Philippine National Bank vs. San Miguel Corporation, G.R. No. 186063, January 15, 2014. Where the trial court rendered a decision finding the buyer solely liable to pay the seller and omitted by inadvertence to insert in its decision the phrase without prejudice to the decision that will be made against the issuing bank, the bank can not evade responsibility based on this ground. The seller which is entitled to draw on the credit line of the buyer from a bank against the presentation of sales invoices and official receipts of the purchases and which obtained a court judgment solely against the buyer even though the suit is against the bank and the buyer may still enforce the liability of the same bank under a letter of credit issued to secure the credit line. The so-called "independence principle" in a letter of credit assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not.10. Transfield Philippines, Inc. vs. Luzon Hydro Corp. 443 SCRA 307 (2004)The fraud exception principle is an exception to the independence principle. The untruthfulness of a certificate accompanying a demand for payment under a standby letter of credit may qualify as fraud sufficient to support an injunction against payment. The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless: (a) there is a clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.11. Feati Bank & Trust Company vs. Court of Appeals, 196 SCRA 576 (1991)When the letter of credit required the submission of a certification that the applicant/buyer has approved the goods prior to shipment, the unjust refusal of the applicant/buyer to issue said certification is not sufficient to compel the bank to pay the beneficiary thereof. Under the doctrine of strict compliance, the documents tendered must strictly conform to the terms of the letter of credit, otherwise, the bank which accepts a faulty tender, acts on its own risks and may not be able to recover from the applicant/buyer.Trust Receipts Law 12. Metropolitan Bank & Trust Company vs. Tonda, 338 SCRA 254 (2000)Compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense; moreover, any compromise relating to the civil liability does not automatically extinguish the criminal liability of the accused. The mere failure of the entrustee to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not only to another, but more to the public interest.13. Lee vs. Court of Appeals, 375 SCRA 579 (2002)A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan; hence, the transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which securesan indebtedness.14. Colinares vs. Court of Appeals, 339 SCRA 609 (2000)The transaction is a simple loan when the goods subject of the agreement had been purchased and delivered to the supposed entrustee prior to the execution of the trust receipt agreement. The acquisition of ownership over the goods before the execution of the trust receipt agreement makes the contract a simple loan, regardless of the denomination of the contract.15. Consolidated Bank & Trust Corp. vs. Court of Appeals, 356 SCRA 671 (2001)Respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations.More importantly, at no time did title over the oil pass to petitioner bank, but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed; thus, the contract executed by the parties is a simple loan and not a trust receipt agreement.16. Prudential Bank vs. National Labor Relations Commission, 251 SCRA 412 (1995)The security interest of the entruster pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement, including among others, the laborers of the entrustee. The only exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good faith.17. Pilipinas Bank vs. Ong, 387 SCRA 37 (2002)Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt to the entruster or to return the goods, if they were not disposed of, shall constitute the crime of estafa. However, what is being punished by law is the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. No dishonesty nor abuse of confidence can be attributed to the entrustee if the latter failed to comply with its obligation upon maturity of the trust receipt due to serious liquidity problems and after it was placed under the control of the management committee created by SEC which took custody of the entrustees assets, including lumbers subject of the trust receipt. Clearly, it was the management committee which could settle the entrustees obligations. The mala prohibita nature of the offense notwithstanding, the entrustees intent to misuse or misappropriate the goods or their proceeds has not been established based on the circumstances.

Also, the Memorandum of Agreement between the parties did not only reschedule the entrustees debts, but more importantly, it provided principal conditions which are incompatible with the trust agreement. Hence, the MOA novated and effectively extinguished the entrustees obligation under the trust receipt agreement.

18. Anthony L. Ng vs. People of the Philippines, G.R. No. 173905, April 23, 2010 When the goods subject of the transaction, such as chemicals and metal plates, were not intended for sale or resale but for use in the fabrication of steel communication towers, the agreement cannot be considered a trust receipt transaction but a simple loan. P.D. No. 115 punishes the entrustee for his failure to deliver the price of the sale, or if the goods are not sold, to return them to the entruster, which, in the present case, is absent and could not have been complied with; therefore, the liability of the entrustee is only civil in nature.19. Land Bank of the Philippines vs. Perez, G.R. No. 166884, June 13, 2012Under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts. When both parties know that the entrustee could not have complied with the obligations under the trust receipt without his fault, as when the goods subject of the agreement were not intended for sale or resale, the transaction cannot be considered a trust receipt but a simple loan, where the liability is limited to the payment of the purchase price.20. Hur Tin Yang vs. People of the Philippines, G.R. No. 195117, August 14, 2013When both parties entered into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.21. Vintola vs. Insular Bank of Asia and America, 150 SCRA 140 (1987)A trust receipt transaction is a security agreement, pursuant to which the entruster acquires a security interest in the goods, which are released to the possession of the entrustee who binds himself to hold the goods in trust for the entruster and to sell or otherwise dispose of the goods or to return them in case of non-sale. The return of the goods to the entruster however, does not relieve the entrustee of the obligation to pay the loan because the entruster is not the factual owner of the goods and merely holds them as owner in the artificial concept for the purpose of giving stronger security for the loan.22. Rosario Textile Mills Corp. vs. Home Bankers Savings and Trust Company, 462 SCRA 88 (2005)Where the entrustee tendered the return of the articles to the entrustee because they did not meet its manufacturing requirements but the latter refused to accept and as a consequence, the entruster stored them in its warehouse which was, however, gutted by fire, the entrustees obligation was not extinguished despite the tender and its invocation of the principle of res perit domino. Under the Trust Receipts law, the loss of the goods under trust receipt regardless of the cause and the period or time it occurred, does not extinguish the civil obligation of the entrustee. A trust receipt has two features, the loan and security features. The loan is brought about by the fact that the entruster financed the importation or purchase of the goods under TR. Until and unless this loan is paid, the obligation to pay subsists. The principle of res perit domino will not apply if under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner that it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof.23. Ong vs. Court of Appeals, 401 SCRA 649 (2003)Recognizing the impossibility of imposing the penalty of imprisonment on a corporation, it was provided that if the entrustee is a corporation, the penalty shall be imposed upon the directors, officers, employees or other officials or persons responsible for the offense. However, the person signing the trust receipt for the corporation is not solidarily liable with the entrustee-corporation for the civil liability arising from the criminal offense unless he personally bound himself under a separate contract of surety or guaranty. 24. Alfredo Ching vs. Secretary of Justice, 481 SCRA 609 (2006)The fact that the officer who signed the trust receipt on behalf of the entrustee-corporation signed in his official capacity without receiving the goods as he had never taken possession of such nor committing dishonesty and abuse of confidence in transacting with the entrustor, is immaterial. The law specifically makes the director, officer, employee or any person responsible criminally liable precisely for the reason that a corporation, being a juridical entity, cannot be the subject of the penalty of imprisonment.25. South City Homes, Inc. vs. BA Finance Corporation, 371 SCRA 603 (2001)When the entrustee defaults on his obligation, the entruster has the discretion to avail of remedies which it deems best to protect its right. The law uses the word may in granting to the entruster the right to cancel the trust and take possession of the goods; hence, the option is given to the entruster.26. Sarmiento vs. Court of Appeals, 394 SCRA 315 (2002)A civil case filed by the entruster against the entrustees based on the failure of the latter to comply with their obligation under the Trust Receipt agreement is proper because this breach of obligation is separate and distinct from any criminal liability for misuse and/or misappropriation of goods or proceeds realized from the sale of goods released under the trust receipts. Being based on an obligation ex contractu and not ex delicto, the civil action may proceed independently of the criminal proceedings instituted against the entrustees regardless of the result of the latter.27. Landl & Company vs. Metropolitan Bank, 435 SCRA 639 (2004)As provided under Section 7, P.D. No. 115, in the event of default of the entrustee, the entruster may cancel the trust and take possession of the goods subject of the trust or of the proceeds realized therefrom at any time; the entruster may, not less than five days after serving or sending of notice of intention to sell, proceed with the sale of the goods at public or private sale where the entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. This is by reason of the fact that the initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the entrustees loan obligation.Banking Laws28. Teodoro Baas vs. Asia Pacific Finance Corporation, G.R. No. 128703, October 18, 2000Transactions involving purchase of receivables at a discount, well within the purview of investing, reinvesting or trading in securities, which as investment company is authorized to perform, does not constitute a violation of the General Banking Act. In this case, the funds supposedly lent have not been shown to have been obtained from the public by way of deposits, hence, it cannot be said that the investment company was engaged in banking.29. PNB v. Sps. Tajonera, G.R. No. 195889, 24 September 2014Being a banking institution, PNB owes it to the respondents to observe the high standards of integrity and performance in all its transactions because its business is imbued with public interest. The high standards are also necessary to ensure public confidence in the banking system, for, according toPhilippine National Bank v. Pike, "[t]he stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks." Thus, PNB was duty bound to comply with the terms and stipulations under its credit agreements with the respondents, specifically the release of the amount of the additional loan in its entirety, lest it erodes public confidence.Yet, PNB failed in this regard.30. Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No. 138569, September 11, 2003Banks must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers should know that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. By the teller giving the passbook to the wrong person, thereby facilitating unauthorized withdrawals by that person, and for failing to return the passbook to the authorized representative of the depositor, the Bank presumptively failed to observe such high degree of diligence in safeguarding the passbook and in insuring its return to the party authorized to receive the same. However, the Banks liability is mitigated by the depositors contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.31. Citibank, N.A. vs. Spouses Luis & Carmelita Cabamongan, G.R. No. 146918, May 2, 2006Allowing the pretermination of the account despite noticing discrepancies in the signature and photograph of the person claiming to be the depositor, accompanied by the failure to surrender the original certificate of time deposit, amounted to negligence on the part of the bank. A bank that fails to exercise the degree of diligence required of it becomes liable for damages.32. Comsavings Bank vs. Spouses Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013A banking institution serving as an originating bank for the Unified Home Lending Program (UHLP) of the Government owes a duty to observe the highest degree of diligence and a high standard of integrity and performance in all its transactions with its clients because its business is imbued with public interest.33. Land Bank of the Philippines vs. Emmanuel Oate, G.R. No. 192371, January 15, 2014As a business affected with public interest and by reason of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. A bank that mismanages the trust accounts of its client cannot benefit from the inaccuracies of the reports resulting therefrom; it cannot impute the consequence of its negligence to the client which resulted to miscrediting of funds.34. Ileana Macalinao vs. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009When the stipulation on the interest rate is void, it is as if there was no express contract thereon; hence, courts may reduce the interest rate as reason and equity demand, which would depend on the circumstances of each case. In the present case, the fact that petitioner made partial payments makes the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, iniquitous and unconscionable.35. Heirs of Estelita Burgos-Lipat namely: Alan B. Lipat and Alfredo B. Lipat, Jr. vs. Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et. al., G.R. No. 185644, March 2, 2010Section 78 of the General Banking Act requires payment of the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage contract, which shall be applied for the one-year period reckoned from the date of registration of the certificate of sale. Nonetheless, when the period to exercise the right of redemption was effectively extended beyond one year, it is only fair and just to require the payment of 12% interest per annum beyond the one-year period up to the date of consignment of the redemption price with the RTC.36. Advocates for Truth in Lending vs. BSP, G.R. No. 192986, January 15, 2013The CB Circular No. 905 merely suspended the effectivity of the Usury Law, thereby allowing the parties to freely stipulate on the rate of interest. Nonetheless, the lifting of the ceilings for interest rates does not authorize stipulations charging excessive, unconscionable, and iniquitous interest.37. Jose C. Go vs. BSP, G.R. No. 178429, October 23, 2009The law on DOSRI transactions imposes three restrictions: a) the approval requirement, which refers to the written approval of the majority of the banks board of directors, excluding the director concerned; b) the reportorial requirement, which mandates that the approval should be entered upon the records of the corporation, and a copy of the entry be transmitted to the appropriate supervising department; and c) the ceiling requirement, which limits the amount of credit accommodations to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the bank. Failure to observe the three requirements constitutes commission of three separate and different offenses.38. Hilario P. Soriano vs. People of the Philippines, et. al., G.R. No. 162336, February 1, 2010The rule on DOSRI transactions covers loans by a bank director or officer which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. The bank officers act of indirectly securing a fraudulent loan application by using the name of an unsuspecting person and without prior compliance with the requirements of the law would make the officer liable not only for violation of the law on DOSRI transactions but also for estafa through falsification of commercial documentsThe New Central Bank Act (R.A. No. 7653) 39. Ana Maria Koruga vs. Teodoro Arcenas, Jr., G.R. No. 168332/ G.R. No. 169053, June 19, 2009The Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to immediately take charge of its assets and liabilities. When the complaint filed by a stockholder of the bank pertains to the alleged unsafe and unsound banking practices, the authority to determine the existence of such is with the Monetary Board.40. BSP Monetary Board vs. Hon. Antonio-Valenzuela, G.R. No. 184778, October 2, 2009The actions of the Monetary Board under Sec. 29 and 30 of RA 7653, which pertain to the power to appoint a conservator or a receiver for a bank, 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. Hence, the issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the powers of the Monetary Board.41. Central Bank of the Philippines vs. Court of Appeals, G.R. No. 88353, May 8, 1992The following requisites must be present before the order of conservatorship may be set aside by a court: 1) The appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of the bank in the proper court; 2) Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders of the order placing the bank under conservatorship; and 3) There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith.42. Philippine International Bank vs. Court of Appeals, G.R. No. 115849, January 24, 1996The authority of the conservator under the Central Bank Law is limited to acts of administration; the conservator merely takes the place of the banks board of directors and as such, the former cannot perform acts the latter cannot do. Hence, the conservator cannot revoke a contract of sale of a property acquired by the bank entered into by a bank officer even though the price agreed upon is no longer reflective of the fair market value of the property by reason of its appreciation of value over time.

43. Rural Bank of San Miguel vs. Monetary Board, G.R. No. 150886, February 16, 2007Under R.A. No. 265, an examination is required to be made before the Monetary Board could issue a closure order; however, under R.A. No. 7653, prior notice and hearing are no longer required and a report made by the head of the supervising and examining department suffices for a bank to be closed and placed under receivership. The purpose of the law is to make the closure of the bank summary and expeditious for the protection of the public interest44. Abacus Real Estate Development Center, Inc. vs. Manila Banking Corp., G.R. No. 162270, April 06, 2005When a bank is placed under receivership, the appointed receiver is tasked to take charge of the banks assets and properties and the scope of the receivers power is limited to acts of administration. The receivers act of approving the exclusive option to purchase granted by the banks president is beyond the authority of the former and as such, it cannot be considered a valid approval.45. Alfeo D. Vivas, vs. Monetary Board and PDIC, G.R. No. 191424, August 7, 2013The Monetary Board may forbid a bank from doing business and place it under receivership without prior notice and hearing it the MB finds that a bank: (a) is unable to pay its liabilities as they become due in the ordinary course of business; (b) has insufficient realizable assets to meet liabilities; (c) cannot continue in business without involving probable losses to its depositors and creditors; and (d) has willfully violated a cease and desist order of the Monetary Board for acts or transactions which are considered unsafe and unsound banking practices and other acts or transactions constituting fraud or dissipation of the assets of the institution.46. ]Jerry Ong vs. Court of Appeals, G.R. No. 112830, February 1, 1996The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board. Hence, all claims against the insolvent bank should be filed in the liquidation proceeding and it is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court.47. Domingo Manalo vs. Court of Appeals, G.R. No. 141297, October 8, 2001The rule that all claims against a bank must be filed in the liquidation proceedings does not apply to actions filed by the bank itself for the preservation of its assets and protection of its property, such as a petition for the issuance of a Writ of Possession instituted by the bank itself. Moreover, a bank ordered closed by the Monetary Board retains its personality which can sue and be sued through its liquidator.48. Leticia G. Miranda vs. Philippine Deposit Insurance Corporation, G.R. No. 169334, September 8, 2006As a rule, bank deposits are not preferred credits. However, when the deposits covered by a cashiers check were purchased from a bank at the time when it was already insolvent, the purchase is entitled to preference in the assets of the bank upon its liquidation by reason of the fraud in the transaction.49. Oate vs. Abrogar, G.R. No. 107303, February 23, 1995In a case where the money paid by an insurance company for treasury bills was deposited in a bank account, the examination of the said bank account is prohibited under R.A. No. 1405 by reason of the fact that the subject matter of the action filed by the insurance company against the seller of the treasury bills is the failure to deliver the treasury bills, not the money deposited.50. Intengan vs. Court of Appeals, G.R. No. 128996, February 15, 2002When the account subject of the complaint is in the foreign currency, such complaint filed for violation of R.A. No. 1405 did not toll the running of the prescriptive period to file the appropriate complaint for violation of R.A. No. 6426. The Law on Secrecy of Bank Deposits (R.A. No. 1405) covers deposits under the Philippine Currency; a separate and distinct law governs deposits under the foreign currency (R.A. No. 6426).51. Ejercito vs. Sandiganbayan, G.R. Nos. 157294-95, November 30, 2006The deposits covered by the law on secrecy of bank deposits should not be limited to those creating a creditor-debtor relationship; the law must be broad enough to include deposits of whatever nature which banks may use for authorized loans to third persons. R.A. No. 1405 extends to funds invested such as those placed in a trust account which the bank may use for loans and similar transactions.52. Mellon Bank, N.A. vs. Magsino, G.R. No. 71479, October 18, 1990One of the exceptions under R.A. No. 1405 is when a court order is issued for the disclosure of bank deposits in a case where the money deposited is the subject matter of litigation. When the subject matter is the money the bank transmitted by mistake, an inquiry to the whereabouts of the amount extends to whatever concealed by being held or recorded in the name of the persons other than the one responsible for the illegal acquisition.53. Marquez vs. Desierto, G.R. No. 135882, June 27, 2001In a case for violation of the Anti-Graft and Corrupt Practices Act, the Ombudsman can only examine bank accounts upon compliance with the following requisites: there is a pending case before a court of competent jurisdiction; the account must be clearly identified, and the inspection must be limited to the subject matter of the pending case; the bank personnel and the account holder must be informed of the examination; and such examination must be limited to the account identified in the pending case. If there is no pending case yet but only an investigation by the Ombudsman, any order for the examination of the bank account is premature.54. PCIB vs. Court of Appeals, G.R. No. 84526, January 28, 1991) The law on secrecy of bank deposits cannot be used to preclude the bank deposits from being garnished for the satisfaction of a judgment. There is no violation of R.A. No. 1405 because the disclosure is purely incidental to the execution process and it was not the intention of the legislature to place bank deposits beyond the reach of the judgment creditor.55. Salvacion vs. Central Bank of the Philippines, G.R. No. 94723, August 21, 1997) A foreign transient who raped a minor, escaped and was made liable for damages to the victim cannot invoke the exemption from court process of foreign currency deposits under R.A. No. 6426. The garnishment of his foreign currency deposit should be allowed by reason of equity and to prevent injustice; moreover, the purpose of the law is to encourage foreign currency deposits and not to benefit a wrongdoer.56. Republic of the Philippines vs. Glasgow Credit and Collection Services, Inc., G.R. No. 170281, January 18, 2008Since the account of Glasgow in CSBI was (1) covered by several suspicious transaction reports and (2) placed under the control of the trial court upon the issuance of the writ of preliminary injunction, the conditions provided in Section 12(a) of RA 9160, as amended, were satisfied. A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture proceeding. A finding of guilt for an unlawful activity is not an essential element of civil forfeiture.57. Republic of the Philippines vs. Cabrini Green & Ross, Inc., G.R. No. 154522, May 5, 2006The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the Court of Appeals over the extension of freeze orders. 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--vis accounts and deposits related to money-laundering activities58. Ret. Lt. Gen. Jacinto Ligot, et. al. vs. Republic of the Philippines, G.R. No. 176944, March 6, 2013The primary objective of a freeze order is to temporarily preserve monetary instruments or property that are in any way related to an unlawful activity or money laundering, by preventing the owner from utilizing them during the duration of the freeze order. The effectivity of the freeze order was limited to a period not exceeding six months, which may be extended by the CA should it become completely necessary. Nonetheless, when the Republic has not offered any explanation why it took six years before a civil forfeiture case was filed in court, it can only be concluded that the continued extension of the freeze order beyond the six-month period violated the partys right to due process.Negotiable Instruments Law

59. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust Company, G.R. No. 97753, August 10, 1992When the documents provide that the amounts deposited shall be repayable to the depositor, such instrument is negotiable because it is payable to the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him, but the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.60. Traders Royal Bank vs. Court of Appeals, Filriters Guaranty Assurance Corporation and Central Bank of the Philippines, G.R. No. 93397, March 3, 1997The language of negotiability which characterizes a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. The freedom of negotiability is the touchstone relating to the protection of holders in due course and is the foundation for the protection which the law thrown around a holder in due course. This freedom in negotiability is totally absent in a certificate of indebtedness which merely acknowledges to pay a sum of money to a specified persons or entity. Since a certificate of indebtedness which is not payable to order or bearer but is payable to a specific person is not negotiable, the assignee takes it subject to the defect in the title of the assignor. Thus, when the person who signed the deed of assignment was not authorized by the board of directors, the assignor had no title to convey to the assignee.61. Hongkong & Shanghai Banking Corporation v. CIR, G.R. Nos. 166018 & 167728, 04 June 2014The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.62. Philippine National Bank vs. Erlando T. Rodriguez and Norma Rodriguez, G.R. No. 170325, September 26, 2008Under the fictitious payee rule, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument if the payee is not the intended recipient of the proceeds of the check. There is, however, a commercial bad faith exception to this rule which provides that a showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense.63. People Of The Philippines Vs. Gilbert Reyes Wagas. G.R. No. 157943, September 4, 2013Under the Negotiable Instruments Law, a check made payable to cash is payable to the bearer and could be negotiated by mere delivery without the need of an indorsement. However, the drawer of the post-dated check cannot be liable for estafa to the person who did not acquire the instrument directly from drawer but through negotiation of another by mere delivery. This is because the drawer did not use the check to defraud the holder/private complainant. 64. Prudential Bank v. Commissioner of Internal Revenue (CIR) G.R. No. 180390, July 27, 2011 A certificate of deposit is defined as a written acknowledgement by a bank of the receipt of a sum of money on deposit which the bank promise to pay to the depositor or the order of the depositor or to some other person or his order whereby the relation of debtor and creditor between the bank and the depositor is created. A document to be considered a certificate of deposit need not be in a specific form. Thus, a passbook of an interest-earning deposit account issued by a bank is a certificate of deposit drawing interest because it is considered a written acknowledgment by a bank that it has accepted a deposit of a sum of money from a depositor. Thus, it is subject to documentary stamp tax.65. Ting Ting Pua vs. Spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, G.R. No. 198660, October 23, 2013The 17 original checks, completed and delivered to petitioner, are sufficient by themselves to prove the existence of the loan obligation of the respondents to petitioner. Sec. 16 of the NIL provides that when an instrument is no longer in the possession of the person who signed it and it is complete in its terms "a valid and intentional delivery by him is presumed until the contrary is proved.66. Patrimonio v. Gutierrez, G.R. No. 187769, 04 June 2014While under the law, the one in possession had aprima facieauthorityto complete the check, suchprima facieauthority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is completed. In other words, only the authority to complete the check is presumed. Further, the law used the term "prima facie"to underscore the fact that the authority which the law accords to a holder is a presumptionjuris tantum only; hence, subject to contrary proof. Thus, evidence that there was no authority or that the authority granted has been exceeded may be presented by the maker in order to avoid liability under the instrument.

In the present case, no evidence is on record that the one to whom the check was delivered ever secured prior approval from the petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved the filling up of the blank checks.67. San Miguel Corporation vs. Puzon, Jr. G.R. No. 167567, 22 September 2010 If the post-dated check was given to the payee in payment of an obligation, the purpose of giving effect to the instrument is evident, thus title or ownership the check was transferred to the payee. However, if the PDC was not given as payment, then there was no intent to give effect to the instrument and ownership was not transferred. The evidence proves that the check was accepted, not as payment, but in accordance with the policy of the payee to cover the transaction (purchase of beer products) and in the meantime the drawer was to pay for the transaction by some other means other than the check. This being so, title to the check did not transfer to the payee; it remained with the drawer. The second element of the felony of theft was therefore not established. Hence, there is no probable cause for theft.68. Equitable Banking Corporation vs Special Steel Products, June 13, 2012 The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard. It should have verified if the payee authorized the holder to present the same in its behalf or indorsed it to him. The banks reliance on the holders assurance that he had good title to the three checks constitutes gross negligence even though the holder was related to the majority stockholder of the payee. While the check was not delivered to the payee, the suit may still prosper because the payee did not assert a right based on the undelivered check but on quasi-delict.69. Westmont Bank (formerly Associated Banking Corp.) vs. Eugene Ong, G.R. No. 132560, January 30, 2002As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful and when the money had been collected on the check, the proceeds are held for the rightful owners who may recover them. The payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not.70. Ramon K. Ilusorio vs. Hon. Court of Appeals, G.R. No. 139130, November 27, 2002It is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies as the petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account.71. Philippine National Bank vs. FF Cruz and Company, G.R. No. 173259, July 25, 2011 As between a bank and its depositor, where the banks 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. The bank was negligent because it did not properly verify the genuineness of the signatures in the applications for managers checks while the depositor was negligent because it clothed its accountant/bookkeeper with apparent authority to transact business with the Bank and it did not examine its monthly statement of account and report the discrepancy to the Bank. The court allocated the damages between the bank and the depositor on a 60-40 ratio.72. Philippine Commercial International Bank vs. Balmaceda,G.R. No. 158143, September 21, 2011 While its manager forged the signature of the authorized signatories of clients in the application for managers checks and forged the signatures of the payees thereof, the drawee bank also failed to exercise the highest degree of diligence required of banks in the case at bar. It allowed its manager to encash the Managers checks that were plainly crossed checks.A crossed check is one where two parallel lines are drawn across its face or across its corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payees account.73. Town Saving and Loan Bank, Inc. vs. Court of Appeals, 223 SCRA 459, 1993When a married couple signed a promissory note in favor of a bank to enable the sister of the husband to obtain a loan, they are considered as accommodation parties who are liable for the payment of said loan.74. Gonzales vs Phillippine Commercial and International Bank, GR No. 180257, February 23, 2011 While a maker who signed a promissory note for the benefit of his co-maker (who received the loan proceeds) is considered an accommodation party, he is, nevertheless, entitled to a written notice on the default and the outstanding obligation of the party accommodated. There being no such written notice, the Bank is grossly negligent in terminating the credit line of the accommodation party for the unpaid interest dues from the loans of the party accommodated and in dishonoring a check drawn against such credit line.75. Juanita Salas vs. Hon. Court of Appeals and First Finance & Leasing Corporation, G.R. No. 76788 January 22, 1990A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS.76. Atrium Management Corporation vs. Court of Appeals, et al., G.R. No. 109491, February 28, 2001Where cashiers checks were issued merely as financial assistance to the payee with instruction that the checks were strictly endorsed for payees account only and not to be further negotiated, the party in whose favor the checks were negotiated could not qualify as a holder in due course. However, it does not follow as a legal proposition that simply because the holder was not a holder in due course for having taken the checks with notice that the same were for deposit only to the account of another that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course cannot recover on the instrument. The disadvantage of the holder in not being a holder in due course is that the instrument is subject to defense as if it were non-negotiable. One such defense is absence or failure of consideration (the defense raised by the drawer since the checks had no consideration and was issued merely as a form of financial assistance to the payee).77. Samsung Construction Company Philippines, Inc. vs. Far East Bank and Trust Company and Court Of Appeals, G.R. NO. 129015, August 13, 2004If a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check.78. Maria Tuazon vs. Heirs of Bartolome Ramos, 463 SCRA 408, 2005After an instrument is dishonored by non-payment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor.The holder of the negotiable instrument need not even proceed against the drawer before suing the indorser.79. Allied Banking Corporation vs. Bank of the Philippine Islands, GR. 188363, February 27, 2013 The collecting bank which accepted a post-dated check for deposit and sent it for clearing and the drawee bank which cleared and honored the check are both liable to the drawer for the entire face value of the check.80. Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641 (2000) In depositing the check in his name, the depositor did not become the out-right owner of the amount stated therein. By depositing the check with the bank, the depositor was, in a way, merely designating the bank as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a managers check or ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the bank shall credit the amount to the depositors account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. The depositors contention that after the lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal is untenable. Said practice amounts to a disregard of the clearance requirement of the banking system.81. Anamer Salazar vs. JY Brothers Marketing Corporation, GR no. 171998, October 20, 2010 While Section 119 of the Negotiable Instruments Law in relation to Article 1231 of the Civil Code provides that one of the modes of discharging a negotiable instrument is by any other act which will discharge a simple contract for the payment of money, such as novation, the acceptance by the holder of another check which replaced the dishonored bank check did not result to novation. There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point. In the instant case, there was no express agreement that the holders acceptance of the replacement check will discharge the drawer and endorser from liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation arising from the same transaction.82. The International Corporate Bank, Inc. vs. Court of Appeals and Philippine National Bank, G.R. NO. 129910, September 5, 2006Alterations of the serial numbers do not constitute material alterations on the checks. Since there were no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank.Insurance Law 83. Philippine Health Care Providers, Inc., vs. Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009One test in order to determine whether one is engaged in insurance business is whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance. In this case, Health Maintenance Organizations (HMOs) are not insurance business84. Fortune Medicare Inc. vs Amorin. G.R. No. 195872, March 12, 2014For purposes of determining the liability of a health care provider to its members, a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Limitations as to liability must be distinctly specified and clearly reflected in the extent of coverage which the company voluntary assume, otherwise, any ambiguity arising therein shall be construed in favor of the member. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract - the insurer. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as standard charges must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. Thus, if the member, while on vacation, underwent a procedure in the USA, the standard charges referred to in the contract should mean standard charges in USA and not the cost had the procedure been conducted in the Philippines.85. Philamcare Health System vs. Court of Appeals, 379 SCRA 356, 2002Every person has an insurable interest in the life and health of: 1.) Himself, or his spouse and of his children; 2.) Any person: (a) on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (b) under legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (c) upon whom whose life any estate or interest vested in him depends.86. Alpha Insurance and Surety Co. vs. Castor, GR No. 198174, September 2, 2013 Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given their meaning as understood in common speech. A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.87. Heirs Of Loreto c. Maramag vs. Eva Verna De Guzman Maramag, et al., G.R. No. 181132, June 5, 2009 The only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy. The exception to this rule is a situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured, the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of heirs.88. Country Bankers Insurance Corporation vs. Antonio Lagman, G.R. No. 165487, July 13, 2011Section 177 of the Insurance Code states that the surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. A continuing bond, as in this case where there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance Commissioner, and by the court. By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a license to engage in the business of receiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA.89. First Lepanto-Taisho Insurance Corporation vs Chevron Philippines, GR No. 177839, January 18, 2012 The extent of the suretys liability is determined by the language of the suretyship contract or bond itself. It can not be extended by implications beyond the terms of the contract. Having accepted the bond, the creditor is 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 surety. Such non-compliance by the creditor impacts not on the validity or legality of the surety contract but on the creditors right to demand performance.90. The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc., G.R. No. 156302, April 7, 2009The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy. The third-party liability of the insurer is only up to the extent of the insurance policy and that required by law; and it cannot be held solidarily liable for anything beyond that amount.91. Jewel Villacorta vs. The Insurance Commission, et al., G.R. No. 54171. October 28, 1980 The main purpose of the authorized driver clause is that a person other than the insured owner, who drives the car on the insureds order, such as his regular driver, or with his permission, such as a friend or member of the family or the employees of a car service or repair shop must be duly licensed drivers and have no disqualification to drive a motor vehicle. The mere happenstance that the employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop by the insured car owner does not mean that the authorized driver clause has been violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid drivers license. It is the theft clause, not the authorized driver clause that applies.92. Perla Compania De Seguros, Inc., vs. Hon. Constante A. Ancheta, Presiding Judge of the Court of First Instance of Camarines Norte, Branch III, et al., G.R. No. L-49699, August 8, 1988From a reading Section 378, the following rules on claims under the no fault indemnity provision, where proof of fault or negligence is not necessary for payment of any claim for death or injury to a passenger or a third party, are established: 1.) A claim may be made against one motor vehicle only. 2.) If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the vehicle in which he is riding, mounting or dismounting from. 3.) In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall lie against the insurer of the directly offending vehicle. 4.) In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained.93. Lalican vs. Insular Life Assurance Company Ltd, 597 SCRA 159, 2009) The existence of an insurance interest gives a person the legal right to insure the subject matter of the policy of insurance. Section 19 of the Insurance Code states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.94. Spouses Nilo Cha and Stella Uy Cha vs. Court of Appeals, G.R. No. 124520. August 18, 1997A non-life insurance policy such as the fire insurance policy taken by spouses Cha over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code.95. Malayan Insurance Company vs. PAP Co. (PHIL. BRANCH). G.R. No. 200784, August 07, 2013With the transfer of the location of the subject properties, without notice and without the insurers consent, after the renewal of the policy, the insured clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides that 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, as follows: 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, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.96. Armando Geagonia vs. Court of Appeals, et al., G.R. No. 114427, February 6, 1995A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. Since, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate, the two policies of the PFIC do not cover the same interest as that covered by the policy of the private respondent, no double insurance exists.97. Great Pacific Life vs. Court of Appeals, 316 SCRA 677, 1999 Where a mortgagor pays insurance premium under group insurance policy (Mortgage Redemption Insurance), making loss payable to mortgagee, the insurance is on mortgagors interest, and mortgagor continues to be a party to the contract. In this type of policy insurance, mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make mortgagee a party to the contract98. Malayan Insurance Co., Inc., vs. Philippine First Insurance Co., Inc. and Reputable Forwarder Services, Inc., G.R. No. 184300, July 11, 2012By 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, even though the two 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.99. Malayan Insurance Co., Inc. vs. Gregoria Cruz Arnaldo, in her capacity as the Insurance Commissioner, et al., G.R. No. L-67835, October 12, 1987For a valid cancellation of the policy, the following requisites must concur: 1) There must be prior notice of cancellation to the insured; 2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned; 3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. MICO claims it cancelled the policy in question for non-payment of premium. However, there is no proof that the notice, assuming it complied with the other requisites, was actually mailed to and received by Pinca.100. Pacific Timber Export Corporation vs. Court of Appeals, et al., G.R. No. L-38613, February 25, 1982The non-payment of premium on the cover note is no cause for Pacific to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance of the cover note, liability on the note would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid.101. American Homes Assurance vs. Antonio Chua, G.R. 130421, June 28, 1999Section 78 of the Insurance Code explicitly provides that an acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.102. Ucpb General Insurance Co. Inc., vs. Masagana Telemart, Inc., G.R. No. 137172, April 4, 2001Section 77 of the Insurance Code of 1978 provides that an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that covered by Section 78 of the Insurance Code, which provides that any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid. A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein the Court ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. Tuscany has also provided a fourth exception, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. Moreover, as a fifth exception, estoppel bars it from taking refuge under said Section, since Masagana relied in good faith on such practice.103. Jose Marques and Maxilite Technologies, Inc., vs. Far East Bank And Trust Company, et al., G.R. No. 171379, January 10, 2011FEBTC is estopped from claiming that the insurance premium has been unpaid. FEBTC induced Maxilite and Marques to believe that the insurance premium has in fact been debited from Maxilites account. However, FEBTC failed to do so. FEBTCs conduct clearly constitutes gross negligence in handling Maxilites and Marques accounts. As a consequence, FEBTC must be held liable for damages pursuant to Article 2176 of the Civil Code.104. South Sea Surety and Insurance Company Inc. v. CA, G.R. No. 102253 June 2, 1995An insurer which delivers to an insurance agent or insurance broker an insurance policy shall be deemed to have authorized such agent to receive on its behalf payment of any premium which is due on such policy.105. Great Pacific Life Insurance Corporation vs. Court of Appeals, et al., G.R. No. L-57308, April 23, 1990Great Pacific should have informed Cortez of the deadline for paying the first premium before or at least upon delivery of the policy to him, so he could have complied with what was needful and would not have been misled into believing that his life and his family were protected by the policy, when actually they were not. And, if the premium paid by Cortez was unacceptable for being late, it was the company's duty to return it. By accepting his premiums without giving him the corresponding protection, Great Pacific acted in bad faith and since his policy was in fact inoperative or ineffectual from the beginning, the company was never at risk, hence, it is not entitled to keep the premium.106. Ng Gan Zee vs. Asian Crusader Life Assurance Corporation, G.R. No. L-30685, May 30, 1983Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and intentionally withholds the same. In the absence of evidence that the insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of the stomach, " should be construed as an expression made in good faith of his belief as to the nature of his ailment and operation.107. Sunlife Assurance Company of Canada vs. The Court of Appeals, et al., G.R. No. 105135, June 22, 1995Where the insured is specifically required to disclose to the insurer matters relating to his health, the insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bona fides. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries.108. Emilio Tan vs. The Court of Appeals, G.R. No. 48049. June 29, 1989 By virtue of the incontestability clause, the insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie. Considering that the insured died before the two-year period had lapsed, Phil-Am Insurance is not, therefore, barred from proving that the policy is void ab initio by reason of the insureds fraudulent concealment or misrepresentation.109. Manila Bankers Life Insurance Corporation vs. Cresencia p. Aban, G.R. No. 175666, July 29, 2013The "Incontestability Clause" under Section 48 of the Insurance Code provides that 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. After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation.110. Florendo vs. Philam Plans, GR. No 186983, February 22, 2012 The incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance. Since insured died on the 11th month following the issuance of his plan, the incontestability period has not yet set in. Consequently, the insurer was not barred from questioning the beneficiarys entitlement to the benefits of the pension plan.111. Summit Guaranty And Insurance Company, Inc. vs. Hon. Jose C. De Guzman, in his capacity as Presiding Judge of Branch III, CFI of Tarlac, et al., G.R. No. L- 50997, June 30, 1987There is absolutely nothing in the law which mandates that the two periods prescribed in Section 384 of the Insurance Codethat is, the six-month period for filing the notice of claim and the one-year period for bringing an action or suit must always concur. On the contrary, it is very clear that the one-year period is only required in proper cases. The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the cause of action accrues. Since in the case at hand, there has yet been no accrual of cause of action, prescription has not yet set in. This is because, before such final rejection, there was no real necessity for bringing suit.112. H.H. Hollero v. GSIS, G.R. No. 152334, 24 September 2014The prescriptive period for the insureds action for indemnity should be reckoned from the "final rejection" of the claim. "Final rejection" simply means denial by the insurer of the claims of the insured and not the rejection or denial by the insurer of the insureds motion or request for reconsideration. A perusal of the letterdated April 26, 1990 shows that the GSIS denied Hollero Constructions indemnity claims. The same conclusion obtains for the letterdated June 21, 1990 denying Hollero Constructions indemnity claim. Holler's causes of action for indemnity respectively accrued from its receipt of the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently, given that it allowed more than twelve (12) months to lapse before filing the necessary complaint before the RTC on September 27, 1991, its causes of action had already prescribed.113. Malayan Insurance Co., Inc., vs. Rodelio Alberto, et al., G.R. No. 194320, February 1, 2012The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. When it is not disputed that the insurance company indeed paid, then there is valid subrogation in its favor. 114. Loadstar Shipping Company v. Malayan Insurance Company, G.R. No. 185565, November 26, 2014Under the Code of Commerce, if the goods are delivered but arrived at the destination in damaged condition, the remedies to be pursued by the consignee depend on the extent of damage on the goods. If the effect of damage on the goods consisted merely of diminution in value, the carrier is bound to pay only the difference between its price on that day and its depreciated value as provided under Article 364. Malayan, as the insurer of PASAR, neither stated nor proved that the goods are rendered useless or unfit for the purpose intended by PASAR due to contamination with seawater. Hence, there is no basis for the goods rejection under Article 365 of the Code of Commerce. Clearly, it is erroneous for Malayan to reimburse PASAR as though the latter suffered from total loss of goods in the absence of proof that PASAR sustained such kind of loss.115. Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc., G.R. No. 174116, September 11, 2009The insurer, upon happening of the risk "insured" against and after payment to the insured, is subrogated to the rights and cause of action of the latter. As such, the insurer has the right to seek reimbursement for all the expenses paid. However, in a contract of carriage involving the shipment of knock-down auto parts of Nissan motor vehicles which were allegedly lost and destroyed, the insurer was not properly subrogated because of the non-presentation of any marine insurance policy. The submission of a marine risk note instead of the insurance policy doesn't satisfy the requirement for subrogation. The marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the insurer confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable premium.116. Asian Terminals Inc. vs. First Lepanto Taisho Corporation, G.R. No. 185964, 16 June 2014The shipment received by the ATI from the vessel of COCSCO was found to have sustained loss and damages. An arrastre operators duty is to take good care of the goods and to turn them over to the party entitled to their possession. It must prove that the losses were not due to its negligence or to that of its employees. The Court held that ATI failed to discharge its burden of proof. ATI blamed COSCO but when the damages were discovered, the goods were already in ATIs custody for two weeks. Witnesses also testified that the shipment was left in an open area exposed to the elements, thieves and vandals.Transportation Laws117. Pedro De Guzman vs. Court of Appeals, G. R. No. L-47822, 22 December 1988Article 1732 makes no distinction between one whoseprincipalbusiness activity is the carrying of persons or goods or both, and one who does such carrying only as anancillaryactivity (in local idiom as "a sideline"). It also carefully avoids making any distinction between a person or enterprise offering transportation service on aregular or scheduled basisand one offering such service on anoccasional, episodic or unscheduled basis. Neither does it distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population.118. Philippine American General Insurance Company vs. Pks Shipping Company, G.R. No. 149038, 9 April 2003Much of the distinction between a common or public carrier and a private or special carrier lies in the character of the business, such that if the undertaking is an isolated transaction, not a part of the business or occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited clientele, although involving the carriage of goods for a fee, the person or corporation providing such service could very well be just a private carrier.119. Spouses Perena vs Spouses Nicolas, GR No. 157917, August 29, 2012 Persons engaged in the business of transporting students from their respective residences to their school and back are considered common carrier. Despite catering to a limited clientele, they 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. 120. Unsworth Transport International (Phils.) vs. Court of Appeals ,G.R. No. 166250, 26 July 2010 A freight forwarders liability is limited to damages arising from its own negligence, including negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the merchandise itself.121. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation, GR No. 179446, January 10, 2011 A customs broker whose services were engaged for the release and withdrawal of the cargoes from the pier and their subsequent delivery to the consignees warehouse and the owner of the delivery truck whom the customs broker contracted to transport the cargoes to the warehouse are both common carriers. The latter is considered a common carrier in the absence of indication that it solely and exclusively rendered services to the customs broker. Thus, when the truck failed to deliver one of the cargoes, both the broker and owner of the truck are liable. Being both common carriers, they are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case. Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently.122. Westwind Shipping Corporation vs. UCPB General Insurance Co., GR no. 2002289, November 25, 2013 The arrastre operator is likewise liable. The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the establishment of the consignee or shipper and the ships tackle. Being the custodian of the goods discharged from a vessel, an arrastre operators duty is to take good care of the goods and to turn them over to the party entitled to their possession. While it is true that an arrastre operator and a carrier may not be held solidarily liable at all times, the facts of these cases show that apart from the stevedores of the arrastre operator being directly in charge of the physical unloading of the cargo, its foreman picked the cable sling that was used to hoist the packages for transfer to the dock. Moreover, the fact that the packages were unloaded with the same sling unharmed is telling of the inadequate care with which the stevedore handled and discharged the cargo.123. Unknown Owner Of The Vessel M/V China Joy vs. Asian Terminals Inc. G.R. No. 195661, 11 March 2015

The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the establishment of the consignee or shipper and the ships tackle. Being the custodian of the goods discharged from a vessel, an arrastre operators duty is to take good care of the goods and to turn them over to the party entitled to their possession. The legal relationship between an arrastre operator and a consignee is akin to that between a warehouseman and a depositor. As to both the nature of the functions and the place of their performance, an arrastre operators services are clearly not maritime in character.InInsurance Company of North America v. Asian Terminals, Inc.,the Court explained that the liabilities of the arrastre operator for losses and damages are set forth in the contract for cargo handling services it had executed with the PPA. Corollarily then, the rights of an arrastre operator to be paid for damages it sustains from handling cargoes do not likewise spring from contracts of carriage. However, in the instant petition, the contending parties make no references at all to any provisions in the contract for cargo handling services ATI had executed with the PPA. Notwithstanding the above, the petitioners cannot evade liability for the damage caused to ATIs unloader in view of Article 2176 of the New Civil Code.124. R Transport Corporation vs. Pante, GR No. 162104, September 15, 2009 When a bus hit a tree and house due to the fast and reckless driving of the bus driver resulting in injury to one of its passengers, the bus owner is liable and such liability does not cease even upon proof that he exercised all the diligence of a good father of family in the selection and supervision of its employees.125. Asian Terminals, Inc vs. Simon Enterprises, Inc. GR No. 177116, February 27, 2013 Though it is true that common carriers are presumed to have been at fault or to have acted negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must still, before the burden is shifted to the defendant, prove that the subject shipment suffered actual shortage. This can only be done if the weight of the shipment at the port of origin and its subsequent weight at the port of arrival have been proven by a preponderance of evidence, and it can be seen that the former weight is considerably greater than the latter weight, taking into consideration the exceptions provided in Article 1734 of the Civil Code.126. Equitable Leasing Corporation vs. Lucita Suyom et al., G.R. No. 143360, 5 September 2002In an action based on quasi delict, the registered owner of a motor vehicle is solidarily liable for the injuries and damages caused by the negligence of the driver, in spite of the fact that the vehicle may have already been the subject of an unregistered Deed of Sale in favor of another person.Unless registered with the Land Transportation Office, the sale -- while valid and binding between the parties -- does not affect third parties, especially the victims of accidents involving the said transport equipment.127. William Tiu, doing business under the name and style of D Rough Riders, vs. Pedro A. Arriesgado, G.R. No. 138060, 1 September 2004The principle of last clear chance only applies in a suit between the owners and drivers of two colliding vehicles.It does not arise where a passenger demands responsibility from the carrier to enforce its contractual obligations, for it would be inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise guilty of negligence.128. Spouses Cesar & Suthira Zalamea vs. Court of Appeals, G.R. No. 104235 November 18, 1993When an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it took the risk of having to deprive some passengers of their seats in case all of them would show up for the check in. For the indignity and inconvenience of being refused a confirmed seat on the last minute, said passenger is entitled to an award of moral damages.129. Cathay Pacific Airways, Ltd., vs. Spouses Daniel Vazquez And Maria Luisa Madrigal Vazquez, G.R. No. 150843, March 14, 2003Spouses Vazquez had every right to decline the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding passes.They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their vehement objection.By insisting on the upgrade, Cathay breached its contract of carriage with Spouses Vazquez.130. Heirs of Josemaria Ochoa vs. G&S Transport Corporation, March 19,2011 as affirmed in the July 16, 2012 decision In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a passenger dies or is inj