Commercial Law Review 2016 Case Doctrines on Negotiable Instruments

COMMERCIAL
LAW REVIEW 2016

Atty. Sergio Ceniza
Case Doctrines as compiled by: Tricia Cruz & Jon Diaz de Rivera Batch 2012
NEGOTIABLE INSTRUMENTS LAW
G.R. No. 187769. G.R. No. 187769.*

ALVIN PATRIMONIO, petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO
MARASIGAN III, respondents.
Mercantile Law; Negotiable Instruments Law; Incomplete But Delivered Instruments; In

order that one who is not a holder in due course can enforce the instrument against a party
prior to the instrument’s completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up within a
reasonable time.—This provision applies to an incomplete but delivered instrument. Under
this rule, if the maker or drawer delivers a pre-signed blank paper to another person for the
purpose of converting it into a negotiable instrument, that person is deemed to have prima
facie authority to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact that
the instrument is wanting in a material particular, the law presumes agency to fill up the
blanks.In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instrument’s completion, two requisites must exist:
(1) that the blank must be filled strictly in accordance with the authority given; and (2) it
must be filled up within a reasonable time. If it was proven that the instrument had not been
filled up strictly in accordance with the authority given and within a reasonable time, the
maker can set this up as a personal defense and avoid liability. However, if the holder is a
holder in due course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.
Same; Same; Holder in Due Course; Section 52(c) of the Negotiable Instruments Law
(NIL) states that a holder in due course is one who takes the instrument “in good faith and for
value.”—Section 52(c) of the NIL states that a holder in due course is one who takes the
instrument “in good faith and for value.” It also provides in Section 52(d) that in order that
one may be a holder in due course, it is necessary that at the time it was negotiated to him
he had no notice of any infirmity in the instrument or defect in the title of the person
negotiating it. Acquisition in good faith means taking without knowledge or notice of equities
of any sort which could be set up against a prior holder of the instrument. It means that he
does not have any knowledge of fact which would render it dishonest for him to take a
negotiable paper. The absence of the defense, when the instrument was taken, is the
essential element of good faith.
Same; Same; Same; The Negotiable Instruments Law (NIL) does not provide that a
holder who is not a holder in due course may not in any case recover on the instrument. The
only disadvantage of a holder who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.—Since he knew that the underlying obligation
was not actually for the petitioner, the rule that a possessor of the instrument is prima
facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and
failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be
construed as gross negligence amounting to bad faith. Yet, it does not follow that simply
because he is not a holder in due course, Marasigan is already totally barred from recovery.
The NIL does not provide that a holder who is not a holder in due course may not in any case
recover on the instrument. The only disadvantage of a holder who is not in due course is that
the negotiable instrument is subject to defenses as if it were non-negotiable. Among such
defenses is the filling up blank not within the authority.
COMMERCIAL LAW REVIEW 2016
Atty. Sergio Ceniza
Same; Same; Same; While under the law, Gutierrez had a prima facie authority to
complete the check, such prima facie authority does not extend to its use (i.e., subsequent
transfer or negotiation) once the check is completed.—While under the law, Gutierrez had
a prima facie authority to complete the check, such prima facie authority 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
presumption juris tantum only; hence, subject to 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.
G.R. No. 192413. June 13, 2012.*

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.
HI-TRI DEVELOPMENT CORPORATION and LUZ R. BAKUNAWA, respondents.
Negotiable Instruments Law; Checks; The issuance of the check does not of itself operate
as an assignment of any part of the funds in the bank to the credit of the drawer.—
An ordinary checkrefers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money. The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the credit of the drawer.
Here, the bank becomes liable only after it accepts or certifies the check. After the check is
accepted for payment, the bank would then debit the amount to be paid to the holder of the
check from the account of the depositor-drawer.
Same; Same; Manager’s Checks; Cashier’s Checks; There are checks of a special type
called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager
or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a
cashier’s check is procured from the bank by allocating a particular amount of funds to be
debited from the depositor’s account or by directly paying or depositing to the bank the value
of the check to be drawn.—There are checks of a special type called manager’s or cashier’s
checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of
the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from
the bank by allocating a particular amount of funds to be debited from the depositor’s
account or by directly paying or depositing to the bank the value of the check to be drawn.
Since the bank issues the check in its name, with itself as the drawee, the check is deemed
accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing
bank and constitutes its written promise to pay upon demand.
G.R. No. 129015. August 13, 2004.*

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR
EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.
Negotiable Instruments Law; Checks; A forged signature is “wholly inoperative” and

payment made “through or under such signature” is ineffectual or does not discharge the
instrument.—The general rule is to the effect that a forged signature is “wholly inoperative,”
and payment made “through or under such signature” is ineffectual or does not discharge the
instrument. If payment is made, the drawee cannot charge it to the drawer’s account. The
traditional justification for the result is that the drawee is in a superior position to detect a
Atty. Sergio Ceniza
forgery because he has the maker’s signature and is expected to know and compare it. The
rule has a healthy cautionary effect on banks by encouraging care in the comparison of the
signatures against those on the signature cards they have on file. Moreover, the very
opportunity of the drawee to insure and to distribute the cost among its customers who use
checks makes the drawee an ideal party to spread the risk to insurance.
Same; Same; Forgery; Forgery is a real or absolute defense by the party whose signature
is forged.—Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute
defense by the party whose signature is forged. On the premise that Jong’s signature was
indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged
check. Such liability attaches even if the bank exerts due diligence and care in preventing
such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when
a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has
suffered by its being deceived. The forgery may be so near like the genuine as to defy
detection by the depositor himself, and yet the bank is liable to the depositor if it pays the
check.
Same; Same; Same; A document formally presented is presumed to be genuine until it is

proved to be fraudulent.—Thus, the first matter of inquiry is into whether the check was
indeed forged. A document formally presented is presumed to be genuine until it is proved to
be fraudulent. In a forgery trial, this presumption must be overcome but this can only be
done by convincing testimony and effective illustrations.
Same; Same; Same; Bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such party’s negligence was the
cause for the forgery.—The bare fact that the forgery was committed by an employee of the
party whose signature was forged cannot necessarily imply that such party’s negligence was
the cause for the forgery. Employers do not possess the preternatural gift of cognition as to
the evil that may lurk within the hearts and minds of their employees.
Same; Same; Same; If 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.—Still, even if
the bank performed with utmost diligence, the drawer whose signature was forged may still
recover from the bank as long as he or she is not precluded from setting up the defense of
forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right
to enforce the payment of a check can arise out of a forged signature. Since the drawer,
Samsung Construction, is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if 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.
Same; Same; Same; Negligence; The presumption remains that every person takes
ordinary care of his concerns, and that the ordinary course of business has been followed;
Negligence is not presumed but must be proven contrary, we can conclude that there was no
negligence on Samsung Construction’s part. The presumption remains that every person
takes ordinary care of his concerns, and that the ordinary course of business has been
followed. Negligence is not presumed, but must be proven by him who alleges it. While the
complaint was lodged at the instance of Samsung Construction, the matter it had to prove
was the claim it had alleged—whether the check was forged. It cannot be required as well to
prove that it was not negligent, because the legal presumption remains that ordinary care
was employed.
Atty. Sergio Ceniza
G.R. No. 107382. January 31, 1996.

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF
TARLAC and PHILIPPINE NATIONAL BANK, respondents.
Commercial Law; Negotiable Instruments Law; Forgery; A person whose signature to an

instrument was forged was never a party and never consented to the contract which allegedly
gave rise to such instrument.—A forged signature, whether it be that of the drawer or the
payee, is wholly inoperative and no one can gain title to the instrument through it. A person
whose signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. Section 23 does not avoid the
instrument but only the forged signature. Thus, a forged indorsement does not operate as the
payee’s indorsement.
Same; Same; Same; Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are estopped from setting up the
defense of forgery, are precluded from using this defense.—The exception to the general rule
in Section 23 is where “a party against whom it is sought to enforce a right is precluded from
setting up the forgery or want of authority.” Parties who warrant or admit the genuineness
of the signature in question and those who, by their acts, silence or negligence are estopped
from setting up the defense of forgery, are precluded from using this defense. Indorsers,
persons negotiating by delivery and acceptors are warrantors of the genuineness of the
signatures on the instrument.
Same; Same; Same; When the indorsement is a forgery, only the person whose signature
is forged can raise the defense of forgery against a holder in due course.—In bearer
instruments, the signature of the payee or holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a forgery, only the person whose signature is
forged can raise the defense of forgery against a holder in due course.
Same; Same; Same; When the holder’s indorsement is forged, all parties prior to the
forgery may raise the real defense of forgery against all parties subsequent thereto.—Where
the instrument is payable to order at the time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to
the same instrument. When the holder’s indorsement is forged, all parties prior to the
forgery may raise the real defense of forgery against all parties subsequent thereto.
Same; Same; Same; Indorser cannot interpose the defense that signatures prior to him
are forged.—An indorser of an order instrument warrants “that the instrument is genuine
and in all respects what it purports to be; that he has a good title to it; that all prior parties
had capacity to contract; and that the instrument is at the time of his indorsement valid and
subsisting.” He cannot interpose the defense that signatures prior to him are forged.
Same; Same; Same; A collecting bank where a check is deposited and which indorses the
check upon presentment with the drawee bank is such an indorser.—A collecting bank where
a check is deposited and which indorses the check upon presentment with the drawee bank,
is such an indorser. So even if the indorsement on the check deposited by the bank’s client is
forged, the collecting bank is bound by his warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank.
Same; Same; Same; Payment under a forged indorsement is not to the drawer’s order.—
The bank on which a check is drawn, known as the drawee bank, is under strict liability to
pay the check to the order of the payee. The drawer’s instructions are reflected on the face
Atty. Sergio Ceniza
and by the terms of the check. Payment under a forged indorsement is not to the drawer’s
order. When the drawee bank pays a person other than the payee, it does not comply with
the terms of the check and violates its duty to charge its customer’s (the drawer) account only
for properly payable items. Since the drawee bank did not pay a holder or other person
entitled to receive payment, it has no right to reimbursement from the drawer. The general
rule then is that the drawee bank may not debit the drawer’s account and is not entitled to
indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.
Same; Same; Same; Drawer is precluded from asserting forgery where the drawee bank
can prove a failure by the customer/drawer to exercise ordinary care that substantially
contributed to the making of the forged signature.—However, if the drawee bank can prove a
failure by the customer/drawer to exercise ordinary care that substantially contributed to the
making of the forged signature, the drawer is precluded from asserting the forgery.
Same; Same; Same; Drawee bank can seek reimbursement or a return of the amount it
paid from the presentor bank or person.—In cases involving checks with forged indorsements,
such as the present petition, the chain of liability does not end with the drawee bank. The
drawee bank may not debit the account of the drawer but may generally pass liability back
through the collection chain to the party who took from the forger and, of course, to the
forger himself, if available. In other words, the drawee bank can seek reimbursement or a
return of the amount it paid from the presentor bank or person. Theoretically, the latter can
demand reimbursement from the person who indorsed the check to it and so on. The loss falls
on the party who took the check from the forger, or on the forger himself.
Same; Same; Same; A collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements including
the forged indorsement.—More importantly, by reason of the statutory warranty of a general
indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a
check bearing a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement. It warrants that the instrument is genuine,
and that it is valid and subsisting at the time of his indorsement. Because the indorsement is
a forgery, the collecting bank commits a breach of this warranty and will be accountable to
the drawee bank.
Same; Same; Same; Drawee banks not similarly situated as the collecting bank.—The
drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness of any indorsement. The drawee bank’s duty is but to verify
the genuineness of the drawer’s signature and not of the indorsement because the drawer is
its client.
Same; Same; Same; Drawee bank has the duty to promptly inform the presentor of the
forgery upon discovery.—Hence, the drawee bank can recover the amount paid on the check
bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty
to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in
informing the presentor of the forgery, thereby depriving said presentor of the right to
recover from the forger, the former is deemed negligent and can no longer recover from the
presentor.
Same; Same; Same; Rule mandates that the checks be returned within twenty-four hours
after discovery of the forgery but in no event beyond the period fixed by law for filing a legal
action.—The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a legal
action. The rationale of the rule is to give the collecting bank (which indorsed the check)
Atty. Sergio Ceniza
adequate opportunity to proceed against the forger. If prompt notice is not given, the
collecting bank may be prejudiced and lose the opportunity to go after its depositor.
G.R. No. 172954. October 5, 2011.*

ENGR. JOSE E. CAYANAN, petitioner, vs. NORTH STAR INTERNATIONAL
TRAVEL, INC., respondent.
Negotiable Instruments Law; Checks; Upon issuance of a check, in the absence of

evidence to the contrary, it is presumed that the same was issued for valuable consideration
which may consist either in some right, interest, profit or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or
labor, or service given, suffered or undertaken by the other side.—We have held that upon
issuance of a check, in the absence of evidence to the contrary, it is presumed that the same
was issued for valuable consideration which may consist either in some right, interest, profit
or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss
or some responsibility, to act, or labor, or service given, suffered or undertaken by the other
side. Under the Negotiable Instruments Law, it is presumed that every party to an
instrument acquires the same for a consideration or for value. As petitioner alleged that
there was no consideration for the issuance of the subject checks, it devolved upon him to
present convincing evidence to overthrow the presumption and prove that the checks were in
fact issued without valuable consideration. Sadly, however, petitioner has not presented any
credible evidence to rebut the presumption, as well as North Star’s assertion, that the checks
were issued as payment for the US$85,000 petitioner owed.
Same; Same; It is highly inconceivable that an experienced businessman would issue

various checks in sizeable amounts to a payee if these are without consideration.—Petitioner
claims that North Star did not give any valuable consideration for the checks since the
US$85,000 was taken from the personal dollar account of Virginia and not the corporate
funds of North Star. The contention, however, deserves scant consideration. The subject
checks, bearing petitioner’s signature, speak for themselves. The fact that petitioner himself
specifically named North Star as the payee of the checks is an admission of his liability to
North Star and not to Virginia Balag tas, who as manager merely facilitated the transfer of
funds. Indeed, it is highly inconceivable that an experienced businessman like petitioner
would issue various checks in sizeable amounts to a payee if these are without consideration.
Moreover, we note that Virginia Balagtas averred in her Affidavit that North Star caused the
payment of the US$60,000 and US$25,000 to View Sea Ventures to accommodate petitioner,
which statement petitioner failed to refute. In addition, petitioner did not question the
Statement of Account No. 8639 dated August 31, 1994 issued by North Star which contained
itemized amounts including the US$60,000 and US$25,000 sent through telegraphic transfer
to View Sea Ventures per his instruction. Thus, the inevitable conclusion is that when
petitioner issued the subject checks to North Star as payee, he did so to settle his obligation
with North Star for the US$85,000.
G.R. No. 185945. December 5, 2012.*

FIDELIZA J. AGLIBOT, petitioner, vs. INGERSOL L. SANTIA, respondent.
Mercantile Law; Negotiable Instruments Law; “Checks,” Defined; “Bills of Exchange,”

Defined; Words and Phrases.—Section 185 of the Negotiable Instruments Law defines a
check as “a bill of exchange drawn on a bank payable on demand,” while Section 126 of the
said law defines a bill of exchange as “an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is
Atty. Sergio Ceniza
addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer.”
Same; Same; Accommodation Party; Suretyship; The relation between an

accommodation party and the party accommodated is, in effect, one of principal and surety—
the accommodation party being the surety. It is a settled rule that a surety is bound equally
and absolutely with the principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct.—The relation between an accommodation
party and the party accommodated is, in effect, one of principal and surety—the
accommodation party being the surety. It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct. It is not a valid defense that the
accommodation party did not receive any valuable consideration when he executed the
instrument; nor is it correct to say that the holder for value is not a holder in due course
merely because at the time he acquired the instrument, he knew that the indorser was only
an accommodation party.
Same; Same; Same; Unlike in a contract of suretyship, the liability of the

accommodation party remains not only primary but also unconditional to a holder for value,
such that even if the accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.—It was held in Aruego that unlike in a contract of
suretyship, the liability of the accommodation party remains not only primary but also
unconditional to a holder for value, such that even if the accommodated party receives an
extension of the period for payment without the consent of the accommodation party, the
latter is still liable for the whole obligation and such extension does not release him because
as far as a holder for value is concerned, he is a solidary co-debtor. The mere fact, then, that
Aglibot issued her own checks to Santia made her personally liable to the latter on her
checks without the need for Santia to first go after PLCC for the payment of its loan. It
would have been otherwise had it been shown that Aglibot was a mere guarantor, except that
since checks were issued ostensibly in payment for the loan, the provisions of the Negotiable
Instruments Law must take primacy in application.
G.R. No. 180257. February 23, 2011.*

EUSEBIO GONZALES, petitioner, vs. PHILIPPINE COMMERCIAL AND
INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA, respondents.
Negotiable Instruments Law; Accommodation Party; An accommodation party is a

person who has signed the instrument as maker, drawer, acceptor or indorser without
receiving value therefor and for the purpose of lending his name to some other person.—As an
accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans.
In Ang v. Associated Bank, 532 SCRA 244 (2007), quoting the definition of an accommodation
party under Section 29 of the Negotiable Instruments Law, the Court cited that an
accommodation party is a person “who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person.”
Same; Same; While not exonerating his solidary liability, Gonzales has right to be
properly apprised of the default or delinquency of the loan precisely because he is co-signatory
of the promissory notes and of his solidary liability.—There was no proper notice to Gonzales
of the default and delinquency of the PhP 1,800,000 loan. It must be borne in mind that
while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the
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three promissory notes, Gonzales is only an accommodation party and as such only lent his
name and credit to the spouses Panlilio. While not exonerating his solidary liability,
Gonzales has a right to be properly apprised of the default or delinquency of the loan
precisely because he is a co-signatory of the promissory notes and of his solidary liability.
Same; Same; In business more so for banks, the amounts demanded from the debtor or
borrower have to be definite, clear and without ambiguity.—In business, more so for banks,
the amounts demanded from the debtor or borrower have to be definite, clear, and without
ambiguity. It is not sufficient simply to be informed that one must pay over a hundred
thousand aggregate outstanding interest dues without clear and certain figures. Thus, We
find PCIB negligent in not properly informing Gonzales, who is an accommodation party,
about the default and the exact outstanding periodic interest dues. Without being properly
apprised, Gonzales was not given the opportunity to properly act on them.
G.R. No. 146511. September 5, 2007.*

TOMAS ANG, petitioner, vs. ASSOCIATED BANK AND ANTONIO ANG ENG
LIONG, respondents.
Asset Privatization Trust; History.—Taking into account the imperative need of

formally launching a program for the rationalization of the government corporate sector,
then President Corazon C. Aquino issued Proclamation No. 50 on December 8, 1986. As one
of the twin cornerstones of the program was to establish the privatization of a good number
of government corporations, the proclamation created the Asset Privatization Trust, which
would, for the benefit of the National Government, take title to and possession of, conserve,
provisionally manage and dispose of transferred assets that were identified for privatization
or disposition. In accordance with the provisions of Section 23 of the proclamation, then
President Aquino subsequently issued Administrative Order No. 14 on February 3, 1987,
which approved the identification of and transfer to the National Government of certain
assets (consisting of loans, equity investments, accrued interest receivables, acquired assets
and other assets) and liabilities (consisting of deposits, borrowings, other liabilities and
contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine
National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer
executed on February 27, 1987 between the National Government, on one hand, and the DBP
and PNB, on the other. In turn, the National Government designated the Asset Privatization
Trust to act as its trustee through a Trust Agreement, whereby the non-performing accounts
of DBP and PNB, including, among others, the DBP’s equity with respondent Bank, were
entrusted to the Asset Privatization Trust. As provided for in the Agreement, among the
powers and duties of the Asset Privatization Trust with respect to the trust properties
consisting of receivables was to handle their administration and collection by bringing suit to
enforce payment of the obligations or any installment thereof or settling or compromising
any of such obligations or any other claim or demand which the Government may have
against any person or persons, and to do all acts, institute all proceedings, and to exercise all
other rights, powers, and privileges of ownership that an absolute owner of the properties
would otherwise have the right to do.
Same; Actions; Parties; While a bank held by the Asset Privatization Trust may not
appear to be the real party in interest at the time the action for collection was instituted, the
issue had been rendered moot with the occurrence of a supervening event—the reacquisition of
the bank by its former owner when the case was still pending in the lower court, thus
reclaiming its real and actual interest over the unpaid promissory notes.—Based on the above
backdrop, respondent Bank does not appear to be the real party in interest when it instituted
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the collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas
Ang. At the time the complaint was filed in the trial court, it was the Asset Privatization
Trust which had the authority to enforce its claims against both debtors. In fact, during the
pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was
under the trusteeship of the Asset Privatization Trust. The Asset Privatization Trust, which
should have been represented by the Office of the Government Corporate Counsel, had the
authority to file and prosecute the case. The foregoing notwithstanding, this Court can not,
at present, readily subscribe to petitioner’s insistence that the case must be dismissed.
Significantly, it stands without refute, both in the pleadings as well as in the evidence
presented during the trial and up to the time this case reached the Court, that the issue had
been rendered moot with the occurrence of a supervening event—the “buy-back” of the bank
by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the
Asset Privatization Trust when the case was still pending in the lower court, the bank
reclaimed its real and actual interest over the unpaid promissory notes; hence, it could
rightfully qualify as a “holder” thereof under the NIL.
Negotiable Instruments Law; Accommodation Party;Requisites; Words and Phrases; An

accommodation party is a person “who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to some
other person.”—Notably, Section 29 of the NIL defines an accommodation party as a person
“who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person.” As gleaned
from the text, an accommodation party is one who meets all the three requisites, viz.: (1) he
must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he
must not receive value therefor; and (3) he must sign for the purpose of lending his name or
credit to some other person. An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no part of the
consideration for the instrument but assumes liability to the other party/ies thereto. The
accommodation party is liable on the instrument to a holder for value even though the
holder, at the time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.
Same; Same; Suretyship; The relation between an accommodation party and the
accommodated party is one of principal and surety—the accommodation party being the
surety; Although a contract of suretyship is in essence accessory or collateral to a valid
principal obligation, the surety’s liability to the creditor is immediate, primary and absolute—
he is directly and equally bound with the principal.—As petitioner acknowledged it to be, the
relation between an accommodation party and the accommodated party is one of principal
and surety—the accommodation party being the surety. As such, he is deemed an original
promisor and debtor from the beginning; he is considered in law as the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety’s liability to the creditor
isimmediate, primary and absolute; he is directly and equally bound with the principal. As an
equivalent of a regular party to the undertaking, a surety becomes liable to the debt and
duty of the principal obligor even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.
G.R. No. 166405. August 6, 2008.*

CLAUDE P. BAUTISTA, petitioner, vs. AUTO PLUS TRADERS, INCORPORATED
and COURT OF APPEALS (Twenty-First Division), respondents
Atty. Sergio Ceniza
Negotiable Instruments Law; Words and Phrases; Accommodation Party; Section 29

of the Negotiable Instruments Law defines an accommodation party as a person who has
signed the instrument as maker, drawer, acceptor, or endorser, without receiving value
therefor, and for the purpose of lending his name to some other person.—Contrary to private
respondent’s contentions, petitioner cannot be considered liable as an accommodation party
for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person “who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person.” As gleaned from the text, an accommodation party is one who
meets all the three requisites,viz.: (1) he must be a party to the instrument, signing as
maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must
sign for the purpose of lending his name or credit to some other person. An accommodation
party lends his name to enable the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes liability to the other
party/ies thereto. The first two elements are present here, however there is insufficient
evidence presented in the instant case to show the presence of the third requisite. All that
the evidence shows is that petitioner signed Check No. 58832, which is drawn against his
personal account. The said check, dated December 15, 2000, corresponds to the value of 24
sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.
There is no showing of when petitioner issued the check and in what capacity. In the absence
of concrete evidence it cannot just be assumed that petitioner intended to lend his name to
the corporation. Hence, petitioner cannot be considered as an accommodation party.
G.R. No. 133179. March 27, 2008.*

ALLIED BANKING CORPORATION, petitioner, vs. LIM SIO WAN,
METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, respondents.
Same; Money Market Transactions; Words and Phrases; A money market is a market
dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle man or
dealer in open market—in a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer; The creditor of the bank for her money
market placement is entitled to payment upon her request, or upon the maturity of the
placement, or until the bank is released from its obligation as debtor.—We have ruled in a
line of cases that a bank deposit is in the nature of a simple loan ormutuum. More succinctly,
in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, 504 SCRA 378 (2006),
this Court ruled that a money market placement is a simple loan ormutuum. Further, we
defined a money market in Cebu International Finance Corporation v. Court of Appeals, 316
SCRA 488 (1999), as follows: [A] money market is a market dealing in standardized short-
term credit instruments (involving large amounts) where lenders and borrowers do not deal
directly with each other but through a middle man or dealer in open market. In a money
market transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer. In the case at bar, the money market transaction between the
petitioner and the private respondent is in the nature of a loan. Lim Sio Wan, as creditor of
the bank for her money market placement, is entitled to payment upon her request, or upon
maturity of the placement, or until the bank is released from its obligation as debtor. Until
any such event, the obligation of Allied to Lim Sio Wan remains unextinguished.
Same; Same; Payment made by the debtor to a wrong party does not extinguish the
obligation as to the creditor, if there is no fault or negligence which can be imputed to the
latter.—From the factual findings of the trial and appellate courts that Lim Sio Wan did not
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authorize the release of her money market placement to Santos and the bank had been
negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio Wan
had not been extinguished. Art. 1240 of the Code states that “payment shall be made to the
person in whose favor the obligation has been constituted, or his successor in interest, or any
person authorized to receive it.” As commented by Arturo Tolentino: Payment made by the
debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no
fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost
good faith and by mistake as to the person of his creditor, or through error induced by the
fraud of a third person, the payment to one who is not in fact his creditor, or authorized to
receive such payment, is void, except as provided in Article 1241. Such payment does not
prejudice the creditor, and accrual of interest is not suspended by it. (Emphasis
supplied.)
Same; Negotiable Instruments; Checks; An exception to the rule that the collecting bank
which indorses a check bearing a forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged indorsement itself, and ultimately
should be held liable therefor is when the issuance of the check itself was attended with
negligence.—The warranty “that the instrument is genuine and in all respects what it
purports to be” covers all the defects in the instrument affecting the validity thereof,
including a forged indorsement. Thus, the last indorser will be liable for the amount
indicated in the negotiable instrument even if a previous indorsement was forged. We held in
a line of cases that “a collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor.” However, this general rule
is subject to exceptions. One such exception is when the issuance of the check itself was
attended with negligence. Thus, in the cases cited above where the collecting bank is
generally held liable, in two of the cases where the checks were negligently issued, this Court
held the institution issuing the check just as liable as or more liable than the collecting bank.
Same; Same; Same; Given the relative participation of two banks to the instant case,
both banks cannot be adjudged as equally liable—hence, the 60:40 ratio of the liabilities.—In
the instant case, the trial court correctly found Allied negligent in issuing the manager’s
check and in transmitting it to Santos without even a written authorization. In fact, Allied
did not even ask for the certificate evidencing the money market placement or call up Lim
Sio Wan at her residence or office to confirm her instructions. Both actions could have
prevented the whole fraudulent transaction from unfolding. Allied’s negligence must be
considered as the proximate cause of the resulting loss. To reiterate, had Allied exercised the
diligence due from a financial institution, the check would not have been issued and no loss
of funds would have resulted. In fact, there would have been no issuance of indorsement had
there been no check in the first place. The liability of Allied, however, is concurrent with that
of Metrobank as the last indorser of the check. When Metrobank indorsed the check in
compliance with the PCHC Rules and Regulations without verifying the authenticity of Lim
Sio Wan’s indorsement and when it accepted the check despite the fact that it was cross-
checked payable to payee’s account only, its negligent and cavalier indorsement contributed
to the easier release of Lim Sio Wan’s money and perpetuation of the fraud. Given the
relative participation of Allied and Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank,
as ruled by the CA, must be upheld.
Atty. Sergio Ceniza
G.R. No. 171998. October 20, 2010.*
ANAMER SALAZAR, petitioner, vs.
J.Y. BROTHERS MARKETING CORPORATION, respondent.
Obligations and Contracts; Novation; Checks; Novation is never presumed, there must be
an express intention to novate; The creditor’s acceptance of another check, which replaced an
earlier dishonored check, does not result in novation where there was no express agreement to
establish that the debtor was already discharged from his liability.—In this case,
respondent’s acceptance of the Solid Bank check, which replaced the dishonored Prudential
Bank check, did not result to novation as there was no express agreement to establish that
petitioner was already discharged from his liability to pay respondent the amount of
P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed,
there must be an express intention to novate. In fact, when the Solid Bank check was
delivered to respondent, the same was also indorsed by petitioner which shows petitioner’s
recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced
Prudential Bank check.
Same; Same; Same; Crossed Checks; Judicial Notice; Words and Phrases; The Court has
taken judicial cognizance of the practice that a check with two parallel lines in the upper left
hand corner means that it could only be deposited and could not be converted into cash; The
effect of crossing a check relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein—the
change in the mode of paying the obligation is not a change in any of the objects or principal
condition of the contract for novation to take place.—Among the different types of checks
issued by a drawer is the crossed check. The Negotiable Instruments Law is silent with
respect to crossed checks, although the Code of Commerce makes reference to such
instruments. We have taken judicial cognizance of the practice that a check with two parallel
lines in the upper left hand corner means that it could only be deposited and could not be
converted into cash. Thus, the effect of crossing a check relates to the mode of payment,
meaning that the drawer had intended the check for deposit only by the rightful person, i.e.,
the payee named therein. The change in the mode of paying the obligation was not a change
in any of the objects or principal condition of the contract for novation to take place.
G.R. No. 175350. June 13, 2012.*

EQUITABLE BANKING CORPORATION, petitioner, vs.
SPECIAL STEEL PRODUCTS, INC. and AUGUSTO L. PARDO, respondents.
The courts below correctly ruled that SSPI has a cause of action for quasi-delict against
Equitable.
The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’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. It is well to
remember that “[t]he banking system has become an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and saving of money or as active instruments of
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business and commerce, banks have attained an [sic] ubiquitous presence among the people,
who have come to regard them with respect and even gratitude and, above all, trust and
confidence. In this connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly emphasized, 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.”
Equitable did not observe the required degree of diligence expected of a banking
institution under the existing factual circumstances.
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 (SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it
to him. Considering however, that the named payee does not have an account with Equitable
(hence, the latter has no specimen signature of SSPI by which to judge the genuineness of its
indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uy’s word that
he had a good title to the three checks. Such misplaced reliance on empty words is
tantamount to gross negligence, which is the “absence of or failure to exercise even slight
care or diligence, or the entire absence of care, evincing a thoughtless disregard of
consequences without exerting any effort to avoid them.”
G.R. No. 157943. September 4, 2013.*

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. GILBERT REYES WAGAS,
accused-appellant.
Mercantile Law; Negotiable Instruments Law; Checks; Under the Negotiable

Instruments Law, a check payable to cash is payable to the bearer and could be negotiated by
mere delivery without the need of an indorsement.—The check delivered to Ligaray was made
payable to cash. Under the Negotiable Instruments Law, this type of check was payable to
the bearer and could be negotiated by mere delivery without the need of an indorsement.
This rendered it highly probable that Wagas had issued the check not to Ligaray, but to
somebody else like Cañada, his brother-in-law, who then negotiated it to Ligaray. Relevantly,
Ligaray confirmed that he did not himself see or meet Wagas at the time of the transaction
and thereafter, and expressly stated that the person who signed for and received the stocks
of rice was Cañada.
G.R. No. 158143. September 21, 2011.*

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. ANTONIO B.
BALMACEDA and ROLANDO N. RAMOS, respondents.
Banks and Banking; Negotiable Instruments Law; Checks; Crossed Checks; Words and
Phrases; A crossed check is one where two parallel lines are drawn across its face or across
its corner; 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.—Another
telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the
Manager’s 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
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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 payee’s account. In complete disregard of this
duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which were all
crossed checks, or checks payable to the “payee’s account only.”
Same; Same; Same; The diligence required of banks is more than that of a Roman pater
familias or a good father of a family—the highest degree of diligence is expected.—The
General Banking Law of 2000 requires of banks the highest standards of integrity and
performance. The banking business is impressed with public interest. Of paramount
importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Roman pater familias or
a good father of a family. The highest degree of diligence is expected.
G.R. No. 170912. April 19, 2010.*

ROBERT DINO, petitioner, vs. MARIA LUISA JUDAL-LOOT, joined by her husband
VICENTE LOOT, respondents.
Mercantile Law; Negotiable Instruments Law; Checks; Crossed Checks; The act of
crossing a check serves as a warning to the holder that the check has been issued for a definite
purpose so that the holder thereof must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.—The act of crossing a check serves as a
warning to the holder that the check has been issued for a definite purpose so that the holder
thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is
not a holder in due course. Contrary to respondents’ view, petitioner never changed his
theory, that respondents are not holders in due course of the subject check, as would violate
fundamental rules of justice, fair play, and due process. Besides, the subject check was
presented and admitted as evidence during the trial and respondents did not and in fact
cannot deny that it is a crossed check.
Mercantile Law; Negotiable Instruments Law; “Holder in Due Course,” Defined.—

Section 52 of the Negotiable Instruments Law defines a holder in due course, thus: “A holder
in due course is a holder who has taken the instrument under the following conditions: (a)
That it is complete and regular upon its face; (b) That he became the holder of it before it was
overdue, and without notice that it has been previously dishonored, if such was the fact; (c)
That he took it in good faith and for value; (d) That at the time it was negotiated to him, he
had no notice of any infirmity in the instrument or defect in the title of the person
negotiating it.”
Same; Same; Checks; Crossed Checks; Principles that must be considered in the
treatment of crossed checks.—In the case of a crossed check, as in this case, the following
principles must additionally be considered: A crossed check (a) may not be encashed but only
deposited in the bank; (b) may be negotiated only once—to one who has an account with a
bank; and (c) warns the holder that it has been issued for a definite purpose so that the
holder thereof must inquire if he has received the check pursuant to that purpose; otherwise,
he is not a holder in due course.
Same; Same; Same; Same; “Special Crossed Check,” and General Crossed Check,”
Defined; Crossing a check is done by placing two parallel lines diagonally on the left top
portion of the check.—Under usual practice, crossing a check is done by placing two parallel
Atty. Sergio Ceniza
lines diagonally on the left top portion of the check. The crossing may be special wherein
between the two parallel lines is written the name of a bank or a business institution, in
which case the drawee should pay only with the intervention of that bank or company, or
crossing may be general wherein between two parallel diagonal lines are written the words
“and Co.” or none at all as in the case at bar, in which case the drawee should not encash the
same but merely accept the same for deposit. The effect therefore of crossing a check relates
to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments
Law, presentment for payment to be sufficient must be made (a) by the holder, or by some
person authorized to receive payment on his behalf x x x As to who the holder or authorized
person will be depends on the instructions stated on the face of the check.
Same; Same; Same; Holder in Due Course; The Negotiable Instruments Law does not
provide that a holder who is not a holder in due course may not in any case recover on the
instrument; The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable.—The fact that respondents are
not holders in due course does not automatically mean that they cannot recover on the check.
The Negotiable Instruments Law does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument. The only disadvantage of a holder who
is not in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable. Among such defenses is the absence or failure of consideration, which petitioner
sufficiently established in this case. Petitioner issued the subject check supposedly for a loan
in favor of Consing’s group, who turned out to be a syndicate defrauding gullible individuals.
Since there is in fact no valid loan to speak of, there is no consideration for the issuance of
the check. Consequently, petitioner cannot be obliged to pay the face value of the check.
G.R. No. 121413. January 29, 2001.*

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK
OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A., respondents.
Banks and Banking; Negotiable Instruments; Checks; The mere fact that the forgery was
committed by a drawer-payor’s confidential employee or agent, who by virtue of his position
had unusual facilities for perpetrating the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstances raising estoppel against the drawer.—It appears that although the employees
of Ford initiated the transactions attributable to an organized syndicate, in our view, their
actions were not the proximate cause of encashing the checks payable to the CIR. The degree
of Ford’s negligence, if any, could not be characterized as the proximate cause of the injury to
the parties. The Board of Directors of Ford, we note, did not confirm the request of Godofredo
Rivera to recall Citibank Check No. SN-04867. Rivera’s instruction to replace the said check
with PCIBank’s Manager’s Check was not in the ordinary course of business which could
have prompted PCIBank to validate the same. As to the preparation of Citibank Checks Nos.
SN-10597 and 16508, it was established that these checks were made payable to the CIR.
Both were crossed checks. These checks were apparently turned around by Ford’s employees,
who were acting on their own personal capacity. Given these circumstances, the mere fact
that the forgery was committed by a drawer-payor’s confidential employee or agent, who by
virtue of his position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in
the absence of some circumstance raising estoppel against the drawer. This rule likewise
applies to the checks fraudulently negotiated or diverted by the confidential employees who
hold them in their possession.
Atty. Sergio Ceniza
Same; Checks; Collecting Banks; Taxation; A bank authorized to collect the payment of
taxpayers in behalf of the Bureau of Internal Revenue is duty bound to consult its principal
regarding the unwarranted instructions given by the pay or of its agent.—Citibank Check No.
SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the
ordinary banking transaction, sent to Central Clearing with the indorsement at the back “all
prior indorsements and/or lack of indorsements guaranteed,” and was presented to Citibank
for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared
two of its Manager's checks and enabled the syndicate to encash the same. On record,
PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter requesting for the replacement of the
Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence
required in the circumstances. Furthermore, it was admitted that PCIBank is authorized to
collect the payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty
bound to consult its principal regarding the unwarranted instructions given by the payor or
its agent.
Same; Same; Same; Negotiable Instruments; It is a well-settled rule that the relationship
between the payee or holder of commercial paper and the bank to which it is sent for collection
is, in the absence of an agreement to the contrary, that of principal and agent.—It is a well-
settled rule that the relationship between the payee or holder of commercial paper and the
bank to which it is sent for collection is, in the absence of an agreement to the contrary, that
of principal and agent. A bank which receives such paper for collection is the agent of the
payee or holder.
Same; Same; Same; Even considering arguendo, that the diversion of the amount of a
check payable to the collecting bank in behalf of the designated payee may be allowed, still
such diversion must be properly authorized by the payor.—Even considering arguendo, that
the diversion of the amount of a check payable to the collecting bank in behalf of the
designated payee may be allowed, still such diversion must be properly authorized by the
payor. Otherwise stated, the diversion can be justified only by proof of authority from the
drawer, or that the drawer has clothed his agent with apparent authority to receive the
proceeds of such check.
Same; Same; Same; Crossed Checks; Words and Phrases; The crossing of the check with
the phrase “Payee’s Account Only,” is a warning that the check should be deposited only in the
account of the payee; It is the collecting bank which is bound to scrutinize the check and to
know its depositors before it could make the clearing indorsement “all prior indorsements and
lor lack ofindorsement guaranteed.”—Indeed, the crossing of the check with the phrase
“Payee’s Account Only,” is a warning that the check should be deposited only in the account
of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be
deposited in payee’s account only. Therefore, it is the collecting bank (PCIBank) which is
bound to scrutinize the check and to know its depositors before it could make the clearing
indorsement “all prior indorsements and/or lack of indorsement guaranteed.”
Same; Same; Same; A bank which cashes a check drawn upon another bank, without
requiring proof as to the identity of persons presenting it, or making inquiries with regard to
them, cannot hold the proceeds against the drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party.—Banking business requires that the one
who first cashes and negotiates the check must take some precautions to learn whether or
not it is genuine. And if the one cashing the check through indifference or other circumstance
assists the forger in committing the fraud, he should not be permitted to retain the proceeds
of the check from the drawee whose sole fault was that it did not discover the forgery or the
defect in the title of the person negotiating the instrument before paying the check. For this
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reason, a bank which cashes a check drawn upon another bank, without requiring proof as to
the identity of persons presenting it, or making inquiries with regard to them, cannot hold
the proceeds against the drawee when the proceeds of the checks were afterwards diverted to
the hands of a third party. In such cases the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of
the authenticity of the negotiation of the checks. Thus, one who encashed a check which had
been forged or diverted and in turn received payment thereon from the drawee, is guilty of
negligence which proximately contributed to the success of the fraud practiced on the drawee
bank. The latter may recover from the holder the money paid on the check.
G.R. No. 112392. February 29, 2000.*

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.COURT OF APPEALS and
BENJAMIN C. NAPIZA, respondents.
Negotiable Instruments Law; Warranties of a person negotiating an instrument by

delivery or by qualified indorsement.—–Section 65, on the other hand, provides for the
following warranties of a person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it; and (c) that all prior parties had capacity to contract.
Banks and Banking; Passbooks; The requirement of presentation of the passbook when
withdrawing an amount cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so.—–The withdrawal slip contains a boxed
warning that states: “This receipt must be signed and presented with the corresponding
foreign currency savings passbook by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority at the back.” The requirement of
presentation of the passbook when withdrawing an amount cannot be given mere lip service
even though the person making the withdrawal is authorized by the depositor to do so. This
is clear from Rule No. 6 set out by petitioner so that, for the protection of the bank’s interest
and as a reminder to the depositor, the withdrawal shall be entered in the depositor’s
passbook. The fact that private respondent’s passbook was not presented during the
withdrawal is evidenced by the entries therein showing that the last transaction that he
made with the bank was on September 3, 1984, the date he deposited the controversial check
in the amount of $2,500.00.
Same; Negotiable Instruments Law; Checks; A negotiable instrument, such as a check,

whether a manager’s check or ordinary check, is not legal tender.—–As correctly held by the
Court of Appeals, in depositing the check in his name, private respondent did not become the
outright owner of the amount stated therein. Under the above rule, by depositing the check
with petitioner, private respondent was, in a way, merely designating petitioner as the
collecting bank. This is in consonance with the rule that a negotiable instrument, such as a
check, whether a manager’s check or ordinary check, is not legal tender. As such, after
receiving the deposit, under its own rules, petitioner shall credit the amount in private
respondent’s 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. Again, this is in accordance
with ordinary banking practices and with this Court’s pronouncement that “the collecting
bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements.” The rule finds more meaning in this
case where the check involved is drawn on a foreign bank and therefore collection is more
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difficult than when the drawee bank is a local one even though the check in question is a
manager’s check.
Same; Same; Same; Words and Phrases; “Manager’s Check"Explained; A manager’s

check is like a cashier’s check which, in the commercial world, is regarded substantially to be
as good as the money it represents.—–A manager’s check is like a cashier’s check which, in
the commercial world, is regarded substantially to be as good as the money it represents
Same; Same; In dealing with its depositors, a bank should exercise its functions not only
with the diligence of a good father of a family but it should do so with the highest degree of
care.—–Said ruling brings to light the fact that the banking business is affected with public
interest. By the nature of its functions, a bank is under obligation to treat the accounts of its
depositors “with meticulous care, always having in mind the fiduciary nature of their
relationship.” As such, in dealing with its depositors, a bank should exercise its functions not
only with the diligence of a good father of a family but it should do so with the highest degree
of care.
Same; Same; Same; Even after the lapse of the 35-day period, the amount of a deposited
check cannot be withdrawn in the absence of a clearance thereon.—–From these facts on
record, it is at once apparent that petitioner’s personnel allowed the withdrawal of an
amount bigger than the original deposit of $750.00 and the value of the check deposited in
the amount of $2,500.00 although they had not yet received notice from the clearing bank in
the United States on whether or not the check was funded. Reyes’ 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.
G.R. No. 125059. March 17, 2000.*

FRANCISCO T. SYCIP, JR., petitioner, vs. COURT OF APPEALS and PEOPLE OF
THE PHILIPPINES, respondents.
Admittedly, what are involved here are postdated checks. Postdating simply means that
on the date indicated on its face, the check would be properly funded, not that the checks
should be deemed as issued only then. The checks in this case were issued at the time of the
signing of the Contract to Sell in August 1989. But we find from the records no showing that
at the time said checks were issued, petitioner had knowledge that his deposit or credit in
the bank would be insufficient to cover them when presented for encashment. On the
contrary, there is testimony by petitioner that at the time of presentation of the checks, he
had P150,000.00 cash or credit with Citibank.
As the evidence for the defense showed, the closure of petitioner’s Account No. 845515
with Citibank was not for insufficiency of funds. It was made upon the advice of the drawee
bank, to avoid payment of hefty bank charges each time petitioner issued a “stop payment”
order to prevent encashment of postdated checks in private respondent’s possession. Said
evidence contradicts the prima faciepresumption of knowledge of insufficiency of funds. But
it establishes petitioner’s state of mind at the time said checks were issued on August 24,
1989. Petitioner definitely had no knowledge that his funds or credit would be insufficient
when the checks would be presented for encashment. He could not have foreseen that he
would be advised by his own bank in the future, to close his account to avoid paying the hefty
banks charges that came with each “stop payment” order issued to prevent private
respondent from encashing the 30 or so checks in its possession. What the prosecution has
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established is the closure of petitioner’s checking account. But this does not suffice to prove
the second element of the offense under B.P. Blg. 22, which explicitly requires “evidence of
knowledge of insufficient funds” by the accused at the time the check or checks are presented
for encashment.
To rely on the presumption created by B.P. No. 22 as the prosecution did in this case,
would be to misconstrue the import of requirements for conviction under the law. It must be
stressed that every element of the offense must be proved beyond reasonable doubt, never
presumed. Furthermore, penal statutes are strictly construed against the State and liberally
in favor of the accused. Under the Bouncing Checks Law, the punishable act must come
clearly within both the spirit and letter of the statute.17
G.R. No. 150618. July 24, 2003.*

EVANGELINE CABRERA, petitioner, vs. PEOPLE OF THE PHILIPPINES and LUIS
GO, respondents.
Same; Same; Same; To create the prima facie presumption, that the issuer knew of the
insufficiency of funds, it must be shown that he or she received a notice of dishonor and within
five banking days thereafter, failed to satisfy the amount of the check or shall arrange for its
payment; Presumption is not conclusive, or one that forecloses or precludes the presentation of
evidence to the contrary.—In order to create the prima facie presumption, that the issuer
knew of the insufficiency of funds, it must be shown that he or she received a notice of
dishonor and within five banking days thereafter, failed to satisfy the amount of the check or
shall arrange for its payment. The prosecution is burdened to prove the acts that gave rise to
the prima facie presumption. On the other hand, the drawer has the right to adduce evidence
to rebut the same. It is important to stress that this presumption is not conclusive, or one
that forecloses or precludes the presentation of evidence to the contrary. Thus, the drawer of
the check can still overturn the prima facie presumption by proving that the holder thereof
was paid the amount due thereon, or that arrangements were made for payment in full by
the drawee of the check within five banking days after receipt of notice that such check has
not been paid by the drawee bank.
Same; Same; Same; The full payment of the amount of the check within five banking
days from receipt of notice of dishonor is a complete defense.—In Lao vs. Court of Appeals,this
Court ruled that the full payment of the amount of the check within five banking days from
receipt of notice of dishonor is a complete defense. Hence, the absence of a notice of dishonor
necessarily deprives the drawer of the check the opportunity to preclude criminal
prosecution.
Same; Same; Same; A mere oral notice or demand to pay is insufficient compliance with
the requirements of the law.—InDomagsang vs. Court of Appeals, this Court held that a mere
oral notice or demand to pay is insufficient compliance with the requirements of the law.
Same; Same; Same; That a notice of dishonor was sent to the drawee of the check not
enough for the prosecution.—It is not enough for the prosecution to prove that a notice of
dishonor was sent to the drawee of the check. It must also show that the drawer of the check
received the said notice because the fact of service provided for in the law is reckoned from
receipt of such notice of dishonor by the drawee of the check.
Same; Same; Same; A check is an evidence of debt against the drawer, and although
may not be intended to be presented, has the same effect as an ordinary check, and if passed
upon to a third person, will be valid in his hands like any other check.—We uphold the
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decision of the CA affirming the trial court’s decision ordering the petitioner to pay to the
private respondent the total face value of the checks in the amount of P209,175.45. We stress
that a check is an evidence of debt against the drawer, and although may not be intended to
be presented, has the same effect as an ordinary check, and if passed upon to a third person,
will be valid in his hands like any other check. Hence, the petitioner is obliged to pay to the
private respondent Luis Go the said amount of P209,175.45 with 12% legal interest per
annum, from the filing of the information until the finality of this decision, the sum of which,
inclusive of interest, shall be subject thereafter to 12% per annum interest until the amount
due is fully paid.
G.R. No. 156294. November 29, 2006.*

MELVA THERESA ALVIAR GONZALES, petitioner, vs.
RIZAL COMMERCIAL BANKING CORPORATION, respondent.
Negotiable Instruments; Checks; A subsequent party which caused the defect in the
instrument cannot have any recourse against any of the prior endorsers in good faith.—The
dollar-check in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical
Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank N.A., was
dishonored because of “End. Irregular,” i.e., an irregular endorsement. While the foreign
drawee bank did not specifically state which among the four signatures found on the dorsal
portion of the check made the check irregularly endorsed, it is absolutely undeniable that
only the signature of Olivia Gomez, an RCBC employee, was a qualified endorsement
because of the phrase “up to P17,500.00 only.” There can be no other acceptable explanation
for the dishonor of the foreign check than this signature of Olivia Gomez with the phrase “up
to P17,500.00 only” accompanying it. This Court definitely agrees with the petitioner that
the foreign drawee bank would not have dishonored the check had it not been for this
signature of Gomez with the same phrase written by her. The foreign drawee bank, Wilshire
Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don Zapanta
because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is,
therefore, a useless piece of paper if returned in that state to its original payee, Eva Alviar.
There is no doubt in the mind of the Court that a subsequent party which caused the defect
in the instrument cannot have any recourse against any of the prior endorsers in good faith.
Eva Alviar’s and the petitioner’s liability to subsequent holders of the foreign check is
governed by the Negotiable Instruments Law.
Same; Same; Equity; The holder or subsequent endorser who tries to claim under the
instrument which had been dishonored for “irregular endorsement” must not be the irregular
endorser himself who gave cause for the dishonor; Courts of law, being also courts of equity,
may not countenance grossly unfair results without doing violence to their solemn obligation
to administer fair and equal justice for all.—Section 66 of the Negotiable Instruments Law
which further states that the general endorser additionally engages that, on due
presentment, the instrument shall be accepted or paid, or both, as the case may be, according
to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may
be compelled to pay it, must be read in the light of the rule in equity requiring that those
who come to court should come with clean hands. The holder or subsequent endorser
who tries to claim under the instrument which had been dishonored for “irregular
endorsement” must not be the irregular endorser himself who gave cause for the dishonor.
Otherwise, a clear injustice results when any subsequent party to the instrument may
simply make the instrument defective and later claim from prior endorsers who have no
knowledge or participation in causing or introducing said defect to the instrument, which
thereby caused its dishonor. Courts in this jurisdiction are not only courts of law but also of
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equity, and therefore cannot unqualifiedly apply a provision of law so as to cause clear
injustice which the framers of the law could not have intended to so deliberately cause.
In Carceller v. Court of Appeals, 302 SCRA 718 (1999), this Court had occasion to stress:
“Courts of law, being also courts of equity, may not countenance such grossly unfair results
without doing violence to its solemn obligation to administer fair and equal justice for all.”
G.R. No. 156262. July 14, 2005.*

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses
ANASTACIO and MARY T. BUENA-VENTURA, petitioners, vs. HEIRS OF
BARTOLOME RAMOS, respondents.
Negotiable Instruments Law; After an instrument is dishonored by nonpayment,

indorsers cease to be merely secondarily liable, they become principal debtors whose liability
becomes identical to that of the original obligor.—As indorser, Petitioner Maria Tuazon
warranted that upon due presentment, the checks were to be accepted or paid, or both,
according to their tenor; and that in case they were dishonored, she would pay the
corresponding amount. After an instrument is dishonored by nonpayment, indorsers cease to
be merely secondarily liable; they become principal debtors whose liability becomes identical
to that of the original obligor. The holder of a negotiable instrument need not even proceed
against the maker before suing the indorser. Clearly, Evangeline Santos—as the drawer of
the checks—is not an indispensable party in an action against Maria Tuazon, the indorser of
the checks.
G.R. No. 126490. March 31, 1998.*

ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M. B. LENDING
CORPORATION, respondents.
Civil Law; Contracts; It has been the consistent holding of the Court that contracts of
adhesion are not invalid per se and that on numerous occasions the binding effects thereof
have been upheld.—At the outset, let it here be stressed that even assumingarguendo that
the promissory note executed between the parties is a contract of adhesion, it has been the
consistent holding of the Court that contracts of adhesion are not invalid per se and that on
numerous occasions the binding effects thereof have been upheld. The peculiar nature of
such contracts necessitate a close scrutiny of the factual milieu to which the provisions are
intended to apply. Hence, just as consistently and unhesitatingly, but without categorically
invalidating such contracts, the Court has construed obscurities and ambiguities in the
restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the
drafter thereof when justified in light of the operative facts and surrounding circumstances.
The factual scenario obtaining in the case before us warrants a liberal application of the rule
in favor of respondent corporation.
Same; Same; It is a cardinal rule in the interpretation of contracts that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control.—It is a cardinal rule in the interpretation of
contracts that if the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulation shall control. In the case at bar,
petitioner expressly bound herself to be jointly and severally or solidarily liable with the
principal maker of the note. The terms of the contract are clear, explicit and unequivocal that
petitioner’s liability is that of a surety.
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Same; Same; Fraud must be established by clear and convincing evidence, mere
preponderance of evidence not even being adequate.—Petitioner admits that she voluntarily
affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any
reference to the existence of fraud is unavailing. Fraud must be established by clear and
convincing evidence, mere preponderance of evidence not even being adequate. Petitioner’s
attempt to prove fraud must, therefor, fail as it was evidenced only by her own
uncorroborated and, expectedly, self-serving allegations.
Same; Same; Suretyship; The rule that ignorance of the contents of an instrument does
not ordinarily affect the liability of one who signs it also applies to contracts of suretyship.—
Having entered into the contract with full knowledge of its terms and conditions, petitioner
is estopped to assert that she did so under a misapprehension or in ignorance of their legal
effect, or as to the legal effect of the undertaking. The rule that ignorance of the contents of
an instrument does not ordinarily affect the liability of one who signs it also applies to
contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is
ordinarily no reason for relieving her of liability.
Same; Same; Same; Guaranty; Suretyship and Guaranty Distinguished.—A surety is an

insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A
suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that
the debtor shall pay. Stated differently, a surety promises to pay the principal’s debt if the
principal will not pay, while a guarantor agrees that the creditor, after proceeding against
the principal, may proceed against the guarantor if the principal is unable to pay. A surety
binds himself to perform if the principal does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the principal will pay, but simply that
he is able to do so. In other words, a surety undertakes directly for the payment and is so
responsible at once if the principal debtor makes default, while a guarantor contracts to pay
if, by the use of due diligence, the debt cannot be made out of the principal debtor.
Same; Same; Same; It is a well-entrenched rule that in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall also be principally
considered.—It is a well-entrenched rule that in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall also be principally
considered. Several attendant factors in that genre lend support to our finding that
petitioner is a surety. For one, when petitioner was informed about the failure of the
principal debtor to pay the loan, she immediately offered to settle the account with
respondent corporation. Obviously, in her mind, she knew that she was directly and
primarily liable upon default of her principal. For another, and this is most revealing,
petitioner presented the receipts of the payments already made, from the time of initial
payment up to the last, which were all issued in her name and of the Azarraga spouses. This
can only be construed to mean that the payments made by the principal debtors were
considered by respondent corporation as creditable directly upon the account and inuring to
the benefit of petitioner. The concomitant and simultaneous compliance of petitioner’s
obligation with that of her principals only goes to show that, from the very start, petitioner
considered herself equally bound by the contract of the principal makers.
Same; Same; Same; A surety is bound equally and absolutely with the principal and as
such is deemed an original promisor and debtor from the beginning.—In this regard, we need
only to reiterate the rule that a surety is bound equally and absolutely with the principal,
and as such is deemed an original promisor and debtor from the beginning. This is because in
suretyship there is but one contract, and the surety is bound by the same agreement which
binds the principal. In essence, the contract of a surety starts with the agreement, which is
precisely the situation obtaining in this case before the Court.
Atty. Sergio Ceniza
Same; Same; Same; A surety is not even entitled, as a matter of rights to be given notice
of the principal’s default.—Even if it were otherwise, demand on the sureties is not necessary
before bringing suit against them, since the commencement of the suit is a sufficient
demand. On this point, it may be worth mentioning that a surety is not even entitled, as a
matter of right, to be given notice of the principal’s default. Inasmuch as the creditor owes no
duty of active diligence to take care of the interest of the surety, his mere failure to
voluntarily give information to the surety of the default of the principal cannot have the
effect of discharging the surety. The surety is bound to take notice of the principal’s default
and to perform the obligation. He cannot complain that the creditor has not notified him in
the absence of a special agreement to that effect in the contract of suretyship.
Same; Same; Same; A surety is liable as much as his principal is liable and absolutely
liable as soon as default is made without any demand upon the principal whatsoever or nay
notice of default.—The alleged failure of respondent corporation to prove the fact of demand
on the principal debtors, by not attaching copies thereof to its pleadings, is likewise
immaterial. In the absence of a statutory or contractual requirement, it is not necessary that
payment or performance of his obligation be first demanded of the principal, especially where
demand would have been useless; nor is it a requisite, before proceeding against the sureties,
that the principal be called on to account. The underlying principle therefor is that a
suretyship is a direct contract to pay the debt of another. A surety is liable as much as his
principal is liable, and absolutely liable as soon as default is made, without any demand
upon the principal whatsoever or any notice of default. As an original promisor and debtor
from the beginning, he is held ordinarily to know every default of his principal.
Same; Same; Same; A creditor’s right to proceed against the surety exists independently
of his right to proceed against the principal; The rule, therefore, is that if the obligation is
joint and several, the creditor has the right to proceed even against the surety alone.—A
creditor’s right to proceed against the surety exists independently of his right to proceed
against the principal. Under Article 1216 of the Civil Code, the creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is
that if the obligation is joint and several, the creditor has the right to proceed even against
the surety alone. Since, generally, it is not necessary for a creditor to proceed against a
principal in order to hold the surety liable, where, by the terms of the contract, the obligation
of the surety is the same as that of the principal, then as soon as the principal is in default,
the surety is likewise in default, and may be sued immediately and before any proceedings
are had against the principal. Perforce, in accordance with the rule that, in the absence of
statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper
remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at
law, unless permitted by statute and in the absence of any agreement limiting the
application of the security, require the creditor or obligee, before proceeding against the
surety, to resort to and exhaust his remedies against the principal, particularly where both
principal and surety are equally bound.
G.R. No. 117660. December 18, 2000.*

AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON.
COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC, respondents.
Contracts; Sales; A contract of sale is a reciprocal transaction, the obligation or promise

of each party being the cause or consideration for the obligation or promise of the other.—A
contract of sale is a reciprocal transaction. The obligation or promise of each party is the
cause or consideration for the obligation or promise by the other. The vendee is obliged to pay
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the price, while the vendor must deliver actual possession of the land. In the instant case the
original plan was that the initial payments would be paid in cash. Subsequently, the parties
(with the participation of respondent bank) executed an addendum providing instead, that
the petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total
amount of the initial payments, while the settlement of said loan would be assumed by
Wonderland. Thereafter, petitioner Soriano signed several promissory notes and received the
proceeds in behalf of petitioner-company.
Same; Same; Suretyships; Accommodation Parties; Words and Phrases; An

accommodation party is a person who has signed the instrument as maker, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some
other person and is liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew (the signatory) to be an accommodation
party; Suretyship is defined as the relation which exists where one person has undertaken an
obligation and another person is also under the obligation or other duty to the obligee, who is
entitled to but one performance, and as between the two who are bound, one rather than the
other should perform.—By this time, we note a subsidiary contract of suretyship had taken
effect since petitioners signed the promissory notes as maker and accommodation party for
the benefit of Wonderland. Petitioners became liable as accommodation party. An
party. He has the right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them has in effect become one of principal and
surety, the accommodation party being the surety. Suretyship is defined as the relation
which exists where one person has undertaken an obligation and another person is also
under the obligation or other duty to the obligee, who is entitled to but one performance, and
as between the two who are bound, one rather than the other should perform. The surety’s
liability to the creditor or promisee of the principal is said to be direct, primary and absolute;
in other words, he is directly and equally bound with the principal. And the creditor may
proceed against any one of the solidary debtors.
G.R. No. 157309. March 28, 2008.*

MARLOU L. VELASQUEZ, petitioner, vs. SOLIDBANK CORPORATION,
respondent.
Negotiable Instruments; Foreign Bills of Exchange; Protests; When a foreign bill is

dishonored by non-acceptance or non-payment, protest is necessary to hold the drawer and
indorsers liable.—Admittedly, petitioner was discharged from liability under the sight draft
when respondent failed to protest it for non-acceptance by the Bank of Seoul. A sight draft
made payable outside the Philippines is a foreign bill of exchange. When a foreign bill is
dishonored by non-acceptance or non-payment, protest is necessary to hold the drawer and
indorsers liable. Verily, respondent’s failure to protest the non-acceptance of the sight draft
resulted in the discharge of petitioner from liability under the instrument.
Same; Same; Same; Even if an indorser of a sight draft was discharged from liability for
failure of the holder to protest for non-acceptance, he would still be liable under his letter of
undertaking since the same is independent from his liability under the sight draft—liability
subsists on it even if the sight draft was dishonored for non-acceptance or non-payment.—
Atty. Sergio Ceniza
Petitioner, however, can still be made liable under the letter of undertaking. It bears
stressing that it is a separate contract from the sight draft. The liability of petitioner under
the letter of undertaking is direct and primary. It is independent from his liability under the
sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance
or non-payment. Respondent agreed to purchase the draft and credit petitioner its value
upon the undertaking that he will reimburse the amount in case the sight draft is
dishonored. The bank would certainly not have agreed to grant petitioner an advance export
payment were it not for the letter of undertaking. The consideration for the letter of
undertaking was petitioner’s promise to pay respondent the value of the sight draft if it was
dishonored for any reason by the Bank of Seoul.
Same; Same; Guaranty; A person cannot be both the primary debtor and the guarantor
of his own debt—this is inconsistent with the very purpose of a guarantee which is for the
creditor to proceed against a third person if the debtor defaults in his obligation.—We cannot
accept petitioner’s thesis that he is only a mere guarantor under the letter of credit.
Petitioner cannot be both the primary debtor and the guarantor of his own debt. This is
inconsistent with the very purpose of a guarantee which is for the creditor to proceed against
a third person if the debtor defaults in his obligation. Certainly, to accept such an argument
would make a mockery of commercial transactions.
Same; Same; Obligations and Contracts; Parties are bound to fulfill what has been
expressly stipulated in the contract.—Respondent need not prove that petitioner violated the
provisions of the letter of credit in order to be held liable under the letter of undertaking.
Parties are bound to fulfill what has been expressly stipulated in the contract. Petitioner’s
liability under the letter of undertaking is clear. He is liable to respondent if the sight draft
is not accepted by the Bank of Seoul. Mere non-acceptance of the sight draft is sufficient for
liability to attach. Here, the sight draft was dishonored for non-acceptance. The non-
acceptance of the sight draft triggered petitioner’s liability under the letter of undertaking.
G.R. No. 109491. February 28, 2001.*

ATRIUM MANAGEMENT CORPORATION, petitioner, vs.COURT OF APPEALS,
E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR.,
AND HI-CEMENT CORPORATION, respondents.
Corporation Law; Ultra Vires Acts; Checks; The act of issuing checks for the purpose of
securing a loan to finance the activities of the corporation is well within the ambit of a valid
corporate act, hence, not an ultra vires act.—Hi-Cement, however, maintains that the checks
were not issued for consideration and that Lourdes and E.T. Henry engaged in a “kiting
operation” to raise funds for E.T. Henry, who admittedly was in need of financial assistance.
The Court finds that there was no sufficient evidence to show that such is the case. Lourdes
M. de Leon is the treasurer of the corporation and is authorized to sign checks for the
corporation. At the time of the issuance of the checks, there were sufficient funds in the bank
to cover payment of the amount of P2 million pesos. It is, however, our view that there is
basis to rule that the act of issuing the checks was well within the ambit of a valid corporate
act, for it was for securing a loan to finance the activities of the corporation, hence, not
an ultra vires act.
Same; Same; Words and Phrases; “Ultra Vires Acts,” Explained.—“An ultra vires act is
one committed outside the object for which a corporation is created as defined by the law of
its organization and therefore beyond the power conferred upon it by law.” The term “ultra
vires” is “distinguished from an illegal act for the former is merely voidable which may be
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enforced by performance, ratification, or estoppel, while the latter is void and cannot be
validated.”
Same; Same; Instances when personal liability of corporate directors, trustees or officers
may validly attach.—The next question to determine is whether Lourdes M. de Leon and
Antonio de las Alas were personally liable for the checks issued as corporate officers and
authorized signatories of the check. “Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the corporation may so validly attach, as a rule,
only when: “1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith
or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages
to the corporation, its stockholders or other persons; “2. He consents to the issuance of
watered down stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; “3. He agrees to hold himself personally
and solidarily liable with the corporation; or “4. He is made, by a specific provision of law, to
personally answer for his corporate action.”
Same; Same; Checks; A treasurer of a corporation whose negligence in signing a

confirmation letter for rediscounting of crossed checks, knowing fully well that the checks were
strictly endorsed for deposit only to the payee’s account and not to be further negotiated,
resulting in damage to the corporation may be personally liable therefor.—In the case at bar,
Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of HiCement were
authorized to issue the checks. However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the
checks were strictly endorsed for deposit only to the payee’s account and not to be further
negotiated. What is more, the confirmation letter contained a clause that was not true, that
is, “that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement
from E.T. Henry.” Her negligence resulted in damage to the corporation. Hence, Ms. de Leon
may be held personally liable therefor.
Negotiable Instrument Law; Checks; Words and Phrases;“Holder in Due Course,”

Explained.—The next issue is whether or not petitioner Atrium was a holder of the checks in
due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus:
“A holder in due course is a holder who has taken the instrument under the following
conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of
it before it was overdue, and without notice that it had been previously dishonored, if such
was the fact; (c) That he took it in good faith and for value; (d) That at the time it was
negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.”
Same; Same; A person to whom a crossed check was endorsed by the payee of said check
could not be considered a holder in due course.—In the instant case, the checks were crossed
checks and specifically indorsed for deposit to payee’s account only. From the beginning,
Atrium was aware of the fact that the checks were all for deposit only to payee’s account,
meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.
Same; Same; A holder not in due course may still recover on the instrument.—It does not
follow as a legal proposition that simply because petitioner Atrium was not a holder in due
course for having taken the instruments in question with notice that the same was for
deposit only to the account of payee E.T. Henry that it was altogether precluded from
recovering on the instrument. The Negotiable Instruments Law does not provide that a
holder not in due course can not recover on the instrument.
Atty. Sergio Ceniza
Same; Same; The disadvantage of a holder not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable, such as absence or failure of
consideration.—The disadvantage of Atrium in not being a holder in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable. One such defense is
absence or failure of consideration.
G.R. No. 157833. October 15, 2007.*
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.
GREGORIO C. ROXAS, respondent.
Negotiable Instruments Law; “Holder in Due Course,” Explained.—SEC. 52. What

constitutes a holder in due course.—A holder in due course is a holder who has taken the
instrument under the following conditions: (a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue and without notice that it had been
previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d)
That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of person negotiating it.
Same; Same; Presumption; Every holder is presumed prima facie to be a holder in due
course and he who claims otherwise has the onus probandi to prove that one or more of the
conditions required to constitute a holder in due course are lacking.—As a general rule, under
the above provision, every holder is presumedprima facie to be a holder in due course. One
who claims otherwise has the onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking. In this case, petitioner contends
that the element of “value” is not present, therefore, respondent could not be a holder in due
course.
Same; Same; Same; Words and Phrases; Value in general terms may be some right,
interest, profit or benefit to the party who makes the contract or some forbearance, detriment,
loan, responsibility, etc. on the other side.—In Walker Rubber Corp. v. Nederlandsch Indische
& Handelsbank, N.V. and South Sea Surety & Insurance Co., Inc., 105 Phil. 934, this Court
ruled that value “in general terms may be some right, interest, profit or benefit to the party
who makes the contract or some forbearance, detriment, loan, responsibility, etc. on the other
side.” Here, there is no dispute that respondent received Rodrigo Cawili’s cashier’s check as
payment for the former’s vegetable oil. The fact that it was Rodrigo who purchased the
cashier’s check from petitioner will not affect respondent’s status as a holder for value since
the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili.
Verily, the Court of Appeals did not err in concluding that respondent is a holder in due
course of the cashier’s check.
Same; Same; Checks; Cashier’s Check; Judicial Notice; The Supreme Court has taken
judicial notice of the well-known and accepted practice in the business sector that a cashier’s
check is deemed as cash; Cashier’s check is really the bank’s own check and may be treated as
a promissory note with the bank as the maker.—It bears emphasis that the disputed check is
a cashier’s check. InInternational Corporate Bank v. Spouses Gueco, 351 SCRA 516 (2001),
this Court held that a cashier’s check is really the bank’s own check and may be treated as a
promissory note with the bank as the maker. The check becomes the primary obligation of
the bank which issues it and constitutes a written promise to pay upon demand. In New
Pacific Timber & Supply Co., Inc. v. Señeris, 101 SCRA 686 (1980), this Court took judicial
notice of the “well-known and accepted practice in the business sector that a cashier’s check
is deemed as cash.” This is because the mere issuance of a cashier’s check is considered
acceptance thereof.
Atty. Sergio Ceniza
G.R. No. 117660. December 18, 2000.*
AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON.
COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC, respondents.
Same; Same; Suretyships; Accommodation Parties; Words and Phrases; An

party; Suretyship is defined as the relation which exists where one person has undertaken an
obligation and another person is also under the obligation or other duty to the obligee, who is
entitled to but one performance, and as between the two who are bound, one rather than the
other should perform.—By this time, we note a subsidiary contract of suretyship had taken
effect since petitioners signed the promissory notes as maker and accommodation party for
the benefit of Wonderland. Petitioners became liable as accommodation party. An
party. He has the right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them has in effect become one of principal and
surety, the accommodation party being the surety. Suretyship is defined as the relation
which exists where one person has undertaken an obligation and another person is also
under the obligation or other duty to the obligee, who is entitled to but one performance, and
as between the two who are bound, one rather than the other should perform. The surety’s
liability to the creditor or promisee of the principal is said to be direct, primary and absolute;
in other words, he is directly and equally bound with the principal. And the creditor may
proceed against any one of the solidary debtors.
G.R. No. 85419. March 9, 1993.*

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.
Commercial Law; Negotiable Instruments Law; A negotiable instrument of which a

check is, is not only a written evidence of a contract right but is also a species of property.—
Courts have long recognized the business custom of using printed checks where blanks are
provided for the date of issuance, the name of the payee, the amount payable and the
drawer's signature. All the drawer has to do when he wishes to issue a check is to properly
fill up the blanks and sign it. However, the mere fact that he has done these does not give
rise to any liability on his part, until and unless the check is delivered to the payee or his
representative. A negotiable instrument, of which a check is, is not only a written evidence of
a contract right but is also a species of property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must a negotiable instrument be delivered
to the payee in order to evidence its existence as a binding contract.
Same; Same; Same; The payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him.—Thus, the payee of a negotiable instrument acquires
no interest with respect thereto until its delivery to him. Delivery of an instrument means
transfer of possession, actual or constructive, from one person to another. Without the initial
Atty. Sergio Ceniza
delivery of the instrument from the drawer to the payee, there can be no liability on the
instrument. Moreover, such delivery must be intended to give effect to the instrument.
Same; Same; Same; Same; The delivery of checks in payment of an obligation does not
constitute payment unless they are cashed or their value is impaired through the fault of the
creditor.—Notwithstanding the above, it does not necessarily follow that the drawer Sima
Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory
note agreed to by her. Her allegation that she has paid the balance of her loan with the two
checks payable to petitioner Bank has no merit for, as We have earlier explained, these
checks were never delivered to petitioner Bank. And even granting, without admitting, that
there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does
not constitute payment unless they are cashed or their value is impaired through the fault of
the creditor. None of these exceptions were alleged by respondent Sima Wei.
G.R. Nos. 173090-91. September 7, 2011.*

UNION BANK OF THE PHILIPPINES, petitioner, vs.SPOUSES RODOLFO T. TIU
AND VICTORIA N. TIU, respondents.
Good Faith; Bad Faith; It is axiomatic that good faith is always presumed unless convincing
evidence to the contrary is adduced. It is incumbent upon the party alleging bad faith to
sufficiently prove such allegation.—“It is axiomatic that good faith is always presumed unless
convincing evidence to the contrary is adduced. It is incumbent upon the party alleging bad
faith to sufficiently prove such allegation. Absent enough proof thereof, the presumption of
good faith prevails.” The alleged insidious design of many banks to betray their clients
during the Asian financial crisis is certainly not of public knowledge.
Union Bank does not dispute that the spouses Tiu received the loaned amount of
US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of
US$1=P26. However, Union Bank claims that this does not change the true nature of the
loan as a foreign currency loan, and proceeded to illustrate in its Memorandum that the
spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving the
equivalent peso amount) as opposed to borrowing in pesos.
We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso
equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the
promissory notes, expressed the amount of the loans in US dollars and not in any other
currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in
dollars, the amount stipulated in said loan documents. Thus, before the Restructuring
Agreement, the spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00
plus the interest stipulated in the promissory notes, without converting the same to pesos.
The spouses Tiu, who are in the construction business and appear to be dealing primarily in
Philippine currency, should therefore purchase the necessary amount of dollars to pay Union
Atty. Sergio Ceniza
Bank, who could have justly refused payment in any currency other than that which was
stipulated in the promissory notes.
Although the Credit Line Agreement between the spouses Tiu and Union Bank was
entered into on November 21, 1995,when the agreement to pay in foreign currency was still
considered void under Republic Act No. 529, the actual loans, as shown in the promissory
notes, were taken out from September 22, 1997 to March 26, 1998, during which time
Republic Act No. 8183 was already in effect.
Having established that Union Bank and the spouses Tiu validly entered into dollar
loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into
peso loans must necessarily fail.
G.R. No. 158262. July 21, 2008.*

SPS. PEDRO AND FLORENCIA VIOLAGO, petitioners,vs. BA FINANCE
CORPORATION and AVELINO VIOLAGO, respondents.
Negotiable Instruments Law; Promissory Notes; The promissory note is clearly

negotiable.—The promissory note is clearly negotiable. The appellate court was correct in
finding all the requisites of a negotiable instrument present. The NIL provides: Section 1.
Form of Negotiable Instruments.—An instrument to be negotiable must conform to the
following requirements: (a) It must be in writing and signed by the maker or drawer; (b)
Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be
payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or
to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
Same; Same; The law presumes that a holder of a negotiable instrument is a holder
thereof in due course.—The law presumes that a holder of a negotiable instrument is a holder
thereof in due course. In this case, the CA is correct in finding that BA Finance meets all the
foregoing requisites: In the present recourse, on its face, (a) the “Promissory Note,” Exhibit
“A,” is complete and regular; (b) the “Promissory Note” was endorsed by the VMSC in favor
of the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value;
(d) the Appellee was never informed, before and at the time the “Promissory Note” was
endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not
delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo
Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his
rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987,
much later than August 4, 1983, when VMSC assigned its rights over the“Chattel
Mortgage” by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in
due course.
Same; Same; The Negotiable Instruments Law considers every negotiable instrument
prima facie to have been issued for a valuable consideration.—In the hands of one other than
a holder in due course, a negotiable instrument is subject to the same defenses as if it were
non-negotiable. A holder in due course, however, holds the instrument free from any defect of
Atty. Sergio Ceniza
title of prior parties and from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof. Since BA Finance is a holder
in due course, petitioners cannot raise the defense of non-delivery of the object and nullity of
the sale against the corporation. The NIL considers every negotiable instrument prima
facie to have been issued for a valuable consideration. In Salas, 181 SCRA 296 (1990), we
held that a party holding an instrument may enforce payment of the instrument for the full
amount thereof. As such, the maker cannot set up the defense of nullity of the contract of
sale. Thus, petitioners are liable to respondent corporation for the payment of the amount
stated in the instrument.
INTELLECTUAL PROPERTY LAW
G.R. No. 126627. August 14, 2003.*
SMITH KLINE BECKMAN CORPORATION, petitioner, vs. THE HONORABLE

COURT OF APPEALS and TRYCO PHARMA CORPORATION, respondents.
Same; Patents; When the language of its claims is clear and distinct, the patentee is
bound thereby and may not claim anything beyond them.— When the language of its claims
is clear and distinct, the patentee is bound thereby and may not claim anything beyond
them. And so are the courts bound which may not add to or detract from the claims matters
not expressed or necessarily implied, nor may they enlarge the patent beyond the scope of
that which the inventor claimed and the patent office allowed, even if the patentee may have
been entitled to something more than the words it had chosen would include.
Same; Same; Infringement; Doctrine of Equivalents;Definition.—The doctrine of

equivalents provides that an infringement also takes place when a device appropriates a
prior invention by incorporating its innovative concept and, although with some modification
and change, performs substantially the same function in substantially the same way to
achieve substantially the same result.
Same; Same; Same; Same; The Doctrine of Equivalents thus requires satisfaction of the
function-means-and-result test.—Thedoctrine of equivalents thus requires satisfaction of the
function-means-and-result test, the patentee having the burden to show that all three
components of such equivalency test are met.
G.R. No. 118708. February 2, 1998.*
CRESER PRECISION SYSTEMS, INC., petitioner, vs.COURT OF APPEALS AND

FLORO INTERNATIONAL CORP., respondents.
Patents; Infringement; Actions; Words and Phrases; Only the patentee or his successors-
in-interest may file an action for infringement—the phrase “anyone possessing any right, title
or interest in and to the patented invention” in Sec. 42 of R.A. 165 refers only to the patentee’s
successors-in-interest, assignees or grantees.—Section 42 of R.A. 165, otherwise known as the
Patent Law, explicitly provides: Section 42. Civil action for infringement.—Any patentee, or
anyone possessing any right, title or interest in and to the patented invention, whose rights
have been infringed, may bring a civil action before the proper Court of First Instance (now
Regional Trial Court), to recover from the infringer damages sustained by reason of the
infringement and to secure an injunction for the protection of his rights. x x x Under the
Atty. Sergio Ceniza
aforequoted law, only the patentee or his successors-in-interest may file an action for
infringement. The phrase “anyone possessing any right, title or interest in and to the patented
invention” upon which petitioner maintains its present suit, refers only to the patentee’s
successors-in-interest, assignees or grantees since actions for infringement of patent may be
brought in the name of the person or persons interested, whether as patentee, assignees, or
as grantees, of the exclusive right.
Same; Same; Same; A person or entity who has not been granted letters patent over an
invention and has not acquired any right or title thereto either as assignee or as licensee, has
no cause of action for infringement because the right to maintain an infringement suit
depends on the existence of the patent.—Moreover, there can be no infringement of a patent
until a patent has been issued, since whatever right one has to the invention covered by the
patent arises alone from the grant of patent. In short, a person or entity who has not been
granted letters patent over an invention and has not acquired any right or title thereto either
as assignee or as licensee, has no cause of action for infringement because the right to
maintain an infringement suit depends on the existence of the patent.
Same; Same; Same; A person claiming to be an inventor of an article has no right of

property over the same upon which it can maintain a suit unless it obtains a patent therefor.—
Petitioner admits it has no patent over its aerial fuze. Therefore, it has no legal basis or
cause of action to institute the petition for injunction and damages arising from the alleged
infringement by private respondent. While petitioner claims to be the first inventor of
the aerial fuze, still it has no right of property over the same upon which it can maintain a
suit unless it obtains a patent therefor. Under American jurisprudence, an inventor has no
common-law right to a monopoly of his invention. He has the right to make, use and vend his
own invention, but if he voluntarily discloses it, such as by offering it for sale, the world is
free to copy and use it with impunity. A patent, however, gives the inventor the right to
exclude all others. As a patentee, he has the exclusive right of making, using or selling the
invention.
Same; Same; Same; Anyone who has no patent over an invention but claims to have a
right or interest thereto can not file an action for declaratory judgment or injunctive suit
which is not recognized in this jurisdiction but he can, under Section 28 of the Patent Law,
file a petition for cancellation of the patent within three (3) years from the publication of the
patent with the Director of Patents.—Further, the remedy of declaratory judgment or
injunctive suit on patent invalidity relied upon by petitioner cannot be likened to the civil
action for infringement under Section 42 of the Patent Law. The reason for this is that the
said remedy is available only to the patent holder or his successors-in-interest. Thus, anyone
who has no patent over an invention but claims to have a right or interest thereto can not file
an action for declaratory judgment or injunctive suit which is not recognized in this
jurisdiction. Said person, however, is not left without any remedy. He can, under Section 28
of the aforementioned law, file a petition for cancellation of the patent within three (3) years
from the publication of said patent with the Director of Patents and raise as ground therefor
that the person to whom the patent was issued is not the true and actual inventor. Hence,
petitioner’s remedy is not to file an action for injunction or infringement but to file a petition
for cancellation of private respondent’s patent. Petitioner however failed to do so. As such, it
can not now assail or impugn the validity of the private respondent’s letters patent by
claiming that it is the true and actual inventor of the aerial fuze.
Atty. Sergio Ceniza
G.R. No. 113388. September 5, 1997.*

ANGELITA MANZANO, petitioner, vs. COURT OF APPEALS, and MELECIA
MADOLARIA, as Assignor to NEW UNITED FOUNDRY MANUFACTURING
CORPORATION, respondents.
Patents; An invention must possess the essential elements of novelty, originality and
precedence, and for the patentee to be entitled to the protection the invention must be new to
the world.—The element of novelty is an essential requisite of the patentability of an
invention or discovery. If a device or process has been known or used by others prior to its
invention or discovery by the applicant, an application for a patent therefor should be denied;
and if the application has been granted, the court, in a judicial proceeding in which the
validity of the patent is drawn in question, will hold it void and ineffective. It has been
repeatedly held that an invention must possess the essential elements of novelty, originality
and precedence, and for the patentee to be entitled to the protection the invention must be
new to the world.
Same; Evidence; Burden of Proof; The burden of proving want of novelty is on him who
avers it and the burden is a heavy one which is met only by clear and satisfactory proof which
overcomes every reasonable doubt.—In issuing Letters Patent No. UM-4609 to Melecia
Madolaria for an “LPG Burner” on 22 July 1981, the Philippine Patent Office found her
invention novel and patentable. The issuance of such patent creates a presumption which
yields only to clear and cogent evidence that the patentee was the original and first inventor.
The burden of proving want of novelty is on him who avers it and the burden is a heavy one
which is met only by clear and satisfactory proof which overcomes every reasonable doubt.
Hence, a utility model shall not be considered “new” if before the application for a patent it
has been publicly known or publicly used in this country or has been described in a printed
publication or publications circulated within the country, or if it is substantially similar to
any other utility model so known, used or described within the country.
Same; Same; Pursuant to the requirement of clear and convincing evidence to overthrow
the presumption of validity of a patent, it has been held that oral testimony to show
anticipation is open to suspicion and if uncorroborated by cogent evidence, it may be held
insufficient.—The alleged failure of the Director of Patents and the Court of Appeals to
accord evidentiary weight to the testimonies of the witnesses of petitioner showing
anticipation is not a justification to grant the petition. Pursuant to the requirement of clear
and convincing evidence to overthrow the presumption of validity of a patent, it has been
held that oral testimony to show anticipation is open to suspicion and if uncorroborated by
cogent evidence, as what occurred in this case, it may be held insufficient.
G.R. No. 143993. August 18, 2004.
MCDONALD’S CORPORATION and MCGEORGE FOOD INDUSTRIES, INC.,

petitioners, vs. L.C. BIG MAK BURGER, INC., FRANCIS B. DY, EDNA A. DY, RENE
B. DY, WILLIAM B. DY, JESUS AYCARDO, ARACELI AYCARDO, and GRACE
HUERTO, respondents.
Trademarks and Trade Names; Infringement; Elements to Establish Trademark

Infringement.—To establish trademark infringement, the following elements must be shown:
(1) the validity of plaintiff’s mark; (2) the plaintiff’s ownership of the mark; and (3) the use of
the mark or its colorable imitation by the alleged infringer results in “likelihood of
Atty. Sergio Ceniza
confusion.” Of these, it is the element of likelihood of confusion that is the gravamen of
trademark infringement.
Same; Same; A mark is valid if it is “distinctive” and thus not barred from registration
under Section 4 of RA 166; Once registered, not only the mark’s validity but also the
registrant’s ownership of the mark is prima facie presumed.—A mark is valid if it is
“distinctive” and thus not barred from registration under Section 4 of RA 166. However, once
registered, not only the mark’s validity but also the registrant’s ownership of the mark
isprima facie presumed.
Same; Same; A mark which is not registered in the Principal Register and thus not
distinctive has no real protection.—The Court also finds that petitioners have duly
established McDonald’s exclusive ownership of the “Big Mac” mark. Although Topacio and
the Isaiyas Group registered the “Big Mac” mark ahead of McDonald’s, Topacio, as
petitioners disclosed, had already assigned his rights to McDonald’s. The Isaiyas Group, on
the other hand, registered its trademark only in the Supplemental Register. A mark which is
not registered in the Principal Register, and thus not distinctive, has no real protection.
Indeed, we have held that registration in the Supplemental Register is not even a prima
facie evidence of the validity of the registrant’s exclusive right to use the mark on the goods
specified in the certificate.
Same; Same; Confusion of Goods and Confusion of Business Distinguished.—Section 22

covers two types of confusion arising from the use of similar or colorable imitation marks,
namely, confusion of goods (product confusion) and confusion of business (source or origin
confusion). In Sterling Products International, Incorporated v. Farbenfabriken Bayer
Aktiengesellschaft, et al., the Court distinguished these two types of confusion, thus: [Rudolf]
Callman notes two types of confusion. The first is the confusion of goods “in which event the
ordinarily prudent purchaser would be induced to purchase one product in the belief that he
was purchasing the other.” x x x The other is the confusion of business: “Here though the
goods of the parties are different, the defendant’s product is such as might reasonably be
assumed to originate with the plaintiff, and the public would then be deceived either into
that belief or into the belief that there is some connection between the plaintiff and
defendant which, in fact, does not exist.”
Same; Same; Two Tests in Determining Likelihood of Confusion, the Dominancy Test
and the Holistic Test.—In determining likelihood of confusion, jurisprudence has developed
two tests, the dominancy test and the holistic test. The dominancy test focuses on the
similarity of the prevalent features of the competing trademarks that might cause confusion.
In contrast, the holistic test requires the court to consider the entirety of the marks as
applied to the products, including the labels and packaging, in determining confusing
similarity.
Same; Same; Court rejected the holistic test in Societe Des Produits Nestlé S.A. vs. Court
of Appeals.—In the 2001 case ofSociete Des Produits Nestlé, S.A. v. Court of Appeals, the
Court explicitly rejected the holistic test in this wise: [T]he totality or holistic test is contrary
to the elementary postulate of the law on trademarks and unfair competition that confusing
similarity is to be determined on the basis of visual, aural, connotative comparisons and
overall impressions engendered by the marks in controversy as they are encountered in the
realities of the marketplace.
Same; Same; While proof of actual confusion is the best evidence of infringement its
absence is inconsequential.—Petitioners’ failure to present proof of actual confusion does not
negate their claim of trademark infringement. As noted inAmerican Wire & Cable Co. v.
Atty. Sergio Ceniza
Director of Patents, Section 22 requires the less stringent standard of “likelihood of
confusion” only. While proof of actual confusion is the best evidence of infringement, its
absence is inconsequential.
Same; Unfair Competition; Essential Elements of Unfair Competition.—The essential

elements of an action for unfair competition are: (1) confusing similarity in the general
appearance of the goods, and (2) intent to deceive the public and defraud a competitor. The
confusing similarity may or may not result from similarity in the marks, but may result from
other external factors in the packaging or presentation of the goods. The intent to deceive
and defraud may be inferred from the similarity of the appearance of the goods as offered for
sale to the public. Actual fraudulent intent need not be shown.
Same; Same; Trademark infringement is a form of unfair competition; Trademark

infringement constitutes unfair competition when there is not merely likelihood of confusion
but also actual or probable deception on the public because of the general appearance of the
goods.—Unfair competition is broader than trademark infringement and includes passing off
goods with or without trademark infringement. Trademark infringement is a form of unfair
competition. Trademark infringement constitutes unfair competition when there is not
merely likelihood of confusion, but also actual or probable deception on the public because of
the general appearance of the goods. There can be trademark infringement without unfair
competition as when the infringer discloses on the labels containing the mark that he
manufactures the goods, thus preventing the public from being deceived that the goods
originate from the trademark owner.
Same; Same; Passing off (or palming off) takes place where the defendant, by imitative
devices on the general appearance of the goods, misleads prospective purchasers into buying
his merchandise under the impression that they are buying that of his competitors.—Passing
off (or palming off) takes place where the defendant, by imitative devices on the general
appearance of the goods, misleads prospective purchasers into buying his merchandise under
the impression that they are buying that of his competitors.Thus, the defendant gives his
goods the general appearance of the goods of his competitor with the intention of deceiving
the public that the goods are those of his competitor.
G.R. No. 185917. June 1, 2011.*
FREDCO MANUFACTURING CORPORATION, petitioner, vs. PRESIDENT AND

FELLOWS OF HARVARD COLLEGE (HARVARD UNIVERSITY), respondents.
Trademarks; Before a trademark can be registered, it must have been actually used in
commerce for not less than two months in the Philippines prior to the filing of an application
for its registration; Harvard University’s Registration of the name “Harvard” is based on
home registration which is allowed under Section 37 of R.A. No. 166.—Under Section 2 of
Republic Act No. 166, as amended (R.A. No. 166), before a trademark can be registered, it
must have been actually used in commerce for not less than two months in the Philippines
prior to the filing of an application for its registration. While Harvard University had actual
prior use of its marks abroad for a long time, it did not have actual prior use in the
Philippines of the mark “Harvard Veritas Shield Symbol” before its application for
registration of the mark “Harvard” with the then Philippine Patents Office. However,
Harvard University’s registration of the name “Harvard” is based on home registration
which is allowed under Section 37 of R.A. No. 166.
Same; What Fredco has done in using the mark “Harvard” and the words “Cambridge,
Massachusetts,” “USA” to evoke a “desirable aura” to its products is precisely to exploit
Atty. Sergio Ceniza
commercially the goodwill of Harvard University without the latter’s consent.—Section 4(a) of
R.A. No. 166 is identical to Section 2(a) of the Lanham Act, the trademark law of the United
States. These provisions are intended to protect the right of publicity of famous individuals
and institutions from commercial exploitation of their goodwill by others. What Fredco has
done in using the mark “Harvard” and the words “Cambridge, Massachusetts,” “USA” to
evoke a “desirable aura” to its products is precisely to exploit commercially the goodwill of
Harvard University without the latter’s consent. This is a clear violation of Section 4(a) of
R.A. No. 166. Under Section 17(c) of R.A. No. 166, such violation is a ground for cancellation
of Fredco’s registration of the mark “Harvard” because the registration was obtained in
violation of Section 4 of R.A. No. 166.
Same; Paris Convention; The Philippines is obligated to assure nationals of countries of

the Paris Convention that they are afforded an effective protection against violation of their
intellectual property rights in the Philippines in the same way that their own countries are
obligated to accord similar protection to Philippine Nationals.—This Court has ruled that the
Philippines is obligated to assure nationals of countries of the Paris Convention that they are
afforded an effective protection against violation of their intellectual property rights in the
Philippines in the same way that their own countries are obligated to accord similar
protection to Philippine nationals.
Same; Same; Under Article 8 of the Paris Convention, as well as Section 37 of R.A. No.
166, Harvard University is entitled to protection in the Philippines of its trade name
“Harvard” even without registration of such trade name in the Philippines.—“Harvard” is the
trade name of the world famous Harvard University, and it is also a trademark of Harvard
University. Under Article 8 of the Paris Convention, as well as Section 37 of R.A. No. 166,
Harvard University is entitled to protection in the Philippines of its trade name “Harvard”
even without registration of such trade name in the Philippines. This means that no
educational entity in the Philippines can use the trade name “Harvard” without the consent
of Harvard University. Likewise, no entity in the Philippines can claim, expressly or
impliedly through the use of the name and mark “Harvard,” that its products or services are
authorized, approved, or licensed by, or sourced from, Harvard University without the
latter’s consent.
Same; Same; The essential requirement under article 6bis of the Paris Convention is that
the trademark to be protected must be “well-known” in the country where protection is sought;
The power to determine whether a trademark is well-known lies in the competent authority of
the country of registration or use.—InMirpuri, 318 SCRA 516 (1999), the Court ruled that the
essential requirement under Article 6bis of the Paris Convention is that the trademark to be
protected must be “well-known” in the country where protection is sought. The Court
declared that the power to determine whether a trademark is well-known lies in the
competent authority of the country of registration or use. The Court then stated that the
competent authority would either be the registering authority if it has the power to decide
this, or the courts of the country in question if the issue comes before the courts.
Same; Same; Section 123.1(e) does not require that the well-known mark be used in
commerce in the Philippines but only that it be well-known in the Philippines.—Section
123.1(e) of R.A. No. 8293 now categorically states that “a mark which is considered by the
competent authority of the Philippines to be well-known internationally and in the
Philippines, whether or not it is registered here,” cannot be registered by another in
the Philippines. Section 123.1(e) does not require that the well-known mark be used in
commerce in the Philippines but only that it be well-known in the Philippines.
Atty. Sergio Ceniza
Same; Same; While under the territoriality principle a mark must be used in commerce
in the Philippines to be entitled to protection, internationally well-known marks are the
exceptions to this rule.—Since “any combination” of the foregoing criteria is sufficient to
determine that a mark is well-known, it is clearly not necessary that the mark be used in
commerce in the Philippines. Thus, while under the territoriality principle a mark must be
used in commerce in the Philippines to be entitled to protection, internationally well-known
marks are the exceptions to this rule.
G.R. No. 171053. October 15, 2007.*

SEHWANI, INCORPORATED and/or BENITA’S FRITES, INC., vs. IN-N-OUT
BURGER, INC., respondent.
Actions; Parties; Intellectual Property Code (R.A. No. 8293);

Trademarks; Infringement; Any foreign national or juridical person who meets the
requirements of Section 3 of Republic Act No. 8293 and does not engage in business in the
Philippines may bring a civil or administrative action hereunder for opposition, cancellation,
infringement, unfair competition, or false designation of origin and false description, whether
or not it is licensed to do business in the Philippines under existing laws.—Contrary to
petitioners’ argument, respondent has the legal capacity to sue for the protection of its
trademarks, albeit it is not doing business in the Philippines. Section 160 in relation to
Section 3 of R.A. No. 8293, provides: SECTION 160. Right of Foreign Corporation to Sue in
Trademark or Service Mark Enforcement Action.—Any foreign national or juridical person
who meets the requirements of Section 3 of this Act and does not engage in business in the
Philippines may bring a civil or administrative action hereunder for opposition, cancellation,
infringement, unfair competition, or false designation of origin and false description, whether
or not it is licensed to do business in the Philippines under existing laws. Section 3 thereof
provides: SECTION 3. International Conventions and Reciprocity.—Any person who is a
national or who is domiciled or has a real and effective industrial establishment in a country
which is a party to any convention, treaty or agreement relating to intellectual property
rights or the repression of unfair competition, to which the Philippines is also a party, or
extends reciprocal rights to nationals of the Philippines by law, shall be entitled to benefits
to the extent necessary to give effect to any provision of such convention, treaty or reciprocal
law, in addition to the rights to which any owner of an intellectual property right is
otherwise entitled by this Act.
Same; Same; Same; Same; Same; Paris Convention; Article 6bis of the Paris Convention
or The Convention of Paris for the Protection of Industrial Property wherein the Philippines
and the United States are both signatories, governs the protection of well-known trademarks
and is a self-executing provision and does not require legislative enactment to give it effect in
the member country—it may be applied directly by the tribunals and officials of each member
country by the mere publication or proclamation of the Convention, after its ratification
according to the public law of each state and the order for its execution.—Article 6bis which
governs the protection of well-known trademarks, is a self-executing provision and does not
require legislative enactment to give it effect in the member country. It may be applied
directly by the tribunals and officials of each member country by the mere publication or
proclamation of the Convention, after its ratification according to the public law of each state
and the order for its execution. The essential requirement under this Article is that the
trademark to be protected must be “well-known” in the country where protection is sought.
The power to determine whether a trademark is well-known lies in the “competent authority
of the country of registration or use.” This competent authority would be either the
registering authority if it has the power to decide this, or the courts of the country in
question if the issue comes before a court.
Atty. Sergio Ceniza
Same; Same; Same; Same; Same; Same; Administrative Law;The question of whether or
not a trademark is “well-known” is factual in nature; Factual findings of quasi-judicial
agencies, which have acquired expertise because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but, at times, even finality if such findings
are supported by substantial evidence.—The question of whether or not respondent’s
trademarks are considered “well-known” is factual in nature, involving as it does the
appreciation of evidence adduced before the BLA-IPO. The settled rule is that the factual
findings of quasi-judicial agencies, like the IPO, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but, at
times, even finality if such findings are supported by substantial evidence.
Same; Same; Same; Same; Same; Same; The scope of protection initially afforded by
Article 6bis of the Paris Convention has been expanded in the 1999 Joint Recommendation
Concerning Provisions on the Protection of Well-Known Marks.—The fact that
respondent’s marks are neither registered nor used in the Philippines is of no moment. The
scope of protection initially afforded by Article 6bis of the Paris Convention has been
expanded in the 1999 Joint Recommendation Concerning Provisions on the Protection of Well-
Known Marks, wherein the World Intellectual Property Organization (WIPO) General
Assembly and the Paris Union agreed to a nonbinding recommendation that a well-known
mark should be protected in a country even if the mark is neither registered nor used in that
country.
Nos. L-63796-97. May 21, 1984.*
LA CHEMISE LACOSTE, S. A., petitioner, vs. HON. OSCAR C. FERNANDEZ,

Presiding Judge of Branch XLIX, Regional Trial Court, National Capital Judicial
Region, Manila and GOBINDRAM HEMANDAS, respondents.
Unfair Competition; Trademarks and Tradenames;Corporation Law; Petitioner is not

doing business in the Philippines.—Applying the above provisions to the facts of this case, we
find and conclude that the petitioner is not doing business in the Philippines. Rustan is
actually a middleman acting and transacting business in its own name and/or its own
account and not in the name or for the account of the petitioner.
Same; Same; Same; A foreign corporation not doing business in the Philippines needs no
license to sue in the Philippines for trademark violations.—But even assuming the truth of
the private respondent’s allegation that the petitioner failed to allege material facts in its
petition relative to capacity to sue, the petitioner may still maintain the present suit against
respondent Hemandas. As early as 1927, this Court was, and it still is, of the view that a
foreign corporation not doing business in the Philippines needs no license to sue before
Philippine courts for infringement of trademark and unfair competition.
Same; Same; Same; Same; International Law; The Philippines being a party to the Paris
Convention for the Protection of Industrial Property, the right of a foreign corporation to file
suit in our courts to protect its trademark is to be enforced.—In upholding the right of the
petitioner to maintain the present suit before our courts for unfair competition or
infringement of trademarks of a foreign corporation, we are moreover recognizing our duties
and the rights of foreign states under the Paris Convention for the Protection of Industrial
Property to which the Philippines and France are parties. We are simply interpreting and
enforcing a solemn international commitment of the Philippines embodied in a multilateral
Atty. Sergio Ceniza
treaty to which we are a party and which we entered into because it is in our national
interest to do so.
Same; Same; Same; Same; Same; Foreign nationals are, by treaty, entitled to the same
protection as Filipino citizens against unfair competition.—By the same token, the petitioner
should be given the same treatment in the Philippines as we make available to our own
citizens. We are obligated to assure to nationals of “countries of the Union” an effective
protection against unfair competition in the same way that they are obligated to similarly
protect Filipino citizens and firms.
Same; Same; Same; Same; Patents Office; Director of Patents should obey directive of
Minister of Trade against registration of internationally known brands in favor of persons
other than their original owners or users.—The memorandum is a clear manifestation of our
avowed adherence to a policy of cooperation and amity with all nations. It is not, as wrongly
alleged by the private respondent, a personal policy of Minister Luis Villafuerte which
expires once he leaves the Ministry of Trade. For a treaty or convention is not a mere moral
obligation to be enforced or not at the whims of an incumbent head of a Ministry. It creates a
legally binding obligation on the parties founded on the generally accepted principle of
international law of pacta sunt servandawhich has been adopted as part of the law of our
land. (Constitution, Art. II, Sec. 3). The memorandum reminds the Director of Patents of his
legal duty to obey both law and treaty. It must also be obeyed.
Same; Unfair Competition, Trademarks and Tradenames; A certificate of registration in

the supplemental register is not prima facie evidence of validity of a registration; Quashal of
search warrant not justified.—A certificate of registration in the Supplemental Register is
not prima facie evidence of the validity of registration, of the registrant’s exclusive right to
use the same in connection with the goods, business, or services specified in the certificate.
Such a certificate of registration cannot be filed, with effect, with the Bureau of Customs in
order to exclude from the Philippines, foreign goods bearing infringement marks or trade
names (Rule 124, Revised Rules of Practice Before the Phil. Pat. Off. in Trademark Cases;
Martin, Philippine Commercial Laws, 1981, Vol. 2, pp. 513-515).
Same; Same; Same; Same.—Registration in the Supplemental Register, therefore,

serves as notice that the registrant is using or has appropriated the trademark. By the very
fact that the trademark cannot as yet be entered in the Principal Register, all who deal with
it should be on guard that there are certain defects, some obstacles which the user must still
overcome before he can claim legal ownership of the mark or ask the courts to vindicate his
claims of an exclusive right to the use of the same. It would be deceptive for a party with
nothing more than a registration in the Supplemental Register to posture before courts of
justice as if the registration is in the Principal Register.
Same; Same; Same; Pendency of application for registration in the Patent Office not a
prejudicial question to the issuance of search warrant on a charge of unfair competition.—By
the same token, the argument that the application was premature in view of the pending
case before the Patent Office is likewise without legal basis. The proceedings pending before
the Patent Office involving IPC No. 1658 do not partake of the nature of a prejudicial
question which must first be definitely resolved.
Same; Same; Same; Administrative Law; Patent Office; The Minister of Trade has the
power to direct the Patent Office not to register certain trademarks except to its original users
and to cancel those registered in violation of its directive.—The Intermediate Appellate Court,
in the La Chemise Lacoste S.A. v. Sadhwani decision which we cite with approval sustained
the power of the Minister of Trade to issue the implementing memorandum and, after going
Atty. Sergio Ceniza
over the evidence in the records,affirmed the decision of the Director of Patents declaring La
Chemise Lacoste S.A. the owner of the disputed trademark and crocodile or alligator device.
Same; Same; Same; Same; Same.—Indeed, due process is a rule of reason. In the case at
bar the order of the Patent Office is based not only on the undisputed fact of ownership of the
trademark by the appellee but on a prior determination by the Minister of Trade, as the
competent authority under the Paris Convention, that the trademark and device sought to be
registered by the appellant are well-known marks which the Philippines, as party to the
Convention, is bound to protect in favor of its owners. It would be to exalt form over
substance to say that under the circumstances, due process requires that a hearing should be
held before the application is acted upon.
Same; Same; Same; Petitioner is the owner of the trademarks at bar.—We have carefully
gone over the records of all the cases filed in this Court and find more than enough evidence
to sustain a finding that the petitioner is the owner of the trademarks “LACOSTE”,
“CHEMISE LACOSTE”, the crocodile or alligator device, and the composite mark of
LACOSTE and the representation of the crocodile or alligator. Any pretensions of the private
respondent that he is the owner are absolutely without basis. Any further ventilation of the
issue of ownership before the Patent Office will be a superfluity and a dilatory tactic.
Same; Same; Same; Right of owner of a trademark cannot be preempted by fact that
another first secure its registration in the Supplemental Register.—The records show that the
goodwill and reputation of the petitioner’s products bearing the trademark LACOSTE date
back even before 1964 when LACOSTE clothing apparels were first marketed in the
Philippines. To allow Hemandas to continue using the trademark Lacoste for the simple
reason that he was the first registrant in the Supplemental Register of a trademark used in
international commerce and not belonging to him is to render nugatory the very essence of
the law on trademarks and tradenames.
G.R. No. 114508. November 19, 1999.*
PRIBHDAS J. MIRPURI, petitioner, vs. COURT OF APPEALS, DIRECTOR OF

PATENTS and the BARBIZON CORPORATION, respondents.
Intellectual Property; Trademarks and Trade Names; Words and Phrases; “Trademark,”
Defined and Explained.—A “trademark” is defined under R.A. 166, the Trademark Law, as
including “any word, name, symbol, emblem, sign or device or any combination thereof
adopted and used by a manufacturer or merchant to identify his goods and distinguish them
from those manufactured, sold or dealt in by others.” This definition has been simplified in
R.A. No. 8293, the Intellectual Property Code of the Philippines, which defines a “trademark”
as “any visible sign capable of distinguishing goods.” In Philippine jurisprudence, the
function of a trademark is to point out distinctly the origin or ownership of the goods to
which it is affixed; to secure to him, who has been instrumental in bringing into the market a
superior article of merchandise, the fruit of his industry and skill; to assure the public that
they are procuring the genuine article; to prevent fraud and imposition; and to protect the
manufacturer against substitution and sale of an inferior and different article as his product.
Same; Same; Three Distinct Functions of Trademarks.—Modern authorities on

trademark law view trademarks as performing three distinct functions: (1) they indicate
origin or ownership of the articles to which they are attached; (2) they guarantee that those
articles come up to a certain standard of quality; and (3) they advertise the articles they
symbolize.
Atty. Sergio Ceniza
Same; Same; Today, the trademark is not merely a symbol of origin and goodwill—it is
often the most effective agent for the actual creation and protection of goodwill.—Today, the
trademark is not merely a symbol of origin and goodwill; it is often the most effective agent
for the actual creation and protection of goodwill. It imprints upon the public mind an
anonymous and impersonal guaranty of satisfaction, creating a desire for further
satisfaction. In other words, the mark actually sells the goods. The mark has become the
“silent salesman,” the conduit through which direct contact between the trademark owner
and the consumer is assured. It has invaded popular culture in ways never anticipated that
it has become a more convincing selling point than even the quality of the article to which it
refers.
Intellectual Property; Convention of Paris for the Protection of Industrial

Property; Trademarks and Trade Names; International Law; Conflict of Laws; The
Convention of Paris for the Protection of Industrial Property, otherwise known as the Paris
Convention, is a multilateral treaty that seeks to protect industrial property consisting of
patents, utility models, industrial designs, trademarks, service marks, trade names and
indications of source or appellations of origin, and at the same time aims to repress unfair
competition.—The Convention of Paris for the Protection of Industrial Property, otherwise
known as the Paris Convention, is a multilateral treaty that seeks to protect industrial
property consisting of patents, utility models, industrial designs, trademarks, service marks,
trade names and indications of source or appellations of origin, and at the same time aims to
repress unfair competition. The Convention is essentially a compact among various countries
which, as members of the Union, have pledged to accord to citizens of the other member
countries trademark and other rights comparable to those accorded their own citizens by
their domestic laws for an effective protection against unfair competition. In short, foreign
nationals are to be given the same treatment in each of the member countries as that
country makes available to its own citizens. Nationals of the various member nations are
thus assured of a certain minimum of international protection of their industrial property.
Same; Same; Same; Same; Same; Actions; Article 6bis of the Paris Convention governs
protection of well-known trademarks.—In the case at bar, private respondent anchors its
cause of action on the first paragraph of Article 6bis of the Paris Convention which reads as
follows: This Article governs protection of well-known trademarks. Under the first
paragraph, each country of the Union bound itself to undertake to refuse or cancel the
registration, and prohibit the use of a trademark which is a reproduction, imitation or
translation, or any essential part of which trademark constitutes a reproduction, liable to
create confusion, of a mark considered by the competent authority of the country where
protection is sought, to be well-known in the country as being already the mark of a person
entitled to the benefits of the Convention, and used for identical or similar goods.
Same; Same; Same; Same; Same; Same; Article 6bis of the Paris Convention is a self-
executing provision and does not require legislative enactment to give it effect in the member
country.—Article 6bis was first introduced at The Hague in 1925 and amended in Lisbon in
1952. It is a self-executing provision and does not require legislative enactment to give it
effect in the member country. It may be applied directly by the tribunals and officials of each
member country by the mere publication or proclamation of the Convention, after its
ratification according to the public law of each state and the order for its execution.
Same; Same; Same; Same; Same; Same; The power to determine whether a trademark is
well-known lies in the “competent authority of the country of registration or use.”—The
essential requirement under Article 6bis is that the trademark to be protected must be “well-
known” in the country where protection is sought. The power to determine whether a
trademark is well-known lies in the “competent authority of the country of registration or
Atty. Sergio Ceniza
use.” This competent authority would be either the registering authority if it has the power
to decide this, or the courts of the country in question if the issue comes before a court.
Same; Same; Three Classes of Provisions of the Paris Convention.—The Paris

Convention has 3 classes of provisions: (1) provisions obligating members of the Union to
create and maintain certain national law or regulations; (2) provisions merely referring to
the national law of each country and making it applicable or permitting each country to pass
such legislation as it may choose; and (3) provisions establishing common legislation for all
members of the Union and obligating them to grant to persons entitled to the benefits of the
Convention the rights and advantages specified in such provisions, notwithstanding
anything in their national law to the contrary—Ladas, supra, at 209; see also
Callmann, supra, vol. 2, at 1723-1724. Provisions under the third class are self-executing and
Article 6bis is one of them—Ladas, supra, vol. 1, at 209.
Same; Same; Trademarks and Trade Names; Actions;Judgments; Res

Judicata; Pleadings and Practice; Res judicata does not apply to rights, claims or demands,
although growing out of the same subject matter, which constitute separate or distinct causes
of action and were not put in issue in the former action.—IPC No. 2049 raised the issue of
ownership of the trademark, the first registration and use of the trademark in the United
States and other countries, and the international recognition and reputation of the
trademark established by extensive use and advertisement of private respondent’s products
for over forty years here and abroad. These are different from the issues of confusing
similarity and damage in IPC No. 686. The issue of prior use may have been raised in IPC
No. 686 but this claim was limited to prior use in the Philippines only. Prior use in IPC No.
2049 stems from private respondent’s claim as originator of the word and symbol “Barbizon,”
as the first and registered user of the mark attached to its products which have been sold
and advertised worldwide for a considerable number of years prior to petitioner’s first
application for registration of her trademark in the Philippines. Indeed, these are substantial
allegations that raised new issues and necessarily gave private respondent a new cause of
action. Res judicata does not apply to rights, claims or demands, although growing out of the
same subject matter, which constitute separate or distinct causes of action and were not put
in issue in the former action.
Same; Same; Same; Same; Same; Same; Same; TRIPs Agreement, Explained.—The
TRIPs Agreement is said to be the most comprehensive multilateral agreement on
intellectual property. It addresses not only and more explicitly the primary regimes of
intellectual property, viz., patent including the protection of new varieties of plants,
trademarks including service marks, and copyright and its related rights; but also the non-
traditional categories of geographical indications including appellations of origin, industrial
design, layout design of integrated circuits, and undisclosed information including trade
secrets. It also establishes standards of protection and rules of enforcement and provides for
the uniform applicability of the WTO dispute settlement mechanism to resolve disputes
among member states.—Anita S. Regalado, WTO Dispute Settlement Procedure: Its Impact
on Copyright Protection, The Court Systems Journal, vol. 3:67, 78 [March 1998].
Same; Same; Same; Same; Same; Same; Same; Same; The TRIPs Agreement seeks to
grant adequate protection of intellectual property rights by creating a favorable economic
environment to encourage the inflow of foreign investments, and strengthening the
multilateral trading system to bring about economic, cultural and technological
independence.—A major proportion of international trade depends on the protection of
intellectual property rights. Since the late 1970’s, the unauthorized counterfeiting of
industrial property and trademarked products has had a considerable adverse impact on
domestic and international trade revenues. The TRIPs Agreement seeks to grant adequate
Atty. Sergio Ceniza
protection of intellectual property rights by creating a favorable economic environment to
encourage the inflow of foreign investments, and strengthening the multilateral trading
system to bring about economic, cultural and technological independence.
Same; Same; Same; Same; Same; Same; Same; Protectionism and isolationism belong to
the past—the State must reaffirm its commitment to the global community and take part in
evolving a new international economic order at the dawn of the new millennium.—The
Philippines and the United States of America have acceded to the WTO Agreement. This
Agreement has revolutionized international business and economic relations among states,
and has propelled the world towards trade liberalization and economic globalization.
Protectionism and isolationism belong to the past. Trade is no longer confined to a bilateral
system. There is now “a new era of global economic cooperation, reflecting the widespread
desire to operate in a fairer and more open multilateral trading system.” Conformably, the
State must reaffirm its commitment to the global community and take part in evolving a new
international economic order at the dawn of the new millennium.
G.R. No. 148222. August 15, 2003.*
PEARL & DEAN (PHIL.), INCORPORATED, petitioner, vs. SHOEMART,

INCORPORATED and NORTH EDSA MARKETING, INCORPORATED,
respondents.
Intellectual Property; Copyrights; Patents; Being a mere statutory grant, the rights are
limited to what the statute confers;It can cover only the works falling within the statutory
enumeration or description.—Copyright, in the strict sense of the term, is purely a statutory
right. Being a mere statutory grant, the rights are limited to what the statute confers. It may
be obtained and enjoyed only with respect to the subjects and by the persons, and on terms
and conditions specified in the statute. Accordingly, it can cover only the works falling within
the statutory enumeration or description.
Same; Same; Same; The three legal rights are completely distinct and separate from one
another and the protection afforded by one cannot be used interchangeably to cover items or
works that exclusively pertain to the others.—During the trial, the president of P & D himself
admitted that the light box was neither a literary not an artistic work but an “engineering or
marketing invention.” Obviously, there appeared to be some confusion regarding what ought
or ought not to be the proper subjects of copyrights, patents and trademarks. In the leading
case of Kho vs. Court of Appeals, we ruled that these three legal rights are completely
distinct and separate from one another, and the protection afforded by one cannot be used
interchangeably to cover items or works that exclusively pertain to the others.
Same; Same; Same; There can be no infringement of a patent until a patent has been
issued since whatever right one has to the invention covered by the patent arises alone from
the grant of patent.—For some reason or another, petitioner never secured a patent for the
light boxes. It therefore acquired no patent rights which could have protected its invention, if
in fact it really was. And because it had no patent, petitioner could not legally prevent
anyone from manufacturing or commercially using the contraption. In Creser Precision
Systems, Inc. vs. Court of Appeals, we held that “there can be no infringement of a patent
until a patent has been issued, since whatever right one has to the invention covered by the
patent arises alone from the grant of patent. x x x (A)n inventor has no common law right to a
monopoly of his invention. He has the right to make use of and vend his invention, but if he
voluntarily discloses it, such as by offering it for sale, the world is free to copy and use it with
impunity. A patent, however, gives the inventor the right to exclude all others. As a patentee,
he has the exclusive right of making, selling or using the invention.
Atty. Sergio Ceniza
Same; Same; Same; To be able to effectively and legally preclude others from copying
and profiting from the invention, a patent is a primordial requirement.—To be able to
effectively and legally preclude others from copying and profiting from the invention, a
patent is a primordial requirement. No patent, no protection. The ultimate goal of a patent
system is to bring new designs and technologies into the public domain through disclosure.
Ideas, once disclosed to the public without the protection of a valid patent, are subject to
appropriation without significant restraint.
Same; Same; Same; Patent law has a three-fold purpose.—The patent law has a three-
fold purpose: “first, patent law seeks to foster and reward invention; second, it promotes
disclosures of inventions to stimulate further innovation and to permit the public to practice
the invention once the patent expires; third, the stringent requirements for patent protection
seek to ensure that ideas in the public domain remain there for the free use of the public.”
Same; Same; Same; One who has adopted and used a trademark on his goods does not
prevent the adoption and use of the same trademark by others for products which are of a
different description.—Under the circumstances, the Court of Appeals correctly cited Faberge
Inc. vs. Intermediate Appellate Court, where we, invoking Section 20 of the old Trademark
Law, ruled that “the certificate of registration issued by the Director of Patents can confer
(upon petitioner) the exclusive right to use its own symbol only to those goods specified in the
certificate, subject to any conditions and limitations specified in the certificate x x x. One who
has adopted and used a trademark on his goods does not prevent the adoption and use of the
same trademark by others for products which are of a different description.” Faberge, Inc. was
correct and was in fact recently reiterated in Canon Kabushiki Kaisha vs. Court of Appeals.
Same; Same; Same; Unfair Competition; There can be no unfair competition under the
law on copyrights although it is applicable to disputes over the use of trademarks.—By the
nature of things, there can be no unfair competition under the law on copyrights although it
is applicable to disputes over the use of trademarks. Even a name or phrase incapable of
appropriation as a trademark or trade name may, by long and exclusive use by a business
(such that the name or phrase becomes associated with the business or product in the mind
of the purchasing public), be entitled to protection against unfair competition. In this case,
there was no evidence that P & D’s use of “Poster Ads” was distinctive or well-known. As
noted by the Court of Appeals, petitioner’s expert witnesses himself had testified that “Poster
Ads” was too generic a name. So it was difficult to identify it with any company, honestly
speaking.”
G.R. No. 131522. July 19, 1999.*
PACITA I. HABANA, ALICIA L. CINCO and JOVITA N. FERNANDO,

petitioners, vs. FELICIDAD C. ROBLES and GOODWILL TRADING CO., INC.,
respondents.
Copyright Law; Statutes; Republic Act No. 8293; At present, all laws dealing with the
protection of intellectual property rights have been consolidated and as the law now stands,
the protection of copyrights is governed by Republic Act No. 8293.—The complaint for
copyright infringement was filed at the time that Presidential Decree No. 49 was in force. At
present, all laws dealing with the protection of intellectual property rights have been
consolidated and as the law now stands, the protection of copyrights is governed by Republic
Act No. 8293. Notwithstanding the change in the law, the same principles are reiterated in
the new law under Section 177.
Atty. Sergio Ceniza
Same; Infringement of Copyright; If so much is taken that the value of the original work
is substantially diminished, there is an infringement of copyright and to an injurious extent,
the work is appropriated.—We believe that respondent Robles’ act of lifting from the book of
petitioners substantial portions of discussions and examples, and her failure to acknowledge
the same in her book is an infringement of petitioners’ copyrights. When is there a
substantial reproduction of a book? It does not necessarily require that the entire
copyrighted work, or even a large portion of it, be copied. If so much is taken that the value of
the original work is substantially diminished, there is an infringement of copyright and to an
injurious extent, the work is appropriated.
Same; Same; Intellectual Piracy; Words and Phrases;Infringement of copyright, or
piracy, which is a synonymous term in this connection, consists in doing by any person,
without the consent of the owner of the copyright, of anything the sole right to do which is
conferred by statute on the owner of the copyright.—In determining the question of
infringement, the amount of matter copied from the copyrighted work is an important
consideration. To constitute infringement, it is not necessary that the whole or even a large
portion of the work shall have been copied. If so much is taken that the value of the original
is sensibly diminished, or the labors of the original author are substantially and to an
injurious extent appropriated by another, that is sufficient in point of law to constitute
piracy. The essence of intellectual piracy should be essayed in conceptual terms in order to
underscore its gravity by an appropriate understanding thereof. Infringement of a copyright
is a trespass on a private domain owned and occupied by the owner of the copyright, and,
therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous
term in this connection, consists in the doing by any person, without the consent of the owner
of the copyright, of anything the sole right to do which is conferred by statute on the owner of
the copyright.
Same; Same; Same; Even if two authors were of the same background in terms of
teaching experience and orientation, it is not an excuse for them to be identical even in
examples contained in their books.—The respondents claim that their similarity in style can
be attributed to the fact that both of them were exposed to the APCAS syllabus and their
respective academic experience, teaching approach and methodology are almost identical
because they were of the same background. However, we believe that even if petitioners and
respondent Robles were of the same background in terms of teaching experience and
orientation, it is not an excuse for them to be identical even in examples contained in their
books. The similarities in examples and material contents are so obviously present in this
case. How can similar/identical examples not be considered as a mark of copying?
Same; Same; Same; In cases of infringement, copying alone is not what is prohibited—
the copying must produce an “injurious effect.”—In cases of infringement, copying alone is not
what is prohibited. The copying must produce an “injurious effect.” Here, the injury consists
in that respondent Robles lifted from petitioners’ book materials that were the result of the
latter’s research work and compilation and misrepresented them as her own. She circulated
the book DEP for commercial use and did not acknowledge petitioners as her source.
Same; Same; Same; In copyrighting books the purpose is to give protection to the
intellectual product of an author.—Hence, there is a clear case of appropriation of
copyrighted work for her benefit that respondent Robles committed. Petitioners’ work as
authors is the product of their long and assiduous research and for another to represent it as
her own is injury enough. In copyrighting books the purpose is to give protection to the
intellectual product of an author. This is precisely what the law on copyright protected,
under Section 184.1 (b). Quotations from a published work if they are compatible with fair
use and only to the extent justified by the purpose, including quotations from newspaper
Atty. Sergio Ceniza
articles and periodicals in the form of press summaries are allowed provided that the source
and the name of the author, if appearing on the work, are mentioned.
Same; Same; Same; To allow another to copy a book without appropriate

acknowledgment is injury enough.—In the case at bar, the least that respondent Robles could
have done was to acknowledge petitioners Habana, et al. as the source of the portions of
DEP. The final product of an author’s toil is her book. To allow another to copy the book
without appropriate acknowledgment is injury enough.
G.R. No. 154342. July 14, 2004.*

MIGHTY CORPORATION and LA CAMPANA FABRICA DE TABACO, INC.,
petitioners, vs. E. & J. GALLO WINERY and THE ANDRESONS GROUP, INC.,
respondents.
Intellectual Property; Trademarks; Unfair Competition; The law on unfair competition is

broader and more inclusive than the law on trademark infringement; Conduct constitutes
unfair competition if the effect is to pass off on the public the goods of one man as the goods of
another.—Although the laws on trademark infringement and unfair competition have a
common conception at their root, that is, a person shall not be permitted to misrepresent his
goods or his business as the goods or business of another, the law on unfair competition is
broader and more inclusive than the law on trademark infringement. The latter is more
limited but it recognizes a more exclusive right derived from the trademark adoption and
registration by the person whose goods or business is first associated with it. The law on
trademarks is thus a specialized subject distinct from the law on unfair competition,
although the two subjects are entwined with each other and are dealt with together in the
Trademark Law (now, both are covered by the IP Code). Hence, even if one fails to establish
his exclusive property right to a trademark, he may still obtain relief on the ground of his
competitor’s unfairness or fraud. Conduct constitutes unfair competition if the effect is to
pass off on the public the goods of one man as the goods of another. It is not necessary that
any particular means should be used to this end.
Same; Same; Same; Distinction Between Trademark Infringement and Unfair

Competition.—In Del Monte Corporation vs. Court of Appeals, we distinguished trademark
infringement from unfair competition: (1) Infringement of trademark is the unauthorized use
of a trademark, whereas unfair competition is the passing off of one’s goods as those of
another. (2) In infringement of trademark fraudulent intent is unnecessary, whereas in
unfair competition fraudulent intent is essential. (3) In infringement of trademark the prior
registration of the trademark is a prerequisite to the action, whereas in unfair competition
registration is not necessary.
Same; Same; Same; Elements of Trademark Infringement under Article 6 of the Paris
Convention.—Under Article 6 of the Paris Convention, the following are the elements of
trademark infringement: (a) registration or use by another person of a trademark which is a
reproduction, imitation or translation liable to create confusion, (b) of a mark considered by
the competent authority of the country of registration or use to be well-known in that country
and is already the mark of a person entitled to the benefits of the Paris Convention, and (c)
such trademark is used for identical or similar goods.
Same; Same; Same; Section 20 of the Trademark Law considers the trademark
registration certificate as prima facie evidence of the validity of the registration, the
registrant’s ownership and exclusive right to use the trademark in connection with the goods,
business or services as classified by the Director of Patents and as specified in the certificate;
Atty. Sergio Ceniza
In the adjudication of trademark rights between contending parties, equitable principles of
laches, estoppel, and acquiescence may be considered and applied.— Section 20 of the
Trademark Law considers the trademark registration certificate as prima facie evidence of
the validity of the registration, the registrant’s ownership and exclusive right to use the
trademark in connection with the goods, business or services as classified by the Director of
Patents and as specified in the certificate, subject to the conditions and limitations stated
therein. Sections 2 and 2-A of the Trademark Law emphasize the importance of the
trademark’s actual use in commerce in the Philippines prior to its registration. In the
adjudication of trademark rights between contending parties, equitable principles of laches,
estoppel, and acquiescence may be considered and applied.
Same; Same; Same; Elements of Trademark Infringement Under the Trademark Law.—
Under Sections 2, 2-A, 9-A, 20 and 22 of the Trademark Law therefore, the following
constitute the elements of trademark infringement: (a) a trademark actually used in
commerce in the Philippines and registered in the principal register of the Philippine Patent
Office; (b) is used by another person in connection with the sale, offering for sale, or
advertising of any goods, business or services or in connection with which such use is likely to
cause confusion or mistake or to deceive purchasers or others as to the source or origin of such
goods or services, or identity of such business; or such trademark is reproduced,
counterfeited, copied or colorably imitated by another person and such reproduction,
counterfeit, copy or colorable imitation is applied to labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be used upon or in connection with such goods,
business or services as to likely cause confusion or mistake or to deceive purchasers; (c) the
trademark is used for identical or similar goods, and (d) such act is done without the consent
of the trademark registrant or assignee.
Same; Same; Same; In case of domestic legal disputes on any conflicting provisions
between the Paris Convention and the Trademark Law the latter will prevail.—In summary,
the Paris Convention protects wellknown trademarks only (to be determined by domestic
authorities), while the Trademark Law protects all trademarks, whether well-known or not,
provided that they have been registered and are in actual commercial use in the Philippines.
Following universal acquiescence and comity, in case of domestic legal disputes on any
conflicting provisions between the Paris Convention (which is an international agreement)
and the Trademark law (which is a municipal law) the latter will prevail.
Same; Same; Same; Under both the Paris Convention and the Trademark Law, the
protection of a registered trademark is limited only to goods identical or similar to those in
respect of which such trademark is registered and only when there is likelihood of confusion;
Proof of all the elements of trademark infringement is a condition precedent to any finding of
liability.—Under both the Paris Convention and the Trademark Law, the protection of a
registered trademark is limited only to goods identical or similar to those in respect of which
such trademark is registered and only when there is likelihood of confusion. Under both
laws, the time element in commencing infringement cases is material in ascertaining the
registrant’s express or implied consent to another’s use of its trademark or a colorable
imitation thereof. This is why acquiescence, estoppel or laches may defeat the registrant’s
otherwise valid cause of action. Hence, proof of all the elements of trademark infringement is
a condition precedent to any finding of liability.
Same; Same; Same; Actual use in commerce in the Philippines is an essential

prerequisite for the acquisition of ownership over a trademark.— In Emerald Garment
Manufacturing Corporation vs. Court of Appeals, we reiterated our rulings in Pagasa
Industrial Corporation vs. Court of Appeals, Converse Rubber Corporation vs. Universal
Rubber Products, Inc., Sterling Products International, Inc. vs. Farbenfabriken Bayer
Atty. Sergio Ceniza
Aktiengesellschaft, Kabushi Kaisha Isetan vs. Intermediate Appellate Court, and Philip
Morris vs. Court of Appeals, giving utmost importance to the actual commercial use of a
trademark in the Philippines prior to its registration, notwithstanding the provisions of the
Paris Convention: x x x x x x x x x In addition to the foregoing, we are constrained to agree
with petitioner’s contention that private respondent failed to prove prior actual commercial
use of its “LEE” trademark in the Philippines before filing its application for registration with
the BPTTT and hence, has not acquired ownership over said mark. Actual use in commerce in
the Philippines is an essential prerequisite for the acquisition of ownership over a
trademark pursuant to Sec. 2 and 2-A of the Philippine Trademark Law (R.A. No. 166) x x x
Same; Same; Same; By strict application of Section 20 of the Trademark Law, Gallo
Winery’s exclusive right to use the GALLO trademark should be limited to wines, the only
product indicated in its registration certificates.—We also note that the GALLO trademark
registration certificates in the Philippines and in other countries expressly state that they
cover wines only, without any evidence or indication that registrant Gallo Winery expanded
or intended to expand its business to cigarettes. Thus, by strict application of Section 20 of
the Trademark Law, Gallo Winery’s exclusive right to use the GALLO trademark should be
limited to wines, the only product indicated in its registration certificates. This strict
statutory limitation on the exclusive right to use trademarks was amply clarified in our
ruling in Faberge, Inc. vs. Intermediate Appellate Court.
Same; Same; Same; There are two types of confusion in trademark infringement,
confusion of goods and confusion of business; Circumstances to Determine the Likelihood of
Confusion.—There are two types of confusion in trademark infringement. The first is
“confusion of goods” when an otherwise prudent purchaser is induced to purchase one
product in the belief that he is purchasing another, in which case defendant’s goods are then
bought as the plaintiff’s and its poor quality reflects badly on the plaintiff’s reputation. The
other is “confusion of business” wherein the goods of the parties are different but the
defendant’s product can reasonably (though mistakenly) be assumed to originate from the
plaintiff, thus deceiving the public into believing that there is some connection between the
plaintiff and defendant which, in fact, does not exist. In determining the likelihood of
confusion, the Court must consider: [a] the resemblance between the trademarks; [b] the
similarity of the goods to which the trademarks are attached; [c] the likely effect on the
purchaser and [d] the registrant’s express or implied consent and other fair and equitable
considerations.
Same; Same; Same; Two Tests in Determining Similarity and Likelihood of Confusion
in Trademark Resemblance.—Jurisprudence has developed two tests in determining
similarity and likelihood of confusion in trademark resemblance: (a) the Dominancy Test
applied in Asia Brewery, Inc. vs. Court of Appeals and other cases, and (b) the Holistic or
Totality Test used in Del Monte Corporation vs. Court of Appeals and its preceding cases.
Same; Same; Same; Same; Concept of “Related Goods.”—Thus, apart from the strict
application of Section 20 of the Trademark Law and Article 6 of the Paris Convention which
proscribe trademark infringement not only of goods specified in the certificate of registration
but also of identical or similar goods, we have also uniformly recognized and applied the
modern concept of “related goods.” Simply stated, when goods are so related that the public
may be, or is actually, deceived and misled that they come from the same maker or
manufacturer, trademark infringement occurs.
Same; Same; Same; Same; Factors to be Considered in Resolving Whether Goods are
Related.—In resolving whether goods are related, several factors come into play: (a) the
business (and its location) to which the goods belong, (b) the class of product to which the
Atty. Sergio Ceniza
goods belong, (c) the product’s quality, quantity, or size, including the nature of the package,
wrapper or container, (d) the nature and cost of the articles, (e) the descriptive properties,
physical attributes or essential characteristics with reference to their form, composition,
texture or quality, (f) the purpose of the goods, (g) whether the article is bought for
immediate consumption, that is, day-to-day household items, (h) the fields of manufacture, (i)
the conditions under which the article is usually purchased and (j) the channels of trade
through which the goods flow, how they are distributed, marketed, displayed and sold.
Same; Same; Same; Same; The mere fact that one person has adopted and used a
particular trademark for his goods does not prevent the adoption and use of the same
trademark by others on articles of a different description.—We are mindful that product
classification alone cannot serve as the decisive factor in the resolution of whether or not
wines and cigarettes are related goods. Emphasis should be on the similarity of the products
involved and not on the arbitrary classification or general description of their properties or
characteristics. But the mere fact that one person has adopted and used a particular
trademark for his goods does not prevent the adoption and use of the same trademark by
others on articles of a different description.
G.R. No. 166115. February 2, 2007.*

McDONALD’S CORPORATION, petitioner, vs. MACJOY FASTFOOD
CORPORATION, respondent.
Trademarks and Trade Names; Dominancy Test; Holistic Test; In determining

similarity and likelihood of confusion, jurisprudence has developed two tests—the dominancy
test and the holistic test; The dominancy test focuses on the similarity of the prevalent features
of the competing trademarks that might cause confusion or deception; The holistic test
requires the court to consider the entirety of the marks as applied to the products, including
the labels and packaging, in determining confusing similarity.—In determining similarity
and likelihood of confusion, jurisprudence has developed two tests, the dominancy test and
theholistic test. The dominancy test focuses on the similarity of the prevalent features of the
competing trademarks that might cause confusion or deception. In contrast, the holistic test
requires the court to consider the entirety of the marks as applied to the products, including
the labels and packaging, in determining confusing similarity. Under the latter test, a
comparison of the words is not the only determinant factor.
Same; In trademark cases, particularly in ascertaining whether one trademark is

confusingly similar to another, no set of rules can be deduced because each case must be
decided on its merits—in such cases, even more than in any other litigation, precedent must be
studied in the light of the facts of the particular case.—In trademark cases, particularly in
ascertaining whether one trademark is confusingly similar to another, no set rules can be
deduced because each case must be decided on its merits. In such cases, even more than in
any other litigation, precedent must be studied in the light of the facts of the particular case.
That is the reason why in trademark cases, jurisprudential precedents should be applied
only to a case if they are specifically in point. While we agree with the CA’s detailed
enumeration of differences between the two (2) competing trademarks herein involved, we
believe that the holistic test is not the one applicable in this case, the dominancy test being
the one more suitable. In recent cases with a similar factual milieu as here, the Court has
consistently used and applied the dominancy test in determining confusing similarity or
likelihood of confusion between competing trademarks.
Same; Paris Convention; A mark is valid if it is distinctive and hence not barred from
registration under the Trademark Law; Once registered, not only the mark’s validity but also
the registrant’s ownership thereof is prima facie presumed.—A mark is valid if it is distinctive
Atty. Sergio Ceniza
and hence not barred from registration under the Trademark Law. However, once registered,
not only the mark’s validity but also the registrant’s ownership thereof isprima
facie presumed. Pursuant to Section 37 of R.A. No. 166, as amended, as well as the provision
regarding the protection of industrial property of foreign nationals in this country as
embodied in the Paris Convention under which the Philippines and the petitioner’s domicile,
the United States, are adherent-members, the petitioner was able to register its
MCDONALD’S marks successively, i.e., “McDonald’s” in 04 October, 1971; the corporate logo
which is the “M” or the golden arches design and the “McDonald’s” with the “M” or golden
arches design both in 30 June 1977; and so on and so forth.
Same; Same; The Paris Convention is essentially a compact among the various member
countries to accord in their own countries to citizens of the other contracting parties’
trademarks and other rights comparable to those accorded their own citizens by their domestic
laws.—The Paris Convention is essentially a compact among the various member countries
to accord in their own countries to citizens of the other contracting parties’ trademarks and
other rights comparable to those accorded their own citizens by their domestic laws. The
underlying principle is that foreign nationals should be given the same treatment in each of
the member countries as that country makes available to its own citizens. In addition, the
Convention sought to create uniformity in certain respects by obligating each nation to
assure to nationals of countries of the Union an effective protection against unfair
competition. Article 2 of the Paris.
Convention provides that: ART. 2. Nationals of each of the countries of the Union shall,
as regards the protection of industrial property, enjoy in all the other countries of the Union
the advantages that their respective laws now grant, or may hereafter grant, to nationals,
without prejudice to the rights specially provided by the present Convention. Consequently,
they shall have the same protection as the latter, and the same legal remedy against any
infringement of their rights, provided they observe the conditions and formalities imposed
upon nationals.
Same; The requirement of “actual use in commerce * * * in the Philippines” before one
may register a trademark, trade name and service mark under the Trademark Law pertains
to the territorial jurisdiction of the Philippines and is not only confined to a certain region,
province, city or barangay.—Respondent’s contention that it was the first user of the mark in
the Philippines having used “MACJOY & DEVICE” on its restaurant business and food
products since December, 1987 at Cebu City while the first McDonald’s outlet of the
petitioner thereat was opened only in 1992, is downright unmeritorious. For the requirement
of “actual use in commerce x x x in the Philippines” before one may register a trademark,
trade name and service mark under the Trademark Law pertains to the territorial
jurisdiction of the Philippines and is not only confined to a certain region, province, city or
barangay.
Atty. Sergio Ceniza
G.R. No. 112012. April 4, 2001.*

SOCIETE DES PRODUITS NESTLÉ, S.A. and NESTLÉ PHILIPPINES, INC.,
petitioners, vs. COURT OF APPEALS and CFC CORPORATION, respondents.
Trademarks and Tradenames; Words and Phrases;“Trademark,” Defined.—A

trademark has been generally defined as “any word, name, symbol or device adopted and
used by a manufacturer or merchant to identify his goods and distinguish them from those
manufactured and sold by others.”
Same; Same; Tests to Determine Colorable Imitation;“Dominancy Test,” and “Holistic

Test,” Explained; Colorable imitation denotes such a close or ingenious imitation as to be
calculated to deceive ordinary persons, or such a resemblance to the original as to deceive an
ordinary purchaser giving such attention as a purchaser usually gives, as to cause him to
purchase the one supposing it to be the other.—Colorable imitation denotes such a close or
ingenious imitation as to be calculated to deceive ordinary persons, or such a resemblance to
the original as to deceive an ordinary purchaser giving such attention as a purchaser usually
gives, as to cause him to purchase the one supposing it to be the other. In determining if
colorable imitation exists, jurisprudence has developed two kinds of tests—the Dominancy
Test and the Holistic Test. The test of dominancy focuses on the similarity of the prevalent
features of the competing trademarks which might cause confusion or deception and thus
constitute infringement. On the other side of the spectrum, the holistic test mandates that
the entirety of the marks in question must be considered in determining confusing similarity.
Same; Same; Same; Same; In infringement or trademark cases in the Philippines,

particularly in ascertaining whether one trademark is confusingly similar to or is a colorable
imitation of another, no set rules can be deduced—each case must be decided on its own
merits.—The Court of Appeals applied some judicial precedents which are not on all fours
with this case. It must be emphasized that in infringement or trademark cases in the
Philippines, particularly in ascertaining whether one trademark is confusingly similar to or
is a colorable imitation of another, no set rules can be deduced. Each case must be decided on
its own merits. In Esso Standard, Inc. v. Court of Appeals, we ruled that the likelihood of
confusion is a relative concept; to be determined only according to the particular, and
sometimes peculiar, circumstances of each case. In trademark cases, even more than in any
other litigation, precedent must be studied in light of the facts of the particular case. The
wisdom of the likelihood of confusion test lies in its recognition that each trademark
infringement case presents its own unique set of facts. Indeed, the complexities attendant to
an accurate assessment of likelihood of confusion require that the entire panoply of elements
constituting the relevant factual landscape be comprehensively examined.
Same; Same; Same; Same; “Totality Rule,” Explained.—In the same manner, the Court
of Appeals erred in applying the totality rule as defined in the cases of Bristol Myers v.
Director of Patents; Mead Johnson & Co. v. NVJ Van Dorf Ltd.; and American Cyanamid Co.
v. Director of Patents. The totality rule states that “the test is not simply to take their words
and compare the spelling and pronunciation of said words. In determining whether two
trademarks are confusingly similar, the two marks in their entirety as they appear in the
respective labels must be considered in relation to the goods to which they are attached; the
discerning eye of the observer must focus not only on the predominant words but also on the
other features appearing on both labels.”
Same; Same; Same; Same; In view of the difficulty of applying jurisprudential

precedents to trademark cases due to the peculiarity of each case, judicial fora should not
readily apply a certain test or standard just because of seeming similarities.—In the case at
Atty. Sergio Ceniza
bar, other than the fact that both Nestle’s and CFC’s products are inexpensive and common
household items, the similarity ends there. What is being questioned here is the use by CFC
Of the trademark MASTER. In view of the difficulty of applying jurisprudential precedents
to trademark cases due to the peculiarity of each case, judicial fora should not readily apply a
certain test or standard just because of seeming similarities. As this Court has pointed
above, there could be more telling differences than similarities as to make a jurisprudential
precedent inapplicable.
Same; Same; Same; Same; The application of the totality or holistic test is improper
since the ordinary purchaser would not be inclined to notice the specific features, similarities
or dissimilarities, considering that the product is an inexpensive and common household
item.—The Court of Appeals held that the test to be applied should be the totality or holistic
test reasoning, since what is of paramount consideration is the ordinary purchaser who is, in
general, undiscerningly rash in buying the more common and less expensive household
products like coffee, and is therefore less inclined to closely examine specific details of
similarities “and dissimilarities between competing products. This Court cannot agree with
the above reasoning. If the ordinary purchaser is “undiscerningly rash” in buying such
common and inexpensive household products as instant coffee, and would therefore be “less
inclined to closely examine specific details of similarities and dissimilarities” between the
two competing products, then it would be less likely for the ordinary purchaser to notice that
CFC’s trademark FLAVOR MASTER carries the colors orange and mocha while that of
Nestle’s uses red and brown. The application of the totality or holistic test is improper since
the ordinary purchaser would not be inclined to notice the specific features, similarities or
dissimilarities, considering that the product is an inexpensive and common household item.
Same; Same; Same; Same; The totality or holistic test only relies on visual comparison
between two trademarks whereas the dominancy test relies not only on the visual but also on
the aural and connotative comparisons and overall impressions between the two
trademarks.—Moreover, the totality or holistic test is contrary to the elementary postulate of
the law on trademarks and unfair competition that confusing similarity is to be determined
on the basis of visual, aural, connotative comparisons and overall impressions engendered by
the marks in controversy as they are encountered in the realities of the marketplace. The
totality or holistic test only relies on visual comparison between two trademarks whereas the
dominancy test relies not only on the visual but also on the aural and connotative
comparisons and overall impressions between the two trademarks.
Same; Same; Same; Same; “Generic Terms,” and “Descriptive Terms,” Explained; The
word “MASTER” is neither a generic nor a descriptive term, and as such, said term can not be
invalidated as a trademark and, therefore, may be legally protected.—In addition, the word
“MASTER” is neither a generic nor a descriptive term. As such, said term can not be
invalidated as a trademark and, therefore, may be legally protected. Generic terms are those
which constitute “the common descriptive name of an article or substance,” or comprise the
“genus of which the particular product is a species,” or are “commonly used as the name or
description of a kind of goods,” or “imply reference to every member of a genus and the
exclusion of individuating characters,” or “refer to the basic nature of the wares or services
provided rather than to the more idiosyncratic characteristics of a particular product,” and
are not legally protectable. On the other hand, a term is descriptive and therefore invalid as
a trademark if, as understood in its normal and natural sense, it “forthwith conveys the
characteristics, functions, qualities or ingredients of a product to one who has never seen it
and does not know what it is,” or “if it forthwith conveys an immediate idea of the
ingredients, qualities or characteristics of the goods,” or if it clearly denotes what goods or
services are provided in such a way that the consumer does not have to exercise powers of
perception or imagination.
Atty. Sergio Ceniza
Same; Same; Same; Same; “Suggestive Terms,” Explained.—Rather, the term

“MASTER” is a suggestive term brought about by the advertising scheme of Nestle.
Suggestive terms are those which, in the phraseology of one court, require “imagination,
thought and perception to reach a conclusion as to the nature of the goods.” Such terms,
“which subtly connote something about the product,” are eligible for protection in the absence
of secondary meaning. While suggestive marks are capable of shedding “some light” upon
certain characteristics of the goods or services in dispute, they nevertheless involve “an
element of incongruity,” “figurativeness,” or “imaginative effort on the part of the observer.”
Same; Same; Same; Same; The term “MASTER” has acquired a certain connotation to
mean the coffee products MASTER ROAST and MASTER BLEND produced by Nestle.—The
term “MASTER,” therefore, has acquired a certain connotation to mean the coffee products
MASTER ROAST and MASTER BLEND produced by Nestlé. As such, the use by CFC of the
term “MASTER” in the trademark for its coffee product FLAVOR MASTER is likely to cause
confusion or mistake or even to deceive the ordinary purchasers.
No. L-29971. August 31, 1982.*

ESSO STANDARD EASTERN, INC., petitioner, vs. THE HONORABLE COURT OF
APPEALS** and UNITED CIGARETTE CORPORATION, respondents.
Tradenames and Trademarks; Words and Phrases;“Infringement” of trademark,

defined.—The law defines infringement as the use without consent of the trademark owner
of any “reproduction, counterfeit, copy or colorable imitation of any registered mark or
tradename in connection with the sale, offering for sale, or advertising of any goods, business
or services on or in connection with which such use is likely to cause confusion or mistake or
to deceive purchasers or others as to the source or origin of such goods or services, or identity
of such business; or reproduce, counterfeit, copy or colorably imitate any such mark or
tradename and apply such reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements intended to be used upon or
in connection with such goods, business or services.” Implicit in this definition is the concept
that the goods must be so related that there is a likelihood either of confusion of goods or
business. But likelihood of confusion is a relative concept; to be determined only according to
the particular, and sometimes peculiar, circumstances of each case. It is unquestionably true
that, as stated in Coburn vs. Puritan Mills, Inc.: “In trademark cases, even more than in
other litigation, precedent must be studied in the light of the facts of the particular case.”
Same; Same, Infringement of trademark depends on whether the goods of the two
contending parties using the same trademark, such as “ESSO,” are so related as to lead the
public to be deceived.—It is undisputed that the goods on which petitioner uses the
trademark ESSO, petroleum products, and the product of respondent, cigarettes, are non-
competing. But as to whether trademark infringement exists depends for the most part upon
whether or not the goods are so related that the public may be, or is actually, deceived and
misled that they came from the same maker or manufacturer. For non-competing goods may
be those which, though they are not in actual competition, are so related to each other that it
might reasonably be assumed that they originate from one manufacturer. Non-competing
goods may also be those which, being entirely unrelated, could not reasonably be assumed to
have a common source. In the former case of related goods, confusion of business could arise
out of the use of similar marks; in the latter case of non-related goods, it could not. The vast
majority of courts today follow the modern theory or concept of “related goods” which the
Court has likewise adopted and uniformly recognized and applied.
Atty. Sergio Ceniza
Same; Same; “Related goods” defined.—Goods are related when they belong to the same
class or have the same descriptive properties; when they possess the same physical
attributes or essential characteristics with reference to their form composition, texture or
quality. They may also be related because they serve the same purpose or are sold in grocery
stores. Thus, biscuits were held related to milk because they are both food products. Soap
and perfume, lipstick and nail polish are similarly related because they are common
household items nowadays. The trademark “Ang Tibay” for shoes and slippers was
disallowed to be used for shirts and pants because they belong to the same general class of
goods. Soap and pomade, although non-competitive, were held to be similar or to belong to
the same class, since both are toilet articles. But no confusion or deception can possibly
result or arise when the name “Wellington” which is the trademark for shirts, pants, drawers
and other articles of wear for men. women and children is used as a name of a department
store.
Same; The trademark ESSO which the petitioner uses for its various petroleum products
may also be used as a trademark by a manufacturer of cigarettes, the two products not being
related and the public cannot be deceived as to which product they are buying.—Petitioner
uses the trademark ESSO and holds certificate of registration of the trademark for
petroleum products, including aviation gasoline, grease, cigarette lighter fluid and other
various products such as plastics, chemicals, synthetics, gasoline solvents, kerosene,
automotive and industrial fuel, bunker fuel, lubricating oil, fertilizers, gas, alcohol,
insecticides and the “ESSO Gasul” burner, while respondent’s business is solely for the
manufacture and sale of the unrelated product of cigarettes. The public knows too well that
petitioner deals solely with petroleum products that there is no possibility that cigarettes
with ESSO brand will be associated with whatever good name petitioner’s ESSO trademark
may have generated. Although petitioner’s products are numerous, they are of the same class
or line of merchandise which are non-competing with respondent’s product of cigarettes,
which as pointed out in the appealed judgment is beyond petitioner’s “zone of potential or
natural and logical expansion.” When a trademark is used by a party for a product in which
the other party does not deal, the use of the same trademark on the latter’s product cannot
be validly objected to.
Same; The trademark ESSO which petitioner uses for its various petroleum products can
be used by another as trademark for cigarettes as the two classes of products flow through
different trade channels.—Another factor that shows that the goods involved are non-
competitive and non-related is the appellate court’s finding that they flow through different
channels of trade, thus: “The products of each party move along and are disposed through
different channels of distribution. The (petitioner’s) products are distributed principally
through gasoline service and lubrication stations, automotive shops and hardware stores. On
the other hand, the (respondent’s) cigarettes are sold in sari-sari stores, grocery stores, and
other small distributor outlets. (Respondent’s) cigarettes are even peddled in the streets
while (petitioner’s) ‘gasul’ burners are not. Finally, there is a marked distinction between oil
and tobacco, as well as between petroleum and cigarettes. Evidently, in kind and nature the
products of (respondent) and of (petitioner) are poles apart.”
Same; Same.—Respondent court correctly ruled that considering the general

appearances of each mark as a whole, the possibility of any confusion is unlikely. A
comparison of the labels of the samples of the goods submitted by the parties shows a great
many differences on the trademarks used. As pointed out by respondent court in its appealed
decision, “(A) witness for the plaintiff, Mr. Buhay, admitted that the color of the ‘ESSO’ used
by the plaintiff for the oval design where the blue word ESSO is contained is the distinct and
unique kind of blue. In his answer to the trial court’s question, Mr. Buhay informed the court
that the plaintiff never used its trademark on any product where the combination of colors is
similar to the label of the Esso cigarettes,” and “Another witness for the plaintiff, Mr.
Atty. Sergio Ceniza
Tengco, testified that generally, the plaintiff’s trademark conies all in either red, white, blue
or any combination of the three colors. It is to be pointed out that not even a shade of these
colors appears on the trademark of the appellant’s cigarette. The only color that the
appellant uses in its trademark is green,”
G.R. No. 120900. July 20, 2000.*

CANON KABUSHIKI KAISHA, petitioner, vs. COURT OF APPEALS and NSR
RUBBER CORPORATION, respondents.
Trademarks and Tradenames; Ordinarily, the ownership of a trademark or tradename

is a property right that the owner is entitled to protect as mandated by the Trademark Law.—
We find the arguments of petitioner to be unmeritorious. Ordinarily, the ownership of a
trademark or tradename is a property right that the owner is entitled to protect as mandated
by the Trademark Law. However, when a trademark is used by a party for a product in
which the other party does not deal, the use of the same trademark on the latter’s product
cannot be validly objected to.
Same; Where the certificate of registration for the trademark CANON covers goods
belonging to Class 2, another person can use the trademark CANON for goods classified as
Class 25—there is a world of difference between paints, chemical products, toner, and dyestuff
and sandals.—A review of the records shows that with the order of the BPTTT declaring
private respondent in default for failure to file its answer, petitioner had every opportunity
to present ex-parte all of its evidence to prove that its certificates of registration for the
trademark CANON cover footwear. The certificates of registration for the trademark
CANON in other countries and in the Philippines as presented by petitioner, clearly showed
that said certificates of registration cover goods belonging to class 2 (paints, chemical
products, toner, dyestuff). On this basis, the BPTTT correctly ruled that since the certificate
of registration of petitioner for the trademark CANON covers class 2 (paints, chemical
products, toner, dyestuff), private respondent can use the trademark CANON for its goods
classified as class 25 (sandals). Clearly, there is a world of difference between the paints,
chemical products, toner, and dyestuff of petitioner and the sandals of private respondent.
Same; The likelihood of confusion of goods or business is a relative concept, to be

determined only according to the particular, and sometimes peculiar, circumstances of each
case.—The likelihood of confusion of goods or business is a relative concept, to be determined
only according to the particular, and sometimes peculiar, circumstances of each case. Indeed,
in trademark law cases, even more than in other litigation, precedent must be studied in the
light of the facts of the particular case. Contrary to petitioner’s supposition, the facts of this
case will show that the cases of Sta. Ana vs. Maliwat, Ang vs. Teodoro and Converse Rubber
Corporation vs. Universal Rubber Products, Inc. are hardly in point. The just cited cases
involved goods that were confusingly similar, if not identical, as in the case of Converse
Rubber Corporation vs. Universal Rubber Products, Inc. Here, the products involved are so
unrelated that the public will not be misled that there is the slightest nexus between
petitioner and the goods of private respondent.
Same; Goods are related when they belong to the same class or have the same descriptive
properties; when they possess the same physical attributes or essential characteristics with
reference to their form, composition, texture or quality.—In cases of confusion of business or
origin, the question that usually arises is whether the respective goods or services of the
senior user and the junior user are so related as to likely cause confusion of business or
origin, and thereby render the trademark or tradenames confusingly similar. Goods are
related when they belong to the same class or have the same descriptive properties; when
they possess the same physical attributes or essential characteristics with reference to their
Atty. Sergio Ceniza
form, composition, texture or quality. They may also be related because they serve the same
purpose or are sold in grocery stores.
Same; Undoubtedly, paints, chemicals, toner and dyestuff are unrelated to sandals—the
two classes of products flow through different trade channels.—Undoubtedly, the paints,
chemical products, toner and dyestuff of petitioner that carry the trademark CANON are
unrelated to sandals, the product of private respondent. We agree with the BPTTT, following
the Esso doctrine, when it noted that the two classes of products in this case flow through
different trade channels. The products of petitioner are sold through special chemical stores
or distributors while the products of private respondent are sold in grocery stores, sari-sari
stores and department stores. Thus, the evident disparity of the products of the parties in the
case at bar renders unfounded the apprehension of petitioner that confusion of business or
origin might occur if private respondent is allowed to use the mark CANON.
Same; Tradenames; Words and Phrases; A tradename refers to the business and its
goodwill while a trademark refers to the goods.—The term “trademark” is defined by RA 166,
the Trademark Law, as including “any word, name, symbol, emblem, sign or device or any
combination thereof adopted and used by a manufacturer or merchant to identify his goods
and distinguish them for those manufactured, sold or dealt in by others.” Tradename is
defined by the same law as including “individual names and surnames, firm names,
tradenames, devices or words used by manufacturers, industrialists, merchants,
agriculturists, and others to identify their business, vocations, or occupations; the names or
titles lawfully adopted and used by natural or juridical persons, unions, and any
manufacturing, industrial, commercial, agricultural or other organizations engaged in trade
or commerce.” Simply put, a tradename refers to the business andits goodwill; a trademark
refers to the goods.
Same; Paris Convention; The Philippines and Japan are signatories to the Convention of
Paris for the Protection of Industrial Property, otherwise known as the Paris Convention; The
applicability of Article 8 of the Paris Convention is that established in the case of Kabushi
Kaisha Isetan vs. IAC, 203 SCRA 583.—The Convention of Paris for the Protection of
Industrial Property, otherwise known as the Paris Convention, of which both the Philippines
and Japan, the country of petitioner, are signatories, is a multilateral treaty that seeks to
protect industrial property consisting of patents, utility models, industrial designs,
trademarks, service marks, trade names and indications of source or appellations of origin,
and at the same time aims to repress unfair competition. We agree with public respondents
that the controlling doctrine with respect to the applicability of Article 8 of the Paris
Convention is that established in Kabushi Kaisha Isetan vs. Intermediate Appellate Court. As
pointed out by the BPTTT: “Regarding the applicability of Article 8 of the Paris Convention,
this Office believes that there is no automatic protection afforded an entity whose tradename
is alleged to have been infringed through the use of that name as a trademark by a local
entity, x x x This office is not unmindful that in the Treaty of Paris for the Protection of
Intellectual Property regarding well-known marks and possible application thereof in this
case. Petitioner, as this office sees it, is trying to seek refuge under its protective mantle,
claiming that the subject mark is well known in this country at the time the then application
of NSR Rubber was filed. However, the then Minister of Trade and Industry, the Hon.
Roberto V. Ongpin, issued a memorandum dated 25 October 1983 to the Director of Patents,
a set of guidelines in the implementation of Article 6bis (sic) of the Treaty of Paris. These
conditions are: a) the mark must be internationally known; b) the subject of the right must
be a trademark, not a patent or copyright or anything else; c) the mark must be for use in the
same or similar kinds of goods; and d) the person claiming must be the owner of the mark
(The Parties Convention Commentary on the Paris Convention. Article by Dr. Bogsch,
Director General of the World Intellectual Property Organization, Geneva, Switzerland,
Atty. Sergio Ceniza
1985) From the set of facts found in the records, it is ruled that the Petitioner failed to
comply with the third requirement of the said memorandum, that is, the mark must be for
use in the same or similar kinds of goods. The Petitioner is using the mark “CANON” for
products belonging to class 2 (paints, chemical products) while the Respondent is using the
same mark for sandals (class 25). Hence, Petitioner’s contention that its mark is well-known
at the time the Respondent filed its application for the same mark should fail.”
G.R. No. 172835. December 13, 2007.*

AIR PHILIPPINES CORPORATION, petitioner, vs.PENNSWELL, INC., respondent.
Intellectual Property Law; Trade Secrets; Words and Phrases;A trade secret is defined as
a plan or process, tool, mechanism or compound known only to its owner and those of his
employees to whom it is necessary to confide it, which definition also extends to a secret
formula or process not patented, but known only to certain individuals using it in
compounding some article of trade having a commercial value.—A trade secret is defined as a
plan or process, tool, mechanism or compound known only to its owner and those of his
employees to whom it is necessary to confide it. The definition also extends to a secret
formula or process not patented, but known only to certain individuals using it in
compounding some article of trade having a commercial value. A trade secret may consist of
any formula, pattern, device, or compilation of information that: (1) is used in one’s business;
and (2) gives the employer an opportunity to obtain an advantage over competitors who do
not possess the information. Generally, a trade secret is a process or device intended for
continuous use in the operation of the business, for example, a machine or formula, but can
be a price list or catalogue or specialized customer list. It is indubitable that trade secrets
constitute proprietary rights. The inventor, discoverer, or possessor of a trade secret or
similar innovation has rights therein which may be treated as property, and ordinarily an
injunction will be granted to prevent the disclosure of the trade secret by one who obtained
the information “in confidence” or through a “confidential relationship.” American
jurisprudence has utilized the following factors to determine if an information is a trade
secret, to wit: (1) the extent to which the information is known outside of the employer’s
business; (2) the extent to which the information is known by employees and others involved
in the business; (3) the extent of measures taken by the employer to guard the secrecy of the
information; (4) the value of the information to the employer and to competitors; (5) the
amount of effort or money expended by the company in developing the information; and (6)
the extent to which the information could be easily or readily obtained through an
independent source.
Same; Same; Any determination by management as to the confidential nature of

technologies, processes, formulae, or other so-called trade secrets must have a substantial
factual basis which can pass judicial scrutiny; The parameters in the determination of trade
secrets are such substantial factual basis that can withstand judicial scrutiny.—In Cocoland
Development Corporation v. National Labor Relations Commission, 259 SCRA 51 (1996), the
issue was the legality of an employee’s termination on the ground of unauthorized disclosure
of trade secrets. The Court laid down the rule that any determination by management as to
the confidential nature of technologies, processes, formulae or other so-called trade secrets
must have a substantial factual basis which can pass judicial scrutiny. The Court rejected
the employer’s naked contention that its own determination as to what constitutes a trade
secret should be binding and conclusive upon the NLRC. As a caveat, the Court said that to
rule otherwise would be to permit an employer to label almost anything a trade secret, and
thereby create a weapon with which he/it may arbitrarily dismiss an employee on the pretext
that the latter somehow disclosed a trade secret, even if in fact there be none at all to speak
of. Hence, in Cocoland, the parameters in the determination of trade secrets were set to be
such substantial factual basis that can withstand judicial scrutiny.
Atty. Sergio Ceniza
Actions; Pleadings and Practice; Modes of Discovery;Production or Inspection of

Documents; The production or inspection of documents or things as a mode of discovery
sanctioned by the Rules of Court may be availed of by any party upon a showing of good cause
therefor before the court in which an action is pending.—We now take a look at Section 1,
Rule 27 of the Rules of Court, which permits parties to inspect documents or things upon a
showing of good cause before the court in which an action is pending. Its entire provision
reads: SECTION 1. Motion for production or inspection order.—Upon motion of any party
showing good cause therefore, the court in which an action is pending may (a) order any
party to produce and permit the inspection and copying or photographing, by or on behalf of
the moving party, of any designated documents, papers, books, accounts, letters,
photographs, objects or tangible things, not privileged, which constitute or contain evidence
material to any matter involved in the action and which are in his possession, custody or
control; or (b) order any party to permit entry upon designated land or other property in his
possession or control for the purpose of inspecting, measuring, surveying, or photographing
the property or any designated relevant object or operation thereon. The order shall specify
the time, place and manner of making the inspection and taking copies and photographs, and
may prescribe such terms and conditions as are just. A more than cursory glance at the
above text would show that the production or inspection of documents or things as a mode of
discovery sanctioned by the Rules of Court may be availed of by any party upon a showing of
good cause therefor before the court in which an action is pending. The court may order any
party: a) to produce and permit the inspection and copying or photographing of any
designated documents, papers, books, accounts, letters, photographs, objects or tangible
things, which are not privileged; which constitute or contain evidence material to any matter
involved in the action; and which are in his possession, custody or control; or b) to permit
entry upon designated land or other property in his possession or control for the purpose of
inspecting, measuring, surveying, or photographing the property or any designated relevant
object or operation thereon.
Same; Same; Intellectual and industrial property rights are not simple property cases;
Without limiting such industrial property rights to trademarks and trade names, the Supreme
Court has ruled that all agreements concerning intellectual property are intimately connected
with economic development; The protection of industrial secrets is inextricably linked to the
advancement of our economy and fosters healthy competition in trade; Jurisprudence has
consistently acknowledged the private character of trade secrets—there is a privilege not to
disclose one’s trade secrets.—In accordance with our statutory laws, this Court has declared
that intellectual and industrial property rights cases are not simple property cases. Without
limiting such industrial property rights to trademarks and trade names, this Court has ruled
that all agreements concerning intellectual property are intimately connected with economic
development. The protection of industrial property encourages investments in new ideas and
inventions and stimulates creative efforts for the satisfaction of human needs. It speeds up
transfer of technology and industrialization, and thereby bring about social and economic
progress. Verily, the protection of industrial secrets is inextricably linked to the
advancement of our economy and fosters healthy competition in trade. Jurisprudence has
consistently acknowledged the private character of trade secrets. There is a privilege not to
disclose one’s trade secrets. Foremost, this Court has declared that trade secrets and banking
transactions are among the recognized restrictions to the right of the people to information
as embodied in the Constitution. We said that the drafters of the Constitution also
unequivocally affirmed that, aside from national security matters and intelligence
information, trade or industrial secrets (pursuant to the Intellectual Property Code and other
related laws) as well as banking transactions (pursuant to the Secrecy of Bank Deposits Act),
are also exempted from compulsory disclosure.
Atty. Sergio Ceniza
G.R. No. 100098. December 29, 1995.*

EMERALD GARMENT MANUFACTURING CORPORATION, petitioner, vs. HON.
COURT OF APPEALS, BUREAU OF PATENTS, TRADEMARKS AND
TECHNOLOGY TRANSFER and H.D. LEE COMPANY, INC., respondents.
Trademarks and Tradenames; The reckoning point for the filing of a petition for
cancellation of certificate of registration of trademark is not from the alleged date of use but
from the date the certificate of registration was published in the Official Gazette and issued to
the registrant.—Petitioner alleges that it has been using its trademark “STYLISTIC MR.
LEE” since 1 May 1975, yet, it was only on 18 September 1981 that private respondent filed
a petition for cancellation of petitioner’s certificate of registration for the said trademark. We
reject petitioner’s contention. Petitioner’s trademark is registered in the supplemental
register. The Trademark Law (R.A. No. 166) provides that “marks and tradenames for the
supplemental register shall not be published for or be subject to opposition, but shall be
published on registration in the Official Gazette.” The reckoning point, therefore, should not
be 1 May 1975, the date of alleged use by petitioner of its assailed trademark but 27 October
1980, the date the certificate of registration SR No. 5054 was published in the Official
Gazette and issued to petitioner.
Same; Estoppel; Laches; Actions; To be barred from bringing suit on grounds of estoppel
and laches, the delay must be lengthy.—Corollarily, private respondent could hardly be
accused of inexcusable delay in filing its notice of opposition to petitioner’s application for
registration in the principal register since said application was published only on 20
February 1984. From the time of publication to the time of filing the opposition on 27 July
1984 barely five (5) months had elapsed. To be barred from bringing suit on grounds of
estoppel and laches, the delay must be lengthy.
Same; In the history of trademark cases in the Philippines, particularly in ascertaining

whether one trademark is confusingly similar to or is a colorable imitation of another, no set
rules can be deduced—each case must be decided on its own merits.—Practical application of
the provision of Section 22 of R.A. No. 166 (Trademark Law) is easier said than done. In the
history of trademark cases in the Philippines, particularly in ascertaining whether one
trademark is confusingly similar to or is a colorable imitation of another, no set rules can be
deduced. Each case must be decided on its own merits.
Same; Infringements; The essential element of infringement is colorable imitation.—

Proceeding to the task at hand, the essential element of infringement is colorable imitation.
This term has been defined as “such a close or ingenious imitation as to be calculated to
deceive ordinary purchasers, or such resemblance of the infringing mark to the original as to
deceive an ordinary purchaser giving such attention as a purchaser usually gives, and to
cause him to purchase the one supposing it to be the other.”
Same; Same; In determining whether colorable imitation exists, jurisprudence has

developed two kinds of tests—the Dominancy Test and the Holistic Test.—In determining
whether colorable imitation exists, jurisprudence has developed two kinds of tests—the
Dominancy Test applied in Asia Brewery, Inc. v. Court of Appeals and other cases and the
Holistic Test developed in Del Monte Corporation v. Court of Appeals and its proponent cases.
Same; Same; Dominancy Test and Holistic Test, Compared.—As its title implies, the
test of dominancy focuses on the similarity of the prevalent features of the competing
trademarks which might cause confusion or deception and thus constitutes infringement. On
Atty. Sergio Ceniza
the other side of the spectrum, the holistic test mandates that the entirety of the marks in
question must be considered in determining confusing similarity.
Same; Same; Maong pants and jeans are not inexpensive, and as the casual buyer is
predisposed to be more cautious and discriminating in and would prefer to mull over his
purchase, confusion and deception is less likely.—The products involved in the case at bar
are, in the main, various kinds of jeans. These are not your ordinary household items like
catsup, soy sauce or soap which are of minimal cost. Maong pants or jeans are not
inexpensive. Accordingly, the casual buyer is predisposed to be more cautious and
discriminating in and would prefer to mull over his purchase. Confusion and deception, then,
is less likely.
Same; Same; Words and Phrases; “Ordinary Purchaser,” Defined.—The definition laid
down in Dy Buncio v. Tan Tiao Bokis better suited to the present case. There, the “ordinary
purchaser” was defined as one “accustomed to buy, and therefore to some extent familiar
with, the goods in question. The test of fraudulent simulation is to be found in the likelihood
of the deception of some persons in some measure acquainted with an established design and
desirous of purchasing the commodity with which that design has been associated. The test is
not found in the deception, or the possibility of deception, of the person who knows nothing
about the design which has been counterfeited, and who must be indifferent between that
and the other. The simulation, in order to be objectionable, must be such as appears likely to
mislead the ordinary intelligent buyer who has a need to supply and is familiar with the
article that he seeks to purchase.”
Same; Same; A personal name or surname may not be monopolized as a trademark or

tradename as against others of the same name or surname.—“LEE” is primarily a surname.
Private respondent cannot, therefore, acquire exclusive ownership over and singular use of
said term . . . It has been held that a personal name or surname may not be monopolized as a
trademark or tradename as against others of the same name or surname. For in the absence
of contract, fraud, or estoppel, any man may use his name or surname in all legitimate ways.
Thus, “Wellington” is a surname, and its first user has no cause of action against the junior
user of “Wellington” as it is incapable of exclusive appropriation.
Same; Same; Actual use in commerce in the Philippines is an essential prerequisite for
the acquisition of ownership over a trademark.—In addition to the foregoing, we are
constrained to agree with petitioner’s contention that private respondent failed to prove prior
actual commercial use of its “LEE” trademark in the Philippines before filing its application
for registration with the BPTTT and hence, has not acquired ownership over said mark.
Actual use in commerce in the Philippines is an essential prerequisite for the acquisition of
ownership over a trademark pursuant to Sec. 2 and 2-A of the Philippine Trademark Law
(R.A. No. 166).
Same; Same; International Law; Conflict of Laws; Paris Convention for the Protection of
Industrial Property; Following universal acquiescence and comity, our municipal law on
trademarks regarding the requirements of actual use in the Philippines must subordinate an
international agreement inasmuch as the apparent clash is being decided by a municipal
tribunal.—The provisions of the 1965 Paris Convention for the Protection of Industrial
Property relied upon by private respondent and Sec. 21-A of the Trademark Law (R.A. No.
166) were sufficiently expounded upon and qualified in the recent case of Philip Morris, Inc.
v. Court of Appeals: Following universal acquiescence and comity, our municipal law on
trademarks regarding the requirement of actual use in the Philippines must subordinate an
international agreement inasmuch as the apparent clash is being decided by a municipal
tribunal (Mortisen vs. Peters, Great Britain, High Court of Judiciary of Scotland, 1906, 8
Atty. Sergio Ceniza
Sessions, 93; Paras, International Law and World Organization, 1971 Ed., p. 20). Withal, the
fact that international law has been made part of the law of the land does not by any means
imply the primacy of international law over national law in the municipal sphere. Under the
doctrine of incorporation as applied in most countries, rules of international law are given a
standing equal, not superior, to national legislative enactments.
G.R. Nos. 160054-55. July 21, 2004.*

MANOLO P. SAMSON, petitioner, vs. HON. REYNALDO B. DAWAY, in his capacity
as Presiding Judge, Regional Trial Court of Quezon City, Branch 90, PEOPLE OF
THE PHILIPPINES and CATERPILLAR, INC., respondents.
Intellectual Property Code (Republic Act [R.A.] 8293);Jurisdiction; Jurisdiction over

cases for infringement of registered marks, unfair competition, false designation of origin and
false description or representation, is lodged with the Regional Trial Court.—Under Section
170 of R.A. No. 8293, which took effect on January 1, 1998, the criminal penalty for
infringement of registered marks, unfair competition, false designation of origin and false
description or representation, is imprisonment from 2 to 5 years and a fine ranging from
Fifty Thousand Pesos to Two Hundred Thousand Pesos, to wit: SEC. 170. Penalties.—
Independent of the civil and administrative sanctions imposed by law, a criminal penalty of
imprisonment from two (2) years to five (5) years and a fine ranging from Fifty thousand
pesos (P50,000.00) to Two hundred thousand pesos (P200,000.00), shall be imposed on any
person who is found guilty of committing any of the acts mentioned in Section 155
[Infringement], Section 168 [Unfair Competition] and Section 169.1 [False Designation of
Origin and False Description or Representation]. Corollarily, Section 163 of the same Code
states that actions (including criminal and civil) under Sections 150, 155, 164, 166, 167, 168
and 169 shall be brought before the proper courts with appropriate jurisdiction under
existing laws, thus—SEC. 163. Jurisdiction of Court.—All actions under Sections 150, 155,
164 and 166 to 169 shall be brought before the proper courts with appropriate jurisdiction
under existing laws. (Emphasis supplied) The existing law referred to in the foregoing
provision is Section 27 of R.A. No. 166 (The Trademark Law) which provides that jurisdiction
over cases for infringement of registered marks, unfair competition, false designation of
origin and false description or representation, is lodged with the Court of First Instance (now
Regional Trial Court)—SEC. 27. Jurisdiction of Court of First Instance.—All actions under
this Chapter [V—Infringement] and Chapters VI [Unfair Competition] and VII [False
Designation of Origin and False Description or Representation], hereof shall be brought
before the Court of First Instance.
Same; Same; Same; Same; R.A. No. 8293 and R.A. No. 166 are special laws conferring
jurisdiction over violations of intellectual property rights to the Regional Trial Courts which
should therefore prevail over R.A. No. 7691, which is a general law.—The settled rule in
statutory construction is that in case of conflict between a general law and a special law, the
latter must prevail. Jurisdiction conferred by a special law to Regional Trial Courts must
prevail over that granted by a general law to Municipal Trial Courts. In the case at bar, R.A.
No. 8293 and R.A. No. 166 are special laws conferring jurisdiction over violations of
intellectual property rights to the Regional Trial Court. They should therefore prevail over
R.A. No. 7691, which is a general law. Hence, jurisdiction over the instant criminal case for
unfair competition is properly lodged with the Regional Trial Court even if the penalty
therefor is imprisonment of less than 6 years, or from 2 to 5 years and a fine ranging from
P50,000.00 to P200,000.00.
G.R. No. 132604. March 6, 2002.*

Atty. Sergio Ceniza
VENANCIO SAMBAR, doing business under the name and style of CVS Garment
Enterprises, petitioner, vs. LEVI STRAUSS & CO., and LEVI STRAUSS (PHIL.),
INC., respondents.
Intellectual Property; Trademarks; Copyright; To be entitled to copyright, the thing being

copyrighted must be original, created by the author through his own skill, labor and
judgment, without directly copying or evasively imitating the work of another.—From the
foregoing discussion, it is clear that the matters raised by petitioner in relation to the last
issue are purely factual, except the matter of nominal and temperate damages. Petitioner
claims that damages are not due private respondents and his copyright should not be
cancelled because he had not infringed on Levi’s trademark. Both the trial court and the
Court of Appeals found there was infringement. Thus, the award of damages and
cancellation of petitioner’s copyright are appropriate. Award of damages is clearly provided
in Section 23, while cancellation of petitioner’s copyright finds basis on the fact that the
design was a mere copy of that of private respondents’ trademark. To be entitled to
copyright, the thing being copyrighted must be original, created by the author through his
own skill, labor and judgment, without directly copying or evasively imitating the work of
another.
Same; Same; Infringement; The fact that there was an infringement means that the
trademark owner suffered losses for which it is entitled to moderate damages.—However, we
agree with petitioner that it was error for the Court of Appeals to affirm the award of
nominal damages combined with temperate damages by the Regional Trial Court of Makati.
What respondents are entitled to is an award for temperate damages, not nominal damages.
For although the exact amount of damage or loss can not be determined with reasonable
certainty, the fact that there was infringement means they suffered losses for which they are
entitled to moderate damages. We find that the award of P50,000.00 as temperate damages
fair and reasonable, considering the circumstances herein as well as the global coverage and
reputation of private respondents Levi Strauss & Company and Levi Strauss (Phil.), Inc.
No. L-54158. November 19, 1982.*

PAGASA INDUSTRIAL CORPORATION, petitioner, vs.THE HONORABLE COURT
OF APPEALS, TIBURCIO S. EVALLE, Director of Patents, and YOSHIDA KOGYO
KABUSHIKIKAISHA, respondents.
Trademarks and Tradenames; Evidence; Although the prior registrant of the trademark
“YKK’ for zippers, said prior registrant, in case another was subsequently issued a trademark
patent for the same brand name of “YKK”, must present proof that it used said trademark in
the Philippines. Proof of sending samples here is not evidence of commercial use.—The
Trademark Law is very clear. It requires actual commercial use of the mark prior to its
registration. There is no dispute that respondent corporation was the first registrant, yet it
failed to fully substantiate its claim that it used in trade or business in the Philippines the
subject mark; it did not present proof to invest it with exclusive, continuous adoption of the
trademark which should consist among others, of considerable sales since its first use. The
invoices submitted by respondent which were dated way back in 1957 show that the zippers
sent to the Philippines were to be used as “samples” and “of no commercial value.” The
evidence for respondent must be clear, definite and free from inconsistencies. “Samples” are
not for sale and therefore, the fact of exporting them to the Philippines cannot be considered
to be equivalent to the “use” contemplated by the law. Respondent did not expect income
from such “samples.” There were no receipts to establish sale, and no proof were presented to
show that they were subsequently sold in the Philippines.
Atty. Sergio Ceniza
Same; Same; Laches; Failure of prior registrant of a trademark to seek cancellation of a
trademark patent issued to another identical to the former’s patented trademark puts said
prior registrant in laches.—It appears that it was only after more than seven (7) years when
respondent sought the cancellation of the trademark. An unreasonable length of time had
already passed before respondent asserted its right to the trademark. There is a presumption
of neglect already amounting to “abandonment” of a right after a party had remained silent
for quite a long time during which petitioner had been openly using the trademark in
question. Such inaction on the part of respondent entitles petitioner to the equitable
principle of laches.
Same; Same; Same; Same.—A perusal of the pleadings showed no explanation why
respondent allowed the use by petitioner of the trademark under a duly approved application
of registration thereof for as long as almost eight (8) years before filing the instant petition
for cancellation. Obviously, respondent wanted goodwill and a wide market established at
the expense of the petitioner but for its benefit. It is precisely the intention of the law,
including a provision on equitable principle to protect only the vigilant, not those guilty of
laches. It is most unfair if at anytime, a previous registrant, even after a lapse of more than
five (5) years, can ask for the cancellation of a similar or the same trademark, the
registration of which was never opposed by the prior registrant. Why, in the first place did
respondent not file an opposition to the application of petitioner, as it ought to have done? It
could be because by the fact that its own registration was defective for there being no
compliance with the requirement of the law such as the two (2) months commercial use of the
trademark prior to the filing of the application, its own registration may be cancelled,
specially as it had no evidence of actual use of the trademark after its registration up to the
time of the filing of peti-tioner’s application, a fact easily deducible from the fact of
respondent’s complete silence and having taken no action to cancel petitioner’s trademark
until after the lapse of more than seven (7) years from the approval of petitioner’s application
to respondent filing a petition for cancellation.
G.R. No. 91332. July 16, 1993.*

PHILIP MORRIS, INC., BENSON & HEDGES (CANADA), INC., AND FABRIQUES
OF TABAC REUNIES, S.A., petitioners vs. THE COURT OF APPEALS AND
FORTUNE TOBACCO CORPORATION, respondents.
Corporation Law; Patents; Trademarks; A foreign corporation not doing business in the
Philippines may have the right to sue before Philippine Courts but existing adjective axioms
require that qualifying circumstances necessary for the assertion of such right should first be
affirmatively pleaded.—However, on May 21, 1984, Section 21-A, the provision under
consideration, was qualified by this Court in La Chemise Lacoste SA. vs. Fernandez (129
SCRA 373 [1984]), ‘to the effect that a foreign corporation not doing business in the
Philippines may have the right to sue before Philippine Courts, but existing adjective axioms
require that qualifying circumstances necessary for the assertion of such right should first be
affirmatively pleaded (2 Agbayani, Commercial Laws of the Philippines, 1991 Ed., p. 598;
4 Martin, Philippine Commercial Laws, Rev. Ed., 1986, p. 381). Indeed, it is not sufficient for
a foreign corporation suing under Section 21-A to simply allege its alien origin. Rather, it
must additionally allege its personality to sue, Relative to this condition precedent, it may be
observed that petitioners were not remiss in averring their personality to lodge a complaint
for infringement (p. 75, Rollo in AC-G.R. SP No. 13132) especially so when they asserted that
the main action for infringement is anchored on an isolated transaction.
Same; Same; Same; Foreign corporations not engaged in business in the Philippines may
maintain a cause of action for infringement primarily because of Section 21-A of the
Trademark Law when the legal standing to sue is alleged.—Given these confluence of
existing laws amidst the cases involving trademarks, there can be no disagreement to the
Atty. Sergio Ceniza
guiding principle in commercial law that foreign corporations not engaged in business in the
Philippines may maintain a cause of action for infringement primarily because of Section 21-
A of the Trademark Law when the legal standing to sue is alleged, which petitioners have
done in the case at hand.
Same; Same; Same; Our municipal law or trademarks regarding the requirement of
actual use in the Philippines must subordinate an international agreement inasmuch as the
apparent clash is being decided by a municipal tribunal.—Following universal acquiescence
and comity, our municipal law on trademarks regarding the requirement of actual use in the
Philippines must subordinate an international agreement inasmuch as the apparent clash is
being decided by a municipal tribunal (Mortensen vs. Peters, Great Britain, High Court of
Judiciary of Scotland, 1906, 8 Sessions 93; Paras, International Law and World
Organization, 1971 Ed., p. 20). Withal, the fact that international law has been made part of
the law of the land does not by any means imply the primacy of international law over
national law in the municipal sphere. Under the doctrine of incorporation as applied in most
countries, rules of international law are given a standing equal, not superior, to national
legislative enactments.
Same; Same; Same; Actual use in commerce in the Philippines is a pre-requisite to the
acquisition of ownership over a trademark or a tradename.—A fundamental principle of
Philippine Trademark Law is that actual use in commerce in the Philippines is a pre-
requisite to the acquisition of ownership over a trademark or a tradename.
Same; Same; Same; Same; A foreign corporation may have the personality to file a suit
for infringement but it may not necessarily be entitled to protection due to absence of actual
use of the emblem in the local market.—In other words, petitioners may have the capacity to
sue for infringement irrespective of lack of business activity in the Philippines on account of
Section 21-A of the Trademark Law but the question of whether they have an exclusive right
over their symbol as to justify issuance of the controversial writ will depend on actual use of
their trademarks in the Philippines in line with Sections 2 and 2-A of the same law. It is thus
incongruous for petitioners to claim that when a foreign corporation not licensed to do
business in the Philippines files a complaint for infringement, the entity need not be actually
using its trademark in commerce in the Philippines. Such a foreign corporation may have the
personality to file a suit for infringement but it may not necessarily be entitled to protection
due to absence of actual use of the emblem in the local market.
Atty. Sergio Ceniza
No. L-26557. February 18, 1970.

AMERICAN WIRE & CABLE COMPANY, petitioner, vs.DIRECTOR OP PATENTS
and CENTRAL BANAHAW INDUSTRIES, respondents.
Civil law; Trade-marks; Registrability of trade-marks; Test to determine registrability.—

The determinative factor in a contest involving registration of trade mark is not whether the
challenged mark would actually cause confusion or deception of the purchasers but whether
the use of such mark would likely cause confusion or mistake on the part of the buying
public. In short, to constitute an infringement of an existing trademark patent and warrant a
denial of an application for registration, the law does not require that the competing
trademarks must be so identical as to produce actual error or mistake; it would be sufficient,
for purposes of the law, that the similarity between the two labels is such that there is a
possibility or likelihood of the purchaser of the older brand mistaking the newer brand for it.
Same; Same; Same; Same; Dominancy test—Earlier rulings of the Supreme Ourt
indicate reliance on the dominancy test or the assessment of the essential or dominant
features in the competing labels to determining whether they are confusingly similar or
cause the public to mistake one for another. Even their similarity in sound is taken into
consideration, where the marks refer to merchandise of the same descriptive properties, for
the reason that trade idem sonans constitutes a violation of trademark patents.
Same; Same; Same; Same; Buyers less concerned with etymology of words; Duraflex and
Dynaflex, ctmfusingly similar.—The similarity between the competing trademarks, Duraflex
and Dynaflex, is clear not only from their initial letters but also in the last half of the
appellations. Buyers are less concerned with the etymology of the words as with their sound
and the dominant, features of the design. The semantic difference and connotation of the
prefixes “Dura” and “Dyna” of the competing trademark cannot make the two marks
different.
Same; Same; Same; Same; Minor and insignificant differences.—Differences in the

mark on the front portion of the box are minor if there is close resemblance in the general
appearance of the box and the tradenames of the articles. For the dominant and essential
feature of the article is the trademark itself. Unlike the case of commodities ordinarily picked
up by the purchaser himself from the grocery or market counters, electric wires are
purchased not by their appearance but by the size (voltage) and length and, most
importantly, by brand. Except for big constructions, the task of purchasing electrical
materials is delegated to one who is not a technical man, not necessarily the designing
architect or engineer who will undertake the work of building. Unlike the pharmacists or
druggists, the dispensers of hardware or electrical supplies are not likely to pay more
concern to the brand of articles asked by the customer.
Atty. Sergio Ceniza
No. L-19906. April 30, 1969.
STERLING PRODUCTS INTERNATIONAL, INCORPORATED, plaintiff-
appellant, vs.FARBENPABRIKEN BAYER AKTIENGESELLSCHAFT, and ALLIED
MANUFACTURING & TRADING Co., INC., defendants-appellants.
Trademarks and tradenames; Actual use prerequisite to acquisition of right.—A rule

widely accepted and firmly entrenched because it has come down through the.years is that
actual use in commerce or business is a prerequisite to the acquisition of the right of
ownership over a trademark.
Same; Adoption alone would not give exclusive right; Value of registration.—Adoption
alone of a trademark would not give exclusive right thereto. Such right grows out of their
actual use. Adoption is not use. One may make advertisements, issue circulars, give out price
lists on certain goods; but these alone would not give exclusive right of use. For trademark is
a creation of use. The underlying reason for all these is that purchasers have come to
understand the mark as indicating the origin of the wares. Flowing from this is the trader’s
right to protection in the trade he has built up and the goodwill he has accumulated from use
of the trademark. Registration of a trademark, of course, has value: it is an administrative
act declaratory of a pre-existing right. Registration does not, however, perfect a trademark
right.
Same; Certificate of registration should state particular goods for which it is registered
and date of use.—Section 11 of the Trademark Law requires that the certificate of
registration state “the particular goods x x x for which it is registered.” This is controlling.
Under section 11 aforesaid, likewise to be entered in the certif icate of registration is “the
date of the first use in commerce or business.” SPI may not claim “first use” of the
trademarks prior .to the registrations thereof on any product other than medicines.
Same; Director of Patent; Examination of application;Purpose.—Section 7 of the same

Trademark Act directs that upon the f iling of the application and the payment of the
required fee, the “Director [of Patents] shall cause an examination of the application"—for
registration of the trademark—"to be made, and, if on such examination it shall appear that
the applicant is entitled to registration, the Director x x x shall cause the mark x x x to be
published in the Official Gazette.” This examination is necessary in order that the Director of
Patents may be satisfied that the application conforms to the requirement of actual use in
commerce of the trademark in sections 2 and 2-A of the Trademark Law; and that the
statement in said application—as to the “first use” thereof and “the goods x x x in connection
with which the mark x x x is used (section 5)—is true.
Same; Registration in United States not registration in the Philippines.—The United

States is not the Philippines. Registration in the United States is not registration in the
Philippines. At the time of the United States registration in 1927, the Philippines had its
own Trademark Law, Act No. 666 aforesaid of the Philippine Commission, which provided for
registration here of trademarks owned by persons domiciled in the United States. What is to
be secured from unfair competition in a given territory is the trade which one has in that
particular territory. There is where his business is carried on; where the goodwill symbolized
by the trademark has immediate value; where the infringer may profit by infringement
Plaintiff itself concedes that the principle of terrioriality of the Trademark Law has been
recognized in the Philippines. Accordingly, the 1927 registration in the United States of the
BAYER trademark would not of itself afford plaintiff protection for the use by defendants in
the Philippines of the same trademark for the same or different products.
Atty. Sergio Ceniza
Same; Effect of failure to seasonably object the use of trademark.—Defendants ask to
delist plaintiff’s BAYER trademarks for medicines from the Principal Register, claiming-
right thereto for said use. Said trademarks had been registered since 1939 by plaintiff’s
predecessor, the Bayer Co., Inc. Defendants’ claim is stale; it suffer from the defect of non-
use. While it is conceded that FBA’s predecessors first introduced medical products with the
BAYER trademarks in the Philippine market, it is equally true that, after World War I, no
definite evidence there is that defendants or their predecessors traded in the Philippines in
medicines with the BAYER trademarks thereafter. FBA did not seasonably voice its
objection. Lack of protest thereto connoted acquiescence. And this, notwithstanding the fact
that the 1923 and 1926 agreements were set aside in the anti-trust suits. Defendants did use
,the marks, but it was much later, i.e., in 1958—and on chemicals and insecticides—not on
medicines. FBA only bestirred itself and challenged plaintiff’s right to the trademarks on
medicines when this suit was filed. Vigilantibus non dormientibus equitas subvenit. The net
result is that plaintiff may hold on to its BAYER trademarks for medicines. And defendants
may continue using the same trademarks for insecticides and other chemicals, not medicines.
No. L-23954. April 29, 1977.*

AMERICAN CYANAMID COMPANY, petitioner, vs. THE DIRECTOR OF PATENTS
and TIU CHIAN. respondents.
Patents; Trademarks and Tradenames; Factors considered in determining the existence

of substantial difference between two labels.—The problem therefore to be resolved is whether
or not petitioner correctly claims that respondent’s trademark SULMETINE was copied from
its trademark SULMET giving rise to a confusing similarity between the two in violation of
Republic Act 166 otherwise known as the Trade-Mark Law . . . . An examination of the
documentary evidence submitted by the parties confirms the findings of the Director of
Patents that there are striking differences between the two labels, Exhibits B and C, which
preclude the possibility of the purchasing public confusing one product with the other. Said
labels are entirely different in size, background, colors, contents, and pictorial arrangement;
in short, the general appearances of the labels bearing the respective trademarks are so
distinct from each other that petitioner cannot assert that the dominant features, if any, of
its trademark were used or appropriated in respondent’s own . . . . Thus, looking at the two
labels Exhibits B and C it is quite apparent that the source of the product is predominantly
indicated thereby discounting petitioner’s assertion that the SULMETINE trademark is a
plain copy of its own with intent to pass respondent’s article as coming from the same source
as that of petitioner’s medicinal preparation.
Same; Same; Purchasers of veterinary medicine are ordinarily more wary of the products
they are buying.—In this case of SULMET and SULMETINE, the product is for medicinal
veterinary use and consequently, the purchaser will be more wary of the nature of the
product he is buying. Contrary to the allegation of the petitioner herein, the source or
manufacturer of the article will be a most important factor in the mind of the purchaser in
selecting the article he will buy and a preparation manufactured by a well-known foreign
company such as the “American Cyanamid Company, New York”, enjoys a decided advantage
over one which is locally produced and manufactured by an unknown entity such as “Henry’s
Laboratories.”
Same; Same; The word “SULMET” is distinguishable from the word “SULMETINE.”—
Similarly, in the case before us, as correctly stated by the Director of Patents, the word
SULMET is derived from a combination of the syllables “SUL” which is derived from Sulfa
and “MET” from methyl both of which are chemical compounds present in the article
manufactured by the contending parties, and the addition of the syllable “INE” in
Atty. Sergio Ceniza
respondent’s label is sufficient to distinguish respondent’s product or trademark from that of
petitioner.
Same; Same; No one can claim a monopoly in the preparation of a medicinal product.
The field is open for manufacture of medicinal preparations from the same veterinary
purposes.—We cannot agree with petitioner that the trademarks are used on identical goods
because as already indicated earlier, petitioner’s SULMET label, Exhibit B, is used on a
drinking water solution while that of respondent labels tablets. That both products are for
identical use may be admitted to the extent that respondent’s tablets are indicated for the
treatment, control, and prevention in chicken of infectious coryza (also known as colds,
rhinities and roup) and for the prevention of cecal and intestinal coccidiosis which is also
indicated in petitioner’s SULMET label. However, no one including petitioner can claim a
monopoly in the preparation of a medicinal product for the use indicated above. The field is
open for the manufacture of medicinal preparations for the same veterinary purposes. What
the law prohibits is that one manufacturer labels his product in a manner strikingly identical
with or similar to that of another manufacturer as to deceive or confuse the buying public
into believing that the two preparations are one and come from the same source. In the case
however of SULMET and SULMETINE it is satisfactorily shown from the evidence of the
parties that while their products may be for a similar use, their presentation to the
purchasing public come in totally different forms.
G.R. No. 138900. September 20, 2005.*

LEVI STRAUSS & CO., & LEVI STRAUSS (PHILS.), INC., petitioners, vs. CLINTON
APPARELLE, INC., respondent.
Intellectual Property Code of the Philippines (R.A. No. 8293);Trademarks; According to

Section 138 of Republic Act No. 8293, the Certificate of Registration is a prima facie evidence
of the validity of the registration, the registrant’s ownership of the mark and of the exclusive
right to use the same in connection with the goods or services and those that are related
thereto specified in the certificate.— Petitioners anchor their legal right to “Dockers and
Design” trademark on the Certificate of Registration issued in their favor by the Bureau of
Patents, Trademarks and Technology Transfer. According to Section 138 of Republic Act No.
8293, this Certificate of Registration is prima facie evidence of the validity of the
registration, the registrant’s ownership of the mark and of the exclusive right to use the
same in connection with the goods or services and those that are related thereto specified in
the certificate. Section 147.1 of said law likewise grants the owner of the registered mark the
exclusive right to prevent all third parties not having the owner’s consent from using in the
course of trade identical or similar signs for goods or services which are identical or similar
to those in respect of which the trademark is registered if such use results in a likelihood of
confusion.
Same; Same; Given the single registration of the trademark “Dockers and Design” and
considering that respondent only uses the assailed device but a different word mark, the right
to prevent the latter from using the challenged “Paddocks” device is far from clear. It is not
evident whether the single registration of the trademark “Dockers and Design” confers on the
owner the right to prevent the use of a fraction thereof in the course of trade.—Attention
should be given to the fact that petitioners’ registered trademark consists of two elements:
(1) the word mark “Dockers” and (2) the wing-shaped design or logo. Notably, there is only
one registration for both features of the trademark giving the impression that the two should
be considered as a single unit. Clinton Apparelle’s trademark, on the other hand, uses the
“Paddocks” word mark on top of a logo which according to petitioners is a slavish imitation of
the “Dockers” design. The two trademarks apparently differ in their word marks (“Dockers”
Atty. Sergio Ceniza
and “Paddocks”), but again according to petitioners, they employ similar or identical logos. It
could thus be said that respondent only “appropriates” petitioners’ logo and not the word
mark “Dockers”; it uses only a portion of the registered trademark and not the whole. Given
the single registration of the trademark “Dockers and Design” and considering that
respondent only uses the assailed device but a different word mark, the right to prevent the
latter from using the challenged “Paddocks” device is far from clear. Stated otherwise, it is
not evident whether the single registration of the trademark “Dockers and Design” confers
on the owner the right to prevent the use of a fraction thereof in the course of trade. It is also
unclear whether the use without the owner’s consent of a portion of a trademark registered
in its entirety constitutes material or substantial invasion of the owner’s right.
Same; Same; Trademark Dilution; Words and Phrases;Trademark dilution is the

lessening of the capacity of a famous mark to identify and distinguish good or services; To be
eligible for the protection from dilution, there has to be a finding that: (1) the trademark
sought to be protected is famous and distinctive; (2) the use by another began after the owner’s
mark became famous; and (3) such subsequent use defames the owner’s mark.—Trademark
dilution is the lessening of the capacity of a famous mark to identify and distinguish goods or
services, regardless of the presence or absence of: (1) competition between the owner of the
famous mark and other parties; or (2) likelihood of confusion, mistake or deception. Subject
to the principles of equity, the owner of a famous mark is entitled to an injunction “against
another person’s commercial use in commerce of a mark or trade name, if such use begins
after the mark has become famous and causes dilution of the distinctive quality of the mark.”
This is intended to protect famous marks from subsequent uses that blur distinctiveness of
the mark or tarnish or disparage it. Based on the foregoing, to be eligible for protection from
dilution, there has to be a finding that: (1) the trademark sought to be protected is famous
and distinctive; (2) the use by respondent of “Paddocks and Design” began after the
petitioners’ mark became famous; and (3) such subsequent use defames petitioners’ mark. In
the case at bar, petitioners have yet to establish whether “Dockers and Design” has acquired
a strong degree of distinctiveness and whether the other two elements are present for their
cause to fall within the ambit of the invoked protection. The Trends MBL Survey Report
which petitioners presented in a bid to establish that there was confusing similarity between
two marks is not sufficient proof of any dilution that the trial court must enjoin.
G.R. No. 71189.November 4, 1992.*

FABERGE, INCORPORATED, petitioner, vs. THE INTERMEDIATE APPELLATE
COURT and CO BENG KAY, respondents.
Commercial Law; Trademarks; One who has adopted and used a trademark on his
goods does not prevent the adoption and use of the same trademark by others for products
which and of a different description.––Having thus reviewed the laws applicable to the case
before Us, it is not difficult to discern from the foregoing statutory enactments that private
respondent may be permitted to register the trademark “BRUTE” for briefs produced by it
notwithstanding petitioner’s vehement protestations of unfair dealings in marketing its own
set of items which are limited to: after-shave lotion, shaving cream, deodorant, talcum
powder and toilet soap. In as much as petitioner has not ventured in the production of briefs,
an item which is not listed in its certificate of registration, petitioner can not and should not
be allowed to feign that private respondent had invaded petitioner’s exclusive domain. To be
sure, it is significant that petitioner failed to annex in its Brief the so-called “eloquent proof
that petitioner indeed intended to expand its mark “BRUT” to other goods” (Page 27, Brief
for the Petitioner; Page 202, Rollo). Even then, a mere application by petitioner in this aspect
does not suffice and may not vest an exclusive right in its favor that can ordinarily be
protected by the Trademark Law. In short, paraphrasing Section 20 of the Trademark Law
Atty. Sergio Ceniza
as applied to the documentary evidence adduced by petitioner, the certificate of registration
issued by the Director of Patents can confer upon petitioner the exclusive right to use its own
symbol only to those goods specified in the certificate, subject to any conditions and
limitations stated therein. This basic point is perhaps the unwrittenrationale of Justice
Escolin in Philippine Refining Co., Inc. vs. Ng Lam (115 SCRA 472 [1982]), when he stressed
the principle enunciated by the United States Supreme Court in American Foundries vs.
Robertson (269 U.S. 372, 381, 70 L ed 317, 46 Sct. 160) that one who has adopted and used a
trademark on his goods does not prevent the adoption and use of the same trademark by
others for products which are of a different description.
Same; Same; The protective mantle of the Trademark Law extends only to the goods used
by the first user as specified in the certificate of registration.––The protective mantle of the
Trademark Law extends only to the goods used by the first user as specified in the certificate
of registration following the clear message conveyed by Section 20.
Same; Same; Judging from the physical attributes of petitioner’s and private
respondent’s products, there can be no doubt that confusion or the likelihood of deception to
the average purchaser is unlikely since the goods are non-competing and unrelated.––Judging
from the physical attributes of petitioner’s and private respondent’s products, there can be no
doubt that confusion or the likelihood of deception to the average purchaser is unlikely since
the goods are non-competing and unrelated.
Same; Same; A purchaser who is out in the market for the purpose of buying
respondent’s BRUTE brief would definitely be not mistaken or misled into buying BRUT after
shave lotion or deodorant as categorically opined in the decision of the Director of Patents
relative to the inter-partes case.––The glaring discrepancies between the two products had
been amply portrayed to such an extent that indeed, “a purchaser who is out in the market
for the purpose of buying respondent’s BRUTE brief would definitely be not mistaken or
misled into buying BRUT after shave lotion or deodorant” as categorically opined in the
decision of the Director of Patents relative to the inter-partes case.
Same; Same; Court interpreted Section 20 of the Trademark Law as an implicit

permission to a manufacturer to venture into the production of goods and allow that producer
to appropriate the brand name of the senior registrant on goods other than those stated in the
certificate of registration.––It would appear that as a consequence of this discourse, there still
remains hanging in mid-air the unanswered puzzle as to why an aspiring commercial
enterprise, given the infinite choices available to it of names for the intended product, would
select a trademark or tradename which somewhat resembles an existing emblem that had
established goodwill. Our opinion hereinbefore expressed could even open the floodgates to
similar incursions in the future when We interpreted Section 20 of the Trademark Law as an
implicit permission to a manufacturer to venture into the production of goods and allow that
producer to appropriate the brand name of the senior registrant on goods other than those
stated in the certificate of registration.
No. L-53672. May 31, 1982.*

BATA INDUSTRIES, LTD., petitioner, vs. THE HONORABLE COURT OF APPEALS;
TIBURCIO S. EVALLE, DIRECTOR OF PATENTS, NEW OLYMPIAN RUBBER
PRODUCTS CO., INC., respondents.
Tradenames and Trademarks; A slight goodwill generated by a foreign company before

World War II can be considered an abandoned after more than 35 years.—We are satisfied
from the evidence that any slight goodwill generated by the Czechoslovakian product during
Atty. Sergio Ceniza
the Commonwealth years was completely abandoned and lost in the more than 35 years that
have passed since the liberation of Manila from the Japanese troops.
Same; Same.—The applicant-appellee has reproduced excerpts from the testimonies of

the opposer-appellant’s witnesses to prove that the opposer-appellant was never a user of the
trademark BATA either before or after the war, that the appellant is not the successor-in-
interest of Gerbec and Hrdina who were not its representatives or agents, and could not have
passed any rights to the appellant, that there was no privity of interest between the
Czechoslovakian owner and the Canadian appellant and that the Czechoslovakian
trademark has been abandoned in Czechoslovakia.
Same; A foreign company selling a brand (BATA) of shoes abroad but not in the
Philippines has no goodwill that would be damaged by registration of the same trademark in
favor of a domestic corporation which has been using it for years here.—The appellant has no
Philippine goodwill that would be damaged by the registration of the mark in the appellee’s
favor. We agree with the decision of the Director of Patents which sustains, on the basis of
clear and convincing evidence, the right of the appellee to the registration and protection of
its industrial property, the BATA trademark.
G.R. No. 139300. March 14, 2001.*

AMIGO MANUFACTURING, INC., petitioner, vs.CLUETT PEABODY CO., INC.,
respondent.
Trademarks and Tradenames; Infringement; Unfair Competition; A certificate of

registration of a mark or tradename is prima facie evidence of the validity of the registration,
the registrant’s ownership of the mark or tradename, and of the registrant’s exclusive right to
use the same in connection with the goods, business or services specified in the certificate,
subject to any conditions and limitations stated therein.—The registration of the above marks
in favor of respondent constitutes prima facie evidence, which petitioner failed to overturn
satisfactorily, of respondent’s ownership of those marks, the dates of appropriation and the
validity of other pertinent facts stated therein. Indeed, Section 20 of Republic Act 166
provides as follows: “Sec. 20. Certificate of registration prima facie evidence of validity.—A
certificate of registration of a mark or tradename shall be prima facie evidence of the validity
of the registration, the registrant’s ownership of the mark or tradename, and of the
registrant’s exclusive right to use the same in connection with the goods, business or services
specified in the certificate, subject to any conditions and limitations stated therein.”
Same; Same; Same; The fact that the marks were indeed registered by a party shows that
it did use them on the date indicated in the Certificate of Registration.—Section 5-A of
Republic Act No. 166 states that an applicant for a trademark or tradename shall, among
others, state the date of first use. The fact that the marks were indeed registered by
respondent shows that it did use them on the date indicated in the Certificate of
Registration.
Same; Same; Same; Registration with the supplemental register gives no presumption of
ownership of the trademark.—Furthermore, petitioner registered its trademark only with the
supplemental register. In La Chemise Lacoste v. Fernandez, the Court held that registration
with the supplemental register gives no presumption of ownership of the trademark. Said the
Court: “The registration of a mark upon the supplemental register is not, as in the case of the
principal register, prima facie evidence of (1) the validity of registration; (2) registrant’s
ownership of the mark; and (3) registrant’s exclusive right to use the mark. It is not subject
to opposition, although it may be cancelled after its issuance. Neither may it be the subject of
interference proceedings. Registration [i]n the supplemental register is not constructive
Atty. Sergio Ceniza
notice of registrant’s claim of ownership. A supplemental register is provided for the
registration because of some defects (conversely, defects which make a mark unregistrable on
the principal register, yet do not bar them from the supplemental register.)’ (Agbayani, II
Commercial Laws of the Philippines, 1978, p. 514, citing Uy Hong Mo v. Titay & Co., et al.,
Dec. No. 254 of Director of Patents, Apr. 30, 1968.”
Same; Same; Same; Tests to Determine Whether Trademarks are Confusingly

Similar; Words and Phrases; “Dominancy Test” and “Holistic Test,” Explained; The test of
dominancy focuses on the similarity of the prevalent features of the competing trademarks
which might cause confusion or deception and thus constitutes infringement, while the holistic
test mandates that the entirety of the marks in question must be considered in determining
confusing similarity.—In Emerald Garment Manufacturing Corporation v. Court of Appeals,
this Court stated that in determining whether trademarks are confusingly similar,
jurisprudence has developed two kinds of tests, the Dominancy Test and the Holistic Test. In
its words: “In determining whether colorable imitation exists, jurisprudence has developed
two kinds of tests—the Dominancy Test applied in Asia Brewery, Inc. v. Court of Appeals
and other cases and the Holistic Test developed in Del Monte Corporation v. Court of
Appeals and its proponent cases. As its title implies, the test of dominancy focuses on the
similarity of the prevalent features of the competing trademarks which might cause
confusion or deception and thus constitutes infringement, x x x x x x x x x . . . If the
competing trademark contains the main or essential or dominant features of another, and
confusion and deception is likely to result, infringement takes place. Duplication or imitation
is not necessary; nor is it necessary that the infringing label should suggest an effort to
imitate. [C. Neilman Brewing Co. v. Independent Brewing Co., 191 F., 489, 495, citing Eagle
White Lead Co., vs. Pflugh (CC) 180 Fed. 579]. The question at issue in cases of infringement
of trademarks is whether the use of the marks involved would be likely to cause confusion or
mistakes in the mind of the public or deceive purchasers. (Auburn Rubber Corporation vs.
Hanover Rubber Co., 107 F. 2d 588; x x x.) x x x x x x x x x On the other side of the spectrum,
the holistic test mandates that the entirety of the marks in question must be considered in
determining confusing similarity.”
Same; Same; Same; Intellectual Property Law; Due Process; Duly registered trademarks
are protected by law as intellectual properties and cannot be appropriated by others without
violating the due process clause.—Let it be remembered that duly registered trademarks are
protected by law as intellectual properties and cannot be appropriated by others without
violating the due process clause. An infringement of intellectual rights is no less vicious and
condemnable as theft of material property, whether personal or real.
Same; Same; Same; Conflict of Laws; Paris Convention; A foreign-based trademark

owner, whose country of domicile is a party to an international convention relating to
protection of trademarks, is accorded protection against infringement or any unfair
competition.—Thus, applicable is the Union Convention for the Protection of Industrial
Property adopted in Paris on March 20, 1883, otherwise known as the Paris Convention, of
which the Philippines and the United States are members. Respondent is domiciled in the
United States and is the registered owner of the “Gold Toe” trademark. Hence, it is entitled
to the protection of the Convention. A foreign-based trademark owner, whose country of
domicile is a party to an international convention relating to protection of trademarks, is
accorded protection against infringement or any unfair competition as provided in Section 37
of Republic Act 166, the Trademark Law which was the law in force at the time this case was
instituted.
G.R. No. 103543. July 5, 1993.*

Atty. Sergio Ceniza
ASIA BREWERY, INC., petitioner, vs. THE HON. COURT OF APPEALS and SAN
MIGUEL CORPORATION, respondents.
Unfair Competition; Trademarks; Infringement; Infringement of trademark is a form of

unfair competition.—Infringement of trademark is a form of unfair competition (Clarke vs.
Manila Candy Co., 36 Phil. 100, 106). Sec 22 of Republic Act No. 166, otherwise known as the
Trademark Law, defines what constitutes infringement.
Same; Same; Same; Definition of infringement implies that only registered trademarks,
tradenames and service marks are protected against infringement or unauthorized use by
another or others.—This definition implies that only registered trade marks, trade names
and service marks are protected against infringement or unauthorized use by another or
others. The use of someone else’s registered trademark, trade name or service mark is
unauthorized, hence, actionable, if it is done “without the consent of the registrant.”
Same; Same; Same; Infringement determined by the test of dominancy rather than by
differences or variations in the details of one trademark and of another.—Infringement is
determined by the “test of dominancy” rather than by differences or variations in the details
of one trademark and of another.
Same; Same; Same; Same; Fact that the words pale pilsen are part of ABI’s trademark
does not constitute an infringement of SMC’s trademark; “Pilsen” is a primarily
geographically descriptive work, hence non-registerable and not appropriable by any beer
manufacturer.—The fact that the words pale pilsen are part of ABI’s trademark does not
constitute an infringement of SMC’s trademark; SAN MIGUEL PALE PILSEN, for “pale
pilsen” are generic words descriptive of the color (“pale”), of a type of beer (“pilsen”), which is
a light bohemian beer with a strong hops flavor that originated in the City of Pilsen in
Czechoslovakia and became famous in the Middle Ages. (Webster’s Third New International
Dictionary of the English Language, Unabridged. Edited by Philip Babcock Gove.
Springfield, Mass.: G & C Merriam Co., c) 1976, page 1716.) “Pilsen” is a “primarily
geographically descriptive word,” (Sec. 4, subpar. [e] Republic Act No. 166, as inserted by
Sec. 2 of R.A. No. 638) hence, non-registerable and not appropriable by any beer
manufacturer.
Same; Same; Same; The universal test question is whether the public is likely to be
deceived.—“x x x. The universal test question is whether the public is likely to be deceived.
Nothing less than conduct tending to pass off one man’s goods or business as that of another
will constitute unfair competition. Actual or probable deception and confusion on the part of
the customers by reason of defendant’s practices must always appear.”
Same; Same; Same; Same; Use by ABI of the steinie bottle similar but not identical to
the San Miguel Pale Pilsen bottle is not unlawful.—The use by ABI of the steinie bottle,
similar but not identical to the SAN MIGUEL PALE PILSEN bottle, is not unlawful. As
pointed out by ABI’s counsel, SMC did not invent but merely borrowed the steinie bottle from
abroad and it claims neither patent nor trademark protection for that bottle shape and
design. (See rollo, page 55.) The Cerveza Especial and the Efes Pale Pilsen use the “steinie”
bottle.
Same; Same; Same; Same; Same; SMC’s being the first to use the steinie bottle does not
give SMC a vested right to use it to the exclusion of everyone else.—The petitioner’s contention
that bottle size, shape and color may not be the exclusive property of any one beer
manufacturer is well taken. SMC’s being the first to use the steinie bottle does not give SMC
a vested right to use it to the exclusion of everyone else. Being of functional or common use,
and not the exclusive invention of any one, it is available to all who might need to use it
Atty. Sergio Ceniza
within the industry. Nobody can acquire any exclusive right to market articles supplying
simple human needs in containers or wrappers of the general form, size and character
commonly and immediately used in marketing such articles.
Same; Same; Same; In resolving cases of infringement and unfair competition, courts
should take into consideration several factors which would affect its conclusion.—The Court
itself cautioned that in resolving cases of infringement and unfair competition, the courts
should “take into consideration several factors which would affect its conclusion, to wit: the
age, training and education of the usual purchaser, the nature and cost of the article,
whether the article is bought for immediate consumption and also the conditions under
which it is usually purchased”.
G.R. No. 111580. June 21, 2001.*

SHANGRI-LA INTERNATIONAL HOTEL MANAGEMENT LTD, SHANGRI-LA
PROPERTIES, INC., MAKATI SHANGRI-LA HOTEL AND RESORT, INC. and KUOK
PHILIPPINE PROPERTIES, INC, petitioners, vs.THE COURT OF APPEALS, HON.
FELIX M. DE GUZMAN, as Judge, RTC of Quezon City, Branch 99 and
DEVELOPERS GROUP OF COMPANIES, INC, respondents.
Trademarks and Tradenames; Infringement; Actions; The earlier institution of an Inter

Partes case for the cancellation of a registered service mark and device/logo with the Bureau
of Patents, Trademarks and Technology Transfer (BPTTT) cannot effectively bar the
subsequent filing of an infringement case by the registrant.—Hence, as applied in the case at
bar, the earlier institution of an Inter Partes case by the Shangri-La Group for the
cancellation of the “Shangri-La” mark and “S” device/logo with the BPTTT cannot effectively
bar the subsequent filing of an infringement case by registrant Developers Group. The law
and the rules are explicit. The rationale is plain: Certificate of Registration No. 31904, upon
which the infringement case is based, remains valid and subsisting for as long as it has not
been cancelled by the Bureau or by an infringement court. As such, Developers Group’s
Certificate of Registration in the principal register continues as “prima facie evidence of the
validity of the registration, the registrant’s ownership of the mark or trade-name, and of the
registrant’s exclusive right to use the same in connection with the goods, business or services
specified in the certificate.” Since the certificate still subsists, Developers Group may thus
file a corresponding infringement suit and recover damages from any person who infringes
upon the former’s rights.
Same; Same; Same; In the same light that the infringement case can and should proceed
independently from the cancellation case with the Bureau so as to afford the owner of
certificates of registration redress and injunctive reliefs, so must the cancellation case with the
BPTTT (now the Bureau of Legal Affairs, Intellectual Property Office) continue independently
from the infringement case so as to determine whether a registered mark may ultimately be
cancelled.—Following both law and the jurisprudence enunciated in Conrad and Company,
Inc. v. Court of Appeals, the infringement case can and should proceed independently from
the cancellation case with the Bureau so as to afford the owner of certificates of registration
redress and injunctive writs. In the same light, so must the cancellation case with the
BPTTT (now the Bureau of Legal Affairs, Intellectual Property Office) continue
independently from the infringement case so as to determine whether a registered mark may
ultimately be cancelled. However, the Regional Trial Court, in granting redress in favor of
Developers Group, went further and upheld the validity and preference of the latter’s
registration over that of the Shangri-La Group.
Same; Same; Same; With the decision of the Regional Trial Court upholding the validity
of the registration of the service mark “Shangri-La” and “S” logo in the name of Developers
Atty. Sergio Ceniza
Group, the cancellation case filed with the Bureau becomes moot.—With the decision of the
Regional Trial Court upholding the validity of the registration of the service mark “Shangri-
La” and “S” logo in the name of Developers Group, the cancellation case filed with the
Bureau hence becomes moot. To allow the Bureau to proceed with the cancellation case
would lead to a possible result contradictory to that which the Regional Trial Court has
rendered, albeit the same is still on appeal. Such a situation is certainly not in accord with
the orderly administration of justice. In any event, the Court of Appeals has the competence
and jurisdiction to resolve the merits of the said RTC decision.
Same; Same; Same; To provide a judicious resolution of the issues, the Court finds it
apropos to order the suspension of the proceedings before the Bureau pending final
determination of the infringement case, where the issue of the validity of the registration of the
subject trademark and logo in the name of Developers Group was passed upon.—We are not
unmindful of the fact that in G.R. No. 114802, the only issue submitted for resolution is the
correctness of the Court of Appeals’ decision sustaining the BPTTPs denial of the motion to
suspend the proceedings before it. Yet, to provide a judicious resolution of the issues at hand,
we find it apropos to order the suspension of the proceedings before the Bureau pending final
determination of the infringement case, where the issue of the validity of the registration of
the subject trademark and logo in the name of Developers Group was passed upon.
NBI-MICROSOFT CORPORATION & LOTUS DEVELOPMENT CORP.,

petitioners, vs. JUDY C. HWANG, BENITO KEH & YVONNE K. CHUA/BELTRON
COMPUTER PHILIPPINES INC., JONATHAN K. CHUA, EMILY K. CHUA, BENITO
T. SANCHEZ, NANCY I. VELASCO, ALFONSO CHUA, ALBERTO CHUA, SOPHIA
ONG, DEANNA CHUA/TAIWAN MACHINERY DISPLAY & TRADE CENTER, INC.,
and THE SECRETARY OF JUSTICE, respondents.
Criminal Law; Infringement; The gravamen of copyright infringement is not merely

the unauthorized “manufacturing” of intellectual works but rather the unauthorized
performance of any of the acts covered by Section 5 of PD 49.—Section 5 of PD 49 (“Section 5”)
enumerates the rights vested exclusively on the copyright owner. Contrary to the DOJ’s
ruling, the gravamen of copyright infringement is not merely the unauthorized
“manufacturing” of intellectual works but rather the unauthorized performance of any of the
acts covered by Section 5. Hence, any person who performs any of the acts under Section 5
without obtaining the copyright owner’s prior consent renders himself civilly and criminally
liable for copyright infringement.
Same; Unfair Competition; Elements of Unfair Competition under Article 189(1) of
the Revised Penal Code.—On the other hand, the elements of unfair competition under
Article 189(1) of the Revised Penal Code are: (a) That the offender gives his goods the general
appearance of the goods of another manufacturer or dealer; (b) That the general appearance
is shown in the (1) goods themselves, or in the (2) wrapping of their packages, or in the (3)
device or words therein, or in (4) any other feature of their appearance[;] (c) That the
offender offers to sell or sells those goods or gives other persons a chance or opportunity to do
the same with a like purpose[; and] (d) That there is actual intent to deceive the public or
defraud a competitor.
G.R. No. 157216. November 20, 2003.*

246 CORPORATION, doing business under the name and style of ROLEX MUSIC
LOUNGE, petitioner, vs. HON. REYNALDO B. DAWAY, in his capacity as Presiding
Judge of Branch 90 of the Regional Trial Court of Quezon City, MONTRES ROLEX
S.A. and ROLEX CENTRE PHIL. LIMITED, respondents.
Atty. Sergio Ceniza
In the case at bar, the Court of Appeals did not err in finding that no abuse of discretion
could be ascribed to the trial court’s denial of petitioner’s motion for preliminary hearing on
its affirmative defenses with motion to dismiss. The issue of whether or not a trademark
infringement exists, is a question of fact that could best be determined by the trial court.
Under the old Trademark Law where the goods for which the identical marks are used
are unrelated, there can be no likelihood of confusion and there is therefore no infringement
in the use by the junior user of the registered mark on the entirely different goods. This
ruling, however, has been to some extent, modified by Section 123.1(f) of the Intellectual
Property Code (Republic Act No. 8293), which took effect on January 1, 1998. The said
section reads:
Sec. 123. Registrability.—123.1. A mark cannot be registered if it:

xxx xxx xxx
(f) Is identical with, or confusingly similar to, or constitutes a translation of a mark
considered well-known in accordance with the preceding paragraph, which is registered
in the Philippines with respect to goods or services which are not similar to those with
respect to which registration is applied for: Provided, That use of the mark in relation to
those goods or services would indicate a connection between those goods or services, and
the owner of the registered mark: Provided, further, That the interest of the owner of the
registered mark are likely to be damaged by such use; (Emphasis supplied)
Section 123.1(f) is clearly in point because the Music Lounge of petitioner is entirely
unrelated to respondents’ business involving watches, clocks, bracelets, etc. However, the
Court cannot yet resolve the merits of the present controversy considering that the requisites
for the application of Section 123.1(f), which constitute the kernel issue at bar, clearly
require determination facts of which need to be resolved at the trial court. The existence or
absence of these requisites should be addressed in a full blown hearing and not on a mere
preliminary hearing. The respondent must be given ample opportunity to prove its claim,
and the petitioner to debunk the same.
No. L-36402. March 16,1987.*

FILIPINO SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, INC.,
plaintiff-appellant, vs. BENJAMIN TAN, defendant-appellee.
Copyright; Music provided by a combo in a restaurant constitutes public performance for

profit within the meaning of the Copyright Law.—In the case at bar, it is admitted that the
patrons of the restaurant in question pay only for the food and drinks and apparently not for
listening to the music. As found by the trial court, the music provided is for the purpose of
entertaining and amusing the customers in order to make the establishment more attractive
and desirable (Record on Appeal, p. 21). It will be noted that for the playing and singing the
musical compositions involved, the combo was paid as independent contractors by the
appellant (Record on Appeal, p. 24). It is therefore obvious that the expenses entailed thereby
are added to the overhead of the restaurant which are either eventually charged in the price
of the food and drinks or to the overall total of additional income produced by the bigger
volume of business which the entertainment was programmed to attract. Consequently, it is
beyond question that the playing and singing of the combo in defendant-appellee's restaurant
constituted performance for profit contemplated by the Copyright Law. (Act 3134 as
amended by P.D. No. 49 as amended).
Same; If the general public has made use of the object sought to be copyrighted within 30
days prior to the copyright application, the law deems the object to have been donated to the
public domain and can no longer be copyrighted as in the case of the songs at bar.—The
Atty. Sergio Ceniza
Supreme Court has ruled that "Paragraph 33 of Patent Office Administrative Order No. 3 (as
amended, dated September 18, 1947) entitled 'Rules of Practice in the Philippines Patent
Office relating to the Registration of Copyright Claims' promulgated pursuant to Republic
Act 165, provides among other things that an intellectual creation should be copyrighted
thirty (30) days after its publication, if made in Manila, or within sixty (60) days if made
elsewhere, failure of which renders such creation public property." (Santos v. McCullough
Printing Company, 12 SCRA 324-325 [1964]. Indeed, if the general public has made use of
the object sought to be copyrighted for thirty (30) days prior to the copyright application the
law deems the object to have been donated to the public domain and the same can no longer
be copyrighted.
Same; Same.—A careful study of the records reveals that the song "Dahil Sa lyo" which
was registered on April 20, 1956 (Brief for Appellant, p. 10) became popular in radios, juke
boxes, etc. long before registration (TSN, May 28, 1968, pp. 3-5; 25) while the song 'The
Nearness Of You" registered on January 14, 1955 (Brief for Appellant, p. 10) had become
popular twenty five (25) years prior to 1968, (the year of the hearing) or from 1943 (TSN,
May 28, 1968, p. 27) and the songs "Sapagkat Ikaw Ay Akin" and "Sapagkat Kami Ay Tao
Lamang" both registered on July 10, 1966, appear to have been known and sang by the
witnesses as early as 1965 or three years before the hearing in 1968. The testimonies of the
witnesses at the hearing of this case on this subject were unrebutted by the
appellant. (Ibid, pp. 28; 29 and 30). Under the circumstances, it is clear that the musical
compositions in question had long become public property, and are therefore beyond the
protection of the Copyright Law.
G.R. No. 165306. September 20, 2005.*

MANLY SPORTWEAR MANUFACTURING, INC., petitioner, vs. DADODETTE
ENTERPRISES AND/OR HERMES SPORTS CENTER, respondents.
Same; Same; Same; Intellectual Property Code of the Philippines (R.A. No. 8293);
Copyrights; Where the copyrighted products do not appear to be original creations and are not
among the classes of work enumerated under Section 172 of RA 8293, the trial court may not
be faulted for overturning its initial assessment that there was probable cause to issue search
warrant and to quash the same.—In the instant case, we find that the trial court did not
abuse its discretion when it entertained the motion to quash considering that no criminal
action has yet been instituted when it was filed. The trial court also properly quashed the
search warrant it earlier issued after finding upon reevaluation of the evidence that no
probable cause exists to justify its issuance in the first place. As ruled by the trial court, the
copyrighted products do not appear to be original creations of MANLY and are not among the
classes of work enumerated under Section 172 of RA 8293. The trial court, thus, may not be
faulted for overturning its initial assessment that there was probable cause in view of its
inherent power to issue search warrants and to quash the same. No objection may be validly
posed to an order quashing a warrant already issued as the court must be provided with the
opportunity to correct itself of an error unwittingly committed, or, with like effect, to allow
the aggrieved party the chance to convince the court that its ruling is erroneous.
Same; Same; Same; Same; Same; In determination of the existence of probable cause for
the issuance or quashal of a warrant, it is inevitable that the court may touch on issues
properly threshed out in a regular proceeding.—The trial court was acting within bounds
when it ruled, in an ancillary proceeding, that the copyrighted products of petitioner are not
original creations. This is because in the determination of the existence of probable cause for
the issuance or quashal of a warrant, it is inevitable that the court may touch on issues
properly threshed out in a regular proceeding. In so doing, it does not usurp the power of,
much less preclude, the court from making a final judicial determination of the issues in a
Atty. Sergio Ceniza
full-blown trial. Consequently, MANLY’s assertion that the trial court’s order quashing the
warrant preempted the finding of the intellectual property court has no legal basis.
Same; Same; Same; Same; Same; Actions; The order quashing a search warrant is not
res judicata on the issue of copyright infringement—the applicant for a search warrant could
still file a separate copyright infringement suit against the respondents.—As correctly
observed by the Court of Appeals, the trial court’s finding that the seized products are not
copyrightable was merely preliminary as it did not finally and permanently adjudicate on the
status and character of the seized items. MANLY could still file a separate copyright
infringement suit against the respondents because the order for the issuance or quashal of a
warrant is not res judicata. Thus, in Vlasons Enterprises Corporation v. Court of Appeals we
held that: The proceeding for the seizure of property in virtue of a search warrant does not
end with the actual taking of the property by the proper officers and its delivery, usually
constructive, to the court. The order for the issuance of the warrant is not a final one and
cannot constituteres judicata. Such an order does not ascertain and adjudicate the
permanent status or character of the seized property. By its very nature, it is provisional,
interlocutory. It is merely the first step in the process to determine the character and title of
the property. That determination is done in the criminal action involving the crime or crimes
in connection with which the search warrant was issued. Hence, such a criminal action
should be prosecuted, or commenced if not yet instituted, and prosecuted. The outcome of the
criminal action will dictate the disposition of the seized property.
Same; Same; Same; Same; Same; Where there is sufficient proof that the copyrighted
products are not original creations but are readily available in the market under various
brands, validity and originality will not be presumed and the trial court may properly quash
the issued warrant for lack of probable cause.—The copyright certificates issued in favor of
MANLY constitute merely prima facie evidence of validity and ownership. However, no
presumption of validity is created where other evidence exist that may cast doubt on the
copyright validity. Hence, where there is sufficient proof that the copyrighted products are
not original creations but are readily available in the market under various brands, as in this
case, validity and originality will not be presumed and the trial court may properly quash the
issued warrant for lack of probable cause.
Intellectual Property Code of the Philippines (R.A. No. 8293);Copyright Law; Certificates
of registration and deposit issued by the National Library and the Supreme Court Library
serve merely as a notice of recording and registration of the work but do not confer any right
or title upon the registered copyright owner or automatically put his work under the protective
mantle of the copyright law.—At most, the certificates of registration and deposit issued by
the National Library and the Supreme Court Library serve merely as a notice of recording
and registration of the work but do not confer any right or title upon the registered copyright
owner or automatically put his work under the protective mantle of the copyright law. It is
not a conclusive proof of copyright ownership. As it is, non-registration and deposit of the
work within the prescribed period only makes the copyright owner liable to pay a fine.
Atty. Sergio Ceniza
G.R. No. 110318 August 28,1996.*
COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT
PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION,
UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT
DISNEY COMPANY, and WARNER BROTHERS, INC., petitioners,vs. COURT OF
APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO,
respondents.
Criminal Law; Infringement; To constitute infringement, it is not necessary that the

whole or even a large portion of the work shall have been copied.—In determining the
question of infringement, the amount of matter copied from the copyrighted work is an
important consideration. To constitute infringement, it is not necessary that the whole or
even a large portion of the work shall have been copied. If so much is taken that the value of
the original is sensibly diminished, or the labors of the original author are substantially and
to an injurious extent appropriated by another, that is sufficient in point of law to constitute
a piracy.
Atty. Sergio Ceniza
LETTERS OF CREDIT
Transfield Philippines, Inc. vs. Luzon Hydro Corporation, 443 SCRA 307, G.R. No.
146717 November 22, 2004
Commercial Law; Banks and Banking; Letters of Credit; Standby Credits; Words and
Phrases; In commercial transactions, a letter of credit is a financial device developed by
merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy
the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is
paid, and a buyer, who wants to have control of the goods before paying; Generally, credits in
non-sale settings have come to be known as standby credits.—The letter of credit evolved as a
mercantile specialty, and the only way to understand all its facets is to recognize that it is an
entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit
is not strictly contractual, because both privity and a meeting of the minds are lacking, yet
strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary
contract, because the issuer must honor drafts drawn against a letter regardless of problems
subsequently arising in the underlying contract. Since the bank’s customer cannot draw on
the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if
properly used, is it a contract of suretyship or guarantee, because it entails a primary
liability following a default. Finally, it is not in itself a negotiable instrument, because it is
not payable to order or bearer and is generally conditional, yet the draft presented under it is
often negotiable. In commercial transactions, a letter of credit is a financial device developed
by merchants as a convenient and relatively safe mode of dealing with sales of goods to
satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods
before he is paid, and a buyer, who wants to have control of the goods before paying. The use
of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase
price under the contract for the sale of goods. However, credits are also used in non-sale
settings where they serve to reduce the risk of nonperformance. Generally, credits in the
non-sale settings have come to be known as standby credits.
Same; Same; Same; Same; Commercial Credits and Standby Credits,

Distinguished.—There are three significant differences between commercial and standby
credits. First, commercial credits involve the payment of money under a contract of sale.
Such credits become payable upon the presentation by the seller-beneficiary of documents
that show he has taken affirmative steps to comply with the sales agreement. In the standby
type, the credit is payable upon certification of a party’s nonperformance of the agreement.
The documents that accompany the beneficiary’s draft tend to show that the applicant has
not performed. The beneficiary of a commercial credit must demonstrate by documents that
he has performed his contract. The beneficiary of the standby credit must certify that his
obligor has not performed the contract.
A letter of credit changes its nature as different transactions occur and if carried
through to completion ends up as a binding contract between the issuing and honoring banks
without any regard or relation to the underlying contract or disputes between the parties
thereto.—By definition, a letter of credit is a written instrument whereby the writer requests
or authorizes the addressee to pay money or deliver goods to a third person and assumes
responsibility for payment of debt therefor to the addressee. A letter of credit, however,
changes its nature as different transactions occur and if carried through to completion ends
up as a binding contract between the issuing and honoring banks without any regard or
relation to the underlying contract or disputes between the parties thereto.
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Uniform Customs and Practice (UCP) for Documentary Credits; Since letters of credit
have gained general acceptability in international trade transactions, the International
Chamber of Commerce (ICC) has published from time to time updates on the Uniform
Customs and Practice for Documentary Credits to standardize practices in the letter of credit
area; The observance of the UCP is justified by Article 2 of the Code of Commerce which
provides that in the absence of any particular provision in the Code of Commerce, commercial
transactions shall be governed by usages and customs generally observed.—Since letters of
credit have gained general acceptability in international trade transactions, the ICC has
published from time to time updates on the Uniform Customs and Practice (UCP) for
Documentary Credits to standardize practices in the letter of credit area. The vast majority
of letters of credit incorporate the UCP. First published in 1933, the UCP for Documentary
Credits has undergone several revisions, the latest of which was in 1993. In Bank of the
Philippine Islands v. De Reny Fabric Industries, Inc., this Court ruled that the observance of
the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence
of any particular provision in the Code of Commerce, commercial transactions shall be
governed by usages and customs generally observed. More recently, in Bank of America, NT
& SA v. Court of Appeals, this Court ruled that there being no specific provisions which
govern the legal complexities arising from transactions involving letters of credit, not only
between or among banks themselves but also between banks and the seller or the buyer, as
the case may be, the applicability of the UCP is undeniable.
“Independence Principle”; Under the “independence principle,” banks assume no

liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal
effect of any documents, or for the general and/or particular conditions stipulated in the
documents or superimposed thereon, nor do they assume any liability or responsibility for the
description, quantity, weight, quality, condition, packing, delivery, value or existence of the
goods represented by any documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of the goods, or any
other person whomsoever.—Article 3 of the UCP provides that credits, by their nature, are
separate transactions from the sales or other contract(s) on which they may be based and
banks are in no way concerned with or bound by such contract(s), even if any reference
whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a
bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the
credit is not subject to claims or defenses by the applicant resulting from his relationships
with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the
contractual relationships existing between the banks or between the applicant and the
issuing bank. Thus, the engagement of the issuing bank is to pay the seller or beneficiary of
the credit once the draft and the required documents are presented to it. The so-called
“independence principle” 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. Under this principle,
banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality, condition, packing, delivery,
value or existence of the goods represented by any documents, or for the good faith or acts
and/or omissions, solvency, performance or standing of the consignor, the carriers, or the
insurers of the goods, or any other person whomsoever.
The independent nature of the letter of credit may be: (a) independence in toto where
the credit is independent from the justification aspect and is a separate obligation from the
underlying agreement; or (b) independence may be only as to the justification aspect, though
in both cases the payment may be enjoined if in the light of the purpose of the credit the
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payment of the credit would constitute fraudulent abuse of the credit.—The independent
nature of the letter of credit may be: (a) independence in toto where the credit is independent
from the justification aspect and is a separate obligation from the underlying agreement like
for instance a typical standby; or (b) independence may be only as to the justification aspect
like in a commercial letter of credit or repayment standby, which is identical with the same
obligations under the underlying agreement. In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment of the credit would constitute fraudulent
abuse of the credit.
The independence principle liberates the issuing bank from the duty of ascertaining
compliance by the parties in the main contract; As it is, the independence doctrine works to the
benefit of both the issuing bank and the beneficiary.—As discussed above, in a letter of credit
transaction, such as in this case, where the credit is stipulated as irrevocable, there is a
definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated
documents are presented and the conditions of the credit are complied with. Precisely, the
independence principle liberates the issuing bank from the duty of ascertaining compliance
by the parties in the main contract. As the principle’s nomenclature clearly suggests, the
obligation under the letter of credit is independent of the related and originating contract. In
brief, the letter of credit is separate and distinct from the underlying transaction. Given the
nature of letters of credit, petitioner’s argument—that it is only the issuing bank that may
invoke the independence principle on letters of credit—does not impress this Court. To say
that the independence principle may only be invoked by the issuing banks would render
nugatory the purpose for which the letters of credit are used in commercial transactions. As
it is, the independence doctrine works to the benefit of both the issuing bank and the
beneficiary.
Guarantee; Jurisprudence has laid down a clear distinction between a letter of credit
and a guarantee in that the settlement of a dispute between the parties is not a prerequisite for
the release of funds under a letter of credit.—Petitioner’s argument that any dispute must
first be resolved by the parties, whether through negotiations or arbitration, before the
beneficiary is entitled to call on the letter of credit in essence would convert the letter of
credit into a mere guarantee. Jurisprudence has laid down a clear distinction between a
letter of credit and a guarantee in that the settlement of a dispute between the parties is not
a pre-requisite for the release of funds under a letter of credit. In other words, the argument
is incompatible with the very nature of the letter of credit. If a letter of credit is drawable
only after settlement of the dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for letters of credit in commercial
transactions.
Owing to the nature and purpose of standby letters of credit, banks are left with little
or no alternative but to honor the credit or the call for payment.—While it is the bank which is
bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the
credit by allowing him to draw thereon. The situation itself emasculates petitioner’s posture
that LHC cannot invoke the independence principle and highlights its puerility, more so in
this case where the banks concerned were impleaded as parties by petitioner itself.
Respondent banks had squarely raised the independence principle to justify their releases of
the amounts due under the Securities. Owing to the nature and purpose of the standby
letters of credit, this Court rules that the respondent banks were left with little or no
alternative but to honor the credit and both of them in fact submitted that it was
“ministerial” for them to honor the call for payment.
Contracts; A contract once perfected, binds the parties not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which according to their
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nature, may be in keeping with good faith, usage, and law.— A contract once perfected, binds
the parties not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which according to their nature, may be in keeping with good faith, usage, and
law. A careful perusal of the Turnkey Contract reveals the intention of the parties to make
the Securities answerable for the liquidated damages occasioned by any delay on the part of
petitioner. The call upon the Securities, while not an exclusive remedy on the part of LHC, is
certainly an alternative recourse available to it upon the happening of the contingency for
which the Securities have been proffered. Thus, even without the use of the “independence
principle,” the Turnkey Contract itself bestows upon LHC the right to call on the Securities
in the event of default.
Injunction; Requisites; Most writers agree that fraud is an exception to the

independence principle; The remedy for fraudulent abuse is an injunction.—Most writers
agree that fraud is an exception to the independence principle. Professor Dolan opines that
the untruthfulness of a certificate accompanying a demand for payment under a standby
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 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.
The issuance of the writ of preliminary injunction as an ancillary or preventive

remedy to secure the rights of a party in a pending case is entirely within the discretion of the
court taking cognizance of the case, the only limitation being that this discretion should be
exercised based upon the grounds and in the manner provided by law.—Generally, injunction
is a preservative remedy for the protection of one’s substantive right or interest; it is not a
cause of action in itself but merely a provisional remedy, an adjunct to a main suit. The
issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure
the rights of a party in a pending case is entirely within the discretion of the court taking
cognizance of the case, the only limitation being that this discretion should be exercised
based upon the grounds and in the manner provided by law. Before a writ of preliminary
injunction may be issued, there must be a clear showing by the complaint that there exists a
right to be protected and that the acts against which the writ is to be directed are violative of
the said right. It must be shown that the invasion of the right sought to be protected is
material and substantial, that the right of complainant is clear and unmistakable and that
there is an urgent and paramount necessity for the writ to prevent serious damage.
Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to
avoid injurious consequences which cannot be remedied under any standard compensation.
It is premature and absurd to conclude that the draws on the Securities were outright
fraudulent where the International Chamber of Commerce and the Construction Industry
Authority Commission have not ruled with finality on the existence of default.—The pendency
of the arbitration proceedings would not per se make LHC’s draws on the Securities wrongful
or fraudulent for there was nothing in the Contract which would indicate that the parties
intended that all disputes regarding delay should first be settled through arbitration before
LHC would be allowed to call upon the Securities. It is therefore premature and absurd to
conclude that the draws on the Securities were outright fraudulent given the fact that the
ICC and CIAC have not ruled with finality on the existence of default.
Actions; Appeals; Pleadings and Practice; Matters, theories or arguments not brought
out in the proceedings below will ordinarily not be considered by a reviewing court as they
cannot be raised for the first time on appeal.—Nowhere in its complaint before the trial court
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or in its pleadings filed before the appellate court, did petitioner invoke the fraud exception
rule as a ground to justify the issuance of an injunction. What petitioner did assert before the
courts below was the fact that LHC’s draws on the Securities would be premature and
without basis in view of the pending disputes between them. Petitioner should not be allowed
in this instance to bring into play the fraud exception rule to sustain its claim for the
issuance of an injunctive relief. Matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a reviewing court as they cannot be
raised for the first time on appeal. The lower courts could thus not be faulted for not applying
the fraud exception rule not only because the existence of fraud was fundamentally
interwoven with the issue of default still pending before the arbitral tribunals, but more so,
because petitioner never raised it as an issue in its pleadings filed in the courts below. At any
rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent
LHC’s call upon the Securities.
Obligations and Contracts; Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.— Prudence should
have impelled LHC to await resolution of the pending issues before the arbitral tribunals
prior to taking action to enforce the Securities. But, as earlier stated, the Turnkey Contract
did not require LHC to do so and, therefore, it was merely enforcing its rights in accordance
with the tenor thereof. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. More importantly, pursuant to
the principle of autonomy of contracts embodied in Article 1306 of the Civil Code, petitioner
could have incorporated in its Contract with LHC, a proviso that only the final determination
by the arbitral tribunals that default had occurred would justify the enforcement of the
Securities. However, the fact is petitioner did not do so; hence, it would have to live with its
inaction.
Actions; Injunction; Settled is the rule that injunction would not lie where the acts
sought to be enjoined have already become fait accompli or an accomplished or consummated
act.—In a Manifestation, dated 30 March 2001, LHC informed this Court that the subject
letters of credit had been fully drawn. This fact alone would have been sufficient reason to
dismiss the instant petition. Settled is the rule that injunction would not lie where the acts
sought to be enjoined have already become fait accompli or an accomplished or consummated
act. In Ticzon v. Video Post Manila, Inc. this Court ruled that where the period within which
the former employees were prohibited from engaging in or working for an enterprise that
competed with their former employer—the very purpose of the preliminary injunction—has
expired, any declaration upholding the propriety of the writ would be entirely useless as
there would be no actual case or controversy between the parties insofar as the preliminary
injunction is concerned. In the instant case, the consummation of the act sought to be
restrained had rendered the instant petition moot—for any declaration by this Court as to
propriety or impropriety of the non-issuance of injunctive relief could have no practical effect
on the existing controversy. The other issues raised by petitioner particularly with respect to
its right to recover the amounts wrongfully drawn on the Securities, according to it, could
properly be threshed out in a separate proceeding.
Pleadings and Practice; Forum Shopping; Considering the seriousness of the charge of
forum shopping and the severity of the sanctions for its violation, the Court will refrain from
making any definitive ruling on the issue until the party alleged to have committed forum
shopping has been given ample opportunity to respond to the charge.—Forum Shopping is a
very serious charge. It exists when a party repetitively avails of several judicial remedies in
different courts, simultaneously or successively, all substantially founded on the same
transactions and the same essential facts and circumstances, and all raising substantially
the same issues either pending in, or already resolved adversely, by some other court. It may
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also consist in the act of a party against whom an adverse judgment has been rendered in
one forum, of seeking another and possibly favorable opinion in another forum other than by
appeal or special civil action of certiorari, or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the other court might
look with favor upon the other party. To determine whether a party violated the rule against
forum shopping, the test applied is whether the elements of litis pendentia are present or
whether a final judgment in one case will amount to res judicata in another. Forum Shopping
constitutes improper conduct and may be punished with summary dismissal of the multiple
petitions and direct contempt of court. Considering the seriousness of the charge of forum
Shopping and the severity of the sanctions for its violation, the Court will refrain from
making any definitive ruling on this issue until after petitioner has been given ample
opportunity to respond to the charge.
Feati Bank & Trust Company vs. Court of Appeals, 196 SCRA 576, G.R. No. 94209
April 30, 1991
Commercial Law; Letters of Credit; Commercial transactions involving letters of

credit are governed by the rule of strict compliance.—It is settled rule in commercial
transactions involving letters of credit that the documents tendered must strictly conform to
the terms of the letter of credit. The tender of documents by the beneficiary (seller) must
include all documents required by the letter. A correspondent bank which departs from what
has been stipulated under the letter of credit, as when it accepts a faulty tender, acts on its
own risks and it may not thereafter be able to recover from the buyer or the issuing bank, as
the case may be, the money thus paid to the beneficiary. Thus the rule of strict compliance.
In the United States, commercial transactions involving letters of credit are governed by the
rule of strict compliance. In the Philippines, the same holds true. The same rule must also be
followed. The case of Anglo-South American Trust Co. v. Uhe et al. (184 N.E. 741 [1933])
expounded clearly on the rule of strict compliance. “We have heretofore held that these
letters of credit are to be strictly complied with, which documents, and shipping documents
must be followed as stated in the letter. There is no discretion in the bank or trust company
to waive any requirements. The terms of the letter constitutes an agreement between the
purchaser and the bank.”
An irrevocable letter of credit is not synonymous with a confirmed letter of credit; in

an irrevocable letter of credit, the issuing bank may not, without the consent of the beneficiary
and the applicant revoke his undertaking under the letter; whereas, in a confirmed letter of
credit, the correspondent bank gives and absolute assurance to the beneficiary that it will
undertake the issuing bank’s obligation as its own according to the terms and conditions of
the credit.—The trial court appears to have overlooked the fact that an irrevocable credit is
not synonymous with a confirmed credit. These types of letters have different meanings and
the legal relations arising from there varies. A credit may be an irrevocable credit and at the
same time a confirmed credit or vice-versa. An irrevocable credit refers to the duration of the
letter of credit. What it simply means is that the issuing bank may not without the consent of
the beneficiary (seller) and the applicant (buyer) revoke his undertaking under the letter.
The issuing bank does not reserve the right to revoke the credit. On the other hand, a
confirmed letter of credit pertains to the kind of obligation assumed by the correspondent
bank. In this case, the correspondent bank gives an absolute assurance to the beneficiary
that it will undertake the issuing bank’s obligation as its own according to the terms and
conditions of the credit.
Mere opening of a letter of credit does not involve a specific appropriation of a sum of
money in favor of the beneficiary.—The mere opening of a letter of credit, it is to be noted,
does not involve a specific appropriation of a sum of money in favor of the beneficiary. It only
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signifies that the beneficiary may be able to draw funds upon the letter of credit up to the
designated amount specified in the letter. It does not convey the notion that a particular sum
of money has been specifically reserved or has been held in trust. What actually transpires in
an irrevocable credit is that the correspondent bank does not receive in advance the sum of
money from the buyer or the issuing bank. On the contrary, when the correspondent bank
accepts the tender and pays the amount stated in the letter, the money that it doles out
comes not from any particular fund that has been advanced by the issuing bank, rather it
gets the money from its own funds and then later seeks reimbursement from the issuing
bank.
The concept of guarantee vis-a-vis the concept of an irrevocable credit are inconsistent
with each other.—The theory of guarantee relied upon by the Court of Appeals has to
necessarily fail. The concept of guarantee vis-a-vis the concept of an irrevocable credit are
inconsistent with each other. In the first place, the guarantee theory destroys the
independence of the bank’s responsibility from the contract upon which it was opened. In the
second place, the nature of both contracts is mutually in conflict with each other. In contracts
of guarantee, the guarantor’s obligation is merely collateral and it arises only upon the
default of the person primarily liable. On the other hand, in an irrevocable credit the bank
undertakes a primary obligation.
Reliance Commodities, Inc. vs. Daewoo Industrial Co., Ltd., 228 SCRA 545, G.R. No.
100831 December 17, 1993
Commercial Law; Letter of Credit; The primary purpose of the letter of credit is to
substitute for, and therefore support, the agreement of the buyer/importer to pay money under
a contract or other arrangement.—A letter of credit is one of the modes of payment, set out in
Sec. 8, Central Bank Circular No. 1389, “Consolidated Foreign Exchange Rules and
Regulations”, dated 13 April 1993, by which commercial banks sell foreign exchange to
service payments for, e.g., commodity imports. The primary purpose of the letter of credit is
to substitute for, and therefore support, the agreement of the buyer/ importer to pay money
under a contract or other arrangement. It creates in the seller/exporter a secure expectation
of payment.
Failure of Reliance to open the appropriate L/C did not prevent the birth of the
contract and neither did such failure extinguish that contract.—We agree with the Court of
Appeals that Reliance and Daewoo, having reached “a meeting of minds” in respect of the
subject matter of the contract (2000 metric tons of foundry pig iron with a specified chemical
composition), the price thereof (US $380,600.00), and other principal provisions, “they had a
perfected contract. The failure of Reliance to open, the appropriate L/C did not prevent the
birth of that contract and neither did such failure extinguish that contract. The opening of
the L/C in favor of Daewoo was an obligation of Reliance and the performance of that
obligation by Reliance was a condition for enforcement of the reciprocal obligation of Daewoo
to ship the subject matter of the contract the foundry pig iron—to Reliance. But the contract
itself between Reliance and Daewoo had already sprung into legal existence and was
enforceable.
In undertaking to accept or pay the drafts presented to it by the beneficiary according

to the tenor of an L/C, the issuing bank in effect extends a loan to the account party.—The L/C
provided for in that contract was the mode or mechanism by which payment was to be
effected by Reliance of the price of the pig iron. In undertaking to accept or pay the drafts
presented to it by the beneficiary according to the tenor of an L/C, and only later on being
reim bursed by the account party, the issuing bank in effect extends a loan to the account
party. This loan feature, combined with the bank’s undertaking to accept the beneficiary’s
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drafts drawn on the bank, constitutes the L/C as a mode of payment. Logically, before the
issuing bank opens an L/C, it will take steps to ensure that it would indeed be reimbursed
when the time comes. Before an L/C can be opened, specific legal requirements must be
complied with.
Court holds that failure of a buyer seasonably to furnish an agreed letter of credit is a
breach of the contract between buyer and seller.—We believe and so hold that failure of a
buyer seasonably to furnish an agreed letter of credit is a breach of the contract between
buyer and seller. Where the buyer fails to open a letter of credit as stipulated, the seller or
exporter is entitled to claim damages for such breach. Damages for failure to open a
commercial credit may, in appropriate cases, include the loss of profit which the seller would
reasonably have made had the transaction been carried out.
Bank of the Phil. Islands vs. De Reny Fabric Industries, Inc., 35 SCRA 256, No. L-
24821 October 16, 1970
Commercial Law; Banks and Banking; Letters of Credit; Banks cannot be held
responsible where business transactions do not deal with property to be exported but deal only
with documents.—It was incontrovertibly proven by the Bank during the trial that banks, in
providing financing in international business transactions, such as those entered into by the
appellants, do not deal with the property to be exported or shipped to the importer but deal
only with documents.
Phil. Virginia Tobacco Administration vs. De los Angeles, 164 SCRA 543, No. L-
27829 August 19, 1988
Commercial Law; Letter of Credit; An irrevocable letter of credit cannot during its
lifetime be cancelled or modified without the express permission of the beneficiary.—In issuing
the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of credit
issued by respondent Bank in favor of petitioner. An irrevocable letter of credit cannot during
its lifetime be cancelled or modified without the express permission of the beneficiary
(Miranda and Garrovilla, Principles of Money Credit and Banking, Revised Edition, p. 291).
Consequently, if the finding after the trial on the merits is that respondent Sevilla has an
unpaid balance due the petitioner, such unpaid obligation would be unsecured.
Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257, G.R. No. 74886
December 8, 1992
Commercial Law; Negotiable Instruments Law; Letters of Credit; Presentment for

acceptance not required for sight drafts.—A letter of credit is defined as an engagement by a
bank or other person made at the request of a customer that the issuer will honor drafts or
other demands for payment upon compliance with the conditions specified in the credit.
Through a letter of credit, the bank merely substitutes its own promise to pay for the
promise to pay of one of its customers who in return promises to pay the bank the amount of
funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon.
In the instant case then, the drawee was necessarily the herein petitioner. It was to the
latter that the drafts were presented for payment. In fact, there was no need for acceptance
as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the
cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). The
said section reads: “SEC. 143. When presentment for acceptance must be made.—
Presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any
other case where presentment for acceptance is necessary in order to fix the maturity of the
instrument; or (b) Where the bill expressly stipulates that it shall be presented for
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acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee. In no other case is presentment for acceptance necessary in order to
render any party to the bill liable.” Obviously then, sight drafts do not require presentment
for acceptance.
Trust Receipts Law; Violation of duty to account for goods constitutes crime of
estafa.—It is alleged in the complaint that private respondents “not only have presumably
put said machinery to good use and have profited by its operation and/or disposition but very
recent information that (sic) reached plaintiff bank that defendants already sold the
machinery covered by the trust receipt to Yupangco Cotton Mills,” and that “as trustees of
the property covered by the trust receipt, x x x and therefore acting in fiduciary (sic)
capacity, defendants have wilfully violated their duty to account for the whereabouts of the
machinery covered by the trust receipt or for the proceeds of any lease, sale or other
disposition of the same that they may have made, notwithstanding demands therefor;
defendants have fraudulently misapplied or converted to their own use any money realized
from the lease, sale, and other disposition of said machinery.” While there is no specific
prayer for the delivery to the petitioner by Philippine Rayon of the proceeds of the sale of the
machinery covered by the trust receipt, such relief is covered by the general prayer for “such
further and other relief as may be just and equitable on the premises.” And although it is
true that the petitioner commenced a criminal action for the violation of the Trust Receipts
Law, no legal obstacle prevented it from enforcing the civil liability arising out of the trust
receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of
an entrustee to turn over the proceeds of the sale of goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the entruster or as appears in the
trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of
estafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal
Code. Under Article 33 of the Civil Code, a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party in cases of defamation,
fraud and physical injuries. Estafa falls under fraud.
Contracts; Solidary guaranty clause; Requisites of defense of exhaustion (excussion);

Contracts of adhesion; Ambiguity strictly construed against party who drafted the form.—Our
own reading of the questioned solidary guaranty clause yields no other conclusion than that
the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence
which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because
the space therein for the party whose property may not be exhausted was not filled up.
Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by
a guarantor before he may be held liable for the obligation. Petitioner likewise admits that
the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from
a contract of surety. It, however, described the guaranty as solidary between the guarantors;
this would have been correct if two (2) guarantors had signed it. The clause “we jointly and
severally agree and undertake” refers to the undertaking of the two (2) parties who are to
sign it or to the liability existing between themselves. It does not refer to the undertaking
between either one or both of them on the one hand and the petitioner on the other with
respect to the liability described under the trust receipt. Elsewise stated, their liability is not
divisible as between them, i.e., it can be enforced to its full extent against any one of them.
Furthermore, any doubt as to the import or true intent of the solidary guaranty clause
should be resolved against the petitioner. The trust receipt, together with the questioned
solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi’s
participation therein is limited to the affixing of his signature thereon. It is, therefore, a
contract of adhesion; as such, it must be strictly construed against the party responsible for
its preparation.
Atty. Sergio Ceniza
Criminal Law; Violation of Trust Receipts Law committed by a corporation,
partnership, association or other juridical entities.—It is clear that if the violation or offense
is committed by a corporation, partnership, association or other juridical entities, the penalty
shall be imposed upon the directors, officers, employees or other officials or persons therein
responsible for the offense. The penalty referred to is imprisonment, the duration of which
would depend on the amount of the fraud as provided for in Article 315 of the Revised Penal
Code. The reason for this is obvious: corporations, partnerships, associations and other
juridical entities cannot be put in jail. However, it is these entities which are made liable for
the civil liability arising from the criminal offense. This is the import of the clause “without
prejudice to the civil liabilities arising from the criminal offense.” And, as We stated earlier,
since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code,
petitioner was acting well within its rights in filing an independent civil action to enforce the
civil liability arising therefrom against Philippine Rayon.
Metropolitan Waterworks and Sewerage System vs. Daway, 432 SCRA 559, G.R. No.
160732 June 21, 2004
Commercial Law; Banks and Banking; Guaranty; Letter of Credit; In contracts of

guarantee, the guarantor’s obligation is merely collateral and it arises only upon the default of
the person primarily liable; A letter of credit is an engagement by a bank or other person made
at the request of a cus tomer that the issuer shall honor drafts or other demands of payment
upon compliance with the conditions specified in the credit.—We held in Feati Bank & Trust
Company v. Court of Appeals that the concept of guarantee vis-à-vis the concept of an
irrevocable letter of credit are inconsistent with each other. The guarantee theory destroys
the independence of the bank’s responsibility from the contract upon which it was opened
and the nature of both contracts is mutually in conflict with each other. In contracts of
guarantee, the guarantor’s obligation is merely collateral and it arises only upon the default
of the person primarily liable. On the other hand, in an irrevocable letter of credit, the bank
undertakes a primary obligation. We have also defined a letter of credit as an engagement by
a bank or other person made at the request of a customer that the issuer shall honor drafts
or other demands of payment upon compliance with the conditions specified in the credit.
Letters of credit are in effect absolute undertakings to pay the money advanced or the amount
for which credit is given on the faith of the instrument; They are primary obligations and not
accessory contracts and while they are security arrangements, they are not converted thereby
into contracts of guaranty.—Letters of credit were developed for the purpose of insuring to a
seller payment of a definite amount upon the presentation of documents and is thus a
commitment by the issuer that the party in whose favor it is issued and who can collect upon
it will have his credit against the applicant of the letter, duly paid in the amount specified in
the letter. They are in effect absolute undertakings to pay the money advanced or the
amount for which credit is given on the faith of the instrument. They are primary obligations
and not accessory contracts and while they are security arrangements, they are not
converted thereby into contracts of guaranty. What distinguishes letters of credit from other
accessory contracts, is the engagement of the issuing bank to pay the seller once the draft
and other required shipping documents are presented to it. They are definite undertakings to
pay at sight once the documents stipulated therein are presented.
The obligation of the banks issuing letters of credit are solidary with that of the person
or entity requesting for its issuance, the same being a direct, primary, absolute and definite
undertaking to pay the beneficiary upon the presentation of the set of documents required
therein.—Taking into consideration our own rulings on the nature of letters of credit and the
customs and usage developed over the years in the banking and commercial practice of
letters of credit, we hold that except when a letter of credit specifically stipulates otherwise,
the obligation of the banks issuing letters of credit are solidary with that of the person or
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entity requesting for its issuance, the same being a direct, primary, absolute and definite
undertaking to pay the beneficiary upon the presentation of the set of documents required
therein.
Public respondent exceeded his jurisdiction, in holding that the obligation of the
banks under the Letter of Credit under the agreement that this was not a solidary obligation
with that of the debtor.—The public respondent, therefore, exceeded his jurisdiction, in
holding that he was competent to act on the obligation of the banks under the Letter of
Credit under the argument that this was not a solidary obligation with that of the debtor.
Being a solidary obligation, the letter of credit is excluded from the jurisdiction of the
rehabilitation court and therefore in enjoining petitioner from proceeding against the
Standby Letters of Credit to which it had a clear right under the law and the terms of said
Standby Letter of Credit, public respondent acted in excess of his jurisdiction.
Remedial Law; Certiorari; It is the inadequacy—not the mere absence—of all other legal
remedies and the danger of failure of justice without the writ, that must usually determine the
propriety of certiorari.—In Silvestre v. Torres and Oben, we said that it is not enough that a
remedy is available to prevent a party from making use of the extraordinary remedy of
certiorari but that such remedy be an adequate remedy which is equally beneficial, speedy
and sufficient, not only a remedy which at some time in the future may offer relief but a
remedy which will promptly relieve the petitioner from the injurious acts of the lower
tribunal. It is the inadequacy—not the mere absence—of all other legal remedies and the
danger of failure of justice without the writ, that must usually determine the propriety of
certiorari.
Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257, G.R. No. 74886
December 8, 1992 (SUPRA 6)
Bank of America, NT & SA vs. Court of Appeals, 228 SCRA 357, G.R. No. 105395
December 10, 1993
Commercial Law; Letters of Credit; Concept and nature.—A letter of credit is a

financial, device developed by merchants as a convenient and relatively safe mode of dealing
with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants to have control of the goods
before paying. To break the impasse, the buyer may be required to contract a bank to issue a
letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank
can authorize the seller to draw drafts and engage to pay them upon their presentment
simultaneously with the tender of documents required by the letter of credit. The buyer and
the seller agree on what documents are to be presented for payment, but ordinarily they are
documents of title evidencing or attesting to the shipment of the goods to the buyer. Once the
credit is established, the seller ships the goods to the buyer and in the process secures the
required shipping documents or documents of title. To get paid, the seller executes a draft
and presents it together with the required documents to the issuing bank. The issuing bank
redeems the draft and pays cash to the seller if it finds that the documents submitted by the
seller conform with what the letter of credit requires. The bank then obtains possession of
the documents upon paying the seller. The transaction is completed when the buyer
reimburses the issuing bank and acquires the documents entitling him to the goods. Under
this arrangement, the seller gets paid only if he delivers the documents of title over the
goods, while the buyer acquires the said documents and control over the goods only after
reimbursing the bank.
Letters of Credit distinguished from other accessory contracts.—What characterizes

letters of credit, as distinguished from other accessory contracts, is the engagement of the
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issuing bank to pay the seller once the draft and the required shipping documents are
presented to it. In turn, this arrangement assures the seller of prompt payment, independent
of any breach of the main sales contract. By this so-called “independence principle,” the bank
determines compliance with the letter of credit only by examining the shipping documents
presented; it is precluded from determining whether the main contract is actually
accomplished or not.
Parties to a letter of credit.—There would at least be three (3) parties: (a) the buyer,
who procures the letter of credit and obliges himself to reimburse the issuing bank upon
receipt of the documents of title; b) the bank issuing the letter of credit, which undertakes to
pay the seller upon receipt of the draft and proper documents of titles and to surrender the
documents to the buyer upon reimbursement; and, (c) the seller, who in compliance with the
contract of sale ships the goods to the buyer and delivers the documents of title and draft to
the issuing bank to recover payment.
Other parties to a letter of credit.—The number of the parties, not infrequently and
almost invariably in international trade practice, may be increased. Thus, the services of an
advising (notifying) bank may be utilized to convey to the seller the existence of the credit;
or, of a confirming bank which will lend credence to the letter of credit issued by a lesser
known issuing bank; or, of a paying bank which undertakes to encash the drafts drawn by
the exporter. Further, instead of going to the place of the issuing bank to claim payment, the
buyer may approach another bank, termed the negotiating bank, to have the draft
discounted.
Being a product of international commerce, it is not uncommon to find a dearth of

national law that can adequately provide for the governance of letters of credit.—Being a
product of international commerce, the impact of this commercial instrument transcends
national boundaries, and it is thus not uncommon to find a dearth of national law that can
adequately provide for its governance. This country is no exception. Our own Code of
Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It
is no wonder then why great reliance has been placed on commercial usage and practice,
which, in any case, can be justified by the universal acceptance of the autonomy of contracts
rule. The rules were later developed into what is now known as the Uniform Customs and
Practice for Documentary Credits (“U.C.P.”) issued by the International Chamber of
Commerce. It is by no means a complete text by itself, for, to be sure, there are other
principles, which, although part of lex mercatoria, are not dealt with in the U.C.P.
Suppletory application of the Uniform Customs and Practices for Documentary

Credits (“U.C.P.”).—In FEATI Bank and Trust Company v. Court of Appeals, we have
accepted, to the extent of their pertinency, the application in our jurisdiction of this
international commercial credit regulatory set of rules. In Bank of Phil. Islands v. De Nery,
we have said that the observance of the U.C.P. is justified by Article 2 of the Code of
Commerce which expresses that, in the absence of any particular provision in the Code of
Commerce, commercial transactions shall be governed by usages and customs generally
observed. We have further observed that there being no specific provisions which govern the
legal complexities arising from transactions involving letters of credit not only between or
among banks themselves but also between banks and the seller or the buyer, as the case may
be, the applicability of the U.C.P is undeniable.
An advising or notifying bank does not incur any obligation more than just notifying
the seller.—As an advising or notifying bank, Bank of America did not incur any obligation
more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to
confirm the letter of credit. The bare statement of the bank em ployee, aforementioned, in
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responding to the inquiry made by Atty. Tanay, Inter-Resin’s representative, on the
authenticity of the letter of credit certainly did not have the effect of novating the letter of
credit and Bank of America’s letter of advise, nor can it justify the conclusion that the bank
must now assume total liability on the letter of credit.
An advising bank is bound only to check the “apparent authenticity” of the letter of
credit.—As advising bank, Bank of America is bound only to check the “apparent
authenticity” of the letter of credit, which it did. Clarifying its meaning, Webster’s Ninth
New Collegiate Dictionary explains that the word “APPARENT suggests appearance to
unaided senses that is not or may not be borne out by more rigorous examination or greater
knowledge.”
A negotiating bank has right of recourse against the issuer bank and, until
reimbursement is obtained, the drawer of the draft continues to assume a contingent liability
thereon.—May Bank of America then recover what it has paid under the letter of credit when
the corresponding draft for partial availment thereunder and the required documents
therefor were later negotiated with it by InterResin? The answer is yes. This kind of
transaction is what is commonly referred to as a discounting arrangement. This time, Bank
of America, has acted independently as a negotiating bank, thus saving Inter-Resin from the
hardship of presenting the documents directly to Bank of Ayudhya to recover payment.
(Inter-Resin, of course, could have chosen other banks with which to negotiate the draft and
the documents.) As a negotiating bank, Bank of America has a right of recourse against the
issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft,
continues to assume a contingent liability thereon.—Between the seller and the negotiating
bank there is the usual relationship existing between a drawer and purchaser of drafts.
Unless drafts drawn in pursuance of the credit are indicated to be without recourse
therefore, the negotiating bank has the ordinary right of recourse against the seller in the
event of dishonor by the issuing bank x x x The fact that the correspondent and the
negotiating bank may be one and the same does not affect its rights and obligations in either
capacity, although a special agreement is always a possibility x x x.”
The involved banks deal only with documents and not on goods described in those
documents.—The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste
instead of its products, is really of no consequence. In the operation of a letter of credit, the
involved banks deal only with documents and not on goods described in those documents.
Keng Hua Paper Products Co., Inc. vs. Court of Appeals, 286 SCRA 257, G.R. No.
116863 February 12, 1998
Commercial Law; Bills of Lading; Nature of a Bill of Lading.—A bill of lading serves
two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which
three parties, namely, the shipper, the carrier, and the consignee undertake specific
responsibilities and assume stipulated obligations. A “bill of lading delivered and accepted
constitutes the contract of carriage even though not signed,” because the “(a)cceptance of a
paper containing the terms of a proposed contract generally constitutes an acceptance of the
contract and of all of its terms and conditions of which the acceptor has actual or constructive
notice.” In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that the same was a perfected
and binding contract.
Both lower courts held that the bill of lading was a valid and perfected contract
between the shipper, the consignee, and the carrier.—In the case at bar, both lower courts
held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee),
Atty. Sergio Ceniza
the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land). Section
17 of the bill of lading provided that the shipper and the consignee were liable for the
payment of demurrage charges for the failure to discharge the containerized shipment
beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courts
found petitioner liable.
Contrary to petitioner’s contention, the notice and the letter support—not belie—the
findings of the two lower courts that the bill of lading was impliedly accepted by petitioner.—
Petitioner’s reliance on the Notice of Refused or On Hand Freight, as proof of its
nonacceptance of the bill of lading, is of no consequence. Said notice was not written by
petitioner; it was sent by private respondent to petitioner in November 1982, or four months
after petitioner received the bill of lading. If the notice has any legal significance at all, it is
to highlight petitioner’s prolonged failure to object to the bill of lading. Contrary to
petitioner’s contention, the notice and the letter support—not belie—the findings of the two
lower courts that the bill of lading was impliedly accepted by petitioner.
Mere apprehension of violating customs, tariff and central bank laws without a clear
demonstration that taking delivery of the shipment has become legally impossible, cannot
defeat the petitioner’s contractual obligation and liability under the bill of lading.—
Petitioner’s attempt to evade its obligation to receive the shipment on the pretext that this
may cause it to violate customs, tariff and central bank laws must likewise fail. Mere
apprehension of violating said laws, without a clear demonstration that taking delivery of
the shipment has become legally impossible, cannot defeat the petitioner’s contractual
obligation and liability under the bill of lading.
Letters of Credit; In a letter of credit, there are three distinct and independent
contracts.—In a letter of credit, there are three distinct and independent contracts: (1) the
contract of sale between the buyer and the seller, (2) the contract of the buyer with the
issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller
pursuant to the terms and conditions stated therein. “Few things are more clearly settled in
law than that the three contracts which make up the letter of credit arrangement are to be
maintained in a state of perpetual separation.” A transaction involving the purchase of goods
may also require, apart from a letter of credit, a contract of transportation specially when the
seller and the buyer are not in the same locale or country, and the goods purchased have to
be transported to the latter.
Atty. Sergio Ceniza
TRUST RECEIPTS LAW
Land Bank of the Philippines vs. Perez, 672 SCRA 117, G.R. No. 166884 June 13,
2012
Civil Law; Trusts; Under 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.—There are two obligations in a
trust receipt transaction. The first is covered by the provision that refers to money under the
obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is
covered by the provision referring to merchandise received under the obligation to return it
(devolvera) to the owner. Thus, under 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.
In all trust receipt transactions, both obligations on the part of the trustee exist in the
alternative—the return of the proceeds of the sale or the return or recovery of the goods,
whether raw or processed.—In all trust receipt transactions, both obligations on the part of
the trustee exist in the alternative—the return of the proceeds of the sale or the return or
recovery of the goods, whether raw or processed. When both parties enter into an agreement
knowing 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
Section 13 of P.D. 115; 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.
Contracts; Article 1371 of the Civil Code provides that “[i]n order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally
considered.”—Article 1371 of the Civil Code provides that “[i]n order to judge the intention of
the contracting parties, their contemporaneous and subsequent acts shall be principally
considered.” Under this provision, we can examine the contemporaneous actions of the
parties rather than rely purely on the trust receipts that they signed in order to understand
the transaction through their intent.
Criminal Law; Estafa; Trust Receipts Law; Elements of estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of the Trust Receipts
Law.—In order that the respondents “may be validly prosecuted for estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of the Trust Receipts
Law, the following elements must be established: (a) they received the subject goods in trust
or under the obligation to sell the same and to remit the proceeds thereof to [the trustor], or
to return the goods if not sold; (b) they misappropriated or converted the goods and/or the
proceeds of the sale; (c) they performed such acts with abuse of confidence to the damage and
prejudice of Metrobank; and (d) demand was made on them by [the trustor] for the
remittance of the proceeds or the return of the unsold goods.”
Ng vs. People, 619 SCRA 291, G.R. No. 173905 April 23, 2010
Criminal Procedure; Appeals; It is a well-recognized principle that factual findings of
the trial court are entitled to great weight and respect by this Court, more so when they are
affirmed by the appellate court; Exceptions.—It is a well-recognized principle that factual
findings of the trial court are entitled to great weight and respect by this Court, more so
when they are affirmed by the appellate court. However, the rule is not without exceptions,
such as: (1) when the conclusion is a finding grounded entirely on speculations, surmises,
Atty. Sergio Ceniza
and conjectures; (2) the inferences made are manifestly mistaken; (3) there is grave abuse of
discretion; and (4) the judgment is based on misapprehension of facts or premised on the
absence of evidence on record. Especially in criminal cases where the accused stands to lose
his liberty by virtue of his conviction, the Court must be satisfied that the factual findings
and conclusions of the lower courts leading to his conviction must satisfy the standard of
proof beyond reasonable doubt.
Criminal Law; Estafa; Essential Elements of Estafa.—The essential elements of

Estafa are: (1) that money, goods or other personal property is received by the offender in
trust or on commission, or for administration, or under any obligation involving the duty to
make delivery of or to return it; (2) that there be misappropriation or conversion of such
money or property by the offender, or denial on his part of such receipt; (3) that such
misappropriation or conversion or denial is to the prejudice of another; and (4) there is
demand by the offended party to the offender.
“Trust Receipt Transaction,” Defined; There are two obligations in a trust receipt
transaction: the first refers to money received under the obligation involving the duty to turn it
over (entregarla) to the owner of the merchandise sold, while the second refers to the
merchandise received under the obligation to “return” it (devolvera) to the owner; A violation
of any of these undertakings constitutes Estafa.—A trust receipt transaction is one where the
entrustee has the obligation to deliver to the entruster the price of the sale, or if the
merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two
obligations in a trust receipt transaction: the first refers to money received under the
obligation involving the duty to turn it over (entregarla) to the owner of the merchandise
sold, while the second refers to the merchandise received under the obligation to “return” it
(devolvera) to the owner. A violation of any of these undertakings constitutes Estafa defined
under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115.
The true nature of a trust receipt transaction can be found in the “whereas” clause of
Presidential Decree (P.D.) No. 115 which states that a trust receipt is to be utilized “as a
convenient business device to assist importers and merchants solve their financing
problems.”—The true nature of a trust receipt transaction can be found in the “whereas”
clause of PD 115 which states that a trust receipt is to be utilized “as a convenient business
device to assist importers and merchants solve their financing problems.” Obviously, the
State, in enacting the law, sought to find a way to assist importers and merchants in their
financing in order to encourage commerce in the Philippines.
A trust receipt is considered 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.—As stressed in
Samo v. People, 5 SCRA 354 (1962), a trust receipt is considered 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. Similarly, American Jurisprudence demonstrates that trust receipt transactions
always refer to a method of “financing importations or financing sales.” The principle is of
course not limited in its application to financing importations, since the principle is equally
applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts
mainly involved sales.
Atty. Sergio Ceniza
The words “convert” and “misappropriated” connote an act of using or disposing of
another’s property as if it were one’s own, or of devoting it to a purpose or use different from
that agreed upon.—This is the very essence of Estafa under Art. 315, par. 1(b). The words
“convert” and “misappropriated” connote an act of using or disposing of another’s property as
if it were one’s own, or of devoting it to a purpose or use different from that agreed upon. To
misappropriate for one’s own use includes not only conversion to one’s personal advantage,
but also every attempt to dispose of the property of another without a right.
Evidence; Proof Beyond Reasonable Doubt; It is a well-established principle that person is
presumed innocent until proved guilty; To overcome the presumption, his guilt must be shown
by proof beyond reasonable doubt.—While petitioner admits to his civil liability to Asiatrust,
he nevertheless does not have criminal liability. It is a well-established principle that person
is presumed innocent until proved guilty. To overcome the presumption, his guilt must be
shown by proof beyond reasonable doubt. Thus, we held in People v. Mariano, 345 SCRA 1
(2000), that while the principle does not connote absolute certainty, it means the degree of
proof which produces moral certainty in an unprejudiced mind of the culpability of the
accused. Such proof should convince and satisfy the reason and conscience of those who are
to act upon it that the accused is in fact guilty. The prosecution, in this instant case, failed to
rebut the constitutional innocence of petitioner and thus the latter should be acquitted.
Philippine National Bank vs. Soriano, 682 SCRA 243, G.R. No. 164051 October 3,
2012
Civil Law; Novation; Obligations; Novation is one of the modes of extinguishment of

obligations.—Novation is one of the modes of extinguishment of obligations; it is a single
juridical act with a diptych function. The substitution or change of the obligation by a
subsequent one extinguishes the first, resulting in the creation of a new obligation in lieu of
the old. It is not a complete obliteration of the obligor-obligee relationship, but operates as a
relative extinction of the original obligation.
Indispensable Requisites in Order for Novation to Take Place.—In order for novation
to take place, the concurrence of the following requisites is indispensable: (1) There must be
a previous valid obligation; (2) There must be an agreement of the parties concerned to a new
contract; (3) There must be the extinguishment of the old contract; and (4) There must be the
validity of the new contract.
Novation is never presumed, and the animus novandi, whether totally or partially,
must appear by express agreement of the parties, or by their acts that are too clear and un
mistakable.—Novation is never presumed, and the animus novandi, whether totally or
partially, must appear by express agreement of the parties, or by their acts that are too clear
and unmistakable. The contracting parties must incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one. Upon the other hand, no specific form
is required for an implied novation, and all that is prescribed by law would be an
incompatibility between the two contracts. Nonetheless, both kinds of novation must still be
clearly proven.
The test of incompatibility is whether the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible and the latter
obligation novates the first.—The test of incompatibility is whether the two obligations can
stand together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not merely accidental. The incompatibility
must take place in any of the essential elements of the obligation, such as its object, cause or
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principal conditions thereof; otherwise, the change would be merely modificatory in nature
and insufficient to extinguish the original obligation.
With respect to obligations to pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the terms of payment, adds other
obligations not incompatible with the old ones, or the new contract merely supplements the old
one.—Well-settled is the rule that, with respect to obligations to pay a sum of money, the
obligation is not novated by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible with the old ones, or the new
contract merely supplements the old one. Besides, novation does not extinguish criminal
liability. It stands to reason therefore, that Soriano’s criminal liability under the TR’s
subsists considering that the civil obligations under the Floor Stock Line secured by TR’s
were not extinguished by the purported restructured Omnibus Line.
Crisologo vs. People, 686 SCRA 782, G.R. No. 199481 December 3, 2012
Mercantile Law; Corporation Law; Trust Receipts Law; Section 13 of the Trust
Receipts Law explicitly provides that if the violation or offense is committed by a corporation,
as in this case, the penalty provided for under the law shall be imposed upon the directors,
officers, employees or other officials or person responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.―Section 13 of the Trust Receipts Law
explicitly provides that if the violation or offense is committed by a corporation, as in this
case, the penalty provided for under the law shall be imposed upon the directors, officers,
employees or other officials or person responsible for the offense, without prejudice to the
civil liabilities arising from the criminal offense. In this case, petitioner was acquitted of the
charge for violation of the Trust Receipts Law in relation to Article 315 1(b) of the RPC. As
such, he is relieved of the corporate criminal liability as well as the corresponding civil
liability arising therefrom. However, as correctly found by the RTC and the CA, he may still
be held liable for the trust receipts and L/C transactions he had entered into in behalf of
Novachem.
Debts incurred by directors, officers, and employees acting as corporate agents are not
their direct liability but of the corporation they represent.―Settled is the rule that debts
incurred by directors, officers, and employees acting as corporate agents are not their direct
liability but of the corporation they represent, except if they contractually agree/stipulate or
assume to be personally liable for the corporation’s debts, as in this case.
Civil Law; Evidence; Payment; Burden of Proof; The burden rests on the debtor to prove
payment rather than on the creditor to prove nonpayment.―On the matter of interest, while
petitioner assailed the unilateral imposition of interest at rates above the stipulated 18%
p.a., he failed to submit a summary of the pertinent dates when excessive interests were
imposed and the purported over-payments that should be refunded. Having failed to prove
his affirmative defense, the Court finds no reason to disturb the amount awarded to
Chinabank. Settled is the rule that in civil cases, the party who asserts the affirmative of an
issue has the onus to prove his assertion in order to obtain a favorable judgment. Thus, the
burden rests on the debtor to prove payment rather than on the creditor to prove
nonpayment.
Metropolitan Bank & Trust Company vs. Gonzales, 584 SCRA 631, G.R. No. 180165
April 7, 2009
Trust receipt transaction defined in Presidential Decree No. 115.—Section 4. What

constitutes a trust receipt transaction.—A trust receipt transaction, within the meaning of
this Decree, is any transaction by and between a person referred to in this Decree as the
Atty. Sergio Ceniza
entruster, and another person referred to in this Decree as the entrustee, whereby the
entruster, who owns or holds absolute title or security interests over certain specified goods,
documents or instruments, releases the same to the possession of the entrustee upon the
latter’s execution and delivery to the entruster of a signed document called a “trust receipt”
wherein the entrustee binds himself to hold the designated goods, documents or instruments
in trust for the entruster and to sell or otherwise dispose of the goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, or for other purposes
substantially equivalent to any one of the following: 1. In the case of goods or documents, (a)
to sell the goods or procure their sale; or (b) to manufacture or process the goods with the
purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for
the purpose of manufacturing or processing before its ultimate sale, the entruster shall
retain its title over the goods whether in its original or processed form until the entrustee
has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or
transship or otherwise deal with them in a manner preliminary or necessary to their sale; or,
2. In the case of instruments, a) to sell or procure their sale or exchange; or b) to deliver them
to a principal; or c) to effect the consummation of some transactions involving delivery to a
depository or register; or d) to effect their presentation, collection or renewal. The sale of
goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer,
general property rights in such goods, documents or instruments, or who sells the same to
the buyer on credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside the purview and
coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments

under a trust receipt transaction, and any successor-in-interest of such person for the purpose
of payment in the trust receipt agreement; Obligations of an Entrustee.—An entrustee is one
having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified
in the trust receipt agreement. The entrustee is obliged to (1) hold the goods, documents or
instruments in trust for the entruster and shall dispose of them strictly in accordance with
the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the
entruster and turn over the same to the entruster to the extent of the amount owed to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against
loss from fire, theft, pilferage or other casualties; (4) keep said goods or the proceeds
therefrom whether in money or whatever form, separate and capable of identification as
property of the entruster; (5) return the goods, documents or instruments in the event of non-
sale or upon demand of the entruster; and (6) observe all other terms and conditions of the
trust receipt not contrary to the provisions of the decree.
A violation of any of these undertakings constitutes estafa defined under Article 315
(1) (b) of the Revised Penal Code, as provided by Section 13 of Presidential Decree No. 115.—
The entruster shall be entitled to the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee to the extent of the amount owed
to the entruster or as appears in the trust receipt; or to the return of the goods, documents or
instruments in case of non-sale; and to the enforcement of all other rights conferred on him
in the trust receipt, provided these are not contrary to the provisions of the document. A
violation of any of these undertakings constitutes estafa defined under Article 315(1)(b) of
the Revised Renal Code, as provided by Section 13 of Presidential Decree No. 115.
Atty. Sergio Ceniza
The offense punished under Presidential Decree No. 115 is in the nature of malum
prohibitum.—That private respondents did not sell the goods under the trust receipt but
allowed it to be used by their sister company is of no moment. The offense punished under
Presidential Decree No. 115 is in the nature of malum prohibitum. A mere failure 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.
Ching vs. Court of Appeals, 331 SCRA 16, G.R. No. 110844 April 27, 2000
Declaration of Nullity of Documents; Estafa; Trust Receipts; A civil action for

declaration of nullity of documents and for damages does not constitute a prejudicial question
to a criminal case for estafa where the alleged prejudicial question in the civil case does not
juris et de jure determine the guilt or innocence of the accused in the criminal action.—Under
the prevailing circumstances, the alleged prejudicial question in the civil case for declaration
of nullity of documents and for damages, does not juris et de jure determine the guilt or
innocence of the accused in the criminal action for estafa. Assuming arguendo that the court
hearing the civil aspect of the case adjudicates that the transaction entered into between the
parties was not a trust receipt agreement, nonetheless the guilt of the accused could still be
established and his culpability under penal laws determined by other evidence. To put it
differently, even on the assumption that the documents are declared null, it does not ipso
facto follow that such declaration of nullity shall exonerate the accused from criminal
prosecution and liability. Accordingly, the prosecution may adduce evidence to prove the
criminal liability of the accused for estafa, specifically under Article 315 Kb) of the Revised
Penal Code.
Criminal Law; Trust Receipts Law; Estafa; An act violative of a trust receipt
agreement is only one mode of committing estafa—a violation of a trust receipt arrangement is
not the sole basis for incurring liability under Article 315, No. 1 (b) of the Revised Penal
Code.—We must stress though, that an act violative of a trust receipt agreement is only one
mode of committing estafa under the above-mentioned provision of the Revised Penal Code.
Stated differently, a violation of a trust receipt arrangement is not the sole basis for
incurring liability under Article 315 1(b) of the Code.
Trust Receipts; Words and Phrases; A trust receipt is not merely an additional or side
document to a principal contract—it is considered 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.—Contrary to petitioner’s assertions and in view
of jurisprudence established in this jurisdiction, a trust receipt is not merely an additional or
side document to a principal contract, which in the instant case is alleged by petitioner to be
a pure and simple loan. As elucidated in Samo vs. People, a trust receipt is considered a
security transaction intended to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.
A trust receipt partakes the nature of a security transaction.—A trust receipt is a

document in which is expressed a security transaction whereunder the lender, having no
prior title in the goods on which the lien is to be given and not having possession which
remains in the borrower, lends his money to the borrower on security of the goods which the
borrower is privileged to sell clear of the lien with an agreement to pay all or part of the
proceeds of the sale to the lender. It is a security agreement pursuant to which a bank
acquires a “security interest” in the goods. It secures an indebtedness and there can be no
such thing as security interest that secures no obligation. Clearly, a trust receipt partakes
Atty. Sergio Ceniza
the nature of a security transaction. It could never be a mere additional or side document as
alleged by petitioner. Otherwise, a party to a trust receipt agreement could easily renege on
its obligations thereunder, thus undermining the importance and defeating with impunity
the purpose of such an indispensable tool in commercial transactions.
Trust Receipt Law; The penal provision of Presidential Decree 115 encompasses any
act violative of an obligation covered by a trust receipt—it is not limited to transactions in
goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold.—Petitioner contends that the transaction between Philippine
Blooming Mills (PBM) and private respondent Allied Banking Corporation does not fall
under the category of a trust receipt arrangement claiming that the goods were not to be sold
but were to be used, consumed and destroyed by the importer PBM. To our mind, petitioner’s
contention is a stealthy attempt to circumvent the principle enunciated in the case of Allied
Banking Corporation vs. Ordonez, thus: “x x x In an attempt to escape criminal liability,
private respondent claims P.D. 115 covers goods which are ultimately destined for sale and
not goods for use in manufacture. But the wording of Section 13 covers failure to turn over
the proceeds of the sale of the entrusted goods, or to return said goods if unsold or disposed of
in accordance with the terms of the trust receipts. Private respondent claims that at the time
of PBM’s application for the issuance of the LC’s, it was not represented to the petitioner
that the items were intended for sale, hence, there was no deceit resulting in a violation of
the trust receipts which would constitute a criminal liability. Again we cannot uphold this
contention. The non-payment of the amount covered by a trust receipt is an act violative of
the entrustee’s obligation to pay. There is no reason why the law should not apply to all
transactions covered by trust receipts, except those expressly excluded (68 Am. Jur. 125).
“The Court takes judicial notice of customary banking and business practices where trust
receipts are used for importation of heavy equipment, machineries and supplies used in
manufacturing operations. We are perplexed by the statements in the assailed DOJ
resolution that the goods subject of the instant case are outside the ambit of the provisions of
PD 115 albeit covered by trust receipt agreements (17 February 1988 resolution) and that
not all transactions covered by trust receipts may be considered as trust receipt transactions
defined and penalized under P.D. 115 (11 January 1988 resolution). A construction should be
avoided when it affords an opportunity to defeat compliance with the terms of a statute, x x x
x x x x x x “The penal provision of P.D. 115 encompasses any act violative of an obligation
covered by the trust receipt; it is not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component of a product ultimately sold.”
Colinares vs. Court of Appeals, 339 SCRA 609, G.R. No. 90828 September 5, 2000
Criminal Law; Trust Receipts Law (P.D. 115); Words and Phrases; “Trust Receipt
Transaction,” Defined.—Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust
receipt transaction as any transaction by and between a person referred to as the entruster,
and another person referred to as the entrustee, whereby the entruster who owns or holds
absolute title or security interest over certain specified goods, documents or instruments,
releases the same to the possession of the entrustee upon the latter’s execution and delivery
to the entruster of a signed document called a “trust receipt” wherein the entrustee binds
himself to hold the designated goods, documents or instruments with the obligation to turn
over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, documents or instruments themselves if they
are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt.
Estafa; Failure of the entrustee to turn over the proceeds of the sale of the goods,
covered by the trust receipt to the entruster or to return said goods if they were not disposed of
Atty. Sergio Ceniza
in accordance with the terms of the trust receipt is punishable as estafa.—There are two
possible situations in a trust receipt transaction. The first is covered by the provision which
refers to money received under the obligation involving the duty to deliver it (entregarla) to
the owner of the merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to “return” it (devolvera) to the owner. Failure of
the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to
the entruster or to return said goods if they were not disposed of in accordance with the
terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised
Penal Code, without need of proving intent to defraud.
In a pure trust receipt transaction, the goods are owned by the bank and only released
to the importer in trust subsequent to the grant of the loan—the bank acquires a “security
interest” in the goods as holder of a security title for the advances it had made to the entrustee;
In a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its
price.—Petitioners received the merchandise from CM Builders Centre on 30 October 1979.
On that day, ownership over the merchandise was already transferred to Petitioners who
were to use the materials for their construction project. It was only a day later, 31 October
1979, that they went to the bank to apply for a loan to pay for the merchandise. This
situation belies what normally obtains in a pure trust receipt transaction where goods are
owned by the bank and only released to the importer in trust subsequent to the grant of the
loan. The bank acquires a “security interest” in the goods as holder of a security title for the
advances it had made to the entrustee. The ownership of the merchandise continues to be
vested in the person who had advanced payment until he has been paid in full, or if the
merchandise has already been sold, the proceeds of the sale should be turned over to him by
the importer or by his representative or successor in interest. To secure that the bank shall
be paid, it takes full title to the goods at the very beginning and continues to hold that title
as his indispensable security until the goods are sold and the vendee is called upon to pay for
them; hence, the importer has never owned the goods and is not able to deliver possession. In
a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its
price.
The Trust Receipts Law does not seek to enforce the payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another.—The Trust Receipts Law does not seek to enforce payment of the loan,
rather it punishes 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. Here, it is crystal
clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in
the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet
their obligations, as shown by several receipts issued by PBC acknowledging payment of the
loan.
The mala prohibita nature of the alleged offense notwithstanding, intent as a state of
mind was not proved to be present in the situation of the accused—they employed no artifice in
dealing with the bank and never did they evade payment of their obligation nor attempt to
abscond.—The Information charges Petitioners with intent to defraud and misappropriating
the money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners’
situation. Petitioners employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable
terms precisely to meet their obligation.
Atty. Sergio Ceniza
The fact that the accused are not importers acquiring the goods for re-sale, contrary to
the express provision embodied in the trust receipt and at no time did the title pass to the bank
impresses upon the trust receipt in question vagueness and ambiguity which should not be the
basis for criminal prosecution in the event of violation of its provisions.—Also noteworthy is
the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the
express provision embodied in the trust receipt. They are contractors who obtained the
fungible goods for their construction project. At no time did title over the construction
materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This
impresses upon the trust receipt in question vagueness and ambiguity, which should not be
the basis for criminal prosecution in the event of violation of its provisions.
Banks and Banking; Contracts; Contracts of Adhesion; The practice of banks of

making borrowers sign trust receipts to facilitate collection of loans and place them under the
threats of criminal prosecution should they be unable to pay it may be unjust and inequitable,
if not reprehensible.—The practice of banks of making borrowers sign trust receipts to
facilitate collection of loans and place them under the threats of criminal prosecution should
they be unable to pay it may be unjust and inequitable, if not reprehensible. Such
agreements are contracts of adhesion which borrowers have no option but to sign lest their
loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the
mercy of banks, and is prone to misinterpretation, as had happened in this case. Eventually,
PBC showed its true colors and admitted that it was only after collection of the money, as
manifested by its Affidavit of Desistance.
Ng vs. People, 619 SCRA 291, G.R. No. 173905 April 23, 2010 (SUPRA 2)
Land Bank of the Philippines vs. Perez, 672 SCRA 117, G.R. No. 166884 June 13,
2012 (Supra 1)
Allied Banking Corporation vs. Ordoñez, 192 SCRA 246, G.R. No. 82495 December
10, 1990
Criminal Law; Estafa; Trust Receipts Law (PD 115); Acts involving violation of trust
receipt agreements occurring after January 29, 1973 would render the accused criminally
liable for estafa under par. 1 (b), Art. 315 of the Revised Penal Code.—In trust receipts, there
is an obligation to repay the entruster. Their terms are to be interpreted in accordance with
the general rules on contracts, the law being alert in all cases to prevent fraud on the part of
either party to the transaction. The entrustee binds himself to sell or otherwise dispose of the
entrusted goods with the obligation to turn over to the entruster the proceeds if sold, or
return the goods if unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt. A violation of this undertaking constitutes estafa
under Sec. 13, PD115. And even assuming the absence of a clear provision in the trust
receipt agreement, Lee v. Rodil and Sia v. CA have held: Acts involving the violation of trust
receipt agreements occurring after 29 January 1973 (when PD 115 was issued) would render
the accused criminally liable for estafa under par. 1(b), Art. 315 of the Revised Penal Code,
pursuant to the explicit provision in Sec. 13 of PD 115. The act punishable is malum
prohibitum. Respondent Secretary's prognostication of the Supreme Court's supposed
inclination to treat trust receipts as mere security documents for loan transactions, thereby
obliterating criminal liability, appears to be a misjudgment.
The penal provision of PD 115 encompasses any act violative of an obligation covered
by a trust receipt.—In an attempt to escape criminal liability, private respondent claims PD
115 covers goods which are ultimately destined for sale and not goods for use in
manufacture. But the wording of Sec. 13 covers failure to turn over the proceeds of the sale of
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entrusted goods, or to return said goods if unsold or disposed of in accordance with the terms
of the trust receipts. Private respondent claims that at the time of PBM's application for the
issuance of the LC's, it was not represented to the petitioner that the items were intended for
sale, hence, there was no deceit resulting in a violation of the trust receipts which would
constitute a criminal liability. Again, we cannot uphold this contention. The nonpayment of
the amount covered by a trust receipt is an act violative of the entrustee's obligation to pay.
There is no reason why the law should not apply to all transactions covered by trust receipts,
except those expressly excluded. x x x The penal provision of PD 115 encompasses any act
violative of an obligation covered by the trust receipt; it is not limited to transactions in
goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold.
Rosario Textile Mills Corporation vs. Home Bankers Savings and Trust Company,
462 SCRA 88, G.R. No. 137232 June 29, 2005
Trust Receipts Law; A trust receipt was described in Samo vs. People.—In Samo vs.
People, we described a trust receipt as “a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit except
through utilization, as collateral, of the merchandise imported or purchased.”
A trust receipt is a security agreement pursuant to which a bank acquires a ‘security

interest’ in the goods.—In Vintola vs. Insular Bank of Asia and America, we elucidated
further that “a trust receipt, therefore, is a security agreement, pursuant to which a bank
acquires a ‘security interest’ in the goods. It secures an indebtedness and there can be no
such thing as security interest that secures no obligation.”
Vintola vs. Insular Bank of Asia and America, 150 SCRA 578, No. L-73271 May 29,
1987
Commercial Law; Definition and meaning of trust receipt transaction and trust
receipt.—Section 4 of P.D. No. 115 defines a trust receipt transaction as: "x x x any
transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods, documents or instruments,
releases the same to the possession of the entrustee upon the latter's execution and delivery
to the entruster of a signed document called a 'trust receipt' wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust for the entruster
and to sell or otherwise dispose of the goods, documents or instrument thereof to the extent
of the amount owing to the entruster or as appears in the trust receipt or the goods,
accordance with the terms and conditions specif ied in the trust receipt, or for other purposes
substantially equivalent to any one of the following: 1. In the case of goods or documents, (a)
to sell the goods or procure their sale, x x x" A trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a "security interest" in the goods. "It secures
an indebtedness and there can be no such thing as security interest that secures no
obligation." As defined in our laws: (h) "Security Interest means a property interest in goods,
documents or instruments to secure performance of some obligations of the entrustee or of
some third persons to the entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or retained for security only." As
elucidated in Samo vs. People "a trust receipt is considered as a security transaction
intended to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able to
Atty. Sergio Ceniza
acquire credit except through utilization, as collateral of the merchandise imported or
purchased."
Entruster does not become the real owner of the goods but merely the holder of a
security title for the advances made under the Letter of Credit—Contrary to the allegation of
the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder
of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS
had purchased through IBAA financing remain their own property and they hold it at their
own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor. Since the IBAA is not the factual owner of the goods, the
VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA
and subsequently deposited them in the custody of the court, they are absolutely relieved of
their obligation to pay their loan because of their inability to dispose of the goods. The fact
that they were unable to sell the seashells in question does not affect IBAA's right to recover
the advances it had made under the Letter of Credit.
Criminal Law; Acquittal in the Estafa case is no bar to the institution of a civil action
for collection.—The foregoing premises considered, it follows that the acquittal of the
VINTOLAS in the Estafa case is no bar to the institution of a civil action for collection. It is
inaccurate for the VINTOLAS to claim that the judgment in the estafa case had declared
that the facts from which the civil action might arise, did not exist, for, it will be recalled that
the decision of acquittal expressly declared that "the remedy of the Bank is civil and not
criminal in nature." This amounts to a reservation of the civil action in IBAA's favor, for the
Court would not have dwelt on a civil liability that it had intended to extinguish by the same
decision. The VINTOLAS are liable ex contractu for breach of the Letter of Credit—Trust
Receipt, whether they did or they did not "misappropriate, misapply or convert" the
merchandise as charged in the criminal case. Their civil liability does not arise ex delicto, the
action for the recovery of which would have been deemed instituted with the criminal action
(unless waived or reserved) and where acquittal based on a judicial declaration that the
criminal acts charged do not exist would have extinguished the civil action. Rather, the civil
suit instituted by IBAA is based ex contractu and as such is distinct and independent from
any criminal proceedings and may proceed regardless of the result of the latter. Under the
situational circumstances of the parties, they are governed by Article 31 of the Civil Code,
explicitly providing: "Art. 31. When the civil action is based on an obligation not arising from
the act or omission complained of as a felony, such civil action may proceed independently of
the criminal proceedings and regardless of the result of the latter."
South City Homes, Inc. vs. BA Finance Corporation, 371 SCRA 603, G.R. No. 135462
December 7, 2001
Loans; Suretyships; The Civil Code allows a suretyship agreement to secure future
loans even if the amount is not yet known.—On the first issue, petitioners assert that the
suretyship agreement they signed is void because there was no principal obligation at the
time of signing as the principal obligation was signed six (6) months later. The Civil Code,
however, allows a suretyship agreement to secure future loans even if the amount is not yet
known. Article 2053 of the Civil Code provides that: “Art. 2053—A guaranty may also be
given as security for future debts, the amount of which is not yet known. x x x”
Assignments of Credit; Words and Phrases; “Assignment of Credit,” Explained.—An

assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without
the consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could
Atty. Sergio Ceniza
enforce it against the debtor. As a consequence, the third party steps into the shoes of the
original creditor as subrogee of the latter. Petitioners’ obligations were not extinguished.
Trust Receipts Law; In the event of default by the entrustee on his obligations under
the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust
and take possession of the goods to be able to enforce his rights thereunder.—Petitioners
finally posit (third issue) that as an entruster, respondent BAFC must first demand the
return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the
trust receipts. Having failed to do so, petitioners had no cause of action whatsoever against
Fortune Motors Corporation and the action for collection of sum of money was, therefore,
premature. 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. In the event of default
by the entrustee on his obligations under the trust receipt agreement, it is not absolutely
necessary that the entruster cancel the trust and take possession of the goods to be able to
enforce his rights thereunder. We ruled: “x x x Significantly, the law uses the word “may” in
granting to the entruster the right to cancel the trust and take possession of the goods.
Consequently, petitioner has the discretion to avail of such right or seek any alternative
action, such as a third party claim or a separate civil action which it deems best to protect its
right, at any time upon default or failure of the entrustee to comply with any of the terms
and conditions of the trust agreement.”
Pilipinas Bank vs. Ong, 387 SCRA 37, G.R. No. 133176 August 8, 2002
Commercial Law; Trust Receipts Law; Definition of a trust receipt.—Section 4 of PD

No. 115 (The Trust Receipts Law) defines a trust receipt as any transaction by and between a
person referred to as the entruster, and another person referred to as the entrustee, whereby
the entruster who owns or holds absolute title or security interest over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon
the latter’s execution and delivery to the entruster of a signed document called a “trust
receipt” wherein the entrustee binds himself to hold the designated goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust receipt, or the goods,
accordance with the terms and conditions specified in the trust receipt.
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.—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 under Article 315, par. 1(b) of the Revised
Penal Code. If the violation or offense is committed by a corporation, the penalty shall be
imposed upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising from the criminal
offense.
Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes
violation of PD No. 115.—Mere failure to deliver the proceeds of the sale or the goods, if not
sold, constitutes violation of PD No. 115. However, what is being punished by the 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.
Atty. Sergio Ceniza
Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013.
(additional case)
Mercantile Law; Trust Receipts; Words and Phrases; A trust receipt transaction is one
where the entrustee has the obligation to deliver to the entruster the price of the sale, or if the
merchandise is not sold, to return the merchandise to the entruster.—Simply stated, a trust
receipt transaction is one where the entrustee has the obligation to deliver to the entruster
the price of the sale, or if the merchandise is not sold, to return the merchandise to the
entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers
to money received under the obligation involving the duty to turn it over (entregarla) to the
owner of the merchandise sold, while the second refers to the merchandise received under
the obligation to “return” it (devolvera) to the owner. A violation of any of these undertakings
constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD
115.
When both parties enter 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, paragraph 1(b) of the Revised Penal Code, 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.—When both parties enter 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.
The fact that the entruster bank, Metrobank in this case, knew even before the
execution of the alleged trust receipt agreements that the covered construction materials were
never intended by the entrustee (petitioner) for resale or for the manufacture of items to be sold
would take the transaction between petitioner and Metrobank outside the ambit of the Trust
Receipts Law.—Since the factual milieu of Ng and Land Bank of the Philippines are in all
four corners similar to the instant case, it behooves this Court, following the principle of
stare decisis, to rule that the transactions in the instant case are not trust receipts
transactions but contracts of simple loan. The fact that the entruster bank, Metrobank in
this case, knew even before the execution of the alleged trust receipt agreements that the
covered construction materials were never intended by the entrustee (petitioner) for resale or
for the manufacture of items to be sold would take the transaction between petitioner and
Metrobank outside the ambit of the Trust Receipts Law.
Atty. Sergio Ceniza
TRANSPORTATION LAW
Sps. Teodoro and Nanette Perena vs. Sps. Nicolas and Teresita Zarate, PNR, et. al.,
G.R. No. 157917, Aug. 19, 2012
A carrier is a person or corporation who undertakes to transport or convey goods or

persons from one place to another, gratuitously or for hire.―A carrier is a person or
corporation who undertakes to transport or convey goods or persons from one place to
another, gratuitously or for hire. The carrier is classified either as a private/special carrier or
as a common/public carrier. A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may
desire his or its services, undertakes, by special agreement in a particular instance only, to
transport goods or persons from one place to another either gratuitously or for hire. The
provisions on ordinary contracts of the Civil Code govern the contract of private carriage.
The diligence required of a private carrier is only ordinary, that is, the diligence of a good
father of the family. In contrast, a common carrier is a person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering such services to the public. Contracts of
common carriage are governed by the provisions on common carriers of the Civil Code,
the Public Service Act, and other special laws relating to transportation. A common carrier is
required to observe extraordinary diligence, and is presumed to be at fault or to have acted
negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.
The true test for a common carrier is not the quantity or extent of the business actually
transacted, or the number and character of the conveyances used in the activity, but whether
the undertaking is a part of the activity engaged in by the carrier that he has held out to the
general public as his business or occupation.―The true test for a common carrier is not the
quantity or extent of the business actually transacted, or the number and character of the
conveyances used in the activity, but whether the undertaking is a part of the activity
engaged in by the carrier that he has held out to the general public as his business or
occupation. If the undertaking is a single transaction, not a part of the general business or
occupation engaged in, as advertised and held out to the general public, the individual or the
entity rendering such service is a private, not a common, carrier. The question must be
determined by the character of the business actually carried on by the carrier, not by any
secret intention or mental reservation it may entertain or assert when charged with the
duties and obligations that the law imposes.
Despite catering to a limited clientèle, the Pereñas operated as a common carrier because
they held themselves out as a ready transportation indiscriminately to the students of a
particular school living within or near where they operated the service and for a
fee.―Applying these considerations to the case before us, there is no question that the
Pereñas as the operators of a school bus service were: (a) engaged in transporting passengers
generally as a business, not just as a casual occupation; (b) undertaking to carry passengers
over established roads by the method by which the business was conducted;
and (c)transporting students for a fee. Despite catering to a limited clientèle, the Pereñas
operated as a common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near where they
operated the service and for a fee.
The common carrier is bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.―The common carrier’s standard of care and vigilance as to the
Atty. Sergio Ceniza
safety of the passengers is defined by law. Given the nature of the business and for reasons
of public policy, the common carrier is bound “to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them, according
to all the circumstances of each case.” Article 1755 of the Civil Code specifies that the
common carrier should “carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.” To successfully fend off liability in an action upon the death or injury to a
passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently
would stand. No device, whether by stipulation, posting of notices, statements on tickets, or
otherwise, may dispense with or lessen the responsibility of the common carrier as defined
under Article 1755 of the Civil Code.
Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
of something which a prudent and reasonable man would not do.―The omissions of care on
the part of the van driver constituted negligence, which, according to Layugan v.
Intermediate Appellate Court, 167 SCRA 363 (1988), is “the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and reasonable man
would not do, or as Judge Cooley defines it, ‘(t)he failure to observe for the protection of the
interests of another person, that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.’ ”
Although the basis of the right to relief of the Zarates (i.e., breach of contract of carriage)
against the Pereñas was distinct from the basis of the Zarates’ right to relief against the
Philippine National Railways (PNR) (i.e., quasi-delict under Article 2176, Civil Code), they
nonetheless could be held jointly and severally liable by virtue of their respective negligence
combining to cause the death of Aaron.―At any rate, the lower courts correctly held both the
Pereñas and the PNR “jointly and severally” liable for damages arising from the death of
Aaron. They had been impleaded in the same complaint as defendants against whom the
Zarates had the right to relief, whether jointly, severally, or in the alternative, in respect to
or arising out of the accident and questions of fact and of law were common as to the Zarates.
Although the basis of the right to relief of the Zarates(i.e., breach of contract of carriage)
against the Pereñas was distinct from the basis of the Zarates’ right to relief against the
PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held jointly
and severally liable by virtue of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the
school van of the Pereñas traversing the railroad tracks at a point not dedicated by the PNR
as a railroad crossing for pedestrians and motorists, because the PNR did not ensure the
safety of others through the placing of crossbars, signal lights, warning signs, and other
permanent safety barriers to prevent vehicles or pedestrians from crossing there. The RTC
observed that the fact that a crossing guard had been assigned to man that point from 7 a.m.
to 5 p.m. was a good indicium that the PNR was aware of the risks to others as well as the
need to control the vehicular and other traffic there. Verily, the Pereñas and the PNR were
joint tortfeasors.
The basis for the computation of Aaron’s earning capacity was not what he would have
become or what he would have wanted to be if not for his untimely death, but the minimum
wage in effect at the time of his death.―The RTC awarded indemnity for loss of Aaron’s
earning capacity. Although agreeing with the RTC on the liability, the CA modified the
amount. Both lower courts took into consideration that Aaron, while only a high school
student, had been enrolled in one of the reputable schools in the Philippines and that he had
Atty. Sergio Ceniza
been a normal and able-bodied child prior to his death. The basis for the computation of
Aaron’s earning capacity was not what he would have become or what he would have wanted
to be if not for his untimely death, but the minimum wage in effect at the time of his death.
Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned from his
age of 15 years at the time of his death, but on 21 years, his age when he would have
graduated from college. We find the considerations taken into account by the lower courts to
be reasonable and fully warranted.
Our law itself states that the loss of the earning capacity of the deceased shall be the
liability of the guilty party in favor of the heirs of the deceased, and shall in every case be
assessed and awarded by the court “unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the time of his death.―The
fact that Aaron was then without a history of earnings should not be taken against his
parents and in favor of the defendants whose negligence not only cost Aaron his life and his
right to work and earn money, but also deprived his parents of their right to his presence and
his services as well. Our law itself states that the loss of the earning capacity of the deceased
shall be the liability of the guilty party in favor of the heirs of the deceased, and shall in
every case be assessed and awarded by the court “unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning capacity at the
time of his death.” Accordingly, we emphatically hold in favor of the indemnification for
Aaron’s loss of earning capacity despite him having been unemployed, because compensation
of this nature is awarded not for loss of time or earnings but for loss of the deceased’s power
or ability to earn money.
First Phil. Ind’l Corp. v. CA, G.R. No. 125948, Dec. 29, 1998, 300 SCRA 661
A “common carrier” is one who holds himself out to the public as engaged in the
business of transporting persons or property from place to place, for compensation, offering his
services to the public generally.—There is merit in the petition. A “common carrier” may be
defined, broadly, as one who holds himself out to the public as engaged in the business of
transporting persons or property from place to place, for compensation, offering his services
to the public generally. Article 1732 of the Civil Code defines a “common carrier” as “any
person, corporation, firm or association engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering their services
to the public.”
Test for determining whether a party is a common carrier of goods.—The test for
determining whether a party is a common carrier of goods is: 1. He must be engaged in the
business of carrying goods for others as a public employment, and must hold himself out as
ready to engage in the transportation of goods for person generally as a business and not as a
casual occupation; 2. He must undertake to carry goods of the kind to which his business is
confined; 3. He must undertake to carry by the method by which his business is conducted
and over his established roads; and 4. The transportation must be for hire.
The fact that petitioner has a limited clientele does not exclude it from the definition of
a common carrier.—Based on the above definitions and requirements, there is no doubt that
petitioner is a common carrier. It is engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all
persons indifferently, that is, to all persons who choose to employ its services, and transports
the goods by land and for compensation. The fact that petitioner has a limited clientele does
not exclude it from the definition of a common carrier.
Atty. Sergio Ceniza
The definition of “common carriers” in the Civil Code makes no distinction as to the
means of transporting, as long as it is by land, water or air.—As correctly pointed out by
petitioner, the definition of “common carriers” in the Civil Code makes no distinction as to
the means of transporting, as long as it is by land, water or air. It does not provide that the
transportation of the passengers or goods should be by motor vehicle. In fact, in the United
States, oil pipe line operators are considered common carriers.
Legislative intent in excluding from the taxing power of the local government unit the
imposition of business tax against common carriers is to prevent a duplication of the so-called
“common carrier’s tax.”—It is clear that the legislative intent in excluding from the taxing
power of the local government unit the imposition of business tax against common carriers is
to prevent a duplication of the so-called “common carrier’s tax.” Petitioner is already paying
three (3%) percent common carrier’s tax on its gross sales/earnings under the National
Internal Revenue Code. To tax petitioner again on its gross receipts in its transportation of
petroleum business would defeat the purpose of the Local Government Code.
Calvo v. UCPB General Ins. Co., G.R. No. 148496, Mar. 19, 2002
A customs broker is a common carrier—the concept of “common carrier” under Article

1732 of the Civil Code may be seen to coincide nearly with the notion of “public service,” under
the Public Service Act (Commonwealth Act No. 1416) which at least partially supplements the
law on common carriers set forth in the Civil Code.—Petitioner contends that contrary to the
findings of the trial court and the Court of Appeals, she is not a common carrier but a private
carrier because, as a customs broker and warehouseman, she does not indiscriminately hold
her services out to the public but only offers the same to select parties with whom she may
contract in the conduct of her business. The contention has no merit. In De Guzman v. Court
of Appeals, the Court dismissed a similar contention and held the party to be a common
carrier, thus—The Civil Code defines “common carriers” in the following terms: “Article
1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.” The above article makes no distinction
between one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as anancillary activity . . . Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation service
on a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 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. We think
that Article 1732 deliberately refrained from making such distinctions. So understood, the
concept of “common carrier” under Article 1732 may be seen to coincide neatly with the
notion of “public service,” under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the
Civil Code.
There is greater reason for holding a person who is a customs broker to be a common
carrier because the transportation of goods is an integral part of her business.—There is
greater reason for holding petitioner to be a common carrier because the transportation of
goods is an integral part of her business. To uphold petitioner’s contention would be to
deprive those with whom she contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for her customers, as already
noted, is part and parcel of petitioner’s business.
Atty. Sergio Ceniza
“Extraordinary Diligence,” Explained; Common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them, according to
all the circumstances of such case.—As to petitioner’s liability, Art. 1733 of the Civil Code
provides: Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.
. . . In Compania Maritima v. Court of Appeals, the meaning of “extraordinary diligence in
the vigilance over goods” was explained thus: The extraordinary diligence in the vigilance
over the goods tendered for shipment requires the common carrier to know and to follow the
required precaution for avoiding damage to, or destruction of the goods entrusted to it for
sale, carriage and delivery. It requires common carriers to render service with the greatest
skill and foresight and “to use all reasonable means to ascertain the nature and
characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires.”
To prove the exercise of extraordinary diligence, a customs broker must do more than
merely show the possibility that some other party could be responsible for the damage.—Anent
petitioner’s insistence that the cargo could not have been damaged while in her custody as
she immediately delivered the containers to SMC’s compound, suffice it to say that to prove
the exercise of extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage. It must prove that it
used “all reasonable means to ascertain the nature and characteristic of goods tendered for
[transport] and that [it] exercise[d] due care in the handling [thereof].” Petitioner failed to do
this.
If the improper packing or the defects in the container are known to the carrier or his
employees or apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for
damage resulting therefrom.—The rule is that if the improper packing or, in this case, the
defect/s in the container, is/are known to the carrier or his employees or apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage resulting therefrom.
In this case, petitioner accepted the cargo without exception despite the apparent defects in
some of the container vans. Hence, for failure of petitioner to prove that she exercised
extraordinary diligence in the carriage of goods in this case or that she is exempt from
liability, the presumption of negligence as provided under Art. 1735 holds.
Schmitz Transport & Brokerage Corp. vs. Transport Venture, Inc., et. al., G.R. No.
150255, April 22, 2005
Common Carriers; Customs Brokers; It is settled that under a given set of facts, a
customs broker may be regarded as a common carrier.—It is settled that under a given set of
facts, a customs broker may be regarded as a common carrier. Thus, this Court, inA.F.
Sanchez Brokerage, Inc. v. The Honorable Court of Appeals, held: The appellate court did not
err in finding petitioner, a customs broker, to be also a common carrier, as defined under
Article 1732 of the Civil Code, to wit, Art. 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering their services to the public. x x x
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs broker
whose principal function is to prepare the correct customs declaration and proper shipping
Atty. Sergio Ceniza
documents as required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration. And in Calvo v. UCPB General Insurance Co.,
Inc., this Court held that as the transportation of goods is an integral part of a customs
broker, the customs broker is also a common carrier. For to declare otherwise “would be to
deprive those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers, is part and
parcel of petitioner’s business.”
While a private carrier is under no duty to observe extraordinary diligence, it is still

required to observe ordinary diligence.—In the case of TVI, while it acted as a private carrier
for which it was under no duty to observe extraordinary diligence, it was still required to
observe ordinary diligence to ensure the proper and careful handling, care and discharge of
the carried goods.
A man of ordinary prudence would not leave a heavily loaded barge floating for a
considerable number of hours, at a precarious time, and in the open sea, knowing that the
barge does not have any power of its own and is totally defenseless from the ravages of the
sea.—TVI’s failure to promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but was theproximate
cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open sea,
knowing that the barge does not have any power of its own and is totally defenseless from
the ravages of the sea. That it was nighttime and, therefore, the members of the crew of a
tugboat would be charging overtime pay did not excuse TVI from calling for one such
tugboat.
Parties to a contract of carriage may agree upon a definition of delivery that extends
the services rendered by the carrier.—Parties to a contract of carriage may, however, agree
upon a definition of delivery that extends the services rendered by the carrier. In the case at
bar, Bill of Lading No. 2 covering the shipment provides that delivery be made “to the port of
discharge or so near thereto as she may safely get, always afloat.” The delivery of the goods to
the consignee was not from “pier to pier” but from the shipside of “M/V Alexander Saveliev”
and into barges, for which reason the consignee contracted the services of petitioner. Since
Black Sea had constructively delivered the cargoes to Little Giant, through petitioner, it had
discharged its duty.
De Guzman vs. Court of Appeals, G.R. No. L-47822, 22 December 1988
Art. 1732 of the Civil Code makes no distinctions between a person or enterprise
offering transportation service on a regular or scheduled basis and such service on an
occasional, episodic or unscheduled basis.—The Civil Code defines “common carriers” in the
following terms: “Article 1732. Common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public.” The above
article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in
local idiom, as “a sideline”). Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 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. We think that Article 1733
deliberately refrained from making such distinctions.
Atty. Sergio Ceniza
The concept of “common carrier” under Art. 1732 coincides with the notion of “Public
Service” under the Public Service Act (CA No. 1416).—So understood, the concept of “common
carrier” under Article 1732 may be seen to coincide neatly with the notion of “public service,”
under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code. Under Section
13, paragraph (b) of the Public Service Act, “public service” includes: “x x x every person that
now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. x x x.”
A certificate of public convenience is not a requisite for the incurring of liability under
the Civil Code provisions governing common carriers.—The Court of Appeals referred to the
fact that private respondent held no certificate of public convenience, and concluded he was
not a common carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions governing common
carriers. That liability arises the moment a person or firm acts as a common carrier, without
regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary certificate of public
convenience, would be offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well
being and property of those members of the general community who happen to deal with
such carrier. The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by simply failing to obtain the necessary
permits and authorizations.
Liability of common carriers in case of loss, destruction or deterioration or destruction

of goods they carry; Extraordinary diligence, required; Exceptions.—Common carriers, “by the
nature of their business and for reasons of public policy,” are held to a very high degree of
care and diligence (“extraordinary diligence”) in the carriage of goods as well as of
passengers. The specific import of extraordinary diligence in the care of goods transported by
a common carrier is, according to Article 1733, “further expressed in Articles 1734, 1735 and
1745, numbers 5, 6 and 7” of the Civil Code. Article 1734 establishes the general rule that
common carriers are responsible for the loss, destruction or deterioration of the goods which
they carry, “unlessthe same is due to any of the following causes only: (1) Flood, storm,
earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in
war, whether international or civil; (3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and (5) Order or
act of competent public authority.” It is important to point out that the above list of causes of
loss, destruction or deterioration which exempt the common carrier for responsibility
therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure, fall within the scope of Article 1735.
Atty. Sergio Ceniza
The hijacking of the carriers truck does not fall within any of the five (5) categories of
exempting causes in Art. 1734.—Applying the above-quoted Articles 1734 and 1735, we note
firstly that the specific cause alleged in the instant case—the hijacking of the carrier’s
truck—does not fall within any of the five (5) categories of exempting causes listed in Article
1734. It would follow, therefore, that the hijacking of the carrier’s vehicle must be dealt with
under the provisions of Article 1735, in other words, that the private respondent as common
carrier is presumed to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part of private
respondent.
Under Art. 1745(6), a common carrier is held responsible even for acts of strangers
like thieves or robbers except where such thieves or robbers acted “with grave or irresistible
threat, violence or force.”—As noted earlier, the duty of extraordinary diligence in the
vigilance over goods is, under Article 1733, given additional specification not only by Articles
1734 and 1735 but also by Article 1745, numbers 4, 5 and 6. Article 1745 provides in relevant
part: “Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy: xxx xxx xxx (5) that the common carrier shall not be
responsible for the acts or omissions of his or its employees; (6) that the common carrier’s
liability for acts committed by thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished; and (7) that the common carrier
shall not responsible for the loss, destruction or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other equipment used in the contract
of carriage.” Under Article 1745 (6) above, a common carrier is held responsible and will not
be allowed to divest or to diminish such responsibility—even for acts of strangers like thieves
or robbers, except where such thieves or robbers in fact acted “with grave or irresistible
threat, violence or force.” We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by “grave or irresistible threat, violence or force.”
Common carriers are not made absolute insurers against all risks of travel and of
transport of goods and are not liable for fortuitous events; Case at bar.—In these
circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite
beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all
risks of travel and of transport of goods, and are not held liable for acts or events which
cannot be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence. We, therefore, agree with the result reached by
the Court of Appeals that private respondent Cendaña is not liable for the value of the
undelivered merchandise which was lost because of an event entirely beyond private
respondent’s control.
Asia Lighterage Inc. v. C.A., G.R. No. 147246, Aug. 9, 2003, 409 SCRA 340
Common Carriers; Definition.—The definition of common carriers in Article 1732 of

the Civil Code makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity. We also did not distinguish between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Further, we ruled that Article 1732 does not distinguish
between a carrier offering its services to the general public, and one who offers services or
solicits business only from a narrow segment of the general population.
Atty. Sergio Ceniza
Determination of a common carrier.—The test to determine a common carrier is
“whether the given undertaking is a part of the business engaged in by the carrier which he
has held out to the general public as his occupation rather than the quantity or extent of the
business transacted.”
Presumption of Negligence; Common carriers are presumed to have been at fault or to

have acted negligently if the goods are lost, destroyed or deteriorated.—Common carriers are
bound to observe extraordinary diligence in the vigilance over the goods transported by them.
They are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. To overcome the presumption of negligence in the case of loss,
destruction or deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil
Code enumerates the instances when the presumption of negligence does not attach.
Sps. Dante and Leonora Cruz vs. Sun Holidays, Inc., G.R. No. 186312, June 29, 2010
Definition of Common Carriers.—As De Guzman instructs, Article 1732 of the Civil

Code defining “common carriers” has deliberately refrained from making distinctions on
whether the carrying of persons or goods is the carrier’s principal business, whether it is
offered on a regular basis, or whether it is offered to the general public. The intent of the law
is thus to not consider such distinctions. Otherwise, there is no telling how many other
distinctions may be concocted by unscrupulous businessmen engaged in the carrying of
persons or goods in order to avoid the legal obligations and liabilities of common carriers.
From the nature of their business and for reasons of public policy, common carriers
are bound to observe extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case.—Under the Civil Code, common
carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by them,
according to all the circumstances of each case. They are bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the circumstances.
Negligence; Presumption of Negligence; When a passenger dies or is injured in the

discharge of a contract of carriage, it is presumed that the common carrier is at fault or
negligent.—When a passenger dies or is injured in the discharge of a contract of carriage, it is
presumed that the common carrier is at fault or negligent. 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.
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss.—To fully free a common carrier from any liability,
the fortuitous event must have been the proximate and only cause of the loss. And it
should have exercised due diligence to prevent or minimize the loss before, during and after
the occurrence of the fortuitous event.
Liability of a common carrier in breach of its contract of carriage resulting in the

death of a passenger.—Article 1764 vis-à-vis Article 2206 of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a passenger liable to
pay the following: (1) indemnity for death, (2) indemnity for loss of earning capacity and (3)
moral damages.
Atty. Sergio Ceniza
Victory Liner, Inc. v. Gammad 444 SCRA 355 (2004)
In a contract of carriage, it is presumed that the common carrier was at fault or was
negligent when a passenger dies or is injured; Unless the presumption is rebutted, the court
need not even make an express finding of fault or negligence on the part of the common
carrier.—Anent the second issue, petitioner was correctly found liable for breach of contract
of carriage. A common carrier is bound to carry its passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with due
regard to all the circumstances. In a contract of carriage, it is presumed that the common
carrier was at fault or was negligent when a passenger dies or is injured. Unless the
presumption is rebutted, the court need not even 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.
Damages a common carrier bound to pay in breach of its contract of carriage that results
in the death of a passenger.—Article 1764 in relation to Article 2206 of the Civil Code, holds
the common carrier in breach of its contract of carriage that results in the death of a
passenger liable to pay the following: (1) indemnity for death, (2) indemnity for loss of
earning capacity, and (3) moral damages.
Sealoader Shipping Corp. vs. Grand Cement Mfg. Corp. G.R. No. 167363, Dec.15,
2010
Contributory negligence is conduct on the part of the injured party, contributing as a

legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.—Article 2179 of the Civil Code defines the concept
of contributory negligence as follows: Art. 2179. When the plaintiff’s own negligence was the
immediate and proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause of the injury being the
defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate
the damages to be awarded. Contributory negligence is conduct on the part of the injured
party, contributing as a legal cause to the harm he has suffered, which falls below the
standard to which he is required to conform for his own protection.
Common Carriers; Negligence; Damages; The Court holds that Sealoader had the
responsibility to inform itself of the prevailing weather conditions in the areas where its vessel
was set to sail. Petitioner cannot merely rely on other vessels for weather updates and
warnings on approaching storms, as what happened in this case.—The Court holds that
Sealoader had the responsibility to inform itself of the prevailing weather conditions in the
areas where its vessel was set to sail. Sealoader cannot merely rely on other vessels for
weather updates and warnings on approaching storms, as what apparently happened in this
case. Common sense and reason dictates this. To do so would be to gamble with the safety of
its own vessel, putting the lives of its crew under the mercy of the sea, as well as running the
risk of causing damage to the property of third parties for which it would necessarily be
liable.
PNR vs. Brunty, G.R. No. 169891, Nov. 2, 2006, 506 SCRA 685
Negligence is want of the care required by the circumstances—it is a relative or

comparative, not an absolute, term and its application depends upon the situation of the
parties and the degree of care and vigilance which the circumstances reasonably require.—
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
Atty. Sergio Ceniza
of something which a prudent and reasonable man would not do. In Corliss v. Manila
Railroad Company, 27 SCRA 674 (1969), this Court held that negligence is want of the care
required by the circumstances. It is a relative or comparative, not an absolute, term and its
application depends upon the situation of the parties and the degree of care and vigilance
which the circumstances reasonably require. In determining whether or not there is
negligence on the part of the parties in a given situation, jurisprudence has laid down the
following test: Did defendant, in doing the alleged negligent act, use that reasonable care and
caution which an ordinarily prudent person would have used in the same situation? If not,
the person is guilty of negligence. The law, in effect, adopts the standard supposed to be
supplied by the imaginary conduct of the discreet pater familias of the Roman law.
Cresencia Achevara, et. al. vs. Elvira Ramos, et. al. G.R. No. 175172, Sept. 29, 2009
Negligence; Foreseeability is the fundamental test of negligence.—Foreseeability is the

fundamental test of negligence. To be negligent, a defendant must have acted or failed to act
in such a way that an ordinary reasonable man would have realized that certain interests of
certain persons were unreasonably subjected to a general but definite class of risks. Seeing
that the owner-type jeep was wiggling and running fast in a zigzag manner as it travelled on
the opposite side of the highway, Benigno Valdez was made aware of the danger ahead if he
met the owner-type jeep on the road. Yet he failed to take precaution by immediately veering
to the rightmost portion of the road or by stopping the passenger jeep at the right shoulder of
the road and letting the owner-type jeep pass before proceeding southward; hence, the
collision occurred. The Court of Appeals correctly held that Benigno Valdez was guilty of
inexcusable negligence by neglecting to take such precaution, which a reasonable and
prudent man would ordinarily have done under the circumstances and which proximately
caused injury to another.
An ordinarily prudent man would know that he would be putting himself and other
vehicles he would encounter on the road at risk for driving a mechanically defective vehicle;
Gross negligence is the absence of care or diligence as to amount to a reckless disregard of the
safety of persons or property.—The Court also finds Arnulfo Ramos guilty of gross negligence
for knowingly driving a defective jeep on the highway. An ordinarily prudent man would
know that he would be putting himself and other vehicles he would encounter on the road at
risk for driving a mechanically defective vehicle. Under the circumstances, a prudent man
would have had the owner-type jeep repaired or would have stopped using it until it was
repaired. Ramos was, therefore, grossly negligent in continuing to drive on the highway the
mechanically defective jeep, which later encroached on the opposite lane and bumped the
passenger jeep driven by Benigno Valdez. Gross negligence is the absence of care or diligence
as to amount to a reckless disregard of the safety of persons or property. It evinces a
thoughtless disregard of consequences without exerting any effort to avoid them.
Doctrine of Last Clear Chance; The doctrine of last clear chance does not apply where
the party charged is required to act instantaneously, and the injury cannot be avoided by the
application of all means at hand after the peril is or should have been discovered.—The
doctrine of last clear chance applies to a situation where the plaintiff was guilty of prior or
antecedent negligence, but the defendant—who had the last fair chance to avoid the
impending harm and failed to do so—is made liable for all the consequences of the accident,
notwithstanding the prior negligence of the plaintiff. However, the doctrine does not apply
where the party charged is required to act instantaneously, and the injury cannot be avoided
by the application of all means at hand after the peril is or should have been discovered.
Where the gross negligence of one driver and the inexcusable negligence of another
driver were the proximate cause of the vehicular accident, the heirs of the latter cannot recover
Atty. Sergio Ceniza
damages pursuant to Article 2179 of the Civil Code.—In this case, both Arnulfo Ramos and
Benigno Valdez failed to exercise reasonable care and caution that an ordinarily prudent
man would have taken to prevent the vehicular accident. Since the gross negligence of
Arnulfo Ramos and the inexcusable negligence of Benigno Valdez were the proximate cause
of the vehicular accident, respondents cannot recover damages pursuant to Article 2179 of
the Civil Code.
Pantranco v. North Express, Inc., G.R. Nos. 79050-51, Nov.14, 1989, 179 SCRA 384
Last Clear Chance; The doctrine applies only in a situation where the plaintiff was
guilty of prior or antecedent negligence but the defendant, who had the last clear chance to
avoid the injury and failed to do so is made liable for all the consequences of the accident.—
The doctrine applies only in a situation where the plaintiff was guilty of prior or antecedent
negligence but the defendant, who had the last fair chance to avoid the impending harm and
failed to do so, is made liable for all the consequences of the accident notwithstanding the
prior negligence of the plaintiff. The subsequent negligence of the defendant in failing to
exercise ordinary care to avoid injury to plaintiff becomes the immediate or proximate cause
of the accident which intervenes between the accident and the more remote negligence of the
plaintiff, thus making the defendant liable to the plaintiff [Picart v. Smith, supra].
Generally, the last clear chance doctrine is invoked for the purpose of making a defendant
liable to a plaintiff who was guilty of prior or antecedent negligence, although it may also be
raised as a defense to defeat claim for damages.
The doctrine does not apply where the person who allegedly had the last opportunity to
avoid the accident was not aware of the existence of the peril.—Contrary to the petitioner’s
contention, the doctrine of “last clear chance” finds no application in this case. For the
doctrine to be applicable, it is necessary to show that the person who allegedly had the last
opportunity to avert the accident was aware of the existence of the peril or should, with
exercise of due care, have been aware of it. One cannot be expected to avoid an accident or
injury if he does not know or could not have known the existence of the peril. In this case,
there is nothing to show that the jeepney driver David Ico knew of the impending danger.
When he saw at a distance that the approaching bus was encroaching on his lane, he did not
immediately swerve the jeepney to the dirt shoulder on his right since he must have assumed
that the bus driver will return the bus to its own lane upon seeing the jeepney approaching
from the opposite direction.
Doctrine not applicable where the party charged is required to act instantaneously.—The
speed at which the approaching bus was running prevented David Ico from swerving the
jeepney to the right shoulder of the road in time to avoid the collision. Thus, even assuming
that the jeepney driver perceived the danger a few seconds before the actual collision, he had
no opportunity to avoid it. This Court has held that the last clear chance doctrine “can never
apply where the party charged is required to act instantaneously, and if the injury cannot be
avoided by the application of all means at hand after the peril is or should have been
discovered” [Ong v. Metropolitan Water District, supra].
Negligence of petitioner’s driver was the proximate cause of the injury without which the
accident would not have occurred.—Considering the foregoing, the Court finds that the
negligence of petitioner’s driver in encroaching into the lane of the incoming jeepney and in
failing to return the bus to its own lane immediately upon seeing the jeepney coming from
the opposite direction was the sole and proximate cause of the accident without which the
collision would not have occurred. There was no supervening or intervening negligence on
the part of the jeepney driver which would have made the prior negligence of petitioner’s
driver a mere remote cause of the accident.
Atty. Sergio Ceniza
After negligence of an employee has been established, burden of proof is on the employer
to show that he exercised due diligence in the selection and supervision of his employees.—The
finding of negligence on the part of its driver Ambrosio Ramirez gave rise to the presumption
of negligence on the part of petitioner and the burden of proving that it exercised due
diligence not only in the selection of its employees but also in adequately supervising their
work rests with the petitioner [Lilius v. Manila Railroad Company, 59 Phil. 758 (1934),
Umali v. Bacani, G.R. No. L-40570, June 30, 1976, 69 SCRA 623]. Contrary to petitioner’s
claim, there is no presumption that the usual recruitment procedures and safety standards
were observed. The mere issuance of rules and regulations and the formulation of various
company policies on safety, without showing that they are being complied with, are not
sufficient to exempt petitioner from liability arising from the negligence of its employee. It is
incumbent upon petitioner to show that in recruiting and employing the erring driver, the
recruitment procedures and company policies on efficiency and safety were followed.
Larry V. Caminos, Jr. vs. People of the Phils. G.R. No. 147437, May 8, 2009
Speeding is indicative of imprudent behavior because a motorist is bound to exercise

such ordinary care and drive at a reasonable rate of speed commensurate with the conditions
encountered on the road.—Speeding, is indicative of imprudent behavior because a motorist
is bound to exercise such ordinary care and drive at a reasonable rate of speed commensurate
with the conditions encountered on the road. What is reasonable speed, of course, is
necessarily subjective as it must conform to the peculiarities of a given case but in all cases,
it is that which will enable the driver to keep the vehicle under control and avoid injury to
others using the highway. This standard of reasonableness is actually contained in Section
35 of R.A. No. 4136. It states: SEC. 35.Restriction as to speed.—(a) Any person driving a
motor vehicle on a highway shall drive the same at a careful and prudent speed, not greater
nor less than is reasonable and proper, having due regard for the traffic, the width of the
highway, and of any other condition then and there existing; and no person shall drive any
motor vehicle upon a highway at such speed as to endanger the life, limb and property of any
person, nor at a speed greater than will permit him to bring the vehicle to a stop within the
assured clear distance ahead.
Proof that the offended party was also negligent or imprudent in the operation of his
automobile bears little weight, if at all, at least for purposes of establishing the accused’s
culpability beyond reasonable doubt.—In a prosecution for reckless or dangerous driving, the
negligence of the person who was injured or who was the driver of the motor vehicle with
which the accused’s vehicle collided does not constitute a defense. In fact, even where such
driver is said to be guilty of a like offense, proof thereof may never work favors to the case of
the accused. In other words, proof that the offended party was also negligent or imprudent in
the operation of his automobile bears little weight, if at all, at least for purposes of
establishing the accused’s culpability beyond reasonable doubt. Hence, even if we are to
hypothesize that Arnold was likewise negligent in neglecting to keep a proper lookout as he
took a left turn at the intersection, such negligence, contrary to petitioner’s contention, will
nevertheless not support an acquittal. At best, it will only determine the applicability of
several other rules governing situations where concurring negligence exists and only for the
purpose of arriving at a proper assessment of the award of damages in favor of the private
offended party.
Cresencio Bao, et. al. vs. Bachelor Express, Inc. Ceres Liner, Inc. and Wenifredo
Salvaa, G.R. No. 191703, March 12, 2012
Common Carriers; Gross Negligence; Words and Phrases; Gross Negligence is one that
Atty. Sergio Ceniza
is characterized by the want of even slight care, acting or omitting to act in a situation where
there is a duty to act, not inadvertently but willfully and intentionally with a conscious
indifference to consequences insofar as other persons may be effected.—In the case
of Government Service Insurance System v. Pacific Airways Corporation, 629 SCRA 219
(2010), the Court has defined gross negligence as “one that is characterized by the want of
even slight care, acting or omitting to act in a situation where there is a duty to act, not
inadvertently but willfully and intentionally with a conscious indifference to consequences
insofar as other persons may be affected.”
Hernandez v. Dolor, G.R, No. 160286, July 30, 2004
Negligence; Employer-Employee Relationship; Under Article 2180 of the Civil Code,

an employer may be held solidary liable for the negligent act of his employee.—While the
above provisions of law do not expressly provide for solidary liability, the same can be
inferred from the wordings of the first paragraph of Article 2180 which states that the
obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but
also for those of persons for whom one is responsible. Moreover, Article 2180 should be read
with Article 2194 of the same Code, which categorically states that the responsibility of two
or more persons who are liable for quasi-delict is solidary. In other words, the liability of joint
tortfeasors is solidary. Verily, under Article 2180 of the Civil Code, an employer may be held
solidarily liable for the negligent act of his employee.
Common Carriers; Boundary System; To exempt from liability the owner of a public
vehicle who operates it under the “boundary system” on the ground that he is a mere lessor
would be not only to abet flagrant violations of the Public Service Law, but also to place the
riding public at the mercy of reckless and irresponsible drivers.—Indeed to exempt from
liability the owner of a public vehicle who operates it under the “boundary system” on the
ground that he is a mere lessor would be not only to abet flagrant violations of the Public
Service Law, but also to place the riding public at the mercy of reckless and irresponsible
drivers—reckless because the measure of their earnings depends largely upon the number of
trips they make and, hence, the speed at which they drive; and irresponsible because most if
not all of them are in no position to pay the damages they might cause.
Abelardo Lim and Esmadito Gunnaban vs. CA, G.R. No. 125817. Jan, 16, 2002
The kabit system is an arrangement whereby a person who has been granted a
certificate of public convenience allows other persons who own motor vehicles to operate
them under his license, sometimes for a fee or percentage of the earnings. Although the
parties to such an agreement are not outrightly penalized by law, the kabit system is
invariably recognized as being contrary to public policy and therefore void and inexistent
under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio the Court explained that one of the primary
factors considered in the granting of a certificate of public convenience for the business of
public transportation is the financial capacity of the holder of the license, so that liabilities
arising from accidents may be duly compensated. The kabit system renders illusory such
purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a
negligent use of a vehicle owned by another and operated under his license. If a registered
owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it
would be easy for him to transfer the subject vehicle to another who possesses no
property with which to respond financially for the damage done.
Thus, for the safety of passengers and the public who may have been wronged and
Atty. Sergio Ceniza
deceived through the baneful kabit system, the registered owner of the vehicle is not allowed
to prove that another person has become the owner so that he may be thereby relieved of
responsibility. It would seem then that the thrust of the law in enjoining the kabit system is
not so much as to penalize the parties but to identify the person upon whom responsibility
may be fixed in case of an accident with the end view of protecting the riding public. The
policy therefore loses its force if the public at large is not deceived, much less involved.
Baliwag Transit v. Court of Appeals, G.R. No. 57493, January 7, 1987

Transportation; Common Carriers; “Kabit system,” concept of; Determining factor in the
“kabit system” is the possession of a franchise, not the issuance of an SSS ID number for both
bus lines.—The “Kabit System” has been defined by the Supreme Court as an arrangement
“whereby a person who has been granted a certificate of convenience allows another person
who owns motor vehicles to operate under such franchise for a fee.” The determining factor,
therefore, is the possession of a franchise to operate which negates the existence of the
“Kabit System” and not the issuance of one SSS ID Number for both bus lines from which the
existence of said system was inferred.
Findings of the appellate court that a person operated the buses under the “kabit system” on
the ground that while the person was actually the owner and operator his buses were not
registered with the Public Service Commission in his own name, are not supported by the
records.—Conversely, the conclusion of the Court of Appeals that the late Pascual Tuazon,
during the time material to this case operated his buses under the “Kabit System” on the
ground that while he was actually the owner and operator, his buses were not registered
with the Public Service Commission (now the Bureau of Land Transportation) in his own
name, is not supported by the records. Much less can it be said that there is an analogy
between the case at bar and the cited case of Doligosa, et al. v. Decolongon, et al. (3 CA Nos.
1135, 1142–43) to the extent that Baliwag Transit, Inc. being the ostensible operator of the
buses actually owned by Pascual Tuazon, should be held liable for the contributions collected
or ought to be collected from private respondent (Rollo, pp. 53–54), presumably to discourage
the proliferating “Kabit System” in public utility vehicles.
Magboo vs. Bernardo 7 SCRA 95220) Martinez vs. NLRC, 272 SCRA 793, 800 (1997)
Boundary system; Nature of relationship between owner of vehicle and driver;

Liability of vehicle-owner.—An employer- employee relationship exists between a jeepney-
owner and a driver under a “boundary system” arrangement. The features which
characterize the “boundary system” — namely, the fact that the driver does not receive a
fixed wage but gets only the excess of the amount of fares collected by him over the amount
he pays to the jeep-owner, and that the gasoline consumed by the jeep is for the account of
the driver — are not sufficient to withdraw the relationship between them from that of
employer and employee. Consequently, the jeepney-owner is subsidiarily liable as employer
in accordance with Art. 103, Revised Penal Code.
Angel Jardin, et. al vs. NLRC, et. al, G.R. No. 119268, Feb. 23, 2000
Employer-Employee Relationship; Taxi Drivers;Boundary System; The doctrine that

the relationship between jeepney owners/operators on one hand and jeepney drivers on the
other under the boundary system is that of employer-employee and not of lessor-lessee is
applicable by analogy to the relationship between taxi owners/operators and taxi drivers.—As
early as 3 March 1956, in National Labor Union v. Dinglasan, this Court ruled that the
relationship between jeepney owners/operators on one hand and jeepney drivers on the other
under the boundary system is that of employer-employee and not of lessor-lessee. Therein we
explained that in the lease of chattels the lessor loses complete control over the chattel leased
Atty. Sergio Ceniza
although the lessee cannot be reckless in the use thereof, otherwise he would be responsible
for the damages to the lessor. In the case of jeepney owners/operators and jeepney drivers,
the former exercise supervision and control over the latter. The fact that the drivers do not
receive fixed wages but get only that in excess of the so-called “boundary” they pay to the
owner/operator is not sufficient to withdraw the relations hip between them from that of
employer and employee. The doctrine is applicable by analogy to the present case. Thus,
private respondents were employees of Raul Martinez because they had been engaged to
perform activities which were usually necessary or desirable in the usual business or trade of
the employer. The records s how that private respondents had been employed since 20
October 1989 except for Ogana, the Delvos, Albao and Colibao who were employed on later
dates.
Primo E. Caong, Jr., et al. vs. Avelino Regualos, G.R. No. 179428, Jan. 26, 2011
Under a boundary scheme, the driver remits the “boundary,” which is a fixed amount,
to the owner/operator and gets to earn the amount in excess thereof.—Under a boundary
scheme, the driver remits the “boundary,” which is a fixed amount, to the owner/operator and
gets to earn the amount in excess thereof. Thus, on a day when there are many passengers
along the route, it is the driver who actually benefits from it. It would be unfair then if,
during the times when passengers are scarce, the owner/operator will be made to suffer by
not getting the full amount of the boundary.
PAL et. al. vs. Pacific Airways Corporation, et. al., G.R. No. 170418, Aug. 25, 2010
The Rules of the Air of the Air Transportation Office apply to all aircrafts registered
in the Philippines. The Boeing 737 and the Twin Otter in this case were both registered in
the Philippines. Both are thus subject to the Rules of the Air. In case of danger of collision
between two aircrafts, the Rules of the Air state:
2.2.4.7 Surface Movement of Aircraft. In case of danger of collision between

two aircrafts taxiing on the maneuvering area of an aerodrome, the following
shall apply:
a) When two aircrafts are approaching head on, or approximately so, each
shall stop or where practicable, alter its course to the right so as to keep well
clear.
b) When two aircrafts are on a converging course, the one which has the
other on its right shall give way.
In this case, however, the Boeing 737 and the Twin Otter were not both taxiing at the
time of the collision. Only the Twin Otter was taxiing. The Boeing 737 was already on take-
off roll. The Rules of the Air provide:
2.2.4.6 Taking Off. An aircraft taxiing on the maneuvering area of an

aerodrome shall give way to aircraft taking off or about to take off.
Therefore, PAL’s aircraft had the right of way at the time of collision, not simply
because it was on the right side of PAC’s aircraft, but more significantly, because it was
taking off or about to take off.
Adzuara v. Court of Appeals, G.R. No. 125134, Jan. 22, 1999, 301 SCRA 657
Atty. Sergio Ceniza
Negligence is a relative or comparative, not an absolute, term and its application
depends upon the situation of the parties and the degree of care and vigilance which the
circumstances reasonably require.—In the instant case, nothing on record shows that the
facts were not properly evaluated by the court a quo. As such, we find no reason to disturb
their findings. It bears to stress that the appreciation of petitioner’s post-collision behavior
serves only as a means to emphasize the finding of negligence which is readily established by
the admission of petitioner and his friend Renato that they saw the car of Martinez making a
U-turn but could not avoid the collision by the mere application of the brakes. Negligence is
the want of care required by the circumstances. It is a relative or comparative, not an
absolute, term and its application depends upon the situation of the parties and the degree of
care and vigilance which the circumstances reasonably require.
Ordinary care and vigilance would suffice while driving at half past 1:00 o’clock in the
morning along an almost deserted avenue, which may consist of keeping a watchful eye on the
road ahead and observing the traffic rules on speed, right of way and traffic light.—What
degree of care and vigilance then did the circumstances require? At half past 1:00 o’clock in
the morning along an almost deserted avenue, ordinary care and vigilance would suffice.
This may consist of keeping a watchful eye on the road ahead and observing the traffic rules
on speed, right of way and traffic light. The claim of petitioner that Martinez made a swift U-
turn which caused the collision is not credible since a U-turn is done at a much slower speed
to avoid skidding and overturning, compared to running straight ahead. Nonetheless, no
evidence was presented showing skid marks caused by the car driven by Martinez if only to
demonstrate that he was driving at a fast clip in negotiating the U-turn. On the other hand,
the speed at which petitioner drove his car appears to be the prime cause for his inability to
stop his car and avoid the collision. His assertion that he drove at the speed of 40 kph. is
belied by Martinez who testified that when he looked at the opposite lane for any oncoming
cars, he saw none; then a few seconds later, he was hit by Adzuara’s car. The extent of the
damage on the car of Martinez and the position of the cars after the impact further confirm
the finding that petitioner went beyond the speed limit required by law and by the
circumstances.
It is a rule that a motorist crossing a thru-stop street has the right of way over the one
making a U-turn, but if the person making a U-turn has already negotiated half of the turn
and is almost on the other side so that he is already visible to the person on the thru-street, the
latter must give way to the former.—It is a rule that a motorist crossing a thru-stop street has
the right of way over the one making a U-turn. But if the person making a U-turn has
already negotiated half of the turn and is almost on the other side so that he is already
visible to the person on the thru-street, the latter must give way to the former. Petitioner
was on the thru-street and had already seen the Martinez car. He should have stopped to
allow Martinez to complete the U-turn having, as it were, the last clear chance to avoid the
accident which he ignored. In fact, he never stopped. Rather, he claimed that on the
assumption that he was negligent, the other party was also guilty of contributory negligence
since his car had no lights on. The negligence of Martinez however has not been satisfactorily
shown.
PNR vs. Purificacion Vizcara, et.al. G.R. No. 190022, Feb. 15, 2012
Negligence; A reliable signaling device in good condition, not just a dilapidated “Stop,
Look and Listen” signage, is needed to give notice to the public. It is the responsibility of the
railroad company to use reasonable care to keep the signal devices in working order. Failure
to do so would be an indication of negligence.—Both courts ruled that the petitioners fell
short of the diligence expected of it, taking into consideration the nature of its business, to
forestall any untoward incident. In particular, the petitioners failed to install safety railroad
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bars to prevent motorists from crossing the tracks in order to give way to an approaching
train. Aside from the absence of a crossing bar, the “Stop, Look and Listen” signage installed
in the area was poorly maintained, hence, inadequate to alert the public of the impending
danger. A reliable signaling device in good condition, not just a dilapidated “Stop, Look and
Listen” signage, is needed to give notice to the public. It is the responsibility of the railroad
company to use reasonable care to keep the signal devices in working order. Failure to do so
would be an indication of negligence. Having established the fact of negligence on the part of
the petitioners, they were rightfully held liable for damages.
Contributory negligence is conduct on the part of the injured party, contributing as a

legal cause to the harm he has suffered, which falls below the standard which he is required
to conform for his own protection.—As to whether there was contributory negligence on the
part of the respondents, this court rule in the negative. Contributory negligence is conduct on
the part of the injured party, contributing as a legal cause to the harm he has suffered, which
falls below the standard which he is required to conform for his own protection. It is an act or
omission amounting to want of ordinary care on the part of the person injured which,
concurring with the defendant’s negligence, is the proximate cause of the injury. Here, we
cannot see how the respondents could have contributed to their injury when they were not
even aware of the forthcoming danger.
At this age of modern transportation, it behooves the Philippine National Railways

(PNR) to exert serious efforts to catch up with the trend, including the contemporary
standards in railroad safety.—At this age of modern transportation, it behooves the PNR to
exert serious efforts to catch up with the trend, including the contemporary standards in
railroad safety. As an institution established to alleviate public transportation, it is the duty
of the PNR to promote the safety and security of the general riding public and provide for
their convenience, which to a considerable degree may be accomplished by the installation of
precautionary warning devices. Every railroad crossing must be installed with barriers on
each side of the track to block the full width of the road until after the train runs past the
crossing. To even draw closer attention, the railroad crossing may be equipped with a device
which rings a bell or turns on a signal light to signify the danger or risk of crossing. It is
similarly beneficial to mount advance warning signs at the railroad crossing, such as a
reflectorized crossbuck sign to inform motorists of the existence of the track, and a stop, look
and listen signage to prompt the public to take caution. These warning signs must be erected
in a place where they will have ample lighting and unobstructed visibility both day and
night.
The doctrine of last clear chance provides that where both parties are negligent but the
negligent act of one is appreciably later in point of time than that of the other, or where it is
impossible to determine whose fault or negligence brought about the occurrence of the
incident, the one who had the last clear opportunity to avoid the impending harm but failed to
do so, is chargeable with the consequences arising therefrom.—The doctrine of last clear
chance provides that where both parties are negligent but the negligent act of one is
appreciably later in point of time than that of the other, or where it is impossible to
determine whose fault or negligence brought about the occurrence of the incident, the one
who had the last clear opportunity to avoid the impending harm but failed to do so, is
chargeable with the consequences arising therefrom. Stated differently, the rule is that the
antecedent negligence of a person does not preclude recovery of damages caused by the
supervening negligence of the latter, who had the last fair chance to prevent the impending
harm by the exercise of due diligence. To reiterate, the proximate cause of the collision was
the petitioners’ negligence in ensuring that motorists and pedestrians alike may safely cross
the railroad track. The unsuspecting driver and passengers of the jeepney did not have any
participation in the occurrence of the unfortunate incident which befell them. Likewise, they
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did not exhibit any overt act manifesting disregard for their own safety. Thus, absent
preceding negligence on the part of the respondents, the doctrine of last clear chance cannot
be applied.
PNR v. Court of Appeals, G.R. No. 157658, Oct. 15, 2007, 536 SCRA 147
Negligence is the failure to observe for the protection of the interests of another person
that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury—all that the law requires is that it is perpetually
compelling upon a person to use that care and diligence expected of sensible men under
comparable circumstances.—We have thoroughly reviewed the records of the case and we
find no cogent reason to reverse the appellate court’s decision. Negligence has been defined
as “the failure to observe for the protection of the interests of another person that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other
person suffers injury.” Using the aforementioned philosophy, it may be reliably concluded
that there is no hard and fast rule whereby such degree of care and vigilance is calibrated; it
is dependent upon the circumstances in which a person finds himself. All that the law
requires is that it is perpetually compelling upon a person to use that care and diligence
expected of sensible men under comparable circumstances.
Common Carriers; Railroad Companies; Railroad companies owe to the public a duty
of exercising a reasonable degree of care to avoid injury to persons and property at railroad
crossings, which duties pertain both to the operation of trains and to the maintenance of the
crossings.—As held in the case of Philippine National Railway v. Brunty, 506 SCRA 685
(2006), it may broadly be stated that railroad companies owe to the public a duty of
exercising a reasonable degree of care to avoid injury to persons and property at railroad
crossings, which duties pertain both to the operation of trains and to the maintenance of the
crossings. Moreover, every corporation constructing or operating a railway shall make and
construct at all points where such railway crosses any public road, good, sufficient, and safe
crossings, and erect at such points, at sufficient elevation from such road as to admit a free
passage of vehicles of every kind, a sign with large and distinct letters placed thereon, to give
notice of the proximity of the railway, and warn persons of the necessity of looking out for
trains. The failure of the PNR to put a cross bar, or signal light, flagman or switchman, or
semaphore is evidence of negligence and disregard of the safety of the public, even if there is
no law or ordinance requiring it, because public safety demands that said device or
equipment be installed.
Land Transportation and Traffic Code;While it is true that a person driving an

automobile must use his faculties of seeing and hearing when nearing a railroad crossing, the
obligation to bring to a full stop vehicles moving in public highways before traversing any
“through street” only accrues from the time the said “through street” or crossing is so
designated and sign-posted.—It is true that one driving an automobile must use his faculties
of seeing and hearing when nearing a railroad crossing. However, the obligation to bring to a
full stop vehicles moving in public highways before traversing any “through street” only
accrues from the time the said “through street” or crossing is so designated and sign-posted.
From the records of the case, it can be inferred that Amores exercised all the necessary
precautions required of him as to avoid injury to himself and to others. The witnesses’
testimonies showed that Amores slackened his speed, made a full stop, and then proceeded to
cross the tracks when he saw that there was no impending danger to his life. Under these
circumstances, we are convinced that Amores did everything, with absolute care and caution,
to avoid the collision.
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The authority in this jurisdiction is that the failure of a railroad company to install a
semaphore or at the very least, to post a flagman or watchman to warn the public of the
passing train amounts to negligence.—It is settled that every person or motorist crossing a
railroad track should use ordinary prudence and alertness to determine the proximity of a
train before attempting to cross. We are persuaded that the circumstances were beyond the
control of Amores for no person would sacrifice his precious life if he had the slightest
opportunity to evade the catastrophe. Besides, the authority in this jurisdiction is that the
failure of a railroad company to install a semaphore or at the very least, to post a flagman or
watchman to warn the public of the passing train amounts to negligence.
The employer is actually liable for the negligence or fault on the part of its employee on
the assumption of juris tantum that the employer failed to exercise diligentissimi patris
families in the selection and supervision of its employees.—We will now discuss the liability of
petitioner PNR. Article 2180 of the New Civil Code discusses the liability of the employer
once negligence or fault on the part of the employee has been established. The employer is
actually liable on the assumption ofjuris tantum that the employer failed to
exercise diligentissimi patris families in the selection and supervision of its employees. The
liability is primary and can only be negated by showing due diligence in the selection and
supervision of the employee, a factual matter that has not been demonstrated. Even the
existence of hiring procedures and supervisory employees cannot be incidentally invoked to
overturn the presumption of negligence on the part of the employer.
Cusi v. Philippine National Railways, 179 Phil. 284, 294 (1979)
Common Carriers; Findings of Fact; Finding of fact of lower courts given great respect
and weight; Reasons; Lower Court judgments accorded by appellate courts presumption of
correctness.—The question of negligence being one of fact, the lower court’s finding of
negligence on the part of the defendant-appellant deserves serious consideration by the
Court. It commands great respect and weight, the reason being that the trial judge, having
the advantage of hearing the parties testify and of observing their demeanor on the witness
stand, is better situated to make conclusions of facts. Thus, it has been the standing practice
of appellate courts to accord lower court’s judgments the presumption of correctness. And
unless it can be shown that error or errors, substantial in character, be shown in the
conclusion arrived at, or that there was abuse in judicial scrutiny, We are bound by their
judgments. On this ground alone We can rest the affirmance of the judgment appealed from.
Negligence, concept of.—Negligence has been defined by Judge Cooley in his work on
Torts (3d. ed.), Sec. 1324 as “the failure to observe for the protection of the interests of
another person that degree of care, precaution, and vigilance which the circumstances justly
demand, whereby such person suffers injury.” By such a test, it can readily be seen that
there is no hard and fast rule whereby such degree of care and vigilance is measured; it is
dependent upon the circumstances in which a person finds himself so situated. All that the
law requires is that it is always incumbent upon a person to use that care and diligence
expected of reasonable men under similar circumstances.
Where railroad company maintains a signalling device at a crossing to give warning of

approach of the train, failure of device to operate is evidence of negligence; Traveling public
has right to rely on warning devices installed in railroad crossings.—We cannot in all reason
justify or condone the act of the defendant-appellant allowing the subject locomotive to travel
through the unattended crossing with inoperative signal devices, but without sending any of
its employees to operate said signal devices so as to warn oncoming motorists of the approach
of one of its locomotives. It is not surprising therefore that the inoperation of the warning
devices created a situation which was misunderstood by the riding public to mean safe
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passage. Jurisprudence recognizes that if warning devices are installed in railroad crossings,
the travelling public has the right to rely on such warning devices to put them on their guard
and take the necessary precautions before crossing the tracks. A need, therefore, exists for
the railroad company to use reasonable care to keep such devices in good condition and in
working order, or to give notice that they are not operating, since if such a signal is
misunderstood it is a menace. Thus, it has been held that if a railroad company maintains a
signalling device at a crossing to give warning of the approach of a train, the failure of the
device to operate is generally held to be evidence of negligence, which maybe considered with
all the circumstances of the case in determining whether the railroad company was negligent
as a matter of fact.
Where no contributory negligence was given by accident victims, they should be awarded
damages for the accident.—Had defendant-appellant been successful in establishing that its
locomotive driver blew his whistle to warn motorists of his approach to compensate for the
absence of the warning signals, and that Victorino Cusi, instead of stopping or slackening his
speed, proceeded with reckless speed and regardless of possible or threatened danger, then
We would have been put in doubt as to the degree of prudence exercised by him and would
have, in all probability, declared him negligent. But as the contrary was established, We
remain convinced that Victorino Cusi had not, through his own negligence, contributed to the
accident so as to deny him damages from the defendant-appellant.
Lapanday Agr’l and Dev. Corp. et. al. vs. Michael Raymond Angala, G.R. No.
153076, June 21, 2007
Quasi-Delicts; Torts; Motor Vehicles; Doctrine of Last Clear Chance; Words and
Phrases; The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so is chargeable with the loss; A U-turn is done at
a much slower speed to avoid skidding and overturning, compared to running straight
ahead.—Since both parties are at fault in this case, the doctrine of last clear chance applies.
The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so is chargeable with the loss. In this case,
Deocampo had the last clear chance to avoid the collision. Since Deocampo was driving the
rear vehicle, he had full control of the situation since he was in a position to observe the
vehicle in front of him. Deocampo had the responsibility of avoiding bumping the vehicle in
front of him. A U-turn is done at a much slower speed to avoid skidding and overturning,
compared to running straight ahead. Deocampo could have avoided the vehicle if he was not
driving very fast while following the pick-up. Deocampo was not only driving fast, he also
admitted that he did not step on the brakes even upon seeing the pick-up. He only stepped on
the brakes after the collision.
Philtranco v. CA, G.R. No. 120553, 17 June 1997, 273 SCRA 562
The liability of the registered owner of a public service vehicle, like petitioner
Philtranco, for damages arising from the tortious acts of the driver is primary, direct, and
joint and several or solidary with the driver.—We have consistently held that the liability of
the registered owner of a public service vehicle, like petitioner Philtranco, for damages
arising from the tortious acts of the driver is primary, direct, and joint and severally
or solidary with the driver. x x x Since the employer’s liability is primary, direct and solidary,
its only recourse if the judgment for damages is satisfied by it is to recover what it has paid
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from its employee who committed the fault or negligence which gave rise to the action based
on quasi-delict.
Phil. Charter Ins. Corp. vs. Neptune Orient Lines/Overseas Agency Services, Inc.,
G.R. No. 145044, June 12, 2008
Mercantile Law; Carriage of Goods by Sea Act; The rights and obligations of
respondent common carrier are governed by the provision of the Civil Code, and the Carriage
of Goods by Sea Act (COGSA), which is a special law, applies suppletorily.—Since the subject
cargoes were lost while being transported by respondent common carrier from Hong Kong to
the Philippines, Philippine law applies pursuant to the Civil Code which provides: Art. 1753.
The law of the country to which the goods are to be transported shall govern the liability of
the common carrier for their loss, destruction or deterioration. Art. 1766. In all matters not
regulated by this Code, the rights and obligations of common carriers shall be governed by
the Code of Commerce and by special laws. The rights and obligations of respondent common
carrier are thus governed by the provisions of the Civil Code, and the COGSA, which is a
special law, applies suppletorily.
Bill of Lading; Stipulation in the bill of lading limiting respondent’s liability for the
loss of the subject cargoes isallowed under Article 1749 of the Civil Code, and Sec. 4,
paragraph (5) of the Carriage of Goods by Sea Act (COGSA).—The bill of lading submitted in
evidence by petitioner did not show that the shipper in Hong Kong declared the actual value
of the goods as insured by Fukuyama before shipment and that the said value was inserted
in the Bill of Lading, and so no additional charges were paid. Hence, the stipulation in the
bill of lading that the carrier’s liability shall not exceed US$500 per package applies. Such
stipulation in the bill of lading limiting respondents’ liability for the loss of the subject
cargoes is allowed under Art. 1749 of the Civil Code, and Sec. 4, paragraph (5) of the
COGSA. Everett Steamship Corporation v. Court of Appeals, 297 SCRA 496 (1998) held: A
stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction
of a cargo to a certain sum, unless the shipper or owner declares a greater value, is
sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code.
Everett Steamship Corp. v. CA, G.R. No. 122494, Oct. 8, 1998, 297 SCRA 496
A stipulation in the bill of lading limiting the common carrier's liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value,
is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which provide:
Art. 1749. A stipulation that the common carrier's liability is limited to

the value of the goods appearing in the bill of lading, unless the shipper
or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner
or shipper for the loss, destruction, or deterioration of the goods is valid,
if it is reasonable and just under the circumstances, and has been freely
and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a
number of cases. Pursuant to the afore-quoted provisions of law, it is required that the
stipulation limiting the common carrier's liability for loss must be "reasonable and just
under the circumstances, and has been freely and fairly agreed upon.”
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The stipulations in the bill of lading are reasonable and just. In the bill of lading, the
carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of the carrier.
Considering that the shipper did not declare a higher valuation, it had itself to blame for not
complying with the stipulations.
The trial court's ratiocination that HTC could not have "fairly and freely" agreed to
the limited liability clause in the bill of lading because the said conditions were printed in
small letters does NOT make the bill of lading invalid… Contracts of adhesion are not
invalid per se and that it has on numerous occasions upheld the binding effect thereof.
The shipper, Maruman Trading has been extensively engaged in the trading
business. It cannot be said to be ignorant of the business transactions it entered into
involving the shipment of its goods to its customers. The shipper could not have known, or
should know the stipulations in the bill of lading and there it should have declared a higher
valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain
that it has been deceived or rushed into agreeing to ship the cargo in petitioner's vessel. In
fact, it was not even impleaded in this case.
To defeat the carrier's limited liability, the [limited-liability clause under] the bill of
lading requires that the shipper should have declared in writing a higher valuation of its
goods before receipt thereof by the carrier and insert the said declaration in the bill of lading,
with extra freight paid. These requirements in the bill of lading were never complied with by
the shipper Maruman Trading, hence, the liability of the carrier under the limited liability
clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and
convincingly show that Everett Steamship has knowledge of the value of the cargo as
contended by HTC. No other evidence was proffered by HTC to support is contention. Thus,
the Court is convinced that Everett Steamship should be liable for the full value of the lost
cargo.
In fine, the liability of Everett Steamship for the loss of the cargo is limited to One
Hundred Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
Unsworth Transport Int’ll (Phils.), Inc., vs. CA, et. al., G.R. No. 166250, July 26, 2010
Commercial Law; Carriage of Goods by Sea Act; Words and Phrases; Meaning of
“Freight Forwarder.”—Petitioner is a freight forwarder. The term “freight forwarder” refers
to a firm holding itself out to the general public (other than as a pipeline, rail, motor, or
water carrier) to provide transportation of property for compensation and, in the ordinary
course of its business, (1) to assemble and consolidate, or to provide for assembling and
consolidating, shipments, and to perform or provide for break-bulk and distribution
operations of the shipments; (2) to assume responsibility for the transportation of goods from
the place of receipt to the place of destination; and (3) to use for any part of the
transportation a carrier subject to the federal law pertaining to common carriers.
Limitation of a Freight Forwarder’s Liability.—A freight forwarder’s 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.
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Bill of Lading; Meaning of a Bill of Lading; A bill of lading operates both as receipts and
as a contract.—A bill of lading is a written acknowledgement of the receipt of goods and an
agreement to transport and to deliver them at a specified place to a person named or on his
or her order. It operates both as a receipt and as a contract. It is a receipt for the goods
shipped and a contract to transport and deliver the same as therein stipulated. As a receipt,
it recites the date and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks, condition, quality, and value. As a contract, it names the
contracting parties, which include the consignee; fixes the route, destination, and freight rate
or charges; and stipulates the rights and obligations assumed by the parties.
Common Carriers; Negligence; Common carriers, as a general rule, are presumed to have
been at fault or negligent if the goods they transported deteriorated or got lost or destroyed;
Mere proof of delivery of the goods in good order to a common carrier and of their arrival in
bad order at their destination constitutes a prima facie case of fault or negligence against the
carrier.—UTI is liable as a common carrier. Common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got
lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such diligence. Mere proof of delivery of
the goods in good order to a common carrier and of their arrival in bad order at their
destination constitutes a primafacie case of fault or negligence against the carrier. If no
adequate explanation is given as to how the deterioration, loss, or destruction of the goods
happened, the transporter shall be held responsible.
The Civil Code does not limit the liability of the common carrier to a fixed amount per
package; The Carriage of Goods by Sea Act (COGSA) supplements the Civil Code by
establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration
of a higher value in the bill of lading.—It is to be noted that the Civil Code does not limit the
liability of the common carrier to a fixed amount per package. In all matters not regulated by
the Civil Code, the rights and obligations of common carriers are governed by the Code of
Commerce and special laws. Thus, the COGSA supplements the Civil Code by establishing a
provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher
value in the bill of lading.
Insurance Co. of North America vs. ATI, G.R. No. 180784, Feb. 15, 2012
Common Carriers; Carriage of Goods by Sea Act (COGSA); The Carriage of Goods by
Sea Act (COGSA), Public Act No. 521 of the 74th US Congress, was accepted to be made
applicable to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade by virtue of Commonwealth Act (CA) No. 65.—The Carriage of Goods by Sea Act
(COGSA), Public Act No. 521 of the 74th US Congress, was accepted to be made applicable to
all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by
virtue of CA No. 65. Section 1 of CA No. 65 states: Section 1. That the provisions of Public
Act Numbered Five hundred and twenty-one of the Seventy-fourth Congress of the United
States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is
hereby accepted to be made applicable to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act
shall be construed as repealing any existing provision of the Code of Commerce which is now
in force, or as limiting its application. Section 1, Title I of CA No. 65 defines the relevant
terms in Carriage of Goods by Sea, thus: Section 1. When used in this Act—(a) The term
“carrier” includes the owner or the charterer who enters into a contract of carriage with a
shipper. (b) The term “contract of carriage” applies only to contracts of carriage covered by a
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bill of lading or any similar document of title, insofar as such document relates to the
carriage of goods by sea, including any bill of lading or any similar document as aforesaid
issued under or pursuant to a charter party from the moment at which such bill of lading or
similar document of title regulates the relations between a carrier and a holder of the same.
(c) The term “goods” includes goods, wares, merchandise, and articles of every kind
whatsoever, except live animals and cargo which by the contract of carriage is stated as
being carried on deck and is so carried. (d) The term “ship” means any vessel used for the
carriage of goods by sea. (e) The term “carriage of goods” covers the period from the
time when the goods are loaded to the time when they are discharged from the
ship.
The term “carriage of goods” in the Carriage of Goods by Sea Act (COGSA) covers the
period from the time the goods are loaded to the vessel to the time they are discharged
therefrom.—It is noted that the term “carriage of goods” covers the period from the time
when the goods are loaded to the time when they are discharged from the ship; thus, it can
be inferred that the period of time when the goods have been discharged from the ship and
given to the custody of the arrastre operator is not covered by the COGSA.
The carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered.—The prescriptive period for filing an action for the loss or
damage of the goods under the COGSA is found in paragraph (6), Section 3, thus: 6) Unless
notice of loss or damage and the general nature of such loss or damage be given in writing to
the carrier or his agent at the port of discharge before or at the time of the removal of the
goods into the custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not apparent, the notice must
be given within three days of the delivery. Said notice of loss or damage maybe endorsed
upon the receipt for the goods given by the person taking delivery thereof. The notice in
writing need not be given if the state of the goods has at the time of their receipt been the
subject of joint survey or inspection. In any event thecarrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought
within one year after delivery of the goods or the date when the goods should have
been delivered: Provided, That if a notice of loss or damage, either apparent or concealed,
is not given as provided for in this section, that fact shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery of the goods or the date when the
goods should have been delivered. From the provision above, the carrier and the ship may
put up the defense of prescription if the action for damages is not brought within one year
after the delivery of the goods or the date when the goods should have been delivered. It has
been held that not only the shipper, but also the consignee or legal holder of the bill may
invoke the prescriptive period. However, the COGSA does not mention that an arrastre
operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre
operator.
Villanueva v. Domingo 438 SCRA 485 (2004)
Civil Law; Motor Vehicle Law; Damages; Negligence; The registered owner of any vehicle
is directly and primarily responsible to the public and third persons while it is being
operated.—We have consistently ruled that the registered owner of any vehicle is directly
and primarily responsible to the public and third persons while it is being operated.
Whether the driver is authorized or not by the actual owner is irrelevant to determining
the liability of the registered owner who the law holds primarily and directly responsible for
Atty. Sergio Ceniza
any accident, injury or death caused by the operation of the vehicle in the streets and
highways.—Whether the driver is authorized or not by the actual owner is irrelevant to
determining the liability of the registered owner who the law holds primarily and directly
responsible for any accident, injury or death caused by the operation of the vehicle in the
streets and highways. To require the driver of the vehicle to be authorized by
the actual owner before the registered owner can be held accountable is to defeat the very
purpose why motor vehicle legislations are enacted in the first place.
The main purpose of vehicle registration is the easy identification of the owner who can
be held responsible for any accident, damage or injury caused by the vehicle.—The main
purpose of vehicle registration is the easy identification of the owner who can be held
responsible for any accident, damage or injury caused by the vehicle. Easy identification
prevents inconvenience and prejudice to a third party injured by one who is unknown or
unidentified. To allow a registered owner to escape liability by claiming that the driver was
not authorized by the new (actual) owner results in the public detriment the law seeks to
avoid.
Cathay Pacific Airways v. Spouses Vazquez 399 SCRA 207 (2003)
Common Carriers; Air Transportation; Contracts; Requisites;Words and Phrases; A

contract is a meeting of minds between two persons whereby one agrees to give something or
render some service to another for a consideration.—A contract is a meeting of minds between
two persons whereby one agrees to give something or render some service to another for a
consideration. There is no contract unless the following requisites concur: (1) consent of the
contracting parties; (2) an object certain which is the subject of the contract; and (3) the
cause of the obligation which is established. Undoubtedly, a contract of carriage existed
between Cathay and the Vazquezes. They voluntarily and freely gave their consent to an
agreement whose object was the transportation of the Vazquezes from Manila to HongKong
and back to Manila, with seat: in the Business Class Section of the aircraft, and whose cause
or consideration was the fare paid by the Vazquezes to Cathay.
“Breach of Contract” is defined as the “failure without legal reason to comply with the
terms of a contract,” or the failure, without legal excuse, to perform any promise which forms
the whole or part of the contract.”—The only problem is the legal effect of the upgrading of
the seat accommodation of the Vazquezes. Did it constitute a breach of contract? Breach of
contract is defined as the “failure without legal reason to comply with the terms of a
contract.” It is also defined as the “[f]ailure, without legal excuse, to perform any promise
which forms the whole or part of the contract.” In previous cases, the breach of contract of
carriage consisted in either the bumping off of a passenger with confirmed reservation or the
downgrading of a passenger’s seat accommodation from one class to a lower class. In this
case, what happened was the reverse. The contract between the parties was for Cathay to
transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905.
After checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were
given boarding cards indicating their seat assignments in the Business Class Section.
However, during the boarding time, when the Vazquezes presented their boarding passes,
they were informed that they had a seat change from Business Class to First Class. It turned
out that the Business Class was overbooked in that there were more passengers than the
number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted
passengers, and the Vazquezes, being members of the Marco Polo Club, were upgraded from
Business Class to First Class.
Upgrading; Airline passengers have every right to decline an upgrade and insist on the
accommodation they had booked, and if an airline insists on the upgrade, it breaches its
contract of carriage with the passengers.—We note that in all their pleadings, the Vazquezes
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never denied that they were members of Cathay’s Marco Polo Club. They knew that as
members of the Club, they had priority for upgrading of their seat accommodation at no
extra cost when an opportunity arises. But, just like other privileges, such priority could be
waived. The Vazquezes should have been consulted first whether they wanted to avail
themselves of the privilege or would consent to a change of seat accommodation before their
seat assignments were given to other passengers. Normally, one would appreciate and accept
an upgrading, for it would mean a better accommo dation. But, whatever their reason was
and however odd it might be, the Vazquezes 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 the Vazquezes.
Bad faith and fraud are allegations of fact that demand clear and convincing proof.—
We are not, however, convinced that the upgrading or the breach of contract was attended by
fraud or bad faith. Thus, we resolve the second issue in the negative. Bad faith and fraud are
allegations of fact that demand clear and convincing proof. They are serious accusations that
can be so conveniently and casually invoked, and that is why they are never presumed. They
amount to mere slogans or mudslinging unless convincingly substantiated by whoever is
alleging them. Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot with an evil or
devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to
state material facts and, by reason of such omission or concealment, the other party was
induced to give consent that would not otherwise have been given. Bad faith does not simply
connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of a known duty through some motive or interest or
ill will that partakes of the nature of fraud.
An upgrading is for the better condition and, definitely for the benefit of the passenger.—
Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As
testified to by Mr. Robson, the First Class Section is better than the Business Class Section
in terms of comfort, quality of food, and service from the cabin crew; thus, the difference in
fare between the First Class and Business Class at that time was $250. Needless to state, an
upgrading is for the better condition and, definitely, for the benefit of the passenger.
Overbooking; It is clear from Sec. 3 of Economic Regulation No. 7 of the Civil

Aeronautics Board, as amended, that an overbooking that does not exceed ten percent is not
considered deliberate and therefore does not amount to bad faith.—We are not persuaded by
the Vazquezes’ argument that the overbooking of the Business Class Section constituted bad
faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil
Aeronautics Board, as amended, provides: Sec. 3. Scope.—This regulation shall apply to
every Philippine and foreign air carrier with respect to its operation of flights or portions of
flights originating from or terminating at, or serving a point within the territory of the
Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or portion
of a flight inside or outside the Philippines, for which he holds confirmed reserved space.
Furthermore, this Regulation is designed to cover only honest mistakes on the part of the
carriers and excludes deliberate and willful acts of non-accommodation. Provided, however,
that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be
considered as a deliberate and willful act of non-accommodation. It is clear from this section
that an overbooking that does not exceed ten percent is not considered deliberate and
therefore does not amount to bad faith. Here, while there was admittedly an overbooking of
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the Business Class, there was no evidence of overbooking of the plane beyond ten percent,
and no passenger was ever bumped off or was refused to board the aircraft.
ATI vs. First Lepanto-Taisho Insurance Corp., G.R. No. 185964, June 16, 2014
Transportation Law; Obligations; Arrastre Operators; Degree of Diligence; In the

performance of its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman.—The relationship
between the consignee and the arrastre operator is akin to that existing between the
consignee and/or the owner of the shipped goods and the common carrier, or that between a
depositor and a warehouseman. Hence, in the performance of its obligations, an arrastre
operator should observe the same degree of diligence as that required of a common carrier
and a warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre
operator’s duty is to take good care of the goods and to turn them over to the party entitled to
their possession.
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves upon the
arrastre operator.—In a claim for loss filed by the consignee (or the insurer), the burden of
proof to show compliance with the obligation to deliver the goods to the appropriate party
devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility,
it must prove that the losses were not due to its negligence or to that of its employees. To
avoid liability, the arrastre operator must prove that it exercised diligence and due care in
handling the shipment.
The arrastre operator must prove that it used all reasonable means to handle and
store the shipment with due care and diligence including safeguarding it from weather
elements, thieves or vandals.—To prove the exercise of diligence in handling the subject
cargoes, an arrastre operator must do more than merely show the possibility that some other
party could be responsible for the loss or the damage. It must prove that it used all
reasonable means to handle and store the shipment with due care and diligence including
safeguarding it from weather elements, thieves or vandals.
Mercantile Law; Marine Insurance; As a general rule, the marine insurance policy
needs to be presented in evidence before the insurer may recover the insured value of the
lost/damaged cargo in the exercise of its subrogatory right.—As a general rule, the marine
insurance policy needs to be presented in evidence before the insurer may recover the
insured value of the lost/damaged cargo in the exercise of its subrogatory right. InMalayan
Insurance Co., Inc. v. Regis Brokerage Corp., 538 SCRA 681 (2007), the Court stated that the
presentation of the contract constitutive of the insurance relationship between the consignee
and insurer is critical because it is the legal basis of the latter’s right to subrogation.
ATI vs. Daehan Fire and Marine Ins. Co., Ltd., G.R. No. 171194, Feb. 4, 2010, 611
SCRA 555
Carriage of Goods by Sea Act; Arrastre Service; Degree of Diligence; In the performance
of its obligations, an arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman.—Respondent, as insurer, was
subrogated to the rights of the consignee, pursuant to the subrogation receipt executed by
the latter in favor of the former. The relationship, therefore, between the consignee and the
arrastre operator must be examined. This relationship is akin to that existing between the
Atty. Sergio Ceniza
consignee and/or the owner of the shipped goods and the common carrier, or that between a
depositor and a warehouseman. In the performance of its obligations, an arrastre operator
should observe the same degree of diligence as that required of a common carrier and a
warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre
operator’s duty is to take good care of the goods and to turn them over to the party entitled to
their possession.
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves upon the
arrastre operator; It must prove that the losses were not due to its negligence or to that of its
employees.—In a claim for loss filed by the consignee (or the insurer), the burden of proof to
show compliance with the obligation to deliver the goods to the appropriate party devolves
upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it must
prove that the losses were not due to its negligence or to that of its employees. To prove the
exercise of diligence in handling the subject cargoes, petitioner must do more than merely
show the possibility that some other party could be responsible for the loss or the damage. It
must prove that it exercised due care in the handling thereof. Petitioner failed to do this.
Instead, it insists that it be exonerated from liability, because the customs broker’s
representative received the subject shipment in good order and condition without exception.
Limitation in the Management Contract does not apply if the value of the cargo shipment
is communicated to the arrastre operator before the discharge of the cargoes.—As to the extent
of petitioner’s liability, we cannot sustain its contention that it be limited to P5,000.00 per
package. Petitioner’s responsibility and liability for losses and damages are set forth in
Section 7.01 of the Management Contract drawn between the PPA and the Marina Port
Services, Inc., petitioner’s predecessor-in-interest. As clearly stated above, such limitation
does not apply if the value of the cargo shipment is communicated to the arrastre operator
before the discharge of the cargoes.
What would be unfair and arbitrary is to hold the arrastre operator liable for the full
value of the merchandise after the consignee has paid the arrastre charges only on a basis
much lower than the true value of goods.—It is undisputed that Access International, upon
arrival of the shipment, declared the same for taxation purposes, as well as for the
assessment of arrastre charges and other fees. For the purpose, the invoice, packing list and
other shipping documents were presented to the Bureau of Customs as well as to petitioner
for the proper assessment of the arrastre charges and other fees. Such manifestation satisfies
the condition of declaration of the actual invoices of the value of the goods before their
arrival, to overcome the limitation on the liability of the arrastre operator. Then, the arrastre
operator, by reason of the payment to it of a commensurate charge based on the higher
declared value of the merchandise, could and should take extraordinary care of the special or
valuable cargo. What would, indeed, be unfair and arbitrary is to hold the arrastre operator
liable for the full value of the merchandise after the consignee has paid the arrastre charges
only on a basis much lower than the true value of the goods.
Atty. Sergio Ceniza
Belgian Overseas Chartering and Shipping, N.V. v. Phil. First Insurance Co.,
Inc., G.R. No. 143133, June 5, 2002, 383 SCRA 23
Common Carriers; Well-settled is the rule that common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence and
vigilance with respect to the safety of the goods and the passengers they transport.—Well-
settled is the rule that common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence and vigilance with respect to the
safety of the goods and the passengers they transport. Thus, common carriers are required to
render service with the greatest skill and foresight and “to use all reason[a]ble means to
ascertain the nature and characteristics of the goods tendered for shipment, and to exercise
due care in the handling and stowage, including such methods as their nature requires.” The
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received for transportation by the carrier until they are delivered, actually
or constructively, to the consignee or to the person who has a right to receive them.
Negligence; Presumption of Fault or Negligence; Owing to the high degree of diligence

required of them, common carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed.—Owing to this
high degree of diligence required of them, common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such diligence.
Exceptions; The exceptions to the presumption of fault or negligence is a closed list—if

the cause of destruction, loss or deterioration is other than the enumerated circumstances,
then the carrier is liable therefor.—However, the presumption of fault or negligence will not
arise if the loss is due to any of the following causes: (1) flood, storm, earthquake, lightning,
or other natural disaster or calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the
character of the goods or defects in the packing or the container; or (5) an order or act of
competent public authority. This is a closed list. If the cause of destruction, loss or
deterioration is other than the enumerated circumstances, then the carrier is liable therefor.
Mere proof of delivery of the goods in good order to a common carrier and of their arrival
in bad order at their destination constitutes a prima facie case of fault or negligence against
the carrier.— Corollary to the foregoing, mere proof of delivery of the goods in good order to a
common carrier and of their arrival in bad order at their destination constitutes aprima
facie case of fault or negligence against the carrier. If no adequate explanation is given as to
how the deterioration, the loss or the destruction of the goods happened, the transporter
shall be held responsible.
Equipped with the proper knowledge of the nature of steel sheets in coils and of the
proper way of transporting them, the master of the vessel and his crew should have
undertaken precautionary measures to avoid possible deterioration of the cargo.—True, the
words “metal envelopes rust stained and slightly dented” were noted on the Bill of Lading;
however, there is no showing that petitioners exercised due diligence to forestall or lessen
the loss. Having been in the service for several years, the master of the vessel should have
known at the outset that metal envelopes in the said state would eventually deteriorate
when not properly stored while in transit. Equipped with the proper knowledge of the nature
of steel sheets in coils and of the proper way of transporting them, the master of the vessel
and his crew should have undertaken precautionary measures to avoid possible deterioration
Atty. Sergio Ceniza
of the cargo. But none of these measures was taken. Having failed to discharge the burden of
proving that they have exercised the extraordinary diligence required by law, petitioners
cannot escape liability for the damage to the four coils.
The exemption provided in Article 1734(4) of the Civil Code refers to cases when goods
are lost or damaged while in transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the necessary and natural wear of
goods in transport, defects in packages in which they are shipped, or the natural propensities
of animals.—In their attempt to escape liability, petitioners further contend that they are
exempted from liability under Article 1734(4) of the Civil Code. They cite the notation “metal
envelopes rust stained and slightly dented” printed on the Bill of Lading as evidence that the
character of the goods or defect in the packing or the containers was the proximate cause of
the damage. We are not convinced. From the evidence on record, it cannot be reasonably
concluded that the damage to the four coils was due to the condition noted on the Bill of
Lading. The aforecited exception refers to cases when goods are lost or damaged while in
transit as a result of the natural decay of perishable goods or the fermentation or
evaporation of substances liable therefor, the necessary and natural wear of goods in
transport, defects in packages in which they are shipped, or the natural propensities of
animals. None of these is present in the instant case.
Even if the fact of improper packing was known to the carrier or its crew or was apparent
upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom,
once it accepts the goods notwithstanding such condition.—Further, even if the fact of
improper packing was known to the carrier or its crew or was apparent upon ordinary
observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts
the goods notwithstanding such condition. Thus, petitioners have not successfully proven the
application of any of the aforecited exceptions in the present case.
Carriage of Goods by Sea Act (COGSA); The notice of claim required under Section 3,
paragraph 6 of the COGSA need not be given if the state of the goods, at the time of their
receipt, has been the subject of a joint inspection or survey.—Petitioners claim that pursuant
to Section 3, paragraph 6 of the Carriage of Goods by Sea Act (COGSA), respondent should
have filed its Notice of Loss within three days from delivery. They assert that the cargo was
discharged on July 31, 1990, but that respondent filed its Notice of Claim only on September
18, 1990. We are not persuaded. First, the above-cited provision of COGSA provides that the
notice of claim need not be given if the state of the goods, at the time of their receipt, has
been the subject of a joint inspection or survey. As stated earlier, prior to unloading the
cargo, an Inspection Report as to the condition of the goods was prepared and signed by
representatives of both parties.
Prescription; A claim is not barred by prescription as long as the one-year period has not
lapsed.—As stated in the same provision, a failure to file a notice of claim within three days
will not bar recovery if it is nonetheless filed within one year. This one-year prescriptive
period also applies to the shipper, the consignee, the insurer of the goods or any legal holder
of the bill of lading. In Loadstar Shipping Co., Inc. v. Court of Appeals, we ruled that a claim
is not barred by prescription as long as the one-year period has not lapsed. Thus, in the
words of the ponente, Chief Justice Hilario G. Davide Jr.: “Inasmuch as the neither the Civil
Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA)—which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained during transit—may be applied
suppletorily to the case at bar.”
Atty. Sergio Ceniza
Bills of Lading; Bill of lading serves two functions as receipt for the goods shipped, and
as a contract by which three parties, namely, the shipper, the carrier, and the consignee,
undertake specific responsibilities and assume stipulated obligations.—A bill of lading serves
two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which
three parties—namely, the shipper, the carrier, and the consignee—undertake specific
responsibilities and assume stipulated obligations. In a nutshell, the acceptance of the bill of
lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that it constituted a perfected and binding contract.
A stipulation in the bill of lading limiting to a certain sum the common carrier’s liability
for loss or destruction of a cargo—unless the shipper or owner declares a greater value is
sanctioned by law.—Further, a stipulation in the bill of lading limiting to a certain sum the
common carrier’s liability for loss or destruction of a cargo—unless the shipper or owner
declares a greater value—is sanctioned by law. There are, however, two conditions to be
satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has been
fairly and freely agreed upon by the parties. The rationale for, this rule is to bind the
shippers by their agreement to the value (maximum valuation) of their goods.
The COGSA, which is suppletory to the provisions of the Civil Code, supplements the
latter by establishing a statutory provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading—the provisions on limited liability
are as much a part of the bill of lading as though physically in it and as though placed there
by agreement of the parties.—It is to be noted, however, that the Civil Code does not limit the
liability of the common carrier to a fixed amount per package. In all matters not regulated by
the Civil Code, the right and the obligations of common carriers shall be governed by the
Code of Commerce and special laws. Thus, the COGSA, which is suppletory to the provisions
of the Civil Code, supplements the latter by establishing a statutory provision limiting the
carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill of
lading. The provisions on limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the parties.
A notation in the Bill of Lading which indicates the amount of the Letter of Credit
obtained by the shipper for the importation of the articles does not effect a declaration of the
value of the goods as required by the bill—that notation is made only for the convenience of
the shipper and the bank processing the Letter of Credit.—In the case before us, there was no
stipulation in the Bill of Lading limiting the carrier’s liability. Neither did the shipper
declare a higher valuation of the goods to be shipped. This fact notwithstanding, the
insertion of the words “L/C No. 90/02447 cannot be the basis for petitioners’ liability. First, a
notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by
the shipper for the importation of steel sheets did not effect a declaration of the value of the
goods as required by the bill. That notation was made only for the convenience of the shipper
and the bank processing the Letter of Credit. Second, in Keng Hua Paper Products v. Court of
Appeals, we held that a bill of lading was separate from the Other Letter of Credit
arrangements.
“Package,” Explained; When what would ordinarily be considered packages are shipped
in a container supplied by the carrier and the number of such units is disclosed in the
shipping documents, each of these units and not the container constitutes the “package”
referred to in the liability limitation provision of COGSA.— In the light of the foregoing,
petitioners’ liability should be computed based on US$500 per package and not on the per
metric ton price declared in the Letter of Credit. In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, we explained the meaning of package: “When what would
ordinarily be considered packages are shipped in a container supplied by the carrier and the
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number of such units is disclosed in the shipping documents, each of those units and not the
container constitutes the ‘package’ referred to in the liability limitation provision of Carriage
of Goods by Sea Act.”
Benjamin Cua (Cua Ulan Tek) vs. W Allem Phils. Shipping, Inc. and Advance
Shipping Corp., G.R. No. 171337, July 11, 2012
The Carriage of Goods by Sea Act (COGSA) is the applicable law for all contracts for
carriage of goods by sea to and from Philippine ports in foreign trade.—The COGSA is the
applicable law for all contracts for carriage of goods by sea to and from Philippine ports in
foreign trade; it is thus the law that the Court shall consider in the present case since the
cargo was transported from Brazil to the Philippines.
Under Section 3(6) of the Carriage of Goods by Sea Act (COGSA), the carrier is
discharged from liability for loss or damage to the cargo unless the suit is brought within one
year after delivery of the goods or the date when the goods should have been delivered.—
Under Section 3(6) of the COGSA, the car-
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Philippine Airlines, Inc. vs. Hon. Adriano Savillo, G.R. No. 149547, July 4, 2008
The cardinal purpose of the Warsaw Convention is to provide uniformity of rules

governing claims arising from international air travel; thus, it precludes a passenger from
maintaining an action for personal injury damages under local law when his or her claim
does not satisfy the conditions of liability under the Convention.—The Warsaw Convention
applies to “all international transportation of persons, baggage or goods performed by any
aircraft for hire.” It seeks to accommodate or balance the interests of passengers seeking
recovery for personal injuries and the interests of air carriers seeking to limit potential
liability. It employs a scheme of strict liability favoring passengers and imposing damage
caps to benefit air carriers. The cardinal purpose of the Warsaw Convention is to provide
uniformity of rules governing claims arising from international air travel; thus, it precludes a
passenger from maintaining an action for personal injury damages under local law when his
or her claim does not satisfy the conditions of liability under the Convention.
A claim covered by the Warsaw Convention can no longer be recovered under local
law, if the statute of limitations of two years has already lapsed.—Article 19 of the Warsaw
Convention provides for liability on the part of a carrier for “damages occasioned by delay in
the transportation by air of passengers, baggage or goods.” Article 24 excludes other
remedies by further providing that “(1) in the cases covered by articles 18 and 19, any action
for damages, however founded, can only be brought subject to the conditions and limits set
out in this convention.” Therefore, a claim covered by the Warsaw Convention can no longer
be recovered under local law, if the statute of limitations of two years has already lapsed.
Jurisprudence in the Philippines and the United States also recognizes that the
Warsaw Convention does not “exclusively regulate” the relationship between passenger and
carrier on an international flight.—This Court notes that jurisprudence in the Philippines
and the United States also recognizes that the Warsaw Convention does not “exclusively
regulate” the relationship between passenger and carrier on an international flight. This
Court finds that the present case is substantially similar to cases in which the damages
sought were considered to be outside the coverage of the Warsaw Convention.
Distinction between damages to the passenger’s baggage and humiliation he suffered

at the hands of the airline’s employees.—In United Airlines v. Uy, 318 SCRA 576 (1999), this
Court distinguished between the (1) damage to the passenger’s baggage and (2) humiliation
he suffered at the hands of the airline’s employees. The first cause of action was covered by
the Warsaw Convention which prescribes in two years, while the second was covered by the
provisions of the Civil Code on torts, which prescribes in four years.
Atty. Sergio Ceniza
Edna Diago Lhuillier vs. British Airways, March 15, 2010, G.R. No. 171092
Civil Law; Common Carriers; Warsaw Convention; Damages; It is settled that the
Warsaw Convention has the force and effect of law in this country.—It is settled that the
Warsaw Convention has the force and effect of law in this country. In Santos III v. Northwest
Orient Airlines, 210 SCRA 256 (1992), we held that: The Republic of the Philippines is a
party to the Convention for the Unification of Certain Rules Relating to International
Transportation by Air, otherwise known as the Warsaw Convention. It took effect on
February 13, 1933. The Convention was concurred in by the Senate, through its Resolution
No. 19, on May 16, 1950. The Philippine instrument of accession was signed by President
Elpidio Quirino on October 13, 1950, and was deposited with the Polish government on
November 9, 1950. The Convention became applicable to the Philippines on February 9,
1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto, “to the end that the same and every article and
clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines
and the citizens thereof.” The Convention is thus a treaty commitment voluntarily assumed
by the Philippine government and, as such, has the force and effect of law in this country.
Meaning of “International Carriage.”—For the purposes of this Convention the

expression “international carriage” means any carriage in which, according to the contract
made by the parties, the place of departure and the place of destination, whether or not there
be a break in the carriage or a transhipment, are situated either within the territories of two
High Contracting Parties, or within the territory of a single High Contracting Party, if there
is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate
or authority of another Power, even though that Power is not a party to this Convention. A
carriage without such an agreed stopping place between territories subject to the
sovereignty, suzerainty, mandate or authority of the same High Contracting Party is not
deemed to be international for the purposes of this Convention.
Place where plaintiff may bring the action for damages.—Under Article 28(1) of the
Warsaw Convention, the plaintiff may bring the action for damages before—the court where
the carrier is domiciled; 2. the court where the carrier has its principal place of business; 3.
the court where the carrier has an establishment by which the contract has been made; or 4.
the court of the place of destination.
Jurisdiction; Article 28(1) of the Warsaw Convention is jurisdictional in character.—We

further held that Article 28(1) of the Warsaw Convention is jurisdictional in character. Thus:
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction
and not a venue provision. First, the wording of Article 32, which indicates the places where
the action for damages “must” be brought, underscores the mandatory nature of Article
28(1). Second, this characterization is consistent with one of the objectives of the Convention,
which is to “regulate in a uniform manner the conditions of international transportation by
air.”Third, the Convention does not contain any provision prescribing rules of jurisdiction
other than Article 28(1), which means that the phrase “rules as to jurisdiction” used in
Article 32 must refer only to Article 28(1). In fact, the last sentence of Article 32 specifically
deals with the exclusive enumeration in Article 28(1) as “jurisdictions,” which, as such,
cannot be left to the will of the parties regardless of the time when the damage occurred.
Philippine Airlines, Inc. vs. CA and Gilda C. Mejia, G.R. No. 119706. March 14, 1996
Common Carriers; Air Transportation; Compromise Agreements; The exposition of the

factual ambience and the legal precepts in this adjudication may hopefully channel the
assertiveness of passengers and the intransigence of carriers into the realization that at times
Atty. Sergio Ceniza
a bad extrajudicial compromise could be better than a good judicial victory.—This is
definitely not a case of first impression. The incident which eventuated in the present
controversy is a drama of common contentious occurrence between passengers and carriers
whenever loss is sustained by the former. Withal, the exposition of the factual ambience and
the legal precepts in this adjudication may hopefully channel the assertiveness of passengers
and the intransigence of carriers into the realization that at times a bad extrajudicial
compromise could be better than a good judicial victory.
Contracts of Adhesion; Contracts of adhesion are not invalid per se.—A review of
jurisprudence on the matter reveals the consistent holding of the Court that contracts of
adhesion are not invalid per se and that it has on numerous occasions upheld the binding
effect thereof.
The Supreme Court has construed obscurities and ambiguities in the restrictive
provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof
when justified in light of the operative facts and surrounding circum-stances.—The peculiar
nature of such contracts behooves the Court to closely scrutinize the factual milieu to which
the provisions are intended to apply. Thus, just as consistently and unhesitatingly, but
without categorically invalidating such contracts, the Court has construed obscurities and
ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not
unreasonably against the drafter thereof when justified in light of the operative facts and
surrounding circumstances.
Warsaw Convention; Public International Law;While the Warsaw Convention has the
force and effect of law in the Philippines, the same does not operate as an exclusive
enumeration of the instances when a carrier shall be liable for breach of contract or as an
absolute limit of the extent of liability, nor does it preclude the operation of the Civil Code or
other pertinent laws.—The appellate court declared correct the non-application by the trial
court of the limited liability of therein defendant-appellant under the “Condi-tions of the
Contract” contained in the air waybill, based on the ruling in Cathay Pacific Airways, Ltd.
vs. Court of Appeals, et al., which substantially enunciates the rule that while the Warsaw
Convention has the force and effect of law in the Philippines, being a treaty commitment by
the government and as a signatory thereto, the same does not operate as an exclusive
enumeration of the instances when a carrier shall be liable for breach of contract or as an
absolute limit of the extent of liability, nor does it preclude the operation of the Civil Code or
other pertinent laws.
Contracts of Adhesion; The validity of provisions limiting the liability of carriers

contained in bills of lading have been consistently upheld, though the Supreme Court has
likewise cautioned against blind reliance on adhesion contracts where the facts and
circumstances warrant that they should be disregarded.— The validity of provisions limiting
the liability of carriers contained in bills of lading have been consistently upheld for the
following reason: “x x x. The stipulation in the bill of lading limiting the common carrier’s
liability to the value of goods appearing in the bill, unless the shipper or owner declares a
greater value, is valid and binding. The limitation of the carrier’s liability is sanctioned by
the freedom of the contracting parties to establish such stipulations, clauses, terms, or
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs and public policy. x x x.” However, the Court has likewise cautioned against blind
reliance on adhesion contracts where the facts and circumstances warrant that they should
be disregarded.
There is no absolute obligation on the part of a carrier to accept a cargo.—There is no

absolute obligation on the part of a carrier to accept a cargo. Where a common carrier accepts
Atty. Sergio Ceniza
a cargo for shipment for valuable consideration, it takes the risk of delivering it in good
condition as when it was loaded. And if the fact of improper packing is known to the carrier
or its personnel, or apparent upon observation but it accepts the goods notwithstanding such
condition, it is not relieved of liability for loss or injury resulting therefrom.
A common carrier is estopped from blaming a passenger for not declaring the value of
the cargo shipped and which would have otherwise entitled her to recover a higher amount of
damages where she had been effectively prevented from doing so upon the advice of the
carrier’s personnel for reasons best known to themselves.—In other words, private respondent
Mejia could and would have complied with the conditions stated in the air waybill, i.e.,
declaration of a higher value and payment of supplemental transportation charges, entitling
her to recovery of damages beyond the stipulated limit of US$20 per kilogram of cargo in the
event of loss or damage, had she not been effectively prevented from doing so upon the advice
of PAL’s personnel for reasons best known to themselves. As pointed out by private
respondent, the aforestated facts were not denied by PAL in any of its pleadings nor rebutted
by way of evidence presented in the course of the trial, and thus in effect it judicially
admitted that such an advice was given by its personnel in San Francisco, U.S.A. Petitioner,
therefore, is estopped from blaming private respondent for not declaring the value of the
cargo shipped and which would have otherwise entitled her to recover a higher amount of
damages. The Court’s bidding in the Fieldmen’s Insurance case once again rings true: “x x x.
As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that
will befall an innocent party due to its injurious reliance, the failure to apply it in this case
would result in gross travesty of justice.”
Where the failure to file the formal claim within the prescriptive period contemplated in
the air waybill was largely due to the carrier’s own doing, the consequences of which cannot,
in all fairness, be attributed to the passenger.—Considering the abovementioned incidents
and private respondent Mejia’s own zealous efforts in following up the claim, it was clearly
not her fault that the letter of demand for damages could only be filed, after months of
exasperating follow-up of the claim, on August 13, 1990. If there was any failure at all to file
the formal claim within the prescriptive period contemplated in the air waybill, this was
largely because of PAL’s own doing, the consequences of which cannot, in all fairness, be
attributed to private respondent.
Even if the claim for damages was conditioned on the timely filing of a formal claim,
that condition was deemed fulfilled considering that the collective action of the carrier’s
personnel in tossing around the claim and leaving it unresolved for an indefinite period of
time was tantamount to “voluntarily preventing its fulfillment,” and the filing of the baggage
freight claim constituted substantial compliance with the requirement for the filing of a
formal claim.—Even if the claim for damages was conditioned on the timely filing of a formal
claim, under Article 1186 of the Civil Code that condition was deemed fulfilled, considering
that the collective action of PAL’s personnel in tossing around the claim and leaving it
unresolved for an indefinite period of time was tantamount to “voluntarily preventing its
fulfillment.” On grounds of equity, the filing of the baggage freight claim, which sufficiently
informed PAL of the damage sustained by private respondent’s cargo, constituted substantial
compliance with the requirement in the contract for the filing of a formal claim.
Warsaw Convention; Public International Law;The Warsaw Convention is as much a

part of Philippine law as the Civil Code, Code of Commerce and other municipal special laws,
and the provisions therein contained, specifically on the limitation of carrier’s liability, are
operative in the Philippines but only in appropriate situations.—All told, therefore,
respondent appellate court did not err in ruling that the provision on limited liability is not
applicable in this case. We, however, note in passing that while the facts and circumstances
Atty. Sergio Ceniza
of this case do not call for the direct application of the provisions of the Warsaw Convention,
it should be stressed that, indeed, recognition of the Warsaw Convention does not preclude
the operation of the Civil Code and other pertinent laws in the determination of the extent of
liability of the common carrier. The Warsaw Convention, being a treaty to which the
Philippines is a signatory, is as much a part of Philippine law as the Civil Code, Code of
Commerce and other municipal special laws. The provisions therein contained, specifically on
the limitation of carrier’s liability, are operative in the Philippines but only in appropriate
situations.
A common carrier labors under the statutory presumption of negligence in case of loss,
destruction or deterioration of goods.—Moreover, the trial court underscored the fact that
petitioner was not able to overcome the statutory presumption of negligence in Article 1735
which, as a common carrier, it was laboring under in case of loss, destruction or deterioration
of goods, through proper showing of the exercise of extraordinary diligence. Neither did it
prove that the damage to the microwave oven was because of any of the excepting causes
under Article 1734, all of the same Code. Inasmuch as the subject item was received in
apparent good condition, no contrary notation or exception having been made on the air
waybill upon its acceptance for shipment, the fact that it was delivered with a broken glass
door raises the presumption that PAL’s personnel were negligent in the carriage and
handling of the cargo.
The unprofessional indifference of a carrier’s personnel despite full and actual

knowledge of the damage to a passenger’s cargo, just to be exculpated from liability on pure
technicality and bureaucratic subterfuge, smacks of willful misconduct and insensitivity to
passenger’s plight tantamount to bad faith and renders unquestionable such carrier’s liability
for damages.—Furthermore, there was glaringly no attempt whatsoever on the part of
petitioner to explain the cause of the damage to the oven. The unexplained cause of damage
to private respondent’s cargo constitutes gross carelessness or negligence which by itself
justifies the present award of damages. The equally unexplained and inordinate delay in
acting on the claim upon referral thereof to the claims officer, Atty. Paco, and the
noncommittal responses to private respondent’s entreaties for settlement of her claim for
damages belies petitioner’s pretension that there was no bad faith on its part. This
unprofessional indifference of PAL’s personnel despite full and actual knowledge of the
damage to private respondent’s cargo, just to be exculpated from liability on pure technicality
and bureaucratic subterfuge, smacks of willful misconduct and insensitivity to a passenger’s
plight tantamount to bad faith and renders unquestionable petitioner’s liability for damages.
In sum, there is no reason to disturb the findings of the trial court in this case, especially
with its full affirmance by respondent Court of Appeals.
Fed Express Corp. vs. American Home Ass. Co.,et. al., G.R. No. 150094, Aug. 18, 2004
The insurer’s subrogatory right to sue for recovery under the bill of lading in case of loss
or damage to the cargo is jurisprudentially upheld.—Upon payment to the consignee of an
indemnity for the loss of or damage to the insured goods, the insurer’s entitlement to
subrogation pro tanto—being of the highest equity—equips it with a cause of action in case of
a contractual breach or negligence. “Further, the insurer’s subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially
upheld.”
The filing of a claim with the carrier within the time limitation therefor actually
constitutes a condition precedent to the accrual of a right of action against a carrier for loss of
or damage to the goods.—In this jurisdiction, the filing of a claim with the carrier within the
time limitation therefor actually constitutes a condition precedent to the accrual of a right of
Atty. Sergio Ceniza
action against a carrier for loss of or damage to the goods. The shipper or consignee must
allege and prove the fulfillment of the condition. If it fails to do so, no right of action against
the carrier can accrue in favor of the former. The aforementioned requirement is a
reasonable condition precedent; it does not constitute a limitation of action.
Fundamental Reasons for Requiring of Giving Notice of Loss or Injury to the Goods.—
The requirement of giving notice of loss of or injury to the goods is not an empty formalism.
The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo
has been damaged, and that it is being charged with liability therefor; and (2) to give it an
opportunity to examine the nature and extent of the injury. “This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims.”

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Commercial Law Review 2016 Case Doctrines on Negotiable Instruments

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COMMERCIAL

LAW REVIEW 2016

NEGOTIABLE INSTRUMENTS LAW

G.R. No. 187769. G.R. No. 187769.*

Mercantile Law; Negotiable Instruments Law; Incomplete But Delivered Instruments; In

G.R. No. 192413. June 13, 2012.*

G.R. No. 129015. August 13, 2004.*

Negotiable Instruments Law; Checks; A forged signature is “wholly inoperative” and

Same; Same; Same; A document formally presented is presumed to be genuine until it is

G.R. No. 107382. January 31, 1996.

Commercial Law; Negotiable Instruments Law; Forgery; A person whose signature to an

G.R. No. 172954. October 5, 2011.*

Negotiable Instruments Law; Checks; Upon issuance of a check, in the absence of

Same; Same; It is highly inconceivable that an experienced businessman would issue

G.R. No. 185945. December 5, 2012.*

Mercantile Law; Negotiable Instruments Law; “Checks,” Defined; “Bills of Exchange,”

Same; Same; Accommodation Party; Suretyship; The relation between an

Same; Same; Same; Unlike in a contract of suretyship, the liability of the

G.R. No. 180257. February 23, 2011.*

Negotiable Instruments Law; Accommodation Party; An accommodation party is a

G.R. No. 146511. September 5, 2007.*

Asset Privatization Trust; History.—Taking into account the imperative need of

Negotiable Instruments Law; Accommodation Party;Requisites; Words and Phrases; An

G.R. No. 166405. August 6, 2008.*

Negotiable Instruments Law; Words and Phrases; Accommodation Party; Section 29

G.R. No. 133179. March 27, 2008.*

G.R. No. 175350. June 13, 2012.*

G.R. No. 157943. September 4, 2013.*

Mercantile Law; Negotiable Instruments Law; Checks; Under the Negotiable

G.R. No. 158143. September 21, 2011.*

G.R. No. 170912. April 19, 2010.*

Mercantile Law; Negotiable Instruments Law; “Holder in Due Course,” Defined.—

G.R. No. 121413. January 29, 2001.*

G.R. No. 112392. February 29, 2000.*

Negotiable Instruments Law; Warranties of a person negotiating an instrument by

Same; Negotiable Instruments Law; Checks; A negotiable instrument, such as a check,

Same; Same; Same; Words and Phrases; “Manager’s Check"Explained; A manager’s

G.R. No. 125059. March 17, 2000.*

G.R. No. 150618. July 24, 2003.*

G.R. No. 156294. November 29, 2006.*

G.R. No. 156262. July 14, 2005.*

Negotiable Instruments Law; After an instrument is dishonored by nonpayment,

G.R. No. 126490. March 31, 1998.*

Same; Same; Same; Guaranty; Suretyship and Guaranty Distinguished.—A surety is an

G.R. No. 117660. December 18, 2000.*

Contracts; Sales; A contract of sale is a reciprocal transaction, the obligation or promise

Same; Same; Suretyships; Accommodation Parties; Words and Phrases; An

G.R. No. 157309. March 28, 2008.*

Negotiable Instruments; Foreign Bills of Exchange; Protests; When a foreign bill is

G.R. No. 109491. February 28, 2001.*

Same; Same; Checks; A treasurer of a corporation whose negligence in signing a

Negotiable Instrument Law; Checks; Words and Phrases;“Holder in Due Course,”

Negotiable Instruments Law; “Holder in Due Course,” Explained.—SEC. 52. What

Same; Same; Suretyships; Accommodation Parties; Words and Phrases; An

G.R. No. 85419. March 9, 1993.*

Commercial Law; Negotiable Instruments Law; A negotiable instrument of which a

G.R. Nos. 173090-91. September 7, 2011.*

G.R. No. 158262. July 21, 2008.*

Negotiable Instruments Law; Promissory Notes; The promissory note is clearly

INTELLECTUAL PROPERTY LAW

G.R. No. 126627. August 14, 2003.*

SMITH KLINE BECKMAN CORPORATION, petitioner, vs. THE HONORABLE