MERCANTILE LAW 1

Justice Presbitero J. Velasco, Jr. (2006-2016)

G.R. No. 133179

Section 66 in relation to Sec. 65 of the Negotiable
Instruments Law provides:
Section 66. Liability of general indorser.Every
indorser who indorses without qualification, warrants
to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions
(a), (b) and (c) of the next preceding section; and
b) That the instrument is at the time of his
indorsement valid and subsisting;
And in addition, he engages that on due presentment,
it 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 indorser who may be compelled to
pay it.
Section 65. Warranty where negotiation by delivery, so
forth.Every person negotiating an instrument by
delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects
what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this section do not
apply to persons negotiating public or corporation
securities, other than bills and notes.
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."48
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.
G.R. No. 145842
A corporation, upon coming to existence, is invested
by law with a personality separate and distinct from
those of the persons composing it. Ownership by a
single or a small group of stockholders of nearly all of
the capital stock of the corporation is not, without
more, sufficient to disregard the fiction of separate
corporate personality.23 Thus, obligations incurred by
corporate officers, acting as corporate agents, are not
theirs but direct accountabilities of the corporation
they represent. Solidary liability on the part of
corporate officers may at times attach, but only under
exceptional circumstances, such as when they act with
malice or in bad faith.24 Also, in appropriate cases, the
veil of corporate fiction shall be disregarded when the
separate juridical personality of a corporation is
abused or used to commit fraud and perpetrate a
social injustice, or used as a vehicle to evade
obligations.25 In this case, no act of malice or like
dishonest purpose is ascribed on petitioner Roxas-del
Castillo as to warrant the lifting of the corporate veil.
Before Roxas-del Castillo could be held personally
liable as corporate director, it must be shown that she
acted in a manner and under the circumstances
contemplated in Sec. 31 of the Corporation Code,
which reads:
Section 31. Directors or trustees who willfully or
knowingly vote for or assent to patently unlawful acts
of the corporation or acquire any pecuniary interest in
conflict with their duty as such directors or trustees
shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
G.R. No. 166245
It must be remembered that an insurance contract is a
contract of adhesion which must be construed liberally
in favor of the insured and strictly against the insurer
in order to safeguard the latters interest. Thus, this

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MERCANTILE LAW 2

Justice Presbitero J. Velasco, Jr. (2006-2016)

Court held that:

Indemnity and liability insurance policies are construed
in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion,
par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should
be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer
from noncompliance with its obligations. (Emphasis
supplied.)
In a more recent case , we reiterated the above ruling,
stating that:
When the terms of insurance contract contain
limitations on liability, courts should construe them in
such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the
contract, the insurer. By reason of the exclusive
control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally
in favor of the insured, especially to avoid forfeiture.
G.R. No. 184778
SECTION 53. Other Banking Services.In addition to
the operations specifically authorized in this Act, a
bank may perform the following services:
53.1. Receive in custody funds, documents and
valuable objects;
53.2. Act as financial agent and buy and sell, by order
of and for the account of their customers, shares,
evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account
of others and perform such other services for their
customers as are not incompatible with banking
business;
53.4. Upon prior approval of the Monetary Board, act
as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes.

The bank shall perform the services permitted under

Subsections 53.1, 53.2, 53.3 and 53.4 as depositary or
as an agent. Accordingly, it shall keep the funds,
securities and other effects which it receives duly
separate from the banks own assets and liabilities.
The Monetary Board may regulate the operations
authorized by this Section in order to ensure that such
operations do not endanger the interests of the
depositors and other creditors of the bank.
In case a bank or quasi-bank notifies the
BangkoSentral or publicly announces a bank holiday,
or in any manner suspends the payment of its deposit
liabilities continuously for more than thirty (30) days,
the Monetary Board may summarily and without need
for prior hearing close such banking institution and
place it under receivership of the Philippine Deposit
Insurance Corporation.
G.R. No. 184778
SECTION 30. Proceedings in Receivership and
Liquidation.Whenever, upon report of the head of
the supervising or examining department, the
Monetary Board finds that a bank or quasibank:
(a) is unable to pay its liabilities as they become due in
the ordinary course of business: Provided, That this
shall not include inability to pay caused by
extraordinary demands induced by financial panic in
the banking community;
(b) by the BangkoSentral, to meet its liabilities; or
(c) cannot continue in business without involving
probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of
the assets of the institution; in which cases, the
Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business
in the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver of the banking
institution. XXXX
G.R. No. 184778
SECTION 29. Appointment of Conservator.
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the
Monetary Board finds that a bank or a quasi-bank is in
a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to

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MERCANTILE LAW 3

Justice Presbitero J. Velasco, Jr. (2006-2016)

protect the interest of depositors and creditors, the

Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary
to take charge of the assets, liabilities, and the
management thereof, reorganize the management,
collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability.
The conservator shall report and be responsible to the
Monetary Board and shall have the power to overrule
or revoke the actions of the previous management and
board of directors of the bank or quasi-bank.
The conservator should be competent and
knowledgeable in bank operations and management.
The conservatorship shall not exceed one (1) year.
XXXX
G.R. No. 173905
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, viz:
Section 13. Penalty Clause.The failure of an
entrustee to turn over the proceeds of the sale of the
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 Three
hundred fifteen, paragraph one (b) of Act Numbered
Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal
Code. x xx
G.R. No. 173905
PD 115 Does Not Apply
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.
It must be remembered that petitioner was
transparent to Asiatrust from the very beginning that
the subject goods were not being held for sale but
were to be used for the fabrication of steel
communication towers in accordance with his
contracts with Islacom, Smart, and Infocom. In these
contracts, he was commissioned to build, out of the
materials received, steel communication towers, not
to sell them.
G.R. No. 182729
Under the doctrine of "piercing the veil of corporate
fiction," the court looks at the corporation as a mere
collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the
separate juridical personality of the corporation
unifying the group. To disregard the separate juridical
personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be
presumed.
This Court has pierced the corporate veil when it is
used to ward off a judgment credit, to avoid inclusion
of corporate assets as part of the estate of the
decedent, to escape liability arising from a debt, or to
perpetuate fraud and/or confuse legitimate issues
either to promote or to shield unfair objectives or to
cover up an otherwise blatant violation of the
prohibition against forum-shopping. Only in these and
similar instances may the veil be pierced and
disregarded.
G.R. No. 180257
An accommodation party is solidarily liable for the
loans.
Under Section 29 of the Negotiable Instruments Law,
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."
[A]n 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.

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MERCANTILE LAW 4

Justice Presbitero J. Velasco, Jr. (2006-2016)

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.

and who previously duly filed an application for

registration of the same mark in one of those
countries, shall be considered as filed as of the day the
application was first filed in the foreign country.
G.R. No. 209843
Republic Act No. 8293 INTELLECTUAL PROPERTY CODE
OF THE PHILIPPINES

G.R. No. 198660

Section 123. Registrability. - 123.1. A mark cannot be

registered if it:

Section 24 of the Negotiable Instruments Law (NIL):

xxxx

Section 24. Presumption of consideration. Every

negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every
person whose signature appears thereon to have
become a party for value.

(d) Is identical with a registered mark belonging to a

different proprietor or a mark with an earlier filing or
priority date, in respect of:

G.R. No. 198660

(ii) Closely related goods or services, or

Sec. 16 of the NIL which provides that when an

instrument is no longer in the possession of the person
who signed it and it is complete in its terms "a valid
and intentional delivery by him is presumed until the
contrary is proved."

(iii) If it nearly resembles such a mark as to be likely to

deceive or cause confusion.

G.R. No. 209843

Republic Act No. 8293 INTELLECTUAL PROPERTY CODE
OF THE PHILIPPINES
Sec. 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.
G.R. No. 209843
Republic Act No. 8293 INTELLECTUAL PROPERTY CODE
OF THE PHILIPPINES
Sec. 131. Priority Right. 131.1. An application for registration of a mark filed in
the Philippines by a person referred to in Section 3,

(i) The same goods or services, or

G.R. No. 209843

Republic Act No. 8293 INTELLECTUAL PROPERTY CODE
OF THE PHILIPPINES
Sec. 138. Certificates of Registration. A certificate of
registration of a mark shall be prima facie evidence of
the validity of the registration, the registrants
ownership of the mark, and of the registrants
exclusive right to use the same in connection with the
goods or services and those that are related thereto
specified in the certificate.
G.R. No. 209843
Mere uniformity in categorization, by itself, does not
automatically preclude the registration of what
appears to be an identical mark, if that be the case. In
fact, this Court, in a long line of cases, has held that
such circumstance does not necessarily result in any
trademark infringement. The survey of jurisprudence
cited in Mighty Corporation v. E. & J Gallo Winery23 is
enlightening on this point:
(a) in Acoje Mining Co., Inc. vs. Director of Patents, we
ordered the approval of Acoje Minings application for
registration of the trademark LOTUS for its soy sauce
even though Philippine Refining Company had prior
registration and use of such identical mark for its
edible oil which, like soy sauce, also belonged to Class

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MERCANTILE LAW 5

Justice Presbitero J. Velasco, Jr. (2006-2016)

47;
(b) in Philippine Refining Co., Inc. vs. Ng Sam and
Director of Patents, we upheld the Patent Directors
registration of the same trademark CAMIA for Ng
Sams ham under Class 47, despite Philippine Refining
Companys prior trademark registration and actual use
of such mark on its lard, butter, cooking oil (all of
which belonged to Class 47), abrasive detergents,
polishing materials and soaps;
(c) in Hickok Manufacturing Co., Inc. vs. Court of
Appeals and Santos Lim Bun Liong, we dismissed
Hickoks petition to cancel private respondents
HICKOK trademark registration for its Marikina shoes
as against petitioners earlier registration of the same
trademark for handkerchiefs, briefs, belts and wallets.
G.R. No. 184850
EYIS is the true owner because it is the prior and
continuous user of the mark VESPA.
Section 123.1 of the IPC should not be interpreted to
mean that ownership is based upon an earlier filing
date. While RA 8293 removed the previous
requirement of proof of actual use prior to the filing of
an application for registration of a mark, proof of prior
and continuous use is necessary to establish
ownership of a mark. Ownership of a mark or trade
name may be acquired not necessarily by registration
but by adoption and use in trade or commerce.
As between actual use of a mark without registration,
and registration of the mark without actual use
thereof, the former prevails over the latter. Hence,
EYIS is entitled to the registration of the mark in its
name.
G.R. No. 195580
The Grandfather Rule, standing alone, should not be
used to determine the Filipino ownership and control
in a corporation, as it could result in an otherwise
foreign corporation rendered qualified to perform
nationalized or partly nationalized activities.
Hence, it is only when the Control Test is first complied
with that the Grandfather Rule may be applied. Put in
another manner, if the subject corporations Filipino
equity falls below the threshold 60%, the corporation
is immediately considered foreign-owned, in which
case, the need to resort to the Grandfather Rule
disappears. On the other hand, a corporation that
complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino corporation

if there is no doubt as to who has the "beneficial

ownership" and "control" of the corporation. In that
instance, there is no need fora dissection or further
inquiry on the ownership of the corporate
shareholders in both the investing and investee
corporation or the application of the Grandfather Rule.
As a corollary rule, even if the 60-40 Filipino to foreign
equity ratio is apparently met by the subject or
investee corporation, a resort to the Grandfather Rule
is necessary if doubt exists as to the locus of the
"beneficial ownership" and "control." In this case, a
further investigation as to the nationality of the
personalities with the beneficial ownership and control
of the corporate shareholders in both the investing
and investee corporations is necessary.
G.R. No. 218787
Section 45. Ultra vires acts of corporations. - No
corporation under this Code shall possess or exercise
any corporate powers except those conferred by this
Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of
the powers so conferred. (emphasis added)
The test to be applied is whether the act in question is
in direct and immediate furtherance of the
corporation's business, fairly incident to the express
powers and reasonably necessary to their exercise. If
so, the corporation has the power to do it; otherwise,
not.
G.R. No. 208321
Jurisprudence has pronounced that the crossing of a
check means that the check may not be encashed but
only deposited in the bank. As Treasurer, respondent
knew or is at least expected to be aware of and abide
by this basic banking practice and commercial custom.
G.R. No. 178678
Sec. 23 of the Corporation Code contains a provision to
this effect, thus:
Section 23. The board of directors or trustees.Unless
otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from
among the members of the corporation, who shall
hold office for one (1) year until their successors are
elected and qualified.

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MERCANTILE LAW 6

Justice Presbitero J. Velasco, Jr. (2006-2016)

The holdover doctrine has, to be sure, a purpose which

is at once legal as it is practical. It accords validity to
what would otherwise be deemed as dubious
corporate acts and gives continuity to a corporate
enterprise in its relation to outsiders.
G.R. No. 152685
The term "capital" and other terms used to describe
the capital structure of a corporation are of universal
acceptance and their usages have long been
established in jurisprudence. Briefly, capital refers to
the value of the property or assets of a corporation.
The capital subscribed is the total amount of the
capital that persons (subscribers or shareholders) have
agreed to take and pay for, which need not necessarily
by, and can be more than, the par value of the shares.
In fine, it is the amount that the corporation receives,
inclusive of the premiums if any, in consideration of
the original issuance of the shares.
In the case of stock dividends, it is the amount that the
corporation transfers from its surplus profit account to
its capital account. It is the same amount that can be
loosely termed as the "trust fund" of the corporation.
G.R. No. 152685
The "Trust Fund" doctrine considers this subscribed
capital as a trust fund for the payment of the debts of
the corporation, to which the creditors may look for
satisfaction. Until the liquidation of the corporation,
no part of the subscribed capital may be returned or
released to the stockholder (except in the redemption
of redeemable shares) without violating this principle.
Thus, dividends must never impair the subscribed
capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its
own shares using the subscribed capital as the
considerations therefor.

G.R. No. 152685

When stock dividends are distributed, the amount
declared ceases to belong to the corporation but is
distributed among the shareholders. Consequently,
the unrestricted retained earnings of the corporation
are diminished by the amount of the declared dividend
while the stockholders equity is increased.
Furthermore, the actual payment is the cash value
from the unrestricted retained earnings that each
shareholder foregoes for additional stocks/shares
which he would otherwise receive as required by the

Corporation Code to be given to the stockholders

subject to the availability and conditioned on a certain
level of retained earnings.
G.R. No. 152685
Where the unrestricted retained earnings of a
corporation are more than 100% of the paid-in capital
stock, the corporate Board of Directors is mandated to
declare dividends which the shareholders will receive
in cash unless otherwise declared as property or stock
dividends, which in the latter case the stockholders are
forced to forego cash in lieu of property or stocks.
G.R. No. 158262
Section 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 the person negotiating it.
The law presumes that a holder of a negotiable
instrument is a holder thereof in due course.
G.R. No. 158262
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 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, 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,

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MERCANTILE LAW 7

Justice Presbitero J. Velasco, Jr. (2006-2016)

petitioners are liable to respondent corporation for

the payment of the amount stated in the instrument.
G.R. No. 158262
It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it
may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created
by law for convenience and to promote justice. So,
when the notion of separate juridical personality is
used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to
defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of
corporate fiction pierced. This is true likewise when
the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation.
G.R. No. 158262
The test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock
control, but complete domination, not only of finances
but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will
or existence of its own;
2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or dishonest
and unjust acts in contravention of plaintiffs legal
rights; and

paragraph of Sec. 23 of the Corporation Code, it is of

common knowledge and practice that the board of
directors is not directly engaged or charged with the
running of the recurring business affairs of the
corporation. Depending on the powers granted to
them by the Articles of Incorporation, the members of
the board generally do not concern themselves with
the day-to-day affairs of the corporation, except those
corporate officers who are charged with running the
business of the corporation and are concomitantly
members of the board, like the President. Section 25
of the Corporation Code requires the president of a
corporation to be also a member of the board of
directors.
Thus, the application of the legal maxim expressio
unius est exclusio alterius, which means the mention
of one thing implies the exclusion of another thing not
mentioned. If a statute enumerates the thing upon
which it is to operate, everything else must necessarily
and by implication be excluded from its operation and
effect. The fourth officer in the enumerated list is the
catch-all "such other officer charged with the
management of the business affairs" of the
corporation or juridical entity which is a factual issue
which must be alleged and supported by evidence.
Evidently, petitioner, as President, who manages the
business affairs of Omni, can be held liable for
probable violations by Omni of BP 33. As to the other
petitioners, unless otherwise shown that they are
situated under the catch-all "such other officer
charged with the management of the business affairs,"
they may not be held liable under BP 33 for probable
violations.

3. The aforesaid control and breach of duty must

proximately cause the injury or unjust loss complained
of.
G.R. No. 165571
There are two kinds of insolvency contemplated:
(1) actual insolvency, i.e., the corporations assets are
not enough to cover its liabilities; and
(2) technical insolvency, i.e., the corporation has
enough assets but it foresees its inability to pay its
obligations for more than one year.
G.R. No. 182147
Even if the corporate powers of a corporation are
reposed in the board of directors under the first
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