1
MERCANTILE LAW JURISPRUDENCE Filipinas Broadcasting Network, Inc. vs. Ago Medical
CORPORATION LAW
Separate Corporate Personality Rule
Pioneer Insurance Surety Corp. vs. Morning Star
Travel and Tours., et al., GR No. 198436, July 8, 2015
As a general rule, a corporation has a separate
and distinct personality form those who represent it. Its
officers are solidarily liable only when exceptional
circumstances exist, such as cases enumerated in Sec. 31
of the Corp. Code.
On the Authority to Act in Behalf of the Corporation
Phil. Numismatic and Antiquarian Society vs. Genesis
Aquino, et al., GR No. 206617, January 30, 2017
Sec. 23 in relation to Sec. 25 of the Corp. Code,
clearly enunciates that all corporate powers are
exercised, all business conducted, and all properties
controlled by the Board of Directors.
Corporate Personality
PNAS vs. Aquino
A corporation has a separate and distinct
personality from its directors and officers and can only
exercise its corporate powers through the BOD. Thus, it
is clear that an individual corporate officer cannot solely
exercise any corporate power pertaining to the
corporation without authority from the BOD.
On the Powers of a Corporation vs. Ultra Vires Acts of a
Corporation
Magallanes Watercraft Association Inc. et al. vs.
Margarito Auguis, et al, GR No. 211485, May 30,
2016
The fact alone that neither the AOI nor the by-
laws of MWAI granted its Board the authority to
discipline members does not make the suspension of
rights and privileges of the respondent ultra vires.
In NPC vs. Vera, the Court stressed that an act
might be considered within corporate powers, even if it
was not among the express powers, if the same served
the corporate ends.
Award of Moral Damages
Ren Transport Corp. and Reynaldo Pazcoguin III vs.
NLRC, et. al., GR No. 188020, June 27, 2016
Indeed, a corporation is not entitled to moral
damages. Being a mere artificial being, it is incapable of
experiencing physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish, or
moral shock.
ABS-CBN Broadcasting Corp. vs. CA, et. al. GR No
128690, January 21, 1999
The award of moral damages cannot be granted
in favor of a corporation because, being an artificial
person and having existence only in legal contemplation,
it has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental
anguish which can be experienced only by one having a
nervous system.
and Educational Center, et al. GR No 141994, January
17, 2005
A corporation may have a good reputation
which, if besmirched, may also be a ground for the
award of moral damages is an obiter dictum.
Therefore, a juridical person such as a
corporation can validly complain for libel or any other
form of defamation and claim for moral damages.
Reason for difference: In the ABS-CBN and Ren Transport
case, there was no attendant bad faith. In Filipinas
Broadcasting case, bad faith was established. It must be
remembered that the grant is not automatic. Bad faith
must be established.
Result: Doctrine in the Filipinas Broadcasting case was
not abandoned; application of the doctrine was merely
clarified.
On the Liability of Corporate Officers
Valentin S. Lozada vs. Magtanggol Mendoza, GR No
196134, October 12, 2016
Obligations incurred as a result of the acts of the
directors and officers as the corporate agents are not
their personal liability but the direct responsibility of the
corporation they represent.
As a general rule, corporate officers are not held
solidarily liable with the corporation for separation pay
because the corporation is invested by law with a
personality separate and distinct from those of the
persons composing it as well as from that of any other
legal entity to which it may be related.
To hold a director or officer personally liable for
corporate obligations, two requisites must concur:
(1) The complaint must allege that the director or
officer assented to the patently unlawful acts of
the corporation, or that the director or officer
was guilty of gross negligence or bad faith; and
(2) There must be proof that the director or officer
acted in bad faith.
On Derivative Suits
BSP vs. Vicente Jose Campa, Jr., et. al. Gr. No.
185979, March 16, 2016
Not every suit filed on behalf of the corporation
is a derivative suit. For a derivative suit to prosper, the
minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing
on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated
who may wish to join him in the suit.
At the outset, the rule on derivative suits
presupposes that the corporation is the injured party and
the individual stockholder (nominal party) may file a
derivative suit on behalf of the corporation to protect or
vindicate corporate rights whenever the officials of the
corporation refuse to sue, or are the ones to be sued, or
hold control of the corporation.
On the Right to Inspect Corporate Books
Phil. Associated Smelting Corp. vs. Pablito Lim, et. al.,
GR No 172948, October 5, 2016

An action for injunction filed by a corporation
generally does not lie to prevent the enforcement by a
stockholder of his or her right to inspection.
A writ of preliminary injunction filed by a
corporation is generally unavailable to prevent
stockholders from exercising their right to inspection.
Specifically, stockholders cannot be prevented from
gaining access to the:
(1) Records of all business transactions of the
corporation; and
(2) Minutes of any meeting of the stockholders or
the BOD, including their various committees and
subcommittees.
The presumption is that the corporation should
provide access. If it has basis for denial, then the
corporation shoulders the risks of being sued and of
successfully raising the proper defenses. The corporation
cannot immediately deploy its resources—part of which
is owned by the requesting stockholder—to put the
owner of the defensive.
The corporation still carries the burden of proving:
(1) That the stockholder has improperly used
information before;
(2) Lack of good faith; or
(3) Lack of legitimate purpose.
Who can exercise the Right to Inspect
Terelay Investment and Devt. Corp. vs. Cecilia
Teresita Yulo, GR No. 160924, August 5, 2015
(Bersamin)
The Corporation Code has granted to all
stockholders the right to inspect the corporate books
and records, and in so doing has not required any
specific amount of interest for the exercise of the right to
inspect.
Dissolution of Corporation
Alabang Dev. Corp. vs. Alabang Hills Village Asso., et.
al., GR No 187456, June 2, 2014
Petitioner filed its complaint not only after its
corporate existence was terminated but also beyond the
three-year period allowed by Section 122 of the Corp.
Code. Thus, it is clear that at the time of the filing of the
subject complaint petitioner lacks the capacity to sue as
a corporation.
To allow petitioner to initiate the subject
complaint and pursue it until final judgment, on the
ground that such complaint was filed for the sole
purpose of liquidating its assets, could be to circumvent
the provisions of Section 122 of the Corp. Code.
Carlos Gelano et al vs. CA, et al., GR No L-39050,
February 24, 1981
Under Section 77 of the Corporation law, when
the corporate existence is terminated in any legal
manner, the corporation shall nevertheless continue as a
body corporate for three years after the time when it
would have been dissolved.
It is our view that “any litigation filed by or
against it instituted within the period, but which could
not be terminated, must necessarily prolong that period
2
until the final termination of said litigation as otherwise
corporations in liquidation would lose what should justly
belong to them or would be exempt form the payment
of just obligations through a mere technicality,
something that courts should prevent”.
Reason for Difference: In the Gelano case the suit was
filed when the corporation was still subsisting. In the
Alabang Dev. case, the suit was filed long after the
corporation was dissolved.
Result: Doctrine in Gelano case was not abandoned;
application of the doctrine was merely clarified.
On the issue of Foreign Corporation
James Ient and Maharlika Schulze vs. Tullett Prebon
(Phils.) Inc. GR No 189158, January 11, 2017
A foreign corporation, previously doing business
in the Philippines without license, has the capacity to sue
in the Philippines courts when it had already acquired
the necessary license at the time of the filing of the
complaints.
(SMC: License is not necessary at the time the
transaction was done. It is only upon the filing of the
case that the license should be present for it to file an
action before the court)
On the Service of Summons on a Foreign Corporation
Luzon Iron Dev. Group Corp, et al., vs. Bridestone
Mining and Dev. Corp. et al., GR No 220546,
December 7, 2016
When the defendant is a foreign juridical entity, service
of summons may be made upon:
(1) Its resident agent designated in accordance with
law for that purpose;
(2) The government official designated by law to
receive summons if the corporation does not
have a resident agent; or
(3) Any of the corporation’s officers or agents within
the Philippines.
On the appointive positions other than Corporate
Officers
March II Marketing vs. Joson, GR No. 171993,
December 12, 2011
Though the board may create appointive
positions other than the positions of corporate officers,
the persons occupying such position cannot be viewed
as corporate officers under Sec. 25 of the Corporation
Code.
NEGOTIABLE INSTRUMENTS LAW
On the Requisites for the Negotiability of Instruments
Rodrigo Rivera vs. Sps. Salvador and Violeta Chua,
GR No. 184458, January 14, 2015
The elements of a negotiable instrument are:
(1) It must be in writing and signed by the maker or
drawer;
(2) Must contain an unconditional promise or order
to pay a sum certain in money;
(3) Must be payable on demand, or at a fixed or
determinable future time;

(4) Must be payable to order or to bearer; and
(5) Where an instrument is addressed to a drawee,
he must be named or otherwise indicated
therein with reasonable certainty. (Sec. 1, NIL)
 First four elements – Promissory Note
 All five elements – Bill of Exchange
Concept of a Negotiable Promissory Note
Rodrigo Rivera vs. Sps. Salvador and Violeta Chua,
GR No. 184458, January 14, 2015
A negotiable promissory note is an
unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum
certain in money to, order or to bearer. Were a note is
drawn to the maker’s own order, it is not complete until
indorsed by him. (citing Sec. 184, NIL)
On the Rule on Incomplete but Delivered Instrument
Alvin Patrimonio vs. Napoleon Gutierrez and Octavio
Marasigan III, GR No 187769, June 4, 2014
Under this rule (Sec 14), if the maker of 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. (Holder
is NOT a HIDC)
However, if the holder in due course, there is a
conclusive presumption that the authority to fill it up had
been given and that the same was not in excess of
authority.
A holder in due course is a holder who has taken the
instrument under the following conditions:
(1) That it is complete and regulate upon its face;
(2) 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;
(3) That he took it in good faith and for value; and
(4) 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.
(citing Sec. 52, NIL)
3
On the Rule on Complete but Delivered
Manuel Ubas, Sr. vs. Wilson Chua, GR No 215910,
February 6, 2017
Section 16 of the NIL provides that when an
instrument is no longer in the possession of the person
who signed it and it is complete in its terms, “a valid and
intentional delivery by him is presumed until the contrary
is proved.”
(SMC: In the concept of Sec 14 (Incomplete but
Delivered) and Sec 16 (Complete but Undelivered), the
concept of holder in due course is important (relate with
Sec. 52). If the Holder is not a HIDC, both Sec 14 and Sec.
16 will not make the maker liable.
Sec. 15 (Incomplete and Undelivered), regardless if the
holder is HIDC or not HIDC, the maker cannot be held
liable.)
On the Issue of Consideration
Manuel Ubas, Sr. vs. Wilson Chua, GR No 215910,
February 6, 2017
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 thereto for value. (Sec 24, NIL)
It is presumed that the subject checks were
issued for a valid consideration, which therefore,
dispensed with the necessity of any documentary
evidence to support petitioner’s monetary claim.
Unless otherwise rebutted, the legal
presumption of consideration under Section 24 of the
NIL stands. Verily, the vital function of legal presumption
is to dispense with the need for proof.
On the issue of Manager’s Check
RCBC Savings Bank vs. Noel M. Odrada, GR No.
219037, October 19, 2016 (Carpio)
Jurisprudence defines a manager’s check as a
check drawn by the bank’s manager upon the bank itself
and accepted in advance by the bank by the act of its
issuance. It is really the bank’s own check and may be
treated as a promissory note with the bank as its maker.
Consequently, upon its purchase, the check
becomes the primary obligation of the bank and
constitutes its written promise to pay the holder upon
demand. It is similar to a cahier’s check both as to effect
and use in that the bank represents that the check is
drawn against sufficient funds.
While the Court consistently held that a
manager’s check is automatically accepted, a holder
other than a HIDC is still subject to defenses.
As a general rule, the drawee bank is not liable
until it accepts. Prior to a bill’s acceptance, no
contractual relation exists between the holder and the
drawee. Acceptance, therefore, created a privity of
contract between the holder and the drawee so much so
that the latter, once it accepts, becomes the party
primarily liable on the instrument. Accordingly,
acceptance is the act which triggers the operation of the
liabilities of the drawee (acceptor) under Sec 62 of the
NIL.

Thus, once he accepts, the drawee admits the following:
(1) Existence of the drawer;
(2) Genuineness of the drawer’s signature;
(3) Capacity and authority of the drawer to draw the
instrument; and
(4) Existence of the payee and his then capacity to
endorse.
The court has ruled that the issuing bank could
validly refuse payment if the holder was not a HIDC.
Unequivocally, the court declared: “the holder of
a cashier’s check who is not a HIDC cannot enforce such
check against the issuing bank which dishonors the
same”.
Liability for Manager’s Check
BPI vs. Gregorio C. Roxas, GR No. 157833, October
15, 2007
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. The Court took judicial
notice of the “well-known and accepted practice in the
business sector that cashier’s check is deemed as cash.”
This is because the mere issuance of a cashier’s check is
considered acceptance thereof.
Reason for difference: In the Roxas case, the holder of
the check is a HIDC. In the case of Odrada, holder is in
bad faith.
Result: Doctrine of Roxas case was not abandoned;
application of the doctrine was merely clarified.
On the Discharge of an Instrument
Benjamin Evangelista vs. Screenex, Inc. et al, GR No
211564, November 20, 2017
A check is discharged by any other act which will
discharge a simple contract for the payment of money.
A negotiable instrument is discharged:
(1) By payment in due course by or on behalf of the
principal debtor;
(2) By payment in due course by the party;
(3) By the intentional cancellation thereof by the
holder;
(4) By any other act which will discharge a simple
contract for the payment of money; or
(5) When the principal debtor becomes the holder
of the instrument at or after maturity in his own
right. (Sec. 119, NIL)
A check therefore is subject to prescription of
actions upon a written contract.
The cause of action on the checks has become
stale, hence, time-barred. No written extrajudicial or
judicial demand was shown to have been made within 10
years which could have tolled the period. Prescription
has indeed set in.
4
On the Notice of Dishonor; BP 22
John Dennis Chua vs. People, et. al, GR No 195248,
November 22, 2017; Jesusa T. Dela Cruz vs. People,
GR No. 163494, August 3, 2016
It must be borne in mind that it is not enough
for the prosecution to prove that a notice of dishonor
was sent to the accused. The prosecution must also
prove actual receipt of said notice, because the fact of
service provided for in the law is reckoned from receipt
of such notice of dishonor of the accused.
Comparative Analysis of Jurisprudence
In Negotiable Instruments Law
Issuance of Blank Checks: What is the liability of the
drawer on a pre-signed check?
Bank of America & SA vs. Phil. Racing Club, GR No.
150228, July 30, 2009
Yes, drawer is liable. Drawer is liable for 40% of
the value of the check.
The practice of signing checks in blank whenever
its authorized bank signatories would travel abroad was
a dangerous policy especially if there are no appropriate
safeguards or internal controls to prevent the pre-signed
blank checks from falling into the hands of unscrupulous
individuals.
Following established jurisprudential precedents,
we believe the allocation of 60% of the actual damages
involved in this case to petitioner is proper under the
premises. Respondent should, in light of its contributory
negligence, bear 40% of its own loss.
Alvin Patrimonio vs. Napoleon Gutierrez and Octavio
Marasigan III, GR No 187769, June 4, 2014
(SMC: In this case, Marasigan knew that Patrimonio
issued a check in favor of Gutierrez’ to pay off his
obligation, thus, Marasigan is not a HIDC. Patrimonio
cannot be held liable because there is a breach of his
instruction/authority and that Marasigan was not a
HIDC.)
Patrimonio gave Gutierrez pre-signed check to
be used in the business provided that he could only use
them upon his approval. His instruction could not be any
closer as Gutierrez’ authority was limited to the use of
the checks for the operation of their business.
Notably, there is a clear violation of Patrimonio’s
instruction to use the checks for the expenses of Slam
Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the
authority given by the petitioner.
Considering that Marasigan is not a HIDC,
Patrimonio can validly set up the personal defense that
the blanks were not filled up in accordance with the
authority he gave. Consequently, Marasigan has nor right
to enforce payment against Patrimonio and the latter
cannot be obliged to pay the face value of the check.
Case Comparison: In Bank of America case, the Court
ruled that the drawer must bear 40% of their own loss.

While in Patrimonio case, the Court did not hold the
drawer liable for the pre-signed check.
In Bank of America case, the court ruled that, in
light of its contributory negligence, the drawer must bear
40% of its own loss. In Patrimonio case, the drawer gave
specific instruction that the pre-signed checks should be
used only upon his prior approval. Moreover, the payee
was not a HIDC.
Conclusion: Doctrine in the Bank of America case was
not abandoned by the ruling in the Patrimonio case. The
application of the doctrine in the Bank of America Case
was merely clarified.
Liability for Manager’s Check: Can the issuing bank
refuse the payment of the manager’s check that it
issued?
BPI vs. Gregorio C. Roxas, GR No. 157833, October
15, 2007
No. The issuing bank cannot refuse the payment
of the manager’s check that it issued. (General Rule)
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. The Court took judicial
notice of the “well-known and accepted practice in the
business sector that cashier’s check is deemed as cash.”
This is because the mere issuance of a cashier’s check is
considered acceptance thereof.
RCBC Savings Bank vs. Noel M. Odrada, GR No.
219037, October 19, 2016 (Carpio)
Yes. The issuing bank can refuse the payment of
the manager’s check that it issued.
RCBC cannot be made liable because it acted in
good faith in carrying out the stop payment order of Lim
who presented to RCBC the complaint letter to Odrada
when Lim issued the stop payment order.
Meanwhile, Odrada attempted to deposit the
manager’s checks a day after Lim had informed him that
there was a serious problem with the Montero. Instead
of addressing the issues, Odrada decided to deposit the
manager’s checks. Odrada’s actions do not amount to
good faith.
Case Comparison: In the Roxas case, the court ruled that
the bank is liable for the check issued. However, in the
Odrada case, bank cannot be held liable.
Ratio Decidendi: In the Roxas case, the holder of the
check is a HIDC while in Odrada, the holder was deemed
not a HIDC since he acquired the instrument in bad faith.
Conclusion: The Doctrine in Roxas case was not
abandoned in the Odrada Case but was merely clarified.
Notice of Dishonor: Will the sending of notice of
dishonor of check via registered mail enough?
Amada Resterio vs. People, GR No 177436,
September 24, 2012
5
No. The sending of the notice of dishonor of
check via registered mail is not enough to establish
notice of dishonor of a check.
The mere presentation of registry return receipts
that cover registered mail was not sufficient to establish
that written notices of dishonor had been sent to or
served on issuers of checks.
The authentication by affidavit of the mailers
was necessary in order for service by registered mail to
be regarded as clear proof of the giving of notices of
dishonor and to predicate the existence of the second
element of the offense.
Ma. Rosario Campos vs. People, GR No 187401,
September 17, 2014
Yes. The sending of notice of dishonor of check
via registered mail is enough.
The court considers Campos’ defense that she
exerted efforts to reach an amicable settlement with her
creditor after the checks which she issued were
dishonored by the drawee bank, BPI Family Savings
Bank.
Campos categorically declared in her petition
that, “she has in her favor evidence to show that she was
in good faith and indeed made arrangements for the
payment of her obligations subsequently after the
dishonor of the checks.” Clearly, this statement was a
confirmation that she actually received the required
notice of dishonor from FWCC.
Ratio Decidendi: In Resterio case, the service of notice
of dishonor was not admitted. In the Campos case, there
was an implied admission that the service of notice of
dishonor was received by the accused.
Conclusion: The ruling in the Resterio case was not
abandoned by the Campos case but merely clarified.
INSURANCE LAW
On the issue of Designation of Beneficiary
Is the legitimate family automatically entitled to the
proceeds of the life insurance of the deceased insured
because of a disqualified beneficiary?
Heirs of Maramag
No. The law provides that the insurance
proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the
policy. Thus, unless designated as beneficiary, they will
not be entitled to the proceeds of the life insurance
policy. (Sec. 53, RA 10607)
On the issue of when Insurable Interest should exist
An interest in property insured must exist when
the insurance takes effect, and when the loss occurs, but
need not exist in the meantime; and interest in the life or
health of the person insured must exist when the
insurance takes effect, but need not exist thereafter or
when the loss occurs. (Sec 19, RA 10607)
On the Issue of Incontestability Period
Sun Life Insurance Canada (Phils.) Inc. vs. Ma. Daisy’s
Sibya, et al, GR No 211212, June 8, 2016

The Court held that if the insured dies within the
two-year contestability period, the insurer is bound to
make good its obligation under the policy, regardless of
the presence or lack of concealment or
misrepresentation.
Section 48 serves a noble purpose, as it
regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years – from
the effectivity of a life insurance contract and while the
insured is alive – to discover or prove that the policy is
void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the
insured or his agent.
After the two-year period lapses, or when the
insured dies within the period, the insurer must make
good on the policy, even though the policy was obtained
by fraud, concealment or misrepresentation.
This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be
penalized, for suck recklessness and lack of
discrimination ultimately work to the detriment of bona
fide takers of insurance and the public in general. (citing
Manila Bankers Life Insurance Corp. vs. Aban, 715 Phil.
404, (2013))
Contestability Clause
Ma. Lourdes Florendo vs. Philam Plans, Inc. et al. Gr
No 186983, February 22, 2012
The incontestability clause precludes the insurer
from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding
the health of the insured after a year of its issuance.
Since Manuel died on the eleventh month
following the issuance of his plan, the one-year
incontestability period has not yet set in. Consequently,
Philam Plans was not barred from questioning Lourdes’
entitlement to the benefits of her husband’s pension
plan.
Sun Life Insurance Canada (Phils.) Inc. vs. Ma. Daisy’s
Sibya, et al, GR No 211212, June 8, 2016
If the insured dies within the two-year
contestability period, the insurer is bound to make good
its obligation under the policy, regardless of the
presence or lack of concealment or misrepresentation.
Indeed, the intent to defraud on the part of the
insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the
insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer.
Reason for difference: In the Florendo case, insurer can
contest only during the contestability period. This was
not allowed in the Sibya Case.
Result: Doctrine in Aban and Sibya cases ABANDONED
Florendo rule.
Mortgage Redemption Insurance
Paramount Life & General Insurance Corp., vs. Cherry
Castro, et al, GR No 195728, April 19, 2016
6
Mortgage Redemption Insurance is a device for
the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to
enter into such form of contract so that in the event of
the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from
such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation.
In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of
death, the mortgage obligation will be extinguished by
the application of the insurance proceeds to the
mortgage indebtedness.
On the issue of Payment of Premium
Jaime T. Gaisano vs. Development Insurance and
Surety Corp., GR No 190702, February 27, 2017
The claim that the parties agreed that the
insurance contract is immediately effective upon
issuance despite non-payment of the premiums cannot
be sustained. Even if there is a waiver of pre-payment of
premiums, that in itself does not become an exception to
Section 77, unless the insured clearly gave a credit term
or extension.
The rule otherwise would render nugatory the
requirement in Section 77 that “notwithstanding any
agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been
paid, x x x”
The policy states that the insured’s application
for the insurance is subject to the payment of the
premium. There is no waiver of pre-payment, in full or in
installment, of the premiums under the policy.
Consequently, the insurer cannot be placed in estoppel.
On the issue of Levy of Securities posted by Insurance
Companies:
Capital Insurance and Surety Co., Inc vs. Del Monte
Motor Works Inc., GR No 159979, December 9, 2015
Are the securities deposited by the insurance
company pursuant to Section 203 of the Insurance Code
subject of levy by a creditor?
No. The Insurance Code has vested the Office of
Insurance Commission with both regulatory and
adjudicatory authority over insurance matters
Included in the above regulatory responsibilities
is the duty to hold the security deposits under Sec 191
and 203 of the Code, for the benefit and security of all
policy holders.
The law specifically confers custody over the
securities upon the commissioner, with whom these
investments are required to be deposited. An implied
trust is created by law for the benefit of all claimants
under subsisting insurance contracts issues by the
insurance company.
As the officer vested with custody of the security
deposit, the insurance commissioner is in the best
position to determine if and when it may be released
without prejudicing the rights of other policy holders.
Before allowing the withdrawal or release of
deposit, the commissioner must be satisfied that the

conditions contemplated by the law are met and all
policy holders protected.
On the issue of the Right of Subrogation
Equitable Insurance Corp. vs. Transmodal
International, Inc. GR No 223592, August 7, 2017
The right of subrogation accrues simply upon
payment by the insurance company of the insurance
claim. Hence, presentation in evidence of the marine
insurance policy is not indispensable before the insurer
may recover from the common carrier the insured value
of the lost cargo in the exercise of its subrogatory rights.
The subrogation receipt, by itself, was held
sufficient to establish not only the relationship between
the insurer and consignee, but also the amount paid to
settle the insurance claim. The presentation of the
insurance contract was deemed not fatal to the insurer’s
cause of action.
Comparative Analysis of Jurisprudence
In Insurance Law
Contestability Clause: Will the death of the insured
within the contestability period entitle the insurer to
rescind the contract of insurance?
Ma. Lourdes Florendo vs. Philam Plans, Inc. et al. Gr
No 186983, February 22, 2012
Yes. The death of the insured within the
contestability period entitles the insurer to rescind the
contract of insurance.
The incontestability clause precludes the insurer
from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding
the health of the insured after a year of its issuance.
Since Manuel died on the eleventh month
following the issuance of his plan, the one-year
incontestability period has not yet set in. Consequently,
Philam Plans was not barred from questioning Lourdes’
entitlement to the benefits of her husband’s pension
plan.
Sun Life Insurance Canada (Phils.) Inc. vs. Ma. Daisy’s
Sibya, et al, GR No 211212, June 8, 2016
No. The Insurer is not entitled to rescind the
contract of insurance even if the death of the insured is
within the contestability period.
If the insured dies within the two-year
contestability period, the insurer is bound to make good
its obligation under the policy, regardless of the
presence or lack of concealment or misrepresentation.
Indeed, the intent to defraud on the part of the
insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the
insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer.
Case Comparison: In the Florendo case, the court ruled
that the insurer can rescind the life insurance contract, if
the insured dies within the contestability period.
In the Sibya case, the court did not allow the
insurer to rescind the life insurance policy, even if the
insured died within the contestability period.
7
Ratio Decidendi: In the Florendo case, the insured died
within the incontestability period. As such the insurer
was not barred from questioning entitlement of the
beneficiary.
In the case of Sibya, the Court ruled that if the
insured dies within the two-year contestability period,
the insurer is bound to make good its obligation under
the policy, regardless of the presence of lack of
concealment or misrepresentation.
Conclusion: The ruling in the Sibya case directly
contradicted the ruling in the Florendo case. Hence, the
Sibya case is deemed to have set aside the doctrine laid
down in the Florendo case.
Insurance Premium (Sec 77): Will the non-payment of
premium be a valid ground to deny a claim under a
property insurance policy?
Pedro Arce vs. Capital Insurance & Surety Co., Inc. GR
No. L-28501, September 20, 1982
Yes. The non-payment of premium is a valid
ground to deny a claim under a property insurance
policy.
It is obvious from both the Insurance Act, as
amended, and the stipulation of parties that times is of
the essence in respect to the payment of the insurance
premium so that if it is not paid the contract does not
take effect unless there is still another stipulation to the
contrary.
In the instant case, the insured was given a grace
period to pay the premium but the period having
expired with no payment made, he cannot insist that th
company is nonetheless obligated to him.
Unless the premium is paid, there is no
insurance. The insured’s policy ceased to have effect
when he failed to pay the premium.
UCPB General Insurance Co., Inc. vs. Masagana
Telamart, Inc., GR No. 137172, April 4, 2001 (Davide)
No. The non-payment of premium is not a valid
ground to deny a claim under a property insurance
policy.
Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are
not paid, but does not expressly prohibited an
agreement granting credit-extension, and such an
agreement is not contrary to morals, good customs,
public order, or public policy. So is an understanding to
allow insured to pay premiums in installments not so
proscribed.
Moreover, there is nothing in Section 77 which
prohibits the parties in an insurance contract to provide
a credit term within which to pay the premiums.
That agreement is not against the law, morals,
good customs, public order, or public policy. The
agreement binds the parties.
Jaime T. Gaisano vs. Development Insurance and
Surety Corp., GR No 190702, February 27, 2017
Yes, the non-payment of a premium is a valid
ground to deny a claim under a property insurance
policy.

Just like any other contract, it requires a cause or
consideration. The consideration is the premium, which
must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse
and be forfeited by its own terms.
The insurer must maintain a legal reserve fund to
meet its contingent obligations to the public, hence, the
imperative need for its prompt payment and full
satisfaction.
It must be emphasized here that all actuarial
calculations and carious tabulations of probabilities of
losses under the risk insured against are based on the
sound hypothesis of prompt payment of premiums.
Upon this bedrock insurance firms are enabled
to offer the assurance of security to the public at
favorable rates.
Thus, the insured is not entitled to the insurance
proceeds because no insurance became effective for lack
of premium payment.
Case Comparison: In Arce and Gaisano case, the court
did not allow the insurance claim to prosper due to non-
payment of premium.
In the Masagana Telemart case, the court
allowed in the insurance claim to prosper despite the
non-payment of premium due at the time of happening
of the risk insured against.
Ratio Decidendi: In Arce and Gaisano case, it was ruled
that unless the premium is paid, there is no insurance.
The insured’s policy ceased to have effect when he failed
to pay the premium.
In the case of Masagana Telamart, the court
ruled that there is nothing in Section 77 which prohibits
the parties in an insurance contract to provide a credit
term within which to pay the premiums.
Conclusion: Doctrine in the Arce case was not
abandoned by the ruling in the Masagana Telemart case
nor was the latter case abandoned by the Gaisano case.
The application of the rule was merely clarified.
TRANSPORTATION LAW
Contract of Carriage; Common Carriers
Sps. Jesus and Elizabeth Fernando vs. Northwest
Airlines, Inc., GR No. 212038, February 8, 2017
A contract of carriage is defined as one whereby
a certain person or association of persons obligate
themselves to transport persons, things, or goods from
one place to another for a fixed price.
Under Art 1732 of the Civil Code, “persons,
corporation, firms, or associations engaged in the
business of carrying or transporting passengers or good
or both, by land, water, or air, for compensation, offering
their services to the public” is called common carrier.
Art 1733 of the Civil Code provides that common
carriers, from the nature of their business and for
reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by
them, according to all the circumstances of each case.
Art 1755 of the Civil Code states that a common
carrier is bound to carry the passengers safely as far as
8
human care and foresight can provide, using the utmost
diligence of a very cautious persons, with due regard for
all circumstances.
Passengers do not contract merely for
transportation. They have a right to eb treated by the
carrier’s employees with kindness, respect, courtesy and
due consideration. They are entitled to be protected
against personal misconduct, injurious language,
indignities, and abuses from such employees. So it is,
that any rule or discourteous conduct on the part of
employees towards a passenger gives the latter an
action for damages against the carrier.
On the liability of Common Carriers for Fortuitous Events
Sulpicio Lines, Inc. vs. Napoleon Sesante, et al., GR
No. 172682, July 27, 2016
A common carrier may be relieved of any liability
from a fortuitous event pursuant to Art 1174 of the Civil
Code. But while it may free a common carrier from
liability, the provision still requires exclusion of human
agency from the cause of injury or loss.
For a common carrier to be absolved from
liability in case of force majeure, it is not enough that the
accident was caused by the fortuitous event. The
common carrier must still prove that it did not contribute
to the occurrence of the incident due to its own or its
employees’ negligence.
The rule that the common carrier is always
responsible for the passenger’s baggage during the
voyage needs to be emphasized. Art 1754 of the Civil
Code does not exempt the common carrier from liability
in case of loss, but only highlights the degree of care
required depending on who has the custody of the
belongings.
Hence, the law required the common carrier the
same diligence as the hotel-keepers in case the baggage
remains with the passenger; otherwise, extraordinary
diligence must be exercised.
On the liability of Common Carrier in Case of Hijacking
Torres-Madrid Brokerage, Inc. vs. FEB Mitsui Marine
Ins. Co. Inc et al., GR No 194121, July 11, 2016
A common carrier should be held responsible for
the loss, destruction, or deterioration of the goods it
transports unless it results from:
(1) Flood, storm, earthquake, lightning, or other
natural disaster or calamity;
(2) Act of public enemy in war, whether
international or civil;
(3) Act of omission of the shipper or owner of the
goods;
(4) The character of the goods or defects in the
packing or in the containers;
(5) Order or act of a competent public authority.
For all other cases - such as theft or robbery - a
common carrier is presumed to have been at fault or to
have acted negligently, unless it can prove that it
observed extraordinary diligence.
Simply put, the theft or the robbery of the goods
is not considered a fortuitous event or a force majeure.
Nevertheless, a common carrier may absolve
itself of liability for a resulting loss:
 9

(1) If it proves that it exercised extraordinary
diligence in transporting and safekeeping the
goods; or
(2) If it stipulated with the shipper/owner of the
goods to limit its liability for the loss,
destruction, or deterioration of the goods to a
degree less than extraordinary diligence.
Since the relationship of an arrastre operator
and a consignee is akin to that between a
warehouseman and depositor, then, in instances when
the consignee claims any loss, the burden of proof is on
the arrastre operator to show that it complied with the
obligations to deliver the goods and that the losses were
not due to its negligence or that of its employees.

Liability of Common Carrier for Death of Passenger due

to act of a Co-passenger BANKING LAWS
GV Florida Transport Inc vs. Heirs of Romeo Battung,
JR., GR No 208802, October 14, 2015 Power of the BSP to engaged the services of a lawyer
A common carrier is responsible for injurires BSP vs. Feliciano P. Legaspi, GR No 205966, March 2,
suffered by a passenger on account of the willful acts or 2016
negligence of other passengers or of strangers, if the Under RA 7653, or the New Central Bank Act, the
common carrier’s employees through the exercise of the BSP Governor is authorized to represent the BSP, either
diligence of a good father of a family could have personally or through counsel, including private counsel,
prevented or stopped the act or omission. (Art 1763) as may be authorized by the Monetary Board, in any
Common carriers should be given sufficient legal proceedings, action or specialized legal studies.
leeway in assuming that the passengers they take in will Under the same law, the BSP Governor may also
not bring anything that would prove dangerous to delegate his power to represent the BSP to other officers
himself, as well as his co-passengers, unless there is upon his own responsibility.
something that will indicate that a more stringent Therefore, in cases involving the BSP, the MB
inspection should be made. may authorize the BSP Governor to represent it
personally or through counsel, even a private counsel,
On Limited Liability Rule and the authority to represent the BSP may be delegated
Phil-Nippon Kyosi, Corp. vs. Rosalia T. Gudelosao, et to any of its officers.
al, GR No 181375, July 13, 2016
The civil liability incurred by the shipowners shall
be understood as limited to the value of the vessel with
all its appurtenances and freightage earned during the
voyage. (Art. 837, Code of Commerce)
The limited liability rule is not absolute and is
without exceptions. It does not apply in cases:
(1) Where the injury or death to a passenger is due
either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the
captain;
(2) Where the vessel is insured; and
(3) In workmen’s compensation claims.

Bill of Lading
Designer Baskets, Inc. vs Air Sea Transport, Inc., et al.
GR No 184513, March 9, 2016
A carrier is allowed by law to release the goods
to the consignee even without the latter’s surrender of
the bill of lading.
The general rule is that upon receipt of the
goods, the consignee surrenders the bill of lading to the
carrier and their respective obligations are considered
canceled. The law, however, provides two exceptions
when the goods may be released without the surrender
of the bill of lading because the consignee can no longer
return it.
The exceptions are when the bill of lading gets
lost or for other cause. In wither case, the consignee
must issue a receipt to the carrier upon the release of the
goods. Such receipt shall produce the same effect as the
surrender of the bill of lading.

Nature of relationship between Arrastre Operator and

Consignee
Asian Terminals Inc., vs Allied Guarantee Ins. Co. Inc.
GR NO 182208, October 14, 2015