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subsequent encashment, their proceeds or part thereof could have been recovered. WHEREFORE, the assailed Court of Appeals Decision s hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio. (CENTRAL BANK OF THE PHILIPPINES Vs. CITYTRUST BANKING CORPORATION, G.R. No. 141835, February 4, 2009) VI. NEGOTIABLE INSTRUMENTS LAW

1. Sometime in 1983, Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car to his cousin, Pedro F. Violago, and the latters wife, Florencia. Avelino explained that he needed to sell a vehicle to increase the sales quota of VMSC, and that the spouses would just have to pay a down payment of PhP 60,500 while the balance would be financed by respondent BA Finance. The spouses would pay the monthly installments to BA Finance while Avelino would take care of the documentation and approval of financing of the car. Under these terms, the spouses then agreed to purchase a car. Spouses and Avelino, then, signed a promissory note under which they bound themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on September 16, 1983. VMSC then issued a sales invoice in favor of the spouses and the latter executed a chattel mortgage over the car in favor of VMSC as security for the amount of PhP 209,601. VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. The spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino, and registered in Esmeraldos name. Despite the spouses demand for the car and Avelinos repeated assurances, there was no delivery of the vehicle. Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance. Thereafter, BA Finance filed with the RTC of Pasay City a complaint or Replevin with Damages against the spouses praying for the delivery of the vehicle or if the same cannot be effected, for the payment of the amount they had paid plus interest. The RTC issued an Order of Replevin. The Violago spouses, were declared in default for failing to file an answer. Eventually, the RTC rendered a decision in favor of BA Finance followed by an alias writ of execution.

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Spouses Violago filed a Motion for Reconsideration and Motion to Quash Writ of Execution on the basis of lack of a valid service of summons on them, among other reasons. The RTC denied the motions; hence, the spouses filed a petition for certiorari under Rule 65 before the CA which in turn, nullified the RTC's order. This CA decision became final and executory. The spouses filed their Answer before the RTC. It is the contention of the spouses that BA Finance was not a holder in due course under Section 59 of the Negotiable Instruments Law (NIL); and the recourse of BA Finance should be against VMSC. The RTC rendered a decision finding for BA Finance but against the Violago spouses. The RTC, however, declared that they are entitled to be indemnified by Avelino. Thus, petitioner spouses appealed to the Court of Appeals. The appeal, however, was dismissed and it set aside the trial court's order holding Avelino liable for damages to the spouses. Aggrieved, petitioners filed the present petition. WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE COURSE The ruling of the appellate court is set aside insofar as it dismissed, without prejudice, the third party complaint of petitioners against Avelino thereby effectively absolving Avelino from any liability under the third party complaint. Clearly, in this case, the note is a negotiable instrument. The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount, on specific dates in the future which could be determined from the terms of the note; made payable to the order of VMSC; and names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular. The more important issue now is whether or not BA Finance is a holder in due course. The resolution of this issue will determine whether petitioners defense of fraud and nullity of the sale could validly be raised against respondent corporation. The law presumes that a holder of a negotiable instrument is a holder thereof in due course. In the present recourse, on its face, (a) the "Promissory Note" is complete and regular; (b) the "Promissory Note" was endorsed by the VMSC in favor of BA Finance; (c) BA Finance, in accepting the note acted in good faith and for value; (d) BA Finance was never informed, before and at the time of endorsement of the promissory note that the vehicle sold to



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the spouses was not delivered and had already been previously sold to someone else. 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. CAN AVELINO AND VMSC BE BOTH HELD LIABLE FOR FRAUDULENT ACTS COMMITTED AGAINST THE SPOUSES? Yes. 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. The test in determining the applicability of piercing the veil of corporate fiction is there must be control not only of finances but also of police and business, such control must have been used to commit fraud or wrong and such control and breach of duty must proximately cause the injury or unjust loss complained of. This case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelinos other cousin, Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that the vehicle in this case was already previously sold to Esmeraldo; he merely insisted that he cannot be held liable because he was not a party to the transaction. Avelino, knowing fully well that the vehicle was already sold, and with abuse of his relationship with the spouses, still proceeded with the sale and collected the down payment from petitioners. Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners. Even if we are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. (SPOUSES PEDRO AND FLORENCIA VIOLAGO Vs. BA FINANCE COPRORATION ET. AL., G.R. No. 158262, July 21, 2008)



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2. Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently dishonored. One check was drawn from Cruiser Bus Lines while another check was drawn from petitioner's account. Private respondent then executed an affidavit-complaint for violation of Batas Pambansa Blg. 22 against petitioner. Consequently, two Informations for violation of the said law. Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecution's evidence, petitioner filed a demurrer to evidence which was granted by the MTCC. However, Cruiser Bus Line was held liable to pay the entire amount of the two checks including interests. Thereafter, both parties appealed to the RTc which affirmed the decision with modification as to interests imposed. On appeal, the Court of Appeals denied the petition. IS PETITIONER PERSONALLY LIABLE FOR THE VALUE OF THE TWO CHECKS ISSUED BY A CORPORATION? No. Juridical entities have personalities separate and distinct from its officers and the persons composing it. Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice. These situations, however, do not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that his obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the corporation's obligation. IS THE MERE FACT THAT THE CHECK WAS DRAWN FROM PETITIONER'S PERSONAL ACCOUNT AN EVIDENCE THAT HE IS AN ACCOMMODATION PARTY? Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation party. Section 29 of the Negotiable Instruments Law defines accommodation party as a person who has signed the instrument as a maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. He must be a party to the instrument, he must not receive value therefor and he must sign for the purpose of lending his name or credit to some other person.



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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 the check which is drawn against his personal account. 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. Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid. (CLAUDE P. BAUTISTA Vs. AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS, G.R. No. 166405, August 6, 2008) 3. Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB). The spouses were engaged in the informal lending business. In line with their business, they had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB. The association maintained current and savings accounts with petitioner bank. PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members. It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks. In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account. Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of



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Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties. For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA. Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed." The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions. The spouses Rodriguez filed complaints for damages against PEMSLA and PNB. They sought to recover the value of their checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the loss. The trial court rendered a decision in favor of spouses Rodriguez and held PNB liable to return the value of the checks. On appeal, the Court of Appeals reversed and set aside the trial court's decision. CA explained that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were "fictitious payees" because they were not the intended payees at all. Spouses Rodriguez filed a motion for reconsideration which was granted by the CA. Then in an Amended Decision, the CA reversed itself and held PNB liable for the amount of the check and interests to the spouses. The CA, in its amended decision ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. Hence, this present petition filed by PNB.



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WHAT IS THE FICTITIOUS PAYEE RULE? Under the fictitious payee rule, a check which is made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument. A broader concept of this rule yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity. ARE THE SUBJECT CHECKS PAYABLE TO ORDER OR TO BEARER AND CONSEQUENTLY, WHO BEARS THE LOSS? Petitioner bears the loss. As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument. The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery. A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent. In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad



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faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez. What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context. Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation that the maker of the check intended for the payee to have no interest in the transaction. Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss. PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the named payees. Moreover, PNB was negligent in the selection and supervision of its employees. (PHILIPPINE NATIONAL BANK Vs. SPOUSES RODRIGUEZ, G.R. No. 170325, September 26, 2008) 4. Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329,280 loan to secure which, he mortgaged his car to respondent BA Finance. The mortgage requires that the property mortgaged must be insured against loss or damage by accident, theft and fire for a period of one year and in case of loss, the proceeds shall be payable to the mortgagee or its assigns as its interest may appear. Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co. which issued a policy stating that in loss, if any, shall be payable to BA Finance Corp as its interest may appear. The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of "B.A. Finance Corporation and Lamberto Bitanga drawn against China Banking Corporation (China Bank). The check was crossed with the notation "For Deposit Payees Account Only."



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Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check. In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. Hence, BA Finance demanded the payment of the value of the check from Asian Bank but to no avail, prompting it to file a complaint before Makati RTC for sum of money and damages against Asianbank and Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of the check. The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf, found Asianbank and Bitanga jointly and severally liable to BA Finance. On appeal, the Court of Appeals affirmed the trial court's decision. Hence, this present petition. SHOULD THE COLLECTING BANK BE HELD LIABLE FOR ACCEPTING THE CHECKS DEPOSITED WITHOUT THE INDORSEMENT OF ONE OFTHE PAYEES, BA FINANCE? Yes. Section 41 of the Negotiable Instruments Law is states that where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its behalf. The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees.



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IS PETITIONER LIABLE TO BA FINANCE FOR THE FULL VALUE OF THE CHECK? Yes. he provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for petitioners full liability on the value of the check. To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase "all prior endorsements and/or lack of endorsement guaranteed" and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser. Without Asianbanks warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject check. Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements 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 prior indorsements. (METROPOLITAN BANK AND TRUST COMPANY Vs. BA FINANCE CORP and MALAYAN INSURANCE, G.R. No. 179952, December 4, 2009)

VII. TRANSPORTATION LAW

1. On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center. ICNA issued an "all-risk" open marine policy. The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center. Eventually, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading issued by Aboitiz contained the notation "grounded outside warehouse." The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report. The shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was



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then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report, petitioner's checker noted that the crates were slightly broken or cracked at the bottom. Thereafter, petitioner received a telephone call informing its claims head that the cargo sustained water damage. The Claims Head immediately went to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness. Aboitiz was informed of the damage noticed upon opening of the cargo. ICNA was also contacted for insurance claims. The Claimsmen Adjustment Corporation conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee. Consequently, the consignee filed a formal claim with Aboitiz in the amount of P276,540 for the damaged condition of the goods. CAC stated, in its Supplemental Report that heavy rains caused water to damage the shipment. The shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation "grounded outside warehouse." Aboitiz refused to settle the claim. ICNA paid the amount of damages claimed and then ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. ICNA filed a civil complaint against Aboitiz for collection of actual damages plus interest. The trial court rendered a decision against ICNA. The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The policy shows that it is ICNA UK which issued the policy and complainant ICNA Phils., failed to show evidence that ICNA UK is its predecessor-in-interest. Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for being hearsay evidence. On appeal, the Court of Appeals reversed and set aside the decision of the trial court and held that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. Hence, this present petition.



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IS RESPONDENT ICNA THE REAL PARTY IN INTEREST THAT POSSESSES THE RIGHT OF SUBROGATION TO CLAIM REIMBURSEMENT FROM PETITIONER ABOITIZ? Yes. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law. Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign company's agents. Moreover, the provision in the open policy stated that claims may be filed against any of its listed agents worldwide. In signing the policy, the provision is deemed accepted and such operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer. Also, respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment. Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual breach or negligence. WAS THERE A TIMELY FILING OF THE NOTICE OF CLAIM AS REQUIRED UNDER ARTICLE 366 OF THE CODE OF COMMERCE? Yes. Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made immediately. The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading issued by petitioner for the goods.



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In this case, the call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case. CAN PETITIONER BE HELD LIABLE ON THE CLAIM FOR DAMAGES? Yes. The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by law. Here, the shipment delivered to the consignee sustained water damage. The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse," suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during the same period, We can conclude that this was when the shipment sustained water damage. 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 the goods tendered for transport and that it exercised due care in handling them. Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised the extraordinary diligence required of common carriers. (ABOITIZ SHIPPING CORPORATION Vs. INSURANCE COMPANY OF NORTH AMERICA, G.R. No. 168402, August 6, 2008)



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