zarah case doctrines (1)

8/13/2019 Zarah Case Doctrines (1)

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LEX LEONUM FRATERNITASCase Doctrines Commercial LawAtty. Zara !illan"e#a$Castro

I Corporation Law

FELICIANO vs. Commission on Audit

Congress cannot enact a law creating a private corporation with a special

charter.

Local water districs are not private corporations because they are not created

under the Corporation Code. Local water districts exist by virtue of PD 198, whichconstitutes their special charter.

ince under the Constitution only !"CCs #ay have special charters, Localwater districts can validly exist only if they are govern#ent owned or controlled.

$o clai# that local water districs are private corporations with a special

charter is to ad#it that their existence is constitutionally infir#.

Magsaysay-Labrador vs. CA

hareholders are in no legal sense owners of corporate property, which is

owned by the corporation as a distinct person.

Sulo ng ayan vs. Aran!ta

%bsent any showing of interest, a corporation has no personality to bring an

action to recover property belonging to its #e#bers or stoc&holders in their personalcapacities.

ataan S"ipyard and Engin!!ring Co.# In$. vs. %C&&

$he right of self'incri#ination has no application to (uridical persons.

)hile an individual #ay lawfully refuse to answer incri#inating *uestions

unless protected by an i##unity statute, it does not follw that a corporation, vestedwith special privileges and franchises, #ay refuse to show its hand when charged

with an abuse of such privileges. $here is a reserved right on the part of thelegislature to in*uire if the corporation has abused its privileges.

Lu'uria (om!s vs. CA

By NI%%O LA&MA' and AN&ELO FERNANDOSan Se(astian Law

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to disregard the separate (uridical personality of a corporation, the wrong

doing #ust be clearly and convincingly established, and that it cannot be presu#ed

Con$!pt uild!rs# in$. vs. NL)C

+o hard and fast rule can be accurately laid dwn, but certainly, there areso#e probative factors of identity that will (ustify the application of the doctrine of

piecrcing the veil of corporate fiction, to wit

1. stoc& ownership by one or co##on ownership of both corporations-. identity of directors and officers-

/. the #anner of &iiping the corporate boo&s and records-0. the #ethods of conducting the business.

$he following are the tests in deter#ining the applicatbility of the doctrine of

piercing the veil of corporate fiction

a. $here #ust be control, not #ere #a(ority or co#plete stoc& control, butco#plete do#ination, not only of finances, but of policy, and business

practice in respect to the transaction attac&ed so that the corporate entityas to this transaction had, at that ti#e, no separate #ind, will or existence

of its own-

b. uch control #ust have been used by the defendant to co##it fraud orwrong, to perpetrate the violation of a statutory or other positive duty, or

dishonest and un(ust act in contravention of plaintiffs legal rights- and

c. uch control and breach of duty #ust proxi#ately cause the in(ury to the

plaintiff.

*illar!y +ransit vs. F!rr!r

$he corporate veil #ay be pierced to enforce a non'co#petition clauseentered into by the controlling stoc&holder in his personal capacity, if the sa#e is

urged as a #eans of perpetrating a fraud or an illegal act or as a vehicle for theevasion of an existing obligation, the circu#vention of statutes, the cachiev#ent or

perfection of a #onopoly or generally, the perpetration of &navery or a cri#e.

$he veil with which the law covers and isolates the corporation fro# the#e#bers or stc&holders who co#pose it will be lifted to allow for its consideration

#erely as an aggregation of individuals.

Fransis$o Motors Corporation vs. CA

obligations of the stoc&holders are not the obligations of the corporation.


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%N vs. Andrada El!$tri$ and Engin!!ring Co.# In$.

$he corporate veil #ay be lifted obly if it has been used to shield

&ra$! C"ristian (ig"s$"ool vs. CA

% provision in the 2y'laws granting a per#anent seat in the 2"D is contrary

to the Corporation Code.

&o,ongw!i# r. vs. SEC

% by'law provision that forbids a co#petitor to be elected as corporate

director is valid.

!st!rn Institut! o/ +!$"nology vs. Salas

3e#bers of the board #ay receive co#pensation in addition to reasonable

per die#s, when they render services to the corporation in a capacity other than asdirectors or trustees.

Na$pil vs. IC

$he 2"D #ay also be e#powered under the by'laws to create additional

officers as #ay be necessary.

%!opl!0s Air$argo and ar!"ousing $o vs CA

4f a corporation &nowingly per#its one of its officers, or any other agent, toact within the scope of an apparent authority, it holds hi# ut to the pyblic as

possessing the power to do those acts, and tus, the corporation will, as against anyone who has in god faith dealt with it through such agent, be estopped for# denying

the agents authority.

%rim! "it! C!m!nt vs. IAC

% director of a corporation holds a position of trust and as such, he owes a

duty of loyalty to his corporation.

4n case his interests conflict with those of the corporation, he cannot sacrificethe latter to his wn advantage or benefit.

"n the other hand, a directors contract with his corporation is not at all

instances void or voidable. 4f the contract is fair and reasonable under the


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circu#stances, it #ay be ratified by the stoc&holders provided a full discolosure of

his adverse interest is #ade.

Santos vs. NL)C

4n $ra#at 3erchantile vs. C%, the Court has collated the settled instanceswhen, without necessarily piercing the veil of corporate fiction, personal civil liability

can also be said to lawfully attach to a corporate director, trustee or officer, to wit

1. he assents 5a6 to patently unlawful acts of the corporation or, 5b6 forbad faith or gross negligence in directing its affairs, or 5c6 for conflict

of interest, resulting in da#ages to the corporation, its stoc&holdersor other persons-

. he consents to the issuance of watered stoc&s or who, having&nowledge thereof, does not fortwith file with the corporate

secretary his written ob(ection therto-

/. he agrees to hold hi#self personally and solidarily liable with thecorporation- or

0. he is #ade, by a specific provision of law, to personally answer for

his corporate action.

3ere ownership by a single stoc&holder or by another corporation of all ornearly all of the capital stoc& of a corporation is not of itself sufficient groung for

disregarding the separate corporate personality.

S%S 1avid vs. Constru$tion Industry and Arbitration Committ!!

2ad faith exists when a #aterial deviation fro# the structural plan was #ade

without the clients being consulted first especially where it appears that the act wasdone to lower the cost of contruction. 7ence, personal liability for da#ages could

attch to the officer of the construction co#pany.

Malayang Sma"an ng mga Manggagawa sa M. &r!!n/i!ld vs. )amos

4n labor cases, corporate directors and fficers are solidarily liable with the

corporation for the ter#ination of e#ploy#ent of corporate e#ployees done with#alice or in bad faith.

Atrium Manag!m!nt Corporation vs. CA

$he act of issuing chec&s for the purpose of securing a loan to finance theactivities of the corporation is well within the a#bit of a valid corporate act, hence,

not an ultra vires act.

% treasure of a corporation whose negligence in signin a cnfir#anion letter forrediscounting of crssed chec&s, &nowing fully will that the chec&s ere strictly


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enforsed for deposit only to the payees account and not to be further negotiated,

resulting in da#age to the corporatin #ay be personally liable therefore.

A Savings an, vs. SIA

$he certificate of non'foru# shopping re*uired by .C. Circular 8'91 #ay besigned, by a specifically authoried lawyer who has personal &nowledge of the facts

to be disclosed in such docu#ent.

nli&e natural persons, corporations #ay perfor# physical actions onlythrough properly delegated individuals, na#ely, its officers and:or agents.

Int!r-Asia Inv!stm!nt Industri!s# in$. vs. CA

%n officer of a corporation who is authoried to purchase the stoc& of another

corporation has the i#plied power to perfor# all other obligations areising therefro#such as pay#ent of shares of stoc&.

Lapu-Lapu Foundation# in$. vs. CA

4f a corporation &onowingly per#its one of its officers to act within the scope

of an apparent authority, it holds hi# out to the public as possessing the power to dothose acts- and thus, the corporation will, as against anyone who has in good faith

dealt with it through such agent, be estopped for# denying the agents authority.

(ydro )!sour$!s Contra$tors Corporation vs. NIA

4t would be preposterous for the +4% ad#inistrator to have the power of

granting clai#s without the authority to verify the co#putation of such clai#s.

% corporation #ay be estopped fro# denying as against a third person theauthority of its officers or agents who have been clothed by it with ostensible or

apparent authority.

%lthough an officer or agent acts without or in excess of his actual authoritybut acts within the scope of an apparent authorit with which the corporation has

clothed hi# by holding out or per#itteing hi# to appear as having such authority,the corporation is bound thereby in foavor of a person who deals with hi# in good

faith in reliance on such apparent authority.

Mon/ort (!rmanos Agri$ultural 1!v!lopm!nt Corporation vs. Mon/ort III

$o correct the alleged error in the !eneral 4nfor#ation heet, the retained

accountant of the Corporation infor#ed the ;C the non'inclusison of the lawfullyelected directors was attributable to the oversight and not the fault of the


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Corporation. $his belated atte#pt, however, did not erase the doubt as to whether

an election was indeed held.

2y the express #andate of the Corporation Code, ec. Lyceu#? as part of their schools na#e is not

a deceptive use thereof relative to Lyceu# of the Philippines.

nder the doctrine of secondary #eaning, a word or phrase originallyincapable of exclusive appropriation with reference to an article appropriation with

relevance to an article on the #ar&et, because geographically or otherwise

descriptive, #ight nevertheless have been used so long and so exclusive by oneproducer with reference to his article that, in that trade and to that brance to thepurchasing public, the wor& or phrase has co#e to #ean that the article was his

product.

Ang Mga 2aanib sa Igl!sia ng 1ios 2ay 2risto (!sus# (S2 vs. Igl!sia ng 1ios

Parties organiing a corporation #ust choose a na#e at their peril- and the

use of a na#e si#ilar adopted by another corporation, whether a business or a

nonprofit organiation, if #isleading or li&ely to in(ure in the exercise of its corporatefunctions, regardless of intent, #ay be prevented by the corporation having prior

right, by a suit for in(unction against the new corporation to prevent the use of

na#e.

"rdering a religious society or corporation to change its corporate na#e is nota violation of its constitutionally guaranteed right to religious freedo#. 4n so doing,

the ;C #erely co#pelled petitioner to abide by one of the ;C guifelines in theapproval of corporate na#es, na#ely its underta&ing to #anifest its willingness to

change its corporate na#e in the event another person, fir#, or entity has ac*uireda prir right to use the said fir# na#e or one deceptively or confusingly si#ilar to it.

Industrial )!/ra$tori!s Corporation o/ t"! %"ilippin!s vs. CA

Confusing and deceptive si#ilarity of corporate na#es prohibited undersection 18 of the Corporation Code.

I& Summit (oldings vs. CA


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% public utility is a business or service engaged in regularly supplying the

public with so#e co##odity or service of public conse*uence such as electricity,gas, water, transportation, telephone or telegraph service.

2y nature, a shipyard is not a public utility. % shipyard is a place or enclosurewhere ships are built or repaired.

4ts nature dictates that it serves but a clientele who# it #ay wish or choose

to serve at its discretion. )hile it offers its facilities to whoever #ay wish to avail ofits services, a shipyard is not legally obliged to vender its services indiscri#inately to

the public.

3oung Auto Supply Co vs. CA

% corporation is in a #etaphysical sense a resident of the place where its

principal office is located as stated in the articles of incorporation.

)!publi$ %lant!rs an, vs. Agana

Preferences granted to preferred stoc&holders do not give the# a lien upon

the property of the corporation not #a&e the# creditors of the corporation, the rightof the for#er being always subordinate to the latter.

hareholders, both co##on and preferred, are considered ris& ta&ers who

invest capital in the business and who can loo& only to what is left after corporate

debt and liabilities are fully paid.

Castillo vs. aling"sasay

ection < of the Corporation Code explicitly provides that no share #ay bedeprived of voting rights except those classified and issued as preferred or

redee#able shares, unless otherwise provided in this Code, and that there shallalways be a class or series of class which have co#plete voting rights.

$here is nothing in the articles of incorporation or an iota of evidence on

record that shows class >2? shares were categoried as either preferred orredee#able shares.

Ni!lson and Company# in$. vs. L!panto Consolidat!d Mining Company

% share of stoc& co#ing fro# stc& dividends declared cannot be issued to onewho is not a stoc&holder of a corporation.

Islami$ 1ir!$torat! o/ t"! %"ilippin!s vs. CA


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% (uridical person cannot be considered essentially a for#al party to a case

where it was not duly represented by its legiti#ate governing board.

1!! vs. S!$

$he pre'e#ptive right of stoc&holders is recognied only with respect to newissue of shares, and not with respect to additional issues of originally authoried

shares.

Firm! vs. u,al Ent!rpris!s and 1!v!lopm!nt Corp.

% corporation can only exercise its powers and transact its business through

its board of directors and through its officers and agents when authoried by a boardresolution or its by'laws.

Loyola &rand *illas (om! own!rs 4sout"5 Asso$iation vs. CA

% corporation would not ipso facto lose its powers for failure to file there*uired by'laws.

C"ina an,ing Corporation vs. CA

4n order to be bound, a third party #ust have ac*uired &nowledge of the

pertinent by'laws at the ti#e the transaction or agree#ent between said thirdperson and the shareholder was entered into.

L!! vs. CA

4n order to be eligible as a director, what is #aterial is the legal title to, not

beneficial ownership of, the stoc& as appearing on the boo&s of the corporation.

% voting trust agree#ent results in the separation of the voting rihts of astoc&holder fro# his other riths such as the right to receive dividends and other

rights to which a stoc&holder #ay be entitled until the li*uidation of the corporation.

)!publi$ vs. Sandiganbayan 678 SC)A 96

PC!! cannot vote se*uestered shares except when there are >de#onstrably

weighty and defensible grounds? or >when essential to prevent disappearance orwastage of corporate property?.

)!publi$ vs. COCOFE1


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$he govern#ent should be allowed to continue voting se*uestered CP2

shares inas#uch as they were purchased with cconut levy funds @ funds that arepri#a facie public in character or, at the very least, are clearly affected with public

interest.

Evang!lista vs. Santos

4n a derivative suit, it is the corporation itself and not the plaintiff stoc&holderthat is the real party in interest, so that such da#ages as #ay be recovered shall

pertain to the corporation.

&o$"an vs. 3oung

Personal in(ury siffered by stoc&holders cannot dis*ualify the# fro# filing a

derivative suit.

4t #erely gives rise to an additional cause of action for da#ages against theerring directors.

C"ua vs. CA

+ot every suit filed in behalf of the corporation is a derivative suit.

Aor a derivative suit to prosper, it is re*uired that the #inority stoc&holder

suing for and on behalf of the corppration #ust allege that he is suing on aderivative cause of action on behalf of the corporation and all owther stoc&holder

si#ilarly situated who #ay which to (oin hi# in the suit.

4t is a condition sine *ua non that the corporation be i#pleaded as a party

because not only is the corporation an indispensable party, but it is also the presentrule that it #ust be served with process.

E'p!rtrav!l and +ours# in$. vs. CA

4n this age of #odern technology, the courts #ay ta&e (udicial notice thatbusiness transations #ay be #ade by individuals through teleconferencig.

4n the Philippines, teleconferencing and video conferencing of #e#bers of

board of directors of private corporations is a reality, in light of B% +o. 89.

$he ;C issued ;C 3e#orandu# Circular +o 1, on +ove#ber /=, ==1,providing the guidelines to be co#nplied with related to such conferences.

Nava v. %!!rs Mar,!ting Corporation


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)here no stoc& certificate was issued to original subscriber representing that

portion of hi subscription which he paid for, the assign#ent of said subscriberscorporate share is effective only between the parties to the transaction and the

transferee cannot de#and fro# the corporation the issuance of certificate of stoc&

representing the paid subscribed shares.

Lim +ay v. CA

% #ere pledgee is not entitled to ownership of shares.

)ural an, o/ Lipa City v. CA

Delivery of the stoc& certificate duly endorsed by the owner is the operativeact of transfer of shares fro# the lawful owner to the transferee.

%on$! v. Alsons C!m!nt Corporation

% transfer of shares of stoc& not recorded in the stoc& and transfer boo& ofthe corporation is non' existent as far as the corporation is concerned. 7ence, acorporate secretary #ay not be co#pelled to issue stoc& certificates without such

registration.

Ong 3ong v. +iu

% subscription contract necessarily involves the corporation as one of thecontracting parties since the sub(ect #atter of the transaction is property owned by

the corporationEits shares of stoc&.

Considering therefore that the real contracting parties to the subscriptionagree#ent were AL%D 5the corporation6 and the "ngs 5subscribers6 alone, a civil

case for rescission on the ground of breach of contract filed by the $4s

5stoc&holders6 in their personal capacities will not prosper.Aurther#ore, to allow rescission disregards the separate (uridical personality

of AL%D 5the corporation6.

&on:al!s v. %N

% stoc&holder has the duty of showing good #otive or purpose for de#andingan exa#ination of corporate boo&s. "ne who ac*uired one share of stoc& of a ban&

to be able to exa#ine its boo&s can hardly be said to have been #otivates with goodfaith or proper purpose in de#anding inspection of the ban&s transactions before he

beca#e a stoc&holder.

Asso$iat!d an, v. CA

$he #erger does not beco#e effective upon the #ere agree#ent of the

constituent corporations' the #erger shall be effective only upon the issuance by the;C of a certificate of #erger.


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abst v. CA

4t is settled that in the #erger of two existing corporations, one of the

corporations survives and continues the business, while the other is dissolved and allits rights, properties and liabilities are ac*uired by the surviving corporation.

Long v. asa

ection 91 of the Corporation Code provides that #e#bership shall be

ter#inated in the #anner and for the causes provided in the articles of incorporationor the by' laws.

4n the case at bar, the petitioners really have no reason to bewail the lac& ofprior notice in the 2y' laws. $hey have waived such notice by adhering to those 2y'

laws. $hey beca#e #e#bers of the Church voluntarily. $hey entered into itscovenant and subscribed to its rules. 2y doing so, they are bound by their consent.

Conse*uently, the expulsion was not tained with any arbitrary treat#ent

fro# the #e#bers of the 2oard of Directors who, since 1988 up to %ugust /=, 199/,or approxi#ately years, have patiently exhorted and warned the dissident#e#bers. $his long period of ti#e is #ore than ade*uate an opportunity for the

erring #e#bers and their followers to conte#plate upon their covenant with theChurch on their duty to protect and pro#ote its Principled of Aaith and not to violate

the#.4t is a well settled principle in law that what due process conte#plates is

freedo# fro# arbitrariness, what it re *uires is fairness and (ustice, substance ratherthan for#, being para#ount. )hat it prohibits is not the absence of previous notice

but the absolute absence thereof. % for#al or trial type hearing is not at all ti#es

and in all instances essential.

Sta. Clara (om!own!rs0 Asso$iation v. &aston

7o#eowners cannot be co#pelled to beco#e #e#bers of a ho#eowners

association by the si#ple expedient of including the# in its %rticle of 4ncorporationand 2y' laws without their express or i#plied consent, without violating the

constitutionally guaranteed freedo# of association.

%A1COM Condominium Corporation v. Ortigas C!nt!r Asso$iation# In$.

4f a#ong the ter#s and conditions in a deed of sale, there is a re*uire#entthat the transferee #ust beco#e #e#ber of as association, the sa#e binds the

holder of the title and the whole world. 4t cannot be argued that there is a violationof freedo# of association because the transferee was never forced to beco#e a

#e#ber of the association.3anuel B. Dulay ;nterprises, 4nc. v. C%

Petitioner corporation is classified as a close corporation and conse*uently a

board resolution authoriing the sale or #ortgage of the sub(ect property is notnecessary to bind the corporation for the action of its president. %t any rate, a

corporate action ta&en at a board #eeting without proper call or notice in a closecorporation is dee#ed ratified by the absent director unless the latter pro#ptly files


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his written ob(ection with the secretary of the corporation after having &nowledge of

the #eeting which, in this case, petitioner Firgilio Dulay failed to do.

San uan Stru$tural and St!!l Fabri$ators# In$. v. CA

% corporation does not beco#e a close corporation (ust because a #an and

his wife owns 99.8doing business inthe Philippines? is whether the foreign corporation is continuing the body or

substance of the business or enterprise for which it was organied or whether it has

substantially retired fro# it and turned it over to another.

Eri,s %t!.# Ltd. v. CA

$he grant and extension of 9=' day credit ter#s by a foreign corporation todo a do#estic corporation for every purchase #ade unarguably shows an intention

to continue transacting with the latter since in the usual course of co##ercialtransactions, credit extended only to custo#ers in good standing or to those on

who# there is an intension to #aintain long' ter# relationship.3B 7oldings, 4nc. v. 2a(ar

)hile petitioner #ay (ust be an assignee to the Deed of %ssign#ent, it #ay

still fall within the #eaning of >doing business? based on the ruling of the upre#eCourt that >where a single act or transaction however is not #erely incidental or

casual but indicates the foreign corporations intention to do other business in thePhilippines, said single act or transaction constitutes doing or engaging in or

transacting business in the Philippines.

(ut$"ison %orts %"ilippin!s Limit!d v. SMA


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Participating in the bidding process constitutes >doing business? because it

shows the foreign corporations intention to engage in the business here. $he biddingfor the concession contract is but an exercise of the corporations reason for its

existence. 4t is the perfor#ance by a foreign corporation of the acts for which it was

created, regardless of the volu#es of business, that deter#ines whether a foreigncorporation needs license or not.

Ant"am Cosolidat!d v. CA

)here the three transactions indicate no intent by foreign corporation to

engage in a continuity of transactions, they do not constitute doing business- Aoreigncorporation not doing business in the Philippines is not re*uired to obtain a license to

do business to have the capacity to sue.

M!rrill Lyn$" Futur!s# In$. v. CA

% foreign corporation doing business in the Philippines #ay sue in the

Philippine courts although not authoried to do business here against a Philippinecitien who had contracted with and been benefited by said corporation.

Agil!nt +!$"nologi!s Singapor! 4%t!5 Ltd. v. Int!grat!d Sili$on +!$"nology%"ilippin!s Corporation

4n the %gree#ent, the foreign co#panys activities in the Philippines were

confined to 516 #aintaining a stoc& of goods solely for the purpose of having thesa#e processed by another co#pany- and 56 consign#ent of e*uip#ent with such

co#pany to be used in the processing of products for export. uch foreign

corporation cannot be considered doing business in the Philippines. 2y and large, toconstitute >doing business?, the activity to be underta&en in the Philippines is one

that is for profit' #a&ing. nder ection 1 of the 4#ple#enting Bules and

Begulations of the Aoreign 4nvest#ent %ct, the foregoing activities do not constitutedoing business in the Philippines.

$he general tests to deter#ine whether a foreign corporation id doingbusiness in the Philippines are

1. ubstance $est' whether the foreign corporation is continuing the body of

the business or enterprise for which it was organied or

whetherit has substantially retired fro# it and turned it over to

another.

. continuity test @ continuity of co##ercial dealings and arrange#ents, andconte#plates, to that extent, the perfor#ance of acts or wor&s or the

exercise of so#e of the functions nor#ally incident to, and in theprogressive prosecution of the purpose and ob(ect of its organiation.


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E'p!rt +rav!l and +ours In$. vs. CA

2eing a residential agent of a foreign corporation does not #ean that he is

authoried to execute the re*uirste certificate against foru# shopping because hwne

a resident agent #a be aware of actions against hie principal 5a foreign corporationdoing business in the Philippines6, he #ay not be aware of actions initiated by its

principal, whether in the Philippines against a do#estic corporation or privateindividual, or in the coutry where such corporation is organied and registered ,

against a Philippine registered corporation or a Ailipino citien.

II - NE&O+IALE INS+);MEN+S

Fir!ston! +ir! and )ubb!r Company vs. CA

$he essence of negotiability which characteries a negotiable paper as a creditinstru#ent lies in its freedo# to circulate freely as a substitute for #oney.

Calt!' vs. CA

4n deter#ining the negotiability of an instru#ent, the instru#ent in itsentirety and what appears on its fact #ust be considered.

4t #ust co#ply with the re*uire#ents of sec. 1, %ct. +o. =/1

%"ilippin! Edu$ation Company vs. CA

Postal #oney orders are not negotiable intru#ents.

4t does not contain ac unconditional pro#ise or order to pay re*uired in ec.

1 of the +4L.

Begulations and restrictions i#posedc on postal #oney orders are inconsisten

with the character of negotiable instru#ents.

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% chec&, whether #anagers chec& or ordinary chec&, is not legal tender, and

an offer of a chec& in pay#ent of a debt is not a valid tender of pa#ent and #ay berefused receipt by the creditor.

S!sbr!no vs. CA

%n instru#ent thaough #ar&ed non'negotiable, #ay nevertheless be

assigned or transferred.

M!trban, vs. CA

$reasury warrants are non'negotiable instru#ent because there is an

indication of the fund as the source of pa#ent of the disburse#ent.

Ang +!, Lian vs. CA

% chec& payable to the order of >cash? is a chec& payable to bearer, and the

ban& #ay pay it to the person presenting it for pay#ent without the drawersindorse#ent.

%N vs Manila Oil )!/ining And y produ$ts Company In$

Provisions in notes authoriing attorbeys to appear and confess (udg#ents

against #a&ers should not be recognied in this (urisdiction because the sa#e isconsidered void for being against public policy.

7owever, sec. of the +4L provides that the negotiable character of aninstru#ent therwise negotiable is not affected by a provision which authories

confession of (udg#ent if the instru#ent be not paid at #aturity.

4n other words, only the stipulation is avoided.

)!publi$ %lant!rs an, vs. CA

)here an instru#ent containing the words >4 pro#ise to pay? is isgned by

two or #ore persons, they are dee#ed to be (ointly and severally liable thereon.

$he phrase >and in his personal capacity? below the signatures of the #a&ersin the note will not affect the liability of the #a&ers.

&SIS vs. CA

%n instru#ent that is payable to a specified person or entity is not negotiablebecause the +4L re*uires that the instru#ent #ust be payable to order or the bearer.


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%n acco##odation party applies only to negotiable instru#ents.

Consolidat!d %lywood In$.# vs. IFC L!asing

4f an instru#ent is not negotiable, it can still be transferred but only throughtassign#ent. $he transferee is an assignee who #erely steps into the shoes of the

transferor.

1! la *i$toria vs. urgos

Delivery is defined as the transfer of the possession of the instru#ent by the

#a&er or draer with intent to transfer title to the payee and recognie hi# as theholder therof.

)here chec&s due a govern#ent e#ployee have not yet been delivered tohi#, they do not belong to hi# and still have the character of public funds.

Chec&s due a govern#ent e#ployee #ay not be garnsihed to satisfy(udg#ent.

1!v!lopm!nt an, o/ )i:al vs. Sima !i

$he delivery of chec&s in pay#ent of an obligation does not constitute

pay#ent unless they are cashed or their value is i#paired through the fault of thecreditor.

M!tropol 4a$olod5 Finan$ing vs. Sambo, Motors

>Becourse? #eans resort to a peson who is secondary liable after the default

of the person who is pri#ary liable.

4ndorsing the note >with recourse? #a&es a party a general indorser. $heeffect is that the note was indorsed withut *ualification.

&!mp!saw vs. CA

% drawee ban& who has paid a chec& on which an indorse#ent has beenforged cannot charge the drawers account for the a#ount of said chec&.

%n exception to this rule is where the drawer is guilty of such negligence

which causes the ban& to honor such chec&.


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%lthough a depositor owes a duty to his drawee ban& to exa#ine his cancelled

chec&s for forgery of his own signature, he has no si#ilar duty to forgedinstru#ents.

$he negligence of a depositor which will prevent recovery of an unauthoriedpay#ent is based on failure of the depositor to act as a prudent business#an would

under the circu#stances.

1! O$ampo vs. &at$"alian

!ross negligence #ay a#ount to legal absence of good faith.

)here a holders title is defective or suspicius, it cannot be stated that the

payee ac*uired the chec& without the &nowledge of said defect in holders title, andfor this reason the presu#ption that it is a hlder in due cours or that it ac*uired the

instru#ent in good faith does not exist.

St!l$o Mar,!ting Corporation vs. CA

Lac& of notice of any infir#ity in the instru#ent r defect in the title of the

person negotiating it does not apply to an acco##odation party.

ataan Cigar and Cigarr!tt! Fa$tory vs. CA

% person who ta&es a crssed chec& without #a&ing further in*uiries is not aholder in due course.

$he act of crossing a chec& produces the following effectsa. the chec& #ay not be encashed but only deposited in the ban&

b. the chec& #ay be negotiated only once @ to on e who has an accountwith the ban&- and

c. the act of crossing the chec& serves as warning to the hlder that thechec& has been issued for a definite purpose so that he #ust in*uire if

he has received the chec& pursuant to that purpose, otherwise, he isnot a holder in due course.

Stat! Inv!stm!nt (ous! vs. CA

$he fact that a chec& is #erely issued as security is not a ground for thedischarge of the instru#ent against a holder in due course.

%N vs. %i$orn!ll

$he drawee by accepting beco#es liable to the payee or his indorsee, andalso to the drawer hi#self. 2ut the drawer and acceptor are i##ediate parties to the


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consideration, and if the acceptance be without consideration, the drawer cannot

recover fro# the acceptor.

$he payee holds a different relation- he is a stranger to the transaction

between the drawer and the acceptor, and is therefore in a legal sense a re#oteparty.

4n a suit by hi# against the acceptor, the *uestion as to the consideration

between the drawer and the acceptor cannot be in*uired into.

$he payee or holder gives value to the drawer and if he is ignorant of thee*uities between the drawer and acceptor, he is in the position of a bonafide

indorsee.

7ence, it is no defense to a suit against the acceptor draft which has beendiscounted, and upon which #oney has been advanced by the plaintiff, that the draft

was accepted for the acco##odation of the drawer.

%!opl! o/ t"! %"ilippin!s vs. Mani!go

%c*uittal on reasonable doubt of the accused does nt operate to absolve the

sa#e fro# civil liability. appelants cnetntion that as #ere indorser, she #ay not be#ade liable on account of the dishonor of the chec&s indorsed by her is untenable.

nder the law, the holder or last indorsee of a negotiable instru#ent has the

right to >enforce pay#ent of the instru#ent for the full a#ount thereof against all

parties liable thereonf.?

Crisologo-os! vs. CA

% corporation cannot act as an acco##odation party.

$he issuance or indorse#ent of a negotiable intrue#nt by a corporationwithout consideration and for acco##odation is ultra vires.

Salas vs. CA

Petitioner alleged that she issued the pro#issory note in *uestion based onthe alleged bad faith, fraud and #isrepresentation of the payee 5fraud in

induce#ent6.

nfortunately, the note was later negotiated to a holder in due course.

7ence, such holder holds the instru#ent free fro# personal defensesavailable to prior parties a#ong the#selves and #ay enforce pay#ent of the

instru#ent for the full a#ount thereof.


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%apa vs. Au *al!n$ia

Aailure of the pay to encash a chec& for #ore than 1= years >undoubtedly

resulted in the i#pair#ent of the chec& through his unreasonable and unexplained

delay.

% lapse of 1= years will bar any action base on the chec&.

Far East )!ality Inv!tm!nt in$ vs. CA

4f the instru#ent is not presented for pay#ent within a reasonable ti#e after

issue, or last negotiation as the case #ay be, the persons secondarily liable aredischarged.

ong vs. CA

)ith respect to chec&s, the C had ta&en cogniance of the current ban&ingpractice that a chec& beco#es stale after #ore than #onths or 18= days.

Int!rnational Corproat! an, vs. Sps. &u!$o

;ven assu#ing that present#ent is needed, failure to present for pay#entwithin a reasonable ti#e will resoult to the discharge of the drawer only to the extent

of the loss caused by the delay.

Aailure to present on ti#e, thus, does not totally wipe out all liability.

deifinitely, the original obligation to pay has not been erased.

Asia an,ing Corporation vs. avi!r

)hen a negotiable instru#ent has been dishonored by non'acceptance ornor'pay#net, notice of dishonor #ust be given to the drawer or indorser to who#

such notice is not given is discharged.

Ny$o Sal!s Corporation vs. A Finan$! Corporation

$he dishonor of an assigned chec& si#ply stresses its liability and the failure

to give a notice of dishonor will not discharge it fro# such liability.

N!w %a$i/i$ +imb!r vs. S!n!ris

Certification of chec& by drawee ban& is e*uivalent to acceptance.


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aid certification i#plies that the chec& is drawn upon sufficient funds un the

hands of the drawee, that they have been set apart for its satisfaction, and that theyshell be so applied whenever the chec& is presented for pay#ent.

%N vs. National City an, o/ N!w 3or,

$he certification of chec&s is a #eans in constant and extneseve use in the

business of ban&ing, and its effects and conse*ences are regulated by the law of#erchant.

Sps. Moran vs. CA

Aailure of a ban& to pay the chec& of a #erchant or a trader, when deposit issufficient, entitles the drawer to substantial da#ages without any proof of actual

da#ages.


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zarah case doctrines (1)

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