transportation law 2015

8/17/2019 Transportation Law 2015

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TRANSPORTATION LAW; COMMON CARRIER’SVIGILANCE OVER THE GOODS

In De Guzman vs. Court of Appeals [1], the Supreme Court held that:

Common carriers, “by the nature of their business and for reasons of public policy” 2 are held to a

very high degree of care and diligence (“extraordinary diligence” in the carriage of goods as !ell as of

passengers" #he speci$c import of extraordinary diligence in the care of goods transported by a common

carrier is, according to %rticle &', “further expressed in %rticles &'),&'* and &')*, numbers *, + and

'” of the Civil Code"

%rticle &') establishes the general rule that common carriers are responsible for the loss,

destruction or deterioration of the goods !hich they carry, “unless the same is due to any of the following

causes only :

(& lood, storm, earth-ua.e, lightning or other natural disaster or calamity/

(2 %ct of the public enemy in !ar, !hether international or civil/

( %ct or omission of the shipper or o!ner of the goods/

() #he character0of the goods or defects in the pac.ing or0in the containers/ and

(* 1rder or act of competent public authority"

It is important to point out that the above list of causes of loss, destruction or deterioration !hich

exempt the common carrier for responsibility therefor, is a closed list" Causes falling outside the foregoing

list, even if they appear to constitute a species of force majeure fall !ithin the scope of %rticle &'*, !hich

provides as follo!s:

In all cases other than those mentioned in numbers , !, ", # and $ of the preceding article, if 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 e%traordinary diligence as re-uired in %rticle &'"

(mphasis supplied

Sub3ect to certain exceptions enumerated under %rticle &')425 of the Civil Code, common

carriers are responsible for the loss, destruction, or deterioration of the goods" #he extraordinary

responsibility of the common carrier lasts from the time the goods are unconditionally placed in the

possession of, and received by the carrier for transportation until the same are delivered, actually or

constructively, by the carrier to the consignee, or to the person !ho has a right to receive them"45 1!ing

to this high degree of diligence re-uired of them, common carriers, as a general rule, are presumed to

have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed" #hat is,

unless they prove that they exercised extraordinary diligence in transporting the goods" In order to avoid

responsibility for any loss or damage, therefore, they have the burden of proving that they observed such

high level of diligence"4)5 (&astern 'hipping (ines, Inc. vs. )*I+' I-'/A-C& C0/*., G./. -o. 1"123,

4anuary $, !5#, 67illarama, 4r., 48

ootnotes:

4&5 6ecember 22, &788

425 %9#" &')" Common carriers are responsible for the loss, destruction, or deterioration of the goods,

unless the same is due to any of the follo!ing causes only:

(& lood, storm, earth-ua.e, lightning, or other natural disaster or calamity/

(2 %ct of the public enemy in !ar, !hether international or civil/

( %ct or omission of the shipper or o!ner of the goods/

() #he character of the goods or defects in the pac.ing or in the containers/ (* 1rder or act of competent

public authority"

45 %sian #erminals, Inc" v" hilam Insurance Co", Inc" (no! Chartis hilippines Insurance, Inc", ;"9"


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4)5 @elgian 1verseas Chartering and Shipping


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osted in uly 2', 2?&)" 2 Comments

TRANSPORTATION LAW; DILIGENCEREQUIRED OF COMMON CARRIERS

#he diligence re-uired of a private carrier is only ordinary, that is, the diligence of a good father of the

family" In contrast, a common carrier is a person, corporation, $rm or association engaged in the business

of carrying or transporting passengers or goods or both, by land, !ater, or air, for compensation, oFering

such services to the public"4&5 Contracts of common carriage are governed by the provisions on common

carriers of the Civil Code, the ublic Service %ct,425 and other special la!s relating to transportation" %

common carrier is re-uired to observe extraordinary diligence, and is presumed to be at fault or to have

acted negligently in case of the loss of the eFects of passengers, or the death or in3uries to passengers"

45 ('ps *ere9a vs. 'ps :arate, G./. -o. $;1;, August !1, !5!, 6)ersamin, 4.8

%9#" &'**" % common carrier is bound to carry the passengers safely as far as human care and foresight

can provide, using the utmost diligence of very cautious persons, !ith a due regard for all the

circumstances"

%9#" &'**" % common carrier is bound to carry the passengers safely as far as human care and foresight

can provide, using the utmost diligence of very cautious persons, !ith a due regard for all the

circumstances"

%9#" &'*+" In case of death of or in3uries to passengers, common carriers are presumed to have been at

fault or to have acted negligently, unless they prove that they observed extraordinary diligence as

prescribed in articles &' and &'**"

#he Code Commission, in 3ustifying this extraordinary diligence re-uired of a common carrier, says the

follo!ing:

% common carrier is bound to carry the passengers safely as far as human care and foresight can provide,

using the utmost deligence of very cautions persons, !ith due regard for all circumstances" #his

extraordinary diligence re-uired of common carriers is calculated to protect the passengers from the tragic

mishaps that fre-uently occur in connection !ith rapid modern transportation" #his high standard of care is

imperatively demanded by the precariousness of human life and by the consideration that every person

must in every !ay be safeguarded against all in3ury" (9eport of the Code Commission, pp" *0+” (adilla,

Civil Code of the hilippines, Aol" IA, &7*+ ed", p" &7'"

rom the above legal provisions, !e can ma.e the follo!ing restatement of the principles governing the

liability of a common carrier: (& the liability of a carrier is contractual and arises upon breach of its

obligation" #here is breach if it fails to exert extraordinary diligence according to all circumstances of each

case/ (2 a carrier is obliged to carry its passenger !ith the utmost diligence of a very cautious person,

having due regard for all the circumstances/ ( a carrier is presumed to be at fault or to have acted

negligently in case of death of, or in3ury to, passengers, it being its duty to prove that it exercised

extraordinary diligence/ and () the carrier is not an insurer against all ris.s of travel" ( Isaac vs. A.(.

Ammen


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negligence does not attach and these instances are enumerated in %rticle &')"4+5 In those cases !here

the presumption is applied, the common carrier must prove that it exercised extraordinary diligence in

order to overcome the presumption" ()ascos vs. CA, G./. -o. 5521, April ;, 11", 6Campos, 4r., 48

4&5%rticle &'2 of the Civil Code states:

%rticle &'2" Common carriers are persons, corporations, $rms or associations engaged in the business of

carrying or transporting passengers or goods or both, by land, !ater, or air, for compensation, oFeringtheir services to the public"

425Common!ealth %ct


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bet!een the entruster and the entrustee, and the entruster in possession of the goods, documents or

instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less

than $ve days after serving or sending of such notice, sell the goods, documents or instruments at public

or private sale, and the entruster may, at a public sale, become a purchaser" #he proceeds of any such

sale, !hether public or private, shall be applied (a to the payment of the expenses thereof/ (b to the

payment of the expenses of re0ta.ing, .eeping and storing the goods, documents or instruments/ (c to the

satisfaction of the entrusteeGs indebtedness to the entruster" #he entrustee shall receive any surplus butshall be liable to the entruster for any de$ciency" , Inc. vs. etroban , citing Abad vs. CA, supra #hus, the entruster has the right to:

&" @e entitled to the proceeds from the sale of the goods, documents or instruments released under atrust receipt to the entrustee to the extent of the amount o!ing to the entruster or as appears in thetrust receipt/

2" #he return of the goods, documents or instruments in case of non0sale/

" #he enforcement of all other rights conferred on him in the trust receipt provided such are notcontrary to the provisions of this 6ecree/

)" Cancel the trust and ta.e possession of the goods, documents or instruments sub3ect of the trust orof the proceeds realiHed therefrom at any time upon default or failure of the entrustee to comply!ith any of the terms and conditions of the trust receipt or any other agreement bet!een theentruster and the entrustee/

*" Sell the goods, documents or instruments at public or private sale, and the entruster may, at a

public sale, become a purchaser, !hen in possession of the goods, documents or instruments, on orafter default of the entrustee, and after notice to the latter of the intention to sell, not less than $vedays after serving or sending of such notice,

+" ntitled for any de$ciency in the aforementioned sale"

Section )" 46 &&*5 hat constitutes a trust receipts transaction"K% trust receipt transaction, !ithin the

meaning of this 6ecree, is any transaction by and bet!een a person referred to in this 6ecree as the

entruster, and another person referred to in this 6ecree as entrustee, !hereby the entruster, !ho o!ns or

holds absolute title or security interests over certain speci$ed goods, documents or instruments, releases

the same to the possession of the entrustee upon the latterGs execution and delivery to the entruster of a

signed document called a “trust receipt” !herein the entrustee binds himself to hold the designated

goods, documents or instruments in trust for the entruster and to sell or other!ise dispose of the goods,documents or instruments !ith the obligation to turn over to the entruster the proceeds thereof to the

extent of the amount o!ing to the entruster or as appears in the trust receipt or the goods, documents or

instruments themselves if they are unsold or not other!ise disposed of, in accordance !ith the terms and

conditions speci$ed in the trust receipt, or for other purposes substantially e-uivalent to any of the

follo!ing:

&" In the case of goods or documents: (a to sell the goods or procure their sale/ or (b to manufacture or

process the goods !ith the purpose of ultimate sale: rovided, #hat, in the case of goods delivered under


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trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall

retain its title over the goods !hether in its original or processed form until the entrustee has complied full

!ith his obligation under the trust receipt/ or (c to load, unload, ship or transship or other!ise deal !ith

them in a manner preliminary or necessary to their sale/ or

2" In the case of instruments: (a to sell or procure their sale or exchange/ or (b to deliver them to a

principal/ or (c to eFect the consummation of some transactions involving delivery to a depository or

register/ or (d to eFect their presentation, collection or rene!al" #he sale of good, documents or instruments by a person in the business of selling goods, documents or

instruments for pro$t !ho, at the outset of transaction, has, as against the buyer, general property rights

in such goods, documents or instruments, or !ho sells the same to the buyer on credit, retaining title or

other interest as security for the payment of the purchase price, does not constitute a trust receipt

transaction and is outside the purvie! and coverage of this 6ecree" (-g vs. *eople, G./. -o. ;"15$, April

"5, !55, 67elasco, 4r.8

#rust 9eceipts Ba! !as created to “to aid in $nancing importers and retail dealers !ho do not have

suJcient funds or resources to $nance the importation or purchase of merchandise, and !ho may not be

able to ac-uire credit except through utiliHation, as collateral, of the merchandise imported or purchased"”

(ibid

#he #rust 9eceipts Ba! !as enacted to safeguard commercial transactions and to oFer an additional layer

of security to the lending ban." #rust receipts are indispensable contracts in international and domestic

business transactions" #he prevalent use of trust receipts, the danger of their misuse andLor

misappropriation of the goods or proceeds realiHed from the sale of goods, documents or instruments held

in trust for entruster ban.s, and the need for regulation of trust receipt transactions to safeguard the rights

and enforce the obligations of the parties involved are the main thrusts of the #rust 9eceipts Ba!"4&5 ((andl

? Company @*hil>, Inc. vs. etroban, G./. -o. $13!!, 4uly "5, !55#, 6Bnares='antiago8

#he nature of trust receipt agreements and the damage caused to trade circles and the ban.ing

community in case of violation thereof !as explained in 7intola vs. I)AA [2] and echoed in *eople

vs" -itafan [3] , as follo!s:

“4t5rust receipt arrangements do not involve a simple loan transaction bet!een a creditor and a debtor0

importer" %part from a loan feature, the trust receipt arrangement has a security feature that is covered by

the trust receipt itself" #he second feature is !hat provides the much needed $nancial assistance to

traders in the importation or purchase of goods or merchandise through the use of those goods or

merchandise as collateral for the advancements made by the ban." #he title of the ban. to the security is

the one sought to be protected and not the loan !hich is a separate and distinct agreement"”

x x x x x x x x x

“#rust receipts are indispensable contracts in international and domestic business transactions" #he

prevalent use of trust receipts, the danger of their misuse andLor misappropriation of the goods or

proceeds realiHed from the sale of goods, documents or instruments held in trust for entruster0ban.s, and

the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of

the parties involved are the main thrusts of "6" &&*" %s correctly observed by the Solicitor ;eneral, "6"

&&*, li.e @ata ambansa @lg" 22, punishes the act “not as an oFense against property, but as an oFense

against public order" x x x #he misuse of trust receipts therefore should be deterred to prevent any

possible havoc in trade circles and the ban.ing community" (citing BoHano vs" DartineH, &)+ SC9% 2

4&78+5/ 9ollo, p" *' It is in the context of upholding public interest that the la! no! speci$cally designates

a breach of a trust receipt agreement to be an act that “shall” ma.e one liable for estafa"” (etroban vs.


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Simply stated, a trust receipt transaction is one !here the entrustee has the obligation to deliver to the

entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster"

#here are, therefore, t!o obligations in a trust receipt transaction: the $rst refers to money received under

the obligation involving the duty to turn it over (entregarla to the o!ner of the merchandise sold, !hile

the second refers to the merchandise received under the obligation to “return” it (devolvera to the o!ner"

4*5 (ur


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%s earlier stated, there must have been an absolute assurance on the part of the petitioner that it

!ill underta.e the issuing ban.Gs obligation as its o!n" Aerily, the loan agreement it entered into cannot be

categoriHed as an emphatic assurance that it !ill carry out the issuing ban.Gs obligation as its o!n" (supra

#he case of 'canlon v " Eirst -ational )an (supra perspicuously explained the relationship

bet!een the seller and the negotiating ban., viz :

It may buy or refuse to buy as it chooses" -ually, it must be true that it o!es no contractual dutyto!ard the person for !hose bene$t the letter is !ritten to discount or purchase any draft dra!n against

the credit"


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correspondent ban. !hich buys or discounts a draft under the letter of credit" Its liability is dependent

upon the stage of the negotiation" If before negotiation, it has no liability !ith respect to the seller but after

negotiation, a contractual relationship !ill then prevail bet!een the negotiating ban. and the seller"

(Scanlon v" irst


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relationship of the parties or the nature of the question that is subject of their controversy " In

the absence of any one of these factors, the SC !ill not have 3urisdiction" urthermore, it does not

necessarily follo! that every conPict bet!een the corporation and its stoc.holders !ould involve such

corporate matters as only SC (no! the 9egional #rial Court can resolve in the exercise of its ad3udicatory

or -uasi03udicial po!ers" (mphasis ours

% revie! of relevant 3urisprudence sho!s a development in the CourtGs approach in classifying !hat

constitutes an intra0corporate controversy" Initially, the main consideration in determining !hether adispute constitutes an intra0corporate controversy !as limited to a consideration of the intra0corporate

relationship existing bet!een or among the parties" #he types of relationships embraced under Section

*(b x x x !ere as follo!s:

a bet!een the corporation, partnership or association and the public/

b bet!een the corporation, partnership or association and its stoc.holders, partners, members or oJcers/

c bet!een the corporation, partnership or association and the State as far as its franchise, permit or

license to operate is concerned/ and

d among the stoc.holders, partners or associates themselves"

#he existence of any of the above intra0corporate relations !as suJcient to confer 3urisdiction to the SC

(no! the 9#C, regardless of the sub3ect matter of the dispute" #his came to be .no!n as the relationship

test"

Mo!ever, in the &78) case of D/C &nterprises v. &sta del 'ol ountain /eserve, Inc., the Court

introduced the nature of the controversy test" e declared in this case that it is not the mere existence of

an intra0corporate relationship that gives rise to an intra0corporate controversy/ to rely on the relationship

test alone !ill divest the regular courts of their 3urisdiction for the sole reason that the dispute involves a

corporation, its directors, oJcers, or stoc.holders" e sa! that there is no legal sense in disregarding or

minimiHing the value of the nature of the transactions !hich gives rise to the dispute"

Ender the nature of the controversy test, the incidents of that relationship must also be considered for the

purpose of ascertaining !hether the controversy itself is intra0corporate" #he controversy must not only be

rooted in the existence of an intra0corporate relationship, but must as !ell pertain to the enforcement of

the partiesG correlative rights and obligations under the Corporation Code and the internal and intra0

corporate regulatory rules of the corporation" If the relationship and its incidents are merely incidental to

the controversy or if there !ill still be conPict even if the relationship does not exist, then no intra0

corporate controversy exists"

#he Court then combined the t!o tests and declared that 3urisdiction should be determined by considering

not only the status or relationship of the parties, but also the nature of the -uestion under controversy"

#his t!o0tier test !as adopted in the recent case of 'peed Distribution Inc. v. Court of AppealsF

Q#o determine !hether a case involves an intra0corporate controversy, and is to be heard and decided by

the branches of the 9#C speci$cally designated by the Court to try and decide such cases, t!o elements

must concur: (a the status or relationship of the parties, and (2 the nature of the -uestion that is the

sub3ect of their controversy

#he $rst element re-uires that the controversy must arise out of intra0corporate or partnership relations

bet!een any or all of the parties and the corporation, partnership, or association of !hich they are not

stoc.holders, members or associates, bet!een any or all of them and the corporation, partnership or

association of !hich they are stoc.holders, members or associates, respectively/ and bet!een such

corporation, partnership, or association and the State insofar as it concerns the individual franchises" #he

second element re-uires that the dispute among the parties be intrinsically connected !ith the regulation

of the corporation" If the nature of the controversy involves matters that are purely civil in character,

necessarily, the case does not involve an intra0corporate controversy"G (Real vs !angu "hilippines#

$nc# %R &o 1'()*)# +anuary 1,# 2-11 [.e/ 0astillo# +]

osted in Corporation and tagged %BB%, %tty" Dar. " iad, bar examination -uestions, @ar

9evie!, Commercial Ba!, Dercantile Ba! on Darch &', 2?&)" Beave a comment

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CORPORATION; IF A DISPUTE INVOLVES INTRA-CORPORATE CONTROVERSY !URISDICTION IS WITH THE RTC ACTING AS A SPECIAL COMMERCIAL COURT"

#his case reprises the 3urisdictional conundrum of !hether a complaint for illegal dismissal is cogniHable

by the Babor %rbiter (B% or by the 9egional #rial Court (9#C" #he determination of !hether the dismissed

oJcer !as a regular employee or a corporate oJcer unravels the conundrum" In the case of the regular

employee, the B% has 3urisdiction/ other!ise, the 9#C exercises the legal authority to ad3udicate"

here the complaint for illegal dismissal concerns a corporate oJcer, ho!ever, the controversy falls

under the 3urisdiction of the Securities and xchange Commission (SC, because the controversy arises

out of intra0corporate or partnership relations bet!een and among stoc.holders, members, or associates,

or bet!een any or all of them and the corporation, partnership, or association of !hich they are

stoc.holders, members, or associates, respectively/ and bet!een such corporation, partnership, or

association and the State insofar as the controversy concerns their individual franchise or right to exist as

such entity/ or because the controversy involves the election or appointment of a director, trustee, oJcer,

or manager of such corporation, partnership, or association" Such controversy, among others, is .no!n as

an intra0corporate dispute"

Section 2*" Corporate oJcers, -uorum"Immediately after their election, the directors of a corporation

must formally organiHe by the election of a president, !ho shall be a director, a treasurer !ho may or may

not be a director, a secretary !ho shall be a resident and citiHen of the hilippines, and such other

ocers as may be provided for in the by-laws" %ny t!o (2 or more positions may be held

concurrently by the same person, except that no one shall act as president and secretary or as president

and treasurer at the same time"

#he directors or trustees and oJcers to be elected shall perform the duties en3oined on them by la! and

the by0la!s of the corporation" Enless the articles of incorporation or the by0la!s provide for a greater

ma3ority, a ma3ority of the number of directors or trustees as $xed in the articles of incorporation shall

constitute a -uorum for the transaction of corporate business, and every decision of at least a ma3ority of

the directors or trustees present at a meeting at !hich there is a -uorum shall be valid as a corporate act,

except for the election of oJcers !hich shall re-uire the vote of a ma3ority of all the members of the

board"

6irectors or trustees cannot attend or vote by proxy at board meetings"

Conformably !ith Section 2*, a position must be expressly mentioned in the @y0Ba!s in order to be

considered as a corporate oJce" #hus, the creation of an oJce pursuant to or under a @y0Ba! enabling

provision is not enough to ma.e a position a corporate oJce" ;uerrea v" BeHama,the $rst ruling on the

matter, held that the only oJcers of a corporation !ere those given that character either by the

Corporation Code or by the @y0Ba!s/ the rest of the corporate oJcers could be considered only as

employees or subordinate oJcials" #hus, it !as held in &asycall Communications *hils., Inc. v. ing:

%n “oce” is created by the charter of the corporation and the oJcer is elected by the directors or

stoc.holders" 1n the other hand, an employee occupies no oJce and generally is employed not by the

action of the directors or stoc.holders but by the managing oJcer of the corporation !ho also determines

the compensation to be paid to such employee"

#hus, pursuant to the above provision (Section 2* of the Corporation Code, !hoever are the corporate

oJcers enumerated in the by0la!s are the exclusive 1Jcers of the corporation and the @oard has no

po!er to create other 1Jces !ithout amending $rst the corporate @y0la!s" However, the Board may

create appointive positions other than the positions of corporate Ocers, but the personsoccupying such positions are not considered as corporate ocers within the meaning of

Section ! of the "orporation "ode and are not empo!ered to exercise the functions of the corporate

1Jcers, except those functions la!fully delegated to them" #heir functions and duties are to be

determined by the @oard of 6irectorsL#rustees"

#he establishment of any of the relationships mentioned above !ill not necessarily al!ays confer

3urisdiction over the dispute on the SC to the exclusion of regular courts" #he statement made in one case

that the rule admits of no exceptions or distinctions is not that absolute" #he better policy in determining

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!hich body has 3urisdiction over a case !ould be to consider not only the status or relationship of the

parties but also the nature of the -uestion that is the sub3ect of their controversy"

In order that the SC (no! the regular courts can ta.e cogniHance of a case, the controversy must

pertain to any of the follo!ing relationships:

a bet!een the corporation, partnership or association and the public/

b bet!een the corporation, partnership or association and its stoc.holders, partners, members or oJcers/

c bet!een the corporation, partnership or association and the State as far as its franchise, permit orlicense to operate is concerned/ and

d among the stoc.holders, partners or associates themselves"

atling $ndustrial and 0ommercial 0orporation vs 0oros# %R &o 1*)(-2# 4ctober 13# 2-1-#

[5ersamin# +]

osted in %BB%, %tty" Dar. " iad, @ar xams, Commercial Ba!, Corporation,


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pesos per share: rovided, further, #hat the entire consideration received by the corporation for its no0par

value shares shall be treated as capital and shall not be available for distribution as dividends"

% corporation may, furthermore, classify its shares for the purpose of insuring compliance !ith

constitutional or legal re-uirements"

xcept as other!ise provided in the articles of incorporation and stated in the certi$cate of stoc., each

share shall be e-ual in all respects to every other share"

here the articles of incorporation provide for non0voting shares in the cases allo!ed by this Code, theholders of such shares shall nevertheless be entitled to vote on the follo!ing matters:

&" %mendment of the articles of incorporation/

2" %doption and amendment of by0la!s/

" Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate

property/

)" Incurring, creating or increasing bonded indebtedness/

*" Increase or decrease of capital stoc./

+" Derger or consolidation of the corporation !ith another corporation or other corporations/

'" Investment of corporate funds in another corporation or business in accordance !ith this Code/ and

8" 6issolution of the corporation"

xcept as provided in the immediately preceding paragraph, the vote necessary to approve a particular

corporate act as provided in this Code shall be deemed to refer only to stoc.s !ith voting rights"

Indisputably, one of the rights of a stoc.holder is the right to participate in the control or management of

the corporation"#his is exercised through his vote in the election of directors because it is the board of

directors that controls or manages the corporation"In the absence of provisions in the articles of

incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as

common shares" Mo!ever, preferred shareholders are often excluded from any control, that is, deprived of

the right to vote in the election of directors and on other matters, on the theory that the preferred

shareholders are merely investors in the corporation for income in the same manner as bondholders"In

fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to

vote"Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision

in the articles of incorporation restricting the right of common shareholders to vote is invalid"

#hus, +? percent of the “capital” assumes, or should result in, “controlling interest” in the

corporation" 9einforcing this interpretation of the term “capital,” as referring to controlling interest or

shares entitled to vote, is the de$nition of a “hilippine national” in the oreign Investments %ct of &77&,to

!it:

SC" " Denitions. %s used in this %ct:

a" #he term “*hilippine nationalH shall mean a citiHen of the hilippines/ or a domestic partnership or

association !holly o!ned by citiHens of the hilippines/ or a corporation organi%ed under the laws of

the 'hilippines of which at least si&ty percent +./ of the capital stoc0

outstanding and entitled to vote is owned and held by citi%ens of the 'hilippines/ o r a

corporation organiHed abroad and registered as doing business in the hilippines under the Corporation

Code of !hich one hundred percent (&?? of the capital stoc. outstanding and entitled to vote is !holly

o!ned by ilipinos or a trustee of funds for pension or other employee retirement or separation bene$ts,

!here the trustee is a hilippine national and at least sixty percent (+? of the fund !ill accrue to the

bene$t of hilippine nationals: *rovided, #hat !here a corporation and its non0ilipino stoc.holders o!n

stoc.s in a Securities and xchange Commission (SC registered enterprise, at least sixty percent (+?

of the capital stoc. outstanding and entitled to vote of each of both corporations must be o!ned and held

by citiHens of the hilippines and at least sixty percent (+? of the members of the @oard of 6irectors of

each of both corporations must be citiHens of the hilippines, in order that the corporation, shall be

considered a “hilippine national"” (mphasis supplied

In explaining the de$nition of a “hilippine national,” the Implementing 9ules and 9egulations of the

oreign Investments %ct of &77& provide:


14/23

b" “*hilippine nationalH shall mean a citiHen of the hilippines or a domestic partnership or association

!holly o!ned by the citiHens of the hilippines/ or a corporation organi%ed under the laws of the

'hilippines of which at least si&ty percent 1.2 of the capital stoc0 outstanding and entitled

to vote is owned and held by citi%ens of the 'hilippines/ or a trustee of funds for pension or other

employee retirement or separation bene$ts, !here the trustee is a hilippine national and at least sixty

percent 4+?5 of the fund !ill accrue to the bene$t of the hilippine nationals/ *rovided, that !here a

corporation its non0ilipino stoc.holders o!n stoc.s in a Securities and xchange Commission 4SC5registered enterprise, at least sixty percent 4+?5 of the capital stoc. outstanding and entitled to vote of

both corporations must be o!ned and held by citiHens of the hilippines and at least sixty percent 4+?5 of

the members of the @oard of 6irectors of each of both corporation must be citiHens of the hilippines, in

order that the corporation shall be considered a hilippine national" #he control test shall be applied for

this purpose"

"ompliance with the re3uired 4ilipino ownership of a corporation shall be determined on the

basis of outstanding capital stoc0 whether fully paid or not, but only such stoc0s which are

generally entitled to vote are considered5

4or stoc0s to be deemed owned and held by 'hilippine citi%ens or 'hilippine nationals, mere

legal title is not enough to meet the re3uired 4ilipino e3uity5 4ull bene$cial ownership of the

stoc0s, coupled with appropriate voting rights is essential5 (hus, stoc0s, the voting rights of

which have been assigned or transferred to aliens cannot be considered held by 'hilippine

citi%ens or 'hilippine nationals5

6ndividuals or 7uridical entities not meeting the aforementioned 3uali$cations are considered

as non-'hilippine nationals5 (mphasis supplied

Dere legal title is insuJcient to meet the +? percent ilipino0o!ned “capital” re-uired in the Constitution"

ull bene$cial o!nership of +? percent of the outstanding capital stoc., coupled !ith +? percent of the

voting rights, is re-uired" #he legal and bene$cial o!nership of +? percent of the outstanding capital stoc.

must rest in the hands of ilipino nationals in accordance !ith the constitutional mandate" 1ther!ise, the

corporation is “considered as non0hilippine national4s5"”

Ender Section &?, %rticle RII of the Constitution, Congress may “reserve to citiHens of the hilippines or to

corporations or associations at least sixty per centum of !hose capital is o!ned by such citiHens, or such

higher percentage as Congress may prescribe, certain areas of investments"” #hus, in numerous la!s

Congress has reserved certain areas of investments to ilipino citiHens or to corporations at least sixty

percent of the “capital” of !hich is o!ned by ilipino citiHens" Some of these la!s are: (& 9egulation of

%!ard of ;overnment Contracts or 9"%"


15/23

In the example given, only the foreigners holding the common shares have voting rights in the election of

directors, even if they hold only &?? shares" #he foreigners, !ith a minuscule e-uity of less than ?"??&

percent, exercise control over the public utility" 1n the other hand, the ilipinos, holding more than 77"777

percent of the e-uity, cannot vote in the election of directors and hence, have no control over the public

utility" #his star.ly circumvents the intent of the framers of the Constitution, as !ell as the clear language

of the Constitution, to place the control of public utilities in the hands of ilipinos" It also renders illusory

the State policy of an independent national economy e6ectively controlled by ilipinos" #he example given is not theoretical but can be found in the real !orld, and in fact e7ists in the

present case. @ %amboa vs Teves# et al# %R &o 1)'*),# +une 2(# 2-11# [0arpio# +]

>

osted in %BB%, %tty" Dar. " iad, @ar xams, Commercial Ba!, Corporation, Dercantile Ba!,r" v" Court of %ppeals, ;"9"


16/23

hen a signature is forged or made !ithout the authority of the person !hose signature it purports to be,

#he signature is !holly inoperative,

%nd no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof

against any party thereto can be ac-uired through or under such signature"

#he case of &atividad %empesaw vs The 8onorable 0ourt of 9ppeals and "hilippine

5an: of 0ommunications [1], the Supreme Court, spea.ing through >ustice Campos laid do!n a detaileddiscussion on the nature and eFect of forgery, to !it:

“Ender the aforecited provision, forgery is a real or absolute defense by the party !hose signature

!as forged" % party !hose signature to an instrument !as forged !as never a party and never gave his

consent to the contract !hich gave rise to the instrument" Since his signature does not appear in the

instrument, he cannot be held liable thereon by anyone, not even by a holder in due course" #hus, if a

personGs signature is forged as a ma.er of a promissory note, he cannot be made to pay because he never

made the promise to pay" 1r !here a personGs signature as a dra!er of a chec. is forged, he cannot

charge the amount thereof against the dra!erGs account because he never gave the ban. the order to

pay" %nd said section does not refer only to the forged signature of the ma.er of a promissory note and of

the dra!er of a chec." It covers also a forged indorsement, i.e., the forged signature of the payee or

indorsee of a note or a chec." Since under said provision a forged signature is “!holly inoperative”, no one

can gain title to the instrument through such forged indorsement" Such an indorsement prevents any

subse-uent party from ac-uiring any right as against any party !hose name appears prior to the forgery"

%lthough rights may exist bet!een and among parties subse-uent to the forged indorsement, not one of

them can ac-uire tights against parties prior to the forgery" Such forged indorsement cuts oF the rights of

all subse-uent parties as against parties prior to the forgery" Mo!ever, the la! ma.es an exception to

these rules !here a party is precluded from setting up forgery as a defense"”

NEGOTIABLE INSTRUMENT; WHAT IS THE EFFECT OF FORGERY ON THE INSTRUMENT%

hen a signature is forged or made !ithout the authority of the person !hose signature

it purports to be,

#he signature is !holly inoperative,

%nd no right to retain the instrument, or to give a discharge therefor, or to enforce

payment thereof against any party thereto can be ac-uired through or under such

signature"

#he case of &atividad %empesaw vs The 8onorable 0ourt of 9ppeals and "hilippine 5an: of 0ommunications [1], the Supreme Court, spea.ing through >ustice

Campos laid do!n a detailed discussion on the nature and eFect of forgery, to !it:

“Ender the aforecited provision, forgery is a real or absolute defense by the party

!hose signature !as forged" % party !hose signature to an instrument !as forged !as

never a party and never gave his consent to the contract !hich gave rise to the

instrument" Since his signature does not appear in the instrument, he cannot be held

liable thereon by anyone, not even by a holder in due course" #hus, if a personGs

signature is forged as a ma.er of a promissory note, he cannot be made to pay because

he never made the promise to pay" 1r !here a personGs signature as a dra!er of a chec.is forged, he cannot charge the amount thereof against the dra!erGs account because he

never gave the ban. the order to pay" %nd said section does not refer only to the forged

signature of the ma.er of a promissory note and of the dra!er of a chec." It covers also

a forged indorsement, i.e., the forged signature of the payee or indorsee of a note or a

chec." Since under said provision a forged signature is “!holly inoperative”, no one can

gain title to the instrument through such forged indorsement" Such an indorsement

prevents any subse-uent party from ac-uiring any right as against any party !hose

https://attymarkpiad.wordpress.com/page/3/#_ftn1https://attymarkpiad.wordpress.com/2014/03/09/negotiable-instrument-what-is-the-effect-of-forgery-on-the-instrument/https://www.blogger.com/blogger.g?blogID=530365511115753182#_ftn1https://attymarkpiad.wordpress.com/page/3/#_ftn1https://attymarkpiad.wordpress.com/2014/03/09/negotiable-instrument-what-is-the-effect-of-forgery-on-the-instrument/https://www.blogger.com/blogger.g?blogID=530365511115753182#_ftn1


17/23

name appears prior to the forgery" %lthough rights may exist bet!een and among

parties subse-uent to the forged indorsement, not one of them can ac-uire tights

against parties prior to the forgery" Such forged indorsement cuts oF the rights of all

subse-uent parties as against parties prior to the forgery" Mo!ever, the la! ma.es an

exception to these rules !here a party is precluded from setting up forgery as a

defense"”

4&5 ;"9"


18/23

credit"


19/23

had issued the letter of credit" (Shaterian, xport0Import @an.ing, p" 27), cited in%gbayani Commercial Ba!s of the hilippines, Aol" &, p" '' % notifying ban. is not a privy to the contract of sale bet!een the buyer and theseller, its relationship is only !ith that of the issuing ban. and not !ith the bene$ciary to!hom he assumes no liability" It follo!s therefore that !hen the petitioner refused tonegotiate !ith the private respondent, the latter has no cause of action against thepetitioner for the enforcement of his rights under the letter" ('ee Nronman and Co", Inc"v" ublic


20/23

In etropolitan Jaterwors and 'ewerage 'ystem vs. Daway [;], !e have also de$ned a letter of credit as

an engagement by a ban. or other person made at the re-uest of a customer that the issuer shall honor

drafts or other demands of payment upon compliance !ith the conditions speci$ed in the credit"4*5

#he letter of credit evolved as a mercantile specialty, and the only !ay to understand all its facets is to

recogniHe that it is an entity unto itself" #he relationship bet!een the bene$ciary and the issuer of a letter

of credit is not strictly contractual, because both privity and a meeting of the minds are lac.ing, yet strict

compliance !ith its terms is an enforceable right"


21/23

ydro Corporation, et al., G./. -o. #3;;, -ovember !!, !55#, 6


22/23

the highest degree of diligence is expected, and high standards of integrity and performance are re-uired

of it" (-uitable @an.ing Corporation, Inc" vs" Special Steel roducts, ;"9"


23/23

In the case of /izal Commercial )aning Corporation vs. i=ustice Sereno held that: “the mere issuance of a managerGs chec. does not ipso

fact !or. as an automatic transfer of funds to the account of the payee" In case the procurer of the

managerGs or cashierGs chec. retains custody of the instrument, does not tender it to the intended payee,

or fails to ma.e an eFective delivery, !e $nd the follo!ing provision on undelivered instruments under the

transportation law 2015

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