NIL Case Digest 2

G.R. No. 146717

November 22, 2004

TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents. FACTS On 26 March 1997, petitioner and respondent Luzon Hydro Corporation entered into a Turnkey Contract whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur . Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project. To secure performance of petitioner's obligation, petitioner opened in favor of LHC two (2) standby letters of credit.During the completion of the project, petitioner is always asking for extensions but respondents failed to grant it.For this reason the petitioner as filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against the respondents Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. ISSUE Whether or not writ for preliminary injunction should be granted. RULING It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioner's contention that the principle of "independent contract" could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. The use of credits in commercial transactions serves to reduce the risk of

nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits. There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the sellerbeneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract. A letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto. The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever. Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right. It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage. Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation. In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHC's call on the Securities which would justify the issuance of preliminary injunction. By petitioner's own admission, the right of LHC to call on the

Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract. Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default

SANTAMARIA V. HONGKONG AND SHANGHAI BANKING CORP. 89 PHIL 780 (1951) Facts: Around February 1937, Santamaria bought ten thousand shares for the sum of about P8,000.00 of the Batangas Minerals, Inc. through the offices of Woo, Uy-Tioco and Naftaly, a stock brokerage firm. The buyer received the stock certificates in the name of Woo, Uy-Tioco and Naftaly and indorsed in blank by the firm. Subsequently, Santamaria placed an order for ten thousand shares of the Crown Mines, Inc. This time through another brokerage firm by the name of R.J. Campos and Company. To secure the transaction, she submitted the stock certificate representing her prior purchase of Batangas Minerals, Inc. stocks which certificate was still in the same condition as Santamaria received it. Upon Santamaria’s return to R.J. Campos and Company for payment, she found out that the firm was desisted by the SEC to continue transacting business. She also learned that the certificate that was forwarded as security was in the possession of Hongkong and Shanghai Banking Corporation by virtue of a document of hypothecation wherein all shares in the brokerage firm’s custody was pledged to the

bank. In this aspect, HKSBC sent the certificate to Batangas Minerals, Inc. for registration. Hence, this civil action. Issue Whether or not the contested certificate of stock should be returned to Santamaria. RULING The Supreme Court ruled that it should not be returned. Santamaria was negligent in the transaction and is stopped from claiming further title against the bona fide transfer to HKSBC. The latter was justified in believing that R.J. Campos and Company had title thereto considering it was indorsed in blank, and, therefore, deemed quasi-negotiable. Thus, HKSBC cannot be blamed for believing that such belonged to the holder and transferor. Furthermore, the bank was not obligated to look beyond the certificate to ascertain the ownership of the stock at the time it received the same from R.J. Campos and Company, for it was given to the bank pursuant to their letter of hypothecation.

DE LOS SANTOS vs. J.H. MCGRATH, ATTORNEY GENERAL OF THE UNITED STATES

96 PHIL 577 (1955) FACTS In this case, De Los Santos contends that he acquired 1.6 million shares of the Lepanto Consolidated Mining Co., Inc. from two people; namely, Juan Campos and Carl Hess, sometime in 1942. The shares are registered in the name of Vicente Madrigal in the books of the corporation. After the war, the property was sequestered by the appropriate state agency since it was classified as Japanese property. As lawyer for the state, the Attorney General argues that the said shares were bought by Madrigal, in trust for, and for the benefit of the Mitsuis, a Japanese corporation, who is the true owner thereof. After such purchase, Madrigal delivered such shares to the Manila office of the Mitsuis with his blank indorsement on it. It was just kept there. The said shares were never sold and were most probably lost or stolen during liberation. ISSUE Whether or not the contested certificates of stock could be transferred to De Los Santos. Ruling The Supreme Court ruled that it cannot be transferred to De Los Santos. It was established that Madrigal never disposed of the said shares in any manner whatsoever, except by turning over the corresponding stock certificates to the Mitsuis. Furthermore, the managers of Mitsui during the concerned period attest that the Mitsuis neither sold, conveyed, or alienated the said shares of stock, nor delivered the aforementioned stock certificates, to anybody during the said period. Finally, even one of the evidence of a receipt of the alleged purchase by De Los Santos from Campos and Hess, who were not the registered owners, was lost though a fire. In summary, if the owner of the certificate has indorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value. Shares of stock being personal property may be the subject matter of pledge or chattel mortgage. Such collateral transfers are not covered by the registration requirement of Section 63 of the Code since our Supreme Court has held that such provision applies only to absolute transfer. In other words, the registration in the corporate books of pledges and chattel mortgages of shares cannot have any legal effect. Where the certificate of stock is delivered to the creditor as a security for the performance of an obligation, the contract is one of pledge governed by the Civil Code and not by the Chattel Mortgage. A pledge can take effect against third persons only if its date appears in a public instrument. If the certificate of stock is not delivered to the creditor, the transaction must be registered in the chattel mortgage registry of the province where the principal office of the corporation is located, in order that it may be effective against third persons.

G.R. No. 90888 September 13, 1990 FRUCTUOSO R. CAPCO, petitioner, vs. MANUEL R. MACASAET, JACOBO FELICIANO, and HONORABLE COURT OF APPEALS, respondents. The petitioner was a stockholder of record, director and executive vice-president of Monte Oro Mineral Resources, Inc., a local mining company whose shares were traded in the stock market. He owned 56,588,358 shares of the capital stock of Monte Oro with par value of P0.01 per share or a total par value of P565,883.58 as evidenced by Stock Certificate No. 002 for 14,159,583 shares and Stock Certificate No. 026 for 42,428,775 shares. The petitioner indorsed and delivered Stock Certificates Nos. 002 and 026 on February 18, 1976 to private respondent Manuel Macasaet, board chairman and President of Monte Oro.On April 26,1976, the petitioner demanded the return of his stock certificates from respondent Macasaet who failed to produce them because he had given them to the other private respondent Jacobo Feliciano, another officer of Monte Oro, allegedly in connection with a contemplated joint venture with the group of one Leonilo Esguerra.On April 28, 1976, respondent Macasaet replaced the petitioner's Stock Certificate No. 026 with his own Stock Certificate No. 025 covering 42,578,700 shares. The petitioner duly acknowledged the receipt of the said replacement. On May 4, 1976, Stock Certificate No. 002 was returned by respondent Macasaet to the petitioner as evidenced by the handwritten receipt signed by the latter who likewise made a handwritten notation stating "all cleared" at the left hand margin thereof.

On August 12, 1976, the petitioner filed a complaint for damages against the private respondents alleging, among others, that at the time he demanded his Stock Certificate Nos. 002 and 026 totalling 56,588,358 shares from respondent Macasaet the petitioner had a ready buyer for 0.014 per share for all shares; that due to the private respondents' failure to return the said stock certificates upon demand, the petitioner lost P306,115.25 representing the difference between the amount of P792,237.01 which he would have realized had his stock certificates been promptly given back and the sum of P486,121.76, the actual net proceeds from the subsequent sale of P42,550,000 shares at various prices after respondent Macasaet delivered his own Stock Certificate No. 025 in exchange for the petitioners Stock Certificate No. 026; that the aforesaid amount of P 306,115.25 had long been overdue and unpaid and despite repeated demands from the private respondents for the payment thereof, the latter had failed and refused to pay the same to the petitioner's damage and prejudice; and that due to the private respondents' intentional, deliberate and malicious acts, moral and exemplary damages could be awarded to the petitioner. Issue Whether or not respondent is liable for the two certificates of title and for the damages incurred by the petitioner Ruling Certificates of stocks are considered as "quasi-negotiable" instruments. When the owner or shareholder of these certificates signs the printed form of sale or assignment at the back of every stock certificate without filling in the blanks provided for the name of the transferee as well as for the name of the attorney-in-fact, the said owner or shareholder, in effect, confers on another all the indicia of ownership of the said stock certificates. In the case at bar, the petitioner signed the printed form at the back of both Stock Certificate Nos. 002 and 026 without filling in the blanks at the time the said stock certificates were delivered to respondent Macasaet. Hence, the petitioner's acts of indorsement and delivery conferred on respondent Macasaet the right to hold them as though they were his own. On account of this apparent transfer of ownership, it was not irregular on the part of respondent Macasaet to deliver the stock certificates in question to respondent Feliciano for consideration in connection with a contemplated tie-up between two business groups. At this juncture, it is worth noting that in view of the petitioner's concurrent positions as director, Executive Vice-President and General Manager of Monte Oro at the time of the incident under consideration, he could not have been unaware of the consequences of the delivery coupled with the indorsement of his two stock certificates to respondent Macasaet, notwithstanding the tenor of the Acknowledgment Receipt. Moreover, it is hard to believe that the petitioner's delivery of the subject stock certificates to respondent Macasaet was strictly for safe-keeping

purposes only because if that were his real and only intention, there is neither logic nor reason for the indorsement of the said certificates. We find no reversible error in the respondent Court's holding that the petitioner failed to support his claim that he suffered the claimed damages as a result of respondent Macasaet's failure to return Stock Certificate Nos. 002 and 026 upon demand. The alleged "unrealized profits" representing actual and compensatory damages must be supported by substantial and convincing proof. The records are bereft of such kind of proof. Mere allegation that there was a "ready and willing buyer' of all the petitioners shares covered by Stock Certificate Nos. 002 and 026 for P0.014 per share at the time the demand for the return of the said certificates was made cannot suffice to allow the petitioners claim for unrealized profits to prosper. Such claim is clearly speculative in nature. Actual or compensatory damages are those recoverable because of pecuniary loss in business, trade, property, profession, job or occupation, and the same must be proved; otherwise, if the proof is flimsy and non-substantial, no damages will be given The good faith of respondent Macasaet is shown by the fact that after trying to recover the missing certificates, he immediately substituted Stock Certificate No. 026 with his own Stock Certificate No. 025 which covered more shares than the petitioner's replaced certificate. The petitioner's other Stock Certificate No. 002 was subsequently returned and received by the petitioner with the notation "All Cleared" on the acknowledgment receipt duly signed and personally written by him. We agree with the respondent court's ruling that the said notation meant to discharge respondent Macasaet' together with his co-respondent Feliciano from any liability with respect to the stock certificates in question as there can be no other plausible interpretation therefor. He would not have written "all cleared" if he was unhappy at that time about the substitution of the higher value certificate for his other certificate. In fine, considering that in the absence of malice and bad faith, moral damages cannot be awarded (Philippine National Bank v. Court of Appeals, 159 SCRA 433 [19881) and that the grant of moral and exemplary damages has no basis if not predicated upon any of the cases enumerated in the Civil Code, we hold that the respondent court properly set aside the award of actual, moral and exemplary damages given by the trial court in favor of the petitioner. The petition is hereby DISMISSED. .

G.R. No. L-17825

June 26, 1922

In the matter of the Involuntary insolvency of U. DE POLI. FELISA ROMAN, claimant-appellee, vs. ASIA BANKING CORPORATION, claimant-appellant. FACTS The case is an appeal in civil case No. 19240 with regards to the insolvency of Umberto de Poli, and declaring the lien claimed by the appellee Felisa Roman upon a lot of leaf tobacco, consisting of 576 bales, and found in the possession of said insolvent, superior to that claimed by the appellant, the Asia Banking Corporation. The warehouse of U. de Poli for 576 bales of tobacco issued a warehouse receipt. In the face of the instrument ,U. de Poli certifies that he is the sole owner of the merchandise therein described. The receipt is endorced in blank "Umberto de Poli;" it is not marked "non-negotiable" or "not negotiable." ISSUES Whether or not warehouse receipt is negotiable instruments RULING Section 7 of the Uniform Warehouse Receipts Act, says: A non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it 'non-negotiable,' or 'not negotiable.' In case of the warehouseman's failure so to do, a holder of the receipt who purchased it for value supposing it to be negotiable may, at his option, treat such receipt as

imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. This section appears to give any warehouse receipt not marked "non-negotiable" or "not negotiable" practically the same effect as a receipt which, by its terms, is negotiable provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable, circumstances which admittedly exist in the present case. We therefore hold that the warehouse receipt in controversy was negotiable and that the rights of the endorsee thereof, the appellant, are superior to the vendor's lien of the appellee and should be given preference over the latter. The order appealed from is therefore reversed without costs.

G.R. No. L-8646

March 31, 1915

THE UNITED vs. BENITO SIY CONG BIEN BENITO SIY CONG BIENG, appellant.

STATES, plaintiff-appellee, and

CO

KONG, defendants.

FACTS Defendants Benito Siy Cong Bieng and Co Kong, were convicted of a violation of section 7 of Act No. 1655 of the Philippine Commission, known as the Pure Food and Drugs Act. Co Kong, while in charge of appellant's store and acting as his agent and

employee, sold, in the ordinary course of business coffee which had been adulterated by the admixture of peanuts and other extraneous substances while accused Benito Siy Cong Bieng had violated the provision of Act No. 1655 and was criminally responsible, in the same way as his agent Co Kong, notwithstanding the fact that he had never had any knowledge of the acts performed by his agent in selling adulterated coffee or of any kind of coffee. ISSUES a.Whether or not knowledge and intent is material in the act of commiting adulteration. b.Whether or not Siy Cong being should also be held liable with the acts performed by his agent without his knowledge RULING a.The intent to commit an act prohibited and penalized by statute must, of course, always appear before a conviction upon a charge of the commission of a crime can be maintained. But whether or not the existence of guilty knowledge and criminal or evil intent, that is to say, the conscious intent or will to violate the statute, just also appear ing order to sustain a judgment of conviction is a question which must be determined in each case by reference to the language of the statute defining the offense.The statutory definition of the offense embraces no word implying that the forbidden act shall be done knowingly or willfully, and if it did, the design and purpose of the Act would in many instances be thwarted and practically defeated. The intention of the Legislature is plain that persons engaged in the sale drugs and food products cannot set up their ignorance of the nature and quality of the commodities sold by them as a defense. We conclude therefore that under the Act proof of the facts of the sale of adulterated drugs and food products as prohibited by the Act is sufficient to sustain a conviction, without proof of guilty knowledge of the fact of adulteration, or criminal intent in the making of the sale other than that necessarily implied by the statute in the doing of the prohibited act. Supported by numerous citations of authority, Thornton in his work on "Pure Food and Drugs," says with reference to the Federal act of June 30, 1906: "The intent with which these several violations of the statute is done is immaterial. There may be no intention to violate the statute, yet if the act produces the result forbidden by the statute, an offense has been committed." (Sec. 119, p. 202.) b.And again: "Repeated statements have been made in this work that an intent to violate the statute is not necessary in order to incur the infliction of a penalty for the sale or keeping for sale of adulterated or impure food or drugs. An act performed with no intent to violate a purefoods statute is just as much a crime under this Federal Pure Food and Drug Act of June 30, 1906, as if a criminal design to violate it was

intended and entertained at the time of its performance. This rule extends to sales or other acts by servants." (Sec. 512, p. 613.) And under section 559, of the same author, citing numerous authorities, shows that in prosecutions for the sale of adulterated milk it has been quite uniformly held that it is no defense that the accused had no knowledge of the fact of alteration, and that it need not be alleged or proven that he had such knowledge, in the absence of special words in the statute requiring the sale to be made with knowledge of the adulteration. Labatt in his work on Master and Servant (vol. 7, sec. 2569) discusses the general rule as to liability of the master for criminal conduct of his servant as follows: "Although the courts are in accord as to the master's liability when he participates in the criminal conduct of his servant, there is a decided conflict of opinion as to his responsibility when the act of the servant is without the master's knowledge or connivance and against his express orders. These cases can be reconciled to some extent by the difference in the language employed in the statutes to define the various offenses, and the policy of the statutes themselves. Wherever guilty intent is an essential ingredient of the crime, it would be impossible to fix responsibility upon the master for his servant's transgression of the law, if the master did not harbor such an intent. . . . In most instances where the master is held to be responsible criminally for the wrongful conduct of his servant, it is on the theory that the act complained of is positively forbidden, and therefore guilty intention is not essential to a conviction of the offense." And in section 2573 "If certain acts are positively forbidden by statute, and it is the policy of the law to prohibit them, irrespective of what the motive or intent of the person violating statute may be, no principle of justice is violated by holding the master responsible for the conduct of his servant on the same theory that he is held responsible civilly." With this we are of opinion that even in the absence of express provisions in the statute, the appellant in the case at bar was properly held criminally responsible for the act of his agent in selling the adulterated coffee, and indeed it is clear that his liability is expressly contemplated under the provision of section 12 of Act No. 1655 of the Philippine Commission.

Michael A. Osmenia vs. Citibank Gr. No. 141278

March 23, 2004

Facts: Petitioner purchased from the Citibank Manager’s Check in the amount of P 1,545,000.00 PAYABLE TO respondent Frank Tan; the petitioner later received information that the aforesaid Maneger’s Check was deposited with the respondent bank Associated Bank to the account of certain Julius Dizon. The petitioner asserts that the check was payable to the order of respondent Tan. However, the Associated Bank ordered the check to be deposited to other account without proper indorsement. The intended payee has other name of Julius Dizon as evidenced by the “Agreement on Bills Purchased” and the Continuing Suretyship Agreement” executed between Frank Tan and the Respondent bank.

Issue: Whether the respondent banks acted negligently in depositing the proceeds to another account without prior indorsement. Held: No, the respondent bank did not act negligently and never committed any violation of its duties and responsibilities as the proceeds of the check went and credited to respondent Frank Tan, a.k.a. Julius Dizon. The petitioner failed to establish that the proceeds of the check were intended wrongfully paid by the respondent banks to a person other than the intended payee. In addition, the Negotiable Instrument Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial papers.

Metropolitan Bank & Trust Company vs. CA Gr No. 88866

February 18, 1991

Facts: Eduardo Gomez opened an account with Golden Savings and deposited 38 Treasury Warrants drawn by the Philippine Fish Marketing Authority with a total value of P1, 755,228.38. These warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Saving Account in Metrobank branch in Calapan Mindoro. They were sent for clearing by the branch office to the principle office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. The petitioner Metrobank allowed Golden Savings to withdraw from the proceeds of the warrants without being cleared. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury, and demanded the refund by Golden Savings of the amount it had previously withdrawn. Issue: 1. Whether Metropolitan Bank and Trust Co. or Golden Savings and loan association acted negligent. 2. Whether the contention of Metropolitan Bank that the holder of the instrument is a holder in due course. Held: 1. Golden Savings relied on Metrobank to determine the validity of the warrants through its own services and such the former had no clearing facilities. It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account. Metrobank is indeed negligent which exhibited extraordinary carelessness. There was no reason why it should not waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting yet, despite the lack of such clearance and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeated stressed- it allowed Golden Savings to withdraw- not once, not twice, but thrice from the uncleared treasury warrants. 2. Petitioner is not a holder in good faith and for value of a negotiable instrument and is not entitled to the rights and privileges of a holder in due course, which is free from defenses. Treasury warrants is not within the scope of the NIL. For one thing, the document bearing on its face the words “payable from the appropriation for food

administration”, is actually an order for payment out of “a particular fund,” and is not unconditional and does not fulfill one of the essential requirement of a negotiable instrument Sec. 1- Form of Negotiable Instrument- An instrument to be negotiable must conform to the following requirements: X Must contain an unconditional promise or order to pay a a sum certain in money; X