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subsequent encashment, their proceeds or part thereof could have been

recovered.

WHEREFORE, the assailed Court of Appeals Decision s hereby
AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear
the loss on a 60-40 ratio. ( CENTRAL BANK OF THE PHI LI PPI NES Vs.
CI TYTRUST BANKI NG CORPORATI ON, G.R. No. 141835, Febr uar y 4,
2009)

VI. NEGOTIABLE INSTRUMENTS LAW

1. Sometime in 1983, Avelino Violago, President of Violago Motor Sales
Corporation (VMSC), offered to sell a car to his cousin, Pedro F. Violago,
and the latters wife, Florencia. Avelino explained that he needed to sell a
vehicle to increase the sales quota of VMSC, and that the spouses would
just have to pay a down payment of PhP 60,500 while the balance would
be financed by respondent BA Finance. The spouses would pay the monthly
installments to BA Finance while Avelino would take care of the
documentation and approval of financing of the car. Under these terms,
the spouses then agreed to purchase a car.

Spouses and Avelino, then, signed a promissory note under which
they bound themselves to pay jointly and severally to the order of VMSC
the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a
month, the first installment to be due and payable on September 16,
1983. VMSC then issued a sales invoice in favor of the spouses and the
latter executed a chattel mortgage over the car in favor of VMSC as
security for the amount of PhP 209,601. VMSC, through Avelino, endorsed
the promissory note to BA Finance without recourse.

The spouses were unaware that the same car had already been sold
in 1982 to Esmeraldo Violago, another cousin of Avelino, and registered in
Esmeraldos name. Despite the spouses demand for the car and Avelinos
repeated assurances, there was no delivery of the vehicle. Since VMSC
failed to deliver the car, Pedro did not pay any monthly amortization to BA
Finance.

Thereafter, BA Finance filed with the RTC of Pasay City a complaint
or Replevin with Damages against the spouses praying for the delivery of
the vehicle or if the same cannot be effected, for the payment of the
amount they had paid plus interest. The RTC issued an Order of Replevin.
The Violago spouses, were declared in default for failing to file an answer.
Eventually, the RTC rendered a decision in favor of BA Finance followed by
an alias writ of execution.

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Spouses Violago filed a Motion for Reconsideration and Motion to

Quash Writ of Execution on the basis of lack of a valid service of summons
on them, among other reasons. The RTC denied the motions; hence, the
spouses filed a petition for certiorari under Rule 65 before the CA which in
turn, nullified the RTC's order. This CA decision became final and
executory.

The spouses filed their Answer before the RTC. It is the contention of
the spouses that BA Finance was not a holder in due course under Section
59 of the Negotiable Instruments Law (NIL); and the recourse of BA
Finance should be against VMSC. The RTC rendered a decision finding for
BA Finance but against the Violago spouses. The RTC, however, declared
that they are entitled to be indemnified by Avelino. Thus, petitioner
spouses appealed to the Court of Appeals. The appeal, however, was
dismissed and it set aside the trial court's order holding Avelino liable for
damages to the spouses. Aggrieved, petitioners filed the present petition.

WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE
PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE
COURSE

The ruling of the appellate court is set aside insofar as it dismissed,
without prejudice, the third party complaint of petitioners against Avelino
thereby effectively absolving Avelino from any liability under the third
party complaint.

Clearly, in this case, the note is a negotiable instrument. The
promissory note clearly satisfies the requirements of a negotiable
instrument under the NIL. It is in writing; signed by the Violago spouses;
has an unconditional promise to pay a certain amount, on specific dates in
the future which could be determined from the terms of the note; made
payable to the order of VMSC; and names the drawees with certainty. The
indorsement by VMSC to BA Finance appears likewise to be valid and
regular.

The more important issue now is whether or not BA Finance is a
holder in due course. The resolution of this issue will determine whether
petitioners defense of fraud and nullity of the sale could validly be raised
against respondent corporation. The law presumes that a holder of a
negotiable instrument is a holder thereof in due course.

In the present recourse, on its face, (a) the "Promissory Note" is
complete and regular; (b) the "Promissory Note" was endorsed by the
VMSC in favor of BA Finance; (c) BA Finance, in accepting the note acted
in good faith and for value; (d) BA Finance was never informed, before and
at the time of endorsement of the promissory note that the vehicle sold to
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the spouses was not delivered and had already been previously sold to
someone else.

In the hands of one other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were non-negotiable. A
holder in due course, however, holds the instrument free from any defect
of title of prior parties and from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full
amount thereof. Since BA Finance is a holder in due course, petitioners
cannot raise the defense of non-delivery of the object and nullity of the
sale against the corporation. The NIL considers every negotiable
instrument prima facie to have been issued for a valuable consideration.

CAN AVELINO AND VMSC BE BOTH HELD LIABLE FOR FRAUDULENT
ACTS COMMITTED AGAINST THE SPOUSES?

Yes. It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders and
from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. The test in determining the
applicability of piercing the veil of corporate fiction is there must be
control not only of finances but also of police and business, such control
must have been used to commit fraud or wrong and such control and
breach of duty must proximately cause the injury or unjust loss
complained of.

This case meets the foregoing test. VMSC is a family-owned
corporation of which Avelino was president. Avelino committed fraud in
selling the vehicle to petitioners, a vehicle that was previously sold to
Avelinos other cousin, Esmeraldo. Nowhere in the pleadings did Avelino
refute the fact that the vehicle in this case was already previously sold to
Esmeraldo; he merely insisted that he cannot be held liable because he
was not a party to the transaction. Avelino, knowing fully well that the
vehicle was already sold, and with abuse of his relationship with the
spouses, still proceeded with the sale and collected the down payment
from petitioners. Avelino clearly defrauded petitioners. His actions were
the proximate cause of petitioners loss. He cannot now hide behind the
separate corporate personality of VMSC to escape from liability for the
amount adjudged by the trial court in favor of petitioners. Even if we are
to assume arguendo that the obligation was incurred in the name of the
corporation, the petitioner would still be personally liable therefor because
for all legal intents and purposes, he and the corporation are one and the
same. ( SPOUSES PEDRO AND FLORENCI A VI OLAGO Vs. BA FI NANCE
COPRORATI ON ET. AL., G.R. No. 158262, J ul y 21, 2008)

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2. Petitioner Claude P. Bautista, in his capacity as President and

Presiding Officer of Cruiser Bus Lines and Transport Corporation,
purchased various spare parts from private respondent Auto Plus Traders,
Inc. and issued two postdated checks to cover his purchases. The checks
were subsequently dishonored. One check was drawn from Cruiser Bus
Lines while another check was drawn from petitioner's account. Private
respondent then executed an affidavit-complaint for violation of Batas
Pambansa Blg. 22 against petitioner. Consequently, two Informations for
violation of the said law.

Petitioner pleaded not guilty. Trial on the merits ensued. After the
presentation of the prosecution's evidence, petitioner filed a demurrer to
evidence which was granted by the MTCC. However, Cruiser Bus Line was
held liable to pay the entire amount of the two checks including interests.

Thereafter, both parties appealed to the RTc which affirmed the
decision with modification as to interests imposed. On appeal, the Court of
Appeals denied the petition.

IS PETITIONER PERSONALLY LIABLE FOR THE VALUE OF THE TWO
CHECKS ISSUED BY A CORPORATION?

No. Juridical entities have personalities separate and distinct from its
officers and the persons composing it. Generally, the stockholders and
officers are not personally liable for the obligations of the corporation
except only when the veil of corporate fiction is being used as a cloak or
cover for fraud or illegality, or to work injustice. These situations,
however, do not exist in this case. The evidence shows that it is Cruiser
Bus Lines and Transport Corporation that his obligations to Auto Plus
Traders, Inc. for tires. There is no agreement that petitioner shall be held
liable for the corporation's obligations in his personal capacity. Hence, he
cannot be held liable for the value of the two checks issued in payment for
the corporation's obligation.

IS THE MERE FACT THAT THE CHECK WAS DRAWN FROM
PETITIONER'S PERSONAL ACCOUNT AN EVIDENCE THAT HE IS AN
ACCOMMODATION PARTY?

Likewise, contrary to private respondent's contentions, petitioner
cannot be considered liable as an accommodation party. Section 29 of the
Negotiable Instruments Law defines accommodation party as a person who
has signed the instrument as a maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name
to some other person. He must be a party to the instrument, he must not
receive value therefor and he must sign for the purpose of lending his
name or credit to some other person.
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The first two elements are present here, however there is insufficient
evidence presented in the instant case to show the presence of the third
requisite. All that the evidence shows is that petitioner signed the check
which is drawn against his personal account. There is no showing of when
petitioner issued the check and in what capacity. In the absence of
concrete evidence it cannot just be assumed that petitioner intended to
lend his name to the corporation. Hence, petitioner cannot be considered
as an accommodation party.

Cruiser Bus Lines and Transport Corporation, however, remains liable
for the checks especially since there is no evidence that the debts covered
by the subject checks have been paid. ( CLAUDE P. BAUTI STA Vs. AUTO
PLUS TRADERS, I NCORPORATED and COURT OF APPEALS, G.R. No.
166405, August 6, 2008)

3. Respondents-Spouses Erlando and Norma Rodriguez were clients of
petitioner Philippine National Bank (PNB). The spouses were engaged in
the informal lending business. In line with their business, they had a
discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. Naturally,
PEMSLA was likewise a client of PNB. The association maintained current
and savings accounts with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez
would rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would
replace the postdated checks with their own checks issued in the name of
the members.

It was PEMSLAs policy not to approve applications for loans of
members with outstanding debts. To subvert this policy, some PEMSLA
officers devised a scheme to obtain additional loans despite their
outstanding loan accounts. They took out loans in the names of unknowing
members, without the knowledge or consent of the latter. The PEMSLA
checks issued for these loans were then given to the spouses for
rediscounting. The officers carried this out by forging the indorsement of
the named payees in the checks. In return, the spouses issued their
personal checks (Rodriguez checks) in the name of the members and
delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the
other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA
to its savings account without any indorsement from the named payees.
This was an irregular procedure made possible through the facilitation of
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Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB
Branch. It appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued
sixty nine (69) checks, in the total amount of P2,345,804.00. These were
payable to forty seven (47) individual payees who were all members of
PEMSLA.

Petitioner PNB eventually found out about these fraudulent acts. To
put a stop to this scheme, PNB closed the current account of PEMSLA. As a
result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason "Account Closed." The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings account.
The amounts were duly debited from the Rodriguez account. Thus, because
the PEMSLA checks given as payment were returned, spouses Rodriguez
incurred losses from the rediscounting transactions.

The spouses Rodriguez filed complaints for damages against PEMSLA
and PNB. They sought to recover the value of their checks that were
deposited to the PEMSLA savings account amounting to P2,345,804.00.
The spouses contended that because PNB credited the checks to the
PEMSLA account even without indorsements, PNB violated its contractual
obligation to them as depositors. PNB paid the wrong payees, hence, it
should bear the loss.

The trial court rendered a decision in favor of spouses Rodriguez and
held PNB liable to return the value of the checks.

On appeal, the Court of Appeals reversed and set aside the trial
court's decision. CA explained that the checks were bearer instruments,
thus they do not require indorsement for negotiation; and that spouses
Rodriguez and PEMSLA conspired with each other to accomplish this
money-making scheme. The payees in the checks were "fictitious payees"
because they were not the intended payees at all.

Spouses Rodriguez filed a motion for reconsideration which was
granted by the CA. Then in an Amended Decision, the CA reversed itself
and held PNB liable for the amount of the check and interests to the
spouses. The CA, in its amended decision ruled that the checks were
payable to order. According to the appellate court, PNB failed to present
sufficient proof to defeat the claim of the spouses Rodriguez that they
really intended the checks to be received by the specified payees. Thus,
PNB is liable for the value of the checks which it paid to PEMSLA without
indorsements from the named payees. Hence, this present petition filed by
PNB.

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WHAT IS THE FICTITIOUS PAYEE RULE?

Under the fictitious payee rule, a check which is made expressly
payable to a non-fictitious and existing person is not necessarily an order
instrument. If the payee is not the intended recipient of the proceeds of
the check, the payee is considered a "fictitious" payee and the check is a
bearer instrument. A broader concept of this rule yields that an actual,
existing, and living payee may also be "fictitious" if the maker of the check
did not intend for the payee to in fact receive the proceeds of the check.
This usually occurs when the maker places a name of an existing payee on
the check for convenience or to cover up an illegal activity.

ARE THE SUBJECT CHECKS PAYABLE TO ORDER OR TO BEARER AND
CONSEQUENTLY, WHO BEARS THE LOSS?

Petitioner bears the loss.

As a rule, when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as a bearer instrument.
The distinction between bearer and order instruments lies in their manner
of negotiation. Under Section 30 of the NIL, an order instrument requires
an indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require an
indorsement to be validly negotiated. It is negotiable by mere delivery.

A check that is payable to a specified payee is an order instrument.
However, under Section 9(c) of the NIL, a check payable to a specified
payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable. Thus, checks issued to
"Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known
characters in Philippine mythology, are bearer instruments because the
named payees are fictitious and non-existent.

In a fictitious-payee situation, the drawee bank is absolved from
liability and the drawer bears the loss. When faced with a check payable to
a fictitious payee, it is treated as a bearer instrument that can be
negotiated by delivery. The underlying theory is that one cannot expect a
fictitious payee to negotiate the check by placing his indorsement thereon.
And since the maker knew this limitation, he must have intended for the
instrument to be negotiated by mere delivery.

However, there is a commercial bad faith exception to the fictitious-
payee rule. A showing of commercial bad faith on the part of the drawee
bank, or any transferee of the check for that matter, will work to strip it of
this defense. The exception will cause it to bear the loss. Commercial bad
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faith is present if the transferee of the check acts dishonestly, and is a

party to the fraudulent scheme.

In the case under review, the Rodriguez checks were payable to
specified payees. It is unrefuted that the 69 checks were payable to
specific persons. Likewise, it is uncontroverted that the payees were
actual, existing, and living persons who were members of PEMSLA that had
a rediscounting arrangement with spouses Rodriguez.

What remains to be determined is if the payees, though existing
persons, were "fictitious" in its broader context.

Verily, the subject checks are presumed order instruments. This is
because, as found by both lower courts, PNB failed to present sufficient
evidence to defeat the claim of respondents-spouses that the named
payees were the intended recipients of the checks proceeds. The bank
failed to satisfy a requisite condition of a fictitious-payee situation that
the maker of the check intended for the payee to have no interest in the
transaction.

Because of a failure to show that the payees were "fictitious" in its
broader sense, the fictitious-payee rule does not apply. Thus, the checks
are to be deemed payable to order. Consequently, the drawee bank bears
the loss. PNB was remiss in its duty as the drawee bank. It does not
dispute the fact that its teller or tellers accepted the 69 checks for deposit
to the PEMSLA account even without any indorsement from the named
payees. Moreover, PNB was negligent in the selection and supervision of
its employees. ( PHI LI PPI NE NATI ONAL BANK Vs. SPOUSES
RODRI GUEZ, G.R. No. 170325, September 26, 2008)

4. Lamberto Bitanga (Bitanga) obtained from respondent BA Finance
Corporation (BA Finance) a P329,280 loan to secure which, he mortgaged
his car to respondent BA Finance. The mortgage requires that the property
mortgaged must be insured against loss or damage by accident, theft and
fire for a period of one year and in case of loss, the proceeds shall be
payable to the mortgagee or its assigns as its interest may appear.

Bitanga thus had the mortgaged car insured by respondent Malayan
Insurance Co. which issued a policy stating that in loss, if any, shall be
payable to BA Finance Corp as its interest may appear.

The car was stolen. On Bitangas claim, Malayan Insurance issued a
check payable to the order of "B.A. Finance Corporation and Lamberto
Bitanga drawn against China Banking Corporation (China Bank). The check
was crossed with the notation "For Deposit Payees Account Only."

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Without the indorsement or authority of his co-payee BA Finance,

Bitanga deposited the check to his account with the Asianbank Corporation
(Asianbank), now merged with herein petitioner Metropolitan Bank and
Trust Company (Metrobank). Bitanga subsequently withdrew the entire
proceeds of the check.

In the meantime, Bitangas loan became past due, but despite
demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and of Malayan
Insurances issuance of a crossed check payable to it and Bitanga, and of
Bitangas depositing it in his account at Asianbank and withdrawing the
entire proceeds thereof. Hence, BA Finance demanded the payment of the
value of the check from Asian Bank but to no avail, prompting it to file a
complaint before Makati RTC for sum of money and damages against
Asianbank and Bitanga, alleging that, inter alia, it is entitled to the entire
proceeds of the check.

The trial court, holding that Asianbank was negligent in allowing
Bitanga to deposit the check to his account and to withdraw the proceeds
thereof, without his co-payee BA Finance having either indorsed it or
authorized him to indorse it in its behalf, found Asianbank and Bitanga
jointly and severally liable to BA Finance.

On appeal, the Court of Appeals affirmed the trial court's decision.
Hence, this present petition.

SHOULD THE COLLECTING BANK BE HELD LIABLE FOR ACCEPTING
THE CHECKS DEPOSITED WITHOUT THE INDORSEMENT OF ONE
OFTHE PAYEES, BA FINANCE?

Yes. Section 41 of the Negotiable Instruments Law is states that
where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one indorsing
has authority to indorse for the others.

Bitanga alone endorsed the crossed check, and petitioner allowed the
deposit and release of the proceeds thereof, despite the absence of
authority of Bitangas co-payee BA Finance to endorse it on its behalf. The
payment of an instrument over a missing indorsement is the equivalent of
payment on a forged indorsement or an unauthorized indorsement in itself
in the case of joint payees.



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IS PETITIONER LIABLE TO BA FINANCE FOR THE FULL VALUE OF

THE CHECK?

Yes. he provisions of the Negotiable Instruments Law and underlying
jurisprudential teachings on the black-letter law provide definitive
justification for petitioners full liability on the value of the check. To be
sure, a collecting bank, Asianbank in this case, where a check is deposited
and which indorses the check upon presentment with the drawee bank, is
an indorser. This is because in indorsing a check to the drawee bank, a
collecting bank stamps the back of the check with the phrase "all prior
endorsements and/or lack of endorsement guaranteed" and, for all intents
and purposes, treats the check as a negotiable instrument, hence,
assumes the warranty of an indorser. Without Asianbanks warranty, the
drawee bank (China Bank in this case) would not have paid the value of
the subject check.

Petitioner, as the collecting bank or last indorser, generally suffers
the loss because it has the duty to ascertain the genuineness of all prior
indorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of prior indorsements.
( METROPOLI TAN BANK AND TRUST COMPANY Vs. BA FI NANCE CORP
and MALAYAN I NSURANCE, G.R. No. 179952, December 4, 2009)

VII. TRANSPORTATION LAW

1. On June 20, 1993, MSAS Cargo International Limited and/or
Associated and/or Subsidiary Companies (MSAS) procured a marine
insurance policy from respondent ICNA UK Limited of London. The
insurance was for a transshipment of certain wooden work tools and
workbenches purchased for the consignee Science Teaching Improvement
Project (STIP), Ecotech Center. ICNA issued an "all-risk" open marine
policy.

The cargo, packed inside one container van, was shipped "freight
prepaid" from Hamburg, Germany on board M/S Katsuragi. A clean bill of
lading was issued by Hapag-Lloyd which stated the consignee to be STIP,
Ecotech Center. Eventually, the cargo was received by petitioner Aboitiz
Shipping Corporation (Aboitiz) through its duly authorized booking
representative, Aboitiz Transport System. The bill of lading issued by
Aboitiz contained the notation "grounded outside warehouse."

The container van was stripped and transferred to another
crate/container van without any notation on the condition of the cargo on
the Stuffing/Stripping Report. The shipment arrived in Cebu City and
discharged onto a receiving apron of the Cebu International Port. It was
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then brought to the Cebu Bonded Warehousing Corporation pending

clearance from the Customs authorities. In the Stripping Report,
petitioner's checker noted that the crates were slightly broken or cracked
at the bottom.

Thereafter, petitioner received a telephone call informing its claims
head that the cargo sustained water damage. The Claims Head
immediately went to the bonded warehouse and checked the condition of
the container and other cargoes stuffed in the same container. He found
that the container van and other cargoes stuffed there were completely
dry and showed no sign of wetness.

Aboitiz was informed of the damage noticed upon opening of the
cargo. ICNA was also contacted for insurance claims. The Claimsmen
Adjustment Corporation conducted an ocular inspection and survey of the
damage. CAC reported to ICNA that the goods sustained water damage,
molds, and corrosion which were discovered upon delivery to consignee.
Consequently, the consignee filed a formal claim with Aboitiz in the
amount of P276,540 for the damaged condition of the goods. CAC stated,
in its Supplemental Report that heavy rains caused water to damage the
shipment. The shipment was placed outside the warehouse of Pier No. 4,
North Harbor, Manila when it was delivered on July 26, 1993. The
shipment was placed outside the warehouse as can be gleaned from the
bill of lading issued by Aboitiz which contained the notation "grounded
outside warehouse."

Aboitiz refused to settle the claim. ICNA paid the amount of damages
claimed and then ICNA formally advised Aboitiz of the claim and
subrogation receipt executed in its favor.

ICNA filed a civil complaint against Aboitiz for collection of actual
damages plus interest. The trial court rendered a decision against ICNA.
The RTC ruled that ICNA failed to prove that it is the real party-in-interest
to pursue the claim against Aboitiz. The policy shows that it is ICNA UK
which issued the policy and complainant ICNA Phils., failed to show
evidence that ICNA UK is its predecessor-in-interest. Moreover, ICNA
Phils.' claim that it had been subrogated to the rights of the consignee
must fail because the subrogation receipt had no probative value for being
hearsay evidence.

On appeal, the Court of Appeals reversed and set aside the decision
of the trial court and held that the presumption that the carrier was at
fault or that it acted negligently was not overcome by any countervailing
evidence. Hence, this present petition.

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IS RESPONDENT ICNA THE REAL PARTY IN INTEREST THAT

POSSESSES THE RIGHT OF SUBROGATION TO CLAIM
REIMBURSEMENT FROM PETITIONER ABOITIZ?

Yes. A foreign corporation not licensed to do business in the
Philippines is not absolutely incapacitated from filing a suit in local courts.
Only when that foreign corporation is "transacting" or "doing business" in
the country will a license be necessary before it can institute suits. It may,
however, bring suits on isolated business transactions, which is not
prohibited under Philippine law. Thus, this Court has held that a foreign
insurance company may sue in Philippine courts upon the marine insurance
policies issued by it abroad to cover international-bound cargoes shipped
by a Philippine carrier, even if it has no license to do business in this
country.

In any case, We uphold the CA observation that while it was the
ICNA UK Limited which issued the subject marine policy, the present suit
was filed by the said company's authorized agent in Manila. It was the
domestic corporation that brought the suit and not the foreign company.
Its authority is expressly provided for in the open policy which includes the
ICNA office in the Philippines as one of the foreign company's agents.
Moreover, the provision in the open policy stated that claims may be filed
against any of its listed agents worldwide. In signing the policy, the
provision is deemed accepted and such operated as an acceptance of the
authority of the agents. Hence, a formal indorsement of the policy to the
agent in the Philippines was unnecessary for the latter to exercise the
rights of the insurer.

Also, respondent's cause of action is founded on it being subrogated
to the rights of the consignee of the damaged shipment. Upon payment to
the consignee of indemnity for damage to the insured goods, ICNA's
entitlement to subrogation equipped it with a cause of action against
petitioner in case of a contractual breach or negligence.

WAS THERE A TIMELY FILING OF THE NOTICE OF CLAIM AS
REQUIRED UNDER ARTICLE 366 OF THE CODE OF COMMERCE?

Yes. Under the Code of Commerce, the notice of claim must be made
within twenty four (24) hours from receipt of the cargo if the damage is
not apparent from the outside of the package. For damages that are
visible from the outside of the package, the claim must be made
immediately. The periods above, as well as the manner of giving notice
may be modified in the terms of the bill of lading, which is the contract
between the parties. Notably, neither of the parties in this case presented
the terms for giving notices of claim under the bill of lading issued by
petitioner for the goods.
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In this case, the call to petitioner was made two days from delivery,
a reasonable period considering that the goods could not have corroded
instantly overnight such that it could only have sustained the damage
during transit. Moreover, petitioner was able to immediately inspect the
damage while the matter was still fresh. In so doing, the main objective of
the prescribed time period was fulfilled. Thus, there was substantial
compliance with the notice requirement in this case.

CAN PETITIONER BE HELD LIABLE ON THE CLAIM FOR DAMAGES?

Yes. The rule as stated in Article 1735 of the Civil Code is that in
cases where the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence required by
law.

Here, the shipment delivered to the consignee sustained water
damage. The bill of lading issued by petitioner on July 31, 1993 contains
the notation "grounded outside warehouse," suggesting that from July 26
to 31, the goods were kept outside the warehouse. And since evidence
showed that rain fell over Manila during the same period, We can conclude
that this was when the shipment sustained water damage.

To prove the exercise of extraordinary diligence, petitioner must do
more than merely show the possibility that some other party could be
responsible for the damage. It must prove that it used "all reasonable
means to ascertain the nature and characteristic of the goods tendered for
transport and that it exercised due care in handling them.

Petitioner is thus liable for the water damage sustained by the goods
due to its failure to satisfactorily prove that it exercised the extraordinary
diligence required of common carriers. ( ABOI TI Z SHI PPI NG
CORPORATI ON Vs. I NSURANCE COMPANY OF NORTH AMERI CA, G.R.
No. 168402, August 6, 2008)

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