UNIVERSITY OF SAN CARLOS

COL L E GE OF L AW
BAR OPERATIONS

WARRIORS NOTES
MERCANTILE
LAW
2018
Prepared by: Researchers:
Mercantile Law Warrior Notes Team
Beverly Anne Balagon
Juna Aimee Francisco
Senior Adviser: Andrea Ivy Dy
Atty. Bernardino Amago IV
Atty. Karen Gaviola-Climaco
Layout:
Christia Sandee Suan
Junior Adviser: Karol Grace G. Oroceo
Atty. Rashid Pandi
WARRIOR NOTES MERCANTILE LAW REVIEWER INVICTUS (2018)

Table of Contents

I. CORPORATION LAW _____________________________________________________ 2

II. TRANSPORTATION LAW _________________________________________________ 5
III. NEGOTIABLE INSTRUMENTS LAW ________________________________________ 7
IV. INSURANCE LAW ________________________________________________________ 8
V. TRUTH IN LENDING ACT _______________________________________________ 10
VI. SOCIAL SECURITY CONDONATION LAW ________________________________ 10

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WARRIOR NOTES MERCANTILE LAW REVIEWER INVICTUS (2018)

the corporation’s business must be dismissed

under Sec. 122.
I. CORPORATION LAW
Lambert Pawnbrokers v. Binamira Is the complaint considered a
G.R. NO. 170464, 12 JULY 2010 continuation of business of a corporation
deemed dissolved?
May the individual owner of the
corporation who authorized the illegal No. Sec.122 of the Corporation Code prohibits a
retrenchment of an employee be held dissolved corporation from continuing its
solidarily liable with the corporation- business, but allows it to continue with a
employer? limited personality in order to settle and close
its affairs including its complete liquidation.
No. The corporation is solely liable for the Furthermore, Sec. 145 of the Corporation Code
illegal dismissal of the employee. ensures the protection of a party’s stockholdings
As a general rule, only the employer-corporation, against other corporate actors despite the
partnership or association or any other entity, corporation’s dissolution.
and not its officers, may be held liable for illegal
dismissal of employees or for other wrongful Here, the Court failed to find any intention to
acts. This is as it should be because a continue the corporate business of FQB+7
corporation is a juridical entity with legal especially that complaint does not seek to enter
personality separate and distinct from those into contracts, issue new stocks, acquire
acting for and in its behalf and, in general, from properties, and execute business transactions
the people comprising it. among others. Its aim is not to continue the
corporate business, but only to determine and
The exception to this rule is when the vindicate an alleged stockholder’s right to the
stockholder or officer acted with malice and bad return of his stockholdings, and a corporate right
faith. For the exception to apply, there must be to remove usurpers and strangers from its
sufficient proof of malice or bad faith. The lack of affairs. Also, the corporation’s board of
authorized or just cause to terminate one's directors is not rendered functus officio by
employment and the failure to observe due dissolution, in fact they are authorized to act as
process do not ipso facto mean that the trustee for persons in interest beyond the 3-year
corporate officer acted with malice or bad faith. period to conduct liquidation from dissolution.
There must be independent proof of malice or Moreover, whether existing or dissolved, a
bad faith which is lacking in the present case. party’s stockholding in a corporation is a
property right which he may vindicate against
another party who has deprived him.

Aguirre II v FQB+7, Inc.

G.R. NO. 170770, 09 JANUARY 2013 Is the complaint an intra-corporate
A complaint for intra-corporate dispute was filed dispute?
by FQB+7, Inc. represented by Aguirre II Yes. To be considered as an intra-corporate
questioning the validity and truthfulness of the dispute, the case: (a) must arise out of intra-
erroneous entries in the GIS of the corporation corporate or partnership relations; and (b) the
and usurpations of purported directors who are nature of the question subject of the controversy
strangers to the corporation. One of the must be such that it is intrinsically connected with
defenses raised is the allegation that SEC had the regulation of the corporation or the
already revoked FQB+7’s Certificate of enforcement of the parties’ correlative rights and
Registration for its failure to comply with SEC obligations under the Corporation Code and the
reportorial requirements. The CA held that the internal regulatory rules of the corporation.
intra-corporate complaint which aims to continue

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Corporation engaged in illegal trading of

Here, the case arose from the intra-corporate petroleum. Consequently, charges of violation of
relations between the parties, and the questions BP 33 were filed against Antonio (the general
involved pertain to their rights and obligations manager) of ACCS and several members of the
under the Corporation Code and matters relating BOD: del Rosario, Escobido and Capili.
to the regulation of the corporation. The nature
of the case as an intra-corporate dispute is not
affected by the subsequent dissolution of the Are the members of the BOD criminally
corporation. liable for alleged violation of BP 33?
No. Mere membership in the BOD does not
make one liable for violations of BP 33 unless it
What are the two tests applied by the is established that the officer/s are charged with
Court to limit the broad definition of intra- the management of the corporation’s
corporate dispute? business affairs.
In order to limit the broad definition of intra-
corporate dispute, this Court has applied the BP 33 expressly provides: “When the offender is
relationship test and the controversy test. a corporation, partnership, or other juridical
person, the president, the general manager,
The relationship test determines whether the managing partner, or such other officer
relationship is: [a] between the corporation, charged with the management of the business
partnership or association and the public; [b] affairs thereof xxx”.
between the corporation, partnership or
association and its stockholders, partners, A common thread of the enumerated officers is
members, or officers; [c] between the the fact that they are operating officers of the
corporation, partnership or association and the business corporation. If one is not the President,
[S]tate [insofar] as its franchise, permit or license General Manager or Managing partner, it is
to operate is concerned; and [d] among the imperative that it must be shown first that he
stockholders, partners or associates shall fall under the catch-all “other officers
themselves. charged with management of business affairs”
which is a factual issue that must be alleged and
Under the controversy test, the dispute must be supported with evidence.
rooted in the existence of an intra-corporate
relationship, and must refer to the enforcement
of the parties' correlative rights and obligations Forest Hills Golf & Country Club, Inc
under the Corporation Code, as well as the v. Fil-Estate Properties, Inc.
internal and intra-corporate regulatory rules of
G.R. NO. 206649, 20 JULY 2016
the corporation, 25 in order to be an intra-
corporate dispute. These are essentially Corporation X contracted the services of
determined through the allegations in the Corporation Y to perform development and
complaint which determine the nature of the construction works of its golf course commercial
action. center. Constructions were however delayed
which led M, shareholder of Corporation X, to
write two demand letters to its BOD asking them
to initiate appropriate legal actions against
Federated LPG Dealers Association v Corporation Y.
Del Rosario
G.R. NO. 202639, 9 NOVEMBER 2016
The BOD of Corporation X ignored M’s demand
The CIDG conducted surveillance and test-buy letters. In a derivative capacity and on behalf of
operations which revealed that ACCS Ideal Gas Corporation X, M filed a Complaint for Specific

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Performance with Damages against 1) He was a stockholder or member at the

Corporation Y. time the acts or transactions subject of the
action occurred and at the time the action
was filed;
May an intra-corporate controversy arise 2) He exerted all reasonable efforts, and
even if the Complaint is (a) denominated alleges the same with particularity in the
as a derivative suit for specific complaint, to exhaust all remedies
performance and (b) filed against available under the articles of
Corporation Y as developers, and not as incorporation, by-laws, laws or rules
shareholders of the Corporation X? governing the corporation or partnership to
obtain the relief he desires;
Yes. It is a fundamental principle that jurisdiction
3) No appraisal rights are available for the act
is conferred by law and is determined by the
material allegations of the complaint, containing or acts complained of; and
the concise statement of ultimate facts of a 4) The suit is not a nuisance or harassment
plaintiff's cause of action. Thus, there is an intra- suit.
corporate controversy when the Complaint
contains allegations of the interlocking The allegation of the unheeded demand
directorships of the BOD of Corporation X and letters will not suffice as the Complaint failed
Corporation Y, the conflict of interest of the BOD to allege exertion of all reasonable efforts to
of Corporation X, and their bad faith in carrying exhaust all remedies available under the AOI,
out their duties. Considering these allegations, by-laws and rules governing the corporation and
there are unavoidably intra-corporate that no appraisal rights were available to the acts
controversies intertwined in the specific complained of.
performance case.

What is the purpose of the derivative Dutch Movers, Inc v. Lequin

suit? G.R. NO. 210032, 25 APRIL 2017

A derivative suit is a remedy designed by equity Spouses Lee were held personally liable in an
for minority shareholders against the abuses of illegal dismissal case filed for the alleged
the majority. When corporate officials refuse to termination of DMI employees on the ground of
sue, or are the ones to be sued, or hold control business closure. It was established during trial
of the corporation, an individual stockholder may that the other incorporators of DMI merely lent
be permitted to institute a derivative suit to their names to comply with the required number
enforce a corporate cause of action on behalf of of incorporators and subsequently assigned and
a corporation in order to protect or vindicate its transferred all their interests in DMI to Spouses
rights. In such actions, the corporation is the Lee. It was also established that no notice of
real party in interest, while the stockholder closure was filed with DOLE.
suing on behalf of the corporation is only a
nominal party. Thus, derivative suits
necessarily touch upon the internal affairs of the Under the circumstances, should the
corporation. corporate veil be pierced to hold spouses
Lee liable?
What are the requisites for a derivative Yes. The veil of corporate fiction may be pierced
suit? so as to attach personal liability against the
responsible person if the corporation’s
A stockholder or member may bring an action in personality is used to (a) defeat public
the name of a corporation provided that: convenience, (b) justify wrong, (c) protect fraud

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or defend crime, or is used as a device to (d) of subrogation accrues upon the payment by
defeat the labor laws. insurer of the insurance claim. This holds true
especially when the party liable never
questioned the insurer’s right to subrogation or
Here, the irregularity in the incorporation of DMI
the coverage of the insurance contract or policy.
bolsters that the corporation has no mind of its
own as it is solely controlled by Spouses Lee.
While it is true that one's control does not by itself Nonetheless, the presentation of the insurance
result in the disregard of corporate fiction, there policy is necessary to prove the scope of the
is sufficient basis to hold that such corporation insurer’s liability when the shipment passed
was used to evade its legal duties to its through several stages with different parties
employees, and as such, the piercing of the involved in each stage. In such a case, it is
corporate veil is warranted. difficult to pinpoint in what stage in the handling
process the damage happened.
Jurisprudence also shows that the insurance
policy is also necessary when it is the very issue
II. TRANSPORTATION LAW of the parties.

Asian Terminals, Inc. v. Malayan

Insurance, Co., Inc. Orix Metro Leasing and Finance
G.R. NO. 171406, 4 APRIL 2011 Corporation v. Mangalinao Y Dizon
Is the presentation of the insurance G.R. NO. 174089 & 174266, 25 JAN 2012
contract indispensable before the insurer Edurese was driving a Pathfinder bound for
can claim from the party who caused the Isabela with 4 passengers – Spouses
damage? Mangalinao, their daughter and their housemaid.
On the other lane bound for Pampanga, a Fuso
When the proximate cause of the damage is 10-wheeler truck was driven by Loreto with truck
established, the non-presentation of the helper, Charlie. The Fuso was moving in an
insurance contract is not indispensable before erratic and swerving motion. Behind the
the insurer can claim from the party who caused Pathfinder was another 10-wheeler Isuzu driven
the damage. The subrogation receipt, by itself, is by Antonio, with helper Rodolfo.
already sufficient to establish that there exists an
Insurer-Assured relationship and that there was
settlement of an insurance claim. In fact, the right While Pathfinder was driving along NLEX’s fast
lane, the Fuso
swerved to the left and blocked the Pathfinder’s registered owners of the Fuso and Isuzu, Orix
line. The Pathfinder hit the Fuso’s left door and and Sonny respectively. The Court ruled that the
body, while the Isuzu’s front crashed into the drivers, together with their registered owners,
Pathfinder, completely wrecking it. The patrol are held solidary liable for damages. The driver
police arrived at the scene. All the passengers of and owner of the Isuzu argue that they should
the Pathfinder died on the spot, while the not be held liable as it was the driver of the Fuso
passengers of both trucks survived with some who was the proximate cause of the accident.
injuries. Both posit that they should be accorded the
benefit of the ‘emergency rule’.
Demand letters were submitted to the registered
owners of the trucks demanding compensation What is the ‘emergency rule’?
but was left ignored. Thus, the children of
Mangalinao spouses filed a complaint for Under the emergency rule, one who suddenly
damages based on quasi-delict, impleading both finds himself in a place of danger, and is required
the drivers, Loreto and Antonio, and the to act without time to consider the best means

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that may be adopted to avoid the impending Marina Port Services, Inc. v.
danger, is not guilty of negligence, if he fails to American Home Assurance
adopt what subsequently and upon reflection
may appear to have been a better method,
Corporation
unless the emergency in which he finds himself G.R. NO. 201822, 12 AUGUST 2015
is brought about by his own negligence. The consignee filed a formal claim for loss with
the arrastre operator and sought insurance
indemnity from the insurer for the substantial
Are the driver and owner of the Isuzu shortages in the number of bags of flour
absolved of damages? delivered. The insurer paid for the value of the
No. Isuzu is NOT without fault and should still be the missing bags of flour. Thereafter, the insurer
(as subrogee) filed an action against the arrastre
held liable for damages. The smashed front of
operator. Evidence reveal that the arrastre
the Isuzu shows that the strong impact of the
operator exercised due diligence in handling the
ramming of the Pathfinder was what pinned the
passengers. Despite stepping on the brakes, the shipment.
Isuzu still hit the rear of the Pathfinder and the
right side of the Fuso. This would show that the
What is the rule relative to the liability of
driver was driving at a fast speed and not within
a safe stopping distance. Thus, the emergency the arrastre operator for damaged and/or
rule cannot be applied. The emergency rule missing goods?
can only apply if the party is not guilty of Article 1981 of the Civil Code provides for a
negligence and has acted within the best presumption of fault on the part of the arrastre
means to avoid the impending danger. If the operator. However, no such presumption arises
Isuzu reduced its speed and increased distance when due diligence in handling the shipment
from the Pathfinder, it would probably have not was observed, such as when it is not sufficiently
hit the vehicle or at least prevent an extensive shown that the container vans were re-opened
wreck. or that their locks and seals were broken for the
second time.
Orix, the operator on record, contends
that he is no longer the owner and Here, the arrastre operator is not liable for the
operator of the Fuso as it had already loss of the bags of flour because it was able to
sold the vehicle to MMO Trucking owned prove delivery of the shipment to the
consignedd in good and complete condition
by Manuel Ong. Should Orix now be
with locks and seals intact.
absolved of the liability?
No. Under the Registered Owner Rule, it is the
registered owner or the operator on record of a What is the nature of the relationship
vehicle who will be held primarily liable for between an arrastre operator and the
damages or injury it may have caused. The main consignee of the goods?
aim of this rule is to identify the owner so that if
any accident happens, or that any damage or The relationship between an arrastre operator
injury is caused by the vehicle on the public and a consignee is similar to that between a
highways, responsibility therefor can be fixed warehouseman and a depositor, or to that
on a definite individual, the registered owner. between a common carrier and the consignee
and/or the owner of the shipped goods. Thus, an
arrastre operator should adhere to the same
Here, Orix may claim for reimbursement from degree of diligence as that legally expected
Manuel, now the actual owner of the vehicle. of a warehouseman or a common carrier. It
must show that the losses were not due to its
negligence or that of its employees. It must

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establish that it observed the required diligence What was the proximate cause of the
in handling the shipment. Otherwise, it shall be loss? Who should be held liable?
presumed that the loss was due to its fault.
PNB’s act of releasing the proceeds of the check
prior to the lapse of the 15-day clearing period
was the proximate cause of the loss. When it
III. NEGOTIABLE released the proceeds without exhausting the
15-day clearing period, PNB contravened with
INSTRUMENTS LAW established banking rules and practice. It has
been held time and time again that it is contrary
PNB v. Spouses Cheah Chee Chong to normal or ordinary banking practice to pay the
and Ofelia Camacho Cheah amounts of checks without previously clearing
G.R. NO. 170865, 25 APRIL 2012 them with the drawee bank especially where
the drawee bank is a foreign bank and especially
Ofelia accommodated a favor asked of her by
Filipina, her friend’s friend. Since Filipina did not where the amounts involved were large. Thus,
the collecting bank assumes the risk that the
have a dollar account, she asked Ofelia if she
could have her check cleared and encashed in check would be cleared and paid out. Banks are
the Ofelia’s joint dollar account with her required a kind of diligence that is more than a
good father of the family as it is imbued with
husband. The check was drawn against Bank of
America with a face amount of $300,000.00, public trust. PNB failed to exercise extraordinary
payable to cash. Ofelia agreed. Both went to diligence and reasonable business prudence. Its
PNB Buendia Branch to deposit the check. They action of disregarding banking policy is
were told that the check will undergo clearing tantamount to gross negligence.
and would normally take about 15 days. Five
days later, the correspondent bank of PNB Though PNB’s action was the proximate cause
informed PNB that the proceeds of the check of the loss, Ofelia’s actions also amount to
had now been temporarily credited to PNB’s contributory negligence and should share the
account. After ten days, PNB informed Ofelia loss with the bank. Considering that the amount
that the subject check has now been cleared. of the foreign check was $300,000 and Ofelia did
The credit amount was withdrawn and Filipina not personally know Filipina, a higher degree of
received all the proceeds. care is expected of her. She failed to exercise
caution and gave her full trust to a complete
Four days after the withdrawal, PNB Buendia stranger which led her and her husband to be
Branch learned that the check had actually swindled.
bounced and received a debit advice. PNB
informed Ofelia, and Ofelia immediately Thus, PNB and Ofelia are equally negligent and
contacted Filipina to get the money back. should therefore equally suffer the loss.
However, Filipina had already disbursed the
money to different beneficiaries.
San Miguel Corporation v. Puzon
PNB sent a demand letter to Ofelia and her G.R. NO. 167567, 22 SEPTEMBER 2016
husband for the return of the amount of the
check, and thereafter froze her peso and dollar P purchased SMC products on credit. As a
deposits. A subsequent complaint was filed business practice and to ensure payment, SMC
against them for the collection of sum of money required P to issue postdated checks equivalent
with the RTC, demanding payment of to the value of the products. The checks shall be
P8,202,220.44 plus interest and attorney’s fees. returned to P when the transactions are settled
in full.

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In one instance, P visited SMC and requested to Aban filed a claim for the insurance proceeds on
see the postdated checks. Upon receipt of the 9 July 1996. Manila Bankers denied the claim for
checks, P immediately left bringing the checks the following reasons: (1) Sotero was illiterate,
with him. Thus, SMC filed a case of theft against and could not have personally applied for
P. insurance coverage; (2) She was sickly since
1990; (3) She did not have the financial
capability to pay the premium; (4) She did not
P argues that the element of theft that the sign the application for insurance; and (5) it was
thing taken belongs to another is actually Aban who filed the insurance application
wanting. Is P correct? and designated herself as beneficiary.
Yes. Since the check was not given as payment,
the ownership of the check was not transferred Manila Bankers filed a civil case for recission
to SMC and remained with P. and/or annulment of the policy, alleging that the
policy was obtained by fraud, concealment
and/or misrepresentation under the Insurance
Section 12 of NIL provides: “xxx The person to Code, thus voidable. Aban argues that Manila
whom an instrument so dated is delivered Bankers is barred by prescription pursuant to
acquires the title thereto as of the date of Section 48 of the Insurance Code. Manila
delivery.” Once there is delivery, the person to Bankers’ investigator testified in court, stating
whom the instrument is delivered gets the title to that the insurance underwriter who solicited the
the instrument completely and irrevocably. insurance is the cousin of Aban and it was Aban
Delivery, however, should be for the purpose of who paid the annual premiums of the policy.
giving effect thereto.

Here, SMC requires checks to “cover” the May Manila Bankers rescind and/or annul
receivables which shall be returned to P upon the insurance policy on the ground of
paying for the transaction by some other means fraud?
other than the check. As it is clear that both NO. Sotero’s policy in favor of Abad is
parties did not intend for the check to pay for the protected by the incontestability clause
products, the title to the check did not transfer to
under Section 48 of the Insurance Code.
SMC; it remained with P.

The incontestability clause provides that a life-

IV. INSURANCE LAW insurance policy shall be incontestable after two
years from the date of issuance, regardless of
Manila Bankers Life Insurance v. any mistake, fraud, concealment or
Aban misrepresentation.
G.R. NO. 175666, JULY 29, 2013
Under Section 48 of the Insurance Code, an
Sotero took out a life insurance policy from
insurer is given two years – from the effectivity of
Manila Bankers Life Insurance Corporation
a life insurance contract and while the insured is
(“Manila Bankers”). Sotero designated Aban, her
alive – to discover or prove that the policy is void
niece, as beneficiary. After the required medical
ab initio or is rescindable by reason of the
examination and payment of the insurance
fraudulent concealment or misrepresentation of
premium, a policy with a face value of
the insured or his agent. After the two-year
P100,000.00 was issued in Sotero’s favor on 30
period lapses, or when the insured dies within
August 1993. Sotero died on 10 April 1996, at a
the period, the insurer must make good on the
time when the insurance policy had been in force
policy, even though the policy was obtained by
for more than 2 years and 7 months.
fraud, concealment, or misrepresentation.

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What is the ultimate aim of the The Insular Life Assurance Company
incontestability clause? Ltd. v. Khu et. Al.
The ultimate aim of the incontestability clause is G.R. NO. 195176, 18 APRIL 2016
“to compel insurers to solicit business from or K applied for the reinstatement of his life
provide insurance coverage only to legitimate insurance policy with Insular Life. Insular Life
and bona fide clients, by requiring them to advised K that his application may only be
thoroughly investigate those they insure within considered if he agreed to additional premium
two years from effectivity of the policy and while and conditions. On 27 December 1999, K agreed
the insured is still alive. If they do not, they will and paid the additional premium. A Letter of
be obligated to honor claims on the policies they Acceptance and Endorsement was then
issue, regardless of fraud, concealment or executed between Insular Life and K, which
misrepresentation.” Further, it is intended “to contains the following stipulation: “the following
restrict the insurer to a definite time within which changes are made on the policy effective 22
to discover any fraud or misrepresentation made June 1999”.
by the insured in the application for insurance
and to take appropriate action to cancel the
policy.” K died on 22 September 2001. Insular Life
denied the claim of the beneficiaries on the
grounds of fraud. The beneficiaries argue that
In this case, the Court upheld the trial court’s the incontestability clause already applies, as
findings that it was Sotero herself who obtained two years have already lapsed from the date of
the insurance and not an impostor. More effectivity provided in the Letter of Acceptance,
importantly, invoking the incontestability which is 22 June 1999.
clause, the Court ruled that the insurer is barred
from proving that the policy is void ab initio by
reason of the insured’s fraudulent concealment, Insular Life argues that the 2-year period for the
or misrepresentation or want of insurable interest incontestability clause has not yet lapsed, as it
on the part of the beneficiary. should be reckoned from 27 December 1999—
when the additional premium was paid as the
reinstated policy had only become effective by
then.
Manulife Philippines, Inc. v.
Hermenegilda Ybanez
G.R. NO. 204736, 28 NOVEMBER 2016 Has K’s reinstated life insurance policy
become incontestable at the time of his
How may an insurer rescind a life death?
insurance contract based on
misrepresentation or concealment Yes, as the 2-year period to contest is reckoned
imputed against the insured? from 22 June 1999. As a general rule, the
reinstatement of a policy is to be reckoned from
the date the application was approved by the
Misrepresentation as a defense of the insurer to insurer. Nonetheless, when there is an ambiguity
avoid liability is an affirmative defense and the with regard to the date of effectivity, the
duty to establish such defense by satisfactory construction favorable to the insured shall be
and convincing evidence rests upon the insurer. adopted. This must be so because contracts of
Thus, the fraudulent intent on the part of the insurance are contracts of adhesion.
insured must be established to entitle the insurer
to rescind the contract. Here, there exists an ambiguity in the Letter of
Acceptance as to whether the date 22 June 1999
refers to the effectivity of the policy or the
changes to the policy.

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The Truth in Lending Act (Republic Act No.

3765) was enacted to protect citizens from a lack
V. TRUTH IN LENDING ACT of awareness of the true cost of credit to the user
by using a full disclosure of such cost with a view
Spouses Silos v. Philippine National of preventing the uninformed use of credit to the
Bank detriment of the national economy. The law
G.R. NO. 181045, 02 JULY 2014
“gives a detailed enumeration of the specific
information required to be disclosed, among
Spouses Silos secured a credit line from PNB. which are the interest and other charges incident
The credit line was increased two years after. to the extension of credit.”
Included in the agreement was the power of PNB
to modify the interest rate depending on
whatever policy it may adopt in the future, VI. SOCIAL SECURITY
without need of notice upon borrowers. The
debtors failed to pay and when PNB’s repeated
CONDONATION LAW
demands were not heeded, PNB instituted an
action to foreclose and auction the security for PICOP Resources v. Social Security
mortgage. Spouses Silos prayed to annul the Commission & Belizar
foreclosure sale on the ground that the G.R. NO. 206936, 3 AUGUST 2016
succeeding interest rates were left to the sole will
of PNB, thereby should be considered void. In order to collect his SSS retirement benefits,
Belizar filed a case with the Social Security
Commission (“SSC”) against PICOP Resources
May a party unilaterally increase the (“PICOP”) to compel the latter to remit unpaid
interest rate in a credit agreement? SSS premium contributions. PICOP was judged
liable to pay the following: unremitted SSS
No. Any modification in the contract, such as contributions, the penalty imposed for late
interest rates, must be made with the consent of payment (until fully paid) and the damages for
the contracting parties. In the case of loan failure to remit any contribution due prior to the
agreements, the rate of interest is a principal date of contingency.
condition, if not the most important component.
Thus, any modification thereof must be mutually
agreed upon; otherwise, it has no binding effect. Alleging that it has availed of RA No. 9903 (the
The belated discovery of the true cost of credit Social Security Condonation Law of 2009),
does not reverse the ill effects of an already PICOP only paid the unremitted contributions
consummated business decision; as to those and nothing more.
who did not or could not complain, the illegal act
shall have become a fait accompli – to their
detriment, they have already suffered the Does availment of the condonation
oppressive rates. program under RA No. 9903 result to the
condonation of penalties, interests and
damages imposed against PICOP?
May the creditor require the borrower to
No. Any delinquent employer that has not
sign credit documents on blank? remitted all contributions due and payable to the
No. Requiring the borrowers to sign the credit SSS may avail of the condonation program
documents and the promissory notes in blank— under Sec. 2 of RA No. 9903. In order to avail of
and then unilaterally filling them up later on— is the benefits under the said law, however, the
a violation of the Truth in Lending Act providing employer must pay “all contributions due and
disclosure obligations. payable” to the SSS, and not merely a portion
thereof.

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In PICOP’s case, it paid only the delinquent

contributions corresponding to Belizar's account.
However, the payment made did not settle its
delinquencies in full. For this reason, it cannot
avail of the benefits under RA 9903.

The laws granting condonation constitute an act

of benevolence on the government's part and
that their terms are strictly construed against the
applicants. If PICOP desires to be covered under
R.A. 9903, it must show that it is qualified to avail
of its provisions. This it failed to do, and for this
reason, it may not escape payment of its
adjudged liabilities.

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