Entitlement to Moral Damages

1. MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETOHERALDO Deputy

Provincial Sheriff of Camarines Norte, defendants-appellees.

G.R. No. L-22973,January 30, 1968 ANGELES,

FACTS:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of P100,000 only) with the Naga

Branch of defendant PNB. To secure payment, the plaintiff mortgaged aparcel of land, together with the buildings and

improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte.

The PNB released from the approved loan the sum of P27,500, and another release of P15,500.The plaintiff failed to pay the

amortization on the amounts released to and received by it. It was found that the plaintiff had already stopped operation about the

end of 1957 or early part of 1958.The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59,

excluding attorney's fees. A foreclosure sale of the parcel of land, together with the buildings and improvements there on was, held

on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to

redeem the same within a period of one year. The plaintiff sent a letter reiterating its request that the foreclosure sale of the

mortgaged chattels bediscontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be

legally effected at a place other than the City of Manila. The trial court sentenced the Mambulao Lumber Company to pay to the

defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff on appeal advanced that its

total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo;

hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of

P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent

foreclosure sale of its chattels unlawful; That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of

plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by

detaining its "man-in-charge" of said properties,the PNB is liable to plaintiff for damages and attorney's fees.

ISSUE:

Whether or not PNB may be held liable to plaintiff Corporation for damages and attorney’s fees.

HELD:

Herein appellant's claim for moral damages seems to have no legal or factual basis. Obviously,

An artificial person like herein Appellant Corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety,

wounded feelings, moral shock or social humiliation which are basis of moral damages

. A corporation may have a good reputation which, if besmirched, may also be aground for the award of moral damages. The same

cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased

in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of

the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the

sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage

contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter

disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions

were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein

appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of

P3,000.00 as attorney's fees for herein appellant.

2. Asset Privatization TrustV CA - 300 SCRA 579 – Business Organization – Corporation Law – Corporation Generally Not Entitled

To Moral Damages – Power To Enter Into Contracts

In 1968, the government undertook to support the financing of Marinduque Mining and Industrial Corporation (MMIC). The

government then issued debenture bonds in favor of MMIC which enable the latter to take out loans from the Development Bank of

the Philippines (DBP) and the Philippine National Bank (PNB). The loans were mortgaged by MMIC’s assets. In 1984 however,

MMIC’s indebtedness reached P13.7 billion and P8.7 billion to DPB and PNB respectively. MMIC had trouble paying and this exposed

the government, because of the debenture bonds, to a P22 billion obligation.

In order to mitigate MMIC’s loan liability, a financial restructuring plan (FRP) was drafted in the presence of MMIC’s

representatives as well as representatives from DBP and PNB. The two banks however never formally approved the said FRP.

Eventually, the staggering loans became overdue and PNB and DBP chose to foreclose MMIC’s assets, FRP no longer feasible at that

point. So the assets were foreclosed and were eventually assigned to the Asset Privatization Trust (APT).

Later, Jesus Cabarrus, Sr., a stockholder of MMIC initiated a derivative suit against PNB and DBP with APT being impleaded

as the successor in interest of the two banks. The suit basically questioned the foreclosure as Cabarrus asserted that the foreclosure

was invalid because he insisted that the FRP was adopted by PNB and DBP as a consequence of the presence of the banks’

representatives when the said FRP was drafted. Cabarrus asserts that APT should restore the assets to MMIC and that PNB and DBP

should honor the FRP. The suit was filed in the RTC of Makati but while the case was pending, the parties agreed to submit the case

for arbitration. Hence, Makati RTC dismissed the case upon motion of the parties.

The Arbitration Committee (AC) which heard the case ruled in favor of Cabarrus. The AC granted Cabarrus prayer and at the

same time awarded him P10 million in moral damages. Not only that, the AC also awarded P2.5 billion in moral damages in favor of

MMIC to be paid by the government. APT’s MFR was denied. Cabarrus then filed before the Makati RTC a motion to confirm the

arbitration award. APT opposed the same as it alleged that the motion is improper. Makati RTC denied APT’s opposition and

confirmed the arbitration award. The Court of Appeals affirmed the ruling of the RTC.

ISSUE: Whether or not the ruling of the Arbitration Committee as affirmed by the Regional Trial Court of Makati (Branch 62) and the

Court of Appeals is correct.

HELD: No.

The award of damages in favor of MMIC is improper. First, it was not made a party to the case. The derivative suit filed by

Cabarrus failed to implead MMIC. So how can an award for damages be awarded to a non-party? Second, even if MMIC, which is

actually a real party in interest, was impleaded, it is not entitled to moral damages. It is not yet a well settled jurisprudence that

corporations are entitled to moral damages. While the Supreme Court in some cases did award certain corporations moral damages

for besmirched reputations, such is not applicable in this case because when the alleged wrongful foreclosure was done, MMIC was

already in bad standing hence it has no good wholesome reputation to protect. So it could not be said that there was a “reputation”

besmirched by the act of foreclosure. Likewise, the award of moral damages in favor of Cabarrus is invalid. He cannot have possibly

suffered any moral damages because the alleged wrongful act was committed against MMIC. It is a basic postulate that a

corporation has a personality separate and distinct from its stockholders. The properties foreclosed belonged to MMIC, not to its

stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation.

The FRP is not valid hence the foreclosure is valid. The mere presence of DBP’s and PNB’s representatives during the

drafting of FRP is not constitutive of the banks’ formal approval of the FRP. The representatives are personalities distinct from PNB

and DBP. PNB and DBP have their own boards and officers who may have different decisions. The representatives were not shown to

have been authorized by the respective boards of the two banks to enter into any agreement with MMIC.

Further, the proceeding is procedurally infirm. RTC Makati had already dismissed the civil case when the parties opted for

arbitration. Hence, it should have never took cognizance of the Cabarrus’ motion to confirm the AC’ award. The same should have

been brought through a separate action not through a motion because RTC Makati already lost jurisdiction over the case when it

dismissed it to give way for the arbitration. The arbitration was a not a continuation of the civil case filed in Makati RTC.

3. ABS-CBN v CA - 301 SCRA 572 – Business Organization – Corporation Law – Delegation of Corporate Powers – Moral Damages

In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-Concio, requested Viva Production,

Inc. to allow ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request, a meeting was held between Viva’s

representative (Vicente Del Rosario) and ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held on April 2, 1992.

During the meeting Del Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for P60 million. Later, Santos-

Concio, in a letter to Del Rosario, proposed a counterproposal of 53 films (including the 14 films initially requested) for P35 million.

Del Rosario presented the counter offer to Viva’s Board of Directors but the Board rejected the counter offer. Several negotiations

were subsequently made but on April 29, 1992, Viva made an agreement with Republic Broadcasting Corporation (referred to as RBS

– or GMA 7) which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially requested by ABS-CBN.

ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is already a perfected contract

between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to the counterproposal and he

(Lopez) even put the agreement in a napkin which was signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS

to enjoin the latter from airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages as

it claimed that its reputation was debased when they failed to air the shows that they promised to their viewers. RBS relied on the

ruling in People vs Manero and Mambulao Lumber vs PNB which states that a corporation may recover moral damages if it “has a

good reputation that is debased, resulting in social humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals

affirmed the trial court.

ISSUE:

1. Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives of the two corporations.

2. Whether or not a corporation, like RBS, is entitled to an award of moral damages upon grounds of debased reputation.

HELD:

1. No. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the contract being

written in a napkin is not corroborated because the napkin was never produced in court. Further, there is no meeting of the minds

because Del Rosario’s offer was of 104 films for P60 million was not accepted. And that the alleged counter-offer made by Lopez on

the same day was not also accepted because there’s no proof of such. The counter offer can only be deemed to have been made

days after the April 2 meeting when Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless, there was no

showing that Del Rosario accepted. But even if he did accept, such acceptance will not bloom into a perfected contract because Del

Rosario has no authority to do so.

As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. But this

power may be delegated to a corporate committee, a corporate officer or corporate manager. Such a delegation must be clear and

specific. In the case at bar, there was no such delegation to Del Rosario. The fact that he has to present the counteroffer to the

Board of Directors of Viva is proof that the contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted

the counter-offer, it did not result to a contract because it will not bind Viva sans authorization.

2. No. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and

having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical

suffering and mental anguish, which call be experienced only by one having a nervous system. No moral damages can be awarded to

a juridical person. The statement in the case of People vs Manero and Mambulao Lumber vs PNB is a mere obiter dictum hence it is

not binding as jurisprudence.

4. Jardine Davies vs. Court of Appeals [GR 128066, 19 June 2000], also Purefoods Corporation vs. Court

of Appeals [GR 128069]

Facts:

In 1992, at the height of the power crisis which the country was then experiencing, and to remedy and curtail further

losses due to the series of power failures, Pure Foods Corporation decided to install two (2) 1500 KW generators in its food

processing plant in San Roque, Marikina City. Sometime in November 1992 a bidding for the supply and installation of the

generators was held. Several suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions,

propose scheme and specifications that would best suit the needs of PUREFOODS. Out of the 8 prospective bidders who attended

the pre-bidding conference, only 3 bidders, namely, Far East Mills Supply Corporation (FEMSCO), Monark and Advance Power

submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required. Thereafter, in a letter dated 12

December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of the contract to FEMSCO.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk insurance

policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter

dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the

necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder’s Bond in the amount of P1, 000,000.00, as

requested. Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga

unilaterally cancelled the award as “significant factors were uncovered and brought to (their) attention which dictate (the)

cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award

and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already

awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (JARDINE), which incidentally

was not one of the bidders. FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and

desist from delivering and installing the 2 generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both

PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted Interference and inducement.

Trial ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence. On 27 June 1994 the Regional Trial Court

of Pasig, Branch 68, granted JARDINE's Demurrer to Evidence. On 28 July 1994 the trial court rendered a decision ordering

PUREFOODS:

(a) to indemnify FEMSCO the sum of P2,300,000.00 representing the value of engineering services it rendered;

(b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and P900,000.00 representing contractor's mark-up on

installation work, considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its

contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started

thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and,

(d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis. Both

FEMSCO and PUREFOODS appealed to the Court of Appeals.

FEMSCO appealed the 27 June 1994 Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE

resulting in the dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which

ordered it to pay FEMSCO. On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. It

also reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing

PUREFOODS to violate the latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2, 000,000.00 for moral

damages. In addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as

exemplary damages as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by

PUREFOODS and JARDINE. Hence, 2 petitions for review filed were by PUREFOODS and JARDINE which were subsequently

consolidated.

Issue: Whether FEMSCO is entitled to an award for moral damages.

Held:

By the unilateral cancellation of the contract, PURE FOODS has acted with bad faith and this was further aggravated by the

subsequent inking of a contract between Purefoods and Jardine. It is very evident that Purefoods thought that by the expedient

means of merely writing a letter would automatically cancel or nullify the existing contract entered into by both parties after a

process of bidding. This is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to which

every man is due. The Court has awarded in the past moral damages to a corporation whose reputation has been besmirched.

Herein, FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers

on account of the urgency of the project, only to be canceled later. The Court thus sustains the appellate court's award of moral

damages. The Court however reduced the award from P2, 000,000.00 to P1, 000,000.00, as moral damages are never intended to

enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be

reduced to P100, 000.00. On the other hand, the appellate court erred in ordering JARDINE to pay moral damages to FEMSCO as it

supposedly induced PUREFOODS to violate the contract with FEMSCO. While it may seem that PUREFOODS and JARDINE connived to

deceive FEMSCO, there is no specific evidence on record to support such perception. Likewise, there is no showing whatsoever that

JARDINE induced PUREFOODS.

The similarity in the design submitted to PUREFOODS by both JARDINE and FEMSCO, and the tender of a lower quotation by

JARDINE are insufficient to show that JARDINE indeed induced PUREFOODS to violate its contract with FEMSCO.

4. MERALCO V. TEAM ELECTRONIC CORP (PD 401/RA 7832, CORP'S CLAIM OF MORAL DAMAGES)

The law in force at the time material to this controversy was PD 401. It penalized unauthorized installation of water,

electrical, telephone connections and such acts as the use of tampered electrical meters. PD 401 granted the electrical companies

the right to conduct inspections of electric meters and the criminal prosecution or erring customers who were found to have

tampered with their electrical meters. It did not provide for more expedient remedies as the charging of differential billing and

immediate disconnection against erring customers. Thus, electric companies found a creative way of availing themselves of such

remedies by inserting into the service contracts a provision for differential billing with the option of disconnection upon non-

payment by the erring customers. The Court has recognized the validity of such stipulations. However, recourse to differential billing

with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.

MERALCO, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that MERALCO sent a

demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be

disconnected. In fine, it abused the remedies granted to it under PD 401 by outright depriving TEC of electric services without first

notifying it of the impending disconnection.

SC deems it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill and

reputation. As a rule, A CORPORATION IS NOT ENTITLED TO MORAL DAMAGES BECAUSE, NOT BEING A NATURAL PERSON, IT

CANNOT EXPERIENCE PHYSICAL SUFFERING OR SENTIMENTS like wounded feelings, serious anxiety, mental anguish, and moral

shock. The only EXCEPTION to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the

business realm. but in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the

existence of the factual basis of the damage and its causal relation to petitioner's acts. In the present case, the records are bereft of

any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's act. Besides, the trial court simply

awarded moral damages in the dispositive portion of its decision without stating the basis thereof.

Nationality of a Corporation

1. REGISTER OF DEEDS vs UNG SIU SI TEMPLEGR. No. L-6776 May 21,1955

FACTS:

A Filipino citizen executed a deed of donation in favor of the Ung Siu Si Temple, an unregistered religious organization that

operated through three trustees all of Chinese nationality. The Register of Deeds refused to record the deed of donation executed in

due form arguing that the Consitution provides that acquisition of land is limited to Filipino citizens, or to corporations or

associations at least 60% of which is owned by such citizens.

ISSUE:

Whether a deed of donation of a parcel of land executed in favor of a religious organization whose founder, trustees and

administrator are Chinese citizens should be registered or not.

RULING:

Sec. 5, Art. 13 of the Constitution provides that save in cases of hereditary succession, no private agricultural land shall be

transferred or assigned except to individuals, corporations, or associations qualified to hold lands of the public domain in the

Philippines. The Constitution does not make any exception in favor of religious associations. The fact that appellant has no capital

stock does not exempt it from the Constitutional inhibition, since its member are of foreign nationality. The purpose of the 60%

requirement is to ensure that corporations or associations allowed to acquire agricultural lands or to exploit natural resources shall

be controlled by Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, controlling membership

should be composed of Filipino citizens.

As to the complaint that the disqualification under Art. 13 of the Constitution violated the freedom of religion, the Court

was not convinced that land tenure is indispensable to the free exercise and enjoyment of religious profession or worship

2. Corporate Law Case Digest: Roman Catholic Apostolic Administrator Of Davao V. LRC (1957) G.R. No. L

8451 December 20, 1957 Lesson Applicable: Exploitation of Natural Resources (Corporate Law)

FACTS:

October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of land

in favor of the Roman Catholic Apostolic Administrator of Davao Inc.(Roman), a corporation sole organized and existing in

accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.

The Register of Deeds of Davao for registration, having in mind a previous resolution of the CFI in Carmelite Nuns of Davao were

made to prepare an affidavit to the effect that 60% of the members of their corp. were Filipino citizens when they sought to

register in favor of their congregation of deed of donation of a parcel of land, required it to submit a similar affidavitdeclaring

the same.

June 28, 1954: Roman in the letter expressed willingness to submit an affidavit but not in the same tenor as the Carmelite Nuns

because it had five incorporators while as a corporation sole it has only one and it was ownership through donation and this was

purchased

As the Register of the Land Registration Commissioner (LRC) : Deeds has some doubts as to the registerability, the matter was

referred to the Land Registration Commissioner en consulta for resolution (section 4 of Republic Act No. 1151)

LRC:

In view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire

private lands in the Philippines in the absence of proof that at least 60 per centum of the capital, property, or assets of the

Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no

question that the present incumbent of the corporation sole was a Canadian citizen

ordered the Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such

condition

action for mandamus was instituted by Roman alleging the land is held in true for the benefit of the Catholic population of a

place

ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the

Constitution

HELD: YES. Register of Deeds of the City of Davao is ordered to register the deed of sale

A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station,

who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which

in their natural persons they could not have had.

In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their several chapters

corporation sole

1. composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the

purpose of determining any percentage whatsoever

2. only the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole

and such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the corporation

sole

3. has no nationality and the citizenship of the incumbent and ordinary has nothing to do with the operation, management or

administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or

corporation sole.

Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino citizens.

(Register of Deeds of Rizal vs. Ung Sui Si Temple)

undeniable proof that the members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly

Filipino citizens

presented evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino citizens

required by the Constitution

fact that the law thus expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were the

main source that the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the requisite

that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the legislators,

considered sufficient and adequate protection against the revitalization of religious landholdings.

as in respect to the property which they hold for the corporation, they stand in position of TRUSTEES and the courts may

exercise the same supervision as in other cases of trust.

3. Corporate Law Case Digest: People V. Quasha (1953) G.R. No. L-6055 June 12, 1953 - Lessons Applicable: Public Utilities

(Corporate Law)

FACTS:

William H. Quasha

a member of the Philippine bar, committed a crime of falsification of a public and commercial document for causing it to appear

that Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 % of the subscribed capital stock of Pacific

Airways Corp. (Pacific) when in reality the money paid belongs to an American citizen whose name did not appear in the article

of incorporation,

to circumvent the constitutional mandate that no corp. shall be authorize to operate as a public utility in the Philippines unless

60% of its capital stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment and a fine

Quasha appealed to this Court

Primary purpose: to carry on the business of a common carrier by air, land or water

Baylon did not have the controlling vote because of the difference in voting power between the preferred shares and the

common shares

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. — The penalty of prision mayor and a fine

not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who, taking advantage of his official

position, shall falsify a document by committing any of the following acts:

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. — The penalty of prision correccional in its medium

and maximum period and a fine of not more than 5,000 pesos shall be imposed upon:

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any public or

official document or letter of exchange or any other kind of commercial document.

ISSUE: W/N Quasha should be criminally liable

HELD: NO. Acquitted.

falsification consists in not disclosing in the articles of incorporation that Baylon was a mere trustee ( or dummy as the

prosecution chooses to call him) of his American co-incorporators, thus giving the impression that Baylon was the owner of the

shares subscribed to by him

For the mere formation of the corporation such revelation was not essential, and the Corporation Law does not require it

The moment for determining whether a corporation is entitled to operate as a public utility is when it applies for a franchise,

certificate, or any other form of authorization for that purpose.

that can be done after the corporation has already come into being and not while it is still being formed

so far as American citizens are concerned, the said act has ceased to be an offense within the meaning of the law, so that

defendant can no longer be held criminally liable therefor.

4. FILIPINAS CIA DE SEGUROS V. CHRISTERN HUENFELD & CO. - ENEMY CORPORATION - 80 PHIL 54

Facts:

> Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from Filipinas, fire policy no. 29333 for P100T

covering merchandise contained in a building located in Binondo.

> On Feb. 27, 1942, during the Jap occupation, the building and the insured merchandise were burned. Christern submitted to

Filipinas its claim.

> Salvaged goods were sold and the total loss of Christern was P92T.

> Filipinas denied liability on the ground that Christern was an enemy corporation and cannot be insured.

Issue:

Whether or not Filipinas is liable to Christern, Huenfeld & Co.

Held:

NO.

Majority of the stockholders of Christern were German subjects. This being so, SC ruled that said corporation became an enemy

corporation upon the war between the US and Germany. The Phil Insurance Law in Sec. 8 provides that anyone except a public

enemy may be insured. It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public

enemy.

The purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it is inconsistent that one country should

destroy its enemy property and repay in insurance the value of what has been so destroyed, or that it should in such manner

increase the resources of the enemy or render it aid.

All individuals who compose the belligerent powers, exist as to each other, in a state of utter exclusion and are public enemies.

Christern having become an enemy corporation on Dec. 10. 1941, the insurance policy issued in his favor on Oct. 1, 1941 by Filipinas

had ceased to be valid and enforceable, and since the insured goods were burned after Dec. 10, 1941, and during the war, Christern

was NOT entitled to any indemnity under said policy from Filipinas.

Elementary rules of justice require that the premium paid by Christern for the period covered by the policy from Dec. 10, 1941

should be returned by Filipinas.

5. Palting v San Jose Petroluem - 8 SCRA 924 – Business Organization – Corporation Law – Parity Rights – Nationality –

Nationalized Areas of Activity

Facts:

In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under the laws of Panama, was allowed by the Securities and

Exchange Commission (SEC) to sell its shares of stocks in the Philippines. Apparently, the proceeds of such sale shall be invested in

San Jose Oil Company, Inc. (SJO), a domestic mining corporation. Pedro Palting opposed the authorization granted to SJP because

said tie up between SJP and SJO is violative of the constitution; that SJO is 90% owned by SJP; that the other 10% is owned by

another foreign corporation; that a mining corporation cannot be interested in another mining corporation. SJP on the other hand

invoked that under the parity rights agreement (Laurel-Langley Agreement), SJP, a foreign corporation, is allowed to invest in a

domestic corporation.

ISSUE: Whether or not SJP is correct.

HELD: No. The parity rights agreement is not applicable to SJP. The parity rights are only granted to American business enterprises or

enterprises directly or indirectly controlled by US citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are

Venezuelan corporations, not Americans. SJP was not able to show contrary evidence. Further, the Supreme Court emphasized that

the stocks of these corporations are being traded in stocks exchanges abroad which renders their foreign ownership subject to

change from time to time. This fact renders a practical impossibility to meet the requirements under the parity rights. Hence, the tie

up between SJP and SJO is illegal, SJP not being a domestic corporation or an American business enterprise contemplated under the

Laurel-Langley Agreement.

Classification of Corporation

1. Philippine Society for the Prevention of Cruelty to Animals vs Commission on Audit

G.R. No. 169752 - September 25, 2007

Facts:

PSPCA was incorporated as a juridical entity by virtue of Act No. 1285 by the Philippine Commission in order to enforce laws relating

to the cruelty inflicted upon animals and for the protection of and to perform all things which may tend to alleviate the suffering of

animals and promote their welfare.

In order to enhance its powers, PSPCA was initially imbued with (1) power to apprehend violators of animal welfare laws and (2)

share 50% of the fines imposed and collected through its efforts pursuant to the violations of related laws.

However, Commonwealth Act No. 148 recalled the said powers. President Quezon then issued Executive Order No. 63 directing the

Commission of Public Safety, Provost Marshal General as head of the Constabulary Division of the Philippine Army, Mayors of

chartered cities and every municipal president to detail and organize special officers to watch, capture, and prosecute offenders of

criminal-cruelty laws.

On December 1, 2003, an audit team from the Commission on Audit visited petitioner’s office to conduct a survey. PSPCA demurred

on the ground that it was a private entity and not under the CoA’s jurisdiction, citing Sec .2(1), Art. IX of the Constitution.

Issues:

WON the PSPCA is subject to CoA’s Audit Authority.

Held:

No.

The charter test cannot be applied. It is predicated on the legal regime established by the 1935 Constitution, Sec.7, Art. XIII. Since the

underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, the test cannot be applied to PSPCA

which was incorporated on January 19, 1905. Laws, generally, have no retroactive effect unless the contrary is provided. There are a

few exceptions: (1) when expressly provided; (2) remedial statutes; (3) curative statutes; and (4) laws interpreting others.

None of the exceptions apply in the instant case.

The mere fact that a corporation has been created by a special law doesn’t necessarily qualify it as a public corporation. At the time

PSPCA was formed, the Philippine Bill of 1902 was the applicable law and no proscription similar to the charter test can be found

therein. There was no restriction on the legislature to create private corporations in 1903. The amendments introduced by CA 148

made it clear that PSPCA was a private corporation, not a government agency.

PSPCA’s charter shows that it is not subject to control or supervision by any agency of the State. Like all private corporations, the

successors of its members are determined voluntarily and solely by the petitioner, and may exercise powers generally accorded to

private corporations.

PSPCA’s employees are registered and covered by the SSS at the latter’s initiative and not through the GSIS.

The fact that a private corporation is impressed with public interest does not make the entity a public corporation. They may be

considered quasi-public corporations which areprivate corporations that render public service, supply public wants and pursue other

exemplary objectives. The true criterion to determine whether a corporation is public or private is found in the totality of the relation

of the corporate to the State. It is public if it is created by the latter’s own agency or instrumentality, otherwise, it is private.

2, CIR VS. CLUB FILIPINO (5 SCRA 321; 1962)

FACTS: Club Filipino owns and operates a club house, a sports complex, and a bar restaurant, which is incident to the operation of

the club and its gold course. The club is operated mainly with funds derived from membership fees and dues. The BIR seeks to tax

the said restaurant as a business.

HELD: The Club was organized to develop and cultivate sports of all class and denomination for the healthful recreation and

entertainment of its stockholders and members. There was in fact, no cash dividend distribution to its stockholders and whatever

was derived on retail from its bar and restaurants used were to defray its overhead expenses and to improve its golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) a capital stock divided into shares

(2) an authority to distribute to the holders of such shares, dividends or allotments

of the surplus profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the distribution of its dividends or

surplus profits

III. Corporate Juridical personality; Piercing of Veil

1. Concept Builders Inc. vs. NLRC Case Digest

Concept Builders Inc. vs. National Labor Relations Commission

[GR 108734, 29 May 1996]

Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is

engaged in the construction business while Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos,

Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut,

Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe

Basilan, and Ruben Robalos were employed by said company as laborers, carpenters and riggers. On November 1981, Marabe, et. al.

were served individual written notices of termination of employment by CBI, effective on 30 November 1981. It was stated in the

individual notices that their contracts of employment had expired and the project in which they were hired had been completed.

The National Labor Relations Commission (NLRC) found it to be, the fact, however, that at the time of the termination of Marabe,

et.al.'s employment, the project in which they were hired had not yet been finished and completed. CBI had to engage the services

of sub-contractors whose workers performed the functions of Marabe, et. al. Aggrieved, Marabe, et. al. filed a complaint for illegal

dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against CBI. On

19 December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate Marabe et. al. and to pay them back wages

equivalent to 1 year or 300 working days. On 27 November 1985, the NLRC dismissed the motion for reconsideration filed by CBI on

the ground that the said decision had already become final and executory.

On 16 October 1986, the NLRC Research and Information Department made the finding that Marabe, et. al.'s back wages amounted

to P199,800.00. On 29 October 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated

19 December 1984. The writ was partially satisfied through garnishment of sums from CBI's debtor, the Metropolitan Waterworks

and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On 1 February 1989,

an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from CBI the sum of P117,414.76,

representing the balance of the judgment award, and to reinstate Marabe, et. al. to their former positions. On 13 July 1989, the

sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but

the service was refused on the ground that CBI no longer occupied the premises. On 26 September 1986, upon motion of Marabe,

et. al., the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because,

as stated in his progress report dated 2 November 1989, that all the employees inside CBI's premises claimed that they were

employees of Hydro Pipes Philippines, Inc. (HPPI) and not by CBI; that levy was made upon personal properties he found in the

premises; and that security guards with high-powered guns prevented him from removing the properties he had levied upon. The

said special sheriff recommended that a "break-open order" be issued to enable him to enter CBI's premises so that he could

proceed with the public auction sale of the aforesaid personal properties on 7 November 1989. On 6 November 1989, a certain

Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff

were owned by HPPI, of which he is the Vice-President. On 23 November 1989, Marabe, et. al. filed a "Motion for Issuance of a

Break-Open Order," alleging that HPPI and CBI were owned by the same incorporator/stockholders. They also alleged that petitioner

temporarily suspended its business operations in order to evade its legal obligations to them and that Marabe, et. al. were willing to

post an indemnity bond to answer for any damages which CBI and HPPI may suffer because of the issuance of the break-open order.

On 2 March 1990, the Labor Arbiter issued an Order which denied Marabe, et. al.'s motion for break-open order.

Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open

order and directed Marabe, et. al. to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties

already levied upon. It dismissed the third-party claim for lack of merit. CBI moved for reconsideration but the motion was denied by

the NLRC in a Resolution, dated 3 December 1992. Hence, the petition.

Issue: Whether the NLRC was correct in issuing the break-open order to levy the “HPPI properties” located at CBI amd/or HPPI’s

premises at 355 Maysan Road, Valenzuela, Metro Manila.

Held: 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. So, when the notion of separate juridical personality is used to defeat public

convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of

the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an

adjunct, a business conduit or an alter ego of another corporation. The conditions under which the juridical entity may be

disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down,

but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate

veil, to wit: (1) Stock ownership by one or common ownership of both corporations; (2) Identity of directors and officers; (3) The

manner of keeping corporate books and records; and (4) Methods of conducting the business. The SEC en banc explained the

"instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as "Where one

corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the

other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not

majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has,

so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the

control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of

duty must proximately cause the injury or unjust loss for which the complaint is made." The test in determining the applicability of

the doctrine of piercing the veil of corporate fiction is as (1) Control, not mere majority or complete stock control, but complete

domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate

entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by

the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and

unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control and breach of duty must proximately cause the

injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the

"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated

and the individual defendant's relationship to that operation. Thus the question of whether a corporation is a mere alter ego, a mere

sheet or paper corporation, a sham or a subterfuge is purely one of fact. Here, while CBI claimed that it ceased its business

operations on 29 April 1986, it filed an Information Sheet with the Securities and Exchange Commission on 15 May 1987, stating that

its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on

the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Further,

both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of both corporations. Both corporations

had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. From the

foregoing, it appears that, among other things, the CBI and the HPPI shared the same address and/or premises. Under these

circumstances, it cannot be said that the property levied upon by the sheriff were not of CBI's. Clearly, CBI ceased its business

operations in order to evade the payment to Marabe, et. al. of back wages and to bar their reinstatement to their former positions.

HPPI is obviously a business conduit of CBI and its emergence was skillfully orchestrated to avoid the financial liability that already

attached to CBI.

IV. Corporate contract Law

1. Hall vs. Piccio [GR L-2598, 29 June 1950]

Facts: On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino

S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co.,

Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers, etc.

Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully

paid with certain properties transferred to the corporation described in a list appended thereto. Immediately after the

execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the

election of its officers.

On 2 December 1947, the said articles of incorporation were filed in the office of the Securities and Exchange

Commissioner, for the issuance of the corresponding certificate of incorporation. On 22 March 1948, pending action on the

articles of incorporation by the aforesaid governmental office, Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino

S. Abella filed before the Court of First Instance of Leyte the civil case, alleging among other things that the Far Eastern

Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter

dissension among the members, mismanagement and fraud by the managers and heavy financial losses. C. Arnold Hall and

Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action.

After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of Brown,

et. al., appointed Pedro A. Capuciong as the receiver of the properties thereof, upon the filing of a P20,000 bond. Hall and

Hall offered to file a counter-bond for the discharge of the receiver, but Judge Piccio refused to accept the offer and to

discharge the receiver. Whereupon, Hall and Hall instituted the present special civil action with the Supreme Court.

Issue: Whether Brown, et. al. may file an action to cause the dissolution of the Far Eastern Lumber and Commercial Co.,

without State intervention.

Held: The Securities and Exchange Commission has not issued the corresponding certificate of incorporation. The

personality of a corporation begins to exist only from the moment such certificate is issued — not before. Not having

obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may not

probably claim "in good faith" to be a corporation. Under the statue it is to be noted that it is the issuance of a certificate of

incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being. The immunity if

collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is

compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless

there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made

"in good faith."

This is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for

the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for

its dissolution between stockholders, without the intervention of the state.

2. Intl Express Travel v CA - 343 SCRA 674 – Business Organization – Corporation Law –

Corporation by Estoppel – When Applied

In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football Federation (PFF) its travel

services for the South East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF,

PFF in turn made a down payment. However, PFF was not able to complete the full payment in subsequent installments despite

repeated demands from IETTI. IETTI then sued PFF and Kahn was impleaded as a co-defendant.

Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a corporation with

separate and distinct personality from him. The trial court ruled against Kahn and held him personally liable for the said obligation

(PFF was declared in default for failing to file an answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The

Court of Appeals however reversed the decision of the trial court. The Court of Appeals took judicial notice of the existence of PFF as

a national sports association; that as such, PFF is empowered to enter into contracts through its agents; that PFF is therefore liable

for the contract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate

existence of PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence.

ISSUE: Whether or not the Court of Appeals is correct.

HELD: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be recognized and

accredited by the Philippine Amateur Athletic Federation and the Department of Youth and Sports Development. This fact was never

substantiated by Kahn. As such, PFF is considered as an unincorporated sports association. And under the law, any person acting or

purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for

contract entered into or for other acts performed as such agent. Kahn is therefore personally liable for the contract entered into by

PFF with IETTI.

There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of corporation by estoppel

applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of

defective incorporation. In the case at bar, IETTI is not trying to escape liability from the contract but rather is the one claiming from

the contract.

3. Lozano v de los Santos - 274 SCRA 452 – Business Organization – Corporation Law – Jurisdiction

of the SEC

Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-Angeles Jeepney Drivers’ Association, Inc.). Antonio Anda

was the president of SAMAJODA (Samahang Angeles-Mabalacat Jeepney Operators’ and Drivers’ Association, Inc.). In 1995, the two

agreed to consolidate the two corporations, thus, UMAJODA (Unified Mabalacat-Angeles Jeepney Operators’ and Drivers

Association, Inc.). In the same year, elections for the officers of UMAJODA were held. Lozano and Anda both ran for president.

Lozano won but Anda alleged fraud and the elections and thereafter he refused to participate with UMAJODA. Anda continued to

collect fees from members of SAMAJODA and refused to recognize Lozano as president of UMAJODA. Lozano then filed a complaint

for damages against Anda with the MCTC of Mabalacat (and Magalang), Pampanga. Anda moved for the dismissal of the case for

lack of jurisdiction. The MCTC judge denied Anda’s motion. On certiorari, Judge Eliezer De Los Santos of RTC Angeles City reversed

and ordered the dismissal of the case on the ground that what is involved is an intra-corporate dispute which should be under the

jurisdiction of the Securities and Exchange Commission (SEC).

ISSUE: Whether or not the RTC Judge is correct.

HELD: No. The regular courts have jurisdiction over the case. The case between Lozano and Anda is not an intra-corporate dispute.

UMAJODA is not yet incorporated. It is yet to submit its articles of incorporation to the SEC. It is not even a dispute between

KAMAJDA or SAMAJODA. The controversy between Lozano and Anda does not arise from intra-corporate relations but rather from a

mere conflict from their plan to merge the two associations.

NOTE: Regular courts can now hear intra-corporate disputes (expanded jurisdiction).