Page 1 of 15

HISTORICAL BACKGROUND
BENGUET CONSOLIDATED MINING CO. vs. MARIANO PINEDA
G.R. No. L-7231
REYES, J. B. L., J.:
FACTS
power to deal and enter into further legal relations with other persons; it is
no longer possible for it to acquire new rights or incur new obligations,
have only as may be required by the process of liquidating and winding
up its affairs. By the same token, its officers and agents can no longer
March 28, 1956 represent it after the expiration of the life term prescribed, save for
settling its business. Necessarily, therefore, third persons or strangers
have an interest in knowing the duration of the juridical personality of the
sociedad anonima, since the latter cannot be dealt with after that period;
wherefore its prolongation or cessation is a matter directly involving the
company’s relations to the public at large.

Appeal under Rule 43 from a decision of the Securities and Exchange
Commissioner, denying the right of a sociedad anonima to extend its
corporate existence by amendment of its original articles of association,
or alternatively, to reform and continue existing under the Corporation
Law (Act 1459) beyond the original period.
Benguet Consolidated Mining Company was organized in 1903 under the
Spanish Code of Commerce of 1886 as a sociedad anonima. It was
agreed by the incorporators that Benguet Mining was to exist for 50
years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded the
Code of Commerce of 1886. Act 1459 essentially introduced the
American concept of a corporation. The purpose of the law, among
others, is to eradicate the Spanish Code and make sociedad anonima
obsolete.
In 1953, the board of directors of Benguet Mining submitted to the
Securities and Exchange Commission an application for them to be
allowed to extend the life span of Benguet Mining. Then Commissioner
Mariano Pineda denied the application as it ruled that the extension
requested is contrary to Section 18 of the Corporation Law of 1906 which
provides that the life of a corporation shall not be extended by
amendment beyond the time fixed in their original articles.
Benguet Mining contends that they have a vested right under the Code of
Commerce of 1886 because they were organized under said law; that
under said law, Benguet Mining is allowed to extend its life by simply
amending its articles of incorporation; that the prohibition in Section 18 of
the Corporation Code of 1906 does not apply to sociedad anonima
already existing prior to the Law’s enactment; that even assuming that
the prohibition applies to Benguet Mining, it should be allowed to be
reorganized as a corporation under the said Corporation Law.
ISSUE
1. WON the provisio of Section 18 of the Corporation Law applies to
Benguet Consolidated Mining Co. as a sociedad anonima already in
existence at the passage of the law; and
2. WON Benguet could still exercise the option of reforming and
reorganizing under section 75 of the Corporation Law, thereby prolonging
its corporate existence, since the law is silent as to the time when such
option may be exercised or availed of.
RATIO
The first issue arises because the Code of Commerce of 1886 under
which Benguet was organized, contains no prohibition (to extend the
period of corporate existence), equivalent to that set forth in Section 18 of
the Corporation Law. Neither does it expressly authorize the extension.
But the text of Article 223, reading: “ART. 223. After the termination of
the period for which commercial associations are constituted, it shall not
be understood as extended by the implied or presumed will of the
members; and if the members desire to continue in association, they shall
draw up new articles, subject to all the formalities prescribed for their
creation as provided in Article 119.” would seem to imply that the period
of existence of the sociedad anonimas (or of any other commercial
association for that matter) may be extended if the partners or members
so agree before the expiration of the original period.
While the Code of Commerce, in so far as sociedades anonimas are
concerned, was repealed by Act No 1459, Benguet claims that Article
223 is still operative in its favor under the last proviso of Section 191 of
the Corporation Law (ante, p. 4 to the effect that existing sociedades
anonimas would continue to be governed by the law in force before Act
1459, “in relation to their organization and method of transacting business
and to the rights of members among themselves, but their relations to the
public and public officials shall be governed by the provisions of this Act.”
We find this contention untenable. The term of existence of association
(partnership or sociedad anonima) is coterminous with their possession
of an independent legal personality, distinct from that of their component
members. When the period expires, the sociedad anonima loses the
The State and its officers also have an obvious interest in the term of life
of associations, since the conferment of juridical capacity upon them
during such period is a privilege that is derived from statute. It is obvious
that no agreement between associates can result in giving rise to a new
and distinct personality, possessing independent rights and obligations,
unless the law itself shall decree such result. And the State is naturally
interested that this privilege be enjoyed only under the conditions and not
beyond the period that it sees fit to grant; and, particularly, that it be not
abused in fraud and to the detriment of other parties; and for this reason
it has been ruled that “the limitation (of corporate existence) to a definite
period is an exercise of control in the interest of the public.”
Since there was no agreement as yet to extend the period of Benguet’s
corporate existence (beyond the original 50 years) when the Corporation
Law was adopted in 1906, neither Benguet nor its members had any
actual or vested right to such extension at that time. Therefore, when the
Corporation Law, by Section 18, forbade extensions of corporate life,
neither Benguet nor its members were deprived of any actual or fixed
right constitutionally protected.
As to the next issue concerning the exercise of the option granted by
Section 75 of the Corporation Law to every sociedad anonima “formed,
organized and existing under the laws of the Philippines on the date of
the passage of this Act” to either continue business as such sociedad
anonima or to reform and organize under the provisions of the
Corporation Law. Petitioner-appellant Benguet contends that as the law
does not determine the period within which such option may be
exercised, Benguet may exercise it at any time during its corporate
existence.
This we find to be incorrect. Under that section, by continuing to do
business as sociedad anonima, Benguet in fact rejected the alternative to
reform as a corporation under Act No. 1459. It will be noted from the text
of Section 75 that no special act or manifestation is required by the law
from the existing sociedades anonimas that prefer to remain and continue
as such. It is when they choose to reform and organize under the
Corporation Law that they must, in the words of the section, “transfer all
corporate interests to the new corporation”. Hence if they do not so
transfer, the sociedades anonimas affected are to be understood to have
elected the alternative “to continue business as such corporation”
(sociedad anonima).
The election of Benguet to remain a sociedad anonima after the
enactment of the Corporation Law is evidence, not only by its failure, from
1906 to 1953, to adopt the alternative to transfer its corporate interests to
a new corporation, as required by Section 75; it also appears from
positive acts. Thus around 1933, Benguet claimed and defended in court
its acquisition of shares of the capital stock of the Balatoc Mining
Company, on the ground that as a sociedad anonima it (Benguet) was
not a corporation within the purview of the laws prohibiting a mining
corporation from becoming interested in another mining corporation
(Harden vs. Benguet Mining Corp., 58 Phil., p. 149). Even in the present
proceedings, Benguet has urged its right to amend its original articles of
association as “sociedad anonima” and extend its life as such under the
provisions of the Spanish Code of Commerce. Such appeals to privileges
as “sociedad anonima” under the Code of 1886 necessarily imply that
Benguet has rejected the alternative of reforming under the Corporation
Law.
Having thus made its choice, Benguet may not now go back and seek to
change its position and adopt the reformation that it had formerly
repudiated. The election of one of several alternatives is irrevocable once
made (as now expressly recognized in Article 940 of the new Civil Code
of the Philippines): such rule is inherent in the nature of the choice, its
purpose being to clarify and render definite the rights of the one
exercising the option, so that other persons may act in consequence.
While successive choices may be provided there is nothing in Section 75
of the Corporation Law to show or hint that a sociedad anonima may
make more than one choice thereunder, since only one option is provided
for. While no express period of time is fixed by the law within which
sociedades anonimas may elect under Section 75 of Act No. 1459 either
to reform or to retain their status quo, there are powerful reasons to
conclude that the legislature intended such choice to be made within a
reasonable time from the effectivity of the Act.

ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN


DISPOSITIVE PORTION
In view of the foregoing, the order appealed from is affirmed. Costs
against petitioner-appellant Benguet Consolidated Mining Company.
------------------------------xxx-------------------------
THEORIES ON FORMATION
G.R. No. L-23145
Date: November 29, 1968
Title: TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased.
RENATO D. TAYAG, ancillary administrator-appellee, vs. BENGUET
CONSOLIDATED, INC., oppositor-appellant.
Ponente: FERNANDO, J.
Facts: Idonah Slade Perkins, who died on March 27, 1960 in New York
City, left two stock certificates covering 33,002 shares of Benguet
Consolidated, Inc., the certificates being in the possession of the County
Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased. On August 12, 1960,
Prospero Sanidad instituted ancillary administration proceedings in the
CFI Manila, wherein Lazaro A. Marquez was appointed ancillary
administrator, then substituted by Renato D. Tayag.
A dispute arose between the domiciary administrator in New York and the
ancillary administrator in the Philippines as to which of them was entitled
to the possession of the stock certificates in question. On January 27,
1964, the Court of First Instance of Manila ordered the County Trust
Company to produce and deposit them with the ancillary administrator or
with the Clerk of Court. The County Trust Company did not comply with
the order, and on February 11, 1964, the ancillary administrator
petitioned the court to issue an order declaring the certificate or
certificates of stocks covering the 33,002 shares issued in the name of
Idonah Slade Perkins by Benguet Consolidated, Inc., be declared or
considered as lost.
The CFI ordered Benguet Consolidated, Inc. to declare the stocks lost
and required it to issue new certificates in lieu thereof. Benguet
Consolidated, Inc. filed an appeal alleging the failure to comply with its
by-laws setting forth the procedure to be followed in case of a lost, stolen
or destroyed so it cannot issue new stock certificates.
Issue: W/N Benguet Consolidated, Inc. can ignore a court order
because of its by-laws.
Held: No. The challenged court order represents a response and
expresses a policy arising out of a specific problem, addressed to the
attainment of specific ends by the use of specific remedies, with full and
ample support from legal doctrines of weight and significance. Benguet
Consolidated, Inc. is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts. Assuming that a
contrariety exists between the above by-law and the command of a court
decree, the latter is to be followed.
A corporation is an artificial being created by operation of law. It owes its
life to the state, its birth being purely dependent on its will. It cannot
ignore the source of its very existence.
Dispositive Portion: WHEREFORE, the appealed order of the
Honorable Arsenio Santos, the Judge of the Court of First Instance, dated
May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet
Consolidated, Inc.
-----------------------xxx-----------------------
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE
HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and PUERTO AZUL LAND, INC., respondents.
G.R. No. 125469. October 27, 1997
Page 2 of 15
TORRES, JR.,
The Securities and Exchange Commission is the government agency,
under the direct general supervision of the Office of the President, with
the immense task of enforcing the Revised Securities Act, and all other
duties assigned to it by pertinent laws. Among its innumerable functions,
and one of the most important, is the supervision of all corporations,
partnerships or associations, who are grantees or primary franchise
and/or a license or permit issued by the government to operate in the
Philippines.
FACTS
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation,
had sought to offer its shares to the public in order to raise funds
allegedly to develop its properties and pay its loans with several banking
institutions. In January, 1995, PALI was issued a Permit to Sell its shares
to the public by the Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors, PALI sought to course
the trading of its shares through the Philippine Stock Exchange, Inc.
(PSE), for which purpose it filed with the said stock exchange an
application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal
of PALIs application, recommended to the PSEs Board of Governors the
approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application, the
Board of Governors of PSE received a letter from the heirs of Ferdinand
E. Marcos, claiming that the late President Marcos was the legal and
beneficial owner of certain properties forming part of the Puerto Azul
Beach Hotel and Resort Complex which PALI claims to be among its
assets and that the Ternate Development Corporation, which is among
the stockholders of PALI, likewise appears to have been held and
continue to be held in trust by one Rebecco Panlilio for then President
Marcos and now, effectively for his estate, and requested PALIs
application to be deferred. PALI was requested to comment upon the said
letter.
PALIs answer stated that the properties forming part of Puerto Azul
Beach Hotel and Resort Complex were not claimed by PALI as its
assets. On the contrary, the resort is actually owned by Fantasia Filipina
Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI.
Furthermore, the Ternate Development Corporation owns only 1.20% of
PALI. The Marcoses responded that their claim is not confined to the
facilities forming part of the Puerto Azul Hotel and Resort Complex,
thereby implying that they are also asserting legal and beneficial
ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo
of the Presidential Commission on Good Government (PCGG) requesting
for comments on the letter of the PALI and the Marcoses. On March 4,
1996, the PSE was informed that the Marcoses received a Temporary
Restraining Order on the same date, enjoining the Marcoses from,
among others, further impeding, obstructing, delaying or interfering in any
manner by or any means with the consideration, processing and approval
by the PSE of the initial public offering of PALI. The TRO was issued by
Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in
Civil Case No. 65561, pending in Branch 69 thereof.
PSE Decision
In its regular meeting held on March 27, 1996, the Board of Governors of
the PSE reached its decision to reject PALIs application, citing the
existence of serious claims, issues and circumstances surrounding PALIs
ownership over its assets that adversely affect the suitability of listing
PALIs shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then
Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention
the action taken by the PSE in the application of PALI for the listing of its
shares with the PSE, and requesting that the SEC, in the exercise of its
supervisory and regulatory powers over stock exchanges under Section
6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing
application and institute such measures as are just and proper and under
the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE,
attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its authorized
representative to appear for an inquiry on the matter. On April 22, 1996,
the PSE submitted a letter to the SEC containing its comments to the
April 11, 1996 letter of PALI.
SEC Ruling
On April 24, 1996, the SEC rendered its Order, reversing the PSEs
decision.
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

PSE filed a motion for reconsideration of the said order on April 29, 1996,
which was, however denied by the Commission in its May 9, 1996 Order.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on
May 17, 1996 a Petition for Review (with application for Writ of
Preliminary Injunction and Temporary Restraining Order).
CA Ruling
On June 27, 1996, the Court of Appeals promulgated its Resolution
dismissing the PSEs Petition for Review. Hence, this Petition by the PSE
(Petition for Review of Certiorari).
ISSUE
How far does the regulatory authority of the Securities and Exchange
Commission (SEC) extends, particularly, with regard to the Petitioner
Philippine Stock Exchange, Inc.
SC RULING
We affirm that the SEC is the entity with the primary say as to whether or
not securities, including shares of stock of a corporation, may be traded
or not in the stock exchange. This is in line with the SECs mission to
ensure proper compliance with the laws, such as the Revised Securities
Act and to regulate the sale and disposition of securities in the country.
As the appellate court explains:
Paramount policy also supports the authority of the public respondent to
review petitioner’s denial of the listing. Being a stock exchange, the
petitioner performs a function that is vital to the national economy, as the
business is affected with public interest. As a matter of fact, it has often
been said that the economy moves on the basis of the rise and fall of
stocks being traded. By its economic power, the petitioner certainly can
dictate which and how many users are allowed to sell securities thru the
facilities of a stock exchange, if allowed to interpret its own rules liberally
as it may please. Petitioner can either allow or deny the entry to the
market of securities. To repeat, the monopoly, unless accompanied by
control, becomes subject to abuse; hence, considering public interest,
then it should be subject to government regulation.
The role of the SEC in our national economy cannot be minimized. The
legislature, through the Revised Securities Act, Presidential Decree No.
902-A, and other pertinent laws, has entrusted to it the serious
responsibility of enforcing all laws affecting corporations and other forms
of associations not otherwise vested in some other government office.
This is not to say, however, that the PSEs management prerogatives are
under the absolute control of the SEC. The PSE is, after all, a corporation
authorized by its corporate franchise to engage in its proposed and duly
approved business. One of the PSEs main concerns, as such, is still the
generation of profit for its stockholders. Moreover, the PSE has all the
rights pertaining to corporations, including the right to sue and be sued, to
hold property in its own name, to enter (or not to enter) into contracts with
third persons, and to perform all other legal acts within its allocated
express or implied powers.
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such body. As to
its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and of
management are left to the honest decision of the officers and directors
of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the
business manager of the corporation, and so long as it acts in good faith,
its orders are not reviewable by the courts.
Thus, notwithstanding the regulatory power of the SEC over the PSE,
and the resultant authority to reverse the PSEs decision in matters of
application for listing in the market, the SEC may exercise such power
only if the PSEs judgment is attended by bad faith. In board of
Liquidators vs. Kalaw, it was held that bad faith does not simply connote
bad judgment or negligence. It imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It means a breach of a
known duty through some motive or interest of ill will, partaking of the
nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE
considered important facts, which in the general scheme, brings to
serious question the qualification of PALI to sell its shares to the public
through the stock exchange. During the time for receiving objections to
the application, the PSE heard from the representative of the late
President Ferdinand E. Marcos and his family who claim the properties of
the private respondent to be part of the Marcos estate. In time, the PCGG
confirmed this claim. In fact, an order of sequestration has been issued
covering the properties of PALI, and suit for reconveyance to the state
has been filed in the Sandiganbayan Court. How the properties were
Page 3 of 15
effectively transferred, despite the sequestration order, from the TDC and
MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a
short span of time, are not yet explained to the Court, but it is clear that
such circumstances give rise to serious doubt as to the integrity of PALI
as a stock issuer. The petitioner was in the right when it refused
application of PALI, for a contrary ruling was not to the best interest of the
general public. The purpose of the Revised Securities Act, after all, is to
give adequate and effective protection to the investing public against
fraudulent representations, or false promises, and the imposition of
worthless ventures.
In resume, the Court finds that the PSE has acted with justified
circumspection, discounting, therefore, any imputation of arbitrariness
and whimsical animation on its part. Its action in refusing to allow the
listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.
DISPOSITIVE PORTION
ACCORDINGLY, in view of the foregoing considerations, the Court
hereby GRANTS the Petition for Review on Certiorari. The decisions of
the Court of Appeals and the Securities and Exchage Commission dated
July 27, 1996 and April 24, 1996, respectively, are hereby REVERSED
and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the
decision of the Philippine Stock Exchange to deny the application for
listing of the private respondent Puerto Azul Land, Inc.
--------------------------------xxx------------------------
ATTRIBUTES OF A CORPORATION
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION v.
ANDRADA ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936 April 17, 2002 PANGANIBAN, J. (on p.11
Villanueva book)
 A corporation has a legal personality distinct and separate from the
persons and entities owning it.
 The corporate veil may be lifted only if it has been used to shield
fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice.
FACTS:
 ANDRADA ELECTRIC & ENGINEERING COMPANY(Andrada)
alleged that it is a partnership engaged in the business of general
construction for the repairs and/or construction of different kinds of
machineries and buildings, while PNB is a semi-government
corporation as well as the other defendant National Sugar
Development Corporation (NASUDECO) and the defendant
Pampanga Sugar Mills (PASUMIL.)
 PASUMIL engaged the services of plaintiff for electrical rewinding
and repair, most of which were partially paid by the defendant
PASUMIL, leaving several unpaid accounts with the plaintiff; that
finally, on October 29, 1971, the plaintiff and the defendant
PASUMIL entered into a contract for the plaintiff to perform its
services of construction a building, installation of turbines and other
machineries, demolition of existing foundations or canals, supply
electrical devices, other materials, equipment and engines.
 that out of the total obligation of P777,263.80, the defendant
PASUMIL had paid only P250,000.00, leaving an unpaid balance,
as of June 27, 1973, amounting to P527,263.80.
 Further, the PASUMIL made a partial payment to the Andrada of
P14,000.00, in broken amounts, leaving an unpaid balance of
P513,263.80.
 On August 26, 1975, PNB acquired the assets of the defendant
PASUMIL that were earlier foreclosed by the Development Bank of
the Philippines (DBP) under LOI No. 31.
 PNB organized the NASUDECO in September, 1975, to take
ownership and possession of the assets and ultimately to
nationalize and consolidate its interest in other PNB controlled
sugar mills.
 PASUMIL and PNB, and now NASUDECO, failed and refused to
pay the plaintiff their just, valid and demandable obligation.
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

 PNB and NASUDECO filed a joint motion to dismiss the complaint
chiefly on the ground that the complaint failed to state sufficient
allegations to establish a cause of action which was later denied
and was required to file an Answer.
 NASUDECO’s Answer: (a) NASUDECO is notprivy to the various
electrical construction jobs being sued upon by Andrada under the
present complaint; (b) the taking over by NASUDECO of the assets
of defendant PASUMIL was solely for the purpose of reconditioning
the sugar central of PASUMIL pursuant to martial law powers of the
President under the Constitution; (c) nothing in the LOI No. 189-A
authorized or commanded the PNB or its subsidiary corporation,
the NASUDECO, to assume the corporate obligations of PASUMIL
as that being involved in the present case; and, (d) all that was
mentioned by the said letter of instruction insofar as the PASUMIL
liabilities were concerned was for the PNB, or its subsidiary
corporation the NASUDECO.
 PNB’s Answer: no cause of action against thePNB; that PNB is not
a party to the contract, that the alleged services rendered by the
plaintiff to the defendant PASUMIL upon which plaintiff’s suit is
erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL, that the PNB take-over of the
assets of the defendant PASUMIL under LOI 189-A was solely for
the purpose of reconditioning the sugar central so that PASUMIL
may resume its operations in time, PNB’s management and
operation under LOI No. 311 did not refer to any asset of PASUMIL
which the PNB had to acquire and thereafter manage, but only to
those which were foreclosed by the DBP and were in turn
redeemed by the PNB from the DBP, that as a consequence of the
said Deed of Assignment, PNB on October 21, 1975 ceased to
managed and operate the above-mentioned assets of PASUMIL,
which function was now actually transferred to NASUDECO.
 RTC: In favor of Andrada and against PNB, NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA
SUGAR MILLS (PASUMIL), ordering the latter to pay jointly and
severally the former.
 CA: Affirming the trial court, the CA held that it was offensive to the
basic tenets of justice and equity for a corporation to take over and
operate the business of another corporation, while disavowing or
repudiating any responsibility, obligation or liability arising
therefrom.
ISSUE: Whether PNB is liable for the unpaid corporate debts of
PASUMIL.
SC:
 The mere fact that the PNB acquired ownership or management of
some assets of the Pampanga Sugar Mill (PASUMIL), which had
earlier been foreclosed and purchased at the resulting public
auction by the Development Bank of the Philippines (DBP), will not
make PNB liable for the PASUMIL’s contractual debts to Andrada.
 As a rule, a corporation that purchases the assets of another will
not be liable for the debts of the selling corporation, provided the
former acted in good faith and paid adequate consideration for such
assets, EXCEPT when any of the following circumstances is
present:
 (1) where the purchaser expressly or impliedly agrees to
assume the debts,
 (2) where the transaction amounts to a consolidation or
merger of the corporations,
 (3) where the purchasing corporation is merely a continuation
of the selling corporation, and
 (4) where the transaction is fraudulently entered into in order
to escape liability for those debts.
 A corporation is an artificial being created by operation of law. It
possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from the persons composing
it, as well as from any other legal entity to which it may be related.
 the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a
person or of another corporation. For reasons of public policy and
in the interest of justice, the corporate veil will justifiably be impaled
Page 4 of 15
only when it becomes a shield for fraud, illegality or inequity
committed against third persons.
 Any application of the doctrine of piercing the corporate veil must
be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed.
 This Court has pierced the corporate veil to ward off a judgment
credit, to avoid inclusion of corporate assets as part of the estate of
the decedent, to escape liability arising from a debt, or to
perpetuate fraud and/or confuse legitimate issues either to promote
or to shield unfair objectives or to cover up an otherwise blatant
violation of the prohibition against forum-shopping. Only in these
and similar instances may the veil be pierced and disregarded.
 Piercing the veil of corporate fiction may be allowed only if the
following elements concur:
 (1) control -- not mere stock control, but complete domination
-- not only of finances, but of policy and business practice in
respect to the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiff’s legal right; and
 3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of.
 Absence of the foregoing elements in the present case precludes
the piercing of the corporate veil.
 First, other than the fact that petitioners acquired the assets
of PASUMIL, there is no showing that their control over it
warrants the disregard of corporate personalities.
 Second, there is no evidence that their juridical personality
was used to commit a fraud or to do a wrong; or that the
separate corporate entity was farcically used as a mere alter
ego, business conduit or instrumentality of another entity or
person.
 Third, Andrada was not defrauded or injured when petitioners
acquired the assets of PASUMIL.
 SC was not convinced that the transfer of the latter’s assets to PNB
was fraudulently entered into in order to escape liability for its debt
to Andrada.
 The bank was justified in foreclosing the mortgage, because the
PASUMIL account had incurred arrearages of more than 20
percent of the total outstanding obligation. Thus, DBP had not only
a right, but also a duty under the law to foreclose the subject
properties. PNB acquired PASUMIL’s assets that DBP had
foreclosed and purchased in the normal course. Petitioner bank
was likewise tasked to manage temporarily the operation of such
assets either by itself or through a subsidiary corporation.
 PNB, as successor-in-interest, stepped into the shoes of DBP as
PASUMIL’s creditor. By way of a Deed of Assignment,\ PNB then
transferred to NASUDECO all its rights under the Redemption
Agreement.
 There is no merger or consolidation with respect to PASUMIL and
PNB.
 A consolidation is the union of two or more existing entities to form
a new entity called the consolidated corporation. A merger, on the
other hand, is a union whereby one or more existing corporations
are absorbed by another corporation that survives and continues
the combined business.
 Since a merger or consolidation involves fundamental changes in
the corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law authorizing
them. For a valid merger or consolidation, the approval by the
Securities and Exchange Commission (SEC) of the articles of
merger or consolidation is required. These articles must likewise be
duly approved by a majority of the respective stockholders of the
constituent corporations.
---------------------------xxx-----------------------
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

ANTONIO VAZQUEZ, petitioner,
vs.
FRANCISCO DE BORJA, respondent.
G.R. No. L-48930
February 23, 1944
x---------------------------------------------------------x
FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.
G.R. No. L-48931
February 23, 1944
OZAETA, J.:
TOPIC: ATTRIBUTES OF A CORPORATION
FACTS:
On January, 1932, Antonio Vazquez and Fernando Busuego jointly and
severally obligated themselves to sell to Francisco de Borja 4,000 cavans
of palay at P2.10 per cavan, to be delivered during the month of
February, 1932, the Vazquez and Busuego having subsequently received
from Borja in virtue of said agreement the sum of P8,400; Vazquez and
Busuego delivered to Borja during the months of February, March, and
April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and
refused to deliver the balance of 1,512 cavans of the value of P3,175.20
notwithstanding repeated demands and because of Vazquez and
Busuego's refusal to deliver to Borja the said 1,512 cavans of palay within
the period above mentioned, Borja suffered damages in the sum of
P1,000. Borja also delivered to Vazquez and Busuego the 4,000 empty
sacks, of which they returned to the Borja only 2,490 and they refused to
deliver the balance of 1,510 sacks or to pay their value amounting to
P377.50; and that on account of such refusal Borja suffered damages in
the sum of P150.
Antonio Vazquez denied having entered into the contract mentioned in
the first cause of action in his own individual and personal capacity, either
solely or together with his codefendant Fernando Busuego, and alleged
that the agreement for the purchase of 4,000 cavans of palay and the
payment of the price of P8,400 were made by the plaintiff with and to the
Natividad-Vasquez Sabani Development Co., Inc., a corporation
organized and existing under the laws of the Philippines, of which the
defendant Antonio Vazquez was the acting manager at the time the
transaction took place.
The Trial court ruled in favor of Borja. Upon appeal, the Court of Appeals
modified the judgment by reducing the total sum, with legal interest
thereon and the costs. But by a subsequent resolution upon the
defendant's motion for reconsideration, the Court of Appeals set aside its
judgment and ordered that the case be remanded to the court of origin for
further proceedings and found that according to the preponderance of the
evidence "the sale made by Antonio Vazquez in favor of Francisco de
Borja of 4,000 cavans of palay was in his capacity as acting president
and manager of the corporation Natividad-Vazquez Sabani Development
Co., Inc." That finding of fact is final and, it resolving the only issue
involved, should be determinative of the result
Hence this appeal.
ISSUE/S:
W/N Borja entered into the contract with Antonio Vazquez in his personal
capacity or as manager of the Natividad-Vazquez Sabani Development
Co., Inc.?
HELD:
The Court of Appeals doubly erred in ordering that the cause be
remanded to the court of origin for further trial to determine whether the
corporation had sufficient stock of palay at the time appellant sold, 1500
cavans of palay to Kwong Ah Phoy. First, if that point was material to the
issue, it should have been proven during the trial; and the statement of
the court that it had not been sufficiently discussed and proven was no
justification for ordering a new trial, which, by the way, neither party had
solicited but against which, on the contrary, both parties now vehemently
protest. Second, the point is, in any event, beside the issue, and this we
shall now discuss in connection with the original judgment of the Court of
Appeals which the plaintiff cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance
of the evidence that the party liable on the contract is the Natividad-
Vazquez Sabani Development Co., Inc. which is not a party herein, the
Page 5 of 15
complaint should have been dismissed. Counsel for the plaintiff, in his
brief as respondent, argues that although by the preponderance of the
evidence the trial court and the Court of Appeals found that Vazquez
celebrated the contract in his capacity as acting president of the
corporation and although it was the latter, thru Vazquez, with which Borja
had contracted and which, thru Vazquez, had received the sum of P8,400
from Borja, such argument is invalid and insufficient to show that the
president of the corporation is personally liable on the contract duly and
lawfully entered into by him in its behalf.
RATIO:
It is well known that a corporation is an artificial being invested by law
with a personality of its own, separate and distinct from that of its
stockholders and from that of its officers who manage and run its affairs.
The mere fact that its personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the latter personally
liable on a contract duly entered into, or for an act lawfully performed, by
them for an in its behalf. The legal fiction by which the personality of a
corporation is created is a practical reality and necessity. Without it no
corporate entities may exists and no corporate business may be
transacted. Such legal fiction may be disregarded only when an attempt
is made to use it as a cloak to hide an unlawful or fraudulent purpose. No
such thing has been alleged or proven in this case. It has not been
alleged nor even intimated that Vazquez personally benefited by the
contract of sale in question and that he is merely invoking the legal fiction
to avoid personal liability. Neither is it contended that he entered into said
contract for the corporation in bad faith and with intent to defraud the
plaintiff. We find no legal and factual basis upon which to hold him liable
on the contract either principally or subsidiarily.
DISPOSITIVE PORTION:
The judgment of the Court of Appeals is reversed, and the complaint is
hereby dismissed, without any finding as to costs.
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the
majority opinion, the plaintiff is entitled to a judgment against the
defendant. The latter, as acting president and manager of Natividad-
Vazquez Sabani Development Co., Inc., and with full knowledge of the
then insolvent status of his company, agreed to sell to the plaintiff 4,000
cavans of palay. Notwithstanding the receipt from the plaintiff of the full
purchase price, the defendant delivered only 2,488 cavans and failed and
refused to deliver the remaining 1,512 cavans and failed and refused to
deliver the remaining 1,512 cavans and a quantity of empty sacks, or
their value. Such failure resulted, according to the Court of First Instance
of Manila and the Court of Appeals, from his fault or negligence.
It is true that the cause of action made out by the complaint is technically
based on a contract between the plaintiff and Natividad-Vazquez Sabani
Development Co., Inc. which is not a party to this case. Nevertheless,
inasmuch as it was proven at the trial that the defendant was guilty of
fault in that he prevented the performance of the plaintiff's contract and
also of negligence bordering on fraud which cause damage to the
plaintiff, the error of procedure should not be a hindrance to the rendition
of a decision in accordance with the evidence actually introduced by the
parties, especially when in such a situation we may order the necessary
amendment of the pleadings, or even consider them correspondingly
amended.
As already stated, the corporation of which the defendant was acting
president and manager was, at the time he made the sale of the plaintiff,
known to him to be insolvent. As a matter of fact, said corporation was
soon thereafter dissolved. There is admitted damage on the part of the
plaintiff, proven to have been inflicted by reason of the fault or negligence
of the defendant. In the interest of simple justice and to avoid multiplicity
of suits I am therefore impelled to consider the present action as one
based on fault or negligence and to sentence the defendant accordingly.
Otherwise, he would be allowed to profit by his own wrong under the
protective cover of the corporate existence of the company he
represented. It cannot be pretended that any advantage under the sale
inured to the benefit of Natividad-Vazquez Sabani Development Co., Inc.
and not of the defendant personally, since the latter undoubtedly owned a
considerable part of its capital.
-------------------------------xxx------------------------
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

WENSHA SPA CENTER VS. LORETA YUNG
G.R. No. 185122 August 16, 2010
TOPIC: Tri Level Existence in Corporate Setting – Attributes of a
Corporation
FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of
sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its
president, respondent Loreta T. Yung (Loreta) was its administrative
manager at the time of her termination from employment.
According to Loreta’s position paper, she used to be employed by
Manmen Services (Manmen) where Xu was a client. Xu was impressed
by Loretas performance. After he established Wensha, he convinced
Loreta to transfer and work at Wensha. Loreta was initially reluctant to
accept as she had been with Manmen for seven years. But Xu was
persistent and later on, Loreta resigned from Manmen and transferred to
Wensha.
Loreta introduced positive changes to Wensha which led to her promotion
as Administrative Manager.
However, on August 2004, she was asked to leave her office because Xu
and a Feng Shui master were exploring the premises. Later that day, Xu
asked Loreta to go on leave with pay for one month. She did so and
returned on September 10, 2004. Upon her return, Xu and his wife asked
her to resign from Wensha because, according to the Feng Shui master,
her aura did not match that of Xu. Loreta refused but was informed that
she could no longer continue working at Wensha. That same afternoon,
Loreta went to the NLRC and filed a case for illegal dismissal against Xu
and Wensha.
RULING OF LABOR ARBITER (L.A.):
L.A. Francisco Robles dismissed Loretas complaint for lack of merit. He
found it more probable that Loreta was dismissed from her employment
due to Wenshas loss of trust and confidence in her.
RULING OF NLRC:
This ruling was affirmed by the NLRC citing its observation that Wensha
was still considering the proper action to take on the day Loreta left
Wensha and filed her complaint. The NLRC added that this finding was
bolstered by Wenshas September 10, 2004 letter to Loreta asking her to
come back to personally clarify some matters, but she declined because
she had already filed a case.
RULING OF CA:
The CA reversed the ruling of the NLRC on the ground that it gravely
abused its discretion in appreciating the factual bases that led to Loretas
dismissal. The CA noted that there were irregularities and inconsistencies
in Wenshas position.
ISSUE:
Whether or not petitioner XU ZHI JIE is solidarily liable with WENSHA,
assuming that respondent was illegally dismissed
RULING OF SC:
The Court finds merit in the argument of petitioner Xu that the CA erred in
ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it
and from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality.
In labor cases, corporate directors and officers may be held solidarily
liable with the corporation for the termination of employment only if done
with malice or in bad faith. Bad faith does not connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through
some motive or interest or ill will; it partakes of the nature of fraud.
In the subject decision, the CA concluded that petitioner Xu and Wensha
are jointly and severally liable to Loreta. We have read the decision in its
entirety but simply failed to come across any finding of bad faith or malice
on the part of Xu. There is, therefore, no justification for such a ruling. To
sustain such a finding, there should be an evidence on record that an
officer or director acted maliciously or in bad faith in terminating the
services of an employee.[38] Moreover, the finding or indication that the
dismissal was effected with malice or bad faith should be stated in the
decision itself.
Page 6 of 15
------------------------------xxx--------------------------
CASE TITLE: G.R. No. 152542 and G.R. No. 155472. July 8, 2004;
YNARES-SANTIAGO, J.:
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT
CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA,
petitioner, vs. ANTONIO B. MONFORT III, et al. and COURT OF
APPEALS, respondents.
PRINCIPLE/s: Attributes of Corporations
FACTS: The case involves two consolidated cases. For the premises,
Monfort Hermanos Agricultural Development Corporation (Corporation), a
domestic private corporation, is the registered owner of a farm, fishpond
and sugar cane plantation known as Haciendas San Antonio II,
Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City (4
Haciendas). It also owns one unit of motor vehicle and two units of
tractors. The same allowed Ramon H. Monfort, its EVP, to breed and
maintain fighting cocks in his personal capacity at Hacienda San Antonio.
In 1997, the group of Antonio Monfort III, through force and intimidation,
allegedly took possession of the 4 Haciendas, the produce thereon and
the motor vehicle and tractors, as well as the fighting cocks of Ramon H.
Monfort.
For the first case, G.R. No. 155472, on April 10, 1997, the Corporation,
represented by its President, Ma. Antonia M. Salvatierra (Salvatierra),
and Ramon H. Monfort, in his personal capacity, filed against the group of
Antonio Monfort III, a complaint for delivery of motor vehicle, tractors and
378 fighting cocks, with prayer for injunction and damages, before the
RTC of Negros Occidental. The group of Antonio Monfort III filed a motion
to dismiss contending that Salvatierra has no capacity to sue on behalf of
the Corporation because the March 31, 1997 Board Resolution
authorizing Salvatierra and/or Ramon H. Monfort to represent the
Corporation is void as the purported Members of the Board who passed
the same were not validly elected officers of the Corporation. On May 4,
1998, the RTC denied the motion to dismiss. The group of Antonio
Monfort III filed a petition for certiorari with the Court of Appeals but the
same was dismissed. The Special Former Thirteenth Division of the
appellate court (CA Special 13th) did not resolve the validity of the March
31, 1997 Board Resolution and the election of the officers who signed it,
ratiocinating that the determination of said question is within the
competence of the RTC. The group’s MR was denied.
For the second case, G.R. No. 152542, On April 21, 1997, Salvatierra
filed on behalf of the Corporation a complaint for forcible entry,
preliminary mandatory injunction with temporary restraining order and
damages against the group of Antonio Monfort III, before the MTC of
Cadiz City. It contended that the latter through force and intimidation,
unlawfully took possession of the 4 Haciendas and deprived the
Corporation of the produce thereon. In their answer, the group of Antonio
Monfort III alleged that they are possessing and controlling the Haciendas
and harvesting the produce therein on behalf of the corporation and not
for themselves. They likewise raised the affirmative defense of lack of
legal capacity of Salvatierra to sue on behalf of the Corporation. MTC
dismissed the complaint. On appeal, the RTC of Negros Occidental
reversed the MTC and remanded the case for further proceedings. On
petition for review with the CA, the Special Tenth Division (CA Special
10th) set aside the judgment of the RTC and dismissed the complaint for
forcible entry for lack of capacity of Salvatierra to represent the
Corporation. Salvatierra’s MR was denied.
Thus this consolidated case for a petition for review.
Monfort III group’s main contention: the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H.
Monfort to represent the Corporation is void because the purported
Members of the Board who passed the same were not validly elected
officers of the Corporation.
ISSUE: The focal issue in these consolidated petitions is whether or not
Salvatierra has the legal capacity to sue on behalf of the Corporation.
RULING: A corporation has no power except those expressly conferred
on it by the Corporation Code and those that are implied or incidental to
its existence. In turn, a corporation exercises said powers through its
board of directors and/or its duly authorized officers and agents. Thus, it
has been observed that the power of a corporation to sue and be sued in
any court is lodged with the board of directors that exercises its corporate
powers. In turn, physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of the board of
directors. Corollary thereto, corporations are required under Section
26 of the Corporation Code to submit to the SEC within thirty (30)
days after the election the names, nationalities and residences of
the elected directors, trustees and officers of the Corporation. In
order to keep stockholders and the public transacting business with
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

domestic corporations properly informed of their organizational
operational status, the SEC issued the following rules:
xxx 2. A General Information Sheet shall be filed with this Commission
within thirty (30) days following the date of the annual stockholders
meeting. No extension of said period shall be allowed, except for very
justifiable reasons stated in writing by the President, Secretary, Treasurer
or other officers, upon which the Commission may grant an extension for
not more than ten (10) days.
2.A. Should a director, trustee or officer die, resign or in any manner,
cease to hold office, the corporation shall report such fact to the
Commission with fifteen (15) days after such death, resignation or
cessation of office.
3. If for any justifiable reason, the annual meeting has to be postponed,
the company should notify the Commission in writing of such
postponement.
The General Information Sheet shall state, among others, the names
of the elected directors and officers, together with their
corresponding position title (Emphasis supplied)
In the instant case, the six signatories to the March 31, 1997 Board
Resolution authorizing Salvatierra and/or Ramon H. Monfort to represent
the Corporation, were: Salvatierra, President; Ramon H. Monfort, EVP;
Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline M. Yusay;
and Ester S. Monfort, Secretary. However, the names of the last four
(4) signatories to the said Board Resolution do not appear in the
1996 General Information Sheet submitted by the Corporation with
the SEC. There is thus a doubt that these 4 were indeed duly elected
Members of the Board legally constituted to bring suit in behalf of
the Corporation.
In Premium Marble Resources, Inc. v. Court of Appeals, the Court was
confronted with the similar issue of capacity to sue of the officers of the
corporation who filed a complaint for damages. In the said case, the SC
sustained the dismissal of the complaint because it was not
established that the Members of the Board who authorized the filing
of the complaint were the lawfully elected officers of the
corporation.
Note that: By the express mandate of the Corporation Code (Section
26), all corporations duly organized pursuant thereto are required to
submit within the period therein stated (30 days) to the Securities
and Exchange Commission the names, nationalities and residences
of the directors, trustees and officers elected. Evidently, the
objective sought to be achieved by Section 26 is to give the public
information, under sanction of oath of responsible officers, of the
nature of business, financial condition and operational status of the
company together with information on its key officers or managers
so that those dealing with it and those who intend to do business
with it may know or have the means of knowing facts concerning
the corporations’ financial resources and business responsibility.
In the case at bar, the fact that 4 of the 6 Members of the Board listed in
the 1996 General Information Sheet (GIS) are already dead at the time
the March 31, 1997 Board Resolution was issued, does not automatically
make those 4 signatories to the said Board Resolution (whose name do
not appear in the 1996 GIS) as among the incumbent Members of the
Board. This is because it was not established that they were duly elected
to replace the said deceased Board Members.
There was an attempt on the part of the Corporation to correct the
alleged error in the GIS when its retained accountant informed the SEC in
its November 11, 1998 letter that the non-inclusion of the lawfully elected
directors in the 1996 GIS was attributable to its oversight and was not the
fault of the Corporation. However, the law is clear that the corporation is
mandated to inform the SEC of the names and the change in the
composition of its officers and board of directors within 30 days after
election if one was held, or 15 days after the death, resignation or
cessation of office of any of its director, trustee or officer if any of them
died, resigned or in any manner, ceased to hold office. This, the
Corporation failed to do. The alleged election of the directors and officers
who signed the March 31, 1997 Board Resolution was held on October
16, 1996, but the SEC was informed thereof more than two years later, or
on November 11, 1998. The 4 Directors appearing in the 1996 GIS died
between the years 1984-1987, but the records do not show if such
demise was reported to the SEC. The Corporation also submitted an
alleged Minutes of the October 16, 1996 meeting where the questioned
offices were elected but the same was not considered by the High Court
as it was belatedly submitted which further militates against the purported
election of those who signed the March 31, 1997 Board Resolution.
Considering the foregoing, the SC found that Salvatierra failed to
prove that four of those who authorized her to represent the
Corporation were the lawfully elected Members of the Board of the
Corporation. As such, they cannot confer valid authority for her to
sue on behalf of the corporation. However, the SC noted that as
Page 7 of 15
regards Ramon H. Monfort, he sought redress of the recovery of the
fighting cocks in his personal capacity, hence, the dismissal of the
complaint for lack of capacity to sue on behalf of the Corporation should
be limited only to the Corporation’s cause of action for delivery of motor
vehicle and tractors. In view, however, of the demise of Ramon on June
25, 1999, substitution by his heirs is proper.
First case: Petition is granted. The Decision of the CA Special 13 th
dismissing the petition filed by the group of Antonio Monfort III, is
REVERSED and SET ASIDE.
Second case: Petition is denied. The Decision of the CA Special 10th
which set aside the judgment of the RTC and dismissed the complaint for
forcible entry for lack of capacity of Salvatierra to represent the
Corporation is AFFIRMED.
------------------------------xxx----------------------
CORPORATIONS DIFFERENTIATED WITH OTHER BUSINESS
ORGANIZATION
PIONEER INSURANCE & SURETY CORP. v. CA, BORDER
MACHINERY, CONSTANCIO MAGLANA and JACOB LIM
GR No. 84197, 28 July 1989
J. Gutierrez, Jr.
Principle: CORPORATION DIFFERENTIATED FROM OTHER
BUSINESS ORGANIZATIONS
Lim was engaged in the airline business as owner-operator of Southern
Air Lines (SAL) a single proprietorship. In 1965, Lim and Japan Domestic
Airlines (JDA) entered into and executed a sales contract for the sale and
purchase of two aircrafts and one set of necessary spare parts of the total
agreed price of $109,000 to be paid in installments. Pioneer as surety
executed and issued its surety bond in favor of JDA, in behalf of its
principal, Lim, for the balance price of the aircraft and spare parts.
Border Machinery, Cervantes, and Maglana contributed some funds used
in the purchase of the said aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed by Lim
to expand his airline business. They executed two separate indemnity
agreements in favor of Pioneer. The indemnity agreements stipulated
that the indemnitors principally agree and bind themselves jointly and
severally to indemnify and hold and save harmless Pioneer from and
against any damages, losses, cost, taxes, penalties, charges, and
expenses of whatever kind and nature which Pioneer may incur in
consequence of having become surety upon the bond and to pay,
reimburse and make good to Pioneer, its successors and assigns, all
sums and amounts of money which it or its representatives should or may
pay or cause to be paid or become liable to pay on them of whatever kind
and nature. Thereafter, Lim under the name of SAL executed a deed of
chattel mortgage as security for the latter’s suretyship in favor of the
former; it was stipulated that Lim transfer and convey to the surety the
two aircrafts.
Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of
P298,626.12 and filed for a petition for the extrajudicial foreclosure of the
chattel. The Cervantes and Maglana filed a third party claim alleging that
they are co-owners of the aircrafts. Pioneer then filed a judicial
foreclosure with an application of writ of preliminary attachment against
Lim and respondents (the latter filed a cross claim against Lim claiming
they were not privies to the contracts signed by Lim and by way of
counterclaim, sought for damages or being exposed to litigation and for
recovery of sums of money).
ISSUE (1): Whether or not the relationship of Lim, Cervantes, Border
Machinery and Maglana who failed to incorporate, constitutes a de facto
partnership.
The petitioner herein questions the CA’s findings ordering him (Lim) to
reimburse certain amounts given by the respondents as their
contributions to the intended corporation.
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be
governed by the supposed charter and the laws of the state relating
thereto and not by the rules governing partners, it is ordinarily held that
persons who attempt, but fail, to form a corporation and who carry
on business under the corporate name occupy the position of
partner inter se, and their rights as members of the company o the
property acquired by the company will be recognized.
During the trial, the court found that the petitioner received an amount of
P151,000 representing the participation of the respondents in the
ownership of the subject airplanes and spare parts. It is clear that Lim
has no intention to form a corporation with the respondents despite
his representations to them.
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

No de facto partnership was created among the parties which
would entitle the petitioner to a reimbursement of the supposed
losses of the proposed corporation. Record shows that Lim was
acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
ISSUE (2): Whether or not Pioneer is entitled to indemnity from Lim
It appeared that Pioneer reinsured its risk of liability under the surety
bond it had executed in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000 and paid with the said amount the
bulk of its alleged liability to JDA under the surety bond, it is plain that on
this score it no longer has any right to collect to the extent of the said
amount. Thus, Pioneer is not a real party in interest for which it should
be the reinsurer who should sue Lim.
In general a reinsurer, on payment of a loss acquired the same rights by
subrogation as are acquired in similar cases here the original insurer
pays a loss. The rules on practice in actions on original insurance
policies are in general applicable to actions or contracts of reinsurance.
Hence, the applicable law is Art. 2207 of the NCC to wit: if the plaintiffs
property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing
the loss or injury. Evidently, the real party in interest with regard to
the portion of the indemnity is the insurer and not the insured.
It is clear from the records that Pioneer sued in its own name and not as
an attorney-in-fact of the reinsurer. Accordingly, the CA did not commit a
reversible error in dismissing the petitioner’s complaint as against the
respondents for the reason that the petitioner was not the real party in
interest in the complaint and, therefore, has not cause of action against
the respondents.
---------------------------------xxx-------------------------
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
G.R. No. 136448. November 3, 1999
PANGANIBAN, J.:
The Facts: Case is petition for review on Certiorari. On behalf of
"Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
into a Contract dated 7 February 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (PFGI).
They claimed that they were engaged in a business venture with Lim
Tong Lim, who however was not a signatory to the agreement. The total
price of the nets amounted to P532,045. 400 pieces of floats worth P68,
000 were also sold to the Corporation. The buyers, however, failed to pay
for the fishing nets and the floats; hence, PFGI filed a collection suit
against Chua, Yao and Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their
capacities as general partners, on the allegation that "Ocean Quest
Fishing Corporation" was a non-existent corporation as shown by a
Certification from the Securities and Exchange Commission. Instead of
answering the Complaint, Chua filed a Manifestation admitting his liability
and requesting a reasonable time within which to pay. He also turned
over to PFGI some of the nets which were in his possession. Peter Yao
filed an Answer, after which he was deemed to have waived his right to
cross-examine witnesses and to present evidence on his behalf, because
of his failure to appear in subsequent hearings. Lim Tong Lim, on the
other hand, filed an Answer with Counterclaim and Cross claim and
moved for the lifting of the Writ of Attachment. The trial court maintained
the Writ, and upon motion of PFGI, ordered the sale of the fishing nets at
a public auction. PFGI won the bidding and deposited with the said court
the sales proceeds of P900, 000. On 18 November 1992, the trial court
rendered its Decision, ruling in favor of PFGI and that Chua, Yao and
Lim, as general partners, were jointly liable to pay PFGI. Lim appealed to
the Court of Appeals (CA) which, affirmed the RTC. Hence, Lim filed the
Petition for Review on Certiorari arguing that under the doctrine of
corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him.
The Issues: Whether by their acts, Lim, Chua and Yao could be deemed
to have entered into a partnership; Whether Lim should be held jointly
liable with Chua and Yao under the Doctrine of Corporation by estoppel.
This Courts Ruling: The Petition is devoid of merit. We are not
persuaded by the arguments of petitioner. The facts as found by the two
lower courts clearly showed that there existed a partnership among
Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides: Article 1767 - By the contract of partnership, two or more
Page 8 of 15
persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
From the factual findings of both lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a fishing business, which they started
by buying boats worth P3.35 million, financed by a loan secured from
Jesus Lim who was petitioners brother. In their Compromise Agreement,
they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the
excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under
Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but
not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the
existence of a partnership was the Compromise Agreement. His
arguments are baseless.
A proper adjudication of claimants rights mandates that courts must
review and thoroughly appraise all relevant facts. In implying that the
lower courts have decided on the basis of one piece of document alone,
petitioner fails to appreciate that the CA and the RTC delved into the
history of the document and explored all the possible consequential
combinations in harmony with law, logic and fairness.
Petitioner Was a Partner, Not a Lessor The sale of the boats, as well
as the division among the three of the balance remaining after the
payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a
loan in the name of the person the lender trusts, who in this case is the
petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to
sell his property to pay a debt he did not incur, if the relationship among
the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel Petitioner argues that under the doctrine of
corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree. Section 21 of the Corporation Code
of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising
as a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or
on any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof because there was in fact no
corporation.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
Unquestionably, petitioner benefited from the use of the nets found inside
F/B Lourdes, the boat which has earlier been proven to be an asset of the
partnership. He in fact questions the attachment of the nets, because the
Writ has effectively stopped his use of the fishing vessel.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
----------------------xxx-------------------
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

CONSTITUTIONAL GUARANTEES OF A CORP
SMITH, BELL & COMPANY (LTD.) vs. JOAQUIN NATIVIDAD
G.R. No. 15574 September 17, 1919
MALCOLM, J.:
FACTS
Smith, Bell & Co., (Ltd.), is a corporation organized and existing
under the laws of the Philippine Islands. A majority of its stockholders are
British subjects. It is the owner of a motor vessel known as the Bato built
for it in the Philippine Islands in 1916, of more than fifteen tons gross.
The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands.
Application (Certificate of Philippine Regitry) was made in Cebu, the
home port of the vessel, to the Collector of Customs for a certificate of
Philippine registry. The Collector refused to issue the certificate, giving as
his reason that all the stockholders of Smith, Bell & Co., Ltd., were not
citizens either of the United States or of the Philippine Islands under Act
No. 2761 which provides:
SEC. 1172. Certificate of Philippine register. — Upon registration of a
vessel of domestic ownership, and of more than fifteen tons gross, a
certificate of Philippine register shall be issued for it. If the vessel is of
domestic ownership and of fifteen tons gross or less, the taking of the
certificate of Philippine register shall be optional with the owner.
SEC. 1176. Investigation into character of vessel. — No application for a
certificate of Philippine register shall be approved until the collector of
customs is satisfied from an inspection of the vessel that it is engaged or
destined to be engaged in legitimate trade and that it is of domestic
ownership as such ownership is defined in section eleven hundred and
seventy-two of this Code.
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the
equal protection of the laws because it, in effect, prohibits the corporation
from owning vessels, and because classification of corporations based on
the citizenship of one or more of their stockholders is capricious, and that
Act No. 2761 deprives the corporation of its properly without due process
of law because by the passage of the law company was automatically
deprived of every beneficial attribute of ownership in the Bato and left
with the naked title to a boat it could not use.
ISSUE
WON the legislature through Act no. 2761 can deny registry of
vessel with foreign stockholders.
RATIO
Yes. We are inclined to the view that while Smith, Bell & Co.
Ltd., a corporation having alien stockholders, is entitled to the protection
afforded by the due-process of law and equal protection of the laws
clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the
Philippine Legislature, in denying to corporations such as Smith, Bell &.
Co. Ltd., the right to register vessels in the Philippines coastwise trade,
does not belong to that vicious species of class legislation which must
always be condemned, but does fall within authorized exceptions,
notably, within the purview of the police power, and so does not offend
against the constitutional provision.
The guaranties of the Fourteenth Amendment and so of the first
paragraph of the Philippine Bill of Rights, are universal in their application
to all person within the territorial jurisdiction, without regard to any
differences of race, color, or nationality. The word "person" includes
aliens. Private corporations, likewise, are "persons" within the scope of
the guaranties in so far as their property is concerned. Classification with
the end in view of providing diversity of treatment may be made among
corporations, but must be based upon some reasonable ground and not
be a mere arbitrary selection.
A literal application of general principles to the facts before us would, of
course, cause the inevitable deduction that Act No. 2761 is
unconstitutional by reason of its denial to a corporation, some of whole
members are foreigners, of the equal protection of the laws.
To justify that portion of Act no. 2761 which permits corporations or
companies to obtain a certificate of Philippine registry only on condition
that they be composed wholly of citizens of the Philippine Islands or of
the United States or both, as not infringing Philippine Organic Law, it
must be done under some one of the exceptions.
One of the exceptions to the general rule, most persistent and far
reaching in influence is, broad and comprehensive as it is, nor any other
amendment, "was designed to interfere with the power of the State,
sometimes termed its `police power,' to prescribe regulations to promote
the health, peace, morals, education, and good order of the people, and
legislate so as to increase the industries of the State, develop its
Page 9 of 15
resources and add to its wealth and prosperity. From the very necessities
of society, legislation of a special character, having these objects in view,
must often be had in certain districts. This is the same police power which
the United States Supreme Court say "extends to so dealing with the
conditions which exist in the state as to bring out of them the greatest
welfare in of its people." For quite similar reasons, none of the provision
of the Philippine Organic Law could could have had the effect of denying
to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and
illimitable of powers, the sovereign police power, in the promotion of the
general welfare and the public interest.
Without any subterfuge, the apparent purpose of the Philippine
Legislature is seen to be to enact an anti-alien shipping act. The ultimate
purpose of the Legislature is to encourage Philippine ship-building.
With full consciousness of the importance of the question, we
nevertheless are clearly of the opinion that the limitation of domestic
ownership for purposes of obtaining a certificate of Philippine registry in
the coastwise trade to citizens of the Philippine Islands, and to citizens of
the United States, does not violate the provisions of paragraph 1 of
section 3 of the Act of Congress of August 29, 1916 No treaty right relied
upon Act No. 2761 of the Philippine Legislature is held valid and
constitutional .
DISPOSITIVE PORTION
The petition for a writ of mandamus is denied, with costs
against the petitioner.
--------------------------------xxx-------------------------
G.R. No. L-19550
Date: June 19, 1967
Title: HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS
and KARL BECK, petitioners, vs. HON. JOSE W. DIOKNO, in his
capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity
as Acting Director, National Bureau of Investigation; SPECIAL
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL
VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE
AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of
First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN
JIMENEZ, Municipal Court of Quezon City, respondents.
Ponente: CONCEPCION, C.J.:
Facts: The prosecution made possible the issuance of 42 search
warrants against the petitioners and the corporation to search persons
and premises of several personal properties due to an alleged violation of
Central Bank Laws, Tariff and Custom Laws, Internal Revenue Code and
the Revised Penal Code of the Philippines. As a results, search and
seizures were conducted in the both the residences of the petitioners and
in the corporation's premises.
The petitioners contended that the search warrants are null and void as
their issuance violated the Constitution and the Rules of Court for being
general warrants. Thus, they filed a petition with the Supreme Court
for certiorari, prohibition, mandamus and injunction to prevent the seized
effects from being introduced as evidence in the deportation cases
against the petitioners. The court issued the writ only for those effects
found in the petitioner's residence.
Issue: W/N the petitioner can validly assail the legality of the search and
seizure in both premises.
HELD: No. they can only assail the search conducted in their residences
but not those done in the corporation's premises. The petitioner has no
cause of action in the second situation since a corporation has a
personality separate and distinct from the personality of its officers or
herein petitioners regardless of the amount of shares of stock or interest
of each in the said corporation, and whatever office they hold therein.
Only the party whose rights have been impaired can validly object the
legality of a seizure--a purely personal right which cannot be exercised by
a third party. The right to object belongs to the corporation for the first
group of documents, papers, and things seized from the offices and the
premises.
----------------------------xxx---------------------------
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

BACHE & CO. (PHIL.), INC. and FREDERICK E.
SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ,
MISAEL P. VERA, in his capacity as Commissioner of Internal
Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO
VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE,
JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
G.R. No. L-32409. February 27, 1971
VILLAMOR, J.
FACTS
On February 24, 1970, respondent Misael P. Vera, Commissioner of
Internal Revenue, wrote a letter addressed to respondent Judge Vivencio
M. Ruiz requesting the issuance of a search warrant against petitioners
for violation of Section 46(a) of the National Internal Revenue Code, in
relation to all other pertinent provisions thereof, particularly Sections 53,
72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de
Leon, one of herein respondents, to make and file the application for
search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De
Leon and his witness, respondent Arturo Logronio, went to the Court of
First Instance of Rizal. They brought with them the following papers:
respondent Vera’s aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent De Leon;
a deposition in printed form of respondent Logronio already accomplished
and signed by him but not yet subscribed; and a search warrant already
accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means
of a note, he instructed his Deputy Clerk of Court to take the depositions
of respondents De Leon and Logronio. After the session had adjourned,
respondent Judge was informed that the depositions had already been
taken. The stenographer, upon request of respondent Judge, read to him
her stenographic notes; and thereafter, respondent Judge asked
respondent Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis, he could be
charged for perjury. Respondent Judge signed respondent de Leon’s
application for search warrant and respondent Logronio’s deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the
BIR agents served the search warrant petitioners at the offices of
petitioner-corporation on Ayala Avenue, Makati, Rizal. Petitioners’
lawyers protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of
documents.
CFI RULING
On March 3, 1970, petitioners filed a petition with the Court of First
Instance of Rizal praying that the search warrant be quashed, dissolved
or recalled, that preliminary prohibitory and mandatory writs of injunction
be issued, that the search warrant be declared null and void, and that the
respondents be ordered to pay petitioners, jointly and severally, damages
and attorney’s fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court,
presided over by respondent Judge, issued on July 29, 1970, an order
dismissing the petition for dissolution of the search warrant. In the
meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax
assessments on petitioner-corporation in the total sum of P2, 594,729.97,
partly, if not entirely, based on the documents thus seized. Petitioners
came to this Court.
ISSUES:
-Whether the issued search warrant is valid; and
-Whether a corporation is entitled to protection against unreasonable
search and seizures.
SC RULING
1. Respondent Judge failed to personally examine the complainant and
his witness.
The pertinent provisions of the Constitution of the Philippines and of the
Revised Rules of Court are:
"(3) The right of the people to be secure in their persons, houses, papers
and effects against unreasonable searches and seizures shall not be
violated, and no warrants shall issue but upon probable cause, to be
Page 10 of 15
determined by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things to be
seized." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. — A search warrant shall
not issue but upon probable cause in connection with one specific
offense to be determined by the judge or justice of the peace after
examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. — The judge or justice of the
peace must, before issuing the warrant, personally examine on oath or
affirmation the complainant and any witnesses he may produce and take
their depositions in writing, and attach them to the record, in addition to
any affidavits presented to him." (Rule 126, Revised Rules of Court.)
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is
more emphatic and candid, for it requires the judge, before issuing a
search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."
Personal examination by the judge of the complainant and his witnesses
is necessary to enable him to determine the existence or non-existence
of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of
which prohibit the issuance of warrants except "upon probable cause."
The determination of whether or not a probable cause exists calls for the
exercise of judgment after a judicial appraisal of facts and should not be
allowed to be delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by
respondent Judge of the complainant (respondent De Leon) and his
witness (respondent Logronio). While it is true that the complainant’s
application for search warrant and the witness’ printed-form deposition
were subscribed and sworn to before respondent Judge, the latter did not
ask either of the two any question the answer to which could possibly be
the basis for determining whether or not there was probable cause
against herein petitioners. Indeed, the participants seem to have attached
so little significance to the matter that notes of the proceedings before
respondent Judge were not even taken. At this juncture it may be well to
recall the salient facts. The transcript of stenographic notes (pp. 61-76,
April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case
in the court below shows that per instruction of respondent Judge, Mr.
Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the
depositions of the complainant and his witness, and that stenographic
notes thereof were taken by Mrs. Gaspar. At that time respondent Judge
was at the sala hearing a case. After respondent Judge was through with
the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant
De Leon and witness Logronio went to respondent Judge’s chamber and
informed the Judge that they had finished the depositions. Respondent
Judge then requested the stenographer to read to him her stenographic
notes.
The participation of respondent Judge in the proceedings which led to the
issuance of Search Warrant No. 2-M-70 was thus limited to listening to
the stenographer’s readings of her notes, to a few words of warning
against the commission of perjury, and to administering the oath to the
complainant and his witness. This cannot be consider a personal
examination. If there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of Court. But, as
stated, the Constitution and the rules require a personal examination by
the judge. It was precisely on account of the intention of the delegates to
the Constitutional Convention to make it a duty of the issuing judge to
personally examine the complainant and his witnesses that the question
of how much time would be consumed by the judge in examining them
came up before the Convention, as can be seen from the record of the
proceedings quoted above. The reading of the stenographic notes to
respondent Judge did not constitute sufficient compliance with the
constitutional mandate and the rule; for by that manner respondent Judge
did not have the opportunity to observe the demeanor of the complainant
and his witness, and to propound initial and follow-up questions which the
judicial mind, on account of its training, was in the best position to
conceive. These were important in arriving at a sound inference on the
all-important question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" violation of Sec. 46(a) of the
National Internal Revenue Code in relation to all other pertinent
provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The
question is: Was the said search warrant issued "in connection with one
specific offense," as required by Sec. 3, Rule 126?
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

The search warrant in question was issued for at least four distinct
offenses under the Tax Code. The first is the violation of Sec. 46(a), Sec.
72 and Sec. 73 (the filing of income tax returns), which are interrelated.
The second is the violation of Sec. 53 (withholding of income taxes at
source). The third is the violation of Sec. 208 (unlawful pursuit of
business or occupation); and the fourth is the violation of Sec. 209 (failure
to make a return of receipts, sales, business or gross value of output
actually removed or to pay the tax due thereon). Even in their
classification the six above-mentioned provisions are embraced in two
different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax);
while Secs. 208 and 209 are under Title V (Privilege Tax on Business
and Occupation).
3. The search warrant does not particularly describe the things to be
seized.
The documents, papers and effects sought to be seized are described in
Search Warrant No. 2-M-70 in this manner:
"Unregistered and private books of accounts (ledgers, journals,
columnars, receipts and disbursements books, customers ledgers);
receipts for payments received; certificates of stocks and securities;
contracts, promissory notes and deeds of sale; telex and coded
messages; business communications, accounting and business records;
checks and check stubs; records of bank deposits and withdrawals; and
records of foreign remittances, covering the years 1966 to 1970.”
The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that
the warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto
Concepcion, said:
"The grave violation of the Constitution made in the application for the
contested search warrants was compounded by the description therein
made of the effects to be searched for and seized, to wit:
‘Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit journals, typewriters,
and other documents and/or paper showing all business transactions
including disbursement receipts, balance sheets and related profit and
loss statements.’
"Thus, the warrants authorized the search for and seizure of records
pertaining to all business transactions of petitioners herein, regardless of
whether the transactions were legal or illegal. The warrants sanctioned
the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit
command of our Bill of Rights — that the things to be seized be
particularly described — as well as tending to defeat its major objective:
the elimination of general warrants."
While the term "all business transactions" does not appear in Search
Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the
major objective of the Bill of Rights, i.e., the elimination of general
warrants, for the language used therein is so all-embracing as to include
all conceivable records of petitioner corporation, which, if seized, could
possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court
had occasion to explain the purpose of the requirement that the warrant
should particularly describe the place to be searched and the things to be
seized, to wit:
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97)
specifically require that a search warrant should particularly describe the
place to be searched and the things to be seized. The evident purpose
and intent of this requirement is to limit the things to be seized to those,
and only those, particularly described in the search warrant — to leave
the officers of the law with no discretion regarding what articles they shall
seize, to the end that ‘unreasonable searches and seizures’ may not be
made, — that abuses may not be committed. That this is the correct
interpretation of this constitutional provision is borne out by American
authorities.” The purpose as thus explained could, surely and effectively,
be defeated under the search warrant issued in this case.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances
will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the
description expresses a conclusion of fact — not of law — by which the
warrant officer may be guided in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the things described are limited to
those which bear direct relation to the offense for which the warrant is
being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein
search warrant does not conform to any of the foregoing tests. If the
articles desired to be seized have any direct relation to an offense
Page 11 of 15
committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject of
search and seizure should come in handy merely to strengthen such
evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons,
and other pertinent data regarding the receipts of payments, certificates
of stocks and securities, contracts, promissory notes, deeds of sale,
messages and communications, checks, bank deposits and withdrawals,
records of foreign remittances, among others, enumerated in the warrant.
It is next contended by respondents that a corporation is not entitled to
protection against unreasonable search and seizures. Again, we find no
merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an
officer of a corporation which is charged with a violation of a statute of the
state of its creation, or of an act of Congress passed in the exercise of its
constitutional powers, cannot refuse to produce the books and papers of
such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment, against
unreasonable searches and seizures. A corporation is, after all, but an
association of individuals under an assumed name and with a
distinct legal entity. In organizing itself as a collective body it waives
no constitutional immunities appropriate to such body. Its property
cannot be taken without compensation. It can only be proceeded
against by due process of law, and is protected, under the 14th
Amendment, against unlawful discrimination . . ." (Hale v. Henkel,
201 U.S. 43, 50 L. ed. 652.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against unreasonable
searches and seizures, thus:
"As regards the first group, we hold that petitioners herein have no cause
of action to assail the legality of the contested warrants and of the
seizures made in pursuance thereof, for the simple reason that said
corporations have their respective personalities, separate and distinct
from the personality of herein petitioners, regardless of the amount of
shares of stock or the interest of each of them in said corporations,
whatever, the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly object to the use
in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above,
since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity . . .”
In the Stonehill case only the officers of the various corporations in whose
offices documents, papers and effects were searched and seized were
the petitioners. In the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself
a petitioner. On that score, petitioner-corporation here stands on a
different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely
— as claimed by petitioners — at least partly — as in effect admitted by
respondents — based on the documents seized by virtue of Search
Warrant No. 2-M-70. Furthermore, the fact that the assessments were
made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized
served as basis for the assessments. Those assessments should
therefore not be enforced.
DISPOSITIVE PORTION
PREMISES CONSIDERED, the petition is granted. Accordingly, Search
Warrant No. 2-M-70 issued by respondent Judge is declared null and
void; respondents are permanently enjoined from enforcing the said
search warrant; the documents, papers and effects seized thereunder are
ordered to be returned to petitioners; and respondent officials the Bureau
of Internal Revenue and their representatives are permanently enjoined
from enforcing the assessments mentioned in Annex "G" of the present
petition, as well as other assessments based on the documents, papers
and effects seized under the search warrant herein nullified, and from
using the same against petitioners in any criminal or other proceeding.
No pronouncement as to costs.
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ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

PHILIPPINE NATIONAL BANK v. THE COURT OF APPEALS, RITA
GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC.,
G.R. No. L-27155 May 18, 1978 ANTONIO, J. (on p. 17
villanueva book)
FACTS:
 Philamgen (Philippine American General Insurance Co., Inc.)
executed its Bond OF P2,000.00 with Rita Gueco Tapnio as
principal, in favor of the PNB Branch at San Fernando, Pampanga,
to guarantee the payment of Rita Gueco Tapnio's account with
said Bank. In turn, to guarantee the payment of whatever amount
the bonding company would pay to the PNB, both defendants
executed the indemnity agreement.
 The Bank wrote a letter of demand to Philamgen, whereupon it paid
PNB the full amount of P2,379.91for and on account of defendant
Rita Gueco's obligation.
 Rita Gueco Tapnio admitted all the foregoing facts. She claims,
however, when demand was made upon her by Philamgen for her
to pay her debt to the PNB, that she told the Philamgen that she
did not consider herself to be indebted to the PNB at all because
she had an agreement with one Jacobo-Nazon whereby she had
leased to the latter her unused export sugar quota for a total of
P2,800.00, which was already in excess of her obligation But the
Bank has placed obstacles to the consummation of the lease, and
the delay caused by said obstacles forced 'Nazon to rescind the
lease contract. Thus, Rita Gueco Tapnio filed her third-party
complaint against the PNB to recover from the latter any and all
sums of money which may be adjudged against her and in favor of
the plaitiff plus moral damages, attorney's fees and costs.
 Mrs. Tapnio was indebted to the PNB at San Fernando,
Pampanga. Her indebtedness was known as a crop loan and was
secured by a mortgage on her standing crop including her sugar
quota allocation however, a planter harvest less sugar than her
quota, so her excess quota is utilized by another who pays her for
its use. This is the arrangement entered into between Mrs. Tapnio
and Mr. Tuazon regarding the former's excess quota for 1956-1957.
 Since the quota was mortgaged to the P.N.B., the contract of lease
had to be approved by PNB, the branch manager required the
parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 which Mr. Tuazon agreed ans said that he was reday to
pay in full.
 The branch manager submitted Tuazon's request for
reconsideration to the board of directors with another
recommendation for the approval of the lease at P2.80 per picul,
but the board returned the recommendation unacted upon,
considering that the current price prevailing at the time was P3.00
per picul.
 The board refused to reconsider the amount, the matter stood as it
was until February 22, 1957, when Tuazon wrote a letter to PNB
informing that he was no longer interested to continue the deal.
The result is that the Tapnio lost the sum of P2,800.00 which she
should have received from Tuazon and which she could have paid
the Bank to cancel off her indebtedness.
ISSUE: Whether PNB is liable for the damage caused to Tapnio.
SC:
 It affirmed CFI and CA, PNB is liable for damages.
 There is no question that Tapnio's failure to utilize her sugar quota
for the crop year 1956-1957 was due to the disapproval of the lease
by the Board of Directors of PNB.
 Time is of the essence in the approval of the lease of sugar quota
allotments, since the same must be utilized during the milling
season.
 The unreasonableness of the position adopted by the PNB Board of
Directors is shown by the fact that the difference between the
amount of P2.80 per picul offered by Tuazon and the P3.00 per
picul demanded by the Board amounted only to a total sum of
P200.00. Considering that all the accounts of Rita Gueco Tapnio
with the Bank were secured by chattel mortgage on standing crops,
assignment of leasehold rights and interests on her properties, and
surety bonds and that she had apparently "the means to pay her
obligation to the Bank, as shown by the fact that she has been
granted several sugar crop loans of the total value of almost
P80,000.00 for the agricultural years from 1952 to 1956", there was
no reasonable basis for the Board of Directors of petitioner to have
rejected the lease agreement because of a measly sum of P200.00.
Page 12 of 15
 While PNB had the ultimate authority of approving or disapproving
the proposed lease since the quota was mortgaged to the Bank, the
latter certainly cannot escape its responsibility of observing, for the
protection of the interest of private respondents, that degree of
care, precaution and vigilance which the circumstances justly
demand in approving or disapproving the lease of said sugar quota.
The law makes it imperative that every person "must in the exercise
of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith. This
PNB failed to do. Certainly, it knew that the agricultural year was
about to expire, that by its disapproval of the lease private
respondents would be unable to utilize the sugar quota in question.
In failing to observe the reasonable degree of care and vigilance
which the surrounding circumstances reasonably impose, petitioner
is consequently liable for the damages caused.
 A corporation is civilly liable in the same manner as natural persons
for torts, because "generally speaking, the rules governing the
liability of a principal or master for a tort committed by an agent or
servant are the same whether the principal or master be a natural
person or a corporation, and whether the servant or agent be a
natural or artificial person. All of the authorities agree that a
principal or master is liable for every tort which he expressly directs
or authorizes, and this is just as true of a corporation as of a natural
person, A corporation is liable, therefore, whenever a tortious act is
committed by an officer or agent under express direction or
authority from the stockholders or members acting as a body, or,
generally, from the directors as the governing body."
---------------------------xxx------------------------
CRIMINAL LIABILITY
THE PEOPLE OF THE PHILIPPINE ISLANDS vs. TAN BOON KONG
G.R. No. L-35262
March 15, 1930
OSTRAND, J.:
TOPIC: CRIMINAL LIABILITY
FACTS:
This is an appeal from an order sustaining to demurrer to an information
charging the defendant Tan Boon Kong with the violation of section 1458
of Act No. 2711 as amended.
On and during the four quarters of the year 1924, in Municipality of Iloilo,
Province of Iloilo, Tan Boon Kong, as manager of the Visayan General
Supply Co., Inc., a corporation organized under the laws of the Philippine
Islands and engaged in the purchase and sale of sugar, `bayon,’ coprax,
and other native products and as such subject to the payment of internal-
revenue taxes upon its sales, declared in 1924 for purpose of taxation
only the sum of P2,352,761.94, when in truth and in fact, and the
accused knew that the total gross sales of said corporation during that
year amounted to P2,543,303.44, thereby failing to declare P190,541.50,
and voluntarily not paying the percentage taxes the sum of P2,960.12,
corresponding to 1½ per cent of said undeclared sales.
ISSUE/S:
W/N TAN BOON KONG is liable criminally under section 2723 of Act No.
2711 for violation of section 1458 of the same act for the benefit of said
corporation?
HELD:
Yes. Section 1458 and 2723 read as follows:
SEC. 1458. Payment of percentage taxes — Quarterly reports of
earnings. — The percentage taxes on business shall be payable at the
end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; and it shall be on the duty of every
person conducting a business subject to such tax, within the same period
as is allowed for the payment of the quarterly installments of the fixed
taxes without penalty, to make a true and complete return of the amount
of the receipts or earnings of his business during the preceeding quarter
and pay the tax due thereon. . . . (Act No. 2711.)
SEC. 2723. Failure to make true return of receipts and sales. — Any
person who, being required by law to make a return of the amount of his
receipts, sales, or business, shall fail or neglect to make such return
within the time required, shall be punished by a fine not exceeding two
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

thousand pesos or by imprisonment for a term not exceeding one year, or
both.
And any such person who shall make a false or fraudulent return shall be
punished by a fine not exceeding ten thousand pesos or by imprisonment
for a term not exceeding two years, or both. (Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that
the offense charged must be regarded as committed by the corporation
and not by its officials or agents. This view is in direct conflict with the
great weight of authority. a corporation can act only through its
officers and agent s, and where the business itself involves a
violation of the law, the correct rule is that all who participate in it
are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there
cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to
hold that the manager of a diary corporation was criminally liable for the
violation of a statute by the corporation through he was not present when
the offense was committed.
In the present case the information or complaint alleges that he
defendant was the manager of a corporation which was engaged in
business as a merchant, and as such manager, he made a false return,
for purposes of taxation, of the total amount of sale made by said false
return constitutes a violation of law, the defendant, as the author of the
illegal act, must necessarily answer for its consequences, provided that
the allegation are proven.
DISPOSITIVE PORTION:
The ruling of the court below sustaining the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for further
proceedings not inconsistent with our view as hereinafter stated. Without
costs. So ordered
---------------------------xxx------------------------
MANUEL ESPIRITU ET. AL. VS. PETRON CORPORATION
G.R. No. 170891 NOVEMBER 24, 2009
TOPIC: CRIMINAL LIABILITY
FACTS:
This case is about the offense or offenses that arise from the reloading of
the liquefied petroleum gas cylinder container of one brand with the
liquefied petroleum gas of another brand.
Respondent Petron Corporation (Petron) sold and distributed liquefied
petroleum gas (LPG) in cylinder tanks that carried its trademark
Gasul. Respondent Carmen J. Doloiras owned and operated Kristina
Patricia Enterprises (KPE), the exclusive distributor of Gasul LPGs in the
whole of Sorsogon. Jose Nelson Doloiras (Jose) served as KPEs
manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the
business of selling and distributing LPGs in Sorsogon but theirs carried
the trademark Bicol Savers Gas. Petitioner Audie Llona managed Bicol
Gas.
In the course of trade and competition, any given distributor of LPGs at
times acquired possession of LPG cylinder tanks belonging to other
distributors operating in the same area. They called these captured
cylinders. According to Jose, KPE’s manager, in April 2001 Bicol Gas
agreed with KPE for the swapping of captured cylinders since one
distributor could not refill captured cylinders with its own brand of LPG. At
one time, in the course of implementing this arrangement, KPEs Jose
visited the Bicol Gas refilling plant. While there, he noticed several Gasul
tanks in Bicol Gas possession. He requested a swap but Audie Llona of
Bicol Gas replied that he first needed to ask the permission of the Bicol
Gas owners. That permission was given and they had a swap involving
around 30 Gasul tanks held by Bicol Gas in exchange for assorted tanks
held by KPE.
KPEs Jose noticed, however, that Bicol Gas still had a number of Gasul
tanks in its yard. He offered to make a swap for these but Llona declined,
saying the Bicol Gas owners wanted to send those tanks to
Batangas. Later Bicol Gas told Jose that it had no more Gasul tanks left
in its possession. Jose observed on almost a daily basis, however, that
Bicol Gas trucks which plied the streets of the province carried a load of
Gasul tanks. He noted that KPEs volume of sales dropped significantly
from June to July 2001.
On August 4, 2001, KPEs Jose saw a particular Bicol Gas truck on
the Maharlika Highway. While the truck carried mostly Bicol Savers LPG
tanks, it had on it one unsealed 50-kg Gasul tank and one 50-kg Shellane
tank. Jose followed the truck and when it stopped at a store, he asked the
driver, Jun Leorena, and the Bicol Gas sales representative, Jerome
Page 13 of 15
Misal, about the Gasul tank in their truck. They said it was empty but,
when Jose turned open its valve, he noted that it was not. Misal and
Leorena then admitted that the Gasul and Shellane tanks on their truck
belonged to a customer who had them filled up by Bicol Gas. Misal then
mentioned that his manager was a certain Rolly Mirabena.
Because of the above incident, KPE filed a complaint for violations of
Republic Act (R.A.) 623 (illegally filling up registered cylinder tanks), as
amended, and Sections 155 (infringement of trade marks) and 169.1
(unfair competition) of the Intellectual Property Code (R.A. 8293). The
complaint charged the following: Jerome Misal, Jun Leorena, Rolly
Mirabena, Audie Llona, and several John and Jane Does, described as
the directors, officers, and stockholders of Bicol Gas. These directors,
officers, and stockholders were eventually identified during the
preliminary investigation.
RULINGS OF PROVINCIAL PROSECUTOR: There was probable cause
only for violation of R.A. 623 (unlawfully filling up registered tanks) and
that only the four Bicol Gas employees, Mirabena, Misal, Leorena, and
petitioner Llona, could be charged. The charge against the other
petitioners who were the stockholders and directors of the company was
dismissed.
RULINGS OF REGIONAL STATE PROSECUTOR: Dissatisfied, Petron
and KPE filed a petition for review which initially denied the petition but
partially granted it on motion for reconsideration. The Office of the
Regional State Prosecutor ordered the filing of additional informations
against the four employees of Bicol Gas for unfair competition. It ruled,
however, that no case for trademark infringement was present.
RULING OF THE DOJ: The Secretary of Justice denied the appeal of
Petron and KPE and their motion for reconsideration.
RULING OF CA: the Court of Appeals reversed the Secretary of Justices
ruling. It held that unfair competition does not necessarily absorb
trademark infringement. Consequently, the court ordered the filing of
additional charges of trademark infringement against the concerned Bicol
Gas employees as well.
Since the Bicol Gas employees presumably acted under the direct order
and control of its owners, the Court of Appeals also ordered the inclusion
of the stockholders of Bicol Gas in the various charges, bringing to 16 the
number of persons to be charged. The court denied the motion for
reconsideration of these employees and stockholders in its Resolution
dated January 6, 2006, hence, the present petition for review before the
SC.
ISSUE:
The only point left is the question of the liability of the stockholders and
members of the board of directors of Bicol Gas with respect to the
criminal charge of unlawfully filling up a steel cylinder or tank that
belonged to Petron.
RULING OF SC:
The Court of Appeals ruled that they should be charged along with the
Bicol Gas employees who were pointed to as directly involved in overt
acts constituting the offense.
Bicol Gas is a corporation. As such, it is an entity separate and distinct
from the persons of its officers, directors, and stockholders. It has been
held, however, that corporate officers or employees, through whose act,
default or omission the corporation commits a crime, may themselves be
individually held answerable for the crime.
Jose claimed in his affidavit that, when he negotiated the swapping of
captured cylinders with Bicol Gas, its manager, petitioner Audie Llona,
claimed that he would be consulting with the owners of Bicol Gas about
it. Subsequently, Bicol Gas declined the offer to swap cylinders for the
reason that the owners wanted to send their captured cylinders to
Batangas. The Court of Appeals seized on this as evidence that the
employees of Bicol Gas acted under the direct orders of its owners and
that the owners of Bicol Gas have full control of the operations of the
business.
The owners of a corporate organization are its stockholders and they are
to be distinguished from its directors and officers. The petitioners here,
with the exception of Audie Llona, are being charged in their capacities
as stockholders of Bicol Gas. But the Court of Appeals forgets that in a
corporation, the management of its business is generally vested in
its board of directors, not its stockholders. Stockholders are basically
investors in a corporation. They do not have a hand in running the day-to-
day business operations of the corporation unless they are at the same
time directors or officers of the corporation. Before a stockholder may
be held criminally liable for acts committed by the corporation,
therefore, it must be shown that he had knowledge of the criminal
act committed in the name of the corporation and that he took part
ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN

in the same or gave his consent to its commission, whether by
action or inaction.
The finding of the Court of Appeals that the employees could not have
committed the crimes without the consent, [abetment], permission, or
participation of the owners of Bicol Gas is a sweeping speculation
especially since, as demonstrated above, what was involved was just one
Petron Gasul tank found in a truck filled with Bicol Gas tanks. Although
the KPE manager heard petitioner Llona say that he was going to consult
the owners of Bicol Gas regarding the offer to swap additional captured
cylinders, no indication was given as to which Bicol Gas stockholders
Llona consulted. It would be unfair to charge all the stockholders
involved, some of whom were proved to be minors. No evidence was
presented establishing the names of the stockholders who were charged
with running the operations of Bicol Gas. The complaint even failed to
allege who among the stockholders sat in the board of directors of the
company or served as its officers.
The Court of Appeals of course specifically mentioned petitioner
stockholder Manuel C. Espiritu, Jr. as the registered owner of the truck
that the KPE manager brought to the police for investigation because that
truck carried a tank of Petron Gasul. But the act that R.A. 623 punishes is
the unlawful filling up of registered tanks of another. It does not punish
the act of transporting such tanks. And the complaint did not allege that
the truck owner connived with those responsible for filling up that Gasul
tank with Bicol Gas LPG.
DISPOSITIVE PORTION:
WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of
the Court of Appeals in CA-G.R. SP 87711 dated October 17, 2005 as
well as its Resolution dated January 6, 2006, the Resolutions of the
Secretary of Justice dated March 11, 2004 and August 31, 2004, and the
Order of the Office of the Regional State Prosecutor, Region V, dated
February 19, 2003. The Court REINSTATES the Resolution of the Office
of the Provincial Prosecutor of Sorsogon in I.S. 2001-9231 (inadvertently
referred in the Resolution itself as I.S. 2001-9234), dated February 26,
2002. The names of petitioners Manuel C. Espiritu, Jr., Freida F. Espititu,
Carlo F. Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna, Hermilyn A.
Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A.
Mirabuna, Juanito P. De Castro, Geronima A. Almonite and Manuel C.
Dee are ORDERED excluded from the charge.
----------------------------xxx------------------------
MORAL DAMAGES
CASE TITLE: G.R. No. 128690. January 21, 1999; DAVIDE, JR., C.J.:
ABS-CBN BROADCASTING CORPORATION, petitioners, vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING
CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO,
respondents.
PRINCIPLE/s: Moral Damages
FACTS: In 1990, ABS-CBN and VIVA executed a Film Exhibition
Agreement (FEA) whereby Viva gave ABS-CBN an exclusive right to
exhibit some Viva films. The FEA provides, among others, that ABS-CBN
shall have the right of first refusal to the next 24 Viva films for TV telecast
under such terms as may be agreed upon by the parties and such right
shall be exercised by ABS-CBN from the actual offer in writing. Viva,
through defendant Del Rosario, offered ABS-CBN, through its VP Charo
Santos, a list of 3 film packages (36 titles) from which ABS-CBN may
exercise its right of first refusal under the FEA. ABS-CBN, however
through Mrs. Concio, can tick off only 10 titles. The titles ticked off by Mrs.
Concio through a letter are not the subject of the case at bar except the
film Maging Sino Ka Man.
Thereafter, on February 27, 1992, defendant Del Rosario approached
Charo Santos, with a list consisting of 52 original movie titles (i.e., not yet
aired on television) including the 14 titles subject of the present case, as
well as 104 re-runs (previously aired on television) from which ABS-CBN
may choose another 52 titles, as a total of 156 titles, proposing to sell to
ABS-CBN airing rights over this package of 52 originals and 52 re-runs
for P60M.
On April 2, 1992, defendant Del Rosario and ABS-CBN’s GM, Eugenio
Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss
the package proposal of VIVA. What transpired in that lunch meeting is
the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del
Rosario allegedly agreed that ABS-CBN was granted exclusive film rights
to fourteen (14) films for a total consideration of P36 million; that he
allegedly put this agreement as to the price and number of films in a
napkin and signed it and gave it to Mr. Del Rosario. On the other hand.
Del Rosario denied having made any agreement with Lopez regarding
the 14 Viva films; denied the existence of a napkin in which Lopez wrote
something; and insisted that what he and Lopez discussed at the lunch
meeting was Viva’s film package offer of 104 films (52 originals and 52
Page 14 of 15
re-runs) for a total price of P60M. Mr. Lopez promised to make a counter
proposal.
On April 6, 1992, Del Rosario and Mr. Graciano Gozon of RBS (now
GMA) discussed the terms and conditions of Viva’s offer to sell the 104
films, after the rejection of the same package by ABS-CBN.
On April 7, 1992, Del Rosario received a handwritten note from Charo
Santos of ABS-CBN’s counter-proposal covering 53 films, 52 of which
came from the list sent by Del Rosario and one film was added by Ms.
Concio, for a consideration of P35M. The said counter proposal was
however rejected by Viva’s Board of Directors in the evening of the same
day, April 7, 1992, as Viva would not sell anything less than the package
of 104 films for P60 million pesos, and such rejection was relayed to
Charo Santos.
On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings, Del Rosario and Viva’s President Teresita
Cruz, in consideration of P60M, signed a letter of agreement dated April
24, 1992, granting RBS the exclusive right to air 104 Viva-produced
and/or acquired films 14 films subject of the present case.
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents RBS, Viva, and
del Rosario. The complaint was docketed as Civil Case No. Q-92-12309
(main case). RTC then issued a TRO enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the 14 VIVA
films subject of the controversy, starting with the film Maging Sino Ka
Man, which was scheduled to be shown on private respondent RBS
channel 7 at seven oclock in the evening of said date. RTC then issued
an Order (1st Order) directing the issuance of a writ of preliminary
injunction upon ABS-CBN’s posting of a P35M bond. ABS-CBN moved
for the reduction of the bond, while private respondents moved for
reconsideration of the order and offered to put up a counterbond.
On 3 August 1992, the RTC issued an Order (2nd Order) dissolving the
writ of preliminary injunction upon the posting by RBS of a P30M
counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution.
Meanwhile, ABS-CBN filed with the CA a petition challenging the RTC’s
Orders and praying for the issuance of a writ of preliminary injunction to
enjoin the RTC from enforcing said orders. The petition is docketed as
CA-G.R. SP No. 29300. The CA issued a TRO to enjoin the airing,
broadcasting, and televising of any or all of the films involved in the
controversy.
On 18 December 1992, the CA then promulgated a decision dismissing
the petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN
challenged the dismissal in a petition for review filed with this Court on 19
January 1993, which was docketed as G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil
Case No. Q-92-12309 (main case above) and rendered a Decision in
favor of RBS, Viva, and Del Rosario (defendants). The RTC dismissed
the complaint and ordered ABS-CBN to pay defendant RBS the amount
of premium it paid to lift the injunction; the amount of print advertisement
for Maging Sino Ka Man in various newspapers; Attorneys fees in the
amount of P1M; P5M million as moral damages; P5M as exemplary
damages; for the defendant VIVA, P212K as reasonable attorneys fees.
According to the RTC, there was no meeting of minds on the price and
terms of the offer. The alleged agreement between Lopez III and Del
Rosario was subject to the approval of the VIVA Board of Directors, and
said agreement was disapproved during the meeting of the Board on 7
April 1992. Hence, there was no basis for ABS-CBN’s demand that VIVA
signed the 1992 FEA. Furthermore, the right of first refusal under the
1990 FEA had previously been exercised per Charo Santos’ letter to Del
Rosario ticking off ten titles acceptable to them, which would have made
the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied, ABS-CBN’s petition for review in
G.R. No. 108363, as no reversible error was committed by the CA in its
challenged decision and the case had become moot and academic in
view of the dismissal of the main action by the court a quo (RTC).
On appeal to the CA, it agreed with the RTC. Thus the present petition
assigning as one of the errors: that Court of Appeals gravely erred in
AWARDING MORAL DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS. (Note that there is a lengthy discussion on whether
there is a “perfected contract” and the issue on the “napkin” but since the
topic is moral damages, I limited the discussion on MD)
In support of its stand that a juridical entity can recover moral and
exemplary damages, RBS cited People v. Manero, where it was stated
that such entity may recover moral and exemplary damages if it has a
good reputation that is debased resulting in social humiliation. When RBS
was not able to fulfill its commitment to the viewing public to show the film
Maging Sino Ka Man on the scheduled dates and times (and on two
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 Page 15 of 15
occasions that RBS advertised), it suffered serious embarrassment and Verily then, malice or bad faith is at the core of Articles 19, 20, and 21.
social humiliation. When the showing was cancelled, irate viewers called Malice or bad faith implies a conscious and intentional design to do a
up RBS offices and subjected RBS to verbal abuse (Announce kayo ng wrongful act for a dishonest purpose or moral obliquity. Such must be
announce, hindi ninyo naman ilalabas, nanloloko yata kayo). RBS further substantiated by evidence.
contends that the amount of moral and exemplary damages cannot be
said to be excessive. Two reasons justify the amount of the award. The There is no adequate proof that ABS-CBN was inspired by malice or bad
first is that the humiliation suffered by RBS, is national in extent. RBS faith. It was honestly convinced of the merits of its cause after it had
operations as a broadcasting company is nationwide. Its clientele, like undergone serious negotiations culminating in its formal submission of a
that of ABS-CBN, consists of those who own and watch television. It is draft contract. Settled is the rule that the adverse result of an action does
not an exaggeration to state, and it is a matter of judicial notice that not per se make the action wrongful and subject the actor to damages,
almost every other person in the country watches television. The for the law could not have meant impose a penalty on the right to litigate.
humiliation suffered by RBS is multiplied by the number of televiewers If damages result from a person’s exercise of a right, it is damnum
who had anticipated the showing of the film, Maging Sino Ka Man on May absque injuria.
28 and November 3, 1992 but did not see it owing to the cancellation.
Added to this are the advertisers who had placed commercial spots for
the telecast and to whom RBS had a commitment in consideration of the
placement to show the film in the dates and times specified. The second
is that it is a competitor that caused RBS to suffer the humiliation. The
humiliation and injury are far greater in degree when caused by an entity
whose ultimate business objective is to lure customers (viewers in this
case) away from the competition.

As to the award of moral damages, the CA found reasonable basis

therefor, holding that RBS’s reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the
film Maging Sino Ka Man.

ISSUE: Whether or not a corporation, like RBS, is entitled to an award of

moral damages upon grounds of debased reputation.

RULING: NO.

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV

of the Civil Code. Article 2217 thereof defines what are included in moral
damages, while Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages may be recovered
in breaches of contract where the defendant acted fraudulently or in bad
faith. RBSs claim for moral damages could possibly fall only under item
(10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34
and 35.

Moral damages are in the category of an award designed to compensate

the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer. The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party to obtain
means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits
of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. Trial courts must then guard
against the award of exorbitant damages; they should exercise balanced
restrained and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption or the part of the trial court.

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 can be experienced only by one having a
nervous system. The statement in People v. Manero and Mambulao
Lumber Co. v. PNB that a corporation may recover moral damages if
it has a good reputation that is debased, resulting in social
humiliation is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII,

Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated,
or compensatory damages. They are recoverable in criminal cases as
part of the civil liability when the crime was committed with one or more
aggravating circumstances; in quasi-delicts, if the defendant acted with
gross negligence; and in contracts and quasi-contracts, if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

It may be reiterated that the claim of RBS against ABS-CBN is not based
on contract, quasi-contract, delict, or quasi-delict. Hence, the claims for
moral and exemplary damages can only be based on Articles 19, 20, and
21 of the Civil Code.

The elements of abuse of right under Article 19 are the following: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and
(3) for the sole intent of prejudicing or injuring another. Article 20 speaks
of the general sanction for all provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra
bonus mores, and has the following elements: (1) there is an act which is
legal, (2) but which is contrary to morals, good custom, public order, or
public policy, and (3) and it is done with intent to injure.

ANG; ANSAN; BARTOLATA; BELLOSILLO; ESTANISLAO; GARCIA; IMPROGO; POLERO; SIRIBAN