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July 1, 1902 (Philippine Bill) prohibits

Harden vs. Benguet Consolidated Mining Co. (1933) corporations engaged in mining and members of
G.R. No. 37331 | 1933-03-18 such from being interested in any other
corporation engaged in mining

Shortly prior to the institution of this lawsuit, the


Benguet Consolidated Mining Co. transferred to
H. E. Renz, as trustee, the certificate for
600,000 shares of the Balatoc Mining.
Facts:
Issues:
1. The Benguet Consolidated Mining Co. was
organized in June, 1903, as a sociedad anonima (1) WON plaintiffs can maintain an action based upon
in conformity with the provisions of Spanish law. the violation of law supposedly committed by the
Benguet Company; and

(2) WON the Benguet Company, which was organized


2. The Balatoc Mining Co. was organized in as a sociedad anonima, is a corporation within the
December, 1925, as a corporation, in conformity meaning of the law, prohibiting a mining corporation from
with the provisions of the Corporation Law (Act becoming interested in another mining corporation
No. 1459).
Held:

Sociedad anonima
3. Both entities were organized for the purpose 1. For purposes of general description only, it may be
of engaging in the mining of gold in the stated that the sociedad anonima is something very
Philippine Islands, and their respective much like the English joint stock company, with features
properties are located only a few miles apart in resembling those of both the partnership and the
the subprovince of Benguet. The capital stock of corporation. Its affinity to the partnership is shown in the
the Balatoc Mining Co. consists of one million fact that sociedad anonima, the generic component of its
shares of the par value of one peso (P1) each. name in Spanish, is the same word that is used in that
language to designate other forms of partnership, and in
4. When the Balatoc Mining Co. was first its organization it is constructed along the same general
organized the properties acquired by it were lines as the ordinary partnership. It is therefore not
largely undeveloped; and the original surprising that for purposes of loose translation the
stockholders were unable to supply the means expression sociedad anonima has not infrequently been
needed for profitable operation. Representatives translated into English by the word partnership. On the
of Balotoc Mining approached A. W. Beam, then other hand, the affinity of this entity to the American
president and general manager of the Benguet corporation has not escaped notice, and the expression
Company, to secure the capital necessary to the sociedad anonima is now generally translated by the
development of the Balatoc property. word corporation. But when the word corporation is used
in the sense of sociedad anonima, it should be
5. A contract was executed on March 9, 1927 associated with the Spanish expression sociedad
between the two companies, wherein Benguet anonima either in a parenthesis or connected by the
Company was to construct a milling plant, a word "or". This latter device was adopted in section 75
power plant, and such other surface buildings as and 191 of the Corporation Law.
might be needed to operate the Balatoc mine. In
return for this, the Benguet Company should 2. As it was the intention of our lawmakers to stimulate
receive Balatoc Company shares of a par value the introduction of the American corporation into
of P600,000, in payment for the first P600,000 to Philippine law in the place of the sociedad anonima, it
be thus advanced to it by the Benguet was necessary to make certain adjustments resulting
Company. from the continued co-existence, for a time, of the two
forms of commercial entities. Accordingly, in section 75
6. A complaint was filed by F. M. Harden, joined of the Corporation Law, a provision is found making
by other stockholders of the Balatoc Mining Co., the sociedad anonima subject to the provisions of the
for annulment of the March 9, 1927 contract and Corporation Law "so far as such provisions may be
likewise the certificate for 600,000 shares. It is applicable", and giving to the sociedades anonimas
claimed that it is unlawful for the Benguet previously created in the Islands the option to continue
Company to hold any interest in a mining business as such or to reform and organize under the
corporation. Section 75 of the Act of Congress of provisions of the Corporation Law.
representation of the Government.
3. Again, in section 191 of the Corporation Law,
the Code of Commerce is repealed in so far as it relates 8. Benguet Company has committed no civil wrong
to sociedades anonimas. The purpose of the against the plaintiffs, and if a public wrong has been
commission in repealing this part of the Code of committed, the directors of the Balatoc Company, and
Commerce was to compel commercial entities thereafter the plaintiff Harden himself, were the active inducers of
organized to incorporate under the Corporation Law, the commission of that wrong. The contract, supposing it
unless they should prefer to adopt some form or other of to have been unlawful in fact, has been performed on
the partnership. To this provision was added another to both sides, by the building of the Balatoc plant by the
the effect that existing sociedades anonimas, which Benguet Company and the delivery to the latter of the
elected to continue their business as such, instead of certificate of 600,000 shares of the Balatoc Company.
reforming and reorganizing under the Corporation Law, There is no possibility of really undoing what has been
should continue to be governed by the laws that were in done. Talk about putting the parties in status quo ante by
force prior to the passage of this Act "in relation to their restoring the consideration with interest, while the
organization and method of transacting business and to Balatoc Company remains in possession of what it
the rights of members thereof as between themselves, obtained by the use of that money, does not quite meet
but their relations to the public and public officials shall the case.
be governed by the provisions of this Act (Corporation
Law)." 9. Having shown that the plaintiffs in this case have no
right of action against the Benguet Company for the
Restriction on mining interests for members of a infraction of law supposed to have been committed, we
corporation forego any discussion of the further question whether a
sociedad anonima created under Spanish law, such as
4. In section 75 of the Act of Congress of July 1, 1902 the Benguet Company, is a corporation within the
(Philippine Bill), there is a provision referring to mining meaning of the prohibitory provision already so many
corporations, which reads: ". . . it shall be unlawful for times mentioned. That important question should, in our
any member of a corporation engaged in agriculture or opinion, be left until it is raised in an action brought by
mining and for any corporation organized for any the Government.
purpose except irrigation to be in any wise interested in
any other corporation engaged in agriculture or in Article 1305, par 2 of the Civil Code cannot be invoked
mining." where an adequate special remedy is supplied in a
special law
5. Section 75 of the Philippine Bill was amended
by section 7 of Act No. 3518, approved by Congress 10. The plaintiffs would have us apply the second
March 1, 1929. The change in the law affected by this paragraph of article 1305 of the Civil Code which
amendment was in the direction of liberalization. declares thatan innocent party to an illegal contract may
Thus, the inhibition contained in the original provision recover anything he may have given, while he is not
against members of a corporation engaged in agriculture bound to fulfill any promise he may have made. But,
or mining from being interested in other corporations supposing that the first hurdle can be safely vaulted,
engaged in agriculture or in mining was so modified as the general remedy supplied in article 1305 of the Civil
merely to prohibit any such member from holding more Code cannot be invoked where an adequate special
than fifteen per centum of the outstanding capital stock remedy is supplied in a special law.
of another such corporation. This part of Act No. 3518
became effective upon approval by the Government- 11. It has been so held by this court in Go Chioco vs.
General, on December 3, 1928, and it was therefore in Martinez, where we refused to apply that article to a
full force when the contract now in question was made. case of nullity arising upon a usurious loan. The reason
was that the Usury Act, as amended, contains all the
6. This provision (Section 7, Act No. 3518) was inserted provisions necessary for the affectuation of its purposes,
as a new section in the Corporation Law, forming section with the result that the remedy given in article 1305 of
190(A) of Act No. 1459 as it now stands. the Civil code is unnecessary. Much more is that idea
applicable to the situation now before us, where the
Plaintiffs have no right of action special provisions given ample remedies for the
enforcement of the law by action in the name of the
7. The provision (Section 7, Act No. 3518) was adopted Government, and where no civil wrong has been done to
by the lawmakers with a sole view to the public policy the party here seeking redress.
that should control in the granting of mining rights.
Furthermore, the penalties imposed in what is now
section 190 (A) of the Corporation Law for the violation
of the prohibition in question are of such nature that
they can be enforced only by a criminal prosecution or
by an action of quo warranto. But these proceedings can
be maintained only by the Attorney-General in
4. Imperial Insurance Inc., filed a "Motion for the
Insurance of a Writ of Execution". On May 23,
1962, a Writ of Execution was issued by
respondent Sheriff of Manila and on May 26,
J.R.S, BUSINESS CORPORATION, J.R. DA SlLVA and
1962, Notices of Sale were sent out for the
A.J. BELTRAN, petitioners, vs. IMPERIAL auction of the personal properties of the
INSURANCE, INC., MACARIO M. OFILADA, Sheriff of petitioner J.R.S. Business Corporation.
Manila and HON. AGUSTIN MONTESA, Judge of the
Court of First Instance of Manila, respondents.

Corporation law; Secondary franchise; Messenger a. On June 2, 1962, a Notice of Sale of the
service.—The right to operate a messenger and "whole capital stocks of the defendants
delivery service by virtue of a legislative enactment is JRS Business Corporation, the business
a secondary franchise. name, right of operation, the whole
Same; Same; Subject to execution sale.—A assets, furnitures and equipments, the
secondary franchise is subject to levy and sale on total liabilities, and Net Worth, books of
execution together with all the property necessary for accounts, etc., etc." of the petitioner
the enjoyment thereof. corporation was, handed down. sold
under execution.
Same; Same; Same; Procedure.—A secondary
franchise and the property necessary for its Issue:
enjoyment can be sold under execution only when
such sale is especially decreed and ordered in the 1. W/N the business name or trade name,
judgment and it becomes effective only when such franchise (right to operate) and capital stocks of
sale is confirmed by the Court after due notice. the petitioner are properties or property rights
which could be the subject of levy, execution and
Same; Same; Same; Effect of absence of special sale.
decree.—Where the judgment does not contain any
special decree making the franchise of a private
Held:
corporation answerable for its judgment debt, the
inclusion of said corporation's franchise, trade name
and capital stocks in the execution sale of its 1. The corporation law, on forced sale of
properties has no justification and such sale should be franchises, provides —
set aside in so far as it authorizes such levy and sale.
Any franchise granted to a corporation to collect
FACTS: tolls or to occupy, enjoy, or use public property
or any portion of the public domain or any right
1. Petitioner J. R. Da Silva, is the President of the of way over public property or the public domain,
J.R.S. Business Corporation, an establishment and any rights and privileges acquired under
duly franchised by the Congress of the such franchise may be levied upon and sold
Philippines, to conduct a messenger and under execution, together with the property
delivery express service. necessary for the enjoyment, the exercise of the
powers, and the receipt of the proceeds of such
franchise or right of way, in the same manner
and with like effect as any other property to
satisfy any judgment against the
2. On July 12, 1961, the respondent Imperial corporation: Provided, That the sale of the
Insurance, Inc., presented with the CFI of Manila franchise or right of way and the property
a complaint (Civ. Case No. 47520), for sum of necessary for the enjoyment, the exercise of the
money against the petitioner corporation. powers, and the receipt of the proceeds of said
franchise or right of way is especially
decreed and ordered in the judgment: And
provided, further, That the sale shall not become
3. After the defendants therein have submitted effective until confirmed by the court after due
their Answer, the parties entered into a notice. (Sec. 56, Corporation Law.)
Compromise Agreement4. On March 17, 1962,
the lower court rendered judgment embodying 2. In the case of Gulf Refining Co. v. Cleveland
the contents of the said compromise agreement. Trust Co., 108 So., 158, it was held —
The first question then for decision is the 3. The right to operate a messenger and express
meaning of the word "franchise" in the statute. delivery service, by virtue of a legislative enactment, is
admittedly a secondary franchise (R.A. No. 3260,
"A franchise is a special privilege entitled "An Act granting the JRS Business Corporation a
conferred by governmental authority, franchise to conduct a messenger and express service)"
and which does not belong to citizens of and, as such, under our corporation law, is subject to
the country generally as a matter of levy and sale on execution together and including all the
common right. ... Its meaning depends property necessary for the enjoyment thereof. The law,
more or less upon the connection in however, indicates the procedure under which the same
which the word is employed and the (secondary franchise and the properties necessary for its
property and corporation to which it is enjoyment) may be sold under execution. Said franchise
applied. It may have different can be sold under execution, when such sale is
significations. especially decreed and ordered in the judgment and it
becomes effective only when the sale is confirmed by
the Court after due notice (Sec. 56, Corp. Law).
"For practical purposes, franchises, so
far as relating to corporations, are
divisible into: 4. The compromise agreement and the judgment based
thereon, do not contain any special decree or order
making the franchise answerable for the judgment debt.
(1) Corporate or general franchises --
The same thing may be stated with respect to
the franchise to exist as a corporation;
petitioner's trade name or business name and its capital
and
stock. Incidentally, the trade name or business name
corresponds to the initials of the President of the
(2) Special or secondary franchises -- petitioner corporation and there can be no serious
certain rights and privileges conferred dispute regarding the fact that a trade name or business
upon existing corporations, such as the name and capital stock are necessarily included in the
right to use the streets of a municipality enjoyment of the franchise. Like that of a franchise, the
to lay pipes or tracks, erect poles or law mandates, that property necessary for the enjoyment
string wires of said franchise, can only be sold to satisfy a judgment
debt if the decision especially so provides. As We have
stated heretofore, no such directive appears in the
Primary Franchise Secondary Franchise decision. Moreover, a trade name or business name
cannot be sold separately from the franchise, and the
“The right to exist as capital stock of the petitioner corporation or any other
such” corporation, for the matter, represents the interest and is
the property of stockholders in the corporation, who can
only be deprived thereof in the manner provided by law
1. Vested "in the (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re
individuals who 1. Vested in the Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6
compose the corporation Words and Phrases, 109).
corporation and
not in the
corporation itself" It, therefore, results that the inclusion of the franchise,
the trade name and/or business name and the capital
stock of the petitioner corporation, in the sale of the
properties of the JRS Business Corporation, has no
2. May ordinarily be justification. The sale of the properties of petitioner
2. Cannot be corporation is set aside, in so far as it authorizes the levy
conveyed or
conveyed in the and sale of its franchise, trade name and capital stocks.
mortgaged under
absence of a Without pronouncement as to costs.
a general power
legislative granted to a
authority so to Note.—On the issue whether the business name or
corporation to
do. dispose of its tradename, and franchise (right) to operate are
property, except properties or property rights which could be the subject
such special or of levy, execution or sale, there is a statutory authority to
secondary the effect that the goodwill of a business is property, and
franchises as are may be transferred together with the right to use the
charged with a name under which the business is conducted (Art. 521,
public use.
new Civil Code). The same holds true with respect to a
trade-name or trade-mark (Art. 520, Id.). The franchise
of a corporation is also considered property (Cf. Long
Island Water Supply v. Brooklyn, 166 U.S. 685; Halili v.
Public Service Commission, et al., 49 O.G. 825; Manila objeto de la demanda." "We think both the trial court
Electric Company v. Public Service Commission, etc., L- and the Court oi Appeals erred in law in so holding.
18638-40, June 30, 1964). They have manifestly failed to distinguish a
contractual from an extracontractual obligation, or an
obligation arising from contract from an obligation
arising from culpa aquiliana. The fault and negligence
——oOo—— referred to in articles 1101-1104 of the Civil Code are
those incidental to the fulfilment or nonfulfilment of a
contractual obligation; while the fault or negligence
referred to in article 1902 is the culpa aquiliana of the
civil law, homologous but not identical to tort of the
common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R. R. Co.
vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco
vs. Manila R. R. Co., 38 Phil., 768.) The fact that the
corporation, acting thru Vazquez as its manager, was
guilty of negligence in the fulfilment of the contract,
did not make Vazquez principally or even subsidiarily
liable for such negligence. Since it was the
corporation's contract, its nonfulfilment, whether due
to negligence or.fault or to any other cause, made the
corporation and not its agent liable.

Antonio Vazquez, petitioner, vs. Francisco de Borja, 3.Id.; Id.; Id.—On the other hand, if independently of
the contract Vazquez by his fault or negligence
respondent.[No. 48931. February 23, 1944]
caused damage to the plaintiff, he would be liable to
the latter under article 1902 of the Civil Code. But
1.Corporations; Officers' Personal Liability on then the plaintiff's cause of action should be based on
Contracts.—It is well known that a corporation is an culpa aquiliana and not on the contract alleged in his
artificial being invested by law with a personality of its complaint herein; and Vazquez liability would be
own, separate and distinct from that of its principal and not merely subsidiary, as the Court of
stockholders and from that of its officers who manage Appeals has erroneously held.
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
Facts:
liable on a contract duly entered into, or for an act
lawfully performed, by them for and in its behalf. The This case is based on 3 consolidated causes of
legal fiction by which the personality of a corporation action.
is created is a practical reality and necessity. Without
it no corporate entities may exist and no corporate 1. This action was commenced in the Court of First
business may be transacted. Such legal fiction may Instance of Manila by Francisco de Borja against
be disregarded only when an attempt is made to use it Antonio Vazquez and Fernando Busuego to
as a cloak to hide an unlawful or fraudulent purpose. recover from them jointly and severally the total
No such thing has been alleged or proven in this
sum of P4,702.70 upon three alleged causes of
case. It has not been alleged nor even intimated that
action, to wit:
Vazquez personally benefited by the contract of sale
in question and that he is merely invoking the legal
a. First, that in or about the month of
fiction to avoid personal liability. Neither is it
contended that he entered into said contract for the January, 1932, the defendants jointly
corporation in bad faith and with intent to defraud the and severally obligated themselves to
plaintiff. We find no legal and factual basis upon which sell to the plaintiff 4,000 cavans of palay
to hold him liable on the contract either principally or at P2.10 per cavan, to be delivered
subsidiarily. during the month of February, 1932, the
said defendants having subsequently
2.Id.; Id.; Negligence.—The trial court found him guilty received from the plaintiff in virtue of
of negligence in the performance of the contract and said agreement the sum of P8,400; that
held him personally liable on that accaunt. On the the defendants delivered to the plaintiff
other hand, the Court of Appeals found that he "no during the months of February, March,
solamente obro con negligencia, sino interviniendo and April, 1932, only 2,488 cavans of
culpa de su parte, por lo que de acuerdo con los arts.
palay of the value of P5,224.80 and
1102, 1103 y 1902 del Código Civil, él debe ser
refused to deliver the balance of 1,512
responsable subsidiariamente del pago de la cantidad
cavans of the value of P3,175.20 not a party herein, the complaint should have
notwithstanding repeated demands. been dismissed. Counsel for the plaintiff, in his
brief as respondent, argues that altho by the
b. Second, that because of defendants' preponderance of the evidence the trial court
refusal to deliver to the plaintiff the said and the Court of Appeals found that Vazquez
1,512 cavans of palay within the period celebrated the contract in his capacity as acting
above mentioned, the plaintiff suffered president of the corporation and altho it was the
damages in the sum of P1,000. And, latter, thru Vazquez, with which the plaintiff had
contracted and which, thru Vazquez, had
received the sum of P8,400 from Borja, and
c. third, that on account of the agreement altho that was true from the point of view of a
legal fiction, "ello no impede que tambien sea
above mentioned the plaintiff delivered
verdad lo alegado en la demanda de que la
to the defendants 4,000 empty sacks, of
misma persona de Vasquez fue la que contrato
which they returned to the plaintiff only con Borja y que la misma persona de Vasquez
2,490 and refused to deliver to the fue quien recibio la suma de P8,400." But such
plaintiff the balance of 1,510 sacks or to argument is invalid and insufficient to show that
pay their value amounting to P377.50; the president of the corporation is personally
and that on account of such refusal the liable on the contract duly and lawfully entered
plaintiff suffered damages in the sum of into by him in its behalf.
P150.

2. Vazquez’s Contention: Denied having entered 2. It is well known that a corporation is an artificial
into the contract mentioned in the first cause of being invested by law with a personality of its
action in his own individual and personal own, separate and distinct from that of its
capacity, either solely or together with his stockholders and from that of its officers who
codefendant Fernando Busuego, and alleging manage and run its affairs. The mere fact that its
that the agreement for the purchase of 4,000 personality is owing to a legal fiction and that it
cavans of palay and the payment of the price of necessarily has to act thru its agents, does not
P8,400 were made by the plaintiff with and to the make the latter personally liable on a contract
Natividad-Vasquez Sabani Development Co., duly entered into, or for an act lawfully
Inc., a corporation organized and existing under performed, by them for an in its behalf. The legal
the laws of the Philippines, of which the fiction by which the personality of a corporation
defendant Antonio Vazquez was the acting is created is a practical reality and necessity.
manager at the time the transaction took place. Without it no corporate entities may exists and
no corporate business may be transacted. Such
legal fiction may be disregarded only when an
a. Counterclaim: Said defendant alleged attempt is made to use it as a cloak to hide an
that he suffered damages in the sum of unlawful or fraudulent purpose. No such thing
P1,000 on account of the filing of this has been alleged or proven in this case. It has
action against him by the plaintiff with not been alleged nor even intimated that
full knowledge that the said defendant Vazquez personally benefited by the contract of
had nothing to do whatever with any and sale in question and that he is merely invoking
all of the transactions mentioned in the the legal fiction to avoid personal liability. Neither
complaint in his own individual and is it contended that he entered into said contract
personal capacity. 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
Issue: contract either principally or subsidiarily.

1. W/N the plaintiff entered into the contract with


the defendant Antonio Vazquez in his personal
capacity or as manager of the Natividad- 3. The fact that the corporation, acting thru
Vazquez Sabani Development Co., Inc. Vazquez as its manager, was guilty of
negligence in the fulfillment of the contract, did
not make Vazquez principally or even
Held: subsidiarily liable for such negligence. Since it
was the corporation's contract, its nonfulfillment,
1. The action being on a contract, and it appearing whether due to negligence or fault or to any
from the preponderance of the evidence that the other cause, made the corporation and not its
party liable on the contract is the Natividad- agent liable.
Vazquez Sabani Development Co., Inc. which is
4. On the other hand if independently of the
contract Vazquez by his fault or negligence
cause damaged to the plaintiff, he would be
liable to the latter under article 1902 of the Civil
Code. But then the plaintiff's cause of action
should be based on culpa aquiliana and not on
the contract alleged in his complaint herein; and
Vazquez' liability would be principal and not
merely subsidiary, as the Court of Appeals has
erroneously held. No such cause of action was
alleged in the complaint or tried by express or
implied consent of the parties by virtue of
section 4 of Rule 17. Hence the trial court had
no jurisdiction over the issue and could not
adjudicate upon it (Reyes vs. Diaz, G.R. No.
48754.) Consequently it was error for the Court
of Appeals to remand the case to the trial court
to try and decide such issue.

5. The finding of the Court of Appeals that


according to the preponderance of the evidence
the defendant Vazquez celebrated the contract
not in his personal capacity but as acting
president and manager of the corporation, does
not warrant his contention that the suit against
him is malicious and tortious; and since we have
to decide defendant's counterclaim upon the
facts found by the Court of Appeals, we find no
sufficient basis upon which to sustain said
counterclaim. Indeed, we feel that as a matter of
moral justice we ought to state here that the
indignant attitude adopted by the defendant
towards the plaintiff for having brought this
action against him is in our estimation not wholly
right. Altho from the legal point of view he was
not personally liable for the fulfillment of the
contract entered into by him on behalf of the
corporation of which he was the acting president
and manager, we think it was his moral duty
towards the party with whom he contracted in
said capacity to see to it that the corporation
represented by him fulfilled the contract by
delivering the palay it had sold, the price of
which it had already received. Recreant to such
duty as a moral person, he has no legitimate
cause for indignation. We feel that under the
circumstances he not only has no cause of
action against the plaintiff for damages but is not
even entitled to costs.

The judgment of the Court of Appeals is reversed, and


the complaint is hereby dismissed, without any finding as
to costs.
either in the form of a special law or a general
enabling act; The Court cannot agree with the view of
the Court of Appeals that the Philippine Football
Association came into existence upon the passage of
RA. 3135 or P.D. 604.—It is a basic postulate that
before a corporation may acquire juridical personality,
the State must give its consent either in the form of a
special law or a general enabling act. We cannot
agree with the view of the appellate court and the
private respondent that the Philippine Football
Federation came into existence upon the passage of
these laws. Nowhere can it be found in R.A. 3135 or
P.D. 604 any provision creating the Philippine Football
Federation. These laws merely recognized the
existence of national sports associations and provided
the manner by which these entities may acquire
juridical personality.

Same; Same; Same; The statutory provisions require


that before an entity may be considered as a national
sports association, such entity must be recognized by
the accrediting organization, the Philippine Amateur
Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under
P.D. 604.—Clearly the above cited provisions require
that before an entity may be considered as a national
sports association, such entity must be recognized by
the accrediting organization, the Philippine Amateur
Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under
P.D. 604. This fact of recognition, however, Henri
INTERNATIONAL EXPRESS TRAVEL & TOUR Kahn failed to substantiate. In attempting to prove the
SERVICES, INC., petitioner, vs. HON. COURT OF juridical existence of the Federation, Henri Kahn
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL attached to his motion for reconsideration before the
FEDERATION, respondents. trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the
Corporation Law; National Sports Associations; same does not prove that said Federation has indeed
Statutes; R.A. 3135 and P.D. No. 604 recognized the been recognized and accredited by either the
juridical existence of national sports associations.—As Philippine Amateur Athletic Federation or the
correctly observed by the appellate court, both R.A. Department of Youth and Sports Development.
3135 and P.D. No. 604 recognized the juridical Accordingly, we rule that the Philippine Football
existence of national sports associations. This may be Federation is not a national sports association within
gleaned from the powers and functions granted to the purview of the aforementioned laws and does not
these associations. have a corporate existence of its own.

Same; Same; The powers and functions granted to Same; It is a settled principle in corporation law that
national sports associations clearly indicate that these any person acting or purporting to act on behalf of a
entities may acquire a juridical personality.—The corporation which has no valid existence assumes
above powers and functions granted to national sports such privileges and obligations and becomes
associations clearly indicate that these entities may personally liable for contracts entered into or for such
acquire a juridical personality. The power to purchase, other acts performed as such agent.—This being said,
sell, lease and encumber property are acts which may it follows that private respondent Henry Kahn should
only be done by persons, whether natural or artificial, be held liable for the unpaid obligations of the
with juridical capacity. However, while we agree with unincorporated Philippine Football Federation. It is a
the appellate court that national sports associations settled principle in corporation law that any person
may be accorded corporate status, such does not acting or purporting to act on behalf of a corporation
automatically take place by the mere passage of which has no valid existence assumes such privileges
these laws. and obligations and becomes personally liable for
contracts entered into or for other acts performed as
Same; Same; Philippine Football Association; It is a such agent. As president of the Federation, Henri
basic postulate that before a corporation may acquire Kahn is presumed to have known about the corporate
juridical personality, the State must give its consent existence or non-existence of the Federation. We
cannot subscribe to the position taken by the 6. Petitioner sought to hold Henri Kahn liable for
appellate court that even assuming that the the unpaid balance for the tickets purchased by
Federation was defectively incorporated, the petitioner the Federation on the ground that Henri Kahn
cannot deny the corporate existence of the Federation allegedly guaranteed the said obligation.[6]
because it had contracted and dealt with the
Federation in such a manner as to recognize and in 7. Kahn’s Contention: While not denying the
effect admit its existence. allegation that the Federation owed the amount
P207,524.20, representing the unpaid balance
Same; Doctrine of Corporation by Estoppel; The for the plane tickets, he averred that the
doctrine of corporation by estoppel applies to a third petitioner has no cause of action against him
party only when he tries to escape liability on a either in his personal capacity or in his official
contract from which he has benefited on the irrelevant capacity as president of the Federation. He
ground of defective incorporation.—The doctrine of maintained that he did not guarantee payment
corporation by estoppel is mistakenly applied by the but merely acted as an agent of the Federation
respondent court to the petitioner. The application of which has a separate and distinct juridical
the doctrine applies to a third party only when he tries personality.[7]
to escape liability on a contract from which he has
benefited on the irrelevant ground of defective Issue: W/N the PFF is a juridical person, hence, has a
incorporation. In the case at bar, the petitioner is not separate and distinct juridical personality (If this is
trying to escape liability from the contract but rather is proved, Khan would be exempt from liability).
the one claiming from the contract. Held:
1. The resolution of the case at bar hinges on the
determination of the existence of the Philippine
Facts: Football Federation as a juridical person. In the
assailed decision, the appellate court recognized
1. Petitioner International Express Travel and Tour the existence of the Federation. In support of
Services, Inc., through its managing director, this, the CA cited Republic Act 3135, otherwise
wrote a letter to the Philippine Football known as the Revised Charter of the Philippine
Federation (Federation), through its president Amateur Athletic Federation, and Presidential
private respondent Henri Kahn, wherein the Decree No. 604 as the laws from which said
former offered its services as a travel agency to Federation derives its existence.
the latter.[1] The offer was accepted.
2. As correctly observed by the appellate court,
2. Petitioner secured the airline tickets for the trips both R.A. 3135 and P.D. No. 604 recognized the
of the athletes and officials of the Federation to juridical existence of national sports
the South East Asian Games in Kuala Lumpur associations. This may be gleaned from the
as well as various other trips to the People's powers and functions granted to these
Republic of China and Brisbane. The total cost associations.
of the tickets amounted to P449,654.83. For the
tickets received, the Federation made two partial 3. The above powers and functions granted to
payments, both in September of 1989, in the national sports associations clearly indicate that
total amount of P176,467.50.[2] these entities may acquire a juridical
personality. The power to purchase, sell, lease
3. Petitioner wrote the Federation, through the and encumber property are acts which may only
private respondent a demand letter requesting be done by persons, whether natural or artificial,
for the amount of P265,894.33. [3] On 30 October with juridical capacity. However, while we agree
1989, the Federation, through the Project with the appellate court that national sports
Gintong Alay, paid the amount of P31,603.00.[4] associations may be accorded corporate status,
4. Henri Kahn issued a personal check in the such does not automatically take place by the
amount of P50,000 as partial payment for the mere passage of these laws.
outstanding balance of the Federation.
[5]
Thereafter, no further payments were made
despite repeated demands. 4. It is a basic postulate that before a corporation
may acquire juridical personality, the State must
5. This prompted petitioner to file a civil case give its consent either in the form of a special
before the Regional Trial Court of law or a general enabling act. We cannot agree
Manila. Petitioner sued Henri Kahn in his with the view of the appellate court and the
personal capacity and as President of the private respondent that the Philippine Football
Federation and impleaded the Federation as an Federation came into existence upon the
alternative defendant. passage of these laws. Nowhere can it be found
in R.A. 3135 or P.D. 604 any provision creating
the Philippine Football Federation. These laws WHEREFORE, the decision appealed from is
merely recognized the existence of national REVERSED and SET ASIDE. The decision of the
sports associations and provided the manner by Regional Trial Court of Manila, Branch 35, in Civil Case
which these entities may acquire juridical No. 90-53595 is hereby REINSTATED.
personality. Section 11 of R.A. 3135 provides:
SO ORDERED.
5. Clearly the above cited provisions require that Notes.—Corporation by estoppel is founded on
before an entity may be considered as a national principles of equity and is designed to prevent injustice
sports association, such entity must be and unfairness, and where there is no third person
recognized by the accrediting organization, the involved and the conflict arises only among those
Philippine Amateur Athletic Federation under assuming the form of a corporation, who know that it has
R.A. 3135, and the Department of Youth and not been registered, there is no corporation by estoppel.
Sports Development under P.D. 604.
(Lozano vs. De los Santos, 274 SCRA 452 [1997])
6. This fact of recognition, however, Henri Kahn
failed to substantiate. In attempting to prove the An unincorporated association which represents itself to
juridical existence of the Federation, Henri Kahn be a corporation will be estopped from denying its
attached to his motion for reconsideration before corporate capacity in a suit against it by a third person
the trial court a copy of the constitution and by- who relies in good faith on such representation. (Lim
laws of the Philippine Football Tong Lim vs. Philippine Fishing Gear Industries, Inc.,
Federation. Unfortunately, the same does not 317 SCRA 728 [1999])
prove that said Federation has indeed been
recognized and accredited by either the
Philippine Amateur Athletic Federation or the
Department of Youth and Sports ——o0o——
Development. Accordingly, we rule that the
Philippine Football Federation is not a national
sports association within the purview of the
aforementioned laws and does not have
corporate existence of its own.

7. Thus being said, it follows that private


respondent Henry Kahn should be held liable for
the unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled
principal in corporation law that any person
acting or purporting to act on behalf of a
corporation which has no valid existence
assumes such privileges and becomes
personally liable for contract entered into or for
other acts performed as such agent. [14] As
president of the Federation, Henri Kahn is
presumed to have known about the corporate
existence or non-existence of the
Federation. We cannot subscribe to the position
taken by the appellate court that even assuming
that the Federation was defectively incorporated,
the petitioner cannot deny the corporate
existence of the Federation because it had
contracted and dealt with the Federation in such
a manner as to recognize and in effect admit its
existence.[15] The doctrine of corporation by
estoppel is mistakenly applied by the respondent
court to the petitioner. The application of the
doctrine applies to a third party only when he
tries to escape liability on a contract from which
he has benefited on the irrelevant ground of
defective incorporation.[16] In the case at bar, the
petitioner is not trying to escape liability from the
contract but rather is the one claiming from the
contract.
of the directors, trustees and officers elected.— 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. Sec. 26
of the Corporation Code provides, thus: “Sec. 26.
Report of election of directors, trustees and officers.—
Within thirty (30) days after the election of the
directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, shall
submit to the Securities and Exchange Commission,
the names, nationalities and residences of the
directors, trustees and officers elected. x x x”
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
corporation’s financial resources and business
responsibility.

Facts:

1. Consolidated petitions in the complaints for


forcible entry and replevin filed by Monfort
Hermanos Agricultural Development Corporation
(Corporation) and Ramon H. Monfort against the
children, nephews, and nieces of its original
incorporators (collectively known as the group of
Antonio Monfort III).

2. Monfort Hermanos Agricultural Development


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-
MONFORT HERMANOS AGRICULTURAL an, all situated in Cadiz City. [3] It also owns one
DEVELOPMENT CORPORATION, as represented by unit of motor vehicle and two units of tractors.
[4]
MA. ANTONIA M. SALVATIERRA, petitioner, vs. The same allowed Ramon H. Monfort, its
ANTONIO B. MONFORT III, MA. LUISA MONFORT Executive Vice President, to breed and maintain
ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. fighting cocks in his personal capacity at
Hacienda San Antonio.[5]
MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA 3. In 1997, the group of Antonio Monfort III, through
R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and force and intimidation, allegedly took possession
COURT OF APPEALS, respondents. of the 4 Haciendas, the produce thereon and the
motor vehicle and tractors, as well as the
G.R. No. 155472. July 8, 2004.* fighting cocks of Ramon H. Monfort.

Corporation Law; Corporation Code; Corporations; By


the express mandate of the Corporation Code In G.R. No. 155472:
(Section 26), all corporations duly organized pursuant
thereto are required to submit within the period therein
stated (30 days) to the Securities and Exchange
4. On April 10, 1997, the Corporation, represented
Commission the names, nationalities, and residences
by its President, Ma. Antonia M. Salvatierra, and
Ramon H. Monfort, in his personal capacity, filed lodged with the board of directors that exercises
against the group of Antonio Monfort III, a its corporate powers. In turn, physical acts of the
complaint[6] for delivery of motor vehicle, tractors corporation, like the signing of documents, can
and 378 fighting cocks, with prayer for injunction be performed only by natural persons duly
and damages, docketed as Civil Case No. 506- authorized for the purpose by corporate by-laws
C, before the Regional Trial Court of Negros or by a specific act of the board of directors.[18]
Occidental, Branch 60.
2. Corporations are required under Section 26 of
the Corporation Code to submit to the SEC
within thirty (30) days after the election the
5. The group of Antonio Monfort III filed a motion to names, nationalities and residences of the
dismiss contending, inter alia, that Ma. Antonia elected directors, trustees and officers of the
M. Salvatierra has no capacity to sue on behalf Corporation. In order to keep stockholders and
of the Corporation because the March 31, the public transacting business with domestic
1997 Board Resolution[7] authorizing Ma. Antonia corporations properly informed of their
M. Salvatierra and/or Ramon H. Monfort to organizational operational status, the SEC
represent the Corporation is void as the issued the following rules:
purported Members of the Board who passed
the same were not validly elected officers of the xxxxxxxxx
Corporation.
2. A General Information Sheet shall be filed with
this Commission within thirty (30) days following
the date of the annual stockholders meeting. No
In G.R. No. 152542: 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
6. On April 21, 1997, Ma. Antonia M. Salvatierra extension for not more than ten (10) days.
filed on behalf of the Corporation a complaint for
forcible entry, preliminary mandatory injunction 2.A. Should a director, trustee or officer die, resign
with temporary restraining order and damages or in any manner, cease to hold office, the
corporation shall report such fact to the
against the group of Antonio Monfort III, before Commission with fifteen (15) days after such
the Municipal Trial Court (MTC) of Cadiz City. death, resignation or cessation of office.
[11]
It contended that the latter through force and
intimidation, unlawfully took possession of the 4 3. If for any justifiable reason, the annual meeting
Haciendas and deprived the Corporation of the has to be postponed, the company should notify
produce thereon. the Commission in writing of such postponement.

7. Antonio Monfort III Group Contention: Raised The General Information Sheet shall state, among
the affirmative defense of lack of legal capacity others, the names of the elected directors and
of Ma. Antonia M. Salvatierra to sue on behalf of officers, together with their corresponding position
title (Emphasis supplied)
the Corporation.
8. BONE OF CONTENTION OF A.M.III GROUP: 4. There is thus a doubt as to whether Paul M. Monfort,
The March 31, 1997 Board Resolution Yvete M. Benedicto, Jaqueline M. Yusay and Ester S.
authorizing Ma. Antonia M. Salvatierra and/or Monfort, were indeed duly elected Members of the Board
Ramon H. Monfort to represent the Corporation legally constituted to bring suit in behalf of the
is void because the purported Members of the Corporation.[21]
Board who passed the same were not validly
elected officers of the Corporation. 5. In Premium Marble Resources, Inc. v. Court of
Appeals,[22] 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, we
Issue: W/N Ma. Antonia M. Salvatierra has the legal
sustained the dismissal of the complaint because it was
capacity to sue on behalf of the Corporation.
not established that the Members of the Board who
Held: authorized the filing of the complaint were the lawfully
elected officers of the corporation.
1. A corporation has no power except those
expressly conferred on it by the Corporation 6. In the absence of any board resolution from its board
Code and those that are implied or incidental to of directors the [sic] authority to act for and in behalf of
its existence. In turn, a corporation exercises the corporation, the present action must necessarily fail.
said powers through its board of directors and/or The power of the corporation to sue and be sued in any
its duly authorized officers and agents. Thus, it court is lodged with the board of directors that exercises
has been observed that the power of a its corporate powers. Thus, the issue of authority and the
corporation to sue and be sued in any court is invalidity of plaintiff-appellants subscription which is still
[25]
pending, is a matter that is also addressed, considering This belated attempt, however, did not erase
the premises, to the sound judgment of the Securities & the doubt as to whether an election was indeed
Exchange Commission. held. As previously stated, a corporation is
mandated to inform the SEC of the names and
7. By the express mandate of the Corporation Code the change in the composition of its officers and
(Section 26), all corporations duly organized pursuant board of directors within 30 days after election if
thereto are required to submit within the period therein one was held, or 15 days after the death,
stated (30 days) to the Securities and Exchange resignation or cessation of office of any of its
Commission the names, nationalities and residences of director, trustee or officer if any of them died,
the directors, trustees and officers elected. resigned or in any manner, ceased to hold
office. This, the Corporation failed to do. The
Sec. 26 of the Corporation Code provides, thus: alleged election of the directors and officers who
signed the March 31, 1997 Board Resolution
Sec. 26. Report of election of directors, trustees and officers. was held on October 16, 1996, but the SEC was
Within thirty (30) days after the election of the directors, informed thereof more than two years later, or
trustees and officers of the corporation, the secretary, or any on November 11, 1998. The 4 Directors
other officer of the corporation, shall submit to the Securities appearing in the 1996 General Information
and Exchange Commission, the names, nationalities and
residences of the directors, trustees and officers elected. Sheet died between the years 1984 1987, [26] but
Xxx the records do not show if such demise was
reported to the SEC.
9. Evidently, the objective sought to be achieved by
Section 26 is to give the public information,
13. What further militates against the purported
election of those who signed the March 31, 1997
under sanction of oath of responsible officers, of
Board Resolution was the belated submission of
the nature of business, financial condition and
the alleged Minutes of the October 16, 1996
operational status of the company together with
meeting where the questioned officers were
information on its key officers or managers so
elected. The issue of legal capacity of Ma.
that those dealing with it and those who intend
Antonia M. Salvatierra was raised before the
to do business with it may know or have the
lower court by the group of Antonio Monfort III
means of knowing facts concerning the
as early as 1997, but the Minutes of said
corporation’s financial resources and business
October 16, 1996 meeting was presented by the
responsibility.
Corporation only in its September 29,
1999 Comment before the Court of Appeals.
[27]
Moreover, the Corporation failed to prove that
10. In the absence of an authority from the board of the same October 16, 1996 Minutes was
directors, no person, not even the officers of the submitted to the SEC. In fact, the 1997 General
corporation, can validly bind the corporation. Information Sheet[28] submitted by the
Corporation does not reflect the names of the 4
Directors claimed to be elected on October 16,
1996.
11. In the case at bar, the fact that four of the six
Members of the Board listed in the 1996 General 14. Ma. Antonia M. Salvatierra failed to prove that
Information Sheet[23] are already dead[24] at the four of those who authorized her to represent
time the March 31, 1997 Board Resolution was the Corporation were the lawfully elected
issued, does not automatically make the four Members of the Board of the Corporation. As
signatories (i.e., Paul M. Monfort, Yvete M. such, they cannot confer valid authority for her
Benedicto, Jaqueline M. Yusay and Ester S. to sue on behalf of the corporation.
Monfort) to the said Board Resolution (whose
name do not appear in the 1996 General WHEREFORE, in view of all the foregoing, the
Information Sheet) as among the incumbent petition in G.R. No. 152542 is DENIED. The October 5,
Members of the Board. This is because it was 2001 Decision of the Special Tenth Division of the Court
not established that they were duly elected to of Appeals in CA-G.R. SP No. 53652, which set aside
replace the said deceased Board Members. the August 14, 1998 Decision of the Regional Trial Court
of Negros Occidental, Branch 60 in Civil Case No. 822,
is AFFIRMED.
12. THE ANOMALIES IN THIS CASE: To correct
the alleged error in the General Information In G.R. No. 155472, the petition is GRANTED and
Sheet, the retained accountant of the the June 7, 2002 Decision rendered by the Special
Corporation informed the SEC in its November Former Thirteenth Division of the Court of Appeals in
11, 1998 letter that the non-inclusion of the CA-G.R. SP No. 49251, dismissing the petitionfiled by
lawfully elected directors in the 1996 General the group of Antonio Monfort III, is REVERSED and SET
Information Sheet was attributable to its ASIDE.
oversight and not the fault of the Corporation.
The complaint for forcible entry docketed as Civil corporation is not the property of its stockholders or
Case No. 822 before members and may not be sold by the stockholders or
the Municipal Trial Court of Cadiz City is DISMISSED. In members without express authorization from the
Civil Case No. 506-C with the Regional Trial Court of corporation’s board of directors.—A corporation is a
Negros Occidental, Branch 60, the action for delivery of juridical person separate and distinct from its
personal property filed by Monfort Hermanos Agricultural stockholders or members. Accordingly, the property of
Development Corporation is likewise DISMISSED. With the corporation is not the property of its stockholders
respect to the action filed by Ramon H. Monfort for the or members and may not be sold by the stockholders
delivery of 387 fighting cocks, the Regional Trial Court of or members without express authorization from the
Negros Occidental, Branch 60, is ordered to effect the corporation’s board of directors.
corresponding substitution of parties.
Same; Same; Agency; The general principles of
No costs. agency govern the relation between the corporation
SO ORDERED. and its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law.—
Note.—Directors may appoint officers and agents and as Indubitably, a corporation may act only through its
incident to this power of appointment, they may board of directors or, when authorized either by its
discharge those appointed. (Union Motors Corporation bylaws or by its board resolution, through its officers
vs. National Labor Relations Commission, 314 SCRA or agents in the normal course of business. The
531 [1999]) general principles of agency govern the relation
between the corporation and its officers or agents,
subject to the articles of incorporation, bylaws, or
relevant provisions of law. Thus, this Court has held
——o0o—— that “ ‘a corporate officer or agent may represent and
bind the corporation in transactions with third persons
to the extent that the authority to do so has been
conferred upon him, and this includes powers which
have been intentionally conferred, and also such
powers as, in the usual course of the particular
business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers
as the corporation has caused persons dealing with
the officer or agent to believe that it has conferred.’ ”
Same; Same; Same; Corporate Treasurers; Unless
duly authorized, a treasurer, whose powers are
limited, cannot bind the corporation in a sale of its
assets.—The Court has also recognized the rule that
“persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are
bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to
establish it (Harry Keeler v. Rodriguez, 4 Phil. 19).”
Unless duly authorized, a treasurer, whose powers
are limited, cannot bind the corporation in a sale of its
assets.

Same; Same; Same; Same; Selling is obviously


foreign to a corporate treasurer’s function, which
generally has been described as “to receive and keep
SAN JUAN STRUCTURAL AND STEEL the funds of the corporation, and to disburse them in
FABRICATORS, INC., petitioner, vs. COURT OF accordance with the authority given him by the board
APPEALS, MOTORICH SALES CORPORATION, or the properly authorized officers.”—That Nenita
NENITA LEE GRUENBERG, ACL DEVELOPMENT Gruenberg is the treasurer of Motorich does not free
CORP. and JNM REALTY AND DEVELOPMENT petitioner from the responsibility of ascertaining the
CORP., respondents. extent of her authority to represent the corporation.
Petitioner cannot assume that she, by virtue of her
position, was authorized to sell the property of the
Corporation Law; Sales; The property of the corporation. Selling is obviously foreign to a corporate
treasurer’s function, which generally has been mere alter ego or business conduit of a person or an
described as “to receive and keep the funds of the instrumentality, agency or adjunct of another
corporation, and to disburse them in accordance with corporation.
the authority given him by the board or the properly
authorized officers.” Same; Same; Evidence; The question of piercing the
veil of corporate fiction is essentially a matter of proof.
Same; Same; Same; When the corporate officers —We stress that the corporate fiction should be set
exceed their authority, their actions “cannot bind the aside when it becomes a shield against liability for
corporation, unless it has ratified such acts or is fraud, illegality or inequity committed on third persons.
estopped from disclaiming them.”—As a general rule, The question of piercing the veil of corporate fiction is
the acts of corporate officers within the scope of their essentially, then, a matter of proof. In the present
authority are binding on the corporation. But when case, however, the Court finds no reason to pierce the
these officers exceed their authority, their actions corporate veil of Respondent Motorich. Petitioner
“cannot bind the corporation, unless it has ratified utterly failed to establish that said corporation was
such acts or is estopped from disclaiming them.” formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of
Same; Same; Same; Contracts; Requisites of a Valid its officers or stockholders; or that the said veil was
and Perfected Contract.—Article 1318 of the Civil used to conceal fraud, illegality or inequity at the
Code lists the requisites of a valid and perfected expense of third persons like petitioner.
contract: “(1) consent of the contracting parties; (2)
object certain which is the subject matter of the Same; Same; Close Corporations; Words and
contract; (3) cause of the obligation which is Phrases; “Close Corporation,” Defined.—Petitioner
established.” As found by the trial court and affirmed claims that Motorich is a close corporation. We rule
by the Court of Appeals, there is no evidence that that it is not. Section 96 of the Corporation Code
Gruenberg was authorized to enter into the contract of defines a close corporation as follows: “SEC. 96.
sale, or that the said contract was ratified by Motorich. Definition and Applicability of Title.—A close
This factual finding of the two courts is binding on this corporation, within the meaning of this Code, is one
Court. As the consent of the seller was not obtained, whose articles of incorporation provide that: (1) All of
no contract to bind the obligor was perfected. the corporation’s issued stock of all classes, exclusive
Therefore, there can be no valid contract of sale of treasury shares, shall be held of record by not more
between petitioner and Motorich. than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stock of all classes
Same; Same; Same; Same; Where a corporation shall be subject to one or more specified restrictions
never gave a written authorization to its treasurer to on transfer permitted by this Title; and (3) The
sell a parcel of land it owns, any agreement to sell corporation shall not list in any stock exchange or
entered into by the latter with a third party is void.— make any public offering of any of its stock of any
Because Motorich had never given a written class. Notwithstanding the foregoing, a corporation
authorization to Respondent Gruenberg to sell its shall be deemed not a close corporation when at least
parcel of land, we hold that the February 14, 1989 two-thirds (2/3) of its voting stock or voting rights is
Agreement entered into by the latter with petitioner is owned or controlled by another corporation which is
void under Article 1874 of the Civil Code. Being not a close corporation within the meaning of this
inexistent and void from the beginning, said contract Code. x x x.”
cannot be ratified.
Same; Same; Same; A corporation does not become
Same; Piercing the Veil of Corporate Fiction Doctrine; a close corporation just because a man and his wife
On equitable considerations, the corporate veil can be owns 99.866% of its subscribed capital stock; So, too,
disregarded when it is utilized as a shield to commit a narrow distribution of ownership does not, by itself,
fraud, illegality or inequity; defeat public convenience; make a close corporation.—The articles of
confuse legitimate issues; or serve as a mere alter incorporation of Motorich Sales Corporation does not
ego or business conduit of a person or an contain any provision stating that (1) the number of
instrumentality, agency or adjunct of another stockholders shall not exceed 20, or (2) a preemption
corporation.—True, one of the advantages of a of shares is restricted in favor of any stockholder or of
corporate form of business organization is the the corporation, or (3) listing its stocks in any stock
limitation of an investor’s liability to the amount of the exchange or making a public offering of such stocks is
investment. This feature flows from the legal theory prohibited. From its articles, it is clear that
that a corporate entity is separate and distinct from its Respondent Motorich is not a close corporation.
stockholders. However, the statutorily granted Motorich does not become one either, just because
privilege of a corporate veil may be used only for Spouses Reynaldo and Nenita Gruenberg owned
legitimate purposes. On equitable considerations, the 99.866% of its subscribed capital stock. The “[m]ere
veil can be disregarded when it is utilized as a shield ownership by a single stockholder or by another
to commit fraud, illegality or inequity; defeat public corporation of all or nearly all of the capital stock of a
convenience; confuse legitimate issues; or serve as a corporation is not of itself sufficient ground for
disregarding the separate corporate personalities.” 1. San Juan Structural and Steel Fabricators,
So, too, a narrow distribution of ownership does not, Inc.s alleged that on 14 February 1989,
by itself, make a close corporation. plaintiff-appellant entered into an
agreement with defendant-appellee
Same; Same; Same; In exceptional cases, “an action Motorich Sales Corporation for the transfer
by a director, who singly is the controlling stockholder, to it of a parcel of land.
may be considered as a binding corporate act and a
board action as nothing more than a mere 2. As stipulated in the Agreement of 14
formality.”—The Court is not unaware that there are February 1989, plaintiff-appellant paid the
exceptional cases where “an action by a director, who down payment in the sum of One Hundred
singly is the controlling stockholder, may be Thousand (P100,000.00) Pesos, the
considered as a binding corporate act and a board balance to be paid on or before March 2,
action as nothing more than a mere formality.” The 1989;
present case, however, is not one of them. As stated 3. On March 2, 1989, plaintiff-appellant was
by petitioner, Spouses Reynaldo and Nenita ready with the amount corresponding to the
Gruenberg own “almost 99.866%” of Respondent balance, covered by Metrobank Cashiers
Motorich. Since Nenita is not the sole controlling Check No. 004223, payable to defendant-
stockholder of Motorich, the aforementioned appellee Motorich Sales Corporation; that
exception does not apply. plaintiff-appellant and defendant-appellee
Motorich Sales Corporation were supposed
Same; Same; Same; Marriage; Husband and Wife; to meet in the office of plaintiff-appellant but
Conjugal Partnership; Co-Ownership; There is no co- defendant-appellees treasurer, Nenita Lee
ownership between the spouses in the properties of Gruenberg, did not appear;
the conjugal partnership of gains.—Granting
arguendo that the corporate veil of Motorich is to be 4. That defendant-appellee Motorich Sales
disregarded, the subject parcel of land would then be Corporation despite repeated demands and
treated as conjugal property of Spouses Gruenberg, in utter disregard of its commitments had
because the same was acquired during their refused to execute the Transfer of
marriage. There being no indication that said spouses, Rights/Deed of Assignment which is
who appear to have been married before the necessary to transfer the certificate of title;
effectivity of the Family Code, have agreed to a
5. Defendant ACL Development Corp. is
different property regime, their property relations
impleaded as a necessary party since
would be governed by conjugal partnership of gains.
Transfer Certificate of Title No. (362909)
As a consequence, Nenita Gruenberg could not have
2876 is still in the name of said defendant;
effected a sale of the subject lot because “[t]here is no
while defendant JNM Realty &
co-ownership between the spouses in the properties
Development Corp. is likewise impleaded
of the conjugal partnership of gains. Hence, neither
as a necessary party in view of the fact that
spouse can alienate in favor of another his or her
it is the transferor of right in favor of
interest in the partnership or in any property belonging
defendant-appellee Motorich Sales
to it; neither spouse can ask for a partition of the
Corporation;
properties before the partnership has been legally
dissolved.” a. On April 6, 1989, defendant ACL
Development Corporation and Motorich
Sales Corporation entered into a Deed of
Same; Same; Same; Same; Same; Absolute Absolute Sale whereby the former
Community of Property; Under the regime of absolute transferred to the latter the subject property;
community of property, “alienation of community
b. By reason of said transfer, the Registry of
property must have the written consent of the other Deeds of Quezon City issued a new title in
spouse or the authority of the court without which the the name of Motorich Sales Corporation,
disposition or encumbrance is void.”—Assuming represented by defendant-appellee Nenita
further, for the sake of argument, that the spouses’ Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of
property regime is the absolute community of Title No. 3571;
property, the sale would still be invalid. Under this
regime, “alienation of community property must have 6. Prayer of San Juan Structural and Steel
the written consent of the other spouse or the Fabricators: As a result of Nenita Lee
authority of the court without which the disposition or Gruenberg and Motorich Sales
encumbrance is void.” Both requirements are Corporations bad faith in refusing to
manifestly absent in the instant case. execute a formal Transfer of Rights/Deed of
Assignment, plaintiff-appellant suffered
moral and nominal damages which may be
Facts: assessed against defendants-appellees in
the sum of Five Hundred Thousand
(500,000.00) Pesos;
7. Motorich Sales Corporation and Nenita SEC. 23. The Board of Directors or
Trustees. -- Unless otherwise provided
Lee Gruenberg’s Contention: The in this Code, the corporate powers of all
President and Chairman of Motorich did not corporations formed under this Code
sign the agreement adverted to in par. 3 of shall be exercised, all business
the amended complaint; that Mrs. conducted and all property of such
corporations controlled and held by the
Gruenbergs signature on the agreement board of directors or trustees to be
(ref: par. 3 of Amended Complaint) is elected from among the holders of
inadequate to bind Motorich. The other stocks, or where there is no stock, from
signature, that of Mr. Reynaldo Gruenberg, among the members of the corporation,
who shall hold office for one (1) year
President and Chairman of Motorich, is and until their successors are elected
required. and qualified.

Issues: 2. A corporation may act only through its board of


directors, or, when authorized either by its
1. May a corporate treasurer, by herself and bylaws or by its board resolution, through its
without any authorization from the board of officers or agents in the normal course of
directors, validly sell a parcel of land owned by business.
the corporation? 3. The general principles of agency govern the
relation between the corporation and its officers
2. May the veil of corporate fiction be pierced or agents, subject to the articles of incorporation,
on the mere ground that almost all of the bylaws, or relevant provisions of law.[11] Thus,
shares of stock of the corporation are owned by this Court has held that:
said treasurer and her husband?
A corporate officer or agent may represent and
bind the corporation in transactions with third
persons to the extent that the authority to do so
Held: has been conferred upon him, and this includes
powers which have been intentionally conferred,
and also such powers as, in the usual course of
the particular business, are incidental to, or may
The petition is devoid of merit. be implied from, the powers intentionally
conferred, powers added by custom and usage,
as usually pertaining to the particular officer or
agent, and such apparent powers as the
First Issue: Validity of Agreement corporation has caused persons dealing with the
officer or agent to believe that it has conferred.[12]

4. Persons dealing with an assumed agent,


Contention of San Juan Structural and Steel
whether the assumed agency be a general or
Fabricators, Inc.: On February 14, 1989, it entered
special one, are bound at their peril, if they
through its president, Andres Co, into the disputed
would hold the principal liable, to ascertain not
Agreement with Respondent Motorich Sales
only the fact of agency but also the nature and
Corporation, which was in turn allegedly represented by
extent of authority, and in case either is
its treasurer, Nenita Lee Gruenberg. Petitioner insists
controverted, the burden of proof is upon them
that [w]hen Gruenberg and Co affixed their signatures on
to establish it (Harry Keeler v. Rodriguez, 4 Phil.
the contract they both consented to be bound by the
19).[13] Unless duly authorized, a treasurer,
terms thereof. Ergo, petitioner contends that the contract
whose powers are limited, cannot bind the
is binding on the two corporations.
corporation in a sale of its assets.[14]
We do not agree.
5. In the case at bar, Respondent Motorich
1. True, Gruenberg and Co signed on February 14, categorically denies that it ever authorized
1989, the Agreement according to which a lot Nenita Gruenberg, its treasurer, to sell the
owned by Motorich Sales Corporation was subject parcel of land.[15] Consequently,
purportedly sold. Such contract, however, petitioner had the burden of proving that Nenita
cannot bind Motorich, because it never Gruenberg was in fact authorized to represent
authorized or ratified such sale: and bind Motorich in the transaction. Petitioner
A corporation is a juridical person separate and
failed to discharge this burden. Its offer of
distinct from its stockholders or evidence before the trial court contained no
members. Accordingly, the property of the proof of such authority.[16] It has not shown any
corporation is not the property of its stockholders provision of said respondents articles of
or members and may not be sold by the
stockholders or members without express
incorporation, bylaws or board resolution to
authorization from the corporations board of prove that Nenita Gruenberg possessed such
directors.[10] Section 23 of BP 68, otherwise known power. (BOP is with Petitioner to prove that
as the Corporation Code of the Philippines, Nenita was authorized by the corp. to enter
provides:
into such contract)
6. That Nenita Gruenberg is the treasurer of of ratification. The document is a hand-written
Motorich does not free petitioner from the one, not a corporate receipt, and it bears only
responsibility of ascertaining the extent of her Nenita Gruenbergs signature. Certainly, this
authority to represent the corporation. Petitioner document alone does not prove that her acts
cannot assume that she, by virtue of her were authorized or ratified by Motorich.
position, was authorized to sell the property of
the corporation. Selling is obviously foreign to a
corporate treasurers function, which generally
has been described as to receive and keep the
funds of the corporation, and to disburse them in Second Issue:
accordance with the authority given him by the
board or the properly authorized officers.[17] Piercing the Corporate Veil Not Justified

7. Neither was such real estate sale shown to be a


normal business activity of Motorich. The
Petitioner’s Contention: The veil of corporate fiction of
primary purpose of Motorich is marketing,
Motorich should be pierced, because the latter is a close
distribution, export and import in relation to a
corporation. Since Spouses Reynaldo L. Gruenberg and
general merchandising business.
[18] Nenita R. Gruenberg owned all or almost all or 99.866%
Unmistakably, its treasurer is not cloaked with
to be accurate, of the subscribed capital stock[25] of
actual or apparent authority to buy or sell real
Motorich, petitioner argues that Gruenberg needed no
property, an activity which falls way beyond the
authorization from the board to enter into the subject
scope of her general authority.
contract.[26] It adds that, being solely owned by the
Articles 1874 and 1878 of the Civil Code of the Spouses Gruenberg, the company can be treated as a
Philippines provides: close corporation which can be bound by the acts of its
ART. 1874. When a sale of a piece of land or any principal stockholder who needs no specific authority.
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the The Court is not persuaded.
sale shall be void.
1. True, one of the advantages of a corporate form
ART. 1878 Special powers of attorney are
necessary in the following case:
of business organization is the limitation of an
investors liability to the amount of the
xxxxxxxxx investment.[30] This feature flows from the legal
(5) To enter any contract by which the ownership theory that a corporate entity is separate and
of an immovable is transmitted or acquired either distinct from its stockholders. However, the
gratuitously or for a valuable consideration; statutorily granted privilege of a corporate veil
x x x x x x x x x. may be used only for legitimate purposes.[31] On
equitable considerations, the veil can be
6. San Juan Structural and Steel Fabricators disregarded when it is utilized as a shield to
Contention: Motorich has ratified said contract commit fraud, illegality or inequity; defeat public
of sale because of its acceptance of benefits, as convenience; confuse legitimate issues; or serve
evidenced by the receipt issued by Respondent as a mere alter ego or business conduit of a
Gruenberg.[19] Petitioner is clutching at straws. person or an instrumentality, agency or adjunct
of another corporation.[32]
GENERAL The acts of corporate officers within 2. Thus, the Court has consistently ruled that:
RULE: the scope of their authority are
binding on the corporation. [w]hen the fiction is used as a means of
perpetrating a fraud or an illegal act or as a
EXCEPTION: But when these officers exceed vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or
their authority, their actions cannot perfection of a monopoly or generally the
bind the corporation, unless it has perpetration of knavery or crime, the veil with
ratified such acts or is estopped which the law covers and isolates the corporation
from disclaiming them.[20] from the members or stockholders who compose it
will be lifted to allow for its consideration merely as
an aggregation of individuals.[33]

7. In this case, there is a clear absence of proof 3. The corporate fiction should be set aside when it
that Motorich ever authorized Nenita Gruenberg, becomes a shield against liability for fraud,
or made it appear to any third person that she illegality or inequity committed on third
had the authority, to sell its land or to receive the persons. The question of piercing the veil of
earnest money. Neither was there any proof that corporate fiction is essentially, then, a matter of
Motorich ratified, expressly or impliedly, the proof. In the present case, however, the Court
contract. Petitioner rests its argument on the finds no reason to pierce the corporate veil of
receipt, which, however, does not prove the fact Respondent Motorich.
4. Petitioner utterly failed to establish that said authorizing the sale or mortgage of the subject
corporation was formed, or that it is operated, property is not necessary to bind the corporation for
for the purpose of shielding any alleged the action of its president. [38] But the factual milieu
fraudulent or illegal activities of its officers or in Dulay is not on all fours with the present case, to
stockholders; or that the said veil was used to wit:
conceal fraud, illegality or inequity at the
expense of third persons, like petitioner. DULAY CASE MOTORICH CASE
Petitioner’s Contention: Motorich is a close The sale of real property Motorich is not a close
corporation. We rule that it is not. was contracted by the corporation, as previously
5. CLOSE CORP. DEFINED president of a close discussed, and the
corporation with the agreement was entered
Section 96 of the Corporation Code defines a close knowledge and into by the corporate
corporation as follows:
acquiescence of its board treasurer without the
SEC. 96. Definition and Applicability of Title. -- A of directors knowledge of the board
close corporation, within the meaning of this of directors.
Code, is one whose articles of incorporation
provide that:

(1) All of the corporations issued stock of all


classes, exclusive of treasury shares, shall 8. The Court is not unaware that there are
be held of record by not more than a exceptional cases where an action by a director,
specified number of persons, not exceeding who singly is the controlling stockholder, may be
twenty (20);
considered as a binding corporate act and a
(2) All of the issued stock of all classes shall board action as nothing more than a mere
be subject to one or more specified formality.[40] The present case, however, is not
restrictions on transfer permitted by this
Title; and one of them.

(3) The corporation shall not list in any stock 9. As stated by petitioner, Spouses Reynaldo and
exchange or make any public offering of Nenita Gruenberg own almost 99.866% of
any of its stock of any class.
Respondent Motorich.[41] Since Nenita is not the
Notwithstanding the foregoing, a sole controlling stockholder of Motorich, the
corporation shall be deemed not a close aforementioned exception does not
corporation when at least two-thirds (2/3) of
its voting stock or voting rights is owned or
apply. Granting arguendo that the corporate veil
controlled by another corporation which is of Motorich is to be disregarded, the subject
not a close corporation within the meaning parcel of land would then be treated as conjugal
of this Code. xxx. property of Spouses Gruenberg, because the
same was acquired during their marriage. There
6. The articles of incorporation[34] of Motorich Sales being no indication that said spouses, who
Corporation does not contain any provision
appear to have been married before the
stating that:
effectivity of the Family Code, have agreed to a
(1) the number of stockholders shall not exceed different property regime, their property relations
20, or would be governed by conjugal partnership of
(2) a preemption of shares is restricted in favor of gains.[42] As a consequence, Nenita Gruenberg
any stockholder or of the corporation, or could not have effected a sale of the subject lot
because [t]here is no co-ownership between the
(3) listing its stocks in any stock exchange or
making a public offering of such stocks is spouses in the properties of the conjugal
prohibited. partnership of gains. Hence, neither spouse
can alienate in favor of another his or her
7. From its articles, it is clear that Respondent interest in the partnership or in any property
Motorich is not a close corporation. [35] Motorich does belonging to it; neither spouse can ask for a
not become one either, just because Spouses partition of the properties before the partnership
Reynaldo and Nenita Gruenberg owned 99.866% has been legally dissolved.[43]
of its subscribed capital stock. The [m]ere
ownership by a single stockholder or by another Assuming further, for the sake of argument, that the
corporation of all or nearly all of the capital stock of spouses property regime is the absolute community of
a corporation is not of itself sufficient ground for property, the sale would still be invalid. Under this
disregarding the separate corporate personalities. regime, alienation of community property must have the
[36]
So too, a narrow distribution of ownership does written consent of the other spouse or the authority of
not, by itself, make a close corporation. the court without which the disposition or encumbrance
is void.[44] Both requirements are manifestly absent in the
8. Petitioner cites Manuel R. Dulay Enterprises, Inc. instant case.
v. Court of Appeals[37] wherein the Court ruled that
xxx petitioner corporation is classified as a close WHEREFORE, the petition is hereby DENIED and
corporation and, consequently, a board resolution the assailed Decision is AFFIRMED.
SO ORDERED. Registration of a corporation cannot be compelled
by mandamus
Notes.—For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be
clearly and convincingly established—it cannot be ID.; COMMERCE; UNITED STATES COASTWISE
presumed. (Matuguina Integrated Wood Products, Inc. TRADE.—The power to regulate commerce,
vs. Court of Appeals, 263 SCRA 490 [1996]) expressly delegated to the Congress by the
Constitution, includes the power to nationalize ships
Stockholders who are actively engaged in the built and owned in the United States by registries and
management or operation of the business and affairs of enrollments, and the recording of the muniments of
a close corporation shall be personally liable for title of American vessels.
corporate torts unless the corporation has obtained
reasonably adequate liability insurance. (Naguiat vs. ID.; ID.; ID.—Under the Acts of Congress of
National Labor Relations Commission, 269 SCRA 564 December 31, 1792, and February 18, 1793 (1 Stat.
[1997]) at L., 287, 305) in case of alienation to a foreigner, all
the privileges of an American bottom were ipso facto
forfeited. No vessel in which a foreigner was directly
or indirectly interested could lawfully be registered as
——o0o—— a vessel of the United States.

ID.; ID.; ID.—The Act of Congress of May 28, 1895


(29 Stat. at L., 188) extended the privileges of registry
from vessels wholly owned by a citizen or citizens of
the United States to corporations created under the
laws of any of the states thereof. This law made it
possible for a domestic corporation to obtain the
registry or enrollment of its vessels even though some
stock of the corporation was owned by aliens.

ID. ; ID. ; PHILIPPINE COASTWISE TRADE; ACT No.


2761, VALIDITY.—The history of the different laws
which have concerned the Philippine coastwise trade
is set out in the opinion. The last Act on the subject,
No. 2761, has returned to the restrictive idea of the
original Customs Administrative Act which in turn was
merely a reflection of the statutory language of the
first American Congress,

ID.; ID.; ID. ; ID.—Without any subterfuge, the


apparent purpose of the Philippine Legislature is seen
to be to enact an antialien shipping act. The 'ultimate
purpose of the Legislature is to encourage Philippine
ship-building.

ID.; ID. ; ID.; ID.—The Philippine Legislature made up


entirely of Filipinos, representing the mandate of the
Filipino people and the guardian of their rights, acting
under practically autonomous powers, and imbued
with a strong sense of Philippinism, has desired for
these Islands safety from foreign interlopers, the use
of the common property exclusively by its citizens and
the citizens of the United States, and protection for
the common good of the people.

ID.; ID. ; ID. ; ID.—Act No. 2761 of the Philippine


Legislature, limiting' certificates of the Philippine
registry to vessels of domestic ownership vested in
some one or more of the following classes of persons:
(a) citizens or native inhabitants of the Philippine
SMITH, BELL & COMPANY (LTD.), petitioner, vs. Islands;
JOAQUIN NATIVIDAD, Collector of Customs of the (b) citizens of the United States residing in the
port of Cebu, respondent. Philippine Islands;
(c) any corporation or company composed wholly of year for the purpose of transporting plaintiff's
citizens of the Philippine Islands or of the United merchandise between ports in the Islands.
States or both, is authorized by the Act of Congress of
April 29, 1908, with its specific delegation of authority 4. Application was made at Cebu, the home port of
to the Government of the Philippine Islands to the vessel, to the Collector of Customs for a
regulate the transportation of merchandise and certificate of Philippine registry.
passengers between ports or places therein, and by
the grant by the Act of Congress of August 29, 1916,
of general legislative power to the Philippine
Legislature. 5. The Collector refused to issue the certificate,
giving as his reason that all the stockholders of
ID. ; ID. ; ID. ; ID.—While the plaintiff, a corporation Smith, Bell & Co., Ltd., were not citizens either
having alien stockholders, is entitled to the protection of the United States or of the Philippine Islands.
afforded by the due process of law and equal The instant action is the result.
protection of the laws clause of the Philippine Bill of
Rights, yet Act No. 2761, in denying to corporations Issue:
such as the plaintiff the right to register vessels in the
Philippine coastwise trade, does not belong to that 1. W/N the Government of the Philippine Islands,
vicious species of class legislation which must always through its Legislature, can deny the registry of
be condemned, but falls within authorized exceptions, vessel in its coastwise trade to corporations
notably, within the purview of the police power. having alien stockholders .

ID. ; ID.; ID. ; ID.—Act No. 2761 does not violate the Held:
provisions of paragraph 1 of section 3 of the Act of
Congress of August 29, 1916, providing "that no law
1. While Smith, Bell & Co. Ltd., a corporation
shall be enacted in said Islands which shall deprive
having alien stockholders, is entitled to the
any person of life, liberty, or property without due
protection afforded by the due-process of law
process of law, or deny to any person therein the
and equal protection of the laws clause of the
equal protection of the laws."
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
Gist of the case: A writ of mandamus is prayed for by coastwise trade, does not belong to that vicious
Smith, Bell & Co. (Ltd.), against Joaquin Natividad, species of class legislation which must always
Collector of Customs of the port of Cebu, Philippine be condemned, but does fall within authorized
Islands, to compel him to issue a certificate of Philippine exceptions, notably, within the purview of the
registry to the petitioner for its motor vessel Bato. The police power, and so does not offend against the
question, flatly presented, is, whether Act. No. 2761 of constitutional provision.
the Philippine Legislature is valid — or, more directly
stated, whether the Government of the Philippine
Islands, through its Legislature, can deny the registry of 2. The power to regulate commerce, expressly
vessels in its coastwise trade to corporations having delegated to the Congress by the Constitution,
alien stockholders. includes the power to nationalize ships built and
owned in the United States by registries and
FACTS: enrollments, and the recording of the muniments
of title of American vessels. The Congress "may
1. Smith, Bell & Co., (Ltd.), is a corporation encourage or it may entirely prohibit such
organized and existing under the laws of the commerce, and it may regulate in any way it
Philippine Islands. may see fit between these two extremes."

These laws continued in force without


contest, although possibly the Act of
2. A majority of its stockholders are British March 3, 1825, may have affected them,
subjects. until amended by the Act of May 28,
1896 (29 Stat. at L., 188) which
extended the privileges of registry from
vessels wholly owned by a citizen or
3. It is the owner of a motor vessel known as citizens of the United States to
corporations created under the laws of
the Bato built for it in the Philippine Islands in any of the states thereof. The law, as
1916, of more than fifteen tons gross amended, made possible the deduction
The Bato was brought to Cebu in the present that a vessel belonging to a domestic
corporation was entitled to registry or
enrollment even though some stock of
the company be owned by aliens. The States, does not violate the provisions of
right of ownership of stock in a
paragraph 1 of section 3 of the Act of Congress
corporation was thereafter distinct from
the right to hold the property by the of August 29, 1916 No treaty right relied upon
corporation (Humphreys vs. McKissock Act No. 2761 of the Philippine Legislature is held
[1890], 140 U.S., 304; valid and constitutional .
Queen vs. Arnaud [1846], 9 Q. B., 806;
29 Op. Atty.-Gen. [U.S.],188.)

3. Provisions such as those in Act No. 2761, which


deny to foreigners the right to a certificate of
Philippine registry, are thus found not to be as
radical as a first reading would make them
appear.

Stonehill v. Diokno (1967)


4. Purpose of the Philippine Legislature: To G.R. No. L-19550 | 1967-06-19
encourage Philippine ship-building. This, without
doubt, has, likewise, been the intention of the
United States Congress in passing navigation or
tariff laws on different occasions. The object of
such a law, the United States Supreme Court
once said, was to encourage American trade,
navigation, and ship-building by giving American Right Against Unlawful Search is Personal
ship-owners exclusive privileges. (Old Dominion
Steamship Co. vs.Virginia [1905], 198 U.S., 299; 1. As regards the warrants issued to the corporations,
Kent's Commentaries, Vol. 3, p. 139.) 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
5. The United States Congress in assuming its respective personalities, separate and distinct from
grave responsibility of legislating wisely for a the personality of herein petitioners, regardless of the
new country did so imbued with a spirit of amount of shares of stock or of the interest of each of
Americanism. Domestic navigation and trade, it them in said corporations, and whatever the offices
decreed, could only be carried on by citizens of they hold therein may be.
the United States. If the representatives of the
American people acted in this patriotic manner 2. Indeed, it is well settled that the legality of a seizure
to advance the national policy, and if their action can be contested only by the party whose rights have
was accepted without protest in the courts, who been impaired thereby, and that the objection to an
can say that they did not enact such beneficial unlawful search and seizure is purely personal and
laws under the all-pervading police power, with cannot be availed of by third parties.
the prime motive of safeguarding the country
and of promoting its prosperity? Quite similarly,
the Philippine Legislature made up entirely of Facts:
Filipinos, representing the mandate of the
Filipino people and the guardian of their rights, 1. Several judges issued 42 search warrants against
acting under practically autonomous powers, Stonehill and other petitioners to seize “books of
and imbued with a strong sense of Philippinism, accounts, financial records, vouchers, correspondence,
has desired for these Islands safety from foreign receipts, ledgers, journals, portfolios, credit journals,
interlopers, the use of the common property typewriters,and other documents and/or papers showing
exclusively by its citizens and the citizens of the all business transactions including disbursements
United States, and protection for the common receipts, balance sheets and profit and loss statements
good of the people. Who can say, therefore, and Bobbins (cigarette wrappers),” claiming violations of
especially can a court, that with all the facts and
“Central Bank Laws, Tariff and Customs Laws, Internal
circumstances affecting the Filipino people
before it, the Philippine Legislature has erred in Revenue (Code) and Revised Penal Code.”
the enactment of Act No. 2761.
2. The documents were seized from two locations:

6. The limitation of domestic ownership for (1) their corporate offices and
purposes of obtaining a certificate of Philippine
registry in the coastwise trade to citizens of the (2) the personal residences of the petitioners.
Philippine Islands, and to citizens of the United
3. The respondent-judges claim that the warrants were
valid, and any possible defects are cured by Stonehill’s
consent.

Held:

Right Against Unlawful Search is Personal

1. As regards the warrants issued to the corporations,


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 Bache & Co. (Phil), Inc. vs. Ruiz (1971)
of herein petitioners, regardless of the amount of shares
of stock or of the interest of each of them in said G.R. No. L-32409 | 1971-02-27
corporations, and whatever the offices they hold therein
may be.

2. 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.

Right of a corporation to object against


unreasonable searches and seizures

In Stonehill vs. Diokno, this Court impliedly


recognized the right of a corporation to object
against unreasonable searches and seizures.
In the Stonehill case only the officers of the
various corporations in whose offices
documents, papers and effects were
searched and seized. It was said that the
corporations therein herein had 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 [its individual officers],
regardless of the amount of shares of stock or
the interest of each of them in said
corporations.

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 (Bache and Co.) here stands on a
different footing from the corporations in
Stonehill.

Facts:

1. Misael P. Vera, Commissioner of Internal Revenue,


wrote a letter to CFI Judge Ruiz requesting the issuance
of a search warrant against petitioners Bache & Co.
(Phil.), Inc. and its President, Frederick E. Seggerman,
for violation of Section 46(a) of the National Internal
Revenue Code (NIRC), particularly Sections 53, 72, 73, Held:
208 and 209, and authorizing Revenue Examiner
Rodolfo de Leon to make and file the application for 1. In Stonehill vs. Diokno, this Court impliedly
search warrant which was attached to the letter. recognized the right of a corporation to object
against unreasonable searches and seizures. In
the Stonehill case only the officers of the various
2. On February 25, 1970, De Leon and his witness, corporations in whose offices documents,
Arturo Logronio, went to the sala of Judge Ruiz, papers and effects were searched and seized. It
bringing with them their supporting documents was said that the corporations therein herein
for the application of the search warrrant. had no cause of action to assail the legality of
the contested warrants and of the seizures
3. At that time, Judge Ruiz was hearing a certain made in pursuance thereof, for the simple
case, so by means of a note, he instructed his reason that said corporations have their
Deputy Clerk of Court to take the depositions of respective personalities, separate and distinct
De Leon and Logronio. from the personality of [its individual officers],
regardless of the amount of shares of stock or
the interest of each of them in said corporations.
4. After the session had adjourned, Judge Ruiz
was informed that the depositions had already 2. In the case at bar, the corporation to whom
been taken. The stenographer, upon request of the seized documents belong, and whose rights
Judge Ruiz, read to him her stenographic notes, have thereby been impaired, is itself a petitioner.
and thereafter, Judge Ruiz asked Logronio to On that score, petitioner corporation (Bache and
take the oath and warned him that if his Co.) here stands on a different footing from the
deposition was found to be false and without corporations in Stonehill.
legal basis, he could be charged for perjury.

5. Judge Ruiz signed De Leon's application for


BATAAN SHIPYARD & ENGINEERING CO., INC.
search warrant and Logronio's deposition.
(BASECO), petitioner, vs. PRESIDENTIAL
Search Warrant No. 2-M-70 was then sign by
COMMISSION ON GOOD GOVERNMENT, CHAIRMAN
Judge Ruiz and accordingly issued.
JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON
6. Three days later, or on February 28, 1970, which DIAZ, COMMISSIONER RAUL R. DAZA,
was a Saturday, the BIR agents served the COMMISSIONER QUINTIN S. DOROMAL, CAPT.
search warrant at the offices of petitioner Bache JORGE B. SIACUNCO, et al., respondents.
& Co. on Ayala Avenue, Makati, Rizal.

7. Petitioners' lawyers protested the search on the


ground that no formal complaint or transcript of
testimony was attached to the warrant. The Same; Same; Same; Right against self-incrimination
agents nevertheless proceeded with their search has no application to juridical persons and the
which yielded six boxes of documents. constitutional safeguard against unreasonable
searches and seizures finds no application to the case
at bar either.—BASECO also contends that its right
against self-incrimination and unreasonable searches
8. Petitioners filed a petition with the CFI praying and seizures had been transgressed by the Order of
that the search warrant be quashed. The petition April 18,1986 which required it "to produce corporate
was dismissed by Judge Ruiz. records from 1973 to 1986 under pain of contempt of
the Commission if it fails to do so." The order was
issued upon the authority of Section 3 (e) of Executive
Order No. 1, treating of the PCGG's power to "issue
9. In the meantime, the Bureau of Internal subpoenas requiring * * the production of such books,
Revenue made tax assessments on Bache & papers, contracts, records, statements of accounts
Co. for P2,594,729.97, partly, if not entirely, and other documents as may be material to the
based on the documents thus seized. Petitioners investigation conducted by the Commission," and
thus came to the Supreme Court to declare null paragraph (3), Executive Order No. 2 dealing with its
and void Search Warrant. power to "(r)equire all persons in the Philippines
holding * * (alleged "ill-gotten") assets or properties,
whether located in the Philippines or abroad, in their
names as nominees, agents or trustees, to make full
disclosure of the same **." The contention lacks merit.
It is elementary that the right against self-incrimination
has no application to juridical persons. "While an
individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special
privileges and franchises, may refuse to show its hand
when charged with an abuse of such privileges. * *" At
any rate, Executive Order No. 14-A, amending
Section 4 of Executive Order No. 14 assures
protection to individuals required to produce evidence
before the PCGG against any possible violation of his
right against self-incrimination. It gives them immunity
from prosecution on the basis of testimony or
information he is compelled to present. As amended,
said Section 4 now provides that—"* * * * 'The witness
may not refuse to comply with the order on the basis
of his privilege against self-incrimination; but no
testimony or other information compelled under the
order (or any information directly or indirectly derived
from such testimony, or other information) may be
used against the witness in any criminal case, except
a prosecution for perjury, giving a false statement, or
otherwise failing to comply with the order." The
constitutional safeguard against unreasonable
searches and seizures finds no application to the case
at bar either. There has been no search undertaken
by any agent or representative of the PCGG, and of
course no seizure on the occasion thereof.
4. On August 2, 1956, the PNB released from the
approved loan the sum of P27,500, for which the
plaintiff signed a promissory note wherein it
promised to pay to the PNB the said sum in five
equal yearly installments at the rate of
P6,528.40 beginning July 31, 1957, and every
year thereafter, the last of which would be on
July 31, 1961.

MAMBULAO LUMBER COMPANY, plaintiff-appellant, 5. On October 19, 1956, the PNB made another
release of P15,500 as part of the approved loan
vs. PHILIPPINE NATIONAL BANK and ANACLETO
granted to the plaintiff and so on the said date,
HERALDO, Deputy Provincial Sheriff of Camarines
the latter executed another promissory note
Norte, defendants-appellees. wherein it agreed to pay to the former the said
sum in five equal yearly installments at the rate
of P3,679.64 beginning July 31, 1957, and
Damages; Moral damages; Award of damage to
ending on July 31, 1961.
juridical persons.—An artificial person cannot
experience physical sufferingS; mental anguish, fright,
serious anxiety, wounded feelings, moral -shock or
social humiliation which are the basis of moral
damage. A corporation may have a good reputation 6. The plaintiff failed to pay the amortization on the
which, if besmirched, may also be a ground for the amounts released to and received by it.
award of moral damages. Repeated demands were made upon the plaintiff
to pay its obligation but it failed or otherwise
refused to do so. Upon inspection and
verification made by employees of the PNB, it
was found that the plaintiff had already stopped
operation about the end of 1957 or early part of
Facts: 1958.

1. On May 5, 1956 the plaintiff applied for an


industrial loan of P155,000 with the Naga
Branch of defendant PNB and the former offered 7. On September 27, 1961, the PNB sent a letter to
real estate, machinery, logging and the Provincial Sheriff of Camarines Norte
transportation equipments as collaterals. requesting him to take possession of the parcel
of land, together with the improvements existing
thereon, covered by Transfer Certificate of Title
No. 381 of the land records of Camarines Norte,
2. The application, however, was approved for a and to sell it at public auction in accordance with
loan of P100,000 only. the provisions of Act No. 3135, as amended, for
the satisfaction of the unpaid obligation of the
plaintiff, which as of September 22, 1961,
amounted to P57,646.59, excluding attorney's
fees.
3. To secure the payment of the loan, the plaintiff
mortgaged to defendant PNB a parcel of land,
together with the buildings and improvements
existing thereon, situated in the poblacion of
Jose Panganiban (formerly Mambulao), province 8. In compliance with the request, on October 16,
of Camarines Norte, and covered by Transfer 1961, the Provincial Sheriff of Camarines Norte
Certificate of Title No. 381 of the land records of issued the corresponding notice of extra-judicial
said province, as well as various sawmill sale and sent a copy thereof to the plaintiff.
equipment, rolling unit and other fixed assets of According to the notice, the mortgaged property
the plaintiff, all situated in its compound in the would be sold at public auction at 10:00 a.m. on
aforementioned municipality. November 21, 1961, at the ground floor of the
Court House in Daet, Camarines Norte.
12. Upon the foregoing facts, the trial court rendered
the decision appealed from which, as stated in
9. On November 6, 1961, the PNB sent a letter to the first paragraph of this opinion, sentenced the
the Provincial Sheriff of Camarines Norte Mambulao Lumber Company to pay to the
requesting him to take possession of the defendant PNB the sum of P3,582.52 with
chattels mortgaged to it by the plaintiff and sell interest thereon at the rate of 6% per annum
them at public auction also on November 21, from December 22, 1961 (day following the date
1961, for the satisfaction of the sum of of the questioned foreclosure of plaintiff's
P57,646.59, plus 6% annual interest therefore chattels) until fully paid, and the costs.
from September 23, 1961, attorney's fees Mambulao Lumber Company interposed the
equivalent to 10% of the amount due and the instant appeal.
costs and expenses of the sale. On the same
day, the PNB sent notice to the plaintiff that the
former was foreclosing extrajudicially the
chattels mortgaged by the latter and that the 13. That appellant vigorously objected to the
auction sale thereof would be held on November foreclosure of its chattel mortgage after the
21, 1961, between 9:00 and 12:00 a.m., in foreclosure of its real estate mortgage on
Mambulao, Camarines Norte, where the November 21, 1961, can not be doubted, as
mortgaged chattels were situated. shown not only by its letter to the PNB on
November 19, 1961, but also in its letter to the
provincial sheriff of Camarines Norte on the
same date. These letters were followed by
10. On November 8, 1961, Deputy Provincial Sheriff another letter to the appellee bank on December
Anacleto Heraldo took possession of the 14, 1961, wherein herein appellant, in no
chattels mortgaged by the plaintiff and made an uncertain terms, reiterated its objection to the
inventory thereof in the presence of a PC scheduled sale of its chattels on December 21,
Sergeant and a policeman of the municipality of 1961 at Jose Panganiban, Camarines Norte for
Jose Panganiban. On November 9, 1961, the the reasons therein stated that: (1) it had settled
said Deputy Sheriff issued the corresponding in full its total obligation to the PNB by the sale
notice of public auction sale of the mortgaged of the real estate and its subsequent remittance
chattels to be held on November 21, 1961, at of the amount of P738.59; and (2) that the
10:00 a.m., at the plaintiff's compound situated contemplated sale at Jose Panganiban would
in the municipality of Jose Panganiban, Province violate their agreement embodied under
of Camarines Norte. paragraph (i) in the Chattel Mortgage which
provides as follows:

(i) In case of both judicial and extra-judicial


foreclosure under Act 1508, as amended, the
11. On November 19, 1961, the plaintiff sent parties hereto agree that the corresponding
separate letters, posted as registered air mail complaint for foreclosure or the petition for sale
matter, one to the Naga Branch of the PNB and should be filed with the courts or the sheriff of
another to the Provincial Sheriff of Camarines the City of Manila, as the case may be; and that
Norte, protesting against the foreclosure of the the Mortgagor shall pay attorney's fees hereby
real estate and chattel mortgages on the fixed at ten per cent (10%) of the total
grounds that they could not be effected unless a indebtedness then unpaid but in no case shall it
Court's order was issued against it (plaintiff) for be less than P100.00, exclusive of all costs and
said purpose and that the foreclosure fees allowed by law and of other expenses
proceedings, according to the terms of the incurred in connection with the said foreclosure.
mortgage contracts, should be made in Manila. [Emphasis supplied]
In said letter to the Naga Branch of the PNB, it
was intimated that if the public auction sale
would be suspended and the plaintiff would be Notwithstanding the abovequoted agreement in the
given an extension of ninety (90) days, its chattel mortgage contract, and in utter disregard of the
obligation would be settled satisfactorily objection of herein appellant to the sale of its chattels at
because an important negotiation was then Jose Panganiban, Camarines Norte and not in the City
going on for the sale of its "whole interest" for an of Manila as agreed upon, the PNB proceeded with the
amount more than sufficient to liquidate said foreclosure sale of said chattels. The trial court,
obligation. however, justified said action of the PNB in the decision
appealed from in the following rationale:

While it is true that it was stipulated in the chattel


mortgage contract that a petition for the extra-
judicial foreclosure thereof should be filed with are ordered to pay, jointly and severally, to Mambulao
the Sheriff of the City of Manila, nevertheless, Lumber Company the total amount of P56,000.73,
the effect thereof was merely to provide another broken as follows: P150.73 overpaid by the latter to the
place where the mortgage chattel could be sold PNB, P42,850.00 the value of the chattels at the time of
in addition to those specified in the Chattel the sale with interest at the rate of 6% per annum from
Mortgage Law. Indeed, a stipulation in a contract December 21, 1961, until fully paid, P10,000.00 in
cannot abrogate much less impliedly repeal a exemplary damages, and P3,000.00 as attorney's fees.
specific provision of the statute. Considering that Costs against both appellees.
Section 14 of Act No. 1508 vests in the
mortgagee the choice where the foreclosure Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
sale should be held, hence, in the case under Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
consideration, the PNB had three places from Bengzon, J.P. J., took no part.
which to select, namely: (1) the place of
residence of the mortgagor; (2) the place of the
mortgaged chattels were situated; and (3) the
place stipulated in the contract. The PNB
selected the second and, accordingly, the
foreclosure sale held in Jose Panganiban,
Camarines Norte, was legal and valid.

Issue: W/N Mambulao’s claim for damages may be


sustained.

Held: No. It cannot be sustained.

Herein appellant's claim for moral damages, however,


seems to have no legal or factual basis. Obviously, an
artificial person like herein appellant corporation cannot
experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. 21 A
corporation may have a good reputation which, if
besmirched, may also be a ground for the award of
moral damages. The same cannot be considered under
the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its
business operation at the time of the foreclosure sale of
the chattels, but also for the reason that whatever
adverse effects of the foreclosure sale of the chattels
could have upon its reputation or business standing
would undoubtedly be the same whether the sale was
conducted at Jose Panganiban, Camarines Norte, or in
Manila which is the place agreed upon by the parties in
the mortgage contract.

But for the wrongful acts of herein appellee bank and the
deputy sheriff of Camarines Norte in proceeding with the
sale in utter disregard of the agreement to have the
chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by
herein appellant, and in disposing of the chattels in gross ABS-CBN BROADCASTING
for the miserable amount of P4,200.00, herein appellant CORPORATION, petitioners, vs. HONORABLE
should be awarded exemplary damages in the sum of COURT OF APPEALS, REPUBLIC BROADCASTING
P10,000.00. The circumstances of the case also warrant CORP., VIVA PRODUCTIONS, INC., and VICENTE
the award of P3,000.00 as attorney's fees for herein DEL ROSARIO, respondents.
appellant.
CORPORATION LAW; BOARD OF DIRECTORS;
WHEREFORE AND CONSIDERING ALL THE POWER TO ENTER INTO CONTRACTS;
FOREGOING, the decision appealed from should be, as DELEGATION; VALIDITY THEREOF. Under the
hereby, it is set aside. The Philippine National Bank and Corporation Code, unless otherwise provided by said
the Deputy Sheriff of the province of Camarines Norte Code, corporate powers, such as the power to enter
Facts:
into contracts, are exercised by the Board of
Directors. However, the Board may delegate such 1. In 1990, ABS-CBN and VIVA executed a Film
powers to either an executive committee or officials or Exhibition Agreement whereby the latter gave
contracted managers. The delegation, except for the the former an exclusive right to exhibit 24 VIVA
executive committee, must be for specific purposes. Films for TV telecast.
Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency 2. Later, VIVA, through respondent Vincent del
as to the binding effects of their acts would apply. For Rosario, offered ABS-CBN a list of 3 film
such officers to be deemed fully clothed by the packages (36 titles) from which the latter may
corporation to exercise a power of the Board, did not exercise its right of first refusal under their
have the authority to accept ABS-CBNs counter-offer agreement.
was best evidenced by his submission of the draft 3. ABS-CBN ticked off 10 titles therefrom.
contract to VIVAS Board of Directors for the latters Thereafter, in February 1992, Del Rosario
approval. In any event, there was between Del offered ABS-CBN airing rights over a package of
Rosario and Lopez III no meeting of minds. 104 movies for P60 million.
4. In April, 1992, Del Rosario, and Eugenio Lopez
ID.; ID.; ID.; MORAL DAMAGES; ELABORATED. As of ABS-CBN, met at a restaurant to discuss the
to moral damages the law is Section 1, Chapter 3, package proposal.
Title XVIII, Book IV of the Civil Code. Article 2217 5. According to Lopez, however, what they agreed
thereof defines what are included in moral damages, upon was ABS-CBNs exclusive film rights to 14
while Article 2219 enumerates the cases where they films for P36 million. Del Rosario denied the
may be recovered. Article 2220 provides that moral same. He insisted that the discussion was on
damages may be recovered in breaches of contract VIVAs offer of 104 films for P60 million, to which
where the defendant acted fraudulently or in bad ABSCBN later made a counterproposal but
faith. Moral damages are in the category of an award rejected by VIVAs Board of Directors.
designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the 6. Hence, VIVA later granted RBS the exclusive
wrongdoer. The award is not meant to enrich the right to air the 104 VIVA films, including the 14
complainant at the expense of the defendant, but to films supposedly granted to ABS-CBN.
enable the injured party to obtain means, diversion, or
7. ABS-CBN then filed a complaint for specific
amusements that will serve to obviate the moral
performance with prayer for injunction.
suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the 8. The RTC granted the prayer and required ABS-
spiritual status quo ante, and should be proportionate CBN post a P35 million bond.
to the suffering inflicted. Trial courts must then guard
against the award of exorbitant damages; they should 9. But while ABS-CBN was moving for reduction of
exercise balanced restrained and measured the bond, RBS offered to put up a counterbond
objectivity to avoid suspicion that it was due to and was allowed to post P30 million.
passion, prejudice, or corruption on the part of the trial 10. Later, the RTC rendered a decision in favor of
court. RBS and VIVA, ordering ABS-CBN to pay RBS
ID.; ID.; ID.; ID.; CASE AT BAR. RBSs claim for moral the amount it paid for the print advertisement
damages could possibly fall only under item (10) and premium on the counterbond, moral
of Article 2219, thereof which reads: (10) Acts damages, exemplary damages and attorneys
and actions referred to in Articles 21, 26, 27, 28, fee.
29, 30, 32, 34, and 35. However, the award of 11. ABS-CBN appealed to the Court of Appeals.
moral damages cannot be granted in favor of a Viva and Del Rosario also appealed seeking
corporation because, being an artificial person moral and exemplary damages and additional
and having existence only in legal contemplation, attorneys fees.
it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering 12. The Court of Appeals affirmed the RTC decision
and mental anguish, which can be experienced and sustained the monetary awards, VIVAs and
only by one having a nervous system. The Del Rosarios appeals were denied.
statement in People v. Manero and Mambulao
Lumber Co. v. PNB that a corporation may Issues:
recover moral damages if it has a good 1. Whether there was a perfected contract between VIVA
reputation that is debased, resulting in social and ABS-CBN; and
humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, 2. Whether RBS is entitled to damages and attorneys
since RBS is a corporation. fees.
Held: there is no object certain which is its subject matter (Art.
1318, NCC).
In the case at bar, ABS-CBN made no unqualified
acceptance of VIVAs offer hence, they underwent period
of bargaining. ABS-CBN then formalized its counter- THIRD, Mr. Lopez [sic] answer to question 29 of his
proposals or counter-offer in a draft contract. VIVA affidavit testimony (Exh. D) States:
through its Board of Directors, rejected such counter-
offer. Even if it be conceded arguendo that Del Rosario We were able to reach an agreement. VIVA gave us the
had accepted the counter-offer, the acceptance did not exclusive license to show these fourteen (14) films, and
bind VIVA, as there was no proof whatsoever that Del we agreed to pay Viva the amount of P16,050,000.00 as
Rosario had the specific authority to do so. well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked
Under the Corporation Code,[46] unless otherwise this P16,050,000.00.
provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board which gives a total consideration of P36 million
of Directors. However, the Board may delegate such (P19,951,000.00 plus P16,050,000.00
powers to either an executive committee or officials or equals P36,000,000.00).
contracted managers. The delegation, except for the
executive committee, must be for specific purposes.
[47]
Delegation to officers makes the latter agents of the On cross-examination Mr. Lopez testified:
corporation; accordingly, the general rules of agency as
to the binding effects of their acts would apply. [48] For Q What was written in this napkin?
such officers to be deemed fully clothed by the
A The total price, the breakdown the known Viva
corporation to exercise a power of the Board, the latter
movies, the 7 blockbuster movies and the other
must specially authorize them to do so. that Del Rosario
7 Viva movies because the price was broken
did not have the authority to accept ABS-CBNs counter-
down accordingly. The none [sic] Viva and the
offer was best evidenced by his submission of the draft
seven other Viva movies and the sharing
contract to VIVAs Board of Directors for the latters
between the cash portion and the concerned
approval. In any event, there was between Del Rosario
spot portion in the total amount of P35 million
and Lopez III no meeting of minds. The following
pesos.
findings of the trial court are instructive:
Now, which is which? P36 million or P35 million? This
A number of considerations militate against ABS-CBNs
weakens ABS-CBNs claim.
claim that a contract was perfected at that lunch meeting
on April 02, 1992 at the Tamarind Grill.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated
that she transmitted Exhibit C to Mr. Del Rosario with a
FIRST, Mr. Lopez claimed that what was agreed upon at
handwritten note, describing said Exhibit C as a
the Tamarind Grill referred to the price and the number
draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The
of films, which he wrote on a napkin. However, Exhibit C
said draft has a well defined meaning.
contains numerous provisions which were not discussed
at the Tamarind Grill, if Lopez testimony was to be
believed nor could they have been physically written on Since Exhibit C is only a draft, or a tentative, provisional
a napkin. There was even doubt as to whether it was a or preparatory writing prepared for discussion, the terms
paper napkin or cloth napkin. In short what were written and conditions thereof could not have been previously
in Exhibit C were not discussed, and therefore could not agreed upon by ABS-CBN and Viva.Exhibit C could not
have been agreed upon, by the parties. How then could therefore legally bind Viva, not having agreed thereto. In
this court compel the parties to sign Exhibit C when the fact, Ms. Concio admitted that the terms and conditions
provisions thereof were not previously agreed upon? embodied in Exhibit C were prepared by ABS-CBNs
lawyers and there was no discussion on said terms and
conditions.
SECOND, Mr. Lopez claimed that what was agreed
upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14 As the parties had not yet discussed the proposed terms
films. But Exhibit C mentions 53 films as its subject and conditions in Exhibit C, and there was no evidence
matter. Which is which? If Exhibit C reflected the true whatsoever that Viva agreed to the terms and conditions
intent of the parties, then ABS-CBNs claim for 14 films in thereof, said document cannot be a binding
its complaint is false or if what it alleged in the complaint contract. The fact that Viva refused to sign Exhibit C
is true, then Exhibit C did not reflect what was agreed reveals only two [sic] well that it did not agree on its
upon by the parties. This underscores the fact that there terms and conditions, and this court has no authority to
was no meeting of the minds as to the subject matter of compel Viva to agree thereto.
the contract, so as to preclude perfection thereof. For
settled is the rule that there can be no contract where
FIFTH. Mr. Lopez understand [sic] that what he and Mr. continuation of said previous contract is untenable. As
Del Rosario agreed upon at the Tamarind Grill was only observed by the trial court, ABS-CBNs right of first
provisional, in the sense that it was subject to approval refusal had already been exercised when Ms. Concio
by the Board of Directors of Viva. He testified: wrote to Viva ticking off ten films.Thus:

Q Now, Mr. Witness, and after that Tamarinf meeting [T]he subsequent negotiation with ABS-CBN two (2)
the second meeting wherein you claimed that months after this letter was sent, was for an entirely
you have the meeting of the minds between you different package. Ms. Concio herself admitted on
and Mr. Vic del Rosario, what happened? cross-examination to having used or exercised the
right of first refusal. She stated that the list was not
A Vic Del Rosario was supposed to call us up and tell acceptable and was indeed not accepted by ABS-
us specifically the result of the discussion with CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez
the Board of Directors. himself admitted that the right of first refusal may
Q And you are referring to the so-called agreement have been already exercised by Ms. Concio (as she
which you wrote in [sic] a piece of paper? had). (TSN, June 8, 1992, pp. 71-75). Del Rosario
himself knew and understand [sic] that ABS-CBN
A Yes, sir. has lost its right of first refusal when his list of 36
titles were rejected (Tsn, June 9, 1992, pp. 10-11).
Q So, he was going to forward that to the board of [50]
Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to SO ORDERED.
his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt


that he knew Mr. Del Rosario had no authority to bind
Viva to a contract with ABS-CBN until and unless its
Board of Directors approved it. The complaint, in fact,
alleges that Mr. Del Rosario is the Executive Producer of
defendant Viva which is a corporation. (par. 2,
complaint). As a mere agent of Viva, Del Rosario could
not bind Viva unless what he did is ratified by its
Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold
vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be
held liable jointly and severally with Viva and his
inclusion as party defendant has no legal
basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil.
125; Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the


complaint are clear admissions that what was supposed
to have been agreed upon at the Tamarind Grill between
Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power
to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such
board approval by the Viva board, whatever agreement
Lopez and Del Rosario arrived at could not ripen into a
valid binding upon Viva (Yao Ka Sin Trading vs. Court of
Appeals, 209 SCRA 763). The evidence adduced shows
that the Board of Directors of Viva rejected Exhibit C and
insisted that the film package for 104 films be maintained
(Exh. 7-1 Cica).[49]

The contention that ABS-CBN had yet to fully


exercise its right of first refusal over twenty-four films
under the 1990 Film Exhibition Agreement and that the
meeting between Lopez and Del Rosario was a
—failure to perform such duties constitutes negligence.
—Petitioner likewise claimed that when the subject
meters were again inspected on June 7, 1988, they were
MANILA ELECTRIC COMPANY, petitioners, vs. T.E.A.M. found to have been tampered anew. The Court notes
ELECTRONICS CORPORATION, TECHNOLOGY that prior to the inspection, TEC was informed about it;
ELECTRONICS ASSEMBLY and MANAGEMENT and months before the inspection, there was an
PACIFIC CORPORATION; and ULTRA ELECTRONICS unsettled controversy between TEC and petitioner,
INSTRUMENTS, INC., respondents. brought about by the disconnection of electric power and
the non-payment of differential billing. We are more
Same; Corporation Law; As a rule, a corporation is not disposed to accept the trial court’s conclusion that it is
entitled to moral damages because, not being a hard to believe that a customer previously apprehended
natural person, it cannot experience physical suffering for tampered meters and assessed P7 million would
or sentiments like wounded feelings, serious anxiety, further jeopardize itself in the eyes of petitioner. If it is
mental anguish and moral shock, the only exception true that there was evidence of tampering found on
to this rule is when the corporation has a reputation September 28, 1987 and again on June 7, 1988, the
that is debased, resulting in its humiliation in the
better view would be that the defective meters were not
business realm.—We, however, deem it proper to
delete the award of moral damages. TEC’s claim was actually corrected after the first inspection. If so, then
premised allegedly on the damage to its goodwill and Manila Electric Company v. Macro Textile Mills
reputation. As a rule, a corporation is not entitled to Corporation, 374 SCRA 69 (2002),would apply, where
moral damages because, not being a natural person, we said that we cannot sanction a situation wherein the
it cannot experience physical suffering or sentiments defects in the electric meter are allowed to continue
like wounded feelings, serious anxiety, mental anguish indefinitely until suddenly, the public utilities demand
and moral shock. The only exception to this rule is payment for the unrecorded electricity utilized when they
when the corporation has a reputation that is could have remedied the situation immediately.
debased, resulting in its humiliation in the business Petitioner’s failure to do so may encourage neglect of
realm. But in such a case, it is imperative for the public utilities to the detriment of the consuming public.
claimant to present proof to justify the award. It is Corollarily, it must be underscored that petitioner has the
essential to prove the existence of the factual basis of imperative duty to make a reasonable and proper
the damage and its causal relation to petitioner’s acts.
inspection of its apparatus and equipment to ensure that
In the present case, the records are bereft of any
evidence that the name or reputation of TEC/TPC has they do not malfunction, and the due diligence to
been debased as a result of petitioner’s acts. Besides, discover and repair defects therein. Failure to perform
the trial court simply awarded moral damages in the such duties constitutes negligence. By reason of said
dispositive portion of its decision without stating the negligence, public utilities run the risk of forfeiting
basis thereof. amounts originally due from their customers.

Appeals; Well-established is the doctrine that under Rule Same; Presidential Decree (P.D.) No. 401; Presidential
45 of the Rules of Court, only questions of law, not of Decree No. 401 granted the electric companies the right
fact, may be raised before the Court; Factual findings of to conduct inspections of electric meters and the criminal
the trial court, especially those affirmed by the Court of prosecution of erring consumers who were found to have
Appeals, are binding on the Supreme Court.—It is tampered with their electric meters but did not expressly
obvious that petitioner wants this Court to revisit the provide for more expedient remedies such as the
factual findings of the lower courts. Well-established is charging of differential billing and immediate
the doctrine that under Rule 45 of the Rules of Court, disconnection against erring consumers.—The law in
only questions of law, not of fact, may be raised before force at the time material to this controversy was
the Court. We would like to stress that this Court is not a Presidential Decree (P.D.) No. 401 issued on March 1,
trier of facts and may not re-examine and weigh anew 1974. The decree penalized unauthorized installation of
the respective evidence of the parties. Factual findings water, electrical or telephone connections and such acts
of the trial court, especially those affirmed by the Court as the use of tampered electrical meters. It was issued in
of Appeals, are binding on this Court. answer to the urgent need to put an end to illegal
activities that prejudice the economic well-being of both
the companies concerned and the consuming public.
P.D. 401 granted the electric companies the right to
Public Utilities; Electric Power Industry; Negligence; A conduct inspections of electric meters and the criminal
public utility has the imperative duty to make a prosecution of erring consumers who were found to have
reasonable and proper inspection of its apparatus and tampered with their electric meters. It did not expressly
equipment to ensure that they do not malfunction, and provide for more expedient remedies such as the
the due diligence to discover and repair defects therein
charging of differential billing and immediate compensatory damages; In this case, to serve as an
disconnection against erring consumers. Thus, electric example—that before a disconnection of electrical
companies found a creative way of availing themselves supply can be effected by a public utility, the requisites of
of such remedies by inserting into their service contracts law must be complied with—the Court affirms the award
(or agreements for the sale of electric energy) a of P200,000.00 as exemplary damages.—As to the
provision for differential billing with the option of payment of exemplary damages and attorney’s fees, we
disconnection upon non-payment by the erring find no cogent reason to disturb the same. Exemplary
consumer. The Court has recognized the validity of such damages are imposed by way of example or correction
stipulations. However, recourse to differential billing with for the public good in addition to moral, temperate,
disconnection was subject to the prior requirement of a liquidated, or compensatory damages. In this case, to
48-hour written notice of disconnection. Petitioner, in the serve as an example—that before a disconnection of
instant case, resorted to the remedy of disconnection electrical supply can be effected by a public utility, the
without prior notice. While it is true that petitioner sent a requisites of law must be complied with—we affirm the
demand letter to TEC for the payment of differential award of P200,000.00 as exemplary damages. With the
billing, it did not include any notice that the electric award of exemplary damages, the award of attorney’s
supply would be disconnected. In fine, petitioner abused fees is likewise proper, pursuant to Article 2208 of the
the remedies granted to it under P.D. 401 and Revised Civil Code. It is obvious that TEC needed the services of
General Order No. 1 by outrightly depriving TEC of a lawyer to argue its cause through three levels of the
electrical services without first notifying it of the judicial hierarchy. Thus, the award of P200,000.00 is in
impending disconnection. Accordingly, the CA did not err order.
in affirming the RTC decision.

Same; Corporation Law; As a rule, a corporation is not


Damages; Actual Damages; Actual damages are entitled to moral damages because, not being a natural
compensation for an injury that will put the injured party person, it cannot experience physical suffering or
in the position where it was before the injury; Basic is the sentiments like wounded feelings, serious anxiety,
rule that to recover actual damages, not only must the mental anguish and moral shock, the only exception to
amount of loss be capable of proof; it must also be this rule is when the corporation has a reputation that is
actually proven with a reasonable degree of certainty, debased, resulting in its humiliation in the business
premised upon competent proof or the best evidence realm.—We, however, deem it proper to delete the
obtainable.—As to the damages awarded by the CA, we award of moral damages. TEC’s claim was premised
deem it proper to modify the same. Actual damages are allegedly on the damage to its goodwill and reputation.
compensation for an injury that will put the injured party As a rule, a corporation is not entitled to moral damages
in the position where it was before the injury. They because, not being a natural person, it cannot
pertain to such injuries or losses that are actually experience physical suffering or sentiments like
sustained and susceptible of measurement. Except as wounded feelings, serious anxiety, mental anguish and
provided by law or by stipulation, a party is entitled to moral shock. The only exception to this rule is when the
adequate compensation only for such pecuniary loss as corporation has a reputation that is debased, resulting in
is duly proven. Basic is the rule that to recover actual its humiliation in the business realm. But in such a case,
damages, not only must the amount of loss be capable it is imperative for the claimant to present proof to justify
of proof; it must also be actually proven with a the award. It is essential to prove the existence of the
reasonable degree of certainty, premised upon factual basis of the damage and its causal relation to
competent proof or the best evidence obtainable. petitioner’s acts. In the present case, the records are
Respondent TEC sufficiently established, and petitioner bereft of any evidence that the name or reputation of
in fact admitted, that the former paid P1,000,000.00 and TEC/TPC has been debased as a result of petitioner’s
P280,813.72 under protest, the amounts representing a acts. Besides, the trial court simply awarded moral
portion of the latter’s claim of differential billing. With the damages in the dispositive portion of its decision without
finding that no tampering was committed and, thus, no stating the basis thereof.
differential billing due, the aforesaid amounts should be
returned by petitioner, with interest, as ordered by the Facts:
Court of Appeals and pursuant to the guidelines set forth
by the Court. 1. Respondent T.E.A.M. Electronics Corporation
(TEC) was formerly known as NS Electronics
(Philippines), Inc. before 1982 and National
Semi-Conductors (Phils.) before 1988. TEC is
Same; Exemplary Damages; Exemplary damages are wholly owned by respondent Technology
imposed by way of example or correction for the public Electronics Assembly and Management Pacific
good in addition to moral, temperate, liquidated, or Corporation (TPC).
building during the covered period, TEC's
3. On the other hand, petitioner Manila Electric Managing Director, Mr. Bobby Tan, referred the
Company (Meralco) is a utility company demand letter to Ultra[9] which, in turn, informed
supplying electricity in the Metro Manila area. TEC that its Executive Vice-President had met
with petitioner's representative. Ultra further
4. Petitioner and NS Electronics (Philippines), Inc., intimated that assuming that there was
the predecessor-in-interest of respondent TEC, tampering of the meters, petitioner's assessment
were parties to two separate contracts was excessive.[10] For failure of TEC to pay the
denominated as Agreements for the Sale of differential billing, petitioner disconnected the
Electric Energy under the following account electricity supply to the DCIM building on April
numbers: 09341-1322-16[3] and 09341-1812- 29, 1988.
13.[4]
12. TEC demanded from petitioner the reconnection
of electrical service, claiming that it had nothing
5. Under the aforesaid agreements, petitioner to do with the alleged tampering but the latter
undertook to supply TEC's building known as refused to heed the demand. Hence, TEC filed a
Dyna Craft International Manila (DCIM) located complaint on May 27, 1988 before the Energy
at Electronics Avenue, Food Terminal Complex, Regulatory Board (ERB) praying that electric
Taguig, Metro Manila, with electric power. power be restored to the DCIM building.[11]
6. Another contract was entered into for the supply 13. The ERB immediately ordered the reconnection
of electric power to TEC's NS Building under of the service but petitioner complied with it only
Account No. 19389-0900-10. on October 12, 1988 after TEC paid
P1,000,000.00, under protest. The complaint
7. In September 1986, TEC, under its former name
before the ERB was later withdrawn as the
National Semi-Conductors (Phils.) entered into a
parties deemed it best to have the issues
Contract of Lease[5] with respondent Ultra
threshed out in the regular courts. Prior to the
Electronics Industries, Inc. (Ultra) for the use of
reconnection, or on June 7, 1988, petitioner
the former's DCIM building for a period of five
conducted a scheduled inspection of the
years or until September 1991.
questioned meters and found them to have been
tampered anew.[12]
8. Ultra was, however, ejected from the premises
on February 12, 1988 by virtue of a court order,
Meanwhile, on April 25, 1988, petitioner
for repeated violation of the terms and
conducted another inspection, this time, in
conditions of the lease contract.
TEC's NS Building. The inspection allegedly
9. On September 28, 1987, a team of petitioner's revealed that the electric meters were not
inspectors conducted a surprise inspection of registering the correct power consumption.
the electric meters installed at the DCIM Petitioner, thus, sent a letter dated June 18,
building, witnessed by Ultra's[6] representative, 1988 demanding payment of P280,813.72
Mr. Willie Abangan. The two meters covered by representing the differential billing.[13] TEC
account numbers 09341-1322-16 and 09341- denied petitioner's allegations and claim in a
1812-13, were found to be allegedly tampered letter dated June 29, 1988.[14]
with and did not register the actual power
14. Petitioner, thus, sent TEC another letter
consumption in the building. The results of the
demanding payment of the aforesaid amount,
inspection were reflected in the Service
with a warning that the electric service would be
Inspection Reports[7] prepared by the team.
disconnected in case of continued refusal to pay
the differential billing.[15] To avert the impending
disconnection of electrical service, TEC paid the
10. In a letter dated November 25, 1987, petitioner
above amount, under protest.[16]
informed TEC of the results of the inspection
and demanded from the latter the payment of
15. On January 13, 1989, TEC and TPC filed a
P7,040,401.01 representing its unregistered
complaint for damages against petitioner and
consumption from February 10, 1986 until
Ultra[17] before the Regional Trial Court (RTC)
September 28, 1987, as a result of the alleged
of Pasig.
tampering of the meters.[8]
The petition must fail.
11. TEC received the letters on January 7, 1988.
Since Ultra was in possession of the subject
Issues: W/N TEC should be awarded with moral liquidated, or compensatory damages.[47] In this
damages. case, to serve as an example - that before a
disconnection of electrical supply can be
Held: No. It should not be awarded with moral effected by a public utility, the requisites of law
damages. must be complied with - we affirm the award of
P200,000.00 as exemplary damages. With the
Petitioner insists that the tampering of the award of exemplary damages, the award of
electric meters installed at the DCIM and NS attorney's fees is likewise proper, pursuant to
buildings owned by respondent TEC has been Article 2208[48] of the Civil Code. It is obvious
established by overwhelming evidence, as that TEC needed the services of a lawyer to
specifically shown by the shorting devices found argue its cause through three levels of the
during the inspection. Thus, says petitioner, judicial hierarchy. Thus, the award of
tampering of the meter is no longer an issue. P200,000.00 is in order.[49]

We, however, deem it proper to delete the


award of moral damages. TEC's claim was
Respondent TEC sufficiently established, and premised allegedly on the damage to its
petitioner in fact admitted, that the former paid goodwill and reputation.[50] As a rule, a
P1,000,000.00 and P280,813.72 under protest, corporation is not entitled to moral damages
the amounts representing a portion of the latter's because, not being a natural person, it cannot
claim of differential billing. With the finding that experience physical suffering or sentiments like
no tampering was committed and, thus, no wounded feelings, serious anxiety, mental
differential billing due, the aforesaid amounts anguish and moral shock. The only exception to
should be returned by petitioner, with interest, as this rule is when the corporation has a
ordered by the Court of Appeals and pursuant to reputation that is debased, resulting in its
the guidelines set forth by the Court.[46] humiliation in the business realm.[51] But in
such a case, it is imperative for the claimant to
However, despite the appellate court's present proof to justify the award. It is essential
conclusion that no tampering was committed, it to prove the existence of the factual basis of the
held Ultra solidarily liable with petitioner for damage and its causal relation to petitioner's
P1,000,000.00, only because the former, as acts.[52] In the present case, the records are
occupant of the building, promised to settle the bereft of any evidence that the name or
claims of the latter. This ruling is erroneous. reputation of TEC/TPC has been debased as a
Ultra's promise was conditioned upon the finding result of petitioner's acts. Besides, the trial court
of defect or tampering of the meters. It did not simply awarded moral damages in the
acknowledge any culpability and liability, and dispositive portion of its decision without stating
absent any tampered meter, it is absurd to make the basis thereof.
the lawful occupant liable. It was petitioner who
received the P1 million; thus, it alone should be WHEREFORE, the petition is DENIED. The
held liable for the return of the amount. Decision of the Court of Appeals in CA-G.R. CV
No. 40282 dated June 18, 1997 and its
TEC also sufficiently established its claim for the Resolution dated December 3, 1997 Public
reimbursement of the amount paid as rentals for utilities should be put on notice, as a deterrent,
the generator set it was constrained to rent by that if they disregard their duty of keeping their
reason of the illegal disconnection of electrical electric meters in serviceable condition, they run
service. The official receipts and purchase the risk of forfeiting, by reason of their
orders submitted by TEC as evidence sufficiently negligence, amounts originally due from their
show that such rentals were indeed made. customers. The Court cannot sanction a
However, the amount of P150,000.00 per month situation wherein the defects in the electric
for five months, awarded by the CA, is meter are allowed to continue indefinitely until
excessive. Instead, a total sum of P150,000.00, suddenly the public utilities demand payment for
as found by the RTC, is proper. the unrecorded electricity utilized when they
could have remedied the situation immediately.
As to the payment of exemplary damages and Public service companies which do not exercise
attorney's fees, we find no cogent reason to prudence in the discharge of their duties shall be
disturb the same. Exemplary damages are made to bear the consequences of such
imposed by way of example or correction for the oversight. (Manila Electric Company vs. Macro
public good in addition to moral, temperate, Textile Mills Corporation, 374 SCRA 69 [2002])
SO ORDERED.

Notes.—Ordinarily, only questions of law may be raised


in a petition for review on certiorari, except when there
are compelling reasons to justify otherwise, or when the
appealed decision is clearly contradicted by the
evidence on record. (Margolles vs. Court of Appeals, 230
SCRA 97 [1994])

The production and distribution of electricity is a highly


technical business undertaking, and in conducting its
operation, it is only logical for public utilities, such as
MERALCO, to employ mechanical devices and
equipment for the orderly pursuit of its business, devices
or equipment which are susceptible to defects and
mechanical failure. (Ridjo Tape & Chemical Corp. vs.
Court of Appeals, 286 SCRA 544 [1998])

Public utilities should be put on notice, as a deterrent,


that if they disregard their duty of keeping their electric
meters in serviceable condition, they run the risk of
forfeiting, by reason of their negligence, amounts
EMPLOYEES UNION OF BAYER PHILS., FFW and
originally due from their customers. The Court cannot
JUANITO S. FACUNDO, in his capacity as President,
sanction a situation wherein the defects in the electric
petitioners, vs. BAYER PHILIPPINES, INC., DIETER J.
meter are allowed to continue indefinitely until suddenly
LONISHEN (President), ASUNCION AMISTOSO (HRD
the public utilities demand payment for the unrecorded
Manager), AVELINA REMIGIO AND ANASTACIA
electricity utilized when they could have remedied the
VILLAREAL, respondents.
situation immediately. Public service companies which
do not exercise prudence in the discharge of their duties Labor Law; Labor Unions; Intra-Union Disputes; Words
shall be made to bear the consequences of such and Phrases; An intra-union dispute refers to any conflict
oversight. (Manila Electric Company vs. Macro Textile between and among union members, including
Mills Corporation, 374 SCRA 69 [2002]) grievances arising from any violation of the rights and
conditions of membership, violation of or disagreement
over any provision of the union’s constitution and by-
——o0o—— laws, or disputes arising from chartering or disaffiliation
of the union.—An intra-union dispute refers to any
conflict between and among union members, including
grievances arising from any violation of the rights and
conditions of membership, violation of or disagreement
over any provision of the union’s constitution and by-
laws, or disputes arising from chartering or disaffiliation
of the union. Sections 1 and 2, Rule XI of Department
Order No. 40-03, Series of 2003 of the DOLE enumerate
the following circumstances as inter/intra-union disputes.

Same; Same; Same; Collective Bargaining Agreements;


An employer should not be allowed to rescind
unilaterally its Collective Bargaining Agreements (CBA)
with the duly certified bargaining agent it had previously
contracted with, and decide to bargain anew with a
different group if there is no legitimate reason for doing
so and without first following the proper procedure.—It
must be remembered that a CBA is entered into in order
to foster stability and mutual cooperation between labor
and capital. An employer should not be allowed to
rescind unilaterally its CBA with the duly certified cognizable by the Labor Arbiter, and for the NLRC to
bargaining agent it had previously contracted with, and exercise appellate jurisdiction thereon, the allegations in
decide to bargain anew with a different group if there is the complaint must show prima facie the concurrence of
no legitimate reason for doing so and without first two things, namely: (1) gross violation of the CBA; and
following the proper procedure. If such behavior would (2) the violation pertains to the economic provisions of
be tolerated, bargaining and negotiations between the the CBA. This pronouncement in Silva, however, should
employer and the union will never be truthful and not be construed to apply to violations of the CBA which
meaningful, and no CBA forged after arduous can be considered as gross violations per se, such as
negotiations will ever be honored or be relied upon. utter disregard of the very existence of the CBA itself,
similar to what happened in this case. When an
employer proceeds to negotiate with a splinter union
Same; Same; Same; Same; When a valid and binding despite the existence of its valid CBA with the duly
Collective Bargaining Agreement (CBA) had been certified and exclusive bargaining agent, the former
entered into by the workers and the employer, the latter indubitably abandons its recognition of the latter and
is behooved to observe the terms and conditions thereof terminates the entire CBA.
bearing on union dues and representation, and if the
employer grossly violates its CBA with the duly
recognized union, the former may be held Same; Same; A legitimate labor organization cannot be
administratively and criminally liable for unfair labor construed to have abandoned its pending claim against
practice.—This is the reason why it is axiomatic in labor the management/employer by returning to the
relations that a CBA entered into by a legitimate labor negotiating table to fulfill its duty to represent the interest
organization that has been duly certified as the exclusive of its members, except when the pending claim has
bargaining representative and the employer becomes been expressly waived or compromised in its
the law between them. Additionally, in the Certificate of subsequent negotiations with the management.—A
Registration issued by the DOLE, it is specified that the legitimate labor organization cannot be construed to
registered CBA serves as the covenant between the have abandoned its pending claim against the
parties and has the force and effect of law between them management/employer by returning to the negotiating
during the period of its duration. Compliance with the table to fulfill its duty to represent the interest of its
terms and conditions of the CBA is mandated by express members, except when the pending claim has been
policy of the law primarily to afford protection to labor expressly waived or compromised in its subsequent
and to promote industrial peace. Thus, when a valid and negotiations with the management. To hold otherwise
binding CBA had been entered into by the workers and would be tantamount to subjecting industrial peace to
the employer, the latter is behooved to observe the the precondition that previous claims that labor may
terms and conditions thereof bearing on union dues and have against capital must first be waived or abandoned
representation. If the employer grossly violates its CBA before negotiations between them may resume.
with the duly recognized union, the former may be held Undoubtedly, this would be against public policy of
administratively and criminally liable for unfair labor affording protection to labor and will encourage
practice. scheming employers to commit unlawful acts without
fear of being sanctioned in the future.

Same; Same; Same; Same; Jurisdiction; The


pronouncement in Silva v. National Labor Relations Corporation Law; Damages; As a general rule, a
Commission, 274 SCRA 159 (1997), that for an Unfair corporation cannot suffer nor be entitled to moral
Labor Practice (ULP) case to be cognizable by the Labor damages; Mental suffering can be experienced only by
Arbiter, and for the National Labor Relations one having a nervous system and it flows from real ills,
Commission (NLRC) to exercise appellate jurisdiction sorrows, and griefs of life—all of which cannot be
thereon, the allegations in the complaint must show suffered by an artificial, juridical person.—On the matter
prima facie the concurrence of two things, namely—(1) of damages prayed for by the petitioners, we have held
gross violation of the Collective Bargaining Agreement that as a general rule, a corporation cannot suffer nor be
(CBA); and (2) the violation pertains to the economic entitled to moral damages. A corporation, and by
provisions of the CBA—should not be construed to apply analogy a labor organization, being an artificial person
to violations of the CBA which can be considered as and having existence only in legal contemplation, has no
gross violations per se, such as utter disregard of the feelings, no emotions, no senses; therefore, it cannot
very existence of the CBA itself.—In Silva v. National experience physical suffering and mental anguish.
Labor Relations Commission, 274 SCRA 159 (1997), we Mental suffering can be experienced only by one having
explained the correlations of Article 248 (1) and Article a nervous system and it flows from real ills, sorrows, and
261 of the Labor Code to mean that for a ULP case to be griefs of life—all of which cannot be suffered by an
artificial, juridical person. A fortiori, the prayer for
Meanwhile, the rift between Facundos leadership and
exemplary damages must also be denied. Nevertheless,
we find it in order to award (1) nominal damages in the Remigios group broadened. On August 3, 1998, barely
amount of P250,000.00 on the basis of our ruling in De
six months from the signing of the new CBA, during a
La Salle University v. De La Salle University Employees
Association (DLSUEA-NAFTEU), 584 SCRA 592 (2009), company-sponsored seminar,[6] Remigio solicited
and Article 2221, and (2) attorney’s fees equivalent to signatures from union members in support of a
10% of the monetary award. The remittance to
petitioners of the collected union dues previously turned resolution containing the decision of the signatories to:
over to Remigio and Villareal is likewise in order. (1) disaffiliate from FFW, (2) rename the union as
Reformed Employees Union of Bayer Philippines

This petition for review on certiorari assails the (REUBP), (3) adopt a new constitution and by-laws for

Decision[1] dated December 15, 2003 and the union, (4) abolish all existing officer positions in the

Resolution[2] dated March 23, 2004 of the Court of union and elect a new set of interim officers, and (5)

Appeals (CA) in CA-G.R. SP No. 73813. authorize REUBP to administer the CBA between EUBP
and Bayer.[7] The said resolution was signed by 147 of

Petitioner Employees Union of Bayer the 257 local union members. A subsequent resolution

Philippines[3] (EUBP) is the exclusive bargaining agent of was also issued affirming the first resolution.[8]

all rank-and-file employees of Bayer Philippines (Bayer),


and is an affiliate of the Federation of Free Workers A tug-of-war then ensued between the two rival groups,

(FFW). In 1997, EUBP, headed by its president Juanito with both seeking recognition from Bayer and

S. Facundo (Facundo), negotiated with Bayer for the demanding remittance of the union dues collected from

signing of a collective bargaining agreement (CBA). its rank-and-file members. On September 8, 1998,

During the negotiations, EUBP rejected Bayers 9.9% Remigios splinter group wrote Facundo, FFW and Bayer

wage-increase proposal resulting in a bargaining informing them of the decision of the majority of the

deadlock. Subsequently, EUBP staged a strike, union members to disaffiliate from FFW. [9] This was

prompting the Secretary of the Department of Labor and followed by another letter informing Facundo, FFW and

Employment (DOLE) to assume jurisdiction over the Bayer that an interim set of REUBP executive officers

dispute. and board of directors had been appointed, and


demanding the remittance of all union dues to

In November 1997, pending the resolution of the dispute, REUBP. Remigio also asked Bayer to desist from further

respondent Avelina Remigio (Remigio) and 27 other transacting with EUBP. Facundo, meanwhile, sent

union members, without any authority from their union similar requests to Bayer[10] requesting for the remittance

leaders, accepted Bayers wage-increase proposal. of union dues in favor of EUBP and accusing the

EUBPs grievance committee questioned Remigios company of interfering with purely union matters.
[11]
action and reprimanded Remigio and her Bayer responded by deciding not to deal with either of

allies. On January 7, 1998, the DOLE Secretary issued the two groups, and by placing the union dues collected

an arbitral award ordering EUBP and Bayer to execute a in a trust account until the conflict between the two

CBA retroactive to January 1, 1997 and to be made groups is resolved.[12]

effective until December 31, 2001. The said CBA[4] was


registered on July 8, 1998 with the Industrial Relations On September 15, 1998, EUBP filed a complaint for

Division of the DOLE-National Capital Region (NCR).[5] unfair labor practice (first ULP complaint) against Bayer
for non-remittance of union dues. The case was should have been submitted instead to voluntary
docketed as NLRC-NCR-Case No. 00-09-07564-98.[13] arbitration.[21] EUBP did not appeal the said decision.[22]

EUBP later sent a letter dated November 5, 1998 to On December 14, 1999, petitioners filed a second ULP
Bayer asking for a grievance conference. [14] The meeting complaint against herein respondents docketed as
was conducted by the management on November 11, NLRC-RAB-IV Case No. 12-11813-99-L. Three days
1998, with all REUBP officers including their lawyers later, petitioners amended the complaint charging the
present. Facundo did not attend the meeting, but sent respondents with unfair labor practice committed by
two EUBP officers to inform REUBP and the organizing a company union, gross violation of the CBA
management that a preventive mediation conference and violation of their duty to bargain. [23] Petitioners
between the two groups has been scheduled complained that Bayer refused to remit the collected
on November 12, 1998 before the National Conciliation union dues to EUBP despite several demands sent to
and Mediation Board (NCMB).[15] the management.[24] They also alleged that
notwithstanding the requests sent to Bayer for a
Apparently, the two groups failed to settle their issues as renegotiation of the last two years of the 1997-2001 CBA
Facundo again sent respondent Dieter J. Lonishen two between EUBP and Bayer, the latter opted to negotiate
more letters, dated January 14, 1999[16] and September instead with Remigios group.[25]
2, 1999,[17] asking for a grievance meeting with the
management to discuss the failure of the latter to comply On even date, REUBP and Bayer agreed to sign a new
with the terms of their CBA. Both requests remained CBA. Remigio immediately informed her allies of the
unheeded. managements decision.[26]

On February 9, 1999, while the first ULP case was still In response, petitioners immediately filed an urgent
pending and despite EUBPs repeated request for a motion for the issuance of a restraining
grievance conference, Bayer decided to turn over the order/injunction[27] before the National Labor Relations
collected union dues amounting to P254,857.15 to Commission (NLRC) and the Labor Arbiter against
respondent Anastacia Villareal, Treasurer of REUBP. respondents. Petitioners asserted their authority as the
exclusive bargaining representative of all rank-and-file
Aggrieved by the said development, EUBP lodged a employees of Bayer and asked that a temporary
complaint[18] on March 4, 1999 against Remigios group restraining order be issued against Remigios group and
before the Industrial Relations Division of the DOLE Bayer to prevent the employees from ratifying the new
praying for their expulsion from EUBP for commission of CBA. Later, petitioners filed a second amended
acts that threaten the life of the union. complaint[28] to include in its complaint the issue of gross
violation of the CBA for violation of the contract bar rule
On June 18, 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. following Bayers decision to negotiate and sign a new
dismissed the first ULP complaint for lack of jurisdiction. CBA with Remigios group.
[19]
The Arbiter explained that the root cause for Bayers
failure to remit the collected union dues can be traced to Meanwhile, on January 26, 2000, the Regional Director
the intra-union conflict between EUBP and Remigios of the Industrial Relations Division of DOLE issued a
group[20] and that the charges imputed against Bayer decision dismissing the issue on expulsion filed by
union and intra-union
EUBP against Remigio and her allies for failure to conflicts, and all
exhaust reliefs within the union and ordering the conduct disputes, grievances or
problems arising from or
of a referendum to determine which of the two groups affecting labor-
should be recognized as union officers. [29] EUBP management relations
in all workplaces
seasonably appealed the said decision to the Bureau of whether agricultural or
Labor Relations (BLR).[30] On June 16, 2000, the BLR non-agricultural, except
those arising from the
reversed the Regional Directors ruling and ordered the implementation or
interpretation of
management of Bayer to respect the authority of the
collective bargaining
duly-elected officers of EUBP in the administration of the agreements which shall
be the subject of
prevailing CBA.[31] grievance procedure
and/or voluntary
arbitration.
Unfortunately, the said BLR ruling came late since Bayer
Specifically, with respect to the union
had already signed a new CBA [32] with REUBP
dues, the authority is the case of Cebu
on February 21, 2000. The said CBA was eventually Seamens Association[,] Inc. vs. Ferrer-
Calleja, (212 SCRA 51), where the
ratified by majority of the bargaining unit.[33] Supreme Court held that when the issue
calls for the determination of which
between the two groups within a union
On June 2, 2000, Labor Arbiter Waldo Emerson R. Gan is entitled to the union dues, the same
dismissed EUBPs second ULP complaint for lack of cannot be taken cognizance of by the
NLRC.
jurisdiction.[34] The Labor Arbiter explained the dismissal
xxxx
as follows:
All told, were it not for the fact that there WHEREFORE, premises considered,
were two (2) [groups] of employees, the the instant complaint is hereby
Union led by its President Juanito DISMISSED on the ground of lack of
Facundo and the members who decided jurisdiction.
to disaffiliate led by Ms. Avelina
Remigio, claiming to be the rightful SO ORDERED.[35]
representative of the rank and file
employees, the Company would not
have acted the way it did and the Union On June 28, 2000, the NLRC resolved to
would not have filed the instant case.
dismiss[36] petitioners motion for a restraining order
Clearly then, as the case involves intra- and/or injunction stating that the subject matter involved
union disputes, this Office is bereft of
any jurisdiction pursuant to Article 226 of an intra-union dispute, over which the said Commission
the Labor Code, as amended, which has no jurisdiction.[37]
provides pertinently in part, thus:

Bureau of Labor
Relations The Bureau of Aggrieved by the Labor Arbiters decision to dismiss the
Labor Relations and the second ULP complaint, petitioners appealed the said
Labor Relations
Divisions in the regional decision, but the NLRC denied the appeal.[38] EUBPs
offices of the motion for reconsideration was likewise denied.[39]
Department of Labor
and Employment shall
have original and Thus, petitioners filed a Rule 65 petition to the
exclusive authority to
act, at their own CA. On December 15, 2003, the CA sustained both the
initiative or upon
request of either or both
parties, on all inter-
Labor Arbiter and the NLRCs rulings. The appellate court Undaunted, petitioners filed this Rule 45 petition before
explained, this Court. Initially, the said petition was denied for
having been filed out of time and for failure to comply
A cursory reading of the three pleadings,
to wit: the Complaint (Vol. I, Rollo, p[p]. with the requirements provided in the 1997 Rules of Civil
166-167); the Amended Complaint (Vol.
I, Rollo[,] pp. 168-172) and the Second Procedure, as amended.[41] Upon petitioners motion,
Amended Complaint dated March 8, however, we decided to reinstate their appeal.
2000 (Vol. II, Rollo, pp. 219-225) will
readily show that the instant case was
brought about by the action of the Group The following are the issues raised by petitioners, to wit:
of REM[I]GIO to disaffiliate from FFW
and to organized (sic) REUBP under the I. WHETHER OR NOT THE
tutelage of REM[I]GIO and VILLAREAL. HONORABLE COURT OF
At first glance of the case at bar, it APPEALS, IN ARRIVING AT THE
involves purely an (sic) inter-union and DECISION PROMULGATED ON
intra-union conflicts or disputes between 15 DECEMBER 2003 AND
EUBP-FFW and REUBP which issue RESOLUTION PROMULGATED
should have been resolved by the ON 23 MARCH 2004, DECIDED
Bureau of Labor Relations under Article THE CASE IN ACCORDANCE
226 of the Labor Code. However, since WITH LAW AND
no less than petitioners who admitted JURISPRUDENCE; AND
that respondents committed gross
violations of the CBA, then the BLR is II. WHETHER OR NOT THE
divested of jurisdiction over the case HONORABLE COURT OF
and the issue should have been referred APPEALS, IN ARRIVING AT THE
to the Grievance Machinery and DECISION PROMULGATED ON
Voluntary Arbitrator and not to the Labor 15 DECEMBER 2003 AND
Arbiter as what petitioners did in the RESOLUTION PROMULGATED
case at bar. x x x ON 23 MARCH 2004, GRAVELY
ABUSE[D] ITS DISCRETION IN
xxxx ITS FINDINGS AND
CONCLUSION THAT:
Furthermore, the CBA entered between
BAYER and EUBP-FFW [has] a life THE ACTS OF
span of only five years and after the said ABETTING OR
period, the employees have all the right ASSISTING IN THE
to change their bargaining unit who will CREATION OF
represent them. If there exist[s] two ANOTHER UNION,
opposing unions in the same company, NEGOTIATING OR
the remedy is not to declare that such BARGAINING WITH
act is considered unfair labor practice SUCH UNION, WHICH
but rather they should conduct a IS NOT THE SOLE
certification election provided [that] it AND EXCLUSIVE
should be conducted within 60 days of BARGAINING AGENT,
the so[-]called freedom period before VIOLATING THE DUTY
the expiration of the CBA. TO BARGAIN
COLLECTIVELY,
WHEREFORE, premises considered, REFUSAL TO
this Petition is DENIED and the assailed PROCESS GRIEVABLE
Decision dated September 27, 2001 as ISSUES IN THE
well as the Order dated June 21, 2002, GRIEVANCE
denying the motion for reconsideration, MACHINERY AND/OR
by the National Labor Relations REFUSAL TO DEAL
Commission, First Division, in NLRC WITH THE SOLE AND
Case No. RAB-IV-12-11813-99-L, are EXCLUSIVE
hereby AFFIRMED in toto. Costs BARGAINING AGENT
against petitioners. ARE ACTS
CONSTITUTING OR
SO ORDERED.[40] TANTAMOUNT TO
UNFAIR LABOR
EUBPs grievances and to recognize the said union as
PRACTICE.[42]
the sole and exclusive bargaining agent are tantamount
to unfair labor practice.[45]
Respondents Bayer, Lonishen and Amistoso,
meanwhile, identify the issues as follows:
Respondents Bayer, Lonishen and Amistoso, on the
I. WHETHER OR NOT THE UNIFORM other hand, contend that there can be no unfair labor
FINDINGS OF THE COURT OF
APPEALS, THE NLRC AND THE practice on their part since the requisites for unfair labor
LABOR ARBITER ARE BINDING practice i.e., that the violation of the CBA should be
ON THIS HONORABLE COURT;
gross, and that it should involve violation in the
II. WHETHER OR NOT THE LABOR economic provisions of the CBA were not
ARBITER AND THE NLRC HAVE
JURISDICTION OVER THE satisfied. Moreover, they cite the ruling of the Labor
INSTANT CASE;
Arbiter that the issues raised in the complaint should
III. WHETHER OR NOT THE INSTANT have been ventilated and threshed out before the
CASE INVOLVES AN INTRA-
voluntary arbitrators as provided in Article 261 of
UNION DISPUTE;
the Labor Code, as amended.[46] Respondents Remigio
IV. WHETHER OR NOT
RESPONDENTS COMPANY, and Villareal, meanwhile, point out that the case should
LONISHEN AND AMISTOSO be dismissed as against them since they are not real
COMMITTED AN ACT OF
UNFAIR LABOR PRACTICE; parties in interest in the ULP complaint against Bayer,
AND [47]
and since there are no specific or material acts
V. WHETHER OR NOT THE INSTANT imputed against them in the complaint.[48]
CASE HAS BECOME MOOT
AND ACADEMIC.[43]
The petition is partly meritorious.

Essentially, the issue in this petition is whether the act of


An intra-union dispute refers to any conflict between and
the management of Bayer in dealing and negotiating
among union members, including grievances arising
with Remigios splinter group despite its validly existing
from any violation of the rights and conditions of
CBA with EUBP can be considered unfair labor practice
membership, violation of or disagreement over any
and, if so, whether EUBP is entitled to any relief.
provision of the unions constitution and by-laws, or
disputes arising from chartering or disaffiliation of the
Petitioners argue that the subject matter of their
union.[49] Sections 1 and 2, Rule XI of Department Order
complaint, as well as the subsequent amendments
No. 40-03, Series of 2003 of the DOLE enumerate the
thereto, pertain to the unfair labor practice act of
following circumstances as inter/intra-union disputes, viz:
respondents Bayer, Lonishen and Amistoso in dealing
with Remigios splinter union. They contend that (1) the RULE XI
INTER/INTRA-UNION DISPUTES AND
acts of abetting or assisting in the creation of another OTHER RELATED LABOR RELATIONS
DISPUTES
union is among those considered by the Labor Code, as
amended, specifically under Article 248 (d)[44] thereof, as SECTION 1. Coverage. -
Inter/intra-union disputes shall include:
unfair labor practice; (2) the act of negotiating with such
(a) cancellation of
union constitutes a violation of Bayers duty to bargain registration of a labor
collectively; and (3) Bayers unjustified refusal to process organization filed by its
members or by another union membership and
labor organization; collective bargaining
(b) conduct of election of (1) between and among
union and workers legitimate labor
association organizations;
officers/nullification of
(2) between and among
election of union and
members of a union
workers association
or workers
officers;
association.
(c) audit/accounts
examination of union or SECTION 2. Coverage. Other
workers association related labor relations disputes shall
funds; include any conflict between a labor
union and the employer or any
(d) deregistration of
individual, entity or group that is not a
collective bargaining
labor organization or workers
agreements;
association. This includes: (1)
(e) validity/invalidity of cancellation of registration of unions and
union affiliation or workers associations; and (2) a petition
disaffiliation; for interpleader.
(f) validity/invalidity of
acceptance/non-
acceptance for union It is clear from the foregoing that the issues
membership;
raised by petitioners do not fall under any of the
(g) validity/invalidity of
impeachment/expulsion of aforementioned circumstances constituting an intra-
union and workers union dispute. More importantly, the petitioners do not
association officers and
members; seek a determination of whether it is the Facundo group
(h) validity/invalidity of (EUBP) or the Remigio group (REUBP) which is the true
voluntary recognition;
set of union officers. Instead, the issue raised pertained
(i) opposition to
only to the validity of the acts of management in light of
application for union and
CBA registration; the fact that it still has an existing CBA with EUBP. Thus
(j) violations of or as to Bayer, Lonishen and Amistoso the question was
disagreements over any
provision in a union or whether they were liable for unfair labor practice, which
workers association issue was within the jurisdiction of the NLRC. The
constitution and by-laws;
dismissal of the second ULP complaint was therefore
(k) disagreements over
chartering or registration erroneous.
of labor organizations and
collective bargaining
agreements; However, as to respondents Remigio and
(l) violations of the rights Villareal, we find that petitioners complaint was validly
and conditions of union or
workers association dismissed.
membership;
(m) violations of the rights of Petitioners ULP complaint cannot prosper as
legitimate labor
organizations, except against respondents Remigio and Villareal because the
interpretation of collective issue, as against them, essentially involves an intra-
bargaining agreements;
union dispute based on Section 1 (n) of DOLE
(n) such other disputes or
conflicts involving the Department Order No. 40-03. To rule on the validity or
rights to self-organization,
illegality of their acts, the Labor Arbiter and the NLRC
will necessarily touch on the issues respecting the This is the reason why it is axiomatic in labor relations
propriety of their disaffiliation and the legality of the that a CBA entered into by a legitimate labor
establishment of REUBP issues that are outside the organization that has been duly certified as the exclusive
scope of their jurisdiction. Accordingly, the dismissal of bargaining representative and the employer becomes
the complaint was validly made, but only with respect to the law between them. Additionally, in the Certificate of
these two respondents. Registration[50] issued by the DOLE, it is specified that
the registered CBA serves as the covenant between the
But are Bayer, Lonishen and Amistoso liable for parties and has the force and effect of law between them
unfair labor practice? On this score, we find that the during the period of its duration. Compliance with the
evidence supports an answer in the affirmative. terms and conditions of the CBA is mandated by express
policy of the law primarily to afford protection to
It must be remembered that a CBA is entered labor[51] and to promote industrial peace. Thus, when a
into in order to foster stability and mutual cooperation valid and binding CBA had been entered into by the
between labor and capital. An employer should not be workers and the employer, the latter is behooved to
allowed to rescind unilaterally its CBA with the duly observe the terms and conditions thereof bearing on
certified bargaining agent it had previously contracted union dues and representation.[52] If the employer grossly
with, and decide to bargain anew with a different group if violates its CBA with the duly recognized union, the
there is no legitimate reason for doing so and without former may be held administratively and criminally liable
first following the proper procedure. If such behavior for unfair labor practice.[53]
would be tolerated, bargaining and negotiations between
the employer and the union will never be truthful and Respondents Bayer, Lonishen and Amistoso, contend

meaningful, and no CBA forged after arduous that their acts cannot constitute unfair labor practice as

negotiations will ever be honored or be relied upon. the same did not involve gross violations in the

Article 253 of the Labor Code, as amended, plainly economic provisions of the CBA, citing the provisions of

provides: Articles 248 (1) and 261[54] of the Labor Code, as


amended.[55] Their argument is, however, misplaced.
ART. 253. Duty to bargain collectively
when there exists a collective
bargaining agreement. Where there is a Indeed, in Silva v. National Labor Relations
collective bargaining agreement, the
duty to bargain collectively shall also Commission,[56] we explained the correlations of Article
mean that neither party shall terminate 248 (1) and Article 261 of the Labor Code to mean that
or modify such agreement during its
lifetime. However, either party can serve for a ULP case to be cognizable by the Labor Arbiter,
a written notice to terminate or modify and for the NLRC to exercise appellate jurisdiction
the agreement at least sixty (60) days
prior to its expiration date. It shall be the thereon, the allegations in the complaint must
duty of both parties to keep the status
show prima facie the concurrence of two things, namely:
quo and to continue in full force and
effect the terms and conditions of the (1) gross violation of the CBA; and (2) the violation
existing agreement during the 60-day
period and/or until a new agreement is pertains to the economic provisions of the CBA.[57]
reached by the parties. (Emphasis
supplied.)
This pronouncement in Silva, however, should
not be construed to apply to violations of the CBA which
can be considered as gross violations per se, such as
utter disregard of the very existence of the CBA itself, first be waived or abandoned before negotiations
similar to what happened in this case. When an between them may resume. Undoubtedly, this would be
employer proceeds to negotiate with a splinter union against public policy of affording protection to labor and
despite the existence of its valid CBA with the duly will encourage scheming employers to commit unlawful
certified and exclusive bargaining agent, the former acts without fear of being sanctioned in the future.
indubitably abandons its recognition of the latter and
terminates the entire CBA. Second, that the management of Bayer decided
to recognize EUBP as the certified collective bargaining
Respondents cannot claim good faith to justify their acts. agent of its rank-and-file employees for purposes of its
They knew that Facundos group represented the duly- 2006-2007 CBA negotiations is of no moment. It did not
elected officers of EUBP. Moreover, they were cognizant obliterate the fact that the management of Bayer had
of the fact that even the DOLE Secretary himself had withdrawn its recognition of EUBP and supported
recognized the legitimacy of EUBPs mandate by REUBP during the tumultuous implementation of the
rendering an arbitral award ordering the signing of the 1997-2001 CBA. Such act of interference which is
1997-2001 CBA between Bayer and EUBP. violative of the existing CBA with EUBP led to the filing
Respondents were likewise well-aware of the pendency of the subject complaint.
of the intra-union dispute case, yet they still proceeded
to turn over the collected union dues to REUBP and to On the matter of damages prayed for by the

effusively deal with Remigio. The totality of respondents petitioners, we have held that as a general rule, a

conduct, therefore, reeks with anti-EUBP animus. corporation cannot suffer nor be entitled to moral
damages. A corporation, and by analogy a labor
Bayer, Lonishen and Amistoso argue that the organization, being an artificial person and having
case is already moot and academic following the lapse existence only in legal contemplation, has no feelings,
of the 1997-2001 CBA and their renegotiation with EUBP no emotions, no senses; therefore, it cannot experience
for the 2006-2007 CBA. They also reason that the act of physical suffering and mental anguish. Mental suffering
the company in negotiating with EUBP for the 2006-2007 can be experienced only by one having a nervous
CBA is an obvious recognition on their part that EUBP is system and it flows from real ills, sorrows, and griefs of
now the certified collective bargaining agent of its rank- life all of which cannot be suffered by an artificial,
and-file employees.[58] juridical person.[59] A fortiori, the prayer for exemplary
damages must also be denied.[60] Nevertheless, we find it
We do not agree. First, a legitimate labor in order to award (1) nominal damages in the amount
organization cannot be construed to have abandoned its of P250,000.00 on the basis of our ruling in De La Salle
pending claim against the management/employer by University v. De La Salle University Employees
returning to the negotiating table to fulfill its duty to Association (DLSUEA-NAFTEU)[61] and Article 2221,
represent the interest of its members, except when the [62]
and (2) attorneys fees equivalent to 10% of the
pending claim has been expressly waived or monetary award. The remittance to petitioners of the
compromised in its subsequent negotiations with the collected union dues previously turned over to Remigio
management. To hold otherwise would be tantamount to and Villareal is likewise in order.
subjecting industrial peace to the precondition that
previous claims that labor may have against capital must
CARGILL PHILIPPINES, INC., petitioner, vs. SAN
WHEREFORE, the petition for review on
FERNANDO REGALA TRADING, INC., respondent.
certiorari is PARTLY GRANTED. The Decision
dated December 15, 2003 and the Resolution
Civil Law; Sales; The thing sold can only be understood
dated March 23, 2004 of the Court of Appeals in CA-
as delivered to the buyer when it is placed in the buyer’s
G.R. SP No. 73813 are MODIFIED as follows: control and possession at the agreed place of
delivery.―A stipulation designating the place and
manner of delivery is controlling on the contracting
1) Respondents Bayer Phils., Dieter J. parties. The thing sold can only be understood as
Lonishen and Asuncion Amistoso are delivered to the buyer when it is placed in the buyer’s
control and possession at the agreed place of delivery.
found LIABLE for Unfair Labor Practice, Cargill presented no evidence that it attempted to make
and are hereby ORDERED to remit to other deliveries to complete the balance of Contract
5026.
petitioners the amount of P254,857.15
representing the collected union dues
previously turned over to Avelina Remigio Same; Damages; Moral Damages; Corporations; As a
rule, moral damages are not awarded to a corporation
and Anastacia Villareal. They are
unless it enjoyed good reputation that the offender
likewise ORDERED to pay petitioners debased and besmirched by his actuations.―As a rule,
moral damages are not awarded to a corporation unless
nominal damages in the amount
it enjoyed good reputation that the offender debased and
of P250,000.00 and attorneys fees besmirched by his actuations. San Fernando failed to
equivalent to 10% of the monetary award; prove by sufficient evidence that it fell within this
exception. Besides, moral damages are, as a rule, also
and not recoverable in culpa contractual except when bad
faith had been proved. San Fernando failed to show that
Cargill was motivated by bad faith or ill will when it failed
2) The complaint, as against respondents
to deliver the molasses as agreed.
Remigio and Villareal. is DISMISSED due
to the lack of jurisdiction of the Labor
Same; Same; Exemplary Damages; In breach of
Arbiter and the NLRC, the complaint being
contract, the court may only award exemplary damages
in the nature of an intra-union dispute. if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.―The Court rules that
the CA correctly deleted the award of exemplary
No pronouncement as to costs. damages to San Fernando. In breach of contract, the
court may only award exemplary damages if the
SO ORDERED. defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner. The evidence has not
Notes.—Unlike the NLRC which is explicitly vested with sufficiently established that Cargill’s failure to deliver the
jurisdiction over claims for actual, moral, exemplary and molasses on time was attended by such wickedness.
other forms of damages, the Bureau of Labor Relations
is not specifically empowered to adjudicate claims of These cases pertain to the reciprocal obligations of the
such nature. parties in a contract of sale to deliver the goods, receive
them, and pay the price as stipulated and the
consequent effects of breach of such obligations.
SAN FERNANDO REGALA TRADING, INC., petitioner,
The facts and the Case
vs. CARGILL PHILIPPINES, INC., respondent.
Cargill Philippines, Inc. (Cargill) and San Fernando
Regala Trading, Inc. (San Fernando) were cane
G.R. No. 178042. October 9, 2013.* molasses traders that did business with each other for
sometime. The present controversy arose when San
Fernando claimed that Cargill reneged on its contractual
obligations to deliver certain quantities of molasses.
Cargill denied this, insisting that San Fernando actually Cargill also presented Arthur Gunlao, an employee, who
refused to accept the delivery of the goods. This enmity testified that his company was unable to unload the
resulted in Cargill’s filing on March 2, 1998 a complaint molasses covered by Contracts 5026and 5047 because
for sum of money and damages against San Fernando San Fernando’s President, Quirino Kehyeng, advised
before the Regional Trial Court (RTC) of Makati City in them to wait because Ajinomoto’s storage tanks were
Civil Case 98-493. still full and could not receive the molasses. Because of
the prolonged delay in the unloading of the goods,
Cargill alleged that on July 15, 1996 it entered into Cargill had no choice but to sell the molasses to another
Contract 50261 covering its sale to San Fernando of buyer. At the prodding of Kehyeng, Cargill wrote San
4,000 metric tons (mt) of molasses at the price of Fernando on May 14, 1997 proposing changes in the
₱3,950.00 per mt. Cargill agreed to deliver the molasses delivery periods of Contract 5026 and 5047,respectively
within the months of "April to May 1997" at the wharf of from "April to May 1997" to "May to June 1997" and
Union Ajinomoto, Inc.(Ajinomoto) along the Pasig River, from" October-November-December 1996" to "May-
Metro Manila. This was a risk-taking forward sale in that June-July 1997."3 The amendments were needed to
its execution was to take place about 10 months later keep the contracts valid and maintain the good business
when the parties did not yet know what the trading price relations between the two companies.
of molasses would be.
In its Answer with counterclaim, San Fernando pointed
Shortly after, Cargill also entered into Contract out that, except for the 951 mt of molasses that Cargill
50472 covering another sale to San Fernando of 5,000 delivered in March 1997, the latter made no further
mt of molasses at ₱2,750.00 per mt. The delivery period deliveries for Contract 5026. Indeed, Cargill sent San
under this contract was within "October-November- Fernando a letter dated May 14, 1997 proposing a
December 1996," sooner than the delivery period under change in the delivery period for that contract from "April
Contract 5026. Apparently, San Fernando had a deal to May 1997" to "May to June 1997."But San Fernando
with Ajinomoto for the supply of these molasses. rejected the change since it had a contract to sell the
molasses to Ajinomoto for ₱5,300.00 per mt.4 San
Fernando expected to earn a ₱5,400,000.00 profit out of
Cargill further alleged that it offered to deliver the 4,000
Contract 5026.
mt of molasses as required by Contract 5026 within the
months of April and May1997 but San Fernando
accepted only 951 mt, refusing to accept the rest. On As for Contract 5047, San Fernando maintained that
April 2, 1997 Dolman V, the barge carrying Cargill’s Cargill delivered no amount of molasses in connection
1,174 mt of molasses, arrived at the Ajinomoto wharf but with the same. Cargill admitted its inability to deliver the
San Fernando refused to accept the same. The barge goods when it wrote San Fernando a letter on May
stayed at the wharf for 71 days, waiting for San 14,1997, proposing to move the delivery period from
Fernando’s unloading order. Because of the delay, the "October-November-December 1996" to "May-June-July
owner of the barges lapped Cargill with demurrage 1997." But San Fernando also rejected the change since
amounting to ₱920,000.00. Cargill also suffered it had already contracted to sell the subject molasses to
₱3,480,000.00 in damages by way of unrealized profits Ajinomoto for ₱4,950.00 per mt.5 San Fernando
because it had to sell the cargo to another buyer at a expected a profit of ₱11,000,000.00 under this contract.
loss.
To prove its claims, San Fernando presented its
Cargill further alleged that it earlier sought to deliver the President, Kehyeng, who testified that apart from the
molasses covered by Contract 5047 at the Ajinomoto March 1997 delivery of 951 mt of molasses under
wharf in the months of October, November, and Contract 5026, Cargill made no further deliveries. He
December 1996, but San Fernando failed or refused for called Dennis Seah of Cargill several times demanding
unjustified reasons to accept the delivery. Consequently, delivery but nothing came of it. Subsequently, Cargill
Cargill suffered damages by way of unrealized profits of wrote San Fernando, proposing the extension of the
₱360,000.00 from this contract. Apart from asking the delivery periods provided in their two contracts. But
RTC for awards of unrealized profits, Cargill also asked Kehyeng rejected the proposal and refused to sign his
for a return of the demurrage it paid, attorney’s fees, and conformity at the appropriate spaces on Cargill’s letter.
cost of litigation.
Kehyeng denied that San Fernando had refused to
To substantiate its claim, Cargill presented David Mozo receive deliveries because it bought molasses from
of Dolman Transport Corp. who testified that Cargill Cargill at prices higher than what Ajinomoto was willing
chartered its Dolman V barge to carry molasses from to pay. Kehyeng insisted that San Fernando had always
Pasacao to the Ajinomoto wharf in Pasig. But the barge received Cargill’s deliveries even on occasions when the
was unable to unload its cargo and was placed on stand- prices fluctuated resulting in losses to his company. He
by for around 70days, awaiting orders to unload its claimed that, as a result of Cargill’s violation of Contracts
molasses. Consequently, Dolman Transport charged 5026 and 5047, San Fernando was entitled to rescission
Cargill for demurrage. and awards for unrealized profits of ₱4,115,329.20 and
₱11,000,000.00, respectively, moral and exemplary
damages each in the amount of ₱500,000.00, attorney’s date of the filing of the complaint until the finality of the
fees of ₱1,000,000.00, and litigation expenses. decision; and 2) Cargill to pay San Fernando
₱11,000,000.00 in unrealized profits under Contract
On December 23, 2003 the RTC dismissed Cargill’s 5047. The CA deleted the award of moral and exemplary
complaint for lack of merit and granted San Fernando’s damages, attorney’s fees, and cost of litigation. This
counterclaims. The RTC did not give credence to prompted both Cargill and San Fernando to appeal to
Cargill’s claim that San Fernando refused to accept the this Court.
deliveries of molasses because Ajinomoto’s tanks were
full. San Fernando sufficiently proved that Ajinomoto Issues for Resolution
continued receiving molasses from other suppliers
during the entire time that Cargill’s chartered barge was These cases present the following issues:
put on stand-by at the wharf, supposedly waiting for San
Fernando’s unloading orders. 1. Whether or not the CA erred in ruling that
Cargill was not guilty of breach of obligation to
It was incomprehensible, said the RTC, for San deliver the 4,000 mt of molasses covered by
Fernando to refuse Cargill’s deliveries, considering that Contract 5026 during the period April and May
Ajinomoto had already agreed to buy the molasses from 1997;
it. Cargill’s failure to make the required deliveries
resulted in San Fernando’s default on its obligations to 2. Whether or not the CA erred in ruling that
Ajinomoto, prompting the latter to cancel its orders. As a Cargill was guilty of breach of obligation to
result, San Fernando lost expected profits of deliver the 5,000 mt of molasses covered by
₱4,115,329.20 representing the remaining undelivered Contract5047 during the period October,
molasses under Contract 5026 and ₱11,000,000.00 November, and December 1996; and
under Contract 5047.The RTC awarded San Fernando
its claims for unrealized profits,₱500,000.00 in moral
damages, another ₱500,000.00 in exemplary damages, 3. Whether or not the CA erred in deleting the
attorney’s fees of ₱1,000,000.00, and ₱500,000.00 as award of moral and exemplary damages,
cost of litigation. attorney’s fees, and cost of suit in favor of San
Fernando.
The Court of Appeals (CA) ruled on appeal, however,
that Cargill was not entirely in breach of Contract 5026. The Rulings of the Court
Cargill made an advance delivery of 951 mt in March
1997. It then actually sent a barge containing 1,174 mt of One. The CA held that Cargill committed no breach of
molasses on April 2, 1997 for delivery at Ajinomoto’s Contract 5026 because it had earlier delivered 951 mt of
wharf but San Fernando refused to have the cargo molasses in March 19976 and sent a barge containing
unloaded. Consequently, the trial court erred in awarding 1,174 mt of the goods on April 2, 1997 at the Ajinomoto’s
San Fernando unrealized profits of ₱4,115,329.20 under wharf. It was actually San Fernando that refused to
Contract 5026. The CA also ruled that since San accept this delivery on April 2.
Fernando unjustifiably refused to accept the April 2,
1997 delivery, it should reimburse Cargill But Contract 5026 required Cargill to deliver 4,000 mt of
the₱892,732.50 demurrage that it paid the owner of the molasses during the period "April to May 1997." Thus,
barge. anything less than that quantity constitutes breach of the
agreement. And since Cargill only delivered a total of
The CA, however, found Cargill guilty of breach of 2,125 mt of molasses during the agreed period, Cargill
Contract 5047which called for delivery of the molasses should be regarded as having violated Contract 5026
in "October-November-December 1996." Since San with respect to the undelivered balance of 1,875 mt of
Fernando did not accede to Cargill’s request to move the molasses.
delivery period back, Cargill violated the contract when it
did not deliver the goods during the previously agreed Notably, Chargill’s chartered barge showed up with
period. Cargill was liable to San Fernando for unrealized 1,174 mt of molasses at the Ajinomoto wharf on April 27,
profits of ₱11,000,000.00 that it would have made if it 1997. The barge stayed therefor around 70 days,
had sold them to Ajinomoto. The CA deleted the award awaiting orders to unload the cargo. David Mozo of
of moral and exemplary damages in favor of San Dolman Transport Corp. attested to this. Dolman V was
Fernando for its failure to sufficiently establish Cargill’s put on stand-by at the wharf while other barges queued
bad faith in complying with its obligations. The CA also to unload their molasses into Ajinomoto’s storage tanks. 7
deleted the awards of attorney’s fees and cost of
litigation. In failing to accept delivery of Cargill’s 1,174molasses,
San Fernando should reimburse Cargill the ₱892,732.50
The CA thus ordered: 1) San Fernando to reimburse demurrage that it paid.
Cargill the demurrage of ₱892,732.50 that it paid,
subject to 6% interest per annum computed from the
Ultimately, what are the liabilities of the parties under makes it liable to San Fernando for ₱11,000,000.00 in
Contract 5026?Had San Fernando accepted the delivery unrealized profits. Thus:
of 1,174 mt of molasses on April27, 1997 Cargill would
have been entitled to payment of their price of ₱4,950 per mt selling price to Ajinomoto –
₱4,637,300.00 at ₱3,950.00 per mt. But, since Cargill ₱2,750acquisition cost = ₱2,200 profit per mt
succeeded in selling that 1,174 mt of molasses to
Schuurmans & Van Ginneken for ₱1,861.92 per ₱2,200 per mt x 5,000 mt = ₱11,000,000.00
mt.8 Cargill’s unrealized profit then amounted to only
₱2,451,405.59. Thus:
In failing to make any delivery under Contract 5047,
Cargill should pay San Fernando the profit that it lost
₱3,950 per mt – ₱1,861.92 per mt = ₱2,088.09 x because of such breach. Cargill of course points out that
1,174 San Fernando never wrote a demand letter respecting
its failure to make any delivery under that contract. But
mt = ₱2,451,405.59 demand was not necessary since Cargill’s obligation
under the contract specified the date and place of
Since Cargill failed, however, to deliver the balance of delivery, i.e., "October-November-December 1996," at
1,875 mt of molasses under Contract 5026, it must pay the Ajinomoto wharf in Pasig.12
San Fernando the ₱2,531,250.00, representing the
latter’s unrealized profits had it been able to sell that Three. The Court concurs with the CA’s deletion of the
1,875mt of molasses to Ajinomoto. Thus: RTC’s award of moral damages to San
Fernando.1âwphi1 As a rule, moral damages are not
₱5,300 per mt selling price at Ajinomoto – awarded to a corporation unless it enjoyed good
₱3,950acquisition cost = ₱1,350 profit per mt ₱1,350.00 reputation that the offender debased and besmirched by
profit margin per mt x 1,875 mt = ₱2,531,250.00 his actuations.13 San Fernando failed to prove by
sufficient evidence that it fell within this exception.
Cargill, of course, claimed that it had sufficient Besides, moral damages are, as a rule, also not
inventories of molasses to complete its deliveries, recoverable in culpa contractual except when bad faith
implying that had San Fernando accepted its initial had been proved.14
delivery of 1,174 mt it would have continued delivering
the rest. But it is not enough for a seller to show that he San Fernando failed to show that Cargill was motivated
is capable of delivering the goods on the date he agreed by bad faith or ill will when it failed to deliver the
to make the delivery. He has to bring his goods and molasses as agreed.
deliver them at the place their agreement called for, i.e.,
at the Ajinomoto Pasig River wharf. The Court rules that the CA correctly deleted the award
of exemplary damages to San Fernando. In breach of
A stipulation designating the place and manner of contract, the court may only award exemplary damages
delivery is controlling on the contracting parties. 9 The if the defendant acted in a wanton, fraudulent, reckless,
thing sold can only be understood as delivered to the oppressive, or malevolent manner. 15 The evidence has
buyer when it is placed in the buyer’s control and not sufficiently established that Cargill’s failure to deliver
possession at the agreed place of delivery. 10 Cargill the molasses on time was attended by such wickedness.
presented no evidence that it attempted to make other
deliveries to complete the balance of Contract 5026. Lastly, the CA correctly deleted the award of attorney’s
fees and cost of litigation to San Fernando. Attorney’s
Two. The CA correctly ruled that Cargill was in breach of fees and expenses of litigation under Article 2208 of the
Contract 5047 which provided for delivery of the Civil Code are proper only when exemplary damages
molasses within the months of October, November, and are awarded. Here, the Court has ruled that San
December 1996. Thus, when Cargill wrote San Fernando is not entitled to an award of exemplary
Fernando on May 14, 1997 proposing to move the damages. Both parties actually committed shortcomings
delivery dates of this contract to May, June, and July, in complying with their contractual obligations. San
1997, it was already in default. San Fernando’s refusal Fernando failed in Contract 5026 to accept Cargill’s
to signify its conformity at the proper space on Cargill’s delivery of 1,174 mt of molasses; Cargill only complied
letter-proposal regarding Contract 5047 signifies that it partially with its undertakings under Contract 5026and
was not amenable to the change. altogether breached its obligations under Contract 5047.
For these, they must bear their own expenses of
San Fernando had good reason for this: it had already litigation.
agreed to supply Ajinomoto the molasses covered by
Contract 5047 at the rate of ₱4,950.00 per WHEREFORE, the Court PARTIALLY GRANTS the
mt.11 Consequently, Cargill’s failure to deliver the 5,000 petitions and MODIFIES the Court of Appeals Decision
mt of molasses on "October-November-December 1996" on January 19, 2007 in CA-G.R.CV 81993 as follows:
1. San Fernando Regala Trading, Inc. is On September 19, 1960, the five stockholders of the F.
ORDERED to pay Cargill Philippines, Inc. (a) Guanzon and Sons, Inc. executed a certificate of
₱892,732.50 representing the demurrage that liquidation of the assets of the corporation reciting,
the latter incurred and (b) ₱2,451,405.59 among other things, that by virtue of a resolution of the
representing its unrealized profit on the rejected stockholders adopted on September 17, 1960, dissolving
delivery of 1,174 mt of molasses, both under the corporation, they have distributed among themselves
Contract 5026, for a total of ₱3,344,138.09, with in proportion to their shareholdings, as liquidating
interest at 6% per annum computed from the dividends, the assets of said corporation, including real
date of the filing of the complaint until the same properties located in Manila.
is fully paid; and
The certificate of liquidation, when presented to the
2. Cargill Philippines, Inc. is ORDERED to pay Register of Deeds of Manila, was denied registration on
San Fernando Regala Trading, Inc. the latter’s seven grounds, of which the following were disputed by
unrealized profits of ₱2,531,250.00 for the the stockholders:
breach of Contract 5026 and ₱11,000,000.00 for
the breach of Contract 5047, for a total of P 3. The number of parcels not certified to in the
13,531,250.00, with interest at 6% per annum acknowledgment;
computed from the date of the tiling of the
answer with counterclaim until the same is fully 5. P430.50 Reg. fees need be paid;
paid.
6. P940.45 documentary stamps need be
The Court of Appeals' deletion of the awards of moral attached to the document;
and exemplary damages, attorney's fees, and costs of
litigation stands.
7. The judgment of the Court approving the
dissolution and directing the disposition of the
SO ORDERED. assets of the corporation need be presented
(Rules of Court, Rule 104, Sec. 3).
Notes.―Ownership of the thing sold shall be transferred
to the vendee upon the actual or constructive delivery Deciding the consulta elevated by the stockholders, the
thereof; The thing sold shall be understood as delivered, Commissioner of Land Registration overruled ground
when it is placed in the control and possession of the No. 7 and sustained requirements Nos. 3, 5 and 6.
vendee. (Santiago vs. Villamor, 686 SCRA 313 [2012])
The stockholders interposed the present appeal.

A person who does not have actual possession of the As correctly stated by the Commissioner of Land
thing sold cannot transfer constructive possession by the Registration, the propriety or impropriety of the three
execution and delivery of a public instrument. (Id.) grounds on which the denial of the registration of the
certificate of liquidation was predicated hinges on
whether or not that certificate merely involves a
distribution of the corporation's assets or should be
――o0o―― considered a transfer or conveyance.

Appellants contend that the certificate of liquidation is


STOCKHOLDERS OF F. GUANZON AND SONS,INC., not a conveyance or transfer but merely a distribution of
petitioners-appellants, vs. REGISTER OF DEEDS OF the assets of the corporation which has ceased to exist
MANILA, respondent-appellee. for having been dissolved. This is apparent in the
minutes for dissolution attached to the document. Not
Corporations; Liquidation and distribution of assets for being a conveyance the certificate need not contain a
transfer to stockholders; Certificate of liquidation in the statement of the number of parcel of land involved in the
nature of transfer or conveyance.—Where the purpose distribution in the acknowledgment appearing therein.
of the liquidation, as well as the distribution of the assets Hence the amount of documentary stamps to be affixed
of the corporation, is to transfer their title from the thereon should only be P0.30 and not P940.45, as
corporation to the stockholders in proportion to their required by the register of deeds. Neither is it correct to
shareholdings, that transfer cannot be effected without require appellants to pay the amount of P430.50 as
registration fee.
the corresponding deed of conveyance from the
corporation to the stockholders, and the certificate
The Commissioner of Land Registration, however,
should be considered as one in the nature of a transfer
entertained a different opinion. He concurred in the view
or conveyance.
expressed by the register of deed to the effect that the
certificate of liquidation in question, though it involves a
distribution of the corporation's assets, in the last which is owned by the corporation as a distinct legal
analysis represents a transfer of said assets from the person.
corporation to the stockholders. Hence, in substance it is
a transfer or conveyance.
Same; Same; The corporate debt or credit is not the
We agree with the opinion of these two officials. A
debt or credit of the stockholder nor is the stockholder’s
corporation is a juridical person distinct from the
debt or credit that of the corporation.—As a
members composing it. Properties registered in the
name of the corporation are owned by it as an entity consequence of the separate juridical personality of a
separate and distinct from its members. While shares of corporation, the corporate debt or credit is not the debt
stock constitute personal property they do not represent or credit of the stockholder, nor is the stockholder’s debt
property of the corporation. The corporation has property or credit that of the corporation.
of its own which consists chiefly of real estate (Nelson v.
Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145
Iowa 1, 123 N.W. 743). A share of stock only typifies an Civil Law; Obligation; There is a disputable presumption
aliquot part of the corporation's property, or the right to
that money paid by one to the other was due to the
share in its proceeds to that extent when distributed
according to law and equity (Hall & Faley v. Alabama latter.—Contrary to the Regional Trial Court’s premise
Terminal, 173 Ala 398, 56 So., 235), but its holder is not that it was incumbent upon respondent corporation to
the owner of any part of the capital of the corporation prove that the amount was delivered to the Roces
(Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to brothers in the payment of the loan in the latter’s favor,
the possession of any definite portion of its property or the delivery of the amount to and the receipt thereof by
assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, the Roces brothers in their names raises the
35 Ohio St., 474). The stockholder is not a co-owner or presumption that the said amount was due to them.
tenant in common of the corporate property (Halton v. There is a disputable presumption that money paid by
Hohnston, 166 Ala 317, 51 So 992). one to the other was due to the latter (Sec. 5(f), Rule
131, Rules of Court). It is for GEE and Lim Ka Ping to
On the basis of the foregoing authorities, it is clear that prove otherwise. In other words, it is for the latter to
the act of liquidation made by the stockholders of the F. prove that the payments made were for the satisfaction
Guanzon and Sons, Inc. of the latter's assets is not and of their judgment debt and not vice versa.
cannot be considered a partition of community property,
but rather a transfer or conveyance of the title of its
assets to the individual stockholders. Indeed, since the
purpose of the liquidation, as well as the distribution of Same; Same; Same; When the existence of a debt is
the assets of the corporation, is to transfer their title from fully established by the evidence the burden of proving
the corporation to the stockholders in proportion to their that it has been extinguished by payment devolves upon
shareholdings, — and this is in effect the purpose which the debtor who offers such a defense to the claim of the
they seek to obtain from the Register of Deeds of plaintiff creditor.—It has been an established rule that
Manila, — that transfer cannot be effected without the when the existence of a debt is fully established by the
corresponding deed of conveyance from the corporation evidence (which has been done in this case), the burden
to the stockholders. It is, therefore, fair and logical to of proving that it has been extinguished by payment
consider the certificate of liquidation as one in the nature
devolves upon the debtor who offers such a defense to
of a transfer or conveyance.
the claim of the plaintiff creditor (herein respondent
corporation) (Chua Chienco v. Vargas, 11 Phil. 219;
WHEREFORE, we affirm the resolution appealed from,
Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30
with costs against appellants.
Phil. 365). For indeed, it is well-entrenched in Our
jurisprudence that each party in a case must prove his
GOOD EARTH EMPORIUM INC., and LIM KA PING,
own affirmative allegations by the degree of evidence
petitioners, vs. HONORABLE COURT OF APPEALS and
required by law.
ROCESREYES REALTY INC., respondents.

Corporation Law; A corporation has a personality distinct As gathered from the records, the antecedent facts of
and separate from its individual stockholders or this case, are as follows:
members.—A corporation has a personality distinct and
separate from its individual stockholders or members. A Lease Contract, dated October 16, 1981, was entered
Being an officer or stockholder of a corporation does not into by and between ROCES-REYES REALTY, INC., as
make one’s property also of the corporation, and vice- lessor, and GOOD EARTH EMPORIUM, INC., as
versa, for they are separate entities (Traders Royal Bank lessee, for a term of three years beginning November 1,
v. CA, G.R. No. 78412, September 26, 1989; Cruz v. 1981 and ending October 31, 1984 at a monthly rental of
P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The
Dalisay, 152 SCRA 482). Shareowners are in no legal
building which was the subject of the contract of lease is
sense the owners of corporate property (or credits)
a five-storey building located at the corner of Rizal 7, and 20, 1985, respectively. On March 21, 1985, the
Avenue and Bustos Street in Sta. Cruz, Manila. lower court issued a restraining order to the sheriff to
hold the execution of the judgment pending hearing on
From March 1983, up to the time the complaint was filed, the motion to quash the writ of execution (Rollo, p. 22;
the lessee had defaulted in the payment of rentals, as a RTC Decision). While said motion was pending
consequence of which, private respondent ROCES- resolution, GEE filed a Petition for Relief from judgment
REYES REALTY, INC., (hereinafter designated as before another court, Regional Trial Court of Manila,
ROCES for brevity) filed on October 14, 1984, an Branch IX, which petition was docketed as Civil Case
ejectment case (Unlawful Detainer) against herein No. 80-30019, but the petition was dismissed and the
petitioners, GOOD EARTH EMPORIUM, INC. and LIM injunctive writ issued in connection therewith set aside.
KA PING, hereinafter designated as GEE, (Rollo, p. 21; Both parties appealed to the Court of Appeals; GEE on
Annex "B" of the Petition). After the latter had tendered the order of dismissal and Roces on denial of his motion
their responsive pleading, the lower court (MTC, Manila) for indemnity, both docketed as CA-G.R. No. 15873-CV.
on motion of Roces rendered judgment on the pleadings Going back to the original case, the Metropolitan Trial
dated April 17, 1984, the dispositive portion of which Court after hearing and disposing some other incidents,
states: promulgated the questioned Resolution, dated April 8,
1985, the dispositive portion of which reads as follows:
Judgment is hereby rendered ordering
defendants (herein petitioners) and all persons Premises considered, the motion to quash the
claiming title under him to vacate the premises writ is hereby denied for lack of merit.
and surrender the same to the plaintiffs (herein
respondents); ordering the defendants to pay The restraining orders issued on March 11 and
the plaintiffs the rental of P65,000.00 a month 23, 1985 are hereby recalled, lifted and set
beginning March 1983 up to the time defendants aside. (Rollo, p. 20, MTC Decision)
actually vacate the premises and deliver
possession to the plaintiff; to pay attorney's fees GEE appealed and by coincidence. was raffled to the
in the amount of P5,000.00 and to pay the costs same Court, RTC Branch IX. Roces moved to dismiss
of this suit. (Rollo, p. 111; Memorandum of the appeal but the Court denied the motion.
Respondents) On certiorari, the Court of Appeals dismissed Roces'
petition and remanded the case to the RTC. Meantime,
On May 16, 1984, Roces filed a motion for execution Branch IX became vacant and the case was re-raffled to
which was opposed by GEE on May 28, 1984 Branch XLIV.
simultaneous with the latter's filing of a Notice of Appeal
(Rollo, p. 112, Ibid.). On June 13, 1984, the trial court On April 6, 1987, the Regional Trial Court of Manila,
resolved such motion ruling: finding that the amount of P1 million evidenced by
Exhibit "I" and another P1 million evidenced by the pacto
After considering the motion for the issuance of de retro sale instrument (Exhibit "2") were in full
a writ of execution filed by counsel for the satisfaction of the judgment obligation, reversed the
plaintiff (herein respondents) and the opposition decision of the Municipal Trial Court, the dispositive
filed in relation thereto and finding that the portion of which reads:
defendant failed to file the necessary
supersedeas bond, this court resolved to grant Premises considered, judgment is hereby
the same for being meritorious. (Rollo, p. 112) rendered reversing the Resolution appealed
from quashing the writ of execution and ordering
On June 14, 1984, a writ of execution was issued by the the cancellation of the notice of levy and
lower court. Meanwhile, the appeal was assigned to the declaring the judgment debt as having been fully
Regional Trial Court (Manila) Branch XLVI. However, on paid and/or Liquidated. (Rollo, p. 29).
August 15, 1984, GEE thru counsel filed with the
Regional Trial Court of Manila, a motion to withdraw On further appeal, the Court of Appeals reversed the
appeal citing as reason that they are satisfied with the decision of the Regional Trial Court and reinstated the
decision of the Metropolitan Trial Court of Manila, Branch Resolution of the Metropolitan Trial Court of Manila, the
XXVIII, which said court granted in its Order of August dispositive portion of which is as follows:
27, 1984 and the records were remanded to the trial
court (Rollo, p. 32; CA Decision). Upon an ex- WHEREFORE, the judgment appealed from is
parte Motion of ROCES, the trial court issued hereby REVERSED and the Resolution dated
an Alias Writ of Execution dated February 25, 1985 April 8, 1985, of the Metropolitan Trial Court of
(Rollo, p. 104; Annex "D" of Petitioner's Memorandum), Manila Branch XXXIII is hereby REINSTATED.
which was implemented on February 27, 1985. GEE thru No pronouncement as to costs. (Rollo, p. 40).
counsel filed a motion to quash the writ of execution and
notice of levy and an urgent Ex-parte Supplemental
Motion for the issuance of a restraining order, on March
GEE's Motion for Reconsideration of April 5, 1988 was Payment shall be made to the person in whose
denied (Rollo, p. 43). Hence, this petition. favor the obligation has been constituted, or his
successor in interest, or any person authorized
The main issue in this case is whether or not there was to receive it.
full satisfaction of the judgment debt in favor of
respondent corporation which would justify the quashing In the case at bar, the supposed payments were not
of the Writ of Execution. made to Roces-Reyes Realty, Inc. or to its successor in
interest nor is there positive evidence that the payment
A careful study of the common exhibits (Exhibits 1/A and was made to a person authorized to receive it. No such
2/B) shows that nowhere in any of said exhibits was proof was submitted but merely inferred by the Regional
there any writing alluding to or referring to any Trial Court (Rollo, p. 25) from Marcos Roces having
settlement between the parties of petitioners' judgment signed the Lease Contract as President which was
obligation (Rollo, pp. 45-48). witnessed by Jesus Marcos Roces. The latter, however,
was no longer President or even an officer of Roces-
Reyes Realty, Inc. at the time he received the money
Moreover, there is no indication in the receipt, Exhibit
(Exhibit "1") and signed the sale with pacto de
"1", that it was in payment, full or partial, of the judgment
retro (Exhibit "2"). He, in fact, denied being in
obligation. Likewise, there is no indication in the pacto
possession of authority to receive payment for the
de retro sale which was drawn in favor of Jesus Marcos
respondent corporation nor does the receipt show that
Roces and Marcos V. Roces and not the respondent
he signed in the same capacity as he did in the Lease
corporation, that the obligation embodied therein had
Contract at a time when he was President for
something to do with petitioners' judgment obligation
respondent corporation (Rollo, p. 20, MTC decision).
with respondent corporation.

On the other hand, Jesus Marcos Roces testified that


Finding that the common exhibit, Exhibit 1/A had been
the amount of P1 million evidenced by the receipt
signed by persons other than judgment creditors (Roces-
(Exhibit "1") is the payment for a loan extended by him
Reyes Realty, Inc.) coupled with the fact that said exhibit
and Marcos Roces in favor of Lim Ka Ping. The
was not even alleged by GEE and Lim Ka Ping in their
assertion is home by the receipt itself whereby they
original motion to quash the alias writ of execution
acknowledged payment of the loan in their names and in
(Rollo, p. 37) but produced only during the hearing (Ibid.)
no other capacity.
which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of
about half a million pesos (Rollo, pp. 25-27) and A corporation has a personality distinct and separate
remarking on the utter absence of any writing in Exhibits from its individual stockholders or members. Being an
"1/A" and "2/B" to indicate payment of the judgment officer or stockholder of a corporation does not make
debt, respondent Appellate Court correctly concluded one's property also of the corporation, and vice-versa,
that there was in fact no payment of the judgment debt. for they are separate entities (Traders Royal Bank v. CA-
As aptly observed by the said court: G.R. No. 78412, September 26, 1989; Cruz v. Dalisay,
152 SCRA 482). Shareowners are in no legal sense the
owners of corporate property (or credits) which is owned
What immediately catches one's attention is the
by the corporation as a distinct legal person (Concepcion
total absence of any writing alluding to or
Magsaysay-Labrador v. CA-G.R. No. 58168, December
referring to any settlement between the parties
19, 1989). As a consequence of the separate juridical
of private respondents' (petitioners') judgment
personality of a corporation, the corporate debt or credit
obligation. In moving for the dismissal of the
is not the debt or credit of the stockholder, nor is the
appeal Lim Ka Ping who was then assisted by
stockholder's debt or credit that of the corporation (Prof.
counsel simply stated that defendants (herein
Jose Nolledo's "The Corporation Code of the Philippines,
petitioners) are satisfied with the decision of the
p. 5, 1988 Edition, citing Professor Ballantine).
Metropolitan Trial Court (Records of CA, p. 54).

The absence of a note to evidence the loan is explained


Notably, in private respondents' (petitioners')
by Jesus Marcos Roces who testified that the IOU was
Motion to Quash the Writ of Execution and
subsequently delivered to private respondents (Rollo,
Notice of Levy dated March 7, 1985, there is
pp. 97-98). Contrary to the Regional Trial Court's
absolutely no reference to the alleged payment
premise that it was incumbent upon respondent
of one million pesos as evidenced by Exhibit 1
corporation to prove that the amount was delivered to
dated September 20, 1984. As pointed out by
the Roces brothers in the payment of the loan in the
petitioner (respondent corporation) this was
latter's favor, the delivery of the amount to and the
brought out by Linda Panutat, Manager of Good
receipt thereof by the Roces brothers in their names
Earth only in the course of the latter's testimony.
raises the presumption that the said amount was due to
(Rollo, p. 37)
them.1âwphi1 There is a disputable presumption that
money paid by one to the other was due to the latter
Article 1240 of the Civil Code of the Philippines provides (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and
that:
Lim Ka Ping to prove otherwise. In other words, it is for Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai
the latter to prove that the payments made were for the Tong Chuache & Co. v. Insurance Commission, 158
satisfaction of their judgment debt and not vice versa. SCRA 366).

The fact that at the time payment was made to the two The appellate court cannot, therefore, be said to have
Roces brothers, GEE was also indebted to respondent gravely abused its discretion in finding lack of convincing
corporation for a larger amount, is not supportive of the and reliable evidence to establish payment of the
Regional Trial Court's conclusions that the payment was judgment obligation as claimed by petitioner. The burden
in favor of the latter, especially in the case at bar where of evidence resting on the petitioners to establish the
the amount was not receipted for by respondent facts upon which their action is premised has not been
corporation and there is absolutely no indication in the satisfactorily discharged and therefore, they have to bear
receipt from which it can be reasonably inferred, that the consequences.
said payment was in satisfaction of the judgment debt.
Likewise, no such inference can be made from the PREMISES CONSIDERED, the petition is hereby
execution of the pacto de retro sale which was not made DENIED and the Decision of the Respondent court is
in favor of respondent corporation but in favor of the two hereby AFFIRMED, reinstating the April 8, 1985
Roces brothers in their individual capacities without any Resolution of the Metropolitan Trial Court of Manila.
reference to the judgment obligation in favor of
respondent corporation. SO ORDERED.

In addition, the totality of the amount covered by the Note.—The fiction of law that a corporation has a distinct
receipt (Exhibit "1/A") and that of the sale with pacto de
and separate personality should not be used as a
retro(Exhibit "2/B") all in the sum of P2 million, far
exceeds petitioners' judgment obligation in favor of subterfuge to commit injustice and circumvent labor
respondent corporation in the sum of P1,560,000.00 by laws. (Indino vs. National Labor Relations Commission,
P440,000.00, which militates against the claim of 178 SCRA 168).
petitioner that the aforesaid amount (P2M) was in full
payment of the judgment obligation.
——o0o——
Petitioners' explanation that the excess is interest and
advance rentals for an extension of the lease contract
(Rollo, pp. 25-28) is belied by the absence of any
interest awarded in the case and of any agreement as to DEVELOPMENT BANK OF THE PHILIPPINES,
the extension of the lease nor was there any such petitioner, vs. NATIONAL LABOR RELATIONS
pretense in the Motion to Quash the Alias Writ of COMMISSION and DOROTHY S. ANCHETA, MA.
Execution. MAGDALENA Y. ARMARILLE, CONSTANTE A.
ANCHETA, CONSTANTE B. BANAYOS, EVELYN
Petitioners' averments that the respondent court had BARRIENTOS, JOSE BENAVIDEZ, LEO-NARDO
gravely abused its discretion in arriving at the assailed BUENAAGUA, BENJAMIN BAROT, ERNESTO S.
factual findings as contrary to the evidence and CANTILLER, EDUARDO CANDA, ARMANDO CANDA,
applicable decisions of this Honorable Court are AIDA DE LUNA, PACIFICO M. DE JESUS, ALFREDO
therefore, patently unfounded. Respondent court was ESTRERA, AURELIO A. FARIÑAS, FRANCISCO
correct in stating that it "cannot go beyond what appears GREGORIO, DOMELINA GONZALES, JUANA
in the documents submitted by petitioners themselves JALANDONI, MANUEL MALUBAY, FELICIANO
(Exhibits "1" and "2") in the absence of clear and OCAMPO, MABEL PADO, GEMINIANO PLETA,
convincing evidence" that would support its claim that ERNESTO S. SALAMAT, JULIAN TRAQUENA, JUSFIEL
the judgment obligation has indeed been fully satisfied
SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO,
which would warrant the quashal of the Alias Writ of
Execution. JOSE T. MARCELO, JR., SUSAN M. OLIVAR,
ERNESTO JULIO, CONSTANTE ANCHETA, JR.,
ENRIQUE NABUA and JAVIER P. MATARO,
It has been an established rule that when the existence
of a debt is fully established by the evidence (which has respondents.
been done in this case), the burden of proving that it has Labor Law; Corporation Law; Ownership of majority of
been extinguished by payment devolves upon the debtor
capital stock and fact that majority of directors of a
who offers such a defense to the claim of the plaintiff
corporation are the directors of another corporation
creditor (herein respondent corporation) (Chua Chienco
v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656; creates no employer-employee relationship with latter’s
Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well- employees.—It is to be noted that in their comment,
entrenched in Our jurisprudence that each party in a private respondents tried to prove the existence of
case must prove his own affirmative allegations by the employeremployee relationship based on the fact that
degree of evidence required by law (Stronghold DBP is the majority stockholder of PSC and that the
majority of the members of the board of directors of PSC Philippine Smelters Corporation (PSC), a corporation
are from DBP. We do not believe that these registered under Philippine law, obtained a loan in 1983
circumstances are sufficient indicia of the existence of from the Development Bank of the Philippines, a
an employeremployee relationship as would confer government-owned financial institution created and
jurisdiction over the case on the labor arbiter, especially operated in accordance with Executive Order No. 81, to
in the light of the express declaration of said labor arbiter finance its iron smelting and steel manufacturing
business. To secure said loan, PSC mortgaged to DBP
and the NLRC that DBP is being held liable as a
real properties with all the buildings and improvements
foreclosing creditor. At any rate, this jurisdictional defect
thereon and chattels, with its President, Jose T. Marcelo,
was cured when DBP appealed the labor arbiter’s Jr., as co-obligor.
decision to the NLRC and thereby submitted to its
jurisdiction. By virtue of the said loan agreement, DBP became the
majority stockholder of PSC, with stockholdings in the
amount of P31,000,000.00 of the total P60,226,000.00
Labor Law; Preference of Credits; Mortgages; subscribed and paid up capital stock. Subsequently, it
Insolvency Law; A foreclosing bank creditor cannot be took over the management of PSC.
held liable for unpaid wages and the like of employees of
mortgagor. They should file their claims, in a proceeding When PSC failed to pay its obligation with DBP, which
in bankruptcy on their employer.—In fine, the right to amounted to P75,752,445.83 as of March 31, 1986, DBP
preference given to workers under Article 110 of the foreclosed and acquired the mortgaged real estate and
Labor Code cannot exist in any effective way prior to the chattels of PSC in the auction sales held on February
25, 1987 and March 4, 1987.
time of its presentation in distribution proceedings. It will
find application when, in proceedings such as
insolvency, such unpaid wages shall be paid in full On February 10, 1987, forty (40) petitioners filed a
Petition for Involuntary Insolvency in the Regional Trial
before the ‘claims of the Government and other creditors’
Court, Branch 61 at Makati, Metropolitan Manila,
may be paid. But, for an orderly settlement of a debtor’s
docketed therein as Special Proceeding No. M-
assets, all creditors must be convened, their claims 1359, 2against PSC and DBP, impleading as co-
ascertained and inventoried, and thereafter the respondents therein Olecram Mining Corporation, Jose
preference determined in the course of judicial Panganiban Ice Plant and Cold Storage, Inc. and PISO
proceedings which have for their object the subjection of Bank, with said petitioners representing themselves as
the property of the debtor to the payment of his debts or unpaid employees of said private respondents, except
other lawful obligations. Thereby, an orderly PISO Bank.
determination of preference of creditors’ claims is
assured (Philippine Savings Bank vs. Lantin, No. L- On February 13, 1987, herein private respondents filed a
33929, September 2, 1983, 124 SCRA 476); the complaint with the Department of Labor against PSC for
adjudication made will be binding on all parties-in- nonpayment of salaries, 13th month pay, incentive leave
interest, since those proceedings are proceedings in pay and separation pay. On February 20, 1987, the
rem; and the legal scheme of classification, concurrence complaint was amended to include DBP as party
and preference of credits in the Civil Code, the respondent. The case was thereafter indorsed to the
Insolvency Law, and the Labor Code is preserved in Arbitration Branch of the National Labor Relations
Commission (NLRC). DBP filed its position paper on
harmony.”
September 7, 1987, invoking the absence of employer-
employee relationship between private respondents and
DBP and submitting that when DBP foreclosed the
Same; Same; Same; Same; Same.—On the foregoing assets of PSC, it did so as a foreclosing creditor.
considerations and it appearing that an involuntary
insolvency proceeding has been instituted against PSC, On January 30, 1988, the labor arbiter rendered a
private respondents should properly assert their decision, the dispositive portion of which directed that
respective claims in said proceeding. "DBP as foreclosing creditor is hereby ordered to pay all
the unpaid wages and benefits of the workers which
remain unpaid due to PSC's foreclosure." 3

The present petition for certiorari seeks the reversal of On appeal by DBP, the NLRC sustained the ruling of the
the decision of the National Labor Relations Commission labor arbiter, holding DBP liable for unpaid wages of
(NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated private respondents "not as a majority stockholder of
January 16, 1986, 1 which dismissed the appeal of the respondent PSC, but as the foreclosing creditor who
Development Bank of the Philippines (DBP) from the possesses the assets of said PSC by virtue of the
decision of the labor arbiter ordering it to pay the unpaid auction sale it held in 1987." In addition, the NLRC held
wages, 13th month pay, incentive pay and separation that the labor arbiter is correct in assuming jurisdiction
pay of herein private respondents. because "the worker's preference to the amount secured
by DBP by virtue of said foreclosure sales of PSC employer's business shall be given first
properties arose out of or are connected or interwoven preference and shall be paid in full
with the labor dispute brought forth by appellees against before other creditors may establish any
PSC and DBP. 4 Hence, the present petition by DBP. claim to a share in the assets of the
employer.
DBP contends that the labor arbiter and the NLRC
committed a grave abuse of discretion (1) in assuming Interpreting the above provisions, this Court,
jurisdiction over DBP; (2) in applying the provisions of in Development Bank of the Philippines vs. Hon. Labor
Article 110 of the Labor Code, as amended; and (3) in Arbiter Ariel C. Santos, et al., 6 explicated as follows:
not enforcing and applying Section 14 of Executive
Order No. 81. It is quite clear from the provisions that a
declaration of bankruptcy or a judicial
We find merit in the petition. liquidation must be present before the
worker's preference may be enforced. ...
It is to be noted that in their comment, private .
respondents tried to prove the existence of employer-
employee relationship based on the fact that DBP is the xxx xxx xxx
majority stockholder of PSC and that the majority of the
members of the board of directors of PSC are from Moreover, the reason behind the
DBP. 5 We do not believe that these circumstances are necessity for a judicial proceeding or a
sufficient indicia of the existence of an employer- proceeding in rem before the
employee relationship as would confer jurisdiction over concurrence and preference of credits
the case on the labor arbiter, especially in the light of the may be applied was explained by this
express declaration of said labor arbiter and the NLRC Court in the case of Philippine Savings
that DBP is being held liable as a foreclosing creditor. At Bank v. Lantin (124 SCRA 476 [1983]).
any rate, this jurisdictional defect was cured when DBP We said:
appealed the labor arbiter's decision to the NLRC and
thereby submitted to its jurisdiction. The proceedings in the
court below do not
The pivotal issue for resolution is whether DBP, as partake of the nature of
foreclosing creditor, could be held liable for the unpaid the insolvency
wages, 13th month pay, incentive leave pay and proceedings or
separation pay of the employees of PSC. settlement of a
decedent's estate. The
We rule in the negative. action filed by Ramos
was only to collect the
During the dates material to the foregoing proceedings, unpaid cost of the
Article 110 of the Labor Code read: construction of the
duplex apartment. It is
far from being a general
Art. 110. Worker preference in case of
liquidation of the estate
bankruptcy. — In the event of
of the Tabligan spouses.
bankruptcy or liquidation of an
employer's business, his workers shall
enjoy first preference as regards wages Insolvency proceedings
due them for services rendered during and settlement of a
the period prior to the bankruptcy or decedent's estate are
liquidation, any provision of law to the both proceedings in rem
contrary notwithstanding. Unpaid wages which are binding
shall be paid in full before other against the whole world.
creditors may establish any claim to a All persons having
share in the assets of the employer. interest in the subject
matter involved,
whether they were
In conjunction therewith, Section 10, Rule VIII, Book III
notified or not, are
of the Implementing Rules and Regulations of the Labor
equally bound.
Code provided:
Consequently, a
liquidation of similar
Sec. 10. Payment of wages in mm of import or 'other
bankruptcy.-Unpaid wages earned by equivalent general
the employees before the declaration of liquidation must also
bankruptcy or judicial liquidation of the necessarily be a
proceeding in rem so unpaid wages and other monetary
that all interested claims, any provision of law to the
persons whether known contrary notwithstanding. Such unpaid
to the parties or not may wages and monetary claims shall be
be bound by such paid in full before the claims of the
proceeding. Government and other creditors may be
paid.
In the case at bar,
although the lower court As a consequence, Section 1 0, Rule VIII, Book III of the
found that 'there were Implementing Rules and Regulations of the Labor Code
no known creditors was likewise amended, to wit:
other than the plaintiff
and the defendant Sec. 10. Payment of wages and other
herein,' this can not be monetary claims in case of bankruptcy.
conclusive. It will not — In case of bankruptcy or liquidation of
bar other creditors in the employer's business, the unpaid
the event they show up wages and other monetary claims of the
and present their claim employees shall be given first
against the petitioner preference and shall be paid in full
bank, claiming that they before the claims of government and
also have preferred other creditors may be paid.
liens against the
property involved. Despite said amendments, however, the same
Consequently, Transfer interpretation of Article 110 as applied in the aforesaid
Certificate of Title No. case of Development Bank of the Philippines vs. Hon.
101864 issued in favor Labor Arbiter Ariel C. Santos, et al., supra, was adopted
of the bank which is by this Court in the recent case of Development Bank of
supposed to be the Philippines vs. National Labor Relations
indefeasible would Commission, et. al., 7 For facility of reference, especially
remain constantly the rationalization for the conclusions reached therein,
unstable and we reproduce the salient portions of the decision in this
questionable. Such later case.
could not have been the
intention of Article 2243
of the Civil Code Notably, the terms "declaration" of
although it considers bankruptcy or "judicial" liquidation have
claims and credits been eliminated. Does this means then
under Article 2242 as that liquidation proceedings have been
statutory fines. Neither done away with?
does the De
Barreto case ... We opine m the negative, upon the
following considerations:
The claims of all creditors whether
preferred or non- preferred, the 1. Because of its impact on the entire
Identification of the preferred ones and system of credit, Article 110 of the Labor
the totality of the employer's asset Code cannot be viewed in isolation but
should be brought into the picture. There must be read in relation to the Civil
can then be an authoritative, fair, and Code scheme on classification and
binding adjudication instead of the piece preference of credits.
meal settlement which would result from
the questioned decision in this case. Article 110 of the Labor
Code, in determining
Republic Act No. 6715, which took effect on March 21, the reach of its terms,
1989, amended Article 110 of the Labor Code to read as cannot be viewed in
follows: isolation. Rather, Article
110 must be read in
Art. 110. Worker preference in case of relation to the
bankruptcy. — In the event of provisions of the Civil
bankruptcy or liquidation of an Code concerning the
employer's business, his workers shall classification,
enjoy first preference as regards their concurrence and
preference of credits
which provisions find credit attains
particular application in significance only after
insolvency proceedings the properties of the
where the claims of all debtor have been
creditors, preferred or inventoried and
non-preferred, may be liquidated, and the
adjudicated in a binding claims held by his
manner ... (Republic vs. various creditors have
Peralta (G.R. No. L- been established
56568, May 20, 1987, (Kuenzle & Streiff [Ltd.]
150 SCRA 37). vs. Villanueva, 41 Phil.
611 [1916]; Barretto vs.
2. In the same way that the Civil Code Villanueva, G.R. No.
provisions on classification of credits 14038, 29 December
and the Insolvency Law have been 1962, 6 SCRA 928;
brought into harmony, so also must the Philippine Savings Bank
kindred provisions of the Labor Law be vs. Lantin, G.R. 33929,
made to harmonize with those laws. 2 September 1983,124
SCRA 476).
3. In the event of insolvency, a principal
objective should be to effect an 4. A distinction should be made between
equitable distribution of the insolvent's a preference of credit and a lien. A
property among his creditors. To preference applies only to claims which
accomplish this there must first be some do not attach to specific properties. A
proceeding where notice to all of the hen creates a charge on a particular
insolvent's creditors may be given and property. The right of first preference as
where the claims of preferred creditors regards unpaid wages recognize by
may be bindingly adjudicated (De Article 110 does not constitute a hen on
Barretto vs. Villanueva, No. L-14938, the property of the insolvent debtor in
December 29, 1962, 6 SCRA 928). The favor of workers. It is but a preference of
rationale therefor has been expressed in credit in their favor, a preference in
the recent case of DBP vs. Secretary of application. It is a met-hod adopted to
Labor (G.R. No. 79351, 28 November determine and specify the order in which
1989), which we quote: credits should be paid in the final
distribution of the proceeds of the
insolvent's assets- It is a right to a first
A preference of credit
preference in the discharge of the funds
bestows upon the
of the judgment debtor. in the words of
preferred creditor an
Republic vs. Peralta, supra:
advantage of having his
credit satisfied first
ahead of other claims Article 110 of the Labor
which may be Code does not purport
established against the to create a lien in favor
debtor. Logically, it of workers or
becomes material only employees for unpaid
when the properties and wages either upon all of
assets of the debtors the properties or upon
are insufficient to pay any particular property
his debts in full; for if the owned by their
debtor is amply able to employer. Claims for
pay his various unpaid wages do not
creditors, in full, how therefore fall at all within
can the necessity exist the category of specially
to determine which of preferred claims
his creditors shall be established under
paid first or whether Articles 2241 and 2242
they shall be paid out of of the Civil Code,
the proceeds of the sale except to the extent that
of the debtor's specific such claims for unpaid
property? Indubitably, wages are already
the preferential right of covered by Article 2241,
number 6: 'claims for
laborers' wages, on the cardinal rule that laws shall have no
goods manufactured or retroactive effect, unless the contrary is
the work done; or by provided (Article 4, Civil Code). Thereby,
Article 2242, number 3: any infringement on the constitutional
'claims of laborers and guarantee on non-impairment of
other workers engaged obligation of contracts (Section 10,
in the construction, Article III, 1987 Constitution) is also
reconstruction or repair avoided. In point of fact, DBP's
of buildings, canals and mortgage credit antedated by several
other works, upon said years the amendatory law, RA No. 6715.
buildings, canals or To give Article 110 retroactive effect
other works.' To the would be to wipe out the mortgage in
extent that claims for DBPs favor and expose it to a risk which
unpaid wages fall it sought to protect itself against by
outside the scope of requiring a collateral in the form of real
Article 2241, number 6 property.
and Article 2242,
number 3, they would In fine, the right to preference given to
come within the ambit of workers under Article 110 of the Labor
the category of ordinary Code cannot exist in any effective way
preferred credits under prior to the time of its presentation in
Article 2244.' distribution proceedings. It will find
application when, in proceedings such
5. The DBP anchors its claim on a as insolvency, such unpaid wages shall
mortgage credit. A mortgage directly and be paid in full before the 'claims of the
immediately subjects the property upon Government and other creditors' may be
which it is imposed, whoever the paid. But, for an orderly settlement of a
possessor may be, to the fulfillment of debtor's assets, all creditors must be
the obligation for whose security it was convened, their claims ascertained and
constituted (Article 2176, Civil Code). It inventoried, and thereafter the
creates a real right which is enforceable preference determined in the course of
against the whole world. It is a lien on judicial proceedings which have for their
an Identified immovable property, which object the subjection of the property of
a preference is not. A recorded the debtor to the payment of his debts or
mortgage credit is a special preferred other lawful obligations. Thereby, an
credit under Article 2242 (5) of the Civil orderly determination of preference of
Code on classification of credits. The creditors' claims is assured (Philippine
preference given by Article 110, when Savings Bank vs. Lantin, No. L-33929,
not falling within Article 2241 (6) and September 2, 1983, 124 SCRA 476); the
Article 2242 (3) of the Civil Code and adjudication made will be binding on all
not attached to any specific property, is parties-in-interest, since those
an ordinary preferred credit although its proceedings are proceedings in rem;
impact is to move it from second priority and the legal scheme of classification,
to first priority in the order of preference concurrence and preference of credits in
established by Article 2244 of the Civil the Civil Code, the Insolvency Law, and
Code (Republic vs. Peralta, supra). the Labor Code is preserved in
harmony.
In fact, under the Insolvency Law
(Section 29) a creditor holding a On the foregoing considerations and it appearing that an
mortgage or hen of any kind as security involuntary insolvency proceeding has been instituted
is not permitted to vote in the election of against PSC, private respondents should properly assert
the assignee in insolvency proceedings their respective claims in said proceeding. .
unless the value of his security is first
fixed or he surrenders all such property WHEREFORE, the petition is GRANTED. The decision
to the receiver of the insolvent's estate. of public respondent is hereby ANNULLED and SET
ASIDE.
6. Even if Article 110 and its
Implementing Rule, as amended, should SO ORDERED.
be interpreted to mean 'absolute
preference,' the same should be given
only prospective effect in line with the
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, binding obligations. Education may be prioritized for
petitioner, vs. COURT OF APPEALS and FIRESTONE legislative or budgetary purposes, but we doubt if such
CERAMICS, INC., respondents. importance can be used to confiscate private property
such as FIRESTONE’s right of first refusal.
G.R. No. 143590. November 14, 2001.*

Same; Same; Sales; Words and Phrases; A contract of


NATIONAL DEVELOPMENT CORPORATION, sale, as defined in the Civil Code, is a contract where
petitioner, vs. FIRESTONE CERAMICS, INC., one of the parties obligates himself to transfer the
respondents. ownership of and to deliver a determinate thing to the
Obligations and Contracts; Right of First Refusal; It is other or others who shall pay therefore a sum certain in
elementary that a party to a contract cannot unilaterally money or its equivalent; The Civil Code provision on sale
withdraw a right of first refusal that stands upon valuable is, in effect, a “catch-all” provision which effectively
consideration.—We do not see it the way PUP and NDC brings within its grasp a whole gamut of transfers
did. It is elementary that a party to a contract cannot whereby ownership of a thing is ceded for a
unilaterally withdraw a right of first refusal that stands consideration.—A contract of sale, as defined in the Civil
upon valuable consideration. That principle was clearly Code, is a contract where one of the parties obligates
upheld by the Court of Appeals when it denied on 6 June himself to transfer the ownership of and to deliver a
2000 the twin motions for reconsideration filed by PUP determinate thing to the other or others who shall pay
and NDC on the ground that the appellants failed to therefore a sum certain in money or its equivalent. It is
advance new arguments substantial enough to warrant a therefore a general requisite for the existence of a valid
reversal of the Decision sought to be reconsidered. and enforceable contract of sale that it be mutually
obligatory, i.e., there should be a concurrence of the
promise of the vendor to sell a determinate thing and the
promise of the vendee to receive and pay for the
_______________
property so delivered and transferred. The Civil Code
provision is, in effect, a “catchall” provision which
effectively brings within its grasp a whole gamut of
* SECOND DIVISION. transfers whereby ownership of a thing is ceded for a
consideration.

692
Same; Same; Same; Government-Owned and
Controlled Corporations; The National Development
692 Corporation and the Polytechnic University of the
Philippines have their respective charters and therefore
each possesses a separate and distinct individual
personality; Beyond cavil, a government owned and
SUPREME COURT REPORTS ANNOTATED
controlled corporation has a personality of its own
distinct and separate from that of the government.—
Contrary to what petitioners PUP and NDC propose,
Polytechnic University of the Philippines vs. Court of there is not just one party involved in the questioned
Appeals transaction. Petitioners NDC and PUP have their
respective charters and therefore each possesses a
separate and distinct individual personality. The inherent
Same; Education; Our paramount interest in education weakness of NDC’s proposition that there was no sale
does not license us, or any party for that matter, to as it was only the government which was involved in the
destroy the sanctity of binding obligations—education transaction thus reveals itself. Tersely put, it is not
may be prioritized for legislative or budgetary purposes, necessary to write an
but we doubt if such importance can be used to
confiscate private property such as the right of first
refusal.—Petitioner posited that if we were to place our 693
imprimatur on the decisions of the courts a quo, “public
welfare or specifically the constitutional priority accorded
to education” would greatly be prejudiced. Paradoxically,
our paramount interest in education does not license us,
or any party for that matter, to destroy the sanctity of VOL. 368, NOVEMBER 14, 2001
693 Same; Same; Same; When a lease contract contains a
right of first refusal, the lessor is under a legal duty to the
lessee not to sell to anybody at any price until after he
Polytechnic University of the Philippines vs. Court of has made an offer to sell to the latter at a certain price
Appeals and the lessee has failed to accept it.—It is a settled
principle in civil law that when a lease contract contains
a right of first refusal, the lessor is under a legal duty to
the lessee not to sell to anybody at any price until after
extended dissertation on government owned and
he has made an offer to sell to the latter at a certain
controlled corporations and their legal personalities.
price and the
Beyond cavil, a government owned and controlled
corporation has a personality of its own, distinct and
separate from that of the government. The intervention
in the transaction of the Office of the President through 694
the Executive Secretary did not change the independent
existence of these entities. The involvement of the Office
of the President was limited to brokering the consequent
relationship between NDC and PUP. But the withdrawal
of the appeal by the Executive Secretary is considered 694
significant as he knew, after a review of the records, that
the transaction was subject to existing liens and
encumbrances, particularly the priority to purchase the SUPREME COURT REPORTS ANNOTATED
leased premises in favor of FIRESTONE.

Polytechnic University of the Philippines vs. Court of


Same; Same; Since the conduct of the parties to a Appeals
contract may be sufficient to establish the existence of
an agreement and the terms thereof, it becomes
necessary for the courts to examine the lessee has failed to accept it. The lessee has a right that
contemporaneous behavior of the parties in establishing the lessor’s first offer shall be in his favor.
the existence of their contract.—True that there may be
instances when a particular deed does not disclose the
real intentions of the parties, but their action may
Same; Same; Sales; In contracts of sale, the basis of the
nevertheless indicate that a binding obligation has been
right of first refusal must be the current offer of the seller
undertaken. Since the conduct of the parties to a
to sell or the offer to purchase of the prospective buyer.
contract may be sufficient to establish the existence of
—It now becomes apropos to ask whether the courts a
an agreement and the terms thereof, it becomes
quo were correct in fixing the proper consideration of the
necessary for the courts to examine the
sale at P1,500.00 per square meter. In contracts of sale,
contemporaneous behavior of the parties in establishing
the basis of the right of first refusal must be the current
the existence of their contract.
offer of the seller to sell or the offer to purchase of the
prospective buyer. Only after the lessee-grantee fails to
exercise its right under the same terms and within the
Same; Same; Lease; Where the stipulation for a right of period contemplated can the owner validly offer to sell
first refusal is part and parcel of the contract of lease, the the property to a third person, again, under the same
consideration for the lease is the same as that for the terms as offered to the grantee. It appearing that the
option.—In the instant case, the right of first refusal is an whole NDC compound was sold to PUP for P554.74 per
integral and indivisible part of the contract of lease and is square meter, it would have been more proper for the
inseparable from the whole contract. The consideration courts below to have ordered the sale of the property
for the right is built into the reciprocal obligations of the also at the same price. However, since FIRESTONE
parties. Thus, it is not correct for petitioners to insist that never raised this as an issue, while on the other hand it
there was no consideration paid by FIRESTONE to admitted that the value of the property stood at
entitle it to the exercise of the right, inasmuch as the P1,500.00 per square meter, then we see no compelling
stipulation is part and parcel of the contract of lease reason to modify the holdings of the courts a quo that
making the consideration for the lease the same as that the leased premises be sold at that price.
for the option.
Same; Same; Same; A right of first refusal is neither A litigation is not simply a contest of litigants before
“amorphous nor merely preparatory” and can be the bar of public opinion; more than that, it is a pursuit of
enforced and executed according to its terms.—The justice through legal and equitable means. To prevent
contention has no merit. At the heels of Ang Yu came the search for justice from evolving into a competition for
Equatorial Realty Development, Inc, v. Mayfair Theater, public approval, society invests the judiciary with
Inc., where after much deliberation we declared, and so complete independence thereby insulating it from
demands expressed through any medium, the press not
we hold, that a right of first refusal is neither “amorphous
excluded. Thus, if the court would merely reflect, and
nor merely preparatory” and can be enforced and
worse, succumb to the great pressures of the day, the
executed according to its terms. Thus, in Equatorial we end result, it is feared, would be a travesty of justice.
ordered the rescission of the sale which was made in
violation of the lessee’s right of first refusal and further In the early sixties, petitioner National Development
ordered the sale of the leased property in favor of Corporation (NDC), a government owned and controlled
Mayfair Theater, as grantee of the right. Emphatically, we corporation created under CA 182 as amended by CA
held that “(a right of first priority) should be enforced 311 and PD No. 668, had in its disposal a ten (10)-
hectare property located along Pureza St., Sta. Mesa,
according to the law on contracts instead of the
Manila. The estate was popularly known as the NDC
panoramic and indefinite rule on human relations.” We
compound and covered by Transfer Certificates of Title
then concluded that the execution of the right of first Nos. 92885, 110301 and 145470.
refusal consists in directing the grantor to comply with
his obligation according to the terms at which he should Sometime in May 1965 private respondent
have offered the property in favor of the grantee and at Firestone Ceramics Inc. (FIRESTONE) manifested its
that price when the offer should have been made. desire to lease a portion of the property for its ceramic
manufacturing business. On 24 August 1965 NDC and
FIRESTONE entered into a contract of lease
denominated as Contract No. C-30-65 covering a portion
Courts; Prejudicial Publicity; Petitioner PUP should be of the property measured at 2.90118 hectares for use as
cautioned against bidding for public sympathy by a manufacturing plant for a term of ten (10) years,
bewailing the dismissal of its petition before the press— renewable for another ten (10) years under the same
such advocacy is not likely to elicit the compassion of terms and conditions.[1] In consequence of the
this Court or of any court for that matter.—One final agreement, FIRESTONE constructed on the leased
word. Petitioner PUP should be cautioned against premises several warehouses and other improvements
bidding for public sympathy by bewailing the needed for the fabrication of ceramic products.
Three and a half (3-1/2) years later, or on 8 January
1969, FIRESTONE entered into a second contract of
695 lease with NDC over the latter's four (4)-unit pre-
fabricated reparation steel warehouse stored in Daliao,
Davao. FIRESTONE agreed to ship the warehouse to
Manila for eventual assembly within the NDC
compound. The second contract, denominated as
Contract No. C-26-68, was for similar use as a ceramic
VOL. 368, NOVEMBER 14, 2001 manufacturing plant and was agreed expressly to be "co-
extensive with the lease of LESSEE with LESSOR on
the 2.60 hectare-lot."[2]
695
On 31 July 1974 the parties signed a similar
contract concerning a six (6)-unit pre-fabricated steel
warehouse which, as agreed upon by the parties, would
Polytechnic University of the Philippines vs. Court of expire on 2 December 1978.[3] Prior to the expiration of
Appeals the aforementioned contract, FIRESTONE wrote NDC
requesting for an extension of their lease
agreement. Consequently on 29 November 1978 the
Board of Directors of NDC adopted Resolution No. 11-
dismissal of its petition before the press. Such advocacy 78-117 extending the term of the lease, subject to
is not likely to elicit the compassion of this Court or of several conditions among which was that in the event
any court for that matter. An entreaty for a favorable NDC "with the approval of higher authorities, decide to
disposition of a case not made directly through pleadings dispose and sell these properties including the
and oral arguments before the courts do not persuade lot, priority should be given to the
us, for as judges, we are ruled only by our forsworn duty LESSEE"[4] (underscoring supplied). On 22 December
to give justice where justice is due. 1978, in pursuance of the resolution, the parties entered
into a new agreement for a ten-year lease of the
BELLOSILLO, J.: property, renewable for another ten (10) years, expressly
granting FIRESTONE the first option to purchase the
leased premises in the event that it decided "to dispose compound to the National Government, which in turn
and sell these properties including the lot . . . . "[5] would convey the aforementioned property in favor of
PUP at acquisition cost. The issuance was supposedly
The contracts of lease conspicuously contain an made in recognition of PUP's status as the "Poor Man's
identically worded provision requiring FIRESTONE to University" as well as its serious need to extend its
construct buildings and other improvements within the campus in order to accommodate the growing student
leased premises worth several hundred thousands of population. The order of conveyance of the 10.31-
pesos.[6] hectare property would automatically result in the
The parties' lessor-lessee relationship went cancellation of NDC's total obligation in favor of the
smoothly until early 1988 when FIRESTONE, cognizant National Government in the amount of P57,193,201.64.
of the impending expiration of their lease agreement with Convinced that PUP was a necessary party to the
NDC, informed the latter through several letters and controversy that ought to be joined as party defendant in
telephone calls that it was renewing its lease over the order to avoid multiplicity of suits, the trial court granted
property. While its letter of 17 March 1988 was answered PUP's motion to intervene.FIRESTONE moved for
by Antonio A. Henson, General Manager of NDC, who reconsideration but was denied. On certiorari, the Court
promised immediate action on the matter, the rest of its of Appeals affirmed the order of the trial
communications remained unacknowledged. court. FIRESTONE came to us on review but in a
[7]
FIRESTONE's predicament worsened when rumors of Resolution dated 11 July 1990 we upheld PUP's
NDC's supposed plans to dispose of the subject property inclusion as party-defendant in the present controversy.
in favor of petitioner Polytechnic University of the
Philippines (PUP) came to its knowledge. Forthwith, Following the denial of its petition, FIRESTONE
FIRESTONE served notice on NDC conveying its desire amended its complaint to include PUP and Executive
to purchase the property in the exercise of its contractual Secretary Catalino Macaraeg, Jr., as party-defendants,
right of first refusal. and sought the annulment of Memorandum Order No.
214. FIRESTONE alleged that although Memorandum
Apprehensive that its interest in the property would Order No. 214 was issued "subject to such liens/leases
be disregarded, FIRESTONE instituted an action for existing [on the subject property]," PUP disregarded and
specific performance to compel NDC to sell the leased violated its existing lease by increasing the rental rate
property in its favor. FIRESTONE averred that it was at P200,000.00 a month while demanding that it vacated
pre-empting the impending sale of the NDC compound the premises immediately.[14] FIRESTONE prayed that in
to petitioner PUP in violation of its leasehold rights over the event Memorandum Order No. 214 was not declared
the 2.60-hectare[8] property and the warehouses thereon unconstitutional, the property should be sold in its favor
which would expire in 1999. FIRESTONE likewise at the price for which it was sold to PUP - P554.74 per
prayed for the issuance of a writ of preliminary injunction square meter or for a total purchase price
to enjoin NDC from disposing of the property pending of P14,423,240.00.[15]
the settlement of the controversy. [9]
Petitioner PUP, in its answer to the amended
In support of its complaint, FIRESTONE adduced in complaint, argued in essence that the lease contract
evidence a letter of Antonio A. Henson dated 15 July covering the property had expired long before the
1988 addressed to Mr. Jake C. Lagonera, Director and institution of the complaint, and that further, the right of
Special Assistant to Executive Secretary Catalino first refusal invoked by FIRESTONE applied solely to the
Macaraeg, reviewing a proposed memorandum order six-unit pre-fabricated warehouse and not the lot upon
submitted to then President Corazon C. Aquino which it stood.
transferring the whole NDC compound, including the
leased property, in favor of petitioner PUP.Attached to After trial on the merits, judgment was rendered
the letter was a draft of the proposed memorandum declaring the contracts of lease executed between
order as well as a summary of existing leases on the FIRESTONE and NDC covering the 2.60-hectare
subject property. The survey listed FIRESTONE as property and the warehouses constructed thereon valid
lessee of a portion of the property, placed at and existing until 2 June 1999. PUP was ordered and
29,000[10] square meters, whose contract with NDC was directed to sell to FIRESTONE the "2.6 hectare leased
set to expire on 31 December 1989 [11] renewable for premises or as may be determined by actual verification
another ten (10) years at the option of the lessee. The and survey of the actual size of the leased properties
report expressly recognized FIRESTONE's right of first where plaintiff's fire brick factory is located" at P1,500.00
refusal to purchase the leased property "should the per square meter considering that, as admitted by
lessor decide to sell the same."[12] FIRESTONE, such was the prevailing market price
thereof.
Meanwhile, on 21 February 1989 PUP moved to
intervene and asserted its interest in the subject The trial court ruled that the contracts of lease
property, arguing that a "purchaser pendente lite of executed between FIRESTONE and NDC were
property which is subject of a litigation is entitled to interrelated and inseparable because "each of them
intervene in the proceedings." [13] PUP referred forms part of the integral system of plaintiff's brick
to Memorandum Order No. 214 issued by then President manufacturing plant x x x if one of the leased premises
Aquino ordering the transfer of the whole NDC will be taken apart or otherwise detached from the two
others, the purpose of the lease as well as plaintiff's withdrawal of the option to purchase the property
business operations would be rendered useless and granted to FIRESTONE. NDC, for its part, vigorously
inoperative."[16] It thus decreed that FIRESTONE could contended that the contracts of lease executed between
exercise its option to purchase the property until 2 June the parties had expired without being renewed by
1999 inasmuch as the 22 December 1978 FIRESTONE; consequently, FIRESTONE was no longer
contract embodied a covenant to renew the lease for entitled to any preferential right in the sale or disposition
another ten (10) years at the option of the lessee as well of the leased property.
as an agreement giving the lessee the right of first
refusal. We do not see it the way PUP and NDC did. It is
elementary that a party to a contract cannot unilaterally
The trial court also sustained the constitutionality withdraw a right of first refusal that stands upon valuable
of Memorandum Order No. 214 which was not per consideration. That principle was clearly upheld by the
se hostile to FIRESTONE's property rights, but deplored Court of Appeals when it denied on 6 June 2000 the twin
as prejudicial thereto the "very manner with which motions for reconsideration filed by PUP and NDC on
defendants NDC and PUP interpreted and applied the the ground that the appellants failed to advance new
same, ignoring in the process that plaintiff has existing arguments substantial enough to warrant a reversal of
contracts of lease protectable by express provisions in the Decision sought to be reconsidered. [23] On 28 June
the Memorandum No. 214 itself."[17]It further explained 2000 PUP filed an urgent motion for an additional period
that the questioned memorandum was issued "subject to of fifteen (15) days from 29 June 2000 or until 14 July
such liens/leases existing thereon"[18] and petitioner PUP 2000 within which to file a Petition for Review on
was under express instructions "to enter, occupy and Certiorari of the Decision of the Court of Appeals.
take possession of the transferred property subject to
such leases or liens and encumbrances that may be On the last day of the extended period PUP filed
existing thereon"[19] (underscoring supplied). its Petition for Review on Certiorari assailing
the Decision of the Court of Appeals of 6 December
Petitioners PUP, NDC and the Executive Secretary 1999 as well as the Resolution of 6 June 2000 denying
separately filed their Notice of Appeal, but a few days reconsideration thereof. PUP raised two issues: (a)
thereafter, or on 3 September 1996, perhaps realizing whether the courts a quo erred when they "conjectured"
the groundlessness and the futility of it all, the Executive that the transfer of the leased property from NDC to PUP
Secretary withdrew his appeal.[20] amounted to a sale; and, (b) whether FIRESTONE can
rightfully invoke its right of first refusal. Petitioner posited
Subsequently, the Court of Appeals affirmed the that if we were to place our imprimatur on the decisions
decision of the trial court ordering the sale of the of the courts a quo, "public welfare or specifically the
property in favor of FIRESTONE but deleted the award constitutional priority accorded to education" would
of attorney's fees in the amount of Three Hundred greatly be prejudiced.[24]
Thousand Pesos (P300,000.00). Accordingly,
FIRESTONE was given a grace period of six (6) months Paradoxically, our paramount interest in education
from finality of the court's judgment within which to does not license us, or any party for that matter, to
purchase the property in questioned in the exercise of its destroy the sanctity of binding obligations. Education
right of first refusal. The Court of Appeals observed that may be prioritized for legislative or budgetary purposes,
as there was a sale of the subject property, NDC could but we doubt if such importance can be used to
not excuse itself from its obligation TO OFFER THE confiscate private property such as FIRESTONE's right
PROPERTY FOR SALE FIRST TO FIRESTONE of first refusal.
BEFORE IT COULD TO OTHER PARTIES. The Court of
Appeals held: "NDC cannot look to Memorandum Order On 17 July 2000 we denied PUP's motion for
No. 214 to excuse or shield it from its contractual extension of fifteen (15) days within which to appeal
obligations to FIRESTONE. There is nothing therein that inasmuch as the aforesaid pleading lacked an affidavit of
allows NDC to disavow or repudiate the solemn service of copies thereof on the Court of Appeals and the
engagement that it freely and voluntarily undertook, or adverse party, as well as written explanation for not filing
agreed to undertake."[21] and serving the pleading personally.[25]

PUP moved for reconsideration asserting that in Accordingly, on 26 July 2000 we issued
ordering the sale of the property in favor of FIRESTONE a Resolution dismissing PUP's Petition for Review for
the courts a quo unfairly created a contract to sell having been filed out of time. PUP moved for
between the parties. It argued that the "court cannot reconsideration imploring a resolution or decision on the
substitute or decree its mind or consent for that of the merits of its petition. Strangely, about the same time,
parties in determining whether or not a contract (has several articles came out in the newspapers assailing
been) perfected between PUP and NDC."[22] PUP further the denial of the petition. The daily papers reported that
contended that since "a real property located in Sta. we unreasonably dismissed PUP's petition on technical
Mesa can readily command a sum of P10,000.00 per grounds, affirming in the process the decision of the trial
square (meter)," the lower court gravely erred in ordering court to sell the disputed property to the prejudice of the
the sale of the property at only P1,500.00 per square government in the amount of P1,000,000,000.00.
[26]
meter. PUP also advanced the theory that the enactment Counsel for petitioner PUP, alleged that the trial court
of Memorandum Order No. 214 amounted to a and the Court of Appeals "have decided a question of
substance in a way definitely not in accord with law or property so delivered and transferred. The Civil Code
jurisprudence."[27] provision is, in effect, a "catch-all" provision which
effectively brings within its grasp a whole gamut of
At the outset, let it be noted that the amount transfers whereby ownership of a thing is ceded for a
of P1,000,000,000.00 as reported in the papers was way consideration.
too exaggerated, if not fantastic. We stress that NDC
itself sold the whole 10.31-hectare property to PUP at Contrary to what petitioners PUP and NDC
only P57,193,201.64 which represents NDC's obligation propose, there is not just one party involved in the
to the national government that was, in exchange, questioned transaction. Petitioners NDC and PUP have
written off. The price offered per square meter of the their respective charters and therefore each possesses a
property was pegged at P554.74.FIRESTONE's leased separate and distinct individual personality. [33] The
premises would therefore be worth inherent weakness of NDCs proposition that there was
only P14,423,240.00. From any angle, this amount is no sale as it was only the government which was
certainly far below the ballyhooed price involved in the transaction thus reveals itself.Tersely put,
of P1,000,000,000.00. it is not necessary to write an extended dissertation on
government owned and controlled corporations and their
On 4 October 2000 we granted PUP's Motion for legal personalities. Beyond cavil, a government owned
Reconsideration to give it a chance to ventilate its right, and controlled corporation has a personality of its own,
if any it still had in the leased premises, thereby paving distinct and separate from that of the government. [34] The
the way for a reinstatement of its Petition for Review. intervention in the transaction of the Office of the
[28]
In its appeal, PUP took to task the courts a quo for President through the Executive Secretary did not
supposedly "substituting or decreeing its mind or change the independent existence of these entities. The
consent for that of the parties (referring to NDC and involvement of the Office of the President was limited to
PUP) in determining whether or not a contract of sale brokering the consequent relationship between NDC and
was perfected." PUP also argued that inasmuch as "it is PUP. But the withdrawal of the appeal by the Executive
the parties alone whose minds must meet in reference to Secretary is considered significant as he knew, after a
the subject matter and cause," it concluded that it was review of the records, that the transaction was subject to
error for the lower courts to have decreed the existence existing liens and encumbrances, particularly the priority
of a sale of the NDC compound thus allowing to purchase the leased premises in favor of
FIRESTONE to exercise its right of first refusal. FIRESTONE.
On the other hand, NDC separately filed its True that there may be instances when a particular
own Petition for Review and advanced arguments which, deed does not disclose the real intentions of the parties,
in fine, centered on whether or not the transaction but their action may nevertheless indicate that a binding
between petitioners NDC and PUP amounted to a sale obligation has been undertaken. Since the conduct of
considering that ownership of the property remained with the parties to a contract may be sufficient to establish
the government.[29] Petitioner NDC introduced the novel the existence of an agreement and the terms thereof, it
proposition that if the parties involved are both becomes necessary for the courts to examine the
government entities the transaction cannot be legally contemporaneous behavior of the parties in establishing
called a sale. the existence of their contract.
In due course both petitions were consolidated.[30] The preponderance of evidence shows that NDC
We believe that the courts a quo did not sold to PUP the whole NDC compound, including the
hypothesize, much less conjure, the sale of the disputed leased premises, without the knowledge much less
property by NDC in favor of petitioner PUP. Aside from consent of private respondent FIRESTONE which had a
the fact that the intention of NDC and PUP to enter into a valid and existing right of first refusal.
contract of sale was clearly expressed in All three (3) essential elements of a valid sale,
the Memorandum Order No. 214,[31] a close perusal of without which there can be no sale, were attendant in
the circumstances of this case strengthens the theory the "disposition" and "transfer" of the property from NDC
that the conveyance of the property from NDC to PUP to PUP - consent of the parties, determinate subject
was one of absolute sale, for a valuable consideration, matter, and consideration therefor.
and not a mere paper transfer as argued by petitioners.
Consent to the sale is obvious from the prefatory
A contract of sale, as defined in the Civil Code, is a clauses of Memorandum Order No. 214 which explicitly
contract where one of the parties obligates himself to states the acquiescence of the parties to the sale of the
transfer the ownership of and to deliver a determinate property -
thing to the other or others who shall pay therefore a
sum certain in money or its equivalent. [32] It is therefore a
general requisite for the existence of a valid and WHEREAS, PUP has expressed its willingness to
enforceable contract of sale that it be mutually acquire said NDC properties and NDC has expressed
obligatory, i.e., there should be a concurrence of the its willingness to sell the properties to
promise of the vendor to sell a determinate thing and the PUP (underscoring supplied).[35]
promise of the vendee to receive and pay for the
Furthermore, the cancellation of NDC's liabilities in making the consideration for the lease the same as that
favor of the National Government in the amount for the option.
of P57,193,201.64 constituted the "consideration" for the
sale. As correctly observed by the Court of Appeals- It is a settled principle in civil law that when a lease
contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at
The defendants-appellants' interpretation that there was any price until after he has made an offer to sell to the
a mere transfer, and not a sale, apart from being latter at a certain price and the lessee has failed to
specious sophistry and a mere play of words, is too accept it.[39] The lessee has a right that the lessor's first
strained and hairsplitting. For it is axiomatic that every offer shall be in his favor.
sale imposes upon the vendor the obligation to transfer
ownership as an essential element of the The option in this case was incorporated in the
contract. Transfer of title or an agreement to transfer title contracts of lease by NDC for the benefit of FIRESTONE
for a price paid, or promised to be paid, is the very which, in view of the total amount of its investments in
essence of sale (Kerr & Co. v. Lingad, 38 SCRA the property, wanted to be assured that it would be given
524; Schmid & Oberly, Inc., v. RJL Martinez Fishing the first opportunity to buy the property at a price for
Corp., 166 SCRA 493). At whatever legal angle we view which it would be offered. Consistent with their
it, therefore, the inescapable fact remains that all the agreement, it was then implicit for NDC to have first
requisites of a valid sale were attendant in the offered the leased premises of 2.60 hectares to
transaction between co-defendants-appellants NDC and FIRESTONE prior to the sale in favor of PUP. Only if
PUP concerning the realities subject of the present suit. FIRESTONE failed to exercise its right of first priority
[36]
could NDC lawfully sell the property to petitioner PUP.
It now becomes apropos to ask whether the
What is more, the conduct of petitioner PUP
courts a quo were correct in fixing the proper
immediately after the transaction is in itself an admission
consideration of the sale at P1,500.00 per square
that there was a sale of the NDC compound in its
meter. In contracts of sale, the basis of the right of first
favor. Thus, after the issuance of Memorandum Order
refusal must be the current offer of the seller to sell or
No. 214 petitioner PUP asserted its ownership over the
the offer to purchase of the prospective buyer. Only after
property by posting notices within the compound
the lessee-grantee fails to exercise its right under the
advising residents and occupants to vacate the
same terms and within the period contemplated can the
premises.[37] In its Motion for Intervention petitioner
owner validly offer to sell the property to a third person,
PUP also admitted that its interest as a
again, under the same terms as offered to the grantee.
"purchaser pendente lite" would be better protected if it [40]
It appearing that the whole NDC compound was sold
was joined as party-defendant in the controversy thereby
to PUP for P554.74 per square meter, it would have
confessing that it indeed purchased the property.
been more proper for the courts below to have ordered
In light of the foregoing disquisition, we now the sale of the property also at the same price. However,
proceed to determine whether FIRESTONE should be since FIRESTONE never raised this as an issue, while
allowed to exercise its right of first refusal over the on the other hand it admitted that the value of the
property. Such right was expressly stated by NDC and property stood at P1,500.00 per square meter, then we
FIRESTONE in par. XV of their third contract see no compelling reason to modify the holdings of the
denominated as A-10-78 executed on 22 December courts a quo that the leased premises be sold at that
1978 which, as found by the courts a quo, was price.
interrelated to and inseparable from their first contract
Our attention is invited by petitioners to Ang Yu
denominated as C-30-65 executed on 24 August 1965
Asuncion v. CA[41] in concluding that if our holding in Ang
and their second contract denominated as C-26-68
Yu would be applied to the facts of this case then
executed on 8 January 1969. Thus -
FIRESTONE's "option, if still subsisting, is not
enforceable," the option being merely a preparatory
Should the LESSOR desire to sell the leased premises contract which cannot be enforced.
during the term of this Agreement, or any extension
thereof, the LESSOR shall first give to the LESSEE, The contention has no merit. At the heels of Ang
which shall have the right of first option to purchase the Yu came Equatorial Realty Development, Inc., v. Mayfair
leased premises subject to mutual agreement of both Theater, Inc.,[42] where after much deliberation we
parties.[38] declared, and so we hold, that a right of first refusal is
neither "amorphous nor merely preparatory" and can be
In the instant case, the right of first refusal is an enforced and executed according to its terms. Thus,
integral and indivisible part of the contract of lease and is in Equatorial we ordered the rescission of the sale which
inseparable from the whole contract. The consideration was made in violation of the lessee's right of first refusal
for the right is built into the reciprocal obligations of the and further ordered the sale of the leased property in
parties. Thus, it is not correct for petitioners to insist that favor of Mayfair Theater, as grantee of the
there was no consideration paid by FIRESTONE to right. Emphatically, we held that "(a right of first priority)
entitle it to the exercise of the right, inasmuch as the should be enforced according to the law on contracts
stipulation is part and parcel of the contract of lease instead of the panoramic and indefinite rule on human
relations." We then concluded that the execution of the
right of first refusal consists in directing the grantor to
comply with his obligation according to the terms at
which he should have offered the property in favor of the
grantee and at that price when the offer should have
been made.
One final word. Petitioner PUP should be cautioned
against bidding for public sympathy by bewailing the
dismissal of its petition before the press. Such advocacy
is not likely to elicit the compassion of this Court or of
any court for that matter. An entreaty for a favorable
disposition of a case not made directly through pleadings
and oral arguments before the courts do not persuade
us, for as judges, we are ruled only by our forsworn duty
to give justice where justice is due.
WHEREFORE, the petitions in G.R. No. 143513
and G.R. No. 143590 are DENIED. Inasmuch as the first
contract of lease fixed the area of the leased premises at
2.90118 hectares while the second contract placed it at
2.60 hectares, let a ground survey of the leased
premises be immediately conducted by a duly licensed,
registered surveyor at the expense of private respondent
FIRESTONE CERAMICS, INC., within two (2) months
from finality of the judgment in this case. Thereafter,
private respondent FIRESTONE CERAMICS, INC., shall
have six (6) months from receipt of the approved survey
within which to exercise its right to purchase the leased
property at P1,500.00 per square meter, and petitioner
Polytechnic University of the Philippines is ordered to
reconvey the property to FIRESTONE CERAMICS, INC.,
in the exercise of its right of first refusal upon payment of
the purchase price thereof.
SO ORDERED.
Notes.—The constitutional provision which directs that
the State shall assign the highest budgetary priority to
education is merely directory. (Philippine Constitution
Association vs. Enriquez, 235 SCRA 507 [1994])

In the law on sales, the so-called “right of first refusal” is


an innovative juridical relation, but it cannot be deemed
a perfected contract of sale under Article 1458 of the
Civil Code. (Asuncion vs. Court of Appeals, 238 SCRA
602 [1994])

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