Shortly prior to the institution of this lawsuit, the
Harden vs. Benguet Consolidated Mining Co. (1933)
G.R. No. 37331 | 1933-03-18
Facts:
1. The Benguet Consolidated Mining Co. was
organized in June, 1903, as a sociedad anonima
in conformity with the provisions of Spanish law.
2. The Balatoc Mining Co. was organized in
December, 1925, as a corporation, in conformity
with the provisions of the Corporation Law (Act
No. 1459).
3. Both entities were organized for the purpose of
engaging in the mining of gold in the Philippine
Islands, and their respective properties are
located only a few miles apart in the subprovince
of Benguet. The capital stock of the Balatoc
Mining Co. consists of one million shares of the
par value of one peso (P1) each.
4. When the Balatoc Mining Co. was first
organized the properties acquired by it were
largely undeveloped; and the original
stockholders were unable to supply the means
needed for profitable operation. Representatives
of Balotoc Mining approached A. W. Beam, then
president and general manager of the Benguet
Company, to secure the capital necessary to the
development of the Balatoc property.
5. A contract was executed on March 9, 1927
between the two companies, wherein Benguet
Company was to construct a milling plant, a
power plant, and such other surface buildings as
might be needed to operate the Balatoc mine. In
return for this, the Benguet Company should
receive Balatoc Company shares of a par value
of P600,000, in payment for the first P600,000 to
be thus advanced to it by the Benguet Company.
6. A complaint was filed by F. M. Harden, joined
by other stockholders of the Balatoc Mining Co.,
for annulment of the March 9, 1927 contract and
likewise the certificate for 600,000 shares. It is
claimed that it is unlawful for the Benguet
Company to hold any interest in a mining
corporation. Section 75 of the Act of Congress of
July 1, 1902 (Philippine Bill) prohibits
corporations engaged in mining and members of
such from being interested in any other
corporation engaged in mining
Benguet Consolidated Mining Co. transferred to
H. E. Renz, as trustee, the certificate for 600,000
shares of the Balatoc Mining.
Issues:
(1) WON plaintiffs can maintain an action based upon the
violation of law supposedly committed by the Benguet
Company; and
(2) WON the Benguet Company, which was organized as
a sociedad anonima, is a corporation within the meaning
of the law, prohibiting a mining corporation from becoming
interested in another mining corporation
Held:
Sociedad anonima
1. For purposes of general description only, it may be
stated that the sociedad anonima is something very much
like the English joint stock company, with features
resembling those of both the partnership and the
corporation. Its affinity to the partnership is shown in the
fact that sociedad anonima, the generic component of its
name in Spanish, is the same word that is used in that
language to designate other forms of partnership, and in
its organization it is constructed along the same general
lines as the ordinary partnership. It is therefore not
surprising that for purposes of loose translation the
expression sociedad anonima has not infrequently been
translated into English by the word partnership. On the
other hand, the affinity of this entity to the American
corporation has not escaped notice, and the expression
sociedad anonima is now generally translated by the word
corporation. But when the word corporation is used in the
sense of sociedad anonima, it should be associated with
the Spanish expression sociedad anonima either in a
parenthesis or connected by the word "or". This latter
device was adopted in section 75 and 191 of the
Corporation Law.
2. As it was the intention of our lawmakers to stimulate
the introduction of the American corporation into
Philippine law in the place of the sociedad anonima, it was
necessary to make certain adjustments resulting from the
continued co-existence, for a time, of the two forms of
commercial entities. Accordingly, in section 75 of the
Corporation Law, a provision is found making
the sociedad anonima subject to the provisions of the
Corporation Law "so far as such provisions may be
applicable", and giving to the sociedades anonimas
previously created in the Islands the option to continue
business as such or to reform and organize under the
provisions of the Corporation Law.
3. Again, in section 191 of the Corporation Law, the Code
of Commerce is repealed in so far as it relates to
sociedades anonimas. The purpose of the commission in
repealing this part of the Code of Commerce was to
compel commercial entities thereafter organized to
incorporate under the Corporation Law, unless they
should prefer to adopt some form or other of the
partnership. To this provision was added another to the
effect that existing sociedades anonimas, which elected
to continue their business as such, instead of reforming
and reorganizing under the Corporation Law, should
continue to be governed by the laws that were in force
prior to the passage of this Act "in relation to their
organization and method of transacting business and to
the rights of members thereof as between themselves, but
their relations to the public and public officials shall be
governed by the provisions of this Act (Corporation Law)."
Restriction on mining interests for members of a
corporation
4. In section 75 of the Act of Congress of July 1, 1902
(Philippine Bill), there is a provision referring to mining
corporations, which reads: ". . . it shall be unlawful for any
member of a corporation engaged in agriculture or mining
and for any corporation organized for any purpose except
irrigation to be in any wise interested in any other
corporation engaged in agriculture or in mining."
5. Section 75 of the Philippine Bill was amended
by section 7 of Act No. 3518, approved by Congress
March 1, 1929. The change in the law affected by this
amendment was in the direction of liberalization.
Thus, the inhibition contained in the original provision
against members of a corporation engaged in agriculture
or mining from being interested in other corporations
engaged in agriculture or in mining was so modified as
merely to prohibit any such member from holding more
than fifteen per centum of the outstanding capital stock of
another such corporation. This part of Act No. 3518
became effective upon approval by the Government-
General, on December 3, 1928, and it was therefore in full
force when the contract now in question was made.
6. This provision (Section 7, Act No. 3518) was inserted
as a new section in the Corporation Law, forming section
190(A) of Act No. 1459 as it now stands.
Plaintiffs have no right of action
7. The provision (Section 7, Act No. 3518) was adopted
by the lawmakers with a sole view to the public policy 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
representation of the Government.
8. Benguet Company has committed no civil wrong
against the plaintiffs, and if a public wrong has been
committed, the directors of the Balatoc Company, and the
plaintiff Harden himself, were the active inducers of the
commission of that wrong. The contract, supposing it to
have been unlawful in fact, has been performed on both
sides, by the building of the Balatoc plant by the Benguet
Company and the delivery to the latter of the certificate of
600,000 shares of the Balatoc Company. There is no
possibility of really undoing what has been done. Talk
about putting the parties in status quo ante by restoring
the consideration with interest, while the Balatoc
Company remains in possession of what it obtained by
the use of that money, does not quite meet the case.
9. Having shown that the plaintiffs in this case have no
right of action against the Benguet Company for the
infraction of law supposed to have been committed, we
forego any discussion of the further question whether a
sociedad anonima created under Spanish law, such as
the Benguet Company, is a corporation within the
meaning of the prohibitory provision already so many
times mentioned. That important question should, in our
opinion, be left until it is raised in an action brought by the
Government.
Article 1305, par 2 of the Civil Code cannot be invoked
where an adequate special remedy is supplied in a
special law
10. The plaintiffs would have us apply the second
paragraph of article 1305 of the Civil Code which declares
thatan innocent party to an illegal contract may recover
anything he may have given, while he is not bound to fulfill
any promise he may have made. But, supposing that the
first hurdle can be safely vaulted, the general remedy
supplied in article 1305 of the Civil Code cannot be
invoked where an adequate special remedy is supplied in
a special law.
11. It has been so held by this court in Go Chioco vs.
Martinez, where we refused to apply that article to a case
of nullity arising upon a usurious loan. The reason was
that the Usury Act, as amended, contains all the
provisions necessary for the affectuation of its purposes,
with the result that the remedy given in article 1305 of the
Civil code is unnecessary. Much more is that idea
applicable to the situation now before us, where the
special provisions given ample remedies for the
enforcement of the law by action in the name of the
Government, and where no civil wrong has been done to
the party here seeking redress.
J.R.S, BUSINESS CORPORATION, J.R. DA SlLVA and
A.J. BELTRAN, petitioners, vs. IMPERIAL
INSURANCE, INC., MACARIO M. OFILADA, Sheriff of
Manila and HON. AGUSTIN MONTESA, Judge of the
Court of First Instance of Manila, respondents.
Corporation law; Secondary franchise; Messenger
service.—The right to operate a messenger and
delivery service by virtue of a legislative enactment is a
secondary franchise.
Same; Same; Subject to execution sale.—A secondary
franchise is subject to levy and sale on execution
together with all the property necessary for the
enjoyment thereof.
Same; Same; Same; Procedure.—A secondary
franchise and the property necessary for its enjoyment
can be sold under execution only when such sale is
especially decreed and ordered in the judgment and it
becomes effective only when such sale is confirmed by
the Court after due notice.
Same; Same; Same; Effect of absence of special
decree.—Where the judgment does not contain any
special decree making the franchise of a private
corporation answerable for its judgment debt, the
inclusion of said corporation's franchise, trade name
and capital stocks in the execution sale of its properties
has no justification and such sale should be set aside
in so far as it authorizes such levy and sale.
FACTS:
1. Petitioner J. R. Da Silva, is the President of the
J.R.S. Business Corporation, an establishment
duly franchised by the Congress of the
Philippines, to conduct a messenger and delivery
express service.
2. On July 12, 1961, the respondent Imperial
Insurance, Inc., presented with the CFI of Manila
a complaint (Civ. Case No. 47520), for sum of
money against the petitioner corporation.
3. After the defendants therein have submitted their
Answer, the parties entered into a Compromise
Agreement4. On March 17, 1962, the lower court
rendered judgment embodying the contents of
the said compromise agreement.
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,
1962, Notices of Sale were sent out for the
auction of the personal properties of the petitioner
J.R.S. Business Corporation.
a. On June 2, 1962, a Notice of Sale of the
"whole capital stocks of the defendants
JRS Business Corporation, the business
name, right of operation, the whole
assets, furnitures and equipments, the
total liabilities, and Net Worth, books of
accounts, etc., etc." of the petitioner
corporation was, handed down. sold
under execution.
Issue:
1. W/N the business name or trade name, franchise
(right to operate) and capital stocks of the
petitioner are properties or property rights which
could be the subject of levy, execution and sale.
Held:
1. The corporation law, on forced sale of franchises,
provides —
Any franchise granted to a corporation to collect
tolls or to occupy, enjoy, or use public property or
any portion of the public domain or any right of
way over public property or the public domain,
and any rights and privileges acquired under such
franchise may be levied upon and sold under
execution, together with the property 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 corporation: Provided, That
the sale of the franchise or right of way and the
property necessary for the enjoyment, the
exercise of the 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 effective until confirmed by the court
after due notice. (Sec. 56, Corporation Law.)
2. In the case of Gulf Refining Co. v. Cleveland
Trust Co., 108 So., 158, it was held —
The first question then for decision is the meaning
of the word "franchise" in the statute.
"A franchise is a special privilege
conferred by governmental authority, and
which does not belong to citizens of the
country generally as a matter of common
right. ... Its meaning depends more or
less upon the connection in which the
word is employed and the property and
corporation to which it is applied. It may
have different significations.
"For practical purposes, franchises, so
far as relating to corporations, are
divisible into:
 (1) Corporate or general franchises -- the the fact that a trade name or business name and capital
franchise to exist as a corporation; and stock are necessarily included in the enjoyment of the
franchise. Like that of a franchise, the law mandates, that
(2) Special or secondary franchises -- property necessary for the enjoyment of said franchise,
certain rights and privileges conferred can only be sold to satisfy a judgment debt if the decision
upon existing corporations, such as the especially so provides. As We have stated heretofore, no
right to use the streets of a municipality such directive appears in the decision. Moreover, a trade
to lay pipes or tracks, erect poles or string name or business name cannot be sold separately from
wires the franchise, and the capital stock of the petitioner
corporation or any other corporation, for the matter,
represents the interest and is the property of stockholders
Primary Franchise Secondary Franchise
in the corporation, who can only be deprived thereof in the
“The right to exist as such”
manner provided by law (Therbee v. Baker, 35 N.E. Eq.
[8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177,
1. Vested "in the 1. Vested in the
Wis. 294, cited in 6 Words and Phrases, 109).
individuals who corporation
compose the
It, therefore, results that the inclusion of the franchise, the
corporation and
trade name and/or business name and the capital stock
not in the
of the petitioner corporation, in the sale of the properties
corporation itself"
of the JRS Business Corporation, has no justification. The
sale of the properties of petitioner corporation is set aside,
2. Cannot be
2. May ordinarily be in so far as it authorizes the levy and sale of its franchise,
conveyed in the
conveyed or trade name and capital stocks. Without pronouncement
absence of a
mortgaged under as to costs.
legislative
a general power
authority so to do. granted to a Note.—On the issue whether the business name or
corporation to tradename, and franchise (right) to operate are properties
dispose of its or property rights which could be the subject of levy,
property, except
execution or sale, there is a statutory authority to the
such special or
secondary effect that the goodwill of a business is property, and may
franchises as are be transferred together with the right to use the name
charged with a under which the business is conducted (Art. 521, new
public use. 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
3. The right to operate a messenger and express delivery Service Commission, et al., 49 O.G. 825; Manila Electric
service, by virtue of a legislative enactment, is admittedly Company v. Public Service Commission, etc., L-18638-
a secondary franchise (R.A. No. 3260, entitled "An Act 40, June 30, 1964).
granting the JRS Business Corporation a franchise to
conduct a messenger and express service)" and, as such,
under our corporation law, is subject to levy and sale on ——oOo——
execution together and including all the property
necessary for the enjoyment thereof. The law, however,
indicates the procedure under which the same (secondary
franchise and the properties necessary for its enjoyment)
may be sold under execution. Said franchise can be sold
under execution, when such sale is 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).

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.
The same thing may be stated with respect to petitioner's
trade name or business name and its capital stock.
Incidentally, the trade name or business name
corresponds to the initials of the President of the petitioner
corporation and there can be no serious dispute regarding
Antonio Vazquez, petitioner, vs. Francisco de Borja,
re-spondent.[No. 48931. February 23, 1944]
1.Corporations; Officers' Personal Liability on
Contracts.—It is well known that a corporation is an
artificial being invested by law with a personality of its
own, separate and distinct from that of its stockholders
and from that of its officers who manage and run its
affairs. The mere fact that its personality is owing to a
legal fiction and that it necessarily has to act thru its
agents, does not make the latter personally liable on a
contract duly entered into, or for an act lawfully
performed, by them for and in its behalf. The legal
fiction by which the personality of a corpo-ration is
created is a practical reality and necessity. Without it
no corporate entities may exist and no corporate
business may be transacted. Such legal fiction may be
disregarded only when an attempt is made to use it as
a cloak to hide an unlawful or fraudulent purpose. No
such thing has been alleged or proven in this case. It
has not been alleged nor even intimated that Vazquez
personally benefited by the contract of sale in question
and that he is merely invoking the legal fiction to avoid
personal liability. Neither is it contended that he
entered into said con-tract for the corporation in bad
faith and with intent to defraud the plaintiff. We find no
legal and factual basis upon which to hold him liable on
the contract either principally or subsidiarily.
2.Id.; Id.; Negligence.—The trial court found him guilty
of negligence in the performance of the contract and
held him personally liable on that accaunt. On the other
hand, the Court of Appeals found that he "no solamente
obro con negligencia, sino interviniendo culpa de su
parte, por lo que de acuerdo con los arts. 1102, 1103 y
1902 del Código Civil, él debe ser responsable
subsidiariamente del pago de la cantidad objeto de la
demanda." "We think both the trial court and the Court
oi Appeals erred in law in so holding. They have
manifestly failed to distinguish a contractual from an
extracontractual obligation, or an obli-gation arising
from contract from an obligation arising from culpa
aquiliana. The fault and negligence 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 negli-gence. 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.
3.Id.; Id.; Id.—On the other hand, if independently of
the contract Vazquez by his fault or negligence caused
damage to the plain-tiff, 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.
Facts:
This case is based on 3 consolidated causes of
action.
1. This action was commenced in the Court of First
Instance of Manila by Francisco de Borja against
Antonio Vazquez and Fernando Busuego to
recover from them jointly and severally the total
sum of P4,702.70 upon three alleged causes of
action, to wit:
a. First, that in or about the month of
January, 1932, the defendants jointly and
severally obligated themselves to sell to
the plaintiff 4,000 cavans of palay at
P2.10 per cavan, to be delivered during
the month of February, 1932, the said
defendants having subsequently
received from the plaintiff in virtue of said
agreement the sum of P8,400; that the
defendants delivered to the plaintiff
during the months of February, March,
and April, 1932, only 2,488 cavans of
palay of the value of P5,224.80 and
refused to deliver the balance of 1,512
cavans of the value of P3,175.20
notwithstanding repeated demands.
b. Second, that because of defendants'
refusal to deliver to the plaintiff the said
1,512 cavans of palay within the period
above mentioned, the plaintiff suffered
damages in the sum of P1,000. And,
c. third, that on account of the agreement
above mentioned the plaintiff delivered to
the defendants 4,000 empty sacks, of
which they returned to the plaintiff only
2,490 and refused to deliver to the
plaintiff the balance of 1,510 sacks or to
pay their value amounting to P377.50;
and that on account of such refusal the
plaintiff suffered damages in the sum of
P150.
 2. Vazquez’s Contention: Denied having entered
into the contract mentioned in the first cause of
action in his own individual and personal
capacity, either solely or together with his
codefendant Fernando Busuego, and alleging
that the agreement for the purchase of 4,000
cavans of palay and the payment of the price of
P8,400 were made by the plaintiff with and to the
Natividad-Vasquez Sabani Development Co.,
Inc., a corporation organized and existing under
the laws of the Philippines, of which the
defendant Antonio Vazquez was the acting
manager at the time the transaction took place.
a. Counterclaim: Said defendant alleged
that he suffered damages in the sum of
P1,000 on account of the filing of this
action against him by the plaintiff with full
knowledge that the said defendant had
nothing to do whatever with any and all of
the transactions mentioned in the
complaint in his own individual and
personal capacity.
Issue:
1. W/N the plaintiff entered into the contract with the
defendant Antonio Vazquez in his personal
capacity or as manager of the Natividad-Vazquez
Sabani Development Co., Inc.
Held:
1. The action being on a contract, and it appearing
from the preponderance of the evidence that the
party liable on the contract is the Natividad-
Vazquez Sabani Development Co., Inc. which is
not a party herein, the complaint should have
been dismissed. Counsel for the plaintiff, in his
brief as respondent, argues that altho by the
preponderance of the evidence the trial court and
the Court of Appeals found that Vazquez
celebrated the contract in his capacity as acting
president of the corporation and altho it was the
latter, thru Vazquez, with which the plaintiff had
contracted and which, thru Vazquez, had
received the sum of P8,400 from Borja, and altho
that was true from the point of view of a legal
fiction, "ello no impede que tambien sea verdad
lo alegado en la demanda de que la misma
persona de Vasquez fue la que contrato con
Borja y que la misma persona de Vasquez fue
quien recibio la suma de P8,400." But such
argument is invalid and insufficient to show that
the president of the corporation is personally
liable on the contract duly and lawfully entered
into by him in its behalf.
2. It is well known that a corporation is an artificial
being invested by law with a personality of its
own, separate and distinct from that of its
stockholders and from that of its officers who
manage and run its affairs. The mere fact that its
personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not
make the latter personally liable on a contract
duly entered into, or for an act lawfully performed,
by them for an in its behalf. The legal fiction by
which the personality of a corporation is created
is a practical reality and necessity. Without it no
corporate entities may exists and no corporate
business may be transacted. Such legal fiction
may be disregarded only when an attempt is
made to use it as a cloak to hide an unlawful or
fraudulent purpose. No such thing has been
alleged or proven in this case. It has not been
alleged nor even intimated that Vazquez
personally benefited by the contract of sale in
question and that he is merely invoking the legal
fiction to avoid personal liability. Neither is it
contended that he entered into said contract for
the corporation in bad faith and with intent to
defraud the plaintiff. We find no legal and factual
basis upon which to hold him liable on the
contract either principally or subsidiarily.
3. The fact that the corporation, acting thru Vazquez
as its manager, was guilty of negligence in the
fulfillment of the contract, did not make Vazquez
principally or even subsidiarily liable for such
negligence. Since it was the corporation's
contract, its nonfulfillment, whether due to
negligence or fault or to any other cause, made
the corporation and not its agent liable.
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.
INTERNATIONAL EXPRESS TRAVEL & TOUR
SERVICES, INC., petitioner, vs. HON. COURT OF
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.
Corporation Law; National Sports Associations;
Statutes; R.A. 3135 and P.D. No. 604 recognized the
juridical existence of national sports associations.—As
correctly observed by the appellate court, both R.A.
3135 and P.D. No. 604 recognized the juridical
existence of national sports associations. This may be
gleaned from the powers and functions granted to
these associations.
Same; Same; The powers and functions granted to
national sports associations clearly indicate that these
entities may acquire a juridical personality.—The
above powers and functions granted to national sports
associations clearly indicate that these entities may
acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may
only be done by persons, whether natural or artificial,
with juridical capacity. However, while we agree with
the appellate court that national sports associations
may be accorded corporate status, such does not
automatically take place by the mere passage of these
laws.
Same; Same; Philippine Football Association; 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; 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 Kahn
failed to substantiate. In attempting to prove the
juridical existence of the Federation, Henri Kahn
attached to his motion for reconsideration before the
trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the same
does not prove that said Federation has indeed been
recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of
Youth and Sports 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 a corporate
existence of its own.
Same; It is a settled principle 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 obligations and becomes
personally liable for contracts entered into or for such
other acts performed as such agent.—This 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 principle 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 obligations and becomes personally liable for
contracts entered into or for other acts performed as
such agent. 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.
Same; Doctrine of Corporation by Estoppel; The
doctrine of corporation by estoppel applies to a third
party only when he tries to escape liability on a contract
from which he has benefited on the irrelevant ground of
defective incorporation.—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. 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.
Facts:
1. Petitioner International Express Travel and Tour
Services, Inc., through its managing director,
wrote a letter to the Philippine Football Federation
(Federation), through its president private
respondent Henri Kahn, wherein the former
offered its services as a travel agency to the
latter.[1] The offer was accepted.
 2. Petitioner secured the airline tickets for the trips
of the athletes and officials of the Federation to
the South East Asian Games in Kuala Lumpur as
well as various other trips to the People's
Republic of China and Brisbane. The total cost of
the tickets amounted to P449,654.83. For the
tickets received, the Federation made two partial
payments, both in September of 1989, in the total
amount of P176,467.50.[2]
3. Petitioner wrote the Federation, through the
private respondent a demand letter requesting for
the amount of P265,894.33.[3] On 30 October
1989, the Federation, through the Project Gintong
Alay, paid the amount of P31,603.00.[4]
4. Henri Kahn issued a personal check in the
amount of P50,000 as partial payment for the
outstanding balance of the
Federation.[5] Thereafter, no further payments
were made despite repeated demands.
5. This prompted petitioner to file a civil case before
the Regional Trial Court of Manila. Petitioner
sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the
Federation as an alternative defendant.
6. Petitioner sought to hold Henri Kahn liable for the
unpaid balance for the tickets purchased by the
Federation on the ground that Henri Kahn
allegedly guaranteed the said obligation.[6]
7. Kahn’s Contention: While not denying the
allegation that the Federation owed the amount
P207,524.20, representing the unpaid balance
for the plane tickets, he averred that the petitioner
has no cause of action against him either in his
personal capacity or in his official capacity as
president of the Federation. He maintained that
he did not guarantee payment but merely acted
as an agent of the Federation which has a
separate and distinct juridical personality.[7]
Issue: W/N the PFF is a juridical person, hence, has a
separate and distinct juridical personality (If this is proved,
Khan would be exempt from liability).
Held:
1. The resolution of the case at bar hinges on the
determination of the existence of the Philippine
Football Federation as a juridical person. In the
assailed decision, the appellate court recognized
the existence of the Federation. In support of this,
the CA cited Republic Act 3135, otherwise known
as the Revised Charter of the Philippine Amateur
Athletic Federation, and Presidential Decree No.
604 as the laws from which said Federation
derives its existence.
2. As correctly observed by the appellate court, both
R.A. 3135 and P.D. No. 604 recognized the
juridical existence of national sports
associations. This may be gleaned from the
powers and functions granted to these
associations.
3. The above powers and functions granted to
national sports associations clearly indicate that
these entities may acquire a juridical
personality. The power to purchase, sell, lease
and encumber property are acts which may only
be done by persons, whether natural or artificial,
with juridical capacity. However, while we agree
with the appellate court that national sports
associations may be accorded corporate status,
such does not automatically take place by the
mere passage of these laws.
4. 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. Section 11 of R.A. 3135 provides:
5. 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.
6. This fact of recognition, however, Henri Kahn
failed to substantiate. In attempting to prove the
juridical existence of the Federation, Henri Kahn
attached to his motion for reconsideration before
the trial court a copy of the constitution and by-
laws of the Philippine Football
Federation. Unfortunately, the same does not
prove that said Federation has indeed been
recognized and accredited by either the
Philippine Amateur Athletic Federation or the
Department of Youth and Sports
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.
WHEREFORE, the decision appealed from is
REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Manila, Branch 35, in Civil Case
No. 90-53595 is hereby REINSTATED.
SO ORDERED.
Notes.—Corporation by estoppel is founded on principles
of equity and is designed to prevent injustice and
unfairness, and where there is no third person involved
and the conflict arises only among those assuming the
form of a corporation, who know that it has not been
registered, there is no corporation by estoppel. (Lozano
vs. De los Santos, 274 SCRA 452 [1997])

An unincorporated association which represents itself to

be a corporation will be estopped from denying its
corporate capacity in a suit against it by a third person
who relies in good faith on such representation. (Lim Tong
Lim vs. Philippine Fishing Gear Industries, Inc., 317
SCRA 728 [1999])

——o0o——
MONFORT HERMANOS AGRICULTURAL
DEVELOPMENT CORPORATION, as represented by
MA. ANTONIA M. SALVATIERRA, petitioner, vs.
ANTONIO B. MONFORT III, MA. LUISA MONFORT
ASCALON, ILDEFONSO B. MONFORT, ALFREDO B.
MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA
R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and
COURT OF APPEALS, respondents.
G.R. No. 155472. July 8, 2004.*
Corporation Law; Corporation Code; Corporations; 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.— 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-an,
all situated in Cadiz City.[3] It also owns one unit
of motor vehicle and two units of tractors.[4] The
same allowed Ramon H. Monfort, its Executive
Vice President, to breed and maintain fighting
cocks in his personal capacity at Hacienda San
Antonio.[5]
3. In 1997, the group of Antonio Monfort III, through
force and intimidation, allegedly took possession
of the 4 Haciendas, the produce thereon and the
motor vehicle and tractors, as well as the fighting
cocks of Ramon H. Monfort.
In G.R. No. 155472:
4. On April 10, 1997, the Corporation, represented
by its President, Ma. Antonia M. Salvatierra, and
Ramon H. Monfort, in his personal capacity, filed
against the group of Antonio Monfort III, a
complaint[6] for delivery of motor vehicle, tractors
and 378 fighting cocks, with prayer for injunction
and damages, docketed as Civil Case No. 506-C,
before the Regional Trial Court of Negros
Occidental, Branch 60.
5. The group of Antonio Monfort III filed a motion to
dismiss contending, inter alia, that Ma. Antonia
M. Salvatierra has no capacity to sue on behalf of
the Corporation because the March 31,
1997 Board Resolution[7] authorizing Ma. Antonia
M. Salvatierra and/or Ramon H. Monfort to
represent the Corporation is void as the purported
Members of the Board who passed the same
were not validly elected officers of the
Corporation.
In G.R. No. 152542:
6. On April 21, 1997, Ma. Antonia M. Salvatierra
filed on behalf of the Corporation a complaint for
forcible entry, preliminary mandatory injunction
with temporary restraining order and damages
against the group of Antonio Monfort III, before
the Municipal Trial Court (MTC)
of Cadiz City.[11] It contended that the latter
through force and intimidation, unlawfully took
possession of the 4 Haciendas and deprived the
Corporation of the produce thereon.
7. Antonio Monfort III Group Contention: Raised the
affirmative defense of lack of legal capacity of Ma.
Antonia M. Salvatierra to sue on behalf of the
Corporation.
8. BONE OF CONTENTION OF A.M.III GROUP:
The March 31, 1997 Board Resolution
authorizing Ma. Antonia M. Salvatierra and/or
Ramon H. Monfort to represent the Corporation is
 void because the purported Members of the
Board who passed the same were not validly
elected officers of the Corporation.
Issue: W/N Ma. Antonia M. Salvatierra has the legal
capacity to sue on behalf of the Corporation.
Held:
1. A corporation has no power except those
expressly conferred on it by the Corporation Code
and those that are implied or incidental to its
existence. In turn, a corporation exercises said
powers through its board of directors and/or its
duly authorized officers and agents. Thus, it has
been observed that the power of a corporation to
sue and be sued in any court is lodged with the
board of directors that exercises its corporate
powers. In turn, physical acts of the corporation,
like the signing of documents, can be performed
only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act
of the board of directors.[18]
2. Corporations are required under Section 26 of the
Corporation Code to submit to the SEC within
thirty (30) days after the election the names,
nationalities and residences of the elected
directors, trustees and officers of the
Corporation. In order to keep stockholders and
the public transacting business with domestic
corporations properly informed of their
organizational operational status, the SEC issued
the following rules:
xxxxxxxxx
2. A General Information Sheet shall be filed with
this Commission within thirty (30) days following the
date of the annual stockholders meeting. No
extension of said period shall be allowed, except for
very justifiable reasons stated in writing by the
President, Secretary, Treasurer or other officers,
upon which the Commission may grant an
extension for not more than ten (10) days.
2.A. Should a director, trustee or officer die, resign
or in any manner, cease to hold office, the
corporation shall report such fact to the
Commission with fifteen (15) days after such death,
resignation or cessation of office.
3. If for any justifiable reason, the annual meeting
has to be postponed, the company should notify the
Commission in writing of such postponement.
The General Information Sheet shall state, among
others, the names of the elected directors and
officers, together with their corresponding position
title (Emphasis supplied)
4. There is thus a doubt as to whether Paul M. Monfort,
Yvete M. Benedicto, Jaqueline M. Yusay and Ester S.
Monfort, were indeed duly elected Members of the Board
legally constituted to bring suit in behalf of the
Corporation.[21]
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
sustained the dismissal of the complaint because it was
not established that the Members of the Board who
authorized the filing of the complaint were the lawfully
elected officers of the corporation.
6. In the absence of any board resolution from its board
of directors the [sic] authority to act for and in behalf of the
corporation, the present action must necessarily fail. The
power of the corporation to sue and be sued in any court
is lodged with the board of directors that exercises its
corporate powers. Thus, the issue of authority and the
invalidity of plaintiff-appellants subscription which is still
pending, is a matter that is also addressed, considering
the premises, to the sound judgment of the Securities &
Exchange Commission.
7. 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. Xxx
9. 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.
10. In the absence of an authority from the board of
directors, no person, not even the officers of the
corporation, can validly bind the corporation.
11. In the case at bar, the fact that four of the six
Members of the Board listed in the 1996 General
Information Sheet[23] are already dead[24] at the
time the March 31, 1997 Board Resolution was
issued, does not automatically make the four
signatories (i.e., Paul M. Monfort, Yvete M.
Benedicto, Jaqueline M. Yusay and Ester S.
Monfort) to the said Board Resolution (whose
name do not appear in the 1996 General
 Information Sheet) as among the incumbent Negros Occidental, Branch 60 in Civil Case No. 822,
Members of the Board. This is because it was not is AFFIRMED.
established that they were duly elected to replace
the said deceased Board Members. In G.R. No. 155472, the petition is GRANTED and
the June 7, 2002 Decision rendered by the Special
12. THE ANOMALIES IN THIS CASE: To correct the Former Thirteenth Division of the Court of Appeals in CA-
alleged error in the General Information Sheet, G.R. SP No. 49251, dismissing the petitionfiled by the
the retained accountant of the Corporation group of Antonio Monfort III, is REVERSED and SET
informed the SEC in its November 11, 1998 letter ASIDE.
that the non-inclusion of the lawfully elected
directors in the 1996 General Information Sheet The complaint for forcible entry docketed as Civil
was attributable to its oversight and not the fault Case No. 822 before
of the Corporation.[25] This belated attempt, the Municipal Trial Court of Cadiz City is DISMISSED. In
however, did not erase the doubt as to whether Civil Case No. 506-C with the Regional Trial Court of
an election was indeed held. As previously Negros Occidental, Branch 60, the action for delivery of
stated, a corporation is mandated to inform the personal property filed by Monfort Hermanos Agricultural
SEC of the names and the change in the Development Corporation is likewise DISMISSED. With
composition of its officers and board of directors respect to the action filed by Ramon H. Monfort for the
within 30 days after election if one was held, or delivery of 387 fighting cocks, the Regional Trial Court of
15 days after the death, resignation or cessation Negros Occidental, Branch 60, is ordered to effect the
of office of any of its director, trustee or officer if corresponding substitution of parties.
any of them died, resigned or in any manner, No costs.
ceased to hold office. This, the Corporation failed
to do. The alleged election of the directors and SO ORDERED.
officers who signed the March 31, 1997 Board
Note.—Directors may appoint officers and agents and as
Resolution was held on October 16, 1996, but the
SEC was informed thereof more than two years incident to this power of appointment, they may discharge
later, or on November 11, 1998. The 4 Directors those appointed. (Union Motors Corporation vs. National
appearing in the 1996 General Information Sheet Labor Relations Commission, 314 SCRA 531 [1999])
died between the years 1984 1987,[26] but the
records do not show if such demise was reported
to the SEC. ——o0o——
13. What further militates against the purported
election of those who signed the March 31, 1997
Board Resolution was the belated submission of
the alleged Minutes of the October 16, 1996
meeting where the questioned officers were
elected. The issue of legal capacity of Ma.
Antonia M. Salvatierra was raised before the
lower court by the group of Antonio Monfort III as
early as 1997, but the Minutes of said October 16,
1996 meeting was presented by the Corporation
only in its September 29, 1999 Comment before
the Court of Appeals.[27] Moreover, the
Corporation failed to prove that the same October
16, 1996 Minutes was submitted to the SEC. In
fact, the 1997 General Information
Sheet[28] submitted by the Corporation does not
reflect the names of the 4 Directors claimed to be
elected on October 16, 1996.
14. Ma. Antonia M. Salvatierra failed to prove that
four of those who authorized her to represent the
Corporation were the lawfully elected Members of
the Board of the Corporation. As such, they
cannot confer valid authority for her to sue on
behalf of the corporation.
WHEREFORE, in view of all the foregoing, the
petition in G.R. No. 152542 is DENIED. The October 5,
2001 Decision of the Special Tenth Division of the Court
of Appeals in CA-G.R. SP No. 53652, which set aside the
August 14, 1998 Decision of the Regional Trial Court of
SAN JUAN STRUCTURAL AND STEEL
FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION,
NENITA LEE GRUENBERG, ACL DEVELOPMENT
CORP. and JNM REALTY AND DEVELOPMENT
CORP., respondents.
Corporation Law; Sales; The property of the
corporation is not the property of its stockholders or
members and may not be sold by the stockholders or
members without express authorization from the
corporation’s board of directors.—A corporation is a
juridical person separate and distinct from its
stockholders or members. Accordingly, the property of
the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or
members without express authorization from the
corporation’s board of directors.
Same; Same; Agency; The 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.—
Indubitably, a corporation may act only through its
board of directors or, when authorized either by its
bylaws or by its board resolution, through its officers or
agents in the normal course of business. The 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 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 the funds of
the corporation, and to disburse them in accordance
with the authority given him by the board or the properly
authorized officers.”—That Nenita Gruenberg is the
treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the 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. Selling is obviously
foreign to a corporate treasurer’s function, which
generally has been described as “to receive and keep
the funds of the corporation, and to disburse them in
accordance with the authority given him by the board
or the properly authorized officers.”
Same; Same; Same; When the corporate officers
exceed their authority, their actions “cannot bind the
corporation, unless it has ratified such acts or is
estopped from disclaiming them.”—As a general rule,
the acts of corporate officers within the scope of their
authority are binding on the corporation. But when
these officers exceed their authority, their actions
“cannot bind the corporation, unless it has ratified such
acts or is estopped from disclaiming them.”
Same; Same; Same; Contracts; Requisites of a Valid
and Perfected Contract.—Article 1318 of the Civil Code
lists the requisites of a valid and perfected contract: “(1)
consent of the contracting parties; (2) object certain
which is the subject matter of the contract; (3) cause of
the obligation which is established.” As found by the
trial court and affirmed by the Court of Appeals, there
is no evidence that Gruenberg was authorized to enter
into the contract of sale, or that the said contract was
ratified by Motorich. This factual finding of the two
courts is binding on this Court. As the consent of the
seller was not obtained, no contract to bind the obligor
was perfected. Therefore, there can be no valid
contract of sale between petitioner and Motorich.
Same; Same; Same; Same; Where a corporation never
gave a written authorization to its treasurer to sell a
parcel of land it owns, any agreement to sell entered
into by the latter with a third party is void.—Because
Motorich had never given a written authorization to
Respondent Gruenberg to sell its parcel of land, we
hold that the February 14, 1989 Agreement entered
into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from
the beginning, said contract cannot be ratified.
Same; Piercing the Veil of Corporate Fiction Doctrine;
On equitable considerations, the corporate veil can be
disregarded when it is utilized as a shield to commit
fraud, illegality or inequity; defeat public convenience;
confuse legitimate issues; or serve as a mere alter ego
or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.—True, one
of the advantages of a corporate form of business
organization is the limitation of an investor’s liability to
the amount of the investment. This feature flows from
the legal theory that a corporate entity is separate and
distinct from its stockholders. However, the statutorily
granted privilege of a corporate veil may be used only
for legitimate purposes. On equitable considerations,
the veil can be disregarded when it is utilized as a
shield to commit fraud, illegality or inequity; defeat
public convenience; confuse legitimate issues; or serve
as a mere alter ego or business conduit of a person or
an instrumentality, agency or adjunct of another
corporation.
Same; Same; Evidence; The question of piercing the
veil of corporate fiction is essentially a matter of
proof.—We stress that the corporate fiction should be
set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third persons.
The question of piercing the veil of corporate fiction is
essentially, then, a matter of proof. In the present case,
however, the Court finds no reason to pierce the
corporate veil of Respondent Motorich. Petitioner
utterly failed to establish that said corporation was
formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of
its officers or stockholders; or that the said veil was
used to conceal fraud, illegality or inequity at the
expense of third persons like petitioner.
Same; Same; Close Corporations; Words and
Phrases; “Close Corporation,” Defined.—Petitioner
claims that Motorich is a close corporation. We rule that
it is not. Section 96 of the Corporation Code defines a
close corporation as follows: “SEC. 96. Definition and
Applicability of Title.—A close corporation, within the
meaning of this Code, is one whose articles of
incorporation provide that: (1) All of the corporation’s
issued stock of all classes, exclusive of treasury
shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty
(20); (2) All of the issued stock of all classes shall be
subject to one or more specified restrictions on transfer
permitted by this Title; and (3) The corporation shall not
list in any stock exchange or make any public offering
of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting
stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the
meaning of this Code. x x x.”
Same; Same; Same; A corporation does not become a
close corporation just because a man and his wife
owns 99.866% of its subscribed capital stock; So, too,
a narrow distribution of ownership does not, by itself,
make a close corporation.—The articles of
incorporation of Motorich Sales Corporation does not
contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption
of shares is restricted in favor of any stockholder or of
the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is
prohibited. From its articles, it is clear that Respondent
Motorich is not a close corporation. Motorich does not
become one either, just because Spouses Reynaldo
and Nenita Gruenberg owned 99.866% of its
subscribed capital stock. The “[m]ere ownership by a
single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate
corporate personalities.” So, too, a narrow distribution
of ownership does not, by itself, make a close
corporation.
Same; Same; Same; In exceptional cases, “an action
by a director, who singly is the controlling stockholder,
may be considered as a binding corporate act and a
board action as nothing more than a mere formality.”—
The Court is not unaware that there are exceptional
cases where “an action by a director, who singly is the
controlling stockholder, may be considered as a
binding corporate act and a board action as nothing
more than a mere formality.” The present case,
however, is not one of them. As stated by petitioner,
Spouses Reynaldo and Nenita Gruenberg own “almost
99.866%” of Respondent Motorich. Since Nenita is not
the sole controlling stockholder of Motorich, the
aforementioned exception does not apply.
Same; Same; Same; Marriage; Husband and Wife;
Conjugal Partnership; Co-Ownership; There is no co-
ownership between the spouses in the properties of the
conjugal partnership of gains.—Granting arguendo that
the corporate veil of Motorich is to be disregarded, the
subject parcel of land would then be treated as conjugal
property of Spouses Gruenberg, because the same
was acquired during their marriage. There being no
indication that said spouses, who appear to have been
married before the effectivity of the Family Code, have
agreed to a different property regime, their property
relations would be governed by conjugal partnership of
gains. As a consequence, Nenita Gruenberg could not
have effected a sale of the subject lot because “[t]here
is no co-ownership between the spouses in the
properties of the conjugal partnership of gains. Hence,
neither spouse can alienate in favor of another his or
her interest in the partnership or in any property
belonging to it; neither spouse can ask for a partition of
the properties before the partnership has been legally
dissolved.”
Same; Same; Same; Same; Same; Absolute
Community of Property; Under the regime of absolute
community of property, “alienation of community
property must have the written consent of the other
spouse or the authority of the court without which the
disposition or encumbrance is void.”—Assuming
further, for the sake of argument, that the spouses’
property regime is the absolute community of property,
the sale would still be invalid. Under this regime,
“alienation of community property must have the
written consent of the other spouse or the authority of
the court without which the disposition or encumbrance
is void.” Both requirements are manifestly absent in the
instant case.
Facts:
1. San Juan Structural and Steel Fabricators,
Inc.s alleged that on 14 February 1989,
plaintiff-appellant entered into an agreement
with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel
of land.
2. As stipulated in the Agreement of 14
February 1989, plaintiff-appellant paid the
down payment in the sum of One Hundred
Thousand (P100,000.00) Pesos, the
balance to be paid on or before March 2,
1989;
3. On March 2, 1989, plaintiff-appellant was
ready with the amount corresponding to the
balance, covered by Metrobank Cashiers
Check No. 004223, payable to defendant-
appellee Motorich Sales Corporation; that
plaintiff-appellant and defendant-appellee
Motorich Sales Corporation were supposed
to meet in the office of plaintiff-appellant but
defendant-appellees treasurer, Nenita Lee
Gruenberg, did not appear;
4. That defendant-appellee Motorich Sales
Corporation despite repeated demands and
in utter disregard of its commitments had
refused to execute the Transfer of
Rights/Deed of Assignment which is
necessary to transfer the certificate of title;
5. Defendant ACL Development Corp. is
impleaded as a necessary party since
Transfer Certificate of Title No. (362909)
2876 is still in the name of said defendant;
while defendant JNM Realty & Development
Corp. is likewise impleaded as a necessary
party in view of the fact that it is the
transferor of right in favor of defendant-
appellee Motorich Sales Corporation;
a. On April 6, 1989, defendant ACL
Development Corporation and Motorich
Sales Corporation entered into a Deed of
Absolute Sale whereby the former
transferred to the latter the subject property;
b. By reason of said transfer, the Registry of
Deeds of Quezon City issued a new title in
the name of Motorich Sales Corporation,
represented by defendant-appellee Nenita
Lee Gruenberg and Reynaldo L. Gruenberg,
under Transfer Certificate of Title No. 3571;
6. Prayer of San Juan Structural and Steel
Fabricators: As a result of Nenita Lee
Gruenberg and Motorich Sales Corporations
bad faith in refusing to execute a formal
Transfer of Rights/Deed of Assignment,
plaintiff-appellant suffered moral and
nominal damages which may be assessed
against defendants-appellees in the sum of
Five Hundred Thousand (500,000.00)
Pesos;
7. Motorich Sales Corporation and Nenita
Lee Gruenberg’s Contention: The
President and Chairman of Motorich did not
sign the agreement adverted to in par. 3 of
the amended complaint; that Mrs.
Gruenbergs signature on the agreement
(ref: par. 3 of Amended Complaint) is
inadequate to bind Motorich. The other
signature, that of Mr. Reynaldo Gruenberg,
President and Chairman of Motorich, is
required.
Issues:
1. May a corporate treasurer, by herself and
without any authorization from the board of
directors, validly sell a parcel of land owned by
the corporation?
2. May the veil of corporate fiction be pierced on
the mere ground that almost all of the shares of
stock of the corporation are owned by said
treasurer and her husband?
Held:
The petition is devoid of merit.
First Issue: Validity of Agreement
Contention of San Juan Structural and Steel
Fabricators, Inc.: On February 14, 1989, it entered
through its president, Andres Co, into the disputed
Agreement with Respondent Motorich Sales Corporation,
which was in turn allegedly represented by its treasurer,
Nenita Lee Gruenberg. Petitioner insists that [w]hen
Gruenberg and Co affixed their signatures on the contract
they both consented to be bound by the terms
thereof. Ergo, petitioner contends that the contract is
binding on the two corporations.
We do not agree.
1. True, Gruenberg and Co signed on February 14,
1989, the Agreement according to which a lot
owned by Motorich Sales Corporation was
purportedly sold. Such contract, however, cannot
bind Motorich, because it never authorized or
ratified such sale:
A corporation is a juridical person separate and
distinct from its stockholders or
members. Accordingly, the property of the
corporation is not the property of its stockholders or
members and may not be sold by the stockholders
or members without express authorization from the
corporations board of directors.[10] Section 23 of BP
68, otherwise known as the Corporation Code of
the Philippines, provides:
 SEC. 23. The Board of Directors or
Trustees. -- Unless otherwise provided in
this Code, the corporate powers of all
corporations formed under this Code
shall be exercised, all business
conducted and all property of such
corporations controlled and held by the
board of directors or trustees to be
elected from among the holders of
stocks, or where there is no stock, from
among the members of the corporation,
who shall hold office for one (1) year and
until their successors are elected and
qualified.
2. A corporation may act only through its board of
directors, or, when authorized either by its bylaws
or by its board resolution, through its officers or
agents in the normal course of business.
3. The 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.[11] Thus, this
Court has held 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.[12]
4. 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).[13] Unless duly
authorized, a treasurer, whose powers are
limited, cannot bind the corporation in a sale of its
assets.[14]
5. In the case at bar, Respondent Motorich
categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel
of land.[15] Consequently, petitioner had the
burden of proving that Nenita Gruenberg was in
fact authorized to represent and bind Motorich in
the transaction. Petitioner failed to discharge this
burden. Its offer of evidence before the trial court
contained no proof of such authority.[16] It has not
shown any provision of said respondents articles
of incorporation, bylaws or board resolution to
prove that Nenita Gruenberg possessed such
power. (BOP is with Petitioner to prove that
Nenita was authorized by the corp. to enter
into such contract)
6. That Nenita Gruenberg is the treasurer of
Motorich does not free petitioner from the
responsibility of ascertaining the 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. 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
accordance with the authority given him by the
board or the properly authorized officers.[17]
7. Neither was such real estate sale shown to be a
normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution,
export and import in relation to a general
merchandising business.[18] Unmistakably, its
treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity
which falls way beyond the scope of her general
authority.
Articles 1874 and 1878 of the Civil Code of the
Philippines provides:
ART. 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
shall be void.
ART. 1878 Special powers of attorney are
necessary in the following case:
xxxxxxxxx
(5) To enter any contract by which the ownership
of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
x x x x x x x x x.
6. San Juan Structural and Steel Fabricators
Contention: Motorich has ratified said contract of
sale because of its acceptance of benefits, as
evidenced by the receipt issued by Respondent
Gruenberg.[19] Petitioner is clutching at straws.
GENERAL The acts of corporate officers within
RULE: the scope of their authority are
binding on the corporation.
EXCEPTION: But when these officers exceed their
authority, their actions cannot bind
the corporation, unless it has ratified
such acts or is estopped from
disclaiming them.[20]
7. In this case, there is a clear absence of proof that
Motorich ever authorized Nenita Gruenberg, or
made it appear to any third person that she had
the authority, to sell its land or to receive the
earnest money. Neither was there any proof that
Motorich ratified, expressly or impliedly, the
contract. Petitioner rests its argument on the
receipt, which, however, does not prove the fact
of ratification. The document is a hand-written
 one, not a corporate receipt, and it bears only
Nenita Gruenbergs signature. Certainly, this
document alone does not prove that her acts
were authorized or ratified by Motorich.
Second Issue:
corporation. We rule that it is not.
Piercing the Corporate Veil Not Justified
Petitioner’s Contention: The veil of corporate fiction of
Motorich should be pierced, because the latter is a close
corporation. Since Spouses Reynaldo L. Gruenberg and
Nenita R. Gruenberg owned all or almost all or 99.866%
to be accurate, of the subscribed capital stock [25] of
Motorich, petitioner argues that Gruenberg needed no
authorization from the board to enter into the subject
contract.[26] It adds that, being solely owned by the
Spouses Gruenberg, the company can be treated as a
close corporation which can be bound by the acts of its
principal stockholder who needs no specific authority.
The Court is not persuaded.
1. True, one of the advantages of a corporate form
of business organization is the limitation of an
investors liability to the amount of the
investment.[30] This feature flows from the legal
theory that a corporate entity is separate and
distinct from its stockholders. However, the
statutorily granted privilege of a corporate veil
may be used only for legitimate purposes.[31] On
equitable considerations, the veil can be
disregarded when it is utilized as a shield to
commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve
as a mere alter ego or business conduit of a
person or an instrumentality, agency or adjunct of
another corporation.[32]
2. Thus, the Court has consistently ruled that:
[w]hen the fiction is used as a means of
perpetrating a fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the
circumvention of statutes, the achievement or
perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which
the law covers and isolates the corporation from the
members or stockholders who compose it will be
lifted to allow for its consideration merely as an
aggregation of individuals.[33]
3. The corporate fiction should be set aside when it
becomes a shield against liability for fraud,
illegality or inequity committed on third
persons. The question of piercing the veil of
corporate fiction is essentially, then, a matter of
proof. In the present case, however, the Court
finds no reason to pierce the corporate veil of
Respondent Motorich.
4. Petitioner utterly failed to establish that said
corporation was formed, or that it is operated, for
the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders; or
that the said veil was used to conceal fraud,
illegality or inequity at the expense of third
persons, like petitioner.
Petitioner’s Contention: Motorich is a close
5. CLOSE CORP. DEFINED
Section 96 of the Corporation Code defines a close
corporation as follows:
SEC. 96. Definition and Applicability of Title. -- A
close corporation, within the meaning of this Code,
is one whose articles of incorporation provide
that:
(1) All of the corporations issued stock of all
classes, exclusive of treasury shares, shall
be held of record by not more than a
specified number of persons, not exceeding
twenty (20);
(2) All of the issued stock of all classes shall
be subject to one or more specified
restrictions on transfer permitted by this Title;
and
(3) The corporation shall not list in any stock
exchange or make any public offering of any
of its stock of any class.
Notwithstanding the foregoing, a corporation
shall be deemed not a close corporation
when at least two-thirds (2/3) of its voting
stock or voting rights is owned or controlled
by another corporation which is not a close
corporation within the meaning of this Code.
xxx.
6. The articles of incorporation[34] of Motorich Sales
Corporation does not contain any provision
stating that:
(1) the number of stockholders shall not exceed 20,
or
(2) a preemption of shares is restricted in favor of
any stockholder or of the corporation, or
(3) listing its stocks in any stock exchange or
making a public offering of such stocks is
prohibited.
7. From its articles, it is clear that Respondent
Motorich is not a close corporation.[35] Motorich does
not become one either, just because Spouses
Reynaldo and Nenita Gruenberg owned 99.866%
of its subscribed capital stock. The [m]ere ownership
by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the
separate corporate personalities.[36] So too, a narrow
distribution of ownership does not, by itself, make a
close corporation.
8. Petitioner cites Manuel R. Dulay Enterprises, Inc.
v. Court of Appeals[37] wherein the Court ruled that
xxx petitioner corporation is classified as a close
corporation and, consequently, a board resolution
 authorizing the sale or mortgage of the subject WHEREFORE, the petition is hereby DENIED and
property is not necessary to bind the corporation for the assailed Decision is AFFIRMED.
the action of its president.[38] But the factual milieu
in Dulay is not on all fours with the present case, to SO ORDERED.
wit: Notes.—For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be
DULAY CASE MOTORICH CASE clearly and convincingly established—it cannot be
presumed. (Matuguina Integrated Wood Products, Inc.
The sale of real property Motorich is not a close vs. Court of Appeals, 263 SCRA 490 [1996])
was contracted by the corporation, as previously
president of a close discussed, and the Stockholders who are actively engaged in the
corporation with the agreement was entered management or operation of the business and affairs of a
knowledge and into by the corporate close corporation shall be personally liable for corporate
acquiescence of its board treasurer without the torts unless the corporation has obtained reasonably
of directors knowledge of the board of adequate liability insurance. (Naguiat vs. National Labor
directors. Relations Commission, 269 SCRA 564 [1997])

8. The Court is not unaware that there are ——o0o——

exceptional cases where an action by a director,
who singly is the controlling stockholder, may be
considered as a binding corporate act and a
board action as nothing more than a mere
formality.[40] The present case, however, is not
one of them.
9. As stated by petitioner, Spouses Reynaldo and
Nenita Gruenberg own almost 99.866% of
Respondent Motorich.[41] Since Nenita is not the
sole controlling stockholder of Motorich, the
aforementioned exception does not
apply. Granting arguendo that the corporate veil
of Motorich is to be disregarded, the subject
parcel of land would then be treated as conjugal
property of Spouses Gruenberg, because the
same was acquired during their marriage. There
being no indication that said spouses, who
appear to have been married before the effectivity
of the Family Code, have agreed to a different
property regime, their property relations would be
governed by conjugal partnership of gains.[42] As
a consequence, Nenita Gruenberg could not
have effected a sale of the subject lot because
[t]here is no co-ownership between the spouses
in the properties of the conjugal partnership of
gains. Hence, neither spouse can alienate in
favor of another his or her interest in the
partnership or in any property belonging to it;
neither spouse can ask for a partition of the
properties before the partnership has been legally
dissolved.[43]
Assuming further, for the sake of argument, that the
spouses property regime is the absolute community of
property, the sale would still be invalid. Under this regime,
alienation of community property must have the written
consent of the other spouse or the authority of the court
without which the disposition or encumbrance
is void.[44] Both requirements are manifestly absent in the
instant case.
SMITH, BELL & COMPANY (LTD.), petitioner, vs.
JOAQUIN NATIVIDAD, Collector of Customs of the
port of Cebu, respondent.
Registration of a corporation cannot be compelled
by mandamus
ID.; COMMERCE; UNITED STATES COASTWISE
TRADE.—The power to regulate commerce, expressly
delegated to the Congress by the Constitution, includes
the power to nationalize ships built and owned in the
United States by registries and enrollments, and the
recording of the muniments of title of American vessels.
ID.; ID.; ID.—Under the Acts of Congress of December
31, 1792, and February 18, 1793 (1 Stat. 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 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
Islands;
(b) citizens of the United States residing in the
Philippine Islands;
(c) any corporation or company composed wholly of
citizens of the Philippine Islands or of the United States
or both, is authorized by the Act of Congress of April
29, 1908, with its specific delegation of authority to the
Government of the Philippine Islands to regulate the
transportation of merchandise and 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.
ID. ; ID. ; ID. ; ID.—While the plaintiff, a corporation
having alien stockholders, is entitled to the protection
afforded by the due process of law and equal protection
of the laws clause of the Philippine Bill of Rights, yet
Act No. 2761, in denying to corporations such as the
plaintiff the right to register vessels in the Philippine
coastwise trade, does not belong to that vicious
species of class legislation which must always be
condemned, but falls within authorized exceptions,
notably, within the purview of the police power.
ID. ; ID.; ID. ; ID.—Act No. 2761 does not violate the
provisions of paragraph 1 of section 3 of the Act of
Congress of August 29, 1916, providing "that no law
shall be enacted in said Islands which shall deprive any
person of life, liberty, or property without due process
of law, or deny to any person therein the equal
protection of the laws."
Gist of the case: A writ of mandamus is prayed for by
Smith, Bell & Co. (Ltd.), against Joaquin Natividad,
Collector of Customs of the port of Cebu, Philippine
Islands, to compel him to issue a certificate of Philippine
registry to the petitioner for its motor vessel Bato. The
question, flatly presented, is, whether Act. No. 2761 of the
Philippine Legislature is valid — or, more directly stated,
whether the Government of the Philippine Islands,
through its Legislature, can deny the registry of vessels in
its coastwise trade to corporations having alien
stockholders.
FACTS:
1. Smith, Bell & Co., (Ltd.), is a corporation
organized and existing under the laws of the
Philippine Islands.
2. A majority of its stockholders are British subjects.
3. It is the owner of a motor vessel known as
the Bato built for it in the Philippine Islands in
1916, of more than fifteen tons gross
The Bato was brought to Cebu in the present
year for the purpose of transporting plaintiff's
merchandise between ports in the Islands.
 4. Application was made at Cebu, the home port of
the vessel, to the Collector of Customs for a
certificate of Philippine registry.
5. The Collector refused to issue the certificate,
giving as his reason that all the stockholders of
Smith, Bell & Co., Ltd., were not citizens either of
the United States or of the Philippine Islands. The
instant action is the result.
Issue:
1. W/N the Government of the Philippine Islands,
through its Legislature, can deny the registry of
vessel in its coastwise trade to corporations
having alien stockholders .
Held:
1. While Smith, Bell & Co. Ltd., a corporation having
alien stockholders, is entitled to the protection
afforded by the due-process of law and equal
protection of the laws clause of the Philippine Bill
of Rights, nevertheless, Act No. 2761 of the
Philippine Legislature, in denying to corporations
such as Smith, Bell &. Co. Ltd., the right to
register vessels in the Philippines coastwise
trade, does not belong to that vicious species of
class legislation which must always be
condemned, but does fall within authorized
exceptions, notably, within the purview of the
police power, and so does not offend against the
constitutional provision.
2. The power to regulate commerce, expressly
delegated to the Congress by the Constitution,
includes the power to nationalize ships built and
owned in the United States by registries and
enrollments, and the recording of the muniments
of title of American vessels. The Congress "may
encourage or it may entirely prohibit such
commerce, and it may regulate in any way it may
see fit between these two extremes."
These laws continued in force without
contest, although possibly the Act of
March 3, 1825, may have affected them,
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 citizens of the
United States to corporations created
under the laws of any of the states
thereof. The law, as amended, made
possible the deduction 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 right of ownership
of stock in a corporation was thereafter
distinct from the right to hold the property
by the corporation
(Humphreys vs. McKissock [1890], 140
U.S., 304; 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.
4. Purpose of the Philippine Legislature: To
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
ship-owners exclusive privileges. (Old Dominion
Steamship Co. vs.Virginia [1905], 198 U.S., 299;
Kent's Commentaries, Vol. 3, p. 139.)
5. The United States Congress in assuming its
grave responsibility of legislating wisely for a new
country did so imbued with a spirit of
Americanism. Domestic navigation and trade, it
decreed, could only be carried on by citizens of
the United States. If the representatives of the
American people acted in this patriotic manner to
advance the national policy, and if their action
was accepted without protest in the courts, who
can say that they did not enact such beneficial
laws under the all-pervading police power, with
the prime motive of safeguarding the country and
of promoting its prosperity? Quite similarly, 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. Who can say, therefore,
especially can a court, that with all the facts and
circumstances affecting the Filipino people
before it, the Philippine Legislature has erred in
the enactment of Act No. 2761.
6. The limitation of domestic ownership for purposes
of obtaining a certificate of Philippine registry in
the coastwise trade to citizens of the Philippine
Islands, and to citizens of the United States, does
not violate the provisions of paragraph 1 of
section 3 of the Act of Congress of August 29,
1916 No treaty right relied upon Act No. 2761 of
the Philippine Legislature is held valid and
constitutional .
 seizures made in pursuance thereof, for the simple
Stonehill v. Diokno (1967)
reason that said corporations have their respective
G.R. No. L-19550 | 1967-06-19 personalities, separate and distinct from the personality of
herein petitioners, regardless of the amount of shares of
stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein
may be.

Right Against Unlawful Search is Personal 2. Indeed, it is well settled that the legality of a seizure can
be contested only by the party whose rights have been
1. As regards the warrants issued to the corporations,
impaired thereby, and that the objection to an unlawful
we hold that petitioners herein have no cause of action
search and seizure is purely personal and cannot be
to assail the legality of the contested warrants and of
the seizures made in pursuance thereof, for the simple availed of by third parties.
reason that said corporations have their respective
personalities, separate and distinct from the personality
of herein petitioners, regardless of the amount of
shares of stock or of the interest of each of them in said
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.

Facts:

1. Several judges issued 42 search warrants against

Stonehill and other petitioners to seize “books of
accounts, financial records, vouchers, correspondence,
receipts, ledgers, journals, portfolios, credit journals,
typewriters,and other documents and/or papers showing
all business transactions including disbursements
receipts, balance sheets and profit and loss statements
and Bobbins (cigarette wrappers),” claiming violations of
“Central Bank Laws, Tariff and Customs Laws, Internal
Revenue (Code) and Revised Penal Code.”

2. The documents were seized from two locations:

(1) their corporate offices and

(2) the personal residences of the petitioners.

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

Bache & Co. (Phil), Inc. vs. Ruiz (1971)
G.R. No. L-32409 | 1971-02-27
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, 208 and
209, and authorizing Revenue Examiner Rodolfo de Leon
to make and file the application for search warrant which
was attached to the letter.
2. On February 25, 1970, De Leon and his witness,
Arturo Logronio, went to the sala of Judge Ruiz,
bringing with them their supporting documents for
the application of the search warrrant.
3. At that time, Judge Ruiz was hearing a certain
case, so by means of a note, he instructed his
Deputy Clerk of Court to take the depositions of
De Leon and Logronio.
4. After the session had adjourned, Judge Ruiz was
informed that the depositions had already been
taken. The stenographer, upon request of Judge
Ruiz, read to him her stenographic notes, and
thereafter, Judge Ruiz asked Logronio to take the
oath and warned him that if his deposition was
found to be false and without legal basis, he could
be charged for perjury.
5. Judge Ruiz signed De Leon's application for
search warrant and Logronio's deposition.
Search Warrant No. 2-M-70 was then sign by
Judge Ruiz and accordingly issued.
6. Three days later, or on February 28, 1970, which
was a Saturday, the BIR agents served the
search warrant at the offices of petitioner Bache
& 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
agents nevertheless proceeded with their search
which yielded six boxes of documents.
8. Petitioners filed a petition with the CFI praying
that the search warrant be quashed. The petition
was dismissed by Judge Ruiz.
9. In the meantime, the Bureau of Internal Revenue
made tax assessments on Bache & Co. for
P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners thus came to
the Supreme Court to declare null and void
Search Warrant.
Held:
1. 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.
2. 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.
BATAAN SHIPYARD & ENGINEERING CO., INC. the PCGG, and of course no seizure on the occasion
(BASECO), petitioner, vs. PRESIDENTIAL thereof.
COMMISSION ON GOOD GOVERNMENT, CHAIRMAN
JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON
DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT.
JORGE B. SIACUNCO, et al., respondents.

Same; Same; Same; Right against self-incrimination

has no application to juridical persons and the
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
and seizures had been transgressed by the Order of
April 18,1986 which required it "to produce corporate
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
subpoenas requiring * * the production of such books,
papers, contracts, records, statements of accounts and
other documents as may be material to the
investigation conducted by the Commission," and
paragraph (3), Executive Order No. 2 dealing with its
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

Facts:
MAMBULAO LUMBER COMPANY, plaintiff-appellant,
vs. PHILIPPINE NATIONAL BANK and ANACLETO
HERALDO, Deputy Provincial Sheriff of Camarines
Norte, defendants-appellees.
Damages; Moral damages; Award of damage to
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 which, if
besmirched, may also be a ground for the award of
moral damages.
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 real
estate, machinery, logging and transportation
equipments as collaterals.
2. The application, however, was approved for a
loan of P100,000 only.
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 of
Camarines Norte, and covered by Transfer
Certificate of Title No. 381 of the land records of
said province, as well as various sawmill
equipment, rolling unit and other fixed assets of
the plaintiff, all situated in its compound in the
aforementioned municipality.
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.
5. On October 19, 1956, the PNB made another
release of P15,500 as part of the approved loan
granted to the plaintiff and so on the said date,
the latter executed another promissory note
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 ending
on July 31, 1961.
6. The plaintiff failed to pay the amortization on the
amounts released to and received by it. 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 1958.
7. On September 27, 1961, the PNB sent a letter to
the Provincial Sheriff of Camarines Norte
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,
and to sell it at public auction in accordance with
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.
8. In compliance with the request, on October 16,
1961, the Provincial Sheriff of Camarines Norte
issued the corresponding notice of extra-judicial
sale and sent a copy thereof to the plaintiff.
According to the notice, the mortgaged property
would be sold at public auction at 10:00 a.m. on
November 21, 1961, at the ground floor of the
Court House in Daet, Camarines Norte.
9. On November 6, 1961, the PNB sent a letter to
the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels
mortgaged to it by the plaintiff and sell them at
public auction also on November 21, 1961, for the
satisfaction of the sum of P57,646.59, plus 6%
annual interest therefore from September 23,
1961, attorney's fees equivalent to 10% of the
amount due and the 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 auction sale thereof would be held
on November 21, 1961, between 9:00 and 12:00
a.m., in Mambulao, Camarines Norte, where the
mortgaged chattels were situated.
10. On November 8, 1961, Deputy Provincial Sheriff
Anacleto Heraldo took possession of the chattels
mortgaged by the plaintiff and made an inventory
thereof in the presence of a PC Sergeant and a
policeman of the municipality of Jose
Panganiban. On November 9, 1961, the said
Deputy Sheriff issued the corresponding notice of
public auction sale of the mortgaged chattels to
be held on November 21, 1961, at 10:00 a.m., at
the plaintiff's compound situated in the
municipality of Jose Panganiban, Province of
Camarines Norte.
11. On November 19, 1961, the plaintiff sent
separate letters, posted as registered air mail
matter, one to the Naga Branch of the PNB and
another to the Provincial Sheriff of Camarines
Norte, protesting against the foreclosure of the
real estate and chattel mortgages on the grounds
that they could not be effected unless a Court's
order was issued against it (plaintiff) for said
purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts,
should be made in Manila. 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 given an extension of ninety
(90) days, its obligation would be settled
satisfactorily because an important negotiation
was then going on for the sale of its "whole
interest" for an amount more than sufficient to
liquidate said obligation.
12. Upon the foregoing facts, the trial court rendered
the decision appealed from which, as stated in
the first paragraph of this opinion, sentenced the
Mambulao Lumber Company to pay to the
defendant PNB the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from
December 22, 1961 (day following the date of the
questioned foreclosure of plaintiff's chattels) until
fully paid, and the costs. Mambulao Lumber
Company interposed the instant appeal.
13. That appellant vigorously objected to the
foreclosure of its chattel mortgage after the
foreclosure of its real estate mortgage on
November 21, 1961, can not be doubted, as
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 another
letter to the appellee bank on December 14,
1961, wherein herein appellant, in no uncertain
terms, reiterated its objection to the scheduled
sale of its chattels on December 21, 1961 at Jose
Panganiban, Camarines Norte for the reasons
therein stated that: (1) it had settled in full its total
obligation to the PNB by the sale of the real estate
and its subsequent remittance of the amount of
P738.59; and (2) that the contemplated sale at
Jose Panganiban would violate their agreement
embodied under 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
parties hereto agree that the corresponding
complaint for foreclosure or the petition for sale
should be filed with the courts or the sheriff of the
City of Manila, as the case may be; and that the
Mortgagor shall pay attorney's fees hereby fixed
at ten per cent (10%) of the total indebtedness
then unpaid but in no case shall it be less than
P100.00, exclusive of all costs and fees allowed
by law and of other expenses incurred in
connection with the said foreclosure. [Emphasis
supplied]
Notwithstanding the abovequoted agreement in the
chattel mortgage contract, and in utter disregard of the
objection of herein appellant to the sale of its chattels at
Jose Panganiban, Camarines Norte and not in the City of
Manila as agreed upon, the PNB proceeded with the
foreclosure sale of said chattels. The trial court, 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
the Sheriff of the City of Manila, nevertheless, the
effect thereof was merely to provide another
place where the mortgage chattel could be sold
in addition to those specified in the Chattel
Mortgage Law. Indeed, a stipulation in a contract
cannot abrogate much less impliedly repeal a
specific provision of the statute. Considering that
Section 14 of Act No. 1508 vests in the
mortgagee the choice where the foreclosure sale
should be held, hence, in the case under
consideration, the PNB had three places from
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.
hereby, it is set aside. The Philippine National Bank and
the Deputy Sheriff of the province of Camarines Norte are
ordered to pay, jointly and severally, to Mambulao Lumber
Company the total amount of P56,000.73, broken as
follows: P150.73 overpaid by the latter to the PNB,
P42,850.00 the value of the chattels at the time of the sale
with interest at the rate of 6% per annum from December
21, 1961, until fully paid, P10,000.00 in exemplary
damages, and P3,000.00 as attorney's fees. Costs
against both appellees.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Bengzon, J.P. J., took no part.

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 DEL
the award of P3,000.00 as attorney's fees for herein 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
Corporation Code, unless otherwise provided by said
Code, corporate powers, such as the power to enter
into contracts, are exercised by the Board of
Directors. However, the Board may delegate such
powers to either an executive committee or officials or
contracted managers. The delegation, except for the
executive committee, must be for specific
purposes. Delegation to officers makes the latter
agents of the corporation; accordingly, the general
rules of agency as to the binding effects of their acts
would apply. For such officers to be deemed fully
clothed by the corporation to exercise a power of the
Board, did not have the authority to accept ABS-CBNs
counter-offer was best evidenced by his submission of
the draft contract to VIVAS Board of Directors for the
latters approval. In any event, there was between Del
Rosario and Lopez III no meeting of minds.
ID.; ID.; ID.; MORAL DAMAGES; ELABORATED. As to
moral damages the law is Section 1, Chapter 3, Title
XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while
Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages
may be recovered in breaches of contract where the
defendant acted fraudulently or in bad faith. Moral
damages are in the category of an award designed to
compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer. The award
is not meant to enrich the complainant at the expense
of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve
to obviate the moral suffering he has undergone. It is
aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. Trial courts
must then guard against the award of exorbitant
damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was
due to passion, prejudice, or corruption on the part of
the trial court.
ID.; ID.; ID.; ID.; CASE AT BAR. RBSs claim for moral
damages could possibly fall only under item (10)
of Article 2219, thereof which reads: (10) Acts and
actions referred to in Articles 21, 26, 27, 28, 29,
30, 32, 34, and 35. However, the award of moral
damages cannot be granted in favor of a
corporation because, being an artificial person
and having existence only in legal contemplation,
it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering
and mental anguish, which can be experienced
only by one having a nervous system. The
statement in People v. Manero and Mambulao
Lumber Co. v. PNB that a corporation may
recover moral damages if it has a good reputation
that is debased, resulting in social humiliation is
an obiter dictum. On this score alone the award
for damages must be set aside, since RBS is a
corporation.
Facts:
1. In 1990, ABS-CBN and VIVA executed a Film
Exhibition Agreement whereby the latter gave the
former an exclusive right to exhibit 24 VIVA Films
for TV telecast.
2. Later, VIVA, through respondent Vincent del
Rosario, offered ABS-CBN a list of 3 film
packages (36 titles) from which the latter may
exercise its right of first refusal under their
agreement.
3. ABS-CBN ticked off 10 titles
therefrom. Thereafter, in February 1992, Del
Rosario offered ABS-CBN airing rights over a
package of 104 movies for P60 million.
4. In April, 1992, Del Rosario, and Eugenio Lopez of
ABS-CBN, met at a restaurant to discuss the
package proposal.
5. According to Lopez, however, what they agreed
upon was ABS-CBNs exclusive film rights to 14
films for P36 million. Del Rosario denied the
same. He insisted that the discussion was on
VIVAs offer of 104 films for P60 million, to which
ABSCBN later made a counterproposal but
rejected by VIVAs Board of Directors.
6. Hence, VIVA later granted RBS the exclusive
right to air the 104 VIVA films, including the 14
films supposedly granted to ABS-CBN.
7. ABS-CBN then filed a complaint for specific
performance with prayer for injunction.
8. The RTC granted the prayer and required ABS-
CBN post a P35 million bond.
9. But while ABS-CBN was moving for reduction of
the bond, RBS offered to put up a counterbond
and was allowed to post P30 million.
10. Later, the RTC rendered a decision in favor of
RBS and VIVA, ordering ABS-CBN to pay RBS
the amount it paid for the print advertisement and
premium on the counterbond, moral damages,
exemplary damages and attorneys fee.
11. ABS-CBN appealed to the Court of Appeals. Viva
and Del Rosario also appealed seeking moral
and exemplary damages and additional attorneys
fees.
12. The Court of Appeals affirmed the RTC decision
and sustained the monetary awards, VIVAs and
Del Rosarios appeals were denied.
Issues:
1. Whether there was a perfected contract between VIVA
and ABS-CBN; and
2. Whether RBS is entitled to damages and attorneys
fees.
Held:
 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-
proposals or counter-offer in a draft contract. VIVA
through its Board of Directors, rejected such counter-
offer. Even if it be conceded arguendo that Del Rosario
had accepted the counter-offer, the acceptance did not
bind VIVA, as there was no proof whatsoever that Del
Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise
provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board
of Directors. However, the Board may delegate such
powers to either an executive committee or officials or
contracted managers. The delegation, except for the
executive committee, must be for specific
purposes.[47] Delegation to officers makes the latter
agents of the corporation; accordingly, the general rules
of agency as to the binding effects of their acts would
apply.[48] For such officers to be deemed fully clothed by
the corporation to exercise a power of the Board, the latter
must specially authorize them to do so. that Del Rosario
did not have the authority to accept ABS-CBNs counter-
offer was best evidenced by his submission of the draft
contract to VIVAs Board of Directors for the latters
approval. In any event, there was between Del Rosario
and Lopez III no meeting of minds. The following findings
of the trial court are instructive:
A number of considerations militate against ABS-CBNs
claim that a contract was perfected at that lunch meeting
on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at
the Tamarind Grill referred to the price and the number of
films, which he wrote on a napkin. However, Exhibit C
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 a
napkin. There was even doubt as to whether it was a
paper napkin or cloth napkin. In short what were written in
Exhibit C were not discussed, and therefore could not
have been agreed upon, by the parties. How then could
this court compel the parties to sign Exhibit C when the
provisions thereof were not previously agreed upon?
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 films. But Exhibit
C mentions 53 films as its subject matter. Which is
which? If Exhibit C reflected the true intent of the parties,
then ABS-CBNs claim for 14 films in its complaint is false
or if what it alleged in the complaint is true, then Exhibit C
did not reflect what was agreed upon by the parties. This
underscores the fact that there was no meeting of the
minds as to the subject matter of the contract, so as to
preclude perfection thereof. For settled is the rule that
there can be no contract where there is no object certain
which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his
affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the
exclusive license to show these fourteen (14) films, and
we agreed to pay Viva the amount of P16,050,000.00 as
well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked
this P16,050,000.00.
which gives a total consideration of P36 million
(P19,951,000.00 plus P16,050,000.00
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva
movies, the 7 blockbuster movies and the other 7
Viva movies because the price was broken down
accordingly. The none [sic] Viva and the seven
other Viva movies and the sharing between the
cash portion and the concerned spot portion in
the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This
weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated
that she transmitted Exhibit C to Mr. Del Rosario with a
handwritten note, describing said Exhibit C as a
draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The
said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional
or preparatory writing prepared for discussion, the terms
and conditions thereof could not have been previously
agreed upon by ABS-CBN and Viva.Exhibit C could not
therefore legally bind Viva, not having agreed thereto. In
fact, Ms. Concio admitted that the terms and conditions
embodied in Exhibit C were prepared by ABS-CBNs
lawyers and there was no discussion on said terms and
conditions.
As the parties had not yet discussed the proposed terms
and conditions in Exhibit C, and there was no evidence
whatsoever that Viva agreed to the terms and conditions
thereof, said document cannot be a binding contract. The
fact that Viva refused to sign Exhibit C reveals only two
[sic] well that it did not agree on its terms and conditions,
and this court has no authority to compel Viva to agree
thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr.
Del Rosario agreed upon at the Tamarind Grill was only
provisional, in the sense that it was subject to approval by
the Board of Directors of Viva. He testified:
 Q Now, Mr. Witness, and after that Tamarinf meeting
the second meeting wherein you claimed that you
have the meeting of the minds between you and
Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell
us specifically the result of the discussion with the
Board of Directors.
Q And you are referring to the so-called agreement
which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of
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
his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
[T]he subsequent negotiation with ABS-CBN two (2)
months after this letter was sent, was for an entirely
different package. Ms. Concio herself admitted on
cross-examination to having used or exercised the
right of first refusal. She stated that the list was not
acceptable and was indeed not accepted by ABS-
CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez
himself admitted that the right of first refusal may
have been already exercised by Ms. Concio (as she
had). (TSN, June 8, 1992, pp. 71-75). Del Rosario
himself knew and understand [sic] that ABS-CBN
has lost its right of first refusal when his list of 36
titles were rejected (Tsn, June 9, 1992, pp. 10-11).[50]
SO ORDERED.

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
continuation of said previous contract is untenable. As
observed by the trial court, ABS-CBNs right of first refusal
had already been exercised when Ms. Concio wrote to
Viva ticking off ten films.Thus: MANILA ELECTRIC COMPANY, petitioners, vs. T.E.A.M.
ELECTRONICS CORPORATION, TECHNOLOGY
ELECTRONICS ASSEMBLY and MANAGEMENT
PACIFIC CORPORATION; and ULTRA ELECTRONICS
INSTRUMENTS, INC., respondents.
Same; Corporation Law; As a rule, a corporation is not
entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety,
mental anguish and moral shock, the only exception to
this rule is when the corporation has a reputation that
is debased, resulting in its humiliation in the business
realm.—We, however, deem it proper to delete the
award of moral damages. TEC’s claim was premised
allegedly on the damage to its goodwill and reputation.
As a rule, a corporation is not entitled to moral
damages because, not being a natural person, it
cannot experience physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish and
moral shock. The only exception to this rule is when the
corporation has a reputation that is debased, resulting
in its humiliation in the business realm. But in such a
case, it is imperative for the claimant to present proof
to justify the award. It is essential to prove the existence
of the factual basis of the damage and its causal
relation to petitioner’s acts. In the present case, the
records are bereft of any evidence that the name or
reputation of TEC/TPC has been debased as a result
of petitioner’s acts. Besides, the trial court simply
awarded moral damages in the dispositive portion of its
decision without stating the basis thereof.
Appeals; Well-established is the doctrine that under Rule
45 of the Rules of Court, only questions of law, not of fact,
may be raised before the Court; Factual findings of the
trial court, especially those affirmed by the Court of
Appeals, are binding on the Supreme Court.—It is
obvious that petitioner wants this Court to revisit the
factual findings of the lower courts. Well-established is the
doctrine that under Rule 45 of the Rules of Court, only
questions of law, not of fact, may be raised before the
Court. We would like to stress that this Court is not a trier
of facts and may not re-examine and weigh anew the
respective evidence of the parties. Factual findings of the
trial court, especially those affirmed by the Court of
Appeals, are binding on this Court.
Public Utilities; Electric Power Industry; Negligence; A
public utility has the imperative duty to make a reasonable
and proper inspection of its apparatus and equipment to
ensure that they do not malfunction, and the due diligence
to discover and repair defects therein—failure to perform
such duties constitutes negligence.—Petitioner likewise
claimed that when the subject meters were again
inspected on June 7, 1988, they were found to have been
tampered anew. The Court notes that prior to the
inspection, TEC was informed about it; and months before
the inspection, there was an unsettled controversy
between TEC and petitioner, brought about by the
disconnection of electric power and the non-payment of
differential billing. We are more disposed to accept the
trial court’s conclusion that it is hard to believe that a
customer previously apprehended for tampered meters
and assessed P7 million would further jeopardize itself in
the eyes of petitioner. If it is true that there was evidence
of tampering found on September 28, 1987 and again on
June 7, 1988, the better view would be that the defective
meters were not actually corrected after the first
inspection. If so, then Manila Electric Company v. Macro
Textile Mills Corporation, 374 SCRA 69 (2002),would
apply, where we said that we cannot sanction a situation
wherein the defects in the electric meter are allowed to
continue indefinitely until suddenly, the public utilities
demand payment for the unrecorded electricity utilized
when they could have remedied the situation immediately.
Petitioner’s failure to do so may encourage neglect of
public utilities to the detriment of the consuming public.
Corollarily, it must be underscored that petitioner has the
imperative duty to make a reasonable and proper
inspection of its apparatus and equipment to ensure that
they do not malfunction, and the due diligence to discover
and repair defects therein. Failure to perform such duties
constitutes negligence. By reason of said negligence,
public utilities run the risk of forfeiting amounts originally
due from their customers.
Same; Presidential Decree (P.D.) No. 401; Presidential
Decree No. 401 granted the electric companies the right
to conduct inspections of electric meters and the criminal
prosecution of erring consumers who were found to have
tampered with their electric meters but did not expressly
provide for more expedient remedies such as the
charging of differential billing and immediate
disconnection against erring consumers.—The law in
force at the time material to this controversy was
Presidential Decree (P.D.) No. 401 issued on March 1,
1974. The decree penalized unauthorized installation of
water, electrical or telephone connections and such acts
as the use of tampered electrical meters. It was issued in
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 conduct
inspections of electric meters and the criminal prosecution
of erring consumers who were found to have tampered
with their electric meters. It did not expressly provide for
more expedient remedies such as the charging of
differential billing and immediate disconnection against
erring consumers. Thus, electric companies found a
creative way of availing themselves of such remedies by
inserting into their service contracts (or agreements for
the sale of electric energy) a provision for differential
billing with the option of disconnection upon non-payment
by the erring consumer. The Court has recognized the
validity of such stipulations. However, recourse to
differential billing with disconnection was subject to the
prior requirement of a 48-hour written notice of
disconnection. Petitioner, in the instant case, resorted to
the remedy of disconnection without prior notice. While it
is true that petitioner sent a demand letter to TEC for the
payment of differential billing, it did not include any notice
that the electric supply would be disconnected. In fine,
petitioner abused the remedies granted to it under P.D.
401 and Revised General Order No. 1 by outrightly
depriving TEC of electrical services without first notifying
it of the impending disconnection. Accordingly, the CA did
not err in affirming the RTC decision.
Damages; Actual Damages; Actual damages are
compensation for an injury that will put the injured party in
the position where it was before the injury; Basic is the
rule that to recover actual damages, not only must the
amount of loss be capable of proof; it must also be
actually proven with a reasonable degree of certainty,
premised upon competent proof or the best evidence
obtainable.—As to the damages awarded by the CA, we
deem it proper to modify the same. Actual damages are
compensation for an injury that will put the injured party in
the position where it was before the injury. They pertain
to such injuries or losses that are actually sustained and
susceptible of measurement. Except as provided by law
or by stipulation, a party is entitled to adequate
compensation only for such pecuniary loss as is duly
proven. Basic is the rule that to recover actual damages,
not only must the amount of loss be capable of proof; it
must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best
evidence obtainable. Respondent TEC sufficiently
established, and petitioner in fact admitted, that the
former paid P1,000,000.00 and P280,813.72 under
protest, the amounts representing a portion of the latter’s
claim of differential billing. With the finding that no
tampering was committed and, thus, no differential billing
due, the aforesaid amounts should be returned by
petitioner, with interest, as ordered by the Court of
Appeals and pursuant to the guidelines set forth by the
Court.
Same; Exemplary Damages; Exemplary damages are
imposed by way of example or correction for the public
good in addition to moral, temperate, liquidated, or
compensatory damages; In this case, to serve as an
example—that before a disconnection of electrical supply
can be effected by a public utility, the requisites of law
must be complied with—the Court affirms the award of
P200,000.00 as exemplary damages.—As to the
payment of exemplary damages and attorney’s fees, we
find no cogent reason to disturb the same. Exemplary
damages are imposed by way of example or correction
for the public good in addition to moral, temperate,
liquidated, or compensatory damages. In this case, to
serve as an example—that before a disconnection of
electrical supply can be effected by a public utility, the
requisites of law must be complied with—we affirm the
award of P200,000.00 as exemplary damages. With the
award of exemplary damages, the award of attorney’s
fees is likewise proper, pursuant to Article 2208 of the
Civil Code. It is obvious that TEC needed the services of
a lawyer to argue its cause through three levels of the
judicial hierarchy. Thus, the award of P200,000.00 is in
order.
Same; Corporation Law; As a rule, a corporation is not
entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock, the only exception to this rule
is when the corporation has a reputation that is debased,
resulting in its humiliation in the business realm.—We,
however, deem it proper to delete the award of moral
damages. TEC’s claim was premised allegedly on the
damage to its goodwill and reputation. As a rule, a
corporation is not entitled to moral damages because, not
being a natural person, it cannot experience physical
suffering or sentiments like wounded feelings, serious
anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a
reputation that is debased, resulting in its humiliation in
the business realm. But in such a case, it is imperative for
the claimant to present proof to justify the award. It is
essential to prove the existence of the factual basis of the
damage and its causal relation to petitioner’s acts. In the
present case, the records are bereft of any evidence that
the name or reputation of TEC/TPC has been debased as
a result of petitioner’s acts. Besides, the trial court simply
awarded moral damages in the dispositive portion of its
decision without stating the basis thereof.
Facts:
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
wholly owned by respondent Technology
Electronics Assembly and Management Pacific
Corporation (TPC).
3. On the other hand, petitioner Manila Electric
Company (Meralco) is a utility company supplying
electricity in the Metro Manila area.
4. Petitioner and NS Electronics (Philippines), Inc.,
the predecessor-in-interest of respondent TEC,
were parties to two separate contracts
denominated as Agreements for the Sale of
 Electric Energy under the following account
numbers: 09341-1322-16[3] and 09341-1812-
13.[4]
5. Under the aforesaid agreements, petitioner
undertook to supply TEC's building known as
Dyna Craft International Manila (DCIM) located at
Electronics Avenue, Food Terminal Complex,
Taguig, Metro Manila, with electric power.
6. Another contract was entered into for the supply
of electric power to TEC's NS Building under
Account No. 19389-0900-10.
7. In September 1986, TEC, under its former name
National Semi-Conductors (Phils.) entered into a
Contract of Lease[5] with respondent Ultra
Electronics Industries, Inc. (Ultra) for the use of
the former's DCIM building for a period of five
years or until September 1991.
8. Ultra was, however, ejected from the premises on
February 12, 1988 by virtue of a court order, for
repeated violation of the terms and conditions of
the lease contract.
9. On September 28, 1987, a team of petitioner's
inspectors conducted a surprise inspection of the
electric meters installed at the DCIM building,
witnessed by Ultra's[6] representative, Mr. Willie
Abangan. The two meters covered by account
numbers 09341-1322-16 and 09341-1812-13,
were found to be allegedly tampered with and did
not register the actual power consumption in the
building. The results of the inspection were
reflected in the Service Inspection Reports[7]
prepared by the team.
10. In a letter dated November 25, 1987, petitioner
informed TEC of the results of the inspection and
demanded from the latter the payment of
P7,040,401.01 representing its unregistered
consumption from February 10, 1986 until
September 28, 1987, as a result of the alleged
tampering of the meters.[8]
11. TEC received the letters on January 7, 1988.
Since Ultra was in possession of the subject
building during the covered period, TEC's
Managing Director, Mr. Bobby Tan, referred the
demand letter to Ultra[9] which, in turn, informed
TEC that its Executive Vice-President had met
with petitioner's representative. Ultra further
intimated that assuming that there was tampering
of the meters, petitioner's assessment was
excessive.[10] For failure of TEC to pay the
differential billing, petitioner disconnected the
electricity supply to the DCIM building on April 29,
1988.
12. TEC demanded from petitioner the reconnection
of electrical service, claiming that it had nothing
to do with the alleged tampering but the latter
refused to heed the demand. Hence, TEC filed a
complaint on May 27, 1988 before the Energy
Regulatory Board (ERB) praying that electric
power be restored to the DCIM building.[11]
13. The ERB immediately ordered the reconnection
of the service but petitioner complied with it only
on October 12, 1988 after TEC paid
P1,000,000.00, under protest. The complaint
before the ERB was later withdrawn as the
parties deemed it best to have the issues
threshed out in the regular courts. Prior to the
reconnection, or on June 7, 1988, petitioner
conducted a scheduled inspection of the
questioned meters and found them to have been
tampered anew.[12]
Meanwhile, on April 25, 1988, petitioner
conducted another inspection, this time, in TEC's
NS Building. The inspection allegedly revealed
that the electric meters were not registering the
correct power consumption. Petitioner, thus, sent
a letter dated June 18, 1988 demanding payment
of P280,813.72 representing the differential
billing.[13] TEC denied petitioner's allegations
and claim in a letter dated June 29, 1988.[14]
14. Petitioner, thus, sent TEC another letter
demanding payment of the aforesaid amount,
with a warning that the electric service would be
disconnected in case of continued refusal to pay
the differential billing.[15] To avert the impending
disconnection of electrical service, TEC paid the
above amount, under protest.[16]
15. On January 13, 1989, TEC and TPC filed a
complaint for damages against petitioner and
Ultra[17] before the Regional Trial Court (RTC) of
Pasig.
The petition must fail.
Issues: W/N TEC should be awarded with moral
damages.
Held: No. It should not be awarded with moral
damages.
Petitioner insists that the tampering of the electric
meters installed at the DCIM and NS buildings
owned by respondent TEC has been established
by overwhelming evidence, as specifically shown
by the shorting devices found during the
inspection. Thus, says petitioner, tampering of
the meter is no longer an issue.
Respondent TEC sufficiently established, and
petitioner in fact admitted, that the former paid
P1,000,000.00 and P280,813.72 under protest,
the amounts representing a portion of the latter's
claim of differential billing. With the finding that no
tampering was committed and, thus, no
differential billing due, the aforesaid amounts
should be returned by petitioner, with interest, as
ordered by the Court of Appeals and pursuant to
the guidelines set forth by the Court.[46]
However, despite the appellate court's conclusion
that no tampering was committed, it held Ultra
solidarily liable with petitioner for P1,000,000.00,
only because the former, as occupant of the
building, promised to settle the claims of the
latter. This ruling is erroneous. Ultra's promise
was conditioned upon the finding of defect or
tampering of the meters. It did not acknowledge
any culpability and liability, and absent any
tampered meter, it is absurd to make the lawful
occupant liable. It was petitioner who received the
P1 million; thus, it alone should be held liable for
the return of the amount.
TEC also sufficiently established its claim for the
reimbursement of the amount paid as rentals for
the generator set it was constrained to rent by
reason of the illegal disconnection of electrical
service. The official receipts and purchase orders
submitted by TEC as evidence sufficiently show
that such rentals were indeed made. However,
the amount of P150,000.00 per month for five
months, awarded by the CA, is excessive.
Instead, a total sum of P150,000.00, as found by
the RTC, is proper.
As to the payment of exemplary damages and
attorney's fees, we find no cogent reason to
disturb the same. Exemplary damages are
imposed by way of example or correction for the
public good in addition to moral, temperate,
liquidated, or compensatory damages.[47] In this
case, to serve as an example - that before a
disconnection of electrical supply can be effected
by a public utility, the requisites of law must be
complied with - we affirm the award of
P200,000.00 as exemplary damages. With the
award of exemplary damages, the award of
attorney's fees is likewise proper, pursuant to
Article 2208[48] of the Civil Code. It is obvious
that TEC needed the services of a lawyer to
argue its cause through three levels of the judicial
hierarchy. Thus, the award of P200,000.00 is in
order.[49]
We, however, deem it proper to delete the award
of moral damages. TEC's claim was premised
allegedly on the damage to its goodwill and
reputation.[50] As a rule, a corporation is not
entitled to moral damages because, not being a
natural person, it cannot experience physical
suffering or sentiments like wounded feelings,
serious anxiety, mental anguish and moral shock.
The only exception to this rule is when the
corporation has a reputation that is debased,
resulting in its humiliation in the business
realm.[51] But in such a case, it is imperative for
the claimant to present proof to justify the award.
It is essential to prove the existence of the factual
basis of the damage and its causal relation to
petitioner's acts.[52] In the present case, the
records are bereft of any evidence that the name
or reputation of TEC/TPC has been debased as
a result of petitioner's acts. Besides, the trial court
simply awarded moral damages in the dispositive
portion of its decision without stating the basis
thereof.
WHEREFORE, the petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV
No. 40282 dated June 18, 1997 and its
Resolution dated December 3, 1997 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 originally due from their customers. The
Court cannot sanction a situation wherein the
defects in the electric meter are allowed to
continue indefinitely until suddenly the public
utilities demand payment for the unrecorded
electricity utilized when they could have remedied
the situation immediately. Public service
companies which do not exercise prudence in the
discharge of their duties shall be made to bear the
consequences of such oversight. (Manila Electric
Company vs. Macro 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 originally due from
their customers. The Court cannot sanction a situation
wherein the defects in the electric meter are allowed to
continue indefinitely until suddenly the public utilities
demand payment for the unrecorded electricity utilized
when they could have remedied the situation immediately.
Public service companies which do not exercise prudence
in the discharge of their duties shall be made to bear the
consequences of such oversight. (Manila Electric
Company vs. Macro Textile Mills Corporation, 374 SCRA
69 [2002])
——o0o——
EMPLOYEES UNION OF BAYER PHILS., FFW and
JUANITO S. FACUNDO, in his capacity as President,
petitioners, vs. BAYER PHILIPPINES, INC., DIETER J.
LONISHEN (President), ASUNCION AMISTOSO (HRD
Manager), AVELINA REMIGIO AND ANASTACIA
VILLAREAL, respondents.
Labor Law; Labor Unions; Intra-Union Disputes; Words
and Phrases; 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.—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 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.
If such behavior would be tolerated, bargaining and
negotiations between the employer and the union will
never be truthful and meaningful, and no CBA forged after
arduous negotiations will ever be honored or be relied
upon.

Same; Same; Same; Same; When a valid and binding
Collective Bargaining Agreement (CBA) had been
entered into by the workers and the employer, the latter is
behooved to observe the terms and conditions thereof
bearing on union dues and representation, and if the
employer grossly violates its CBA with the duly
recognized union, the former may be held administratively
and criminally liable for unfair labor practice.—This is the
reason why it is axiomatic in labor relations that a CBA
entered into by a legitimate labor organization that has
been duly certified as the exclusive bargaining
representative and the employer becomes the law
between them. Additionally, in the Certificate of
Registration issued by the DOLE, it is specified that the
registered CBA serves as the covenant between the
parties and has the force and effect of law between them
during the period of its duration. Compliance with the
terms and conditions of the CBA is mandated by express
policy of the law primarily to afford protection to labor and
to promote industrial peace. Thus, when a valid and
binding CBA had been entered into by the workers and
the employer, the latter is behooved to observe the terms
and conditions thereof bearing on union dues and
representation. If the employer grossly violates its CBA
with the duly recognized union, the former may be held
administratively and criminally liable for unfair labor
practice.
Same; Same; Same; Same; Jurisdiction; The
pronouncement in Silva v. National Labor Relations
Commission, 274 SCRA 159 (1997), that for an Unfair
Labor Practice (ULP) case to be cognizable by the Labor
Arbiter, and for the National Labor Relations Commission
(NLRC) to exercise appellate jurisdiction thereon, the
allegations in the complaint must show prima facie the
concurrence of two things, namely—(1) gross violation of
the Collective Bargaining Agreement (CBA); and (2) the
violation pertains to the economic provisions of the CBA—
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.—In Silva v. National Labor Relations Commission,
274 SCRA 159 (1997), we explained the correlations of
Article 248 (1) and Article 261 of the Labor Code to mean
that for a ULP case to be cognizable by the Labor Arbiter,
and for the NLRC to exercise appellate jurisdiction
thereon, the allegations in the complaint must show prima
facie the concurrence of two things, namely: (1) gross
violation of the CBA; and (2) the violation pertains to the
economic provisions of the CBA. 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, similar to what happened in
this case. When an employer proceeds to negotiate with
a splinter union despite the existence of its valid CBA with
the duly certified and exclusive bargaining agent, the
former indubitably abandons its recognition of the latter
and terminates the entire CBA.
Same; Same; A legitimate labor organization cannot be
construed to have abandoned its pending claim against
the management/employer by returning to the negotiating
table to fulfill its duty to represent the interest of its
members, except when the pending claim has been
expressly waived or compromised in its subsequent
negotiations with the management.—A legitimate labor
organization cannot be construed to have abandoned its
pending claim against the management/employer by
returning to the negotiating table to fulfill its duty to
represent the interest of its members, except when the
pending claim has been expressly waived or
compromised in its subsequent negotiations with the
management. To hold otherwise would be tantamount to
subjecting industrial peace to the precondition that
previous claims that labor may have against capital must
first be waived or abandoned before negotiations between
them may resume. Undoubtedly, this would be against
public policy of affording protection to labor and will
encourage scheming employers to commit unlawful acts
without fear of being sanctioned in the future.
Corporation Law; Damages; As a general rule, a
corporation cannot suffer nor be entitled to moral
damages; Mental suffering can be experienced only by
one having a nervous system and it flows from real ills,
sorrows, and griefs of life—all of which cannot be suffered
by an artificial, juridical person.—On the matter of
damages prayed for by the petitioners, we have held that
as a general rule, a corporation cannot suffer nor be
entitled to moral damages. A corporation, and by analogy
a labor organization, being an artificial person and having
existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering
can be experienced only by one having a nervous system
and it flows from real ills, sorrows, and griefs of life—all of
which cannot be suffered by an artificial, juridical person.
A fortiori, the prayer for exemplary damages must also be
denied. Nevertheless, we find it in order to award (1)
nominal damages in the amount of P250,000.00 on the
basis of our ruling in De La Salle University v. De La Salle
University Employees Association (DLSUEA-NAFTEU),
584 SCRA 592 (2009), and Article 2221, and (2)
attorney’s fees equivalent to 10% of the monetary award.
The remittance to petitioners of the collected union dues
previously turned over to Remigio and Villareal is likewise
in order.
This petition for review on certiorari assails the
Decision[1] dated December 15, 2003 and
Resolution[2] dated March 23, 2004 of the Court of
Appeals (CA) in CA-G.R. SP No. 73813.
Petitioner Employees Union of Bayer
Philippines[3] (EUBP) is the exclusive bargaining agent of
all rank-and-file employees of Bayer Philippines (Bayer),
and is an affiliate of the Federation of Free Workers
(FFW). In 1997, EUBP, headed by its president Juanito S.
Facundo (Facundo), negotiated with Bayer for the signing
of a collective bargaining agreement (CBA). During the
negotiations, EUBP rejected Bayers 9.9% wage-increase
proposal resulting in a bargaining deadlock.
Subsequently, EUBP staged a strike, prompting the
Secretary of the Department of Labor and Employment
(DOLE) to assume jurisdiction over the dispute.
In November 1997, pending the resolution of the dispute,
respondent Avelina Remigio (Remigio) and 27 other
union members, without any authority from their union
leaders, accepted Bayers wage-increase proposal.
EUBPs grievance committee questioned Remigios action
and reprimanded Remigio and her allies. On January 7,
1998, the DOLE Secretary issued an arbitral award
ordering EUBP and Bayer to execute a CBA retroactive
to January 1, 1997 and to be made effective
until December 31, 2001. The said CBA[4] was registered
on July 8, 1998 with the Industrial Relations Division of
the DOLE-National Capital Region (NCR).[5]
Meanwhile, the rift between Facundos leadership and
Remigios group broadened. On August 3, 1998, barely
six months from the signing of the new CBA, during a
company-sponsored seminar,[6] Remigio solicited
signatures from union members in support of a resolution
containing the decision of the signatories to: (1) disaffiliate
from FFW, (2) rename the union as Reformed Employees
Union of Bayer Philippines (REUBP), (3) adopt a new
constitution and by-laws for the union, (4) abolish all
existing officer positions in the union and elect a new set
of interim officers, and (5) authorize REUBP to administer
the CBA between EUBP and Bayer.[7] The said resolution
was signed by 147 of the 257 local union members. A
subsequent resolution was also issued affirming the first
resolution.[8]
A tug-of-war then ensued between the two rival groups,
with both seeking recognition from Bayer and demanding
remittance of the union dues collected from its rank-and-
file members. On September 8, 1998, Remigios splinter
group wrote Facundo, FFW and Bayer informing them of
the decision of the majority of the union members to
disaffiliate from FFW.[9] This was followed by another
letter informing Facundo, FFW and Bayer that an interim
set of REUBP executive officers and board of directors
had been appointed, and demanding the remittance of all
union dues to REUBP. Remigio also asked Bayer to
desist from further transacting with EUBP. Facundo,
meanwhile, sent similar requests to Bayer[10] requesting
for the remittance of union dues in favor of EUBP and
accusing the company of interfering with purely union
matters.[11] Bayer responded by deciding not to deal with
either of the two groups, and by placing the union dues
collected in a trust account until the conflict between the
two groups is resolved.[12]
On September 15, 1998, EUBP filed a complaint for unfair
labor practice (first ULP complaint) against Bayer for non-
remittance of union dues. The case was docketed as
NLRC-NCR-Case No. 00-09-07564-98.[13]
EUBP later sent a letter dated November 5, 1998 to Bayer
asking for a grievance conference.[14] The meeting was
conducted by the management on November 11, 1998,
with all REUBP officers including their lawyers
present. Facundo did not attend the meeting, but sent two
EUBP officers to inform REUBP and the management
that a preventive mediation conference between the two
groups has been scheduled on November 12,
1998 before the National Conciliation and Mediation
Board (NCMB).[15]
Apparently, the two groups failed to settle their issues as
Facundo again sent respondent Dieter J. Lonishen two
more letters, dated January 14, 1999[16] and September
2, 1999,[17] asking for a grievance meeting with the
management to discuss the failure of the latter to comply
with the terms of their CBA. Both requests remained
unheeded.
On February 9, 1999, while the first ULP case was still
pending and despite EUBPs repeated request for a
grievance conference, Bayer decided to turn over the
collected union dues amounting to P254,857.15 to
respondent Anastacia Villareal, Treasurer of REUBP.
Aggrieved by the said development, EUBP lodged a
complaint[18] on March 4, 1999 against Remigios group
before the Industrial Relations Division of the DOLE
praying for their expulsion from EUBP for commission of
acts that threaten the life of the union.
On June 18, 1999, Labor Arbiter Jovencio Ll. Mayor, Jr.
dismissed the first ULP complaint for lack of
jurisdiction.[19] The Arbiter explained that the root cause
for Bayers failure to remit the collected union dues can be
traced to the intra-union conflict between EUBP and
Remigios group[20] and that the charges imputed against
Bayer should have been submitted instead to voluntary
arbitration.[21] EUBP did not appeal the said decision.[22]
On December 14, 1999, petitioners filed a second ULP
complaint against herein respondents docketed as
NLRC-RAB-IV Case No. 12-11813-99-L. Three days
later, petitioners amended the complaint charging the
respondents with unfair labor practice committed by
organizing a company union, gross violation of the CBA
and violation of their duty to bargain.[23] Petitioners
complained that Bayer refused to remit the collected
union dues to EUBP despite several demands sent to the
management.[24] They also alleged that notwithstanding
the requests sent to Bayer for a renegotiation of the last
two years of the 1997-2001 CBA between EUBP and
Bayer, the latter opted to negotiate instead with Remigios
group.[25]
On even date, REUBP and Bayer agreed to sign a new
CBA. Remigio immediately informed her allies of the
managements decision.[26]
In response, petitioners immediately filed an urgent
motion for the issuance of a restraining
order/injunction[27] before the National Labor Relations
Commission (NLRC) and the Labor Arbiter against
respondents. Petitioners asserted their authority as the
exclusive bargaining representative of all rank-and-file
employees of Bayer and asked that a temporary
restraining order be issued against Remigios group and
Bayer to prevent the employees from ratifying the new
CBA. Later, petitioners filed a second amended
complaint[28] to include in its complaint the issue of gross
violation of the CBA for violation of the contract bar rule
following Bayers decision to negotiate and sign a new
CBA with Remigios group.
Meanwhile, on January 26, 2000, the Regional Director of
the Industrial Relations Division of DOLE issued a
decision dismissing the issue on expulsion filed by EUBP
against Remigio and her allies for failure to exhaust reliefs
within the union and ordering the conduct of a referendum
to determine which of the two groups should be
recognized as union officers.[29] EUBP seasonably
appealed the said decision to the Bureau of Labor
Relations (BLR).[30] On June 16, 2000, the BLR reversed
the Regional Directors ruling and ordered the
management of Bayer to respect the authority of the duly-
elected officers of EUBP in the administration of the
prevailing CBA.[31]
 Specifically, with respect to the union
Unfortunately, the said BLR ruling came late since Bayer dues, the authority is the case of Cebu
had already signed a new CBA[32] with REUBP Seamens Association[,] Inc. vs. Ferrer-
Calleja, (212 SCRA 51), where the
on February 21, 2000. The said CBA was eventually Supreme Court held that when the issue
ratified by majority of the bargaining unit.[33] calls for the determination of which
between the two groups within a union is
entitled to the union dues, the same
On June 2, 2000, Labor Arbiter Waldo Emerson R. Gan cannot be taken cognizance of by the
NLRC.
dismissed EUBPs second ULP complaint for lack of
xxxx
jurisdiction.[34] The Labor Arbiter explained the dismissal
as follows: WHEREFORE, premises considered,
the instant complaint is hereby
All told, were it not for the fact that there DISMISSED on the ground of lack of
were two (2) [groups] of employees, the jurisdiction.
Union led by its President Juanito
Facundo and the members who decided SO ORDERED.[35]
to disaffiliate led by Ms. Avelina Remigio,
claiming to be the rightful representative
of the rank and file employees, the On June 28, 2000, the NLRC resolved to
Company would not have acted the way
it did and the Union would not have filed dismiss[36] petitioners motion for a restraining order and/or
the instant case.
injunction stating that the subject matter involved an intra-
Clearly then, as the case involves intra- union dispute, over which the said Commission has no
union disputes, this Office is bereft of any
jurisdiction pursuant to Article 226 of the jurisdiction.[37]
Labor Code, as amended, which
provides pertinently in part, thus:
Aggrieved by the Labor Arbiters decision to dismiss the
Bureau of Labor
second ULP complaint, petitioners appealed the said
Relations The Bureau of
Labor Relations and the decision, but the NLRC denied the appeal.[38] EUBPs
Labor Relations
Divisions in the regional motion for reconsideration was likewise denied.[39]
offices of the
Department of Labor
and Employment shall Thus, petitioners filed a Rule 65 petition to the
have original and CA. On December 15, 2003, the CA sustained both the
exclusive authority to
act, at their own initiative Labor Arbiter and the NLRCs rulings. The appellate court
or upon request of either
explained,
or both parties, on all
inter-union and intra-
A cursory reading of the three pleadings,
union conflicts, and all
to wit: the Complaint (Vol. I, Rollo, p[p].
disputes, grievances or
166-167); the Amended Complaint (Vol.
problems arising from or
I, Rollo[,] pp. 168-172) and the Second
affecting labor-
Amended Complaint dated March 8,
management relations
2000 (Vol. II, Rollo, pp. 219-225) will
in all workplaces
readily show that the instant case was
whether agricultural or
brought about by the action of the Group
non-agricultural, except
of REM[I]GIO to disaffiliate from FFW
those arising from the
and to organized (sic) REUBP under the
implementation or
tutelage of REM[I]GIO and VILLAREAL.
interpretation of
At first glance of the case at bar, it
collective bargaining
involves purely an (sic) inter-union and
agreements which shall
intra-union conflicts or disputes between
be the subject of
EUBP-FFW and REUBP which issue
grievance procedure
should have been resolved by the
and/or voluntary
Bureau of Labor Relations under Article
arbitration.
 226 of the Labor Code. However, since THE CASE IN ACCORDANCE
no less than petitioners who admitted WITH LAW AND
that respondents committed gross JURISPRUDENCE; AND
violations of the CBA, then the BLR is
divested of jurisdiction over the case and II. WHETHER OR NOT THE
the issue should have been referred to HONORABLE COURT OF
the Grievance Machinery and Voluntary APPEALS, IN ARRIVING AT THE
Arbitrator and not to the Labor Arbiter as DECISION PROMULGATED ON
what petitioners did in the case at bar. x 15 DECEMBER 2003 AND
xx RESOLUTION PROMULGATED
ON 23 MARCH 2004, GRAVELY
xxxx ABUSE[D] ITS DISCRETION IN
ITS FINDINGS AND
Furthermore, the CBA entered between CONCLUSION THAT:
BAYER and EUBP-FFW [has] a life span
of only five years and after the said THE ACTS OF
period, the employees have all the right ABETTING OR
to change their bargaining unit who will ASSISTING IN THE
represent them. If there exist[s] two CREATION OF
opposing unions in the same company, ANOTHER UNION,
the remedy is not to declare that such act NEGOTIATING OR
is considered unfair labor practice but BARGAINING WITH
rather they should conduct a certification SUCH UNION, WHICH
election provided [that] it should be IS NOT THE SOLE AND
conducted within 60 days of the so[- EXCLUSIVE
]called freedom period before the BARGAINING AGENT,
expiration of the CBA. VIOLATING THE DUTY
TO BARGAIN
WHEREFORE, premises considered, COLLECTIVELY,
this Petition is DENIED and the assailed REFUSAL TO
Decision dated September 27, 2001 as PROCESS GRIEVABLE
well as the Order dated June 21, 2002, ISSUES IN THE
denying the motion for reconsideration, GRIEVANCE
by the National Labor Relations MACHINERY AND/OR
Commission, First Division, in NLRC REFUSAL TO DEAL
Case No. RAB-IV-12-11813-99-L, are WITH THE SOLE AND
hereby AFFIRMED in toto. Costs against EXCLUSIVE
petitioners. BARGAINING AGENT
ARE ACTS
SO ORDERED.[40] CONSTITUTING OR
TANTAMOUNT TO
UNFAIR LABOR
PRACTICE.[42]
Undaunted, petitioners filed this Rule 45 petition before
this Court. Initially, the said petition was denied for having
been filed out of time and for failure to comply with the Respondents Bayer, Lonishen and Amistoso, meanwhile,

requirements provided in the 1997 Rules of Civil identify the issues as follows:

Procedure, as amended.[41] Upon petitioners motion, I. WHETHER OR NOT THE UNIFORM

however, we decided to reinstate their appeal. FINDINGS OF THE COURT OF
APPEALS, THE NLRC AND THE
LABOR ARBITER ARE BINDING
The following are the issues raised by petitioners, to wit: ON THIS HONORABLE COURT;

I. WHETHER OR NOT THE II. WHETHER OR NOT THE LABOR

HONORABLE COURT OF ARBITER AND THE NLRC HAVE
APPEALS, IN ARRIVING AT THE JURISDICTION OVER THE
DECISION PROMULGATED ON INSTANT CASE;
15 DECEMBER 2003 AND
RESOLUTION PROMULGATED
ON 23 MARCH 2004, DECIDED
 III. WHETHER OR NOT THE INSTANT
CASE INVOLVES AN INTRA- 261 of the Labor Code, as amended.[46] Respondents
UNION DISPUTE; Remigio and Villareal, meanwhile, point out that the case

IV. WHETHER OR NOT should be dismissed as against them since they are not
RESPONDENTS COMPANY, real parties in interest in the ULP complaint against
LONISHEN AND AMISTOSO
COMMITTED AN ACT OF Bayer,[47] and since there are no specific or material acts
UNFAIR LABOR PRACTICE; imputed against them in the complaint.[48]
AND

V. WHETHER OR NOT THE INSTANT

The petition is partly meritorious.
CASE HAS BECOME MOOT AND
ACADEMIC.[43]
An intra-union dispute refers to any conflict between and

Essentially, the issue in this petition is whether the act of among union members, including grievances arising from

the management of Bayer in dealing and negotiating with any violation of the rights and conditions of membership,

Remigios splinter group despite its validly existing CBA violation of or disagreement over any provision of the

with EUBP can be considered unfair labor practice and, if unions constitution and by-laws, or disputes arising from

so, whether EUBP is entitled to any relief. chartering or disaffiliation of the union.[49] Sections 1 and
2, Rule XI of Department Order No. 40-03, Series of 2003

Petitioners argue that the subject matter of their of the DOLE enumerate the following circumstances as

complaint, as well as the subsequent amendments inter/intra-union disputes, viz:

thereto, pertain to the unfair labor practice act of RULE XI

respondents Bayer, Lonishen and Amistoso in dealing INTER/INTRA-UNION DISPUTES AND
OTHER RELATED LABOR RELATIONS
with Remigios splinter union. They contend that (1) the DISPUTES
acts of abetting or assisting in the creation of another
SECTION 1. Coverage. -
union is among those considered by the Labor Code, as Inter/intra-union disputes shall include:
amended, specifically under Article 248 (d) [44] thereof, as (a) cancellation of
registration of a labor
unfair labor practice; (2) the act of negotiating with such organization filed by its
union constitutes a violation of Bayers duty to bargain members or by another
labor organization;
collectively; and (3) Bayers unjustified refusal to process
(b) conduct of election of
EUBPs grievances and to recognize the said union as the union and workers
sole and exclusive bargaining agent are tantamount to association
officers/nullification of
unfair labor practice.[45] election of union and
workers association
officers;
Respondents Bayer, Lonishen and Amistoso, on the other
(c) audit/accounts
hand, contend that there can be no unfair labor practice examination of union or
workers association funds;
on their part since the requisites for unfair labor
(d) deregistration of
practice i.e., that the violation of the CBA should be gross, collective bargaining
and that it should involve violation in the economic agreements;

provisions of the CBA were not satisfied. Moreover, they (e) validity/invalidity of
union affiliation or
cite the ruling of the Labor Arbiter that the issues raised in disaffiliation;
the complaint should have been ventilated and threshed (f) validity/invalidity of
acceptance/non-
out before the voluntary arbitrators as provided in Article
 acceptance for union
membership; circumstances constituting an intra-union dispute. More

(g) validity/invalidity of importantly, the petitioners do not seek a determination of

impeachment/expulsion of whether it is the Facundo group (EUBP) or the Remigio
union and workers
association officers and group (REUBP) which is the true set of union officers.
members; Instead, the issue raised pertained only to the validity of
(h) validity/invalidity of the acts of management in light of the fact that it still has
voluntary recognition;
an existing CBA with EUBP. Thus as to Bayer, Lonishen
(i) opposition to
application for union and and Amistoso the question was whether they were liable
CBA registration;
for unfair labor practice, which issue was within the
(j) violations of or
disagreements over any jurisdiction of the NLRC. The dismissal of the second ULP
provision in a union or complaint was therefore erroneous.
workers association
constitution and by-laws;
(k) disagreements over However, as to respondents Remigio and
chartering or registration Villareal, we find that petitioners complaint was validly
of labor organizations and
collective bargaining dismissed.
agreements;
(l) violations of the rights
Petitioners ULP complaint cannot prosper as
and conditions of union or
workers association against respondents Remigio and Villareal because the
membership;
issue, as against them, essentially involves an intra-union
(m) violations of the rights of
legitimate labor dispute based on Section 1 (n) of DOLE Department
organizations, except Order No. 40-03. To rule on the validity or illegality of their
interpretation of collective
bargaining agreements; acts, the Labor Arbiter and the NLRC will necessarily
(n) such other disputes or touch on the issues respecting the propriety of their
conflicts involving the disaffiliation and the legality of the establishment of
rights to self-organization,
union membership and REUBP issues that are outside the scope of their
collective bargaining
jurisdiction. Accordingly, the dismissal of the complaint
(1) between and among
legitimate labor was validly made, but only with respect to these two
organizations; respondents.
(2) between and among
members of a union or
workers association. But are Bayer, Lonishen and Amistoso liable for
unfair labor practice? On this score, we find that the
SECTION 2. Coverage. Other
related labor relations disputes shall evidence supports an answer in the affirmative.
include any conflict between a labor
union and the employer or any individual,
entity or group that is not a labor It must be remembered that a CBA is entered into
organization or workers association. This
in order to foster stability and mutual cooperation between
includes: (1) cancellation of registration
of unions and workers associations; and labor and capital. An employer should not be allowed to
(2) a petition for interpleader.
rescind unilaterally its CBA with the duly certified
bargaining agent it had previously contracted with, and
It is clear from the foregoing that the issues raised decide to bargain anew with a different group if there is no
by petitioners do not fall under any of the aforementioned legitimate reason for doing so and without first following
the proper procedure. If such behavior would be tolerated,
bargaining and negotiations between the employer and
the union will never be truthful and meaningful, and no
CBA forged after arduous negotiations will ever be
honored or be relied upon. Article 253 of the Labor Code,
as amended, plainly provides:
ART. 253. Duty to bargain collectively
when there exists a collective bargaining
agreement. Where there is a collective
bargaining agreement, the duty to
bargain collectively shall also mean that
neither party shall terminate or modify
such agreement during its
lifetime. However, either party can serve
a written notice to terminate or modify the
agreement at least sixty (60) days prior to
its expiration date. It shall be the duty of
both parties to keep the status quo and to
continue in full force and effect the terms
and conditions of the existing agreement
during the 60-day period and/or until a
new agreement is reached by the parties.
(Emphasis supplied.)
This is the reason why it is axiomatic in labor relations that
a CBA entered into by a legitimate labor organization that
has been duly certified as the exclusive bargaining
representative and the employer becomes the law
between them. Additionally, in the Certificate of
Registration[50] issued by the DOLE, it is specified that the
registered CBA serves as the covenant between the
parties and has the force and effect of law between them
during the period of its duration. Compliance with the
terms and conditions of the CBA is mandated by express
policy of the law primarily to afford protection to
labor[51] and to promote industrial peace. Thus, when a
valid and binding CBA had been entered into by the
workers and the employer, the latter is behooved to
observe the terms and conditions thereof bearing on
union dues and representation.[52] If the employer grossly
violates its CBA with the duly recognized union, the
former may be held administratively and criminally liable
for unfair labor practice.[53]
Respondents Bayer, Lonishen and Amistoso, contend
that their acts cannot constitute unfair labor practice as
the same did not involve gross violations in the economic
provisions of the CBA, citing the provisions of Articles 248
(1) and 261[54] of the Labor Code, as amended.[55] Their
argument is, however, misplaced.
Indeed, in Silva v. National Labor Relations
Commission,[56] we explained the correlations of Article
248 (1) and Article 261 of the Labor Code to mean that for
a ULP case to be cognizable by the Labor Arbiter, and for
the NLRC to exercise appellate jurisdiction thereon, the
allegations in the complaint must show prima facie the
concurrence of two things, namely: (1) gross violation of
the CBA; and (2) the violation pertains to the economic
provisions of the CBA.[57]
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,
similar to what happened in this case. When an employer
proceeds to negotiate with a splinter union despite the
existence of its valid CBA with the duly certified and
exclusive bargaining agent, the former indubitably
abandons its recognition of the latter and terminates the
entire CBA.
Respondents cannot claim good faith to justify their acts.
They knew that Facundos group represented the duly-
elected officers of EUBP. Moreover, they were cognizant
of the fact that even the DOLE Secretary himself had
recognized the legitimacy of EUBPs mandate by
rendering an arbitral award ordering the signing of the
1997-2001 CBA between Bayer and EUBP. Respondents
were likewise well-aware of the pendency of the intra-
union dispute case, yet they still proceeded to turn over
the collected union dues to REUBP and to effusively deal
with Remigio. The totality of respondents conduct,
therefore, reeks with anti-EUBP animus.
 Bayer, Lonishen and Amistoso argue that the organization, being an artificial person and having
case is already moot and academic following the lapse of existence only in legal contemplation, has no feelings, no
the 1997-2001 CBA and their renegotiation with EUBP for emotions, no senses; therefore, it cannot experience
the 2006-2007 CBA. They also reason that the act of the physical suffering and mental anguish. Mental suffering
company in negotiating with EUBP for the 2006-2007 can be experienced only by one having a nervous system
CBA is an obvious recognition on their part that EUBP is and it flows from real ills, sorrows, and griefs of life all of
now the certified collective bargaining agent of its rank- which cannot be suffered by an artificial, juridical
and-file employees.[58] person.[59] A fortiori, the prayer for exemplary damages
must also be denied.[60] Nevertheless, we find it in order
We do not agree. First, a legitimate labor 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
represent the interest of its members, except when the 2221,[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 WHEREFORE, the petition for review on
first be waived or abandoned before negotiations between certiorari is PARTLY GRANTED. The Decision
them may resume. Undoubtedly, this would be against dated December 15, 2003 and the Resolution
public policy of affording protection to labor and will dated March 23, 2004 of the Court of Appeals in CA-G.R.
encourage scheming employers to commit unlawful acts SP No. 73813 are MODIFIED as follows:
without fear of being sanctioned in the future.
1) Respondents Bayer Phils., Dieter J.
Second, that the management of Bayer decided Lonishen and Asuncion Amistoso are
to recognize EUBP as the certified collective bargaining found LIABLE for Unfair Labor Practice,
agent of its rank-and-file employees for purposes of its and are hereby ORDERED to remit to
2006-2007 CBA negotiations is of no moment. It did not petitioners the amount of P254,857.15
obliterate the fact that the management of Bayer had representing the collected union dues
withdrawn its recognition of EUBP and supported REUBP previously turned over to Avelina Remigio
during the tumultuous implementation of the 1997-2001 and Anastacia Villareal. They are
CBA. Such act of interference which is violative of the likewise ORDERED to pay petitioners
existing CBA with EUBP led to the filing of the subject nominal damages in the amount
complaint. of P250,000.00 and attorneys fees
equivalent to 10% of the monetary award;
On the matter of damages prayed for by the and
petitioners, we have held that as a general rule, a
corporation cannot suffer nor be entitled to moral 2) The complaint, as against respondents
damages. A corporation, and by analogy a labor Remigio and Villareal. is DISMISSED due

to the lack of jurisdiction of the Labor
Arbiter and the NLRC, the complaint being
in the nature of an intra-union dispute.
No pronouncement as to costs.
SO ORDERED.
Notes.—Unlike the NLRC which is explicitly vested with
jurisdiction over claims for actual, moral, exemplary and
other forms of damages, the Bureau of Labor Relations is
not specifically empowered to adjudicate claims of such
nature.
SAN FERNANDO REGALA TRADING, INC., petitioner,
vs. CARGILL PHILIPPINES, INC., respondent.
G.R. No. 178042. October 9, 2013.*
CARGILL PHILIPPINES, INC., petitioner, vs. SAN
FERNANDO REGALA TRADING, INC., respondent.
Civil Law; Sales; The thing sold can only be understood
as delivered to the buyer when it is placed in the buyer’s
control and possession at the agreed place of
delivery.―A stipulation designating the place and manner
of delivery is controlling on the contracting parties. The
thing sold can only be understood as delivered to the
buyer when it is placed in the buyer’s control and
possession at the agreed place of delivery. Cargill
presented no evidence that it attempted to make other
deliveries to complete the balance of Contract 5026.
Same; Damages; Moral Damages; Corporations; As a
rule, moral damages are not awarded to a corporation
unless it enjoyed good reputation that the offender
debased and besmirched by his actuations.―As a rule,
moral damages are not awarded to a corporation unless
it enjoyed good reputation that the offender debased and
besmirched by his actuations. San Fernando failed to
prove by sufficient evidence that it fell within this
exception. Besides, moral damages are, as a rule, also
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
to deliver the molasses as agreed.
Same; Same; Exemplary Damages; In breach of contract,
the court may only award exemplary damages 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 damages
to San Fernando. In breach of contract, the court may only
award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent
manner. The evidence has not sufficiently established
that Cargill’s failure to deliver the molasses on time was
attended by such wickedness.
These cases pertain to the reciprocal obligations of the
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.
The facts and the Case
Cargill Philippines, Inc. (Cargill) and San Fernando
Regala Trading, Inc. (San Fernando) were cane 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 refused to
accept the delivery of the goods. This enmity resulted in
Cargill’s filing on March 2, 1998 a complaint for sum of
money and damages against San Fernando before the
Regional Trial Court (RTC) of Makati City in Civil Case 98-
493.
Cargill alleged that on July 15, 1996 it entered into
Contract 50261 covering its sale to San Fernando of 4,000
metric tons (mt) of molasses at the price of ₱3,950.00 per
mt. Cargill agreed to deliver the molasses within the
months of "April to May 1997" at the wharf of Union
Ajinomoto, Inc.(Ajinomoto) along the Pasig River, Metro
Manila. This was a risk-taking forward sale in that its
execution was to take place about 10 months later when
the parties did not yet know what the trading price of
molasses would be.
Shortly after, Cargill also entered into Contract
50472 covering another sale to San Fernando of 5,000 mt
of molasses at ₱2,750.00 per mt. The delivery period
under this contract was within "October-November-
December 1996," sooner than the delivery period under
Contract 5026. Apparently, San Fernando had a deal with
Ajinomoto for the supply of these molasses.
Cargill further alleged that it offered to deliver the 4,000
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 April 2, 1997
Dolman V, the barge carrying Cargill’s 1,174 mt of
molasses, arrived at the Ajinomoto wharf but San
Fernando refused to accept the same. The barge stayed
at the wharf for 71 days, waiting for San Fernando’s
unloading order. Because of the delay, the owner of the
barges lapped Cargill with demurrage amounting to
₱920,000.00. Cargill also suffered ₱3,480,000.00 in
damages by way of unrealized profits because it had to
sell the cargo to another buyer at a loss.
Cargill further alleged that it earlier sought to deliver the
molasses covered by Contract 5047 at the Ajinomoto
wharf in the months of October, November, and
December 1996, but San Fernando failed or refused for
unjustified reasons to accept the delivery. Consequently,
Cargill suffered damages by way of unrealized profits of
₱360,000.00 from this contract. Apart from asking the
RTC for awards of unrealized profits, Cargill also asked
for a return of the demurrage it paid, attorney’s fees, and
cost of litigation.
To substantiate its claim, Cargill presented David Mozo of
Dolman Transport Corp. who testified that Cargill
chartered its Dolman V barge to carry molasses from
Pasacao to the Ajinomoto wharf in Pasig. But the barge
was unable to unload its cargo and was placed on stand-
by for around 70days, awaiting orders to unload its
molasses. Consequently, Dolman Transport charged
Cargill for demurrage.
Cargill also presented Arthur Gunlao, an employee, who
testified that his company was unable to unload the
molasses covered by Contracts 5026and 5047 because
San Fernando’s President, Quirino Kehyeng, advised
them to wait because Ajinomoto’s storage tanks were still
full and could not receive the molasses. Because of the
prolonged delay in the unloading of the goods, Cargill had
no choice but to sell the molasses to another buyer. At the
prodding of Kehyeng, Cargill wrote San Fernando on May
14, 1997 proposing changes in the delivery periods of
Contract 5026 and 5047,respectively from "April to May
1997" to "May to June 1997" and from" October-
November-December 1996" to "May-June-July
1997."3 The amendments were needed to keep the
contracts valid and maintain the good business relations
between the two companies.
In its Answer with counterclaim, San Fernando pointed
out that, except for the 951 mt of molasses that Cargill
delivered in March 1997, the latter made no further
deliveries for Contract 5026. Indeed, Cargill sent San
Fernando a letter dated May 14, 1997 proposing a change
in the delivery period for that contract from "April to May
1997" to "May to June 1997."But San Fernando 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 Contract 5026.
As for Contract 5047, San Fernando maintained that
Cargill delivered no amount of molasses in connection
with the same. Cargill admitted its inability to deliver the
goods when it wrote San Fernando a letter on May
14,1997, proposing to move the delivery period from
"October-November-December 1996" to "May-June-July
1997." But San Fernando also rejected the change since
it had already contracted to sell the subject molasses to
Ajinomoto for ₱4,950.00 per mt.5 San Fernando expected
a profit of ₱11,000,000.00 under this contract.
To prove its claims, San Fernando presented its
President, Kehyeng, who testified that apart from the
March 1997 delivery of 951 mt of molasses under
Contract 5026, Cargill made no further deliveries. He
called Dennis Seah of Cargill several times demanding
delivery but nothing came of it. Subsequently, Cargill
wrote San Fernando, proposing the extension of the
delivery periods provided in their two contracts. But
Kehyeng rejected the proposal and refused to sign his
conformity at the appropriate spaces on Cargill’s letter.
Kehyeng denied that San Fernando had refused to
receive deliveries because it bought molasses from
Cargill at prices higher than what Ajinomoto was willing to
pay. Kehyeng insisted that San Fernando had always
received Cargill’s deliveries even on occasions when the
prices fluctuated resulting in losses to his company. He
claimed that, as a result of Cargill’s violation of Contracts
5026 and 5047, San Fernando was entitled to rescission
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
fees of ₱1,000,000.00, and litigation expenses.
On December 23, 2003 the RTC dismissed Cargill’s
complaint for lack of merit and granted San Fernando’s
counterclaims. The RTC did not give credence to Cargill’s
claim that San Fernando refused to accept the deliveries
of molasses because Ajinomoto’s tanks were full. San
Fernando sufficiently proved that Ajinomoto continued
receiving molasses from other suppliers during the entire
time that Cargill’s chartered barge was put on stand-by at
the wharf, supposedly waiting for San Fernando’s
unloading orders.
It was incomprehensible, said the RTC, for San Fernando
to refuse Cargill’s deliveries, considering that Ajinomoto
had already agreed to buy the molasses from it. Cargill’s
failure to make the required deliveries resulted in San
Fernando’s default on its obligations to Ajinomoto,
prompting the latter to cancel its orders. As a result, San
Fernando lost expected profits of ₱4,115,329.20
representing the remaining undelivered molasses under
Contract 5026 and ₱11,000,000.00 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, attorney’s
fees of ₱1,000,000.00, and ₱500,000.00 as cost of
litigation.
The Court of Appeals (CA) ruled on appeal, however, that
Cargill was not entirely in breach of Contract 5026. Cargill
made an advance delivery of 951 mt in March 1997. It
then actually sent a barge containing 1,174 mt of
molasses on April 2, 1997 for delivery at Ajinomoto’s
wharf but San Fernando refused to have the cargo
unloaded. Consequently, the trial court erred in awarding
San Fernando unrealized profits of ₱4,115,329.20 under
Contract 5026. The CA also ruled that since San
Fernando unjustifiably refused to accept the April 2, 1997
delivery, it should reimburse Cargill the₱892,732.50
demurrage that it paid the owner of the barge.
The CA, however, found Cargill guilty of breach of
Contract 5047which called for delivery of the molasses in
"October-November-December 1996." Since San
Fernando did not accede to Cargill’s request to move the
delivery period back, Cargill violated the contract when it
did not deliver the goods during the previously agreed
period. Cargill was liable to San Fernando for unrealized
profits of ₱11,000,000.00 that it would have made if it had
sold them to Ajinomoto. The CA deleted the award of
moral and exemplary damages in favor of San Fernando
for its failure to sufficiently establish Cargill’s bad faith in
complying with its obligations. The CA also deleted the
awards of attorney’s fees and cost of litigation.
The CA thus ordered: 1) San Fernando to reimburse
Cargill the demurrage of ₱892,732.50 that it paid, subject
to 6% interest per annum computed from the date of the
filing of the complaint until the finality of the decision; and
2) Cargill to pay San Fernando ₱11,000,000.00 in
unrealized profits under Contract 5047. The CA deleted
the award of moral and exemplary damages, attorney’s
fees, and cost of litigation. This prompted both Cargill and
San Fernando to appeal to this Court.
Issues for Resolution
These cases present the following issues:
1. Whether or not the CA erred in ruling that
Cargill was not guilty of breach of obligation to
deliver the 4,000 mt of molasses covered by
Contract 5026 during the period April and May
1997;
2. Whether or not the CA erred in ruling that
Cargill was guilty of breach of obligation to deliver
the 5,000 mt of molasses covered by
Contract5047 during the period October,
November, and December 1996; and
3. Whether or not the CA erred in deleting the
award of moral and exemplary damages,
attorney’s fees, and cost of suit in favor of San
Fernando.
The Rulings of the Court
One. The CA held that Cargill committed no breach of
Contract 5026 because it had earlier delivered 951 mt of
molasses in March 19976 and sent a barge containing
1,174 mt of the goods on April 2, 1997 at the Ajinomoto’s
wharf. It was actually San Fernando that refused to accept
this delivery on April 2.
But Contract 5026 required Cargill to deliver 4,000 mt of
molasses during the period "April to May 1997." Thus,
anything less than that quantity constitutes breach of the
agreement. And since Cargill only delivered a total of
2,125 mt of molasses during the agreed period, Cargill
should be regarded as having violated Contract 5026 with
respect to the undelivered balance of 1,875 mt of
molasses.
Notably, Chargill’s chartered barge showed up with 1,174
mt of molasses at the Ajinomoto wharf on April 27, 1997.
The barge stayed therefor around 70 days, awaiting
orders to unload the cargo. David Mozo of Dolman
Transport Corp. attested to this. Dolman V was put on
stand-by at the wharf while other barges queued to unload
their molasses into Ajinomoto’s storage tanks.7
In failing to accept delivery of Cargill’s 1,174molasses,
San Fernando should reimburse Cargill the ₱892,732.50
demurrage that it paid.
Ultimately, what are the liabilities of the parties under
Contract 5026?Had San Fernando accepted the delivery
of 1,174 mt of molasses on April27, 1997 Cargill would
have been entitled to payment of their price of
₱4,637,300.00 at ₱3,950.00 per mt. But, since Cargill
succeeded in selling that 1,174 mt of molasses to
Schuurmans & Van Ginneken for ₱1,861.92 per
mt.8 Cargill’s unrealized profit then amounted to only
₱2,451,405.59. Thus:
₱3,950 per mt – ₱1,861.92 per mt = ₱2,088.09 x
1,174
mt = ₱2,451,405.59
Since Cargill failed, however, to deliver the balance of
1,875 mt of molasses under Contract 5026, it must pay
San Fernando the ₱2,531,250.00, representing the
latter’s unrealized profits had it been able to sell that
1,875mt of molasses to Ajinomoto. Thus:
₱5,300 per mt selling price at Ajinomoto –
₱3,950acquisition cost = ₱1,350 profit per mt ₱1,350.00
profit margin per mt x 1,875 mt = ₱2,531,250.00
Cargill, of course, claimed that it had sufficient inventories
of molasses to complete its deliveries, implying that had
San Fernando accepted its initial delivery of 1,174 mt it
would have continued delivering the rest. But it is not
enough for a seller to show that he is capable of delivering
the goods on the date he agreed to make the delivery. He
has to bring his goods and deliver them at the place their
agreement called for, i.e., at the Ajinomoto Pasig River
wharf.
A stipulation designating the place and manner of delivery
is controlling on the contracting parties.9 The thing sold
can only be understood as delivered to the buyer when it
is placed in the buyer’s control and possession at the
agreed place of delivery.10 Cargill presented no evidence
that it attempted to make other deliveries to complete the
balance of Contract 5026.
Two. The CA correctly ruled that Cargill was in breach of
Contract 5047 which provided for delivery of the molasses
within the months of October, November, and December
1996. Thus, when Cargill wrote San Fernando on May 14,
1997 proposing to move the delivery dates of this contract
to May, June, and July, 1997, it was already in default.
San Fernando’s refusal to signify its conformity at the
proper space on Cargill’s letter-proposal regarding
Contract 5047 signifies that it was not amenable to the
change.
San Fernando had good reason for this: it had already
agreed to supply Ajinomoto the molasses covered by
Contract 5047 at the rate of ₱4,950.00 per
mt.11 Consequently, Cargill’s failure to deliver the 5,000
mt of molasses on "October-November-December 1996"
makes it liable to San Fernando for ₱11,000,000.00 in
unrealized profits. Thus:
₱4,950 per mt selling price to Ajinomoto
₱2,750acquisition cost = ₱2,200 profit per mt
₱2,200 per mt x 5,000 mt = ₱11,000,000.00
In failing to make any delivery under Contract 5047,
Cargill should pay San Fernando the profit that it lost
because of such breach. Cargill of course points out that
San Fernando never wrote a demand letter respecting its
failure to make any delivery under that contract. But
demand was not necessary since Cargill’s obligation
under the contract specified the date and place of
delivery, i.e., "October-November-December 1996," at
the Ajinomoto wharf in Pasig.12
Three. The Court concurs with the CA’s deletion of the
RTC’s award of moral damages to San
Fernando.1âwphi1 As a rule, moral damages are not
awarded to a corporation unless it enjoyed good
reputation that the offender debased and besmirched by
his actuations.13 San Fernando failed to prove by
sufficient evidence that it fell within this exception.
Besides, moral damages are, as a rule, also not
recoverable in culpa contractual except when bad faith
had been proved.14
San Fernando failed to show that Cargill was motivated
by bad faith or ill will when it failed to deliver the molasses
as agreed.
The Court rules that the CA correctly deleted the award of
exemplary damages to San Fernando. In breach of
contract, the court may only award exemplary damages if
the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.15 The evidence has
not sufficiently established that Cargill’s failure to deliver
the molasses on time was attended by such wickedness.
Lastly, the CA correctly deleted the award of attorney’s
fees and cost of litigation to San Fernando. Attorney’s
fees and expenses of litigation under Article 2208 of the
Civil Code are proper only when exemplary damages are
awarded. Here, the Court has ruled that San Fernando is
not entitled to an award of exemplary damages. Both
parties actually committed shortcomings in complying
with their contractual obligations. San Fernando failed in
Contract 5026 to accept Cargill’s delivery of 1,174 mt of
molasses; Cargill only complied partially with its
undertakings under Contract 5026and altogether
breached its obligations under Contract 5047. For these,
they must bear their own expenses of litigation.
WHEREFORE, the Court PARTIALLY GRANTS the
petitions and MODIFIES the Court of Appeals Decision on
January 19, 2007 in CA-G.R.CV 81993 as follows:
1. San Fernando Regala Trading, Inc. is
ORDERED to pay Cargill Philippines, Inc. (a)
₱892,732.50 representing the demurrage that the
latter incurred and (b) ₱2,451,405.59
representing its unrealized profit on the rejected
– delivery of 1,174 mt of molasses, both under
Contract 5026, for a total of ₱3,344,138.09, with
interest at 6% per annum computed from the date
of the filing of the complaint until the same is fully
paid; and
2. Cargill Philippines, Inc. is ORDERED to pay
San Fernando Regala Trading, Inc. the latter’s
unrealized profits of ₱2,531,250.00 for the breach
of Contract 5026 and ₱11,000,000.00 for the
breach of Contract 5047, for a total of P
13,531,250.00, with interest at 6% per annum
computed from the date of the tiling of the answer
with counterclaim until the same is fully paid.
The Court of Appeals' deletion of the awards of moral and
exemplary damages, attorney's fees, and costs of
litigation stands.
SO ORDERED.
Notes.―Ownership of the thing sold shall be transferred
to the vendee upon the actual or constructive delivery
thereof; The thing sold shall be understood as delivered,
when it is placed in the control and possession of the
vendee. (Santiago vs. Villamor, 686 SCRA 313 [2012])
A person who does not have actual possession of the
thing sold cannot transfer constructive possession by the
execution and delivery of a public instrument. (Id.)
――o0o――
STOCKHOLDERS OF F. GUANZON AND SONS,INC.,
petitioners-appellants, vs. REGISTER OF DEEDS OF
MANILA, respondent-appellee.
Corporations; Liquidation and distribution of assets for
transfer to stockholders; Certificate of liquidation in the
nature of transfer or conveyance.—Where the purpose of
the liquidation, as well as the distribution of the assets of
the corporation, is to transfer their title from the
corporation to the stockholders in proportion to their
shareholdings, that transfer cannot be effected without
the corresponding deed of conveyance from the
corporation to the stockholders, and the certificate should
be considered as one in the nature of a transfer or
conveyance.
On September 19, 1960, the five stockholders of the F.
Guanzon and Sons, Inc. executed a certificate of
liquidation of the assets of the corporation reciting, among
other things, that by virtue of a resolution of the
stockholders adopted on September 17, 1960, dissolving
the corporation, they have distributed among themselves
in proportion to their shareholdings, as liquidating
dividends, the assets of said corporation, including real
properties located in Manila.
The certificate of liquidation, when presented to the
Register of Deeds of Manila, was denied registration on
seven grounds, of which the following were disputed by
the stockholders:
3. The number of parcels not certified to in the
acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be
attached to the document;
7. The judgment of the Court approving the
dissolution and directing the disposition of the
assets of the corporation need be presented
(Rules of Court, Rule 104, Sec. 3).
Deciding the consulta elevated by the stockholders, the
Commissioner of Land Registration overruled ground No.
7 and sustained requirements Nos. 3, 5 and 6.
The stockholders interposed the present appeal.
As correctly stated by the Commissioner of Land
Registration, the propriety or impropriety of the three
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 considered a transfer or
conveyance.
Appellants contend that the certificate of liquidation is not
a conveyance or transfer but merely a distribution of the
assets of the corporation which has ceased to exist for
having been dissolved. This is apparent in the minutes for
dissolution attached to the document. Not being a
conveyance the certificate need not contain a statement
of the number of parcel of land involved in the distribution
in the acknowledgment appearing therein. Hence the
amount of documentary stamps to be affixed thereon
should only be P0.30 and not P940.45, as required by the
register of deeds. Neither is it correct to require appellants
to pay the amount of P430.50 as registration fee.
The Commissioner of Land Registration, however,
entertained a different opinion. He concurred in the view
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 analysis
represents a transfer of said assets from the corporation
to the stockholders. Hence, in substance it is a transfer or
conveyance.
We agree with the opinion of these two officials. A
corporation is a juridical person distinct from the members
composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and
distinct from its members. While shares of stock constitute
personal property they do not represent property of the
corporation. The corporation has property 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 aliquot part of the
corporation's property, or the right to share in its proceeds
to that extent when distributed according to law and equity
(Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So.,
235), but its holder is not the owner of any part of the
capital of the corporation (Bradley v. Bauder 36 Ohio St.,
28). Nor is he entitled to the possession of any definite
portion of its property or assets (Gottfried v. Miller, 104
U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stockholder is not a co-owner or tenant in common of the
corporate property (Halton v. Hohnston, 166 Ala 317, 51
So 992).
On the basis of the foregoing authorities, it is clear that
the act of liquidation made by the stockholders of the F.
Guanzon and Sons, Inc. of the latter's assets is not and
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 the assets
of the corporation, is to transfer their title from the
corporation to the stockholders in proportion to their
shareholdings, — and this is in effect the purpose which
they seek to obtain from the Register of Deeds of Manila,
— that transfer cannot be effected without the
corresponding deed of conveyance from the corporation
to the stockholders. It is, therefore, fair and logical to
consider the certificate of liquidation as one in the nature
of a transfer or conveyance.
WHEREFORE, we affirm the resolution appealed from,
with costs against appellants.
GOOD EARTH EMPORIUM INC., and LIM KA PING,
petitioners, vs. HONORABLE COURT OF APPEALS and
ROCESREYES REALTY INC., respondents.
Corporation Law; A corporation has a personality distinct
and separate from its individual stockholders or
members.—A corporation has a personality distinct and
separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not
make one’s property also of the corporation, and vice-
versa, for they are separate entities (Traders Royal Bank
v. CA, 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 by the corporation as a distinct legal person.
Same; Same; The corporate debt or credit is not the debt
or credit of the stockholder nor is the stockholder’s debt
or credit that of the corporation.—As a consequence of
the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder’s debt or credit that of
the corporation.
Civil Law; Obligation; There is a disputable presumption
that money paid by one to the other was due to the
latter.—Contrary to the Regional Trial Court’s premise
that it was incumbent upon respondent corporation to
prove that the amount was delivered to the Roces
brothers in the payment of the loan in the latter’s favor,
the delivery of the amount to and the receipt thereof by
the Roces brothers in their names raises the presumption
that the said amount was due to them. There is a
disputable presumption that money paid by 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 prove otherwise.
In other words, it is for the latter to prove that the
payments made were for the satisfaction of their judgment
debt and not vice versa.
Same; Same; Same; When the existence of a debt is fully
established by the evidence the burden of proving that it
has been extinguished by payment devolves upon the
debtor who offers such a defense to the claim of the
plaintiff creditor.—It has been an established rule that
when the existence of a debt is fully established by the
evidence (which has been done in this case), the burden
of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to
the claim of the plaintiff creditor (herein respondent
corporation) (Chua Chienco v. Vargas, 11 Phil. 219;
Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30
Phil. 365). For indeed, it is well-entrenched in Our
jurisprudence that each party in a case must prove his
own affirmative allegations by the degree of evidence
required by law.
As gathered from the records, the antecedent facts of this
case, are as follows:
A Lease Contract, dated October 16, 1981, was entered
into by and between ROCES-REYES REALTY, INC., as
lessor, and GOOD EARTH EMPORIUM, INC., as lessee,
for a term of three years beginning November 1, 1981 and
ending October 31, 1984 at a monthly rental of
P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The
building which was the subject of the contract of lease is
a five-storey building located at the corner of Rizal
Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed,
the lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent ROCES-
REYES REALTY, INC., (hereinafter designated as
ROCES for brevity) filed on October 14, 1984, an
ejectment case (Unlawful Detainer) against herein
petitioners, GOOD EARTH EMPORIUM, INC. and LIM
KA PING, hereinafter designated as GEE, (Rollo, p. 21;
Annex "B" of the Petition). After the latter had tendered
their responsive pleading, the lower court (MTC, Manila)
on motion of Roces rendered judgment on the pleadings
dated April 17, 1984, the dispositive portion of which
states:
Judgment is hereby rendered ordering
defendants (herein petitioners) and all persons
claiming title under him to vacate the premises
and surrender the same to the plaintiffs (herein
respondents); ordering the defendants to pay the
plaintiffs the rental of P65,000.00 a month
beginning March 1983 up to the time defendants
actually vacate the premises and deliver
possession to the plaintiff; to pay attorney's fees
in the amount of P5,000.00 and to pay the costs
of this suit. (Rollo, p. 111; Memorandum of
Respondents)
On May 16, 1984, Roces filed a motion for execution
which was opposed by GEE on May 28, 1984
simultaneous with the latter's filing of a Notice of Appeal
(Rollo, p. 112, Ibid.). On June 13, 1984, the trial court
resolved such motion ruling:
After considering the motion for the issuance of a
writ of execution filed by counsel for the plaintiff
(herein respondents) and the opposition filed in
relation thereto and finding that the defendant
failed to file the necessary supersedeas bond,
this court resolved to grant the same for being
meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the
lower court. Meanwhile, the appeal was assigned to the
Regional Trial Court (Manila) Branch XLVI. However, on
August 15, 1984, GEE thru counsel filed with the Regional
Trial Court of Manila, a motion to withdraw
appeal citing as reason that they are satisfied with the
decision of the Metropolitan Trial Court of Manila, Branch
XXVIII, which said court granted in its Order of August 27,
1984 and the records were remanded to the trial court
(Rollo, p. 32; CA Decision). Upon an ex-parte Motion of
ROCES, the trial court issued an Alias Writ of Execution
dated February 25, 1985 (Rollo, p. 104; Annex "D" of
Petitioner's Memorandum), which was implemented on
February 27, 1985. GEE thru 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 7, and 20, 1985,
respectively. On March 21, 1985, the lower court issued
a restraining order to the sheriff to hold the execution of
the judgment pending hearing on the motion to quash the
writ of execution (Rollo, p. 22; RTC Decision). While said
motion was pending resolution, GEE filed a Petition for
Relief from judgment before another court, Regional Trial
Court of Manila, Branch IX, which petition was docketed
as Civil Case No. 80-30019, but the petition was
dismissed and the injunctive writ issued in connection
therewith set aside. Both parties appealed to the Court of
Appeals; GEE on the order of dismissal and Roces on
denial of his motion for indemnity, both docketed as CA-
G.R. No. 15873-CV. Going back to the original case, the
Metropolitan Trial Court after hearing and disposing some
other incidents, promulgated the questioned Resolution,
dated April 8, 1985, the dispositive portion of which reads
as follows:
Premises considered, the motion to quash the
writ is hereby denied for lack of merit.
The restraining orders issued on March 11 and
23, 1985 are hereby recalled, lifted and set aside.
(Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the
same Court, RTC Branch IX. Roces moved to dismiss the
appeal but the Court denied the motion. On certiorari, the
Court of Appeals dismissed Roces' petition and
remanded the case to the RTC. Meantime, Branch IX
became vacant and the case was re-raffled to Branch
XLIV.
On April 6, 1987, the Regional Trial Court of Manila,
finding that the amount of P1 million evidenced by Exhibit
"I" and another P1 million evidenced by the pacto de
retro sale instrument (Exhibit "2") were in full satisfaction
of the judgment obligation, reversed the decision of the
Municipal Trial Court, the dispositive portion of which
reads:
Premises considered, judgment is hereby
rendered reversing the Resolution appealed from
quashing the writ of execution and ordering the
cancellation of the notice of levy and declaring the
judgment debt as having been fully paid and/or
Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the
decision of the Regional Trial Court and reinstated the
Resolution of the Metropolitan Trial Court of Manila, the
dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is
hereby REVERSED and the Resolution dated
April 8, 1985, of the Metropolitan Trial Court of
Manila Branch XXXIII is hereby REINSTATED.
No pronouncement as to costs. (Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was
denied (Rollo, p. 43). Hence, this petition.
The main issue in this case is whether or not there was
full satisfaction of the judgment debt in favor of
respondent corporation which would justify the quashing
of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and
2/B) shows that nowhere in any of said exhibits was there
any writing alluding to or referring to any settlement
between the parties of petitioners' judgment obligation
(Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1",
that it was in payment, full or partial, of the judgment
obligation. Likewise, there is no indication in the pacto de
retro sale which was drawn in favor of Jesus Marcos
Roces and Marcos V. Roces and not the respondent
corporation, that the obligation embodied therein had
something to do with petitioners' judgment obligation with
respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been
signed by persons other than judgment creditors (Roces-
Reyes Realty, Inc.) coupled with the fact that said exhibit
was not even alleged by GEE and Lim Ka Ping in their
original motion to quash the alias writ of execution (Rollo,
p. 37) but produced only during the hearing (Ibid.) 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 remarking on
the utter absence of any writing in Exhibits "1/A" and "2/B"
to indicate payment of the judgment debt, respondent
Appellate Court correctly concluded that there was in
fact no payment of the judgment debt. As aptly observed
by the said court:
What immediately catches one's attention is the
total absence of any writing alluding to or referring
to any settlement between the parties of private
respondents' (petitioners') judgment obligation. In
moving for the dismissal of the appeal Lim Ka
Ping who was then assisted by counsel simply
stated that defendants (herein petitioners) are
 satisfied with the decision of the Metropolitan
Trial Court (Records of CA, p. 54).
Notably, in private respondents' (petitioners')
Motion to Quash the Writ of Execution and Notice
of Levy dated March 7, 1985, there is absolutely
no reference to the alleged payment of one
million pesos as evidenced by Exhibit 1
dated September 20, 1984. As pointed out by
petitioner (respondent corporation) this was
brought out by Linda Panutat, Manager of Good
Earth only in the course of the latter's testimony.
(Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides
that:
Payment shall be made to the person in whose
favor the obligation has been constituted, or his
successor in interest, or any person authorized to
receive it.
In the case at bar, the supposed payments were not made
to Roces-Reyes Realty, Inc. or to its successor in interest
nor is there positive evidence that the payment was made
to a person authorized to receive it. No such proof was
submitted but merely inferred by the Regional Trial Court
(Rollo, p. 25) from Marcos Roces having signed the Lease
Contract as President which was 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 (Exhibit "1") and signed
the sale with pacto de retro (Exhibit "2"). He, in fact,
denied being in possession of authority to receive
payment for the respondent corporation nor does the
receipt show that he signed in the same capacity as he
did in the Lease Contract at a time when he was President
for respondent corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the
amount of P1 million evidenced by the receipt (Exhibit "1")
is the payment for a loan extended by him and Marcos
Roces in favor of Lim Ka Ping. The assertion is home by
the receipt itself whereby they acknowledged payment of
the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from
its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one's
property also of the corporation, and vice-versa, for they
are separate entities (Traders Royal Bank v. CA-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 by the
corporation as a distinct legal person (Concepcion
Magsaysay-Labrador v. CA-G.R. No. 58168, December
19, 1989). As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit
is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of the corporation (Prof.
Jose Nolledo's "The Corporation Code of the Philippines,
p. 5, 1988 Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained
by Jesus Marcos Roces who testified that the IOU was
subsequently delivered to private respondents (Rollo, pp.
97-98). Contrary to the Regional Trial Court's premise that
it was incumbent upon respondent corporation to prove
that the amount was delivered to the Roces brothers in
the payment of the loan in the latter's favor, the delivery
of the amount to and the receipt thereof by the Roces
brothers in their names raises the presumption that the
said amount was due to them.1âwphi1 There is a
disputable presumption that money paid by 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 prove otherwise.
In other words, it is for the latter to prove that the
payments made were for the satisfaction of their judgment
debt and not vice versa.
The fact that at the time payment was made to the two
Roces brothers, GEE was also indebted to respondent
corporation for a larger amount, is not supportive of the
Regional Trial Court's conclusions that the payment was
in favor of the latter, especially in the case at bar where
the amount was not receipted for by respondent
corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said
payment was in satisfaction of the judgment debt.
Likewise, no such inference can be made from the
execution of the pacto de retro sale which was not made
in favor of respondent corporation but in favor of the two
Roces brothers in their individual capacities without any
reference to the judgment obligation in favor of
respondent corporation.
In addition, the totality of the amount covered by the
receipt (Exhibit "1/A") and that of the sale with pacto de
retro(Exhibit "2/B") all in the sum of P2 million, far exceeds
petitioners' judgment obligation in favor of respondent
corporation in the sum of P1,560,000.00 by P440,000.00,
which militates against the claim of petitioner that the
aforesaid amount (P2M) was in full payment of the
judgment obligation.
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 the
extension of the lease nor was there any such pretense in
the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had
gravely abused its discretion in arriving at the assailed
factual findings as contrary to the evidence and applicable
decisions of this Honorable Court are therefore, patently
unfounded. Respondent court was correct in stating that
it "cannot go beyond what appears in the documents
submitted by petitioners themselves (Exhibits "1" and "2")
in the absence of clear and convincing evidence" that
would support its claim that the judgment obligation has
indeed been fully satisfied which would warrant the
quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of
a debt is fully established by the evidence (which has
been done in this case), the burden of proving that it has
been extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the plaintiff
creditor (herein respondent corporation) (Chua Chienco
v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656;
Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-
entrenched in Our jurisprudence that each party in a case
must prove his own affirmative allegations by the degree
of evidence required by law (Stronghold Insurance Co. v.
CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache &
Co. v. Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have
gravely abused its discretion in finding lack of convincing
and reliable evidence to establish payment of the
judgment obligation as claimed by petitioner. The burden
of evidence resting on the petitioners to establish the facts
upon which their action is premised has not been
satisfactorily discharged and therefore, they have to bear
the consequences.
PREMISES CONSIDERED, the petition is hereby
DENIED and the Decision of the Respondent court is
hereby AFFIRMED, reinstating the April 8, 1985
Resolution of the Metropolitan Trial Court of Manila.
SO ORDERED.
Note.—The fiction of law that a corporation has a distinct
and separate personality should not be used as a
subterfuge to commit injustice and circumvent labor laws.
(Indino vs. National Labor Relations Commission, 178
SCRA 168).
——o0o——
DEVELOPMENT BANK OF THE PHILIPPINES,
petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and DOROTHY S. ANCHETA, MA.
MAGDALENA Y. ARMARILLE, CONSTANTE A.
ANCHETA, CONSTANTE B. BANAYOS, EVELYN
BARRIENTOS, JOSE BENAVIDEZ, LEO-NARDO
BUENAAGUA, BENJAMIN BAROT, ERNESTO S.
CANTILLER, EDUARDO CANDA, ARMANDO CANDA,
AIDA DE LUNA, PACIFICO M. DE JESUS, ALFREDO
ESTRERA, AURELIO A. FARIÑAS, FRANCISCO
GREGORIO, DOMELINA GONZALES, JUANA
JALANDONI, MANUEL MALUBAY, FELICIANO
OCAMPO, MABEL PADO, GEMINIANO PLETA,
ERNESTO S. SALAMAT, JULIAN TRAQUENA, JUSFIEL
SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO,
JOSE T. MARCELO, JR., SUSAN M. OLIVAR,
ERNESTO JULIO, CONSTANTE ANCHETA, JR.,
ENRIQUE NABUA and JAVIER P. MATARO,
respondents.
Labor Law; Corporation Law; Ownership of majority of
capital stock and fact that majority of directors of a
corporation are the directors of another corporation
creates no employer-employee relationship with latter’s
employees.—It is to be noted that in their comment,
private respondents tried to prove the existence of
employeremployee relationship based on the fact that
DBP is the majority stockholder of PSC and that the
majority of the members of the board of directors of PSC
are from DBP. We do not believe that these
circumstances are sufficient indicia of the existence of an
employeremployee relationship as would confer
jurisdiction over the case on the labor arbiter, especially
in the light of the express declaration of said labor arbiter
and the NLRC that DBP is being held liable as a
foreclosing creditor. At any rate, this jurisdictional defect
was cured when DBP appealed the labor arbiter’s
decision to the NLRC and thereby submitted to its
jurisdiction.
Labor Law; Preference of Credits; Mortgages; Insolvency
Law; A foreclosing bank creditor cannot be held liable for
unpaid wages and the like of employees of mortgagor.
They should file their claims, in a proceeding in
bankruptcy on their employer.—In fine, the right to
preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the 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 before the ‘claims
of the Government and other creditors’ may be paid. But,
for an orderly settlement of a debtor’s assets, all creditors
must be convened, their claims ascertained and
inventoried, and thereafter the preference determined in
the course of judicial proceedings which have for their
object the subjection of the property of the debtor to the
payment of his debts or other lawful obligations. Thereby,
an orderly determination of preference of creditors’ claims
is assured (Philippine Savings Bank vs. Lantin, No. L-
33929, September 2, 1983, 124 SCRA 476); the
adjudication made will be binding on all parties-in-interest,
since those proceedings are proceedings in rem; and the
legal scheme of classification, concurrence and
preference of credits in the Civil Code, the Insolvency
Law, and the Labor Code is preserved in harmony.”
Same; Same; Same; Same; Same.—On the foregoing
considerations and it appearing that an involuntary
insolvency proceeding has been instituted against PSC,
private respondents should properly assert their
respective claims in said proceeding.
The present petition for certiorari seeks the reversal of the
decision of the National Labor Relations Commission
(NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated
January 16, 1986, 1 which dismissed the appeal of the
Development Bank of the Philippines (DBP) from the
decision of the labor arbiter ordering it to pay the unpaid
wages, 13th month pay, incentive pay and separation pay
of herein private respondents.
Philippine Smelters Corporation (PSC), a corporation
registered under Philippine law, obtained a loan in 1983
from the Development Bank of the Philippines, a
government-owned financial institution created and
operated in accordance with Executive Order No. 81, to
finance its iron smelting and steel manufacturing
business. To secure said loan, PSC mortgaged to DBP
real properties with all the buildings and improvements
thereon and chattels, with its President, Jose T. Marcelo,
Jr., as co-obligor.
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
subscribed and paid up capital stock. Subsequently, it
took over the management of PSC.
When PSC failed to pay its obligation with DBP, which
amounted to P75,752,445.83 as of March 31, 1986, DBP
foreclosed and acquired the mortgaged real estate and
chattels of PSC in the auction sales held on February 25,
1987 and March 4, 1987.
On February 10, 1987, forty (40) petitioners filed a Petition
for Involuntary Insolvency in the Regional Trial Court,
Branch 61 at Makati, Metropolitan Manila, docketed
therein as Special Proceeding No. M-1359, 2against PSC
and DBP, impleading as co-respondents therein Olecram
Mining Corporation, Jose Panganiban Ice Plant and Cold
Storage, Inc. and PISO Bank, with said petitioners
representing themselves as unpaid employees of said
private respondents, except PISO Bank.
On February 13, 1987, herein private respondents filed a
complaint with the Department of Labor against PSC for
nonpayment of salaries, 13th month pay, incentive leave
pay and separation pay. On February 20, 1987, the
complaint was amended to include DBP as party
respondent. The case was thereafter indorsed to the
Arbitration Branch of the National Labor Relations
Commission (NLRC). DBP filed its position paper on
September 7, 1987, invoking the absence of employer-
employee relationship between private respondents and
DBP and submitting that when DBP foreclosed the assets
of PSC, it did so as a foreclosing creditor.
On January 30, 1988, the labor arbiter rendered a
decision, the dispositive portion of which directed that
"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
On appeal by DBP, the NLRC sustained the ruling of the
labor arbiter, holding DBP liable for unpaid wages of
private respondents "not as a majority stockholder of
respondent PSC, but as the foreclosing creditor who
possesses the assets of said PSC by virtue of the auction
sale it held in 1987." In addition, the NLRC held that the
labor arbiter is correct in assuming jurisdiction because
"the worker's preference to the amount secured by DBP
by virtue of said foreclosure sales of PSC properties arose
out of or are connected or interwoven with the labor
dispute brought forth by appellees against PSC and
DBP. 4 Hence, the present petition by DBP.
DBP contends that the labor arbiter and the NLRC
committed a grave abuse of discretion (1) in assuming
jurisdiction over DBP; (2) in applying the provisions of
Article 110 of the Labor Code, as amended; and (3) in not
enforcing and applying Section 14 of Executive Order No.
81.
We find merit in the petition.
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 majority
stockholder of PSC and that the majority of the members
of the board of directors of PSC are from DBP. 5 We do
not believe that these circumstances are sufficient indicia
of the existence of an employer-employee relationship as
would confer jurisdiction over the case on the labor
arbiter, especially in the light of the express declaration of
said labor arbiter and the NLRC that DBP is being held
liable as a foreclosing creditor. At any rate, this
jurisdictional defect was cured when DBP appealed the
labor arbiter's decision to the NLRC and thereby
submitted to its jurisdiction.
The pivotal issue for resolution is whether DBP, as
foreclosing creditor, could be held liable for the unpaid
wages, 13th month pay, incentive leave pay and
separation pay of the employees of PSC.
We rule in the negative.
During the dates material to the foregoing proceedings,
Article 110 of the Labor Code read:
Art. 110. Worker preference in case of
bankruptcy. — In the event of bankruptcy
or liquidation of an employer's business,
his workers shall enjoy first preference as
regards wages due them for services
rendered during the period prior to the
bankruptcy or liquidation, any provision
 of law to the contrary notwithstanding. against the whole world.
Unpaid wages shall be paid in full before All persons having
other creditors may establish any claim to interest in the subject
a share in the assets of the employer. matter involved, whether
they were notified or not,
In conjunction therewith, Section 10, Rule VIII, Book III of are equally bound.
the Implementing Rules and Regulations of the Labor Consequently, a
Code provided: liquidation of similar
import or 'other
equivalent general
Sec. 10. Payment of wages in mm of
liquidation must also
bankruptcy.-Unpaid wages earned by the
necessarily be a
employees before the declaration of
proceeding in rem so
bankruptcy or judicial liquidation of the
employer's business shall be given first that all interested
preference and shall be paid in full before persons whether known
to the parties or not may
other creditors may establish any claim to
be bound by such
a share in the assets of the employer.
proceeding.
Interpreting the above provisions, this Court,
in Development Bank of the Philippines vs. Hon. Labor In the case at bar,
Arbiter Ariel C. Santos, et al., 6 explicated as follows: although the lower court
found that 'there were no
known creditors other
It is quite clear from the provisions that a than the plaintiff and the
declaration of bankruptcy or a judicial defendant herein,' this
liquidation must be present before the can not be conclusive. It
worker's preference may be enforced. ... will not bar other
. creditors in the event
they show up and
xxx xxx xxx present their claim
against the petitioner
Moreover, the reason behind the bank, claiming that they
necessity for a judicial proceeding or a also have preferred liens
proceeding in rem before the against the property
concurrence and preference of credits involved. Consequently,
may be applied was explained by this Transfer Certificate of
Court in the case of Philippine Savings Title No. 101864 issued
Bank v. Lantin (124 SCRA 476 [1983]). in favor of the bank
We said: which is supposed to be
indefeasible would
The proceedings in the remain constantly
court below do not unstable and
partake of the nature of questionable. Such
the insolvency could not have been the
proceedings or intention of Article 2243
settlement of a of the Civil Code
decedent's estate. The although it considers
action filed by Ramos claims and credits under
was only to collect the Article 2242 as statutory
unpaid cost of the fines. Neither does
construction of the the De Barreto case ...
duplex apartment. It is
far from being a general The claims of all creditors whether
liquidation of the estate preferred or non- preferred, the
of the Tabligan spouses. Identification of the preferred ones and
the totality of the employer's asset should
Insolvency proceedings be brought into the picture. There can
and settlement of a then be an authoritative, fair, and binding
decedent's estate are adjudication instead of the piece meal
both proceedings in rem settlement which would result from the
which are binding questioned decision in this case.
Republic Act No. 6715, which took effect on March 21, cannot be viewed in
1989, amended Article 110 of the Labor Code to read as isolation. Rather, Article
follows: 110 must be read in
relation to the provisions
Art. 110. Worker preference in case of of the Civil Code
bankruptcy. — In the event of bankruptcy concerning the
or liquidation of an employer's business, classification,
his workers shall enjoy first preference as concurrence and
regards their unpaid wages and other preference of credits
monetary claims, any provision of law to which provisions find
the contrary notwithstanding. Such particular application in
unpaid wages and monetary claims shall insolvency proceedings
be paid in full before the claims of the where the claims of all
Government and other creditors may be creditors, preferred or
paid. non-preferred, may be
adjudicated in a binding
manner ... (Republic vs.
As a consequence, Section 1 0, Rule VIII, Book III of the
Peralta (G.R. No. L-
Implementing Rules and Regulations of the Labor Code
56568, May 20, 1987,
was likewise amended, to wit:
150 SCRA 37).
Sec. 10. Payment of wages and other
monetary claims in case of bankruptcy. 2. In the same way that the Civil Code
provisions on classification of credits and
— In case of bankruptcy or liquidation of
the Insolvency Law have been brought
the employer's business, the unpaid
wages and other monetary claims of the into harmony, so also must the kindred
provisions of the Labor Law be made to
employees shall be given first preference
harmonize with those laws.
and shall be paid in full before the claims
of government and other creditors may
be paid. 3. In the event of insolvency, a principal
objective should be to effect an equitable
distribution of the insolvent's property
Despite said amendments, however, the same
among his creditors. To accomplish this
interpretation of Article 110 as applied in the aforesaid
case of Development Bank of the Philippines vs. Hon. there must first be some proceeding
Labor Arbiter Ariel C. Santos, et al., supra, was adopted where notice to all of the insolvent's
by this Court in the recent case of Development Bank of creditors may be given and where the
the Philippines vs. National Labor Relations Commission, claims of preferred creditors may be
et. al., 7 For facility of reference, especially the bindingly adjudicated (De Barretto vs.
Villanueva, No. L-14938, December 29,
rationalization for the conclusions reached therein, we
1962, 6 SCRA 928). The rationale
reproduce the salient portions of the decision in this later
therefor has been expressed in the
case.
recent case of DBP vs. Secretary of
Labor (G.R. No. 79351, 28 November
Notably, the terms "declaration" of 1989), which we quote:
bankruptcy or "judicial" liquidation have
been eliminated. Does this means then
A preference of credit
that liquidation proceedings have been
done away with? bestows upon the
preferred creditor an
advantage of having his
We opine m the negative, upon the credit satisfied first
following considerations: ahead of other claims
which may be
1. Because of its impact on the entire established against the
system of credit, Article 110 of the Labor debtor. Logically, it
Code cannot be viewed in isolation but becomes material only
must be read in relation to the Civil Code when the properties and
scheme on classification and preference assets of the debtors are
of credits. insufficient to pay his
debts in full; for if the
Article 110 of the Labor debtor is amply able to
Code, in determining the pay his various
reach of its terms, creditors, in full, how can
 the necessity exist to
determine which of his
creditors shall be paid
first or whether they
shall be paid out of the
proceeds of the sale of
the debtor's specific
property? Indubitably,
the preferential right of
credit attains
significance only after
the properties of the
debtor have been
inventoried and
liquidated, and the
claims held by his
various creditors have
been established
(Kuenzle & Streiff [Ltd.]
vs. Villanueva, 41 Phil.
611 [1916]; Barretto vs.
Villanueva, G.R. No.
14038, 29 December
1962, 6 SCRA 928;
Philippine Savings Bank
vs. Lantin, G.R. 33929, 2
September 1983,124
SCRA 476).
4. A distinction should be made between
a preference of credit and a lien. A
preference applies only to claims which
do not attach to specific properties. A hen
creates a charge on a particular property.
The right of first preference as regards
unpaid wages recognize by Article 110
does not constitute a hen on the property
of the insolvent debtor in favor of
workers. It is but a preference of credit in
their favor, a preference in application. It
is a met-hod adopted to determine and
specify the order in which credits should
be paid in the final distribution of the
proceeds of the insolvent's assets- It is a
right to a first preference in the discharge
of the funds of the judgment debtor. in the
words of Republic vs. Peralta, supra:
Article 110 of the Labor
Code does not purport to
create a lien in favor of
workers or employees
for unpaid wages either
upon all of the properties
or upon any particular
property owned by their
employer. Claims for
unpaid wages do not
therefore fall at all within
the category of specially
preferred claims
established under
Articles 2241 and 2242
of the Civil Code, except
to the extent that such
claims for unpaid wages
are already covered by
Article 2241, number 6:
'claims for laborers'
wages, on the goods
manufactured or the
work done; or by Article
2242, number 3: 'claims
of laborers and other
workers engaged in the
construction,
reconstruction or repair
of buildings, canals and
other works, upon said
buildings, canals or
other works.' To the
extent that claims for
unpaid wages fall
outside the scope of
Article 2241, number 6
and Article 2242,
number 3, they would
come within the ambit of
the category of ordinary
preferred credits under
Article 2244.'
5. The DBP anchors its claim on a
mortgage credit. A mortgage directly and
immediately subjects the property upon
which it is imposed, whoever the
possessor may be, to the fulfillment of the
obligation for whose security it was
constituted (Article 2176, Civil Code). It
creates a real right which is enforceable
against the whole world. It is a lien on an
Identified immovable property, which a
preference is not. A recorded mortgage
credit is a special preferred credit under
Article 2242 (5) of the Civil Code on
classification of credits. The preference
given by Article 110, when not falling
within Article 2241 (6) and Article 2242
(3) of the Civil Code and not attached to
any specific property, is an ordinary
preferred credit although its impact is to
move it from second priority to first
priority in the order of preference
established by Article 2244 of the Civil
Code (Republic vs. Peralta, supra).
In fact, under the Insolvency Law
(Section 29) a creditor holding a
mortgage or hen of any kind as security
is not permitted to vote in the election of
the assignee in insolvency proceedings
unless the value of his security is first
fixed or he surrenders all such property
to the receiver of the insolvent's estate.
 6. Even if Article 110 and its POLYTECHNIC UNIVERSITY OF THE PHILIPPINES,
Implementing Rule, as amended, should petitioner, vs. COURT OF APPEALS and FIRESTONE
be interpreted to mean 'absolute CERAMICS, INC., respondents.
preference,' the same should be given
only prospective effect in line with the G.R. No. 143590. November 14, 2001.*
cardinal rule that laws shall have no
retroactive effect, unless the contrary is
provided (Article 4, Civil Code). Thereby,
NATIONAL DEVELOPMENT CORPORATION,
any infringement on the constitutional
petitioner, vs. FIRESTONE CERAMICS, INC.,
guarantee on non-impairment of
obligation of contracts (Section 10, respondents.
Article III, 1987 Constitution) is also Obligations and Contracts; Right of First Refusal; It is
avoided. In point of fact, DBP's mortgage
elementary that a party to a contract cannot unilaterally
credit antedated by several years the
amendatory law, RA No. 6715. To give withdraw a right of first refusal that stands upon valuable
Article 110 retroactive effect would be to consideration.—We do not see it the way PUP and NDC
wipe out the mortgage in DBPs favor and did. It is elementary that a party to a contract cannot
expose it to a risk which it sought to unilaterally withdraw a right of first refusal that stands
protect itself against by requiring a upon valuable consideration. That principle was clearly
collateral in the form of real property. upheld by the Court of Appeals when it denied on 6 June
2000 the twin motions for reconsideration filed by PUP
In fine, the right to preference given to and NDC on the ground that the appellants failed to
workers under Article 110 of the Labor advance new arguments substantial enough to warrant a
Code cannot exist in any effective way reversal of the Decision sought to be reconsidered.
prior to the 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 before the 'claims of the
Government and other creditors' may be
paid. But, for an orderly settlement of a * SECOND DIVISION.
debtor's assets, all creditors must be
convened, their claims ascertained and
inventoried, and thereafter the
preference determined in the course of 692
judicial proceedings which have for their
object the subjection of the property of
the debtor to the payment of his debts or 692
other lawful obligations. Thereby, an
orderly determination of preference of
creditors' claims is assured (Philippine
Savings Bank vs. Lantin, No. L-33929, SUPREME COURT REPORTS ANNOTATED
September 2, 1983, 124 SCRA 476); the
adjudication made will be binding on all
parties-in-interest, since those Polytechnic University of the Philippines vs. Court of
proceedings are proceedings in rem; and
Appeals
the legal scheme of classification,
concurrence and preference of credits in
the Civil Code, the Insolvency Law, and
the Labor Code is preserved in harmony. Same; Education; Our paramount interest in education
does not license us, or any party for that matter, to destroy
On the foregoing considerations and it appearing that an the sanctity of binding obligations—education may be
involuntary insolvency proceeding has been instituted prioritized for legislative or budgetary purposes, but we
against PSC, private respondents should properly assert doubt if such importance can be used to confiscate private
their respective claims in said proceeding. . property such as the right of first refusal.—Petitioner
posited that if we were to place our imprimatur on the
WHEREFORE, the petition is GRANTED. The decision of decisions of the courts a quo, “public welfare or
public respondent is hereby ANNULLED and SET ASIDE. specifically the constitutional priority accorded to
education” would greatly be prejudiced. Paradoxically,
SO ORDERED. our paramount interest in education does not license us,
or any party for that matter, to destroy the sanctity of
binding obligations. Education may be prioritized for
legislative or budgetary purposes, but we doubt if such
importance can be used to confiscate private property
such as FIRESTONE’s right of first refusal.
Same; Same; Sales; Words and Phrases; A contract of
sale, as defined in the Civil Code, is a contract where one
of the parties obligates himself to transfer the ownership
of and to deliver a determinate thing to the other or others
who shall pay therefore a sum certain in money or its
equivalent; The Civil Code provision on sale is, in effect,
a “catch-all” provision which effectively brings within its
grasp a whole gamut of transfers whereby ownership of a
thing is ceded for a consideration.—A contract of sale, as
defined in the Civil Code, is a contract where one of the
parties obligates himself to transfer the ownership of and
to deliver a determinate thing to the other or others who
shall pay therefore a sum certain in money or its
equivalent. It is therefore a general requisite for the
existence of a valid 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 transfers whereby ownership of a
thing is ceded for a consideration.
Same; Same; Same; Government-Owned and Controlled
Corporations; The National Development 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 controlled corporation has a
personality of its own distinct and separate from that of
the government.—Contrary to what petitioners PUP and
NDC propose, there is not just one party involved in the
questioned transaction. Petitioners NDC and PUP have
their respective charters and therefore each possesses a
separate and distinct individual personality. The inherent
weakness of NDC’s proposition that there was no sale as
it was only the government which was involved in the
transaction thus reveals itself. Tersely put, it is not
necessary to write an
693
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693
Polytechnic University of the Philippines vs. Court of
Appeals
extended dissertation on government owned and
controlled corporations and their legal personalities.
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 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
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
leased premises in favor of FIRESTONE.
Same; Same; Since the conduct of the parties to a
contract may be sufficient to establish the existence of an
agreement and the terms thereof, it becomes necessary
for the courts to examine the contemporaneous behavior
of the parties in establishing 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 nevertheless indicate that a
binding obligation has been undertaken. Since the
conduct of the parties to a contract may be sufficient to
establish the existence of an agreement and the terms
thereof, it becomes necessary for the courts to examine
the contemporaneous behavior of the parties in
establishing the existence of their contract.
Same; Same; Lease; Where the stipulation for a right of
first refusal is part and parcel of the contract of lease, the
consideration for the lease is the same as that for the
option.—In the instant case, the right of first refusal is an
integral and indivisible part of the contract of lease and is
inseparable from the whole contract. The consideration
for the right is built into the reciprocal obligations of the
parties. Thus, it is not correct for petitioners to insist that
there was no consideration paid by FIRESTONE to entitle
it to the exercise of the right, inasmuch as the stipulation
is part and parcel of the contract of lease making the
consideration for the lease the same as that for the option.
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 has
made an offer to sell to the latter at a certain price 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 he has made an
offer to sell to the latter at a certain price and the
694
694
SUPREME COURT REPORTS ANNOTATED
Polytechnic University of the Philippines vs. Court of
Appeals
lessee has failed to accept it. The lessee has a right that
the lessor’s first offer shall be in his favor.
Same; Same; Sales; In contracts of sale, the basis of the
right of first refusal must be the current offer of the seller
to sell or the offer to purchase of the prospective buyer.—
It now becomes apropos to ask whether the courts a quo
were correct in fixing the proper consideration of the sale
at P1,500.00 per square meter. In contracts of sale, the
basis of the right of first refusal must be the current 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
period contemplated can the owner validly offer to sell the
property to a third person, again, under the same terms
as offered to the grantee. It appearing that the whole NDC
compound was sold to PUP for P554.74 per square
meter, it would have been more proper for the courts
below to have ordered the sale of the property also at the
same price. However, since FIRESTONE never raised
this as an issue, while on the other hand it admitted that
the value of the property stood at P1,500.00 per square
meter, then we see no compelling reason to modify the
holdings of the courts a quo that the leased premises be
sold at that price.
Same; Same; Same; A right of first refusal is neither
“amorphous nor merely preparatory” and can be enforced
and executed according to its terms.—The contention has
no merit. At the heels of Ang Yu came Equatorial Realty
Development, Inc, v. Mayfair Theater, Inc., where after
much deliberation we declared, and so we hold, that a
right of first refusal is neither “amorphous nor merely
preparatory” and can be enforced and executed
according to its terms. Thus, in Equatorial we ordered the
rescission of the sale which was made in violation of the
lessee’s right of first refusal and further ordered the sale
of the leased property in favor of Mayfair Theater, as
grantee of the right. Emphatically, we held that “(a right of
first priority) should be enforced according to the law on
contracts 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.
Courts; Prejudicial Publicity; 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.—One final word.
Petitioner PUP should be cautioned against bidding for
public sympathy by bewailing the
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Polytechnic University of the Philippines vs. Court of
Appeals
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.
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before
the bar of public opinion; more than that, it is a pursuit of
justice through legal and equitable means. To prevent the
search for justice from evolving into a competition for
public approval, society invests the judiciary with
complete independence thereby insulating it from
demands expressed through any medium, the press not
excluded. Thus, if the court would merely reflect, and
worse, succumb to the great pressures of the day, the end
result, it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development
Corporation (NDC), a government owned and controlled
corporation created under CA 182 as amended by CA 311
and PD No. 668, had in its disposal a ten (10)-hectare
property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC compound and
covered by Transfer Certificates of Title Nos. 92885,
110301 and 145470.
Sometime in May 1965 private respondent Firestone
Ceramics Inc. (FIRESTONE) manifested its 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
of the property measured at 2.90118 hectares for use as
a manufacturing plant for a term of ten (10) years,
renewable for another ten (10) years under the same
terms and conditions.[1] In consequence of the
agreement, FIRESTONE constructed on the leased
premises several warehouses and other improvements
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
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
manufacturing plant and was agreed expressly to be "co-
extensive with the lease of LESSEE with LESSOR on the
2.60 hectare-lot."[2]
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 expire on 2
December 1978.[3] Prior to the expiration of 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. 11-78-
117 extending the term of the lease, subject to several
conditions among which was that in the event NDC "with
the approval of higher authorities, decide to dispose and
sell these properties including the lot, priority should be
given to the LESSEE"[4] (underscoring supplied). On 22
December 1978, in pursuance of the resolution, the
parties entered into a new agreement for a ten-year lease
of the 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 and sell these properties including the lot . . .
. "[5]
The contracts of lease conspicuously contain an
identically worded provision requiring FIRESTONE to
construct buildings and other improvements within the
leased premises worth several hundred thousands of
pesos.[6]
The parties' lessor-lessee relationship went
smoothly until early 1988 when FIRESTONE, cognizant
of the impending expiration of their lease agreement with
NDC, informed the latter through several letters and
telephone calls that it was renewing its lease over the
property. While its letter of 17 March 1988 was answered
by Antonio A. Henson, General Manager of NDC, who
promised immediate action on the matter, the rest of its
communications remained
unacknowledged.[7] FIRESTONE's predicament
worsened when rumors of NDC's supposed plans to
dispose of the subject property in favor of petitioner
Polytechnic University of the Philippines (PUP) came to
its knowledge. Forthwith, FIRESTONE served notice on
NDC conveying its desire to purchase the property in the
exercise of its contractual right of first refusal.
Apprehensive that its interest in the property would
be disregarded, FIRESTONE instituted an action for
specific performance to compel NDC to sell the leased
property in its favor. FIRESTONE averred that it was pre-
empting the impending sale of the NDC compound to
petitioner PUP in violation of its leasehold rights over the
2.60-hectare[8] property and the warehouses thereon
which would expire in 1999. FIRESTONE likewise prayed
for the issuance of a writ of preliminary injunction to enjoin
NDC from disposing of the property pending the
settlement of the controversy.[9]
In support of its complaint, FIRESTONE adduced in
evidence a letter of Antonio A. Henson dated 15 July 1988
addressed to Mr. Jake C. Lagonera, Director and Special
Assistant to Executive Secretary Catalino Macaraeg,
reviewing a proposed memorandum order submitted to
then President Corazon C. Aquino transferring the whole
NDC compound, including the leased property, in favor of
petitioner PUP.Attached to the letter was a draft of the
proposed memorandum order as well as a summary of
existing leases on the subject property. The survey listed
FIRESTONE as lessee of a portion of the property, placed
at 29,000[10] square meters, whose contract with NDC
was set to expire on 31 December 1989[11] renewable for
another ten (10) years at the option of the lessee. The
report expressly recognized FIRESTONE's right of first
refusal to purchase the leased property "should the lessor
decide to sell the same."[12]
Meanwhile, on 21 February 1989 PUP moved to
intervene and asserted its interest in the subject property,
arguing that a "purchaser pendente lite of property which
is subject of a litigation is entitled to intervene in the
proceedings."[13] PUP referred to Memorandum Order
No. 214 issued by then President Aquino ordering the
transfer of the whole NDC compound to the National
Government, which in turn would convey the
aforementioned property in favor of PUP at acquisition
cost. The issuance was supposedly made in recognition
of PUP's status as the "Poor Man's University" as well as
its serious need to extend its campus in order to
accommodate the growing student population. The order
of conveyance of the 10.31-hectare property would
automatically result in the cancellation of NDC's total
obligation in favor of the National Government in the
amount of P57,193,201.64.
Convinced that PUP was a necessary party to the
controversy that ought to be joined as party defendant in
order to avoid multiplicity of suits, the trial court granted
PUP's motion to intervene.FIRESTONE moved for
reconsideration but was denied. On certiorari, the Court
of Appeals affirmed the order of the trial
court. FIRESTONE came to us on review but in a
Resolution dated 11 July 1990 we upheld PUP's inclusion
as party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE
amended its complaint to include PUP and Executive
Secretary Catalino Macaraeg, Jr., as party-defendants,
and sought the annulment of Memorandum Order No.
214. FIRESTONE alleged that although Memorandum
Order No. 214 was issued "subject to such liens/leases
existing [on the subject property]," PUP disregarded and
violated its existing lease by increasing the rental rate
at P200,000.00 a month while demanding that it vacated
the premises immediately.[14] FIRESTONE prayed that in
the event Memorandum Order No. 214 was not declared
unconstitutional, the property should be sold in its favor at
the price for which it was sold to PUP - P554.74 per
square meter or for a total purchase price
of P14,423,240.00.[15]
Petitioner PUP, in its answer to the amended
complaint, argued in essence that the lease contract
covering the property had expired long before the
institution of the complaint, and that further, the right of
first refusal invoked by FIRESTONE applied solely to the
six-unit pre-fabricated warehouse and not the lot upon
which it stood.
After trial on the merits, judgment was rendered
declaring the contracts of lease executed between
FIRESTONE and NDC covering the 2.60-hectare
property and the warehouses constructed thereon valid
and existing until 2 June 1999. PUP was ordered and
directed to sell to FIRESTONE the "2.6 hectare leased
premises or as may be determined by actual verification
and survey of the actual size of the leased properties
where plaintiff's fire brick factory is located" at P1,500.00
per square meter considering that, as admitted by
FIRESTONE, such was the prevailing market price
thereof.
The trial court ruled that the contracts of lease
executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them forms
part of the integral system of plaintiff's brick
manufacturing plant x x x if one of the leased premises
will be taken apart or otherwise detached from the two
others, the purpose of the lease as well as plaintiff's
business operations would be rendered useless and
inoperative."[16] It thus decreed that FIRESTONE could
exercise its option to purchase the property until 2 June
1999 inasmuch as the 22 December 1978
contract embodied a covenant to renew the lease for
another ten (10) years at the option of the lessee as well
as an agreement giving the lessee the right of first refusal.
The trial court also sustained the constitutionality
of Memorandum Order No. 214 which was not per
se hostile to FIRESTONE's property rights, but deplored
as prejudicial thereto the "very manner with which
defendants NDC and PUP interpreted and applied the
same, ignoring in the process that plaintiff has existing
contracts of lease protectable by express provisions in the
Memorandum No. 214 itself."[17]It further explained that
the questioned memorandum was issued "subject to such
liens/leases existing thereon"[18] and petitioner PUP was
under express instructions "to enter, occupy and take
possession of the transferred property subject to such
leases or liens and encumbrances that may be existing
thereon"[19] (underscoring supplied).
Petitioners PUP, NDC and the Executive Secretary
separately filed their Notice of Appeal, but a few days
thereafter, or on 3 September 1996, perhaps realizing the
groundlessness and the futility of it all, the Executive
Secretary withdrew his appeal.[20]
Subsequently, the Court of Appeals affirmed the
decision of the trial court ordering the sale of the property
in favor of FIRESTONE but deleted the award of
attorney's fees in the amount of Three Hundred Thousand
Pesos (P300,000.00). Accordingly, FIRESTONE was
given a grace period of six (6) months from finality of the
court's judgment within which to purchase the property in
questioned in the exercise of its right of first refusal. The
Court of Appeals observed that as there was a sale of the
subject property, NDC could not excuse itself from its
obligation TO OFFER THE PROPERTY FOR SALE
FIRST TO FIRESTONE BEFORE IT COULD TO OTHER
PARTIES. The Court of Appeals held: "NDC cannot look
to Memorandum Order No. 214 to excuse or shield it from
its contractual obligations to FIRESTONE. There is
nothing therein that allows NDC to disavow or repudiate
the solemn engagement that it freely and voluntarily
undertook, or agreed to undertake."[21]
PUP moved for reconsideration asserting that in
ordering the sale of the property in favor of FIRESTONE
the courts a quo unfairly created a contract to sell
between the parties. It argued that the "court cannot
substitute or decree its mind or consent for that of the
parties in determining whether or not a contract (has
been) perfected between PUP and NDC."[22] PUP further
contended that since "a real property located in Sta. Mesa
can readily command a sum of P10,000.00 per square
(meter)," the lower court gravely erred in ordering the sale
of the property at only P1,500.00 per square meter. PUP
also advanced the theory that the enactment
of Memorandum Order No. 214 amounted to a withdrawal
of the option to purchase the property granted to
FIRESTONE. NDC, for its part, vigorously contended that
the contracts of lease executed between the parties had
expired without being renewed by FIRESTONE;
consequently, FIRESTONE was no longer entitled to any
preferential right in the sale or disposition of the leased
property.
We do not see it the way PUP and NDC did. It is
elementary that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable
consideration. That principle was clearly upheld by the
Court of Appeals when it denied on 6 June 2000 the twin
motions for reconsideration filed by PUP and NDC on the
ground that the appellants failed to advance new
arguments substantial enough to warrant a reversal of the
Decision sought to be reconsidered.[23] On 28 June 2000
PUP filed an urgent motion for an additional period of
fifteen (15) days from 29 June 2000 or until 14 July 2000
within which to file a Petition for Review on Certiorari of
the Decision of the Court of Appeals.
On the last day of the extended period PUP filed
its Petition for Review on Certiorari assailing
the Decision of the Court of Appeals of 6 December 1999
as well as the Resolution of 6 June 2000 denying
reconsideration thereof. PUP raised two issues: (a)
whether the courts a quo erred when they "conjectured"
that the transfer of the leased property from NDC to PUP
amounted to a sale; and, (b) whether FIRESTONE can
rightfully invoke its right of first refusal. Petitioner posited
that if we were to place our imprimatur on the decisions of
the courts a quo, "public welfare or specifically the
constitutional priority accorded to education" would
greatly be prejudiced.[24]
Paradoxically, our paramount interest in education
does not license us, or any party for that matter, to destroy
the sanctity of binding obligations. Education may be
prioritized for legislative or budgetary purposes, but we
doubt if such importance can be used to confiscate private
property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for
extension of fifteen (15) days within which to appeal
inasmuch as the aforesaid pleading lacked an affidavit of
service of copies thereof on the Court of Appeals and the
adverse party, as well as written explanation for not filing
and serving the pleading personally.[25]
Accordingly, on 26 July 2000 we issued
a Resolution dismissing PUP's Petition for Review for
having been filed out of time. PUP moved for
reconsideration imploring a resolution or decision on the
merits of its petition. Strangely, about the same time,
several articles came out in the newspapers assailing the
denial of the petition. The daily papers reported that we
unreasonably dismissed PUP's petition on technical
grounds, affirming in the process the decision of the trial
court to sell the disputed property to the prejudice of the
government in the amount
of P1,000,000,000.00.[26] Counsel for petitioner PUP,
alleged that the trial court and the Court of Appeals "have
decided a question of substance in a way definitely not in
accord with law or jurisprudence."[27]
At the outset, let it be noted that the amount
of P1,000,000,000.00 as reported in the papers was way
too exaggerated, if not fantastic. We stress that NDC itself
sold the whole 10.31-hectare property to PUP at
only P57,193,201.64 which represents NDC's obligation
to the national government that was, in exchange, written
off. The price offered per square meter of the property
was pegged at P554.74.FIRESTONE's leased premises
would therefore be worth only P14,423,240.00. From any
angle, this amount is certainly far below the ballyhooed
price of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for
Reconsideration to give it a chance to ventilate its right, if
any it still had in the leased premises, thereby paving the
way for a reinstatement of its Petition for Review.[28] In its
appeal, PUP took to task the courts a quo for
supposedly "substituting or decreeing its mind or consent
for that of the parties (referring to NDC and PUP) in
determining whether or not a contract of sale was
perfected." PUP also argued that inasmuch as "it is the
parties alone whose minds must meet in reference to the
subject matter and cause," it concluded that it was error
for the lower courts to have decreed the existence of a
sale of the NDC compound thus allowing FIRESTONE to
exercise its right of first refusal.
On the other hand, NDC separately filed its
own Petition for Review and advanced arguments which,
in fine, centered on whether or not the transaction
between petitioners NDC and PUP amounted to a sale
considering that ownership of the property remained with
the government.[29] Petitioner NDC introduced the novel
proposition that if the parties involved are both
government entities the transaction cannot be legally
called a sale.
In due course both petitions were consolidated.[30]
We believe that the courts a quo did not hypothesize,
much less conjure, the sale of the disputed property by
NDC in favor of petitioner PUP. Aside from the fact that
the intention of NDC and PUP to enter into a contract of
sale was clearly expressed in the Memorandum Order
No. 214,[31] a close perusal of the circumstances of this
case strengthens the theory that the conveyance of the
property from NDC to PUP was one of absolute sale, for
a valuable consideration, and not a mere paper transfer
as argued by petitioners.
A contract of sale, as defined in the Civil Code, is a
contract where one of the parties obligates himself to
transfer the ownership of and to deliver a determinate
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
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
"catch-all" provision which effectively brings within its
grasp a whole gamut of transfers whereby ownership of a
thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose,
there is not just one party involved in the questioned
transaction. Petitioners NDC and PUP have their
respective charters and therefore each possesses a
separate and distinct individual personality.[33] The
inherent weakness of NDCs proposition that there was no
sale as it was only the government which was involved in
the transaction thus reveals itself.Tersely put, it is not
necessary to write an extended dissertation on
government owned and controlled corporations and their
legal personalities. Beyond cavil, a government owned
and controlled corporation has a personality of its own,
distinct and separate from that of the government.[34] The
intervention in the transaction of the Office of the
President through 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 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 leased premises in favor of FIRESTONE.
True that there may be instances when a particular
deed does not disclose the real intentions of the parties,
but their action may nevertheless indicate that a binding
obligation has been undertaken. Since the conduct of the
parties to a contract may be sufficient to establish the
existence of an agreement and the terms thereof, it
becomes necessary for the courts to examine the
contemporaneous behavior of the parties in establishing
the existence of their contract.
The preponderance of evidence shows that NDC
sold to PUP the whole NDC compound, including the
leased premises, without the knowledge much less
consent of private respondent FIRESTONE which had a
valid and existing right of first refusal.
All three (3) essential elements of a valid sale,
without which there can be no sale, were attendant in the
"disposition" and "transfer" of the property from NDC to
PUP - consent of the parties, determinate subject
matter, and consideration therefor.
Consent to the sale is obvious from the prefatory
clauses of Memorandum Order No. 214 which explicitly
states the acquiescence of the parties to the sale of the
property -
WHEREAS, PUP has expressed its willingness to
acquire said NDC properties and NDC has expressed
its willingness to sell the properties to PUP (underscoring
supplied).[35]
Furthermore, the cancellation of NDC's liabilities in
favor of the National Government in the amount
of P57,193,201.64 constituted the "consideration" for the
sale. As correctly observed by the Court of Appeals-
The defendants-appellants' interpretation that there was
a mere transfer, and not a sale, apart from being specious
sophistry and a mere play of words, is too strained and
hairsplitting. For it is axiomatic that every sale imposes
upon the vendor the obligation to transfer ownership as
an essential element of the contract. Transfer of title or an
agreement to transfer title for a price paid, or promised to
be paid, is the very essence of sale (Kerr & Co. v. Lingad,
38 SCRA 524; Schmid & Oberly, Inc., v. RJL Martinez
Fishing Corp., 166 SCRA 493). At whatever legal angle
we view it, therefore, the inescapable fact remains that all
the requisites of a valid sale were attendant in the
transaction between co-defendants-appellants NDC and
PUP concerning the realities subject of the present suit. [36]
What is more, the conduct of petitioner PUP
immediately after the transaction is in itself an admission
that there was a sale of the NDC compound in its
favor. Thus, after the issuance of Memorandum Order
No. 214 petitioner PUP asserted its ownership over the
property by posting notices within the compound advising
residents and occupants to vacate the premises. [37] In
its Motion for Intervention petitioner PUP also admitted
that its interest as a "purchaser pendente lite" would be
better protected if it was joined as party-defendant in the
controversy thereby confessing that it
indeed purchased the property.
In light of the foregoing disquisition, we now proceed
to determine whether FIRESTONE should be allowed to
exercise its right of first refusal over the property. Such
right was expressly stated by NDC and FIRESTONE in
par. XV of their third contract denominated as A-10-78
executed on 22 December 1978 which, as found by the
courts a quo, was interrelated to and inseparable from
their first contract denominated as C-30-65 executed on
24 August 1965 and their second contract denominated
as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises
during the term of this Agreement, or any extension
thereof, the LESSOR shall first give to the LESSEE, which
shall have the right of first option to purchase the leased
premises subject to mutual agreement of both parties.[38]
In the instant case, the right of first refusal is an
integral and indivisible part of the contract of lease and is
inseparable from the whole contract. The consideration
for the right is built into the reciprocal obligations of the
parties. Thus, it is not correct for petitioners to insist that
there was no consideration paid by FIRESTONE to entitle
it to the exercise of the right, inasmuch as the stipulation
is part and parcel of the contract of lease making the
consideration for the lease the same as that for the option.
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 he has made an offer to sell to the latter at
a certain price and the lessee has failed to accept
it.[39] The lessee has a right that the lessor's first offer shall
be in his favor.
The option in this case was incorporated in the
contracts of lease by NDC for the benefit of FIRESTONE
which, in view of the total amount of its investments in the
property, wanted to be assured that it would be given the
first opportunity to buy the property at a price for which it WHEREFORE, the petitions in G.R. No. 143513 and
would be offered. Consistent with their agreement, it was G.R. No. 143590 are DENIED. Inasmuch as the first
then implicit for NDC to have first offered the leased contract of lease fixed the area of the leased premises at
premises of 2.60 hectares to FIRESTONE prior to the sale 2.90118 hectares while the second contract placed it at
in favor of PUP. Only if FIRESTONE failed to exercise its 2.60 hectares, let a ground survey of the leased premises
right of first priority could NDC lawfully sell the property to be immediately conducted by a duly licensed, registered
petitioner PUP. surveyor at the expense of private respondent
FIRESTONE CERAMICS, INC., within two (2) months
It now becomes apropos to ask whether the courts a from finality of the judgment in this case. Thereafter,
quo were correct in fixing the proper consideration of the private respondent FIRESTONE CERAMICS, INC., shall
sale at P1,500.00 per square meter. In contracts of sale, have six (6) months from receipt of the approved survey
the basis of the right of first refusal must be the current within which to exercise its right to purchase the leased
offer of the seller to sell or the offer to purchase of the property at P1,500.00 per square meter, and petitioner
prospective buyer. Only after the lessee-grantee fails to Polytechnic University of the Philippines is ordered to
exercise its right under the same terms and within the reconvey the property to FIRESTONE CERAMICS, INC.,
period contemplated can the owner validly offer to sell the in the exercise of its right of first refusal upon payment of
property to a third person, again, under the same terms the purchase price thereof.
as offered to the grantee.[40] It appearing that the whole
NDC compound was sold to PUP for P554.74 per square SO ORDERED.
meter, it would have been more proper for the courts
below to have ordered the sale of the property also at the Notes.—The constitutional provision which directs that
same price. However, since FIRESTONE never raised the State shall assign the highest budgetary priority to
this as an issue, while on the other hand it admitted that education is merely directory. (Philippine Constitution
the value of the property stood at P1,500.00 per square Association vs. Enriquez, 235 SCRA 507 [1994])
meter, then we see no compelling reason to modify the
holdings of the courts a quo that the leased premises be
sold at that price. In the law on sales, the so-called “right of first refusal” is
Our attention is invited by petitioners to Ang Yu an innovative juridical relation, but it cannot be deemed a
Asuncion v. CA[41] in concluding that if our holding in Ang perfected contract of sale under Article 1458 of the Civil
Yu would be applied to the facts of this case then Code. (Asuncion vs. Court of Appeals, 238 SCRA 602
FIRESTONE's "option, if still subsisting, is not [1994])
enforceable," the option being merely a preparatory
contract which cannot be enforced.
The contention has no merit. At the heels of Ang ——o0o——
Yu came Equatorial Realty Development, Inc., v. Mayfair
Theater, Inc.,[42] where after much deliberation we
declared, and so we hold, that a right of first refusal is
neither "amorphous nor merely preparatory" and can be
enforced and executed according to its terms. Thus,
in Equatorial we ordered the rescission of the sale which
was made in violation of the lessee's right of first refusal
and further ordered the sale of the leased property in favor
of Mayfair Theater, as grantee of the right. Emphatically,
we held that "(a right of first priority) should be enforced
according to the law on contracts 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.