July 1, 1902 (Philippine Bill) prohibits
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
corporations engaged in mining and members of
such from being interested in any other
corporation engaged in mining
Shortly prior to the institution of this lawsuit, the
Benguet Consolidated Mining Co. transferred to
H. E. Renz, as trustee, the certificate for
600,000 shares of the Balatoc Mining.
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 3. The right to operate a messenger and express
meaning of the word "franchise" in the statute. delivery service, by virtue of a legislative enactment, is
admittedly a secondary franchise (R.A. No. 3260,
"A franchise is a special privilege entitled "An Act granting the JRS Business Corporation a
conferred by governmental authority, franchise to conduct a messenger and express service)"
and which does not belong to citizens of and, as such, under our corporation law, is subject to
the country generally as a matter of levy and sale on execution together and including all the
common right. ... Its meaning depends property necessary for the enjoyment thereof. The law,
more or less upon the connection in however, indicates the procedure under which the same
which the word is employed and the (secondary franchise and the properties necessary for its
property and corporation to which it is enjoyment) may be sold under execution. Said franchise
applied. It may have different can be sold under execution, when such sale is
significations. especially decreed and ordered in the judgment and it
becomes effective only when the sale is confirmed by
the Court after due notice (Sec. 56, Corp. Law).
"For practical purposes, franchises, so
far as relating to corporations, are
divisible into: 4. The compromise agreement and the judgment based
thereon, do not contain any special decree or order
making the franchise answerable for the judgment debt.
(1) Corporate or general franchises --
The same thing may be stated with respect to
the franchise to exist as a corporation;
petitioner's trade name or business name and its capital
and
stock. Incidentally, the trade name or business name
corresponds to the initials of the President of the
(2) Special or secondary franchises -- petitioner corporation and there can be no serious
certain rights and privileges conferred dispute regarding the fact that a trade name or business
upon existing corporations, such as the name and capital stock are necessarily included in the
right to use the streets of a municipality enjoyment of the franchise. Like that of a franchise, the
to lay pipes or tracks, erect poles or law mandates, that property necessary for the enjoyment
string wires of said franchise, can only be sold to satisfy a judgment
debt if the decision especially so provides. As We have
stated heretofore, no such directive appears in the
Primary Franchise Secondary Franchise decision. Moreover, a trade name or business name
cannot be sold separately from the franchise, and the
“The right to exist as capital stock of the petitioner corporation or any other
such” corporation, for the matter, represents the interest and is
the property of stockholders in the corporation, who can
only be deprived thereof in the manner provided by law
1. Vested "in the (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re
individuals who 1. Vested in the Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6
compose the corporation Words and Phrases, 109).
corporation and
not in the
corporation itself" It, therefore, results that the inclusion of the franchise,
the trade name and/or business name and the capital
stock of the petitioner corporation, in the sale of the
properties of the JRS Business Corporation, has no
2. May ordinarily be justification. The sale of the properties of petitioner
2. Cannot be corporation is set aside, in so far as it authorizes the levy
conveyed or
conveyed in the and sale of its franchise, trade name and capital stocks.
mortgaged under
absence of a Without pronouncement as to costs.
a general power
legislative granted to a
authority so to Note.—On the issue whether the business name or
corporation to
do. dispose of its tradename, and franchise (right) to operate are
property, except properties or property rights which could be the subject
such special or of levy, execution or sale, there is a statutory authority to
secondary the effect that the goodwill of a business is property, and
franchises as are may be transferred together with the right to use the
charged with a name under which the business is conducted (Art. 521,
public use.
new Civil Code). The same holds true with respect to a
trade-name or trade-mark (Art. 520, Id.). The franchise
of a corporation is also considered property (Cf. Long
Island Water Supply v. Brooklyn, 166 U.S. 685; Halili v.
Public Service Commission, et al., 49 O.G. 825; Manila
Electric Company v. Public Service Commission, etc., L-
18638-40, June 30, 1964).
——oOo——
Antonio Vazquez, petitioner, vs. Francisco de Borja,
respondent.[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 corporation
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 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.
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
obligation 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 negligence. Since it was the
corporation's contract, its nonfulfilment, whether due
to negligence or.fault or to any other cause, made the
corporation and not its agent liable.
3.Id.; Id.; Id.—On the other hand, if independently of
the contract Vazquez by his fault or negligence
caused damage 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.
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.
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——

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.

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
Members of the Board. This is because it was
not established that they were duly elected to
replace the said deceased Board Members.
12. THE ANOMALIES IN THIS CASE: To correct
the alleged error in the General Information
Sheet, the retained accountant of the
Corporation informed the SEC in its November
11, 1998 letter that the non-inclusion of the
lawfully elected directors in the 1996 General
Information Sheet was attributable to its
oversight and not the fault of the Corporation.
[25]
This belated attempt, however, did not erase
the doubt as to whether an election was indeed
held. As previously stated, a corporation is
mandated to inform the SEC of the names and
the change in the composition of its officers and
board of directors within 30 days after election if
one was held, or 15 days after the death,
resignation or cessation of office of any of its
director, trustee or officer if any of them died,
resigned or in any manner, ceased to hold
office. This, the Corporation failed to do. The
alleged election of the directors and officers who
signed the March 31, 1997 Board Resolution
was held on October 16, 1996, but the SEC was
informed thereof more than two years later, or
on November 11, 1998. The 4 Directors
appearing in the 1996 General Information
Sheet died between the years 1984 1987, [26] but
the records do not show if such demise was
reported to the SEC.
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 Negros Occidental, Branch 60 in Civil Case No. 822,
is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and
the June 7, 2002 Decision rendered by the Special
Former Thirteenth Division of the Court of Appeals in
CA-G.R. SP No. 49251, dismissing the petitionfiled by
the group of Antonio Monfort III, is REVERSED and SET
ASIDE.
 The complaint for forcible entry docketed as Civil
Case No. 822 before
the Municipal Trial Court of Cadiz City is DISMISSED. In
Civil Case No. 506-C with the Regional Trial Court of
Negros Occidental, Branch 60, the action for delivery of
personal property filed by Monfort Hermanos Agricultural
Development Corporation is likewise DISMISSED. With
respect to the action filed by Ramon H. Monfort for the
delivery of 387 fighting cocks, the Regional Trial Court of
Negros Occidental, Branch 60, is ordered to effect the
corresponding substitution of parties.
No costs.
SO ORDERED.
Note.—Directors may appoint officers and agents and as
incident to this power of appointment, they may
discharge those appointed. (Union Motors Corporation
vs. National Labor Relations Commission, 314 SCRA
531 [1999])
——o0o——
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
SAN JUAN STRUCTURAL AND STEEL the funds of the corporation, and to disburse them in
FABRICATORS, INC., petitioner, vs. COURT OF accordance with the authority given him by the board
APPEALS, MOTORICH SALES CORPORATION, or the properly authorized officers.”—That Nenita
NENITA LEE GRUENBERG, ACL DEVELOPMENT Gruenberg is the treasurer of Motorich does not free
CORP. and JNM REALTY AND DEVELOPMENT petitioner from the responsibility of ascertaining the
CORP., respondents. extent of her authority to represent the corporation.
Petitioner cannot assume that she, by virtue of her
position, was authorized to sell the property of the
Corporation Law; Sales; The property of the corporation. Selling is obviously foreign to a corporate
treasurer’s function, which generally has been
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:
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
corporation. We rule that it is not.
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 sole controlling stockholder of Motorich, the
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
property is not necessary to bind the corporation for
the action of its president. [38] But the factual milieu
in Dulay is not on all fours with the present case, to
wit:
DULAY CASE MOTORICH CASE
The sale of real property Motorich is not a close
was contracted by the corporation, as previously
president of a close discussed, and the
corporation with the agreement was entered
knowledge and into by the corporate
acquiescence of its board treasurer without the
of directors knowledge of the board
of directors.
8. 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.[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
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.
WHEREFORE, the petition is hereby DENIED and
the assailed Decision is AFFIRMED.
 SO ORDERED.
Notes.—For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be
clearly and convincingly established—it cannot be
presumed. (Matuguina Integrated Wood Products, Inc.
vs. Court of Appeals, 263 SCRA 490 [1996])
Stockholders who are actively engaged in the
management or operation of the business and affairs of
a close corporation shall be personally liable for
corporate torts unless the corporation has obtained
reasonably adequate liability insurance. (Naguiat vs.
National Labor Relations Commission, 269 SCRA 564
[1997])
——o0o——
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 States, does not violate the provisions of
right of ownership of stock in a
paragraph 1 of section 3 of the Act of Congress
corporation was thereafter distinct from
the right to hold the property by the of August 29, 1916 No treaty right relied upon
corporation (Humphreys vs. McKissock Act No. 2761 of the Philippine Legislature is held
[1890], 140 U.S., 304; valid and constitutional .
Queen vs. Arnaud [1846], 9 Q. B., 806;
29 Op. Atty.-Gen. [U.S.],188.)

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

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

Stonehill v. Diokno (1967)

4. Purpose of the Philippine Legislature: To
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.
G.R. No. L-19550 | 1967-06-19
Right Against Unlawful Search is Personal
1. As regards the warrants issued to the corporations,
we hold that petitioners herein have no cause of
action to assail the legality of the contested warrants
and of the seizures made in pursuance thereof, for the
simple reason that said corporations have their
respective personalities, separate and distinct from
the personality 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:

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

Held:

Right Against Unlawful Search is Personal

1. As regards the warrants issued to the corporations,

we hold that petitioners herein have no cause of action
to assail the legality of the contested warrants and of the
seizures made in pursuance thereof, for the simple
reason that said corporations have their respective
personalities, separate and distinct from the personality Bache & Co. (Phil), Inc. vs. Ruiz (1971)
of herein petitioners, regardless of the amount of shares
of stock or of the interest of each of them in said G.R. No. L-32409 | 1971-02-27
corporations, and whatever the offices they hold therein
may be.

2. Indeed, it is well settled that the legality of a seizure

can be contested only by the party whose rights have
been impaired thereby, and that the objection to an
unlawful search and seizure is purely personal and
cannot be availed of by third parties.

Right of a corporation to object against

unreasonable searches and seizures

In Stonehill vs. Diokno, this Court impliedly

recognized the right of a corporation to object
against unreasonable searches and seizures.
In the Stonehill case only the officers of the
various corporations in whose offices
documents, papers and effects were
searched and seized. It was said that the
corporations therein herein had no cause of
action to assail the legality of the contested
warrants and of the seizures made in
pursuance thereof, for the simple reason that
said corporations have their respective
personalities, separate and distinct from the
personality of [its individual officers],
regardless of the amount of shares of stock or
the interest of each of them in said
corporations.

In the case at bar, the corporation to whom

the seized documents belong, and whose
rights have thereby been impaired, is itself a
petitioner. On that score, petitioner
corporation (Bache and Co.) here stands on a
different footing from the corporations in
Stonehill.

Facts:

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

wrote a letter to CFI Judge Ruiz requesting the issuance
of a search warrant against petitioners Bache & Co.
(Phil.), Inc. and its President, Frederick E. Seggerman,
for violation of Section 46(a) of the National Internal
Revenue Code (NIRC), particularly Sections 53, 72, 73,
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.
(BASECO), petitioner, vs. PRESIDENTIAL
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 the PCGG, and of
course no seizure on the occasion thereof.

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.
Facts:
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 are ordered to pay, jointly and severally, to Mambulao
the Sheriff of the City of Manila, nevertheless, Lumber Company the total amount of P56,000.73,
the effect thereof was merely to provide another broken as follows: P150.73 overpaid by the latter to the
place where the mortgage chattel could be sold PNB, P42,850.00 the value of the chattels at the time of
in addition to those specified in the Chattel the sale with interest at the rate of 6% per annum from
Mortgage Law. Indeed, a stipulation in a contract December 21, 1961, until fully paid, P10,000.00 in
cannot abrogate much less impliedly repeal a exemplary damages, and P3,000.00 as attorney's fees.
specific provision of the statute. Considering that Costs against both appellees.
Section 14 of Act No. 1508 vests in the
mortgagee the choice where the foreclosure Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
sale should be held, hence, in the case under Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
consideration, the PNB had three places from Bengzon, J.P. J., took no part.
which to select, namely: (1) the place of
residence of the mortgagor; (2) the place of the
mortgaged chattels were situated; and (3) the
place stipulated in the contract. The PNB
selected the second and, accordingly, the
foreclosure sale held in Jose Panganiban,
Camarines Norte, was legal and valid.

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

sustained.

Held: No. It cannot be sustained.

Herein appellant's claim for moral damages, however,

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

But for the wrongful acts of herein appellee bank and the
deputy sheriff of Camarines Norte in proceeding with the
sale in utter disregard of the agreement to have the
chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by
herein appellant, and in disposing of the chattels in gross ABS-CBN BROADCASTING
for the miserable amount of P4,200.00, herein appellant CORPORATION, petitioners, vs. HONORABLE
should be awarded exemplary damages in the sum of COURT OF APPEALS, REPUBLIC BROADCASTING
P10,000.00. The circumstances of the case also warrant CORP., VIVA PRODUCTIONS, INC., and VICENTE
the award of P3,000.00 as attorney's fees for herein DEL ROSARIO, respondents.
appellant.
CORPORATION LAW; BOARD OF DIRECTORS;
WHEREFORE AND CONSIDERING ALL THE POWER TO ENTER INTO CONTRACTS;
FOREGOING, the decision appealed from should be, as DELEGATION; VALIDITY THEREOF. Under the
hereby, it is set aside. The Philippine National Bank and Corporation Code, unless otherwise provided by said
the Deputy Sheriff of the province of Camarines Norte Code, corporate powers, such as the power to enter

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. continuation of said previous contract is untenable. As
Del Rosario agreed upon at the Tamarind Grill was only observed by the trial court, ABS-CBNs right of first
provisional, in the sense that it was subject to approval refusal had already been exercised when Ms. Concio
by the Board of Directors of Viva. He testified: wrote to Viva ticking off ten films.Thus:

Q Now, Mr. Witness, and after that Tamarinf meeting
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

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
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
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
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
the (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
Bayer 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]
her 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
 union and intra-union
EUBP against Remigio and her allies for failure to conflicts, and all
exhaust reliefs within the union and ordering the conduct disputes, grievances or
problems arising from or
of a referendum to determine which of the two groups affecting labor-
should be recognized as union officers. [29] EUBP management relations
in all workplaces
seasonably appealed the said decision to the Bureau of whether agricultural or
Labor Relations (BLR).[30] On June 16, 2000, the BLR non-agricultural, except
those arising from the
reversed the Regional Directors ruling and ordered the implementation or
interpretation of
management of Bayer to respect the authority of the
collective bargaining
duly-elected officers of EUBP in the administration of the agreements which shall
be the subject of
prevailing CBA.[31] grievance procedure
and/or voluntary
arbitration.
Unfortunately, the said BLR ruling came late since Bayer
Specifically, with respect to the union
had already signed a new CBA [32] with REUBP
dues, the authority is the case of Cebu
on February 21, 2000. The said CBA was eventually Seamens Association[,] Inc. vs. Ferrer-
Calleja, (212 SCRA 51), where the
ratified by majority of the bargaining unit.[33] Supreme Court held that when the issue
calls for the determination of which
between the two groups within a union
On June 2, 2000, Labor Arbiter Waldo Emerson R. Gan is entitled to the union dues, the same
dismissed EUBPs second ULP complaint for lack of cannot be taken cognizance of by the
NLRC.
jurisdiction.[34] The Labor Arbiter explained the dismissal
xxxx
as follows:
All told, were it not for the fact that there WHEREFORE, premises considered,
were two (2) [groups] of employees, the the instant complaint is hereby
Union led by its President Juanito DISMISSED on the ground of lack of
Facundo and the members who decided jurisdiction.
to disaffiliate led by Ms. Avelina
Remigio, claiming to be the rightful SO ORDERED.[35]
representative of the rank and file
employees, the Company would not
have acted the way it did and the Union On June 28, 2000, the NLRC resolved to
would not have filed the instant case.
dismiss[36] petitioners motion for a restraining order
Clearly then, as the case involves intra- and/or injunction stating that the subject matter involved
union disputes, this Office is bereft of
any jurisdiction pursuant to Article 226 of an intra-union dispute, over which the said Commission
the Labor Code, as amended, which has no jurisdiction.[37]
provides pertinently in part, thus:

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

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

An intra-union dispute refers to any conflict between and
the management of Bayer in dealing and negotiating
among union members, including grievances arising
with Remigios splinter group despite its validly existing
from any violation of the rights and conditions of
CBA with EUBP can be considered unfair labor practice
membership, violation of or disagreement over any
and, if so, whether EUBP is entitled to any relief.
provision of the unions constitution and by-laws, or
disputes arising from chartering or disaffiliation of the
Petitioners argue that the subject matter of their
union.[49] Sections 1 and 2, Rule XI of Department Order
complaint, as well as the subsequent amendments
No. 40-03, Series of 2003 of the DOLE enumerate the
thereto, pertain to the unfair labor practice act of
following circumstances as inter/intra-union disputes, viz:
respondents Bayer, Lonishen and Amistoso in dealing
with Remigios splinter union. They contend that (1) the RULE XI
INTER/INTRA-UNION DISPUTES AND
acts of abetting or assisting in the creation of another OTHER RELATED LABOR RELATIONS
DISPUTES
union is among those considered by the Labor Code, as
amended, specifically under Article 248 (d)[44] thereof, as SECTION 1. Coverage. -
Inter/intra-union disputes shall include:
unfair labor practice; (2) the act of negotiating with such
(a) cancellation of
union constitutes a violation of Bayers duty to bargain registration of a labor
collectively; and (3) Bayers unjustified refusal to process organization filed by its
 members or by another union membership and
labor organization; collective bargaining
(b) conduct of election of (1) between and among
union and workers legitimate labor
association organizations;
officers/nullification of
(2) between and among
election of union and
members of a union
workers association
or workers
officers;
association.
(c) audit/accounts
examination of union or SECTION 2. Coverage. Other
workers association related labor relations disputes shall
funds; include any conflict between a labor
union and the employer or any
(d) deregistration of
individual, entity or group that is not a
collective bargaining
labor organization or workers
agreements;
association. This includes: (1)
(e) validity/invalidity of cancellation of registration of unions and
union affiliation or workers associations; and (2) a petition
disaffiliation; for interpleader.
(f) validity/invalidity of
acceptance/non-
acceptance for union It is clear from the foregoing that the issues
membership;
raised by petitioners do not fall under any of the
(g) validity/invalidity of
impeachment/expulsion of aforementioned circumstances constituting an intra-
union and workers union dispute. More importantly, the petitioners do not
association officers and
members; seek a determination of whether it is the Facundo group
(h) validity/invalidity of (EUBP) or the Remigio group (REUBP) which is the true
voluntary recognition;
set of union officers. Instead, the issue raised pertained
(i) opposition to
only to the validity of the acts of management in light of
application for union and
CBA registration; the fact that it still has an existing CBA with EUBP. Thus
(j) violations of or as to Bayer, Lonishen and Amistoso the question was
disagreements over any
provision in a union or whether they were liable for unfair labor practice, which
workers association issue was within the jurisdiction of the NLRC. The
constitution and by-laws;
dismissal of the second ULP complaint was therefore
(k) disagreements over
chartering or registration erroneous.
of labor organizations and
collective bargaining
agreements; However, as to respondents Remigio and
(l) violations of the rights Villareal, we find that petitioners complaint was validly
and conditions of union or
workers association dismissed.
membership;
(m) violations of the rights of Petitioners ULP complaint cannot prosper as
legitimate labor
organizations, except against respondents Remigio and Villareal because the
interpretation of collective issue, as against them, essentially involves an intra-
bargaining agreements;
union dispute based on Section 1 (n) of DOLE
(n) such other disputes or
conflicts involving the Department Order No. 40-03. To rule on the validity or
rights to self-organization,
illegality of their acts, the Labor Arbiter and the NLRC
will necessarily touch on the issues respecting the
propriety of their disaffiliation and the legality of the
establishment of REUBP issues that are outside the
scope of their jurisdiction. Accordingly, the dismissal of
the complaint was validly made, but only with respect to
these two respondents.
But are Bayer, Lonishen and Amistoso liable for
unfair labor practice? On this score, we find that the
evidence supports an answer in the affirmative.
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.
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
case is already moot and academic following the lapse
of the 1997-2001 CBA and their renegotiation with EUBP
for the 2006-2007 CBA. They also reason that the act of
the company in negotiating with EUBP for the 2006-2007
CBA is an obvious recognition on their part that EUBP is
now the certified collective bargaining agent of its rank-
and-file employees.[58]
We do not agree. First, 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.
Second, that the management of Bayer decided
to recognize EUBP as the certified collective bargaining
agent of its rank-and-file employees for purposes of its
2006-2007 CBA negotiations is of no moment. It did not
obliterate the fact that the management of Bayer had
withdrawn its recognition of EUBP and supported
REUBP during the tumultuous implementation of the
1997-2001 CBA. Such act of interference which is
violative of the existing CBA with EUBP led to the filing
of the subject complaint.
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.[59] A fortiori, the prayer for exemplary
damages must also be denied.[60] 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)[61] and Article 2221,
[62]
and (2) attorneys 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.
 CARGILL PHILIPPINES, INC., petitioner, vs. SAN
WHEREFORE, the petition for review on
FERNANDO REGALA TRADING, INC., respondent.
certiorari is PARTLY GRANTED. The Decision
dated December 15, 2003 and the Resolution
Civil Law; Sales; The thing sold can only be understood
dated March 23, 2004 of the Court of Appeals in CA-
as delivered to the buyer when it is placed in the buyer’s
G.R. SP No. 73813 are MODIFIED as follows: control and possession at the agreed place of
delivery.―A stipulation designating the place and
manner of delivery is controlling on the contracting
1) Respondents Bayer Phils., Dieter J. parties. The thing sold can only be understood as
Lonishen and Asuncion Amistoso are delivered to the buyer when it is placed in the buyer’s
control and possession at the agreed place of delivery.
found LIABLE for Unfair Labor Practice, Cargill presented no evidence that it attempted to make
and are hereby ORDERED to remit to other deliveries to complete the balance of Contract
5026.
petitioners the amount of P254,857.15
representing the collected union dues
previously turned over to Avelina Remigio Same; Damages; Moral Damages; Corporations; As a
rule, moral damages are not awarded to a corporation
and Anastacia Villareal. They are
unless it enjoyed good reputation that the offender
likewise ORDERED to pay petitioners debased and besmirched by his actuations.―As a rule,
moral damages are not awarded to a corporation unless
nominal damages in the amount
it enjoyed good reputation that the offender debased and
of P250,000.00 and attorneys fees besmirched by his actuations. San Fernando failed to
equivalent to 10% of the monetary award; prove by sufficient evidence that it fell within this
exception. Besides, moral damages are, as a rule, also
and not recoverable in culpa contractual except when bad
faith had been proved. San Fernando failed to show that
Cargill was motivated by bad faith or ill will when it failed
2) The complaint, as against respondents
to deliver the molasses as agreed.
Remigio and Villareal. is DISMISSED due
to the lack of jurisdiction of the Labor
Same; Same; Exemplary Damages; In breach of
Arbiter and the NLRC, the complaint being
contract, the court may only award exemplary damages
in the nature of an intra-union dispute. if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.―The Court rules that
the CA correctly deleted the award of exemplary
No pronouncement as to costs. damages to San Fernando. In breach of contract, the
court may only award exemplary damages if the
SO ORDERED. defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner. The evidence has not
Notes.—Unlike the NLRC which is explicitly vested with sufficiently established that Cargill’s failure to deliver the
jurisdiction over claims for actual, moral, exemplary and molasses on time was attended by such wickedness.
other forms of damages, the Bureau of Labor Relations
is not specifically empowered to adjudicate claims of These cases pertain to the reciprocal obligations of the
such nature. parties in a contract of sale to deliver the goods, receive
them, and pay the price as stipulated and the
consequent effects of breach of such obligations.
SAN FERNANDO REGALA TRADING, INC., petitioner,
The facts and the Case
vs. CARGILL PHILIPPINES, INC., respondent.
Cargill Philippines, Inc. (Cargill) and San Fernando
Regala Trading, Inc. (San Fernando) were cane
G.R. No. 178042. October 9, 2013.* molasses traders that did business with each other for
sometime. The present controversy arose when San
Fernando claimed that Cargill reneged on its contractual
obligations to deliver certain quantities of molasses.
Cargill denied this, insisting that San Fernando actually
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 employer's business shall be given first
properties arose out of or are connected or interwoven preference and shall be paid in full
with the labor dispute brought forth by appellees against before other creditors may establish any
PSC and DBP. 4 Hence, the present petition by DBP. claim to a share in the assets of the
employer.
DBP contends that the labor arbiter and the NLRC
committed a grave abuse of discretion (1) in assuming Interpreting the above provisions, this Court,
jurisdiction over DBP; (2) in applying the provisions of in Development Bank of the Philippines vs. Hon. Labor
Article 110 of the Labor Code, as amended; and (3) in Arbiter Ariel C. Santos, et al., 6 explicated as follows:
not enforcing and applying Section 14 of Executive
Order No. 81. It is quite clear from the provisions that a
declaration of bankruptcy or a judicial
We find merit in the petition. liquidation must be present before the
worker's preference may be enforced. ...
It is to be noted that in their comment, private .
respondents tried to prove the existence of employer-
employee relationship based on the fact that DBP is the xxx xxx xxx
majority stockholder of PSC and that the majority of the
members of the board of directors of PSC are from Moreover, the reason behind the
DBP. 5 We do not believe that these circumstances are necessity for a judicial proceeding or a
sufficient indicia of the existence of an employer- proceeding in rem before the
employee relationship as would confer jurisdiction over concurrence and preference of credits
the case on the labor arbiter, especially in the light of the may be applied was explained by this
express declaration of said labor arbiter and the NLRC Court in the case of Philippine Savings
that DBP is being held liable as a foreclosing creditor. At Bank v. Lantin (124 SCRA 476 [1983]).
any rate, this jurisdictional defect was cured when DBP We said:
appealed the labor arbiter's decision to the NLRC and
thereby submitted to its jurisdiction. The proceedings in the
court below do not
The pivotal issue for resolution is whether DBP, as partake of the nature of
foreclosing creditor, could be held liable for the unpaid the insolvency
wages, 13th month pay, incentive leave pay and proceedings or
separation pay of the employees of PSC. settlement of a
decedent's estate. The
We rule in the negative. action filed by Ramos
was only to collect the
During the dates material to the foregoing proceedings, unpaid cost of the
Article 110 of the Labor Code read: construction of the
duplex apartment. It is
far from being a general
Art. 110. Worker preference in case of
liquidation of the estate
bankruptcy. — In the event of
of the Tabligan spouses.
bankruptcy or liquidation of an
employer's business, his workers shall
enjoy first preference as regards wages Insolvency proceedings
due them for services rendered during and settlement of a
the period prior to the bankruptcy or decedent's estate are
liquidation, any provision of law to the both proceedings in rem
contrary notwithstanding. Unpaid wages which are binding
shall be paid in full before other against the whole world.
creditors may establish any claim to a All persons having
share in the assets of the employer. interest in the subject
matter involved,
whether they were
In conjunction therewith, Section 10, Rule VIII, Book III
notified or not, are
of the Implementing Rules and Regulations of the Labor
equally bound.
Code provided:
Consequently, a
liquidation of similar
Sec. 10. Payment of wages in mm of import or 'other
bankruptcy.-Unpaid wages earned by equivalent general
the employees before the declaration of liquidation must also
bankruptcy or judicial liquidation of the necessarily be a
 proceeding in rem so unpaid wages and other monetary
that all interested claims, any provision of law to the
persons whether known contrary notwithstanding. Such unpaid
to the parties or not may wages and monetary claims shall be
be bound by such paid in full before the claims of the
proceeding. Government and other creditors may be
paid.
In the case at bar,
although the lower court As a consequence, Section 1 0, Rule VIII, Book III of the
found that 'there were Implementing Rules and Regulations of the Labor Code
no known creditors was likewise amended, to wit:
other than the plaintiff
and the defendant Sec. 10. Payment of wages and other
herein,' this can not be monetary claims in case of bankruptcy.
conclusive. It will not — In case of bankruptcy or liquidation of
bar other creditors in the employer's business, the unpaid
the event they show up wages and other monetary claims of the
and present their claim employees shall be given first
against the petitioner preference and shall be paid in full
bank, claiming that they before the claims of government and
also have preferred other creditors may be paid.
liens against the
property involved. Despite said amendments, however, the same
Consequently, Transfer interpretation of Article 110 as applied in the aforesaid
Certificate of Title No. case of Development Bank of the Philippines vs. Hon.
101864 issued in favor Labor Arbiter Ariel C. Santos, et al., supra, was adopted
of the bank which is by this Court in the recent case of Development Bank of
supposed to be the Philippines vs. National Labor Relations
indefeasible would Commission, et. al., 7 For facility of reference, especially
remain constantly the rationalization for the conclusions reached therein,
unstable and we reproduce the salient portions of the decision in this
questionable. Such later case.
could not have been the
intention of Article 2243
of the Civil Code Notably, the terms "declaration" of
although it considers bankruptcy or "judicial" liquidation have
claims and credits been eliminated. Does this means then
under Article 2242 as that liquidation proceedings have been
statutory fines. Neither done away with?
does the De
Barreto case ... We opine m the negative, upon the
following considerations:
The claims of all creditors whether
preferred or non- preferred, the 1. Because of its impact on the entire
Identification of the preferred ones and system of credit, Article 110 of the Labor
the totality of the employer's asset Code cannot be viewed in isolation but
should be brought into the picture. There must be read in relation to the Civil
can then be an authoritative, fair, and Code scheme on classification and
binding adjudication instead of the piece preference of credits.
meal settlement which would result from
the questioned decision in this case. Article 110 of the Labor
Code, in determining
Republic Act No. 6715, which took effect on March 21, the reach of its terms,
1989, amended Article 110 of the Labor Code to read as cannot be viewed in
follows: isolation. Rather, Article
110 must be read in
Art. 110. Worker preference in case of relation to the
bankruptcy. — In the event of provisions of the Civil
bankruptcy or liquidation of an Code concerning the
employer's business, his workers shall classification,
enjoy first preference as regards their concurrence and
preference of credits
 which provisions find
particular application in
insolvency proceedings
where the claims of all
creditors, preferred or
non-preferred, may be
adjudicated in a binding
manner ... (Republic vs.
Peralta (G.R. No. L-
56568, May 20, 1987,
150 SCRA 37).
2. In the same way that the Civil Code
provisions on classification of credits
and the Insolvency Law have been
brought into harmony, so also must the
kindred provisions of the Labor Law be
made to harmonize with those laws.
3. In the event of insolvency, a principal
objective should be to effect an
equitable distribution of the insolvent's
property among his creditors. To
accomplish this there must first be some
proceeding where notice to all of the
insolvent's creditors may be given and
where the claims of preferred creditors
may be bindingly adjudicated (De
Barretto vs. Villanueva, No. L-14938,
December 29, 1962, 6 SCRA 928). The
rationale therefor has been expressed in
the recent case of DBP vs. Secretary of
Labor (G.R. No. 79351, 28 November
1989), which we quote:
A preference of credit
bestows upon the
preferred creditor an
advantage of having his
credit satisfied first
ahead of other claims
which may be
established against the
debtor. Logically, it
becomes material only
when the properties and
assets of the debtors
are insufficient to pay
his debts in full; for if the
debtor is amply able to
pay his various
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
Implementing Rule, as amended, should
be interpreted to mean 'absolute
preference,' the same should be given
only prospective effect in line with the
cardinal rule that laws shall have no
retroactive effect, unless the contrary is
provided (Article 4, Civil Code). Thereby,
any infringement on the constitutional
guarantee on non-impairment of
obligation of contracts (Section 10,
Article III, 1987 Constitution) is also
avoided. In point of fact, DBP's
mortgage credit antedated by several
years the amendatory law, RA No. 6715.
To give Article 110 retroactive effect
would be to wipe out the mortgage in
DBPs favor and expose it to a risk which
it sought to protect itself against by
requiring a collateral in the form of real
property.
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.
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. .
WHEREFORE, the petition is GRANTED. The decision
of public respondent is hereby ANNULLED and SET
ASIDE.
SO ORDERED.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES,
petitioner, vs. COURT OF APPEALS and FIRESTONE
CERAMICS, INC., respondents.
G.R. No. 143590. November 14, 2001.*
NATIONAL DEVELOPMENT CORPORATION,
petitioner, vs. FIRESTONE CERAMICS, INC.,
respondents.
Obligations and Contracts; Right of First Refusal; It is
elementary that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable
consideration.—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.
_______________
* SECOND DIVISION.
692
692
SUPREME COURT REPORTS ANNOTATED
Polytechnic University of the Philippines vs. Court of
Appeals
Same; Education; 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 the 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. 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.
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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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
695
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695
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 would be offered. Consistent with their
agreement, it was then implicit for NDC to have first
offered the leased premises of 2.60 hectares to
FIRESTONE prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of first priority
could NDC lawfully sell the property to petitioner PUP.
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.
[40]
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.
Our attention is invited by petitioners to Ang Yu
Asuncion v. CA[41] in concluding that if our holding in Ang
Yu would be applied to the facts of this case then
FIRESTONE's "option, if still subsisting, is not
enforceable," the option being merely a preparatory
contract which cannot be enforced.
The contention has no merit. At the heels of Ang
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.
WHEREFORE, the petitions in G.R. No. 143513
and G.R. No. 143590 are DENIED. Inasmuch as the first
contract of lease fixed the area of the leased premises at
2.90118 hectares while the second contract placed it at
2.60 hectares, let a ground survey of the leased
premises be immediately conducted by a duly licensed,
registered surveyor at the expense of private respondent
FIRESTONE CERAMICS, INC., within two (2) months
from finality of the judgment in this case. Thereafter,
private respondent FIRESTONE CERAMICS, INC., shall
have six (6) months from receipt of the approved survey
within which to exercise its right to purchase the leased
property at P1,500.00 per square meter, and petitioner
Polytechnic University of the Philippines is ordered to
reconvey the property to FIRESTONE CERAMICS, INC.,
in the exercise of its right of first refusal upon payment of
the purchase price thereof.
SO ORDERED.
Notes.—The constitutional provision which directs that
the State shall assign the highest budgetary priority to
education is merely directory. (Philippine Constitution
Association vs. Enriquez, 235 SCRA 507 [1994])

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

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

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