Professional Documents
Culture Documents
Corporation Law Cases
Corporation Law Cases
Corporation Law Cases
Corporation as a Person
1. Entitled to Equal Protection of the Law
Smith, Bell & Company (Ltd.), pet vs.
Joaquin Natividad, Collector of Customs of the port of Cebu, resp.
This is a petition for a writ of mandamus filed by the petitioner to compel Natividad to issue a certificate
of Philippine registry in favor of the former for its motor vessel Bato.
Facts:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands.
A majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato
built for it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu
in the present year for the purpose of transporting plaintiff's merchandise between ports in the Islands.
Application was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate
of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine
Islands. The instant action is the result.
Counsel argues that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws
because it, in effect, prohibits the corporation from owning vessels, and because classification of
corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No.
2761 deprives the corporation of its property without due process of law because by the passage of the
law company was automatically deprived of every beneficial attribute of ownership in the Bato and left
with the naked title to a boat it could not use .
Issue:
Whether the Government of the Philippine Islands, through its Legislature, can deny the registry of vessel
in its coastwise trade to corporations having alien stockholders
Ruling:
Yes. Act No. 2761 provides:
Investigation into character of vessel. — No application for a certificate of Philippine register shall be
approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or
destined to be engaged in legitimate trade and that it is of domestic ownership as such ownership is
defined in section eleven hundred and seventy-two of this Code.
Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and of more
than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic
ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall be
optional with the owner.
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. Unreasonable Searches and Seizure
Harry Stonehill,Robert Brooks, John Brooks and Karl Beck, petitioner
vs.
Hon. Jose Diokno as Sec of Justice, Prosecutors and Judges, respondents
This is a petition for certiorari, prohibition, mandamus and injunction to restrain the respondent-
Prosecutors, their agents and/or representatives from using the effects seized by the police officers from
the petitioners’ offices and residences by virtue of search warrants.
Facts:
Upon application of the Respondent-Prosecutors and Respondent-Judges, a total of 42 search warrants
were issued on different dates against petitioners and/or the corporations of which they were officers,
directing any peace officer to search the petitioners and/or the premises of their offices, warehouses
and/or residences and to seize and take possession of records to all business transactions.
Petitioners questioned the validity of the search warrants and alleged that they are null and void, mainly,
because they do not describe with particularity the books and things to be seized.
Respondents alleged that the said search warrants are valid and issued in accordance with law, that the
defects, if any, were cured by petitioners’ consent
Issue:
Whether the petitioners can assail the legality of the search warrants and of the seizures made in
pursuance thereof
Ruling:
No. The petitioners herein and the corporations of which they are officers have personalities separate
and distinct from each other.
It is well settled that the legality of a seizure can be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot
be availed of by third parties. Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by
the corporate officers in proceedings against them in their individual capacity.
Moreover, the Government's action in gaining possession of papers belonging to the corporation did not
relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby
the constitutional rights of or any one were invaded, they were the rights of the corporation and not the
rights of the other defendants.
3. But Not Entitled to Privilege Against Self Incrimination
Bataan Shipyard vs. PCGG
When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG)
was formed in order to recover ill gotten wealth allegedly acquired by former President Marcos and his
cronies. Aquino then issued two executive orders in 1986 and pursuant thereto, a sequestration and a
takeover order were issued against Bataan Shipyard & engineering Co., Inc. (BASECO). BASECO was
alleged to be in actuality owned and controlled by the Marcoses through the Romualdez family, and in
turn, through dummy stockholders.
The sequestration order issued in 1986 required, among others, that BASECO produce corporate records
from 1973 to 1986 under pain of contempt of the PCGG if it fails to do so. BASECO assails this order as it
avers, among others, that it is against BASECO’s right against self incrimination and unreasonable
searches and seizures.
ISSUE: Whether or not BASECO is correct.
HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the
power granted to it. Second, and more importantly, right against self-incrimination has no application to
juridical persons. There is a reserve right in the legislature to investigate the contracts of a corporation
and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state,
having chartered a corporation like BASECO to make use of certain franchises, could not, in the exercise
of sovereignty, inquire how these franchises had been employed, and whether they had been abused,
and demand the production of the corporate books and papers for that purpose.
Neither is the right against unreasonable searches and seizures applicable here. There were no searches
made and no seizure pursuant to any search was ever made. BASECO was merely ordered to produce
the corporate records
C3. Practice of Profession
1. ULEP vs. The Legal Clinic
In 1984, The Legal Clinic was formed by Atty. Rogelio Nogales. Its aim, according to Nogales was to
move toward specialization and to cater to clients who cannot afford the services of big law firms.
Now, Atty. Mauricio Ulep filed a complaint against The Legal Clinic because of the latter’s
advertisements which contain the following:
SECRET MARRIAGE?
P560.00 for a valid marriage.
Info on DIVORCE. ABSENCE. ANNULMENT. VISA.
THE LEGAL CLINIC, INC.
Please call: 521-0767; 521-7232; 522-2041
8:30am – 6:00pm
7th Flr. Victoria Bldg., UN Ave., Manila
GUAM DIVORCE
DON PARKINSON
An attorney in Guam is giving FREE BOOKS on Guam Divorce through The Legal Clinic
beginning Monday to Friday during office hours.
Guam divorce. Annulment of Marriage. Immigration Problems, Visa Ext. Quota/Non-quota
Res. & Special Retiree’s Visa. Declaration of Absence. Remarriage to Filipina Fiancees.
Adoption. Investment in the Phil. US/Foreign Visa for Filipina Spouse/Children.
Call Marivic.
THE LEGAL CLINIC, INC.
7th Flr. Victoria Bldg., UN Ave., Manila nr. US Embassy
Tel. 521-7232, 521-7251, 522-2041, 521-0767
It is also alleged that The Legal Clinic published an article entitled “Rx for Legal Problems” in Star Week
of Philippine Star wherein Nogales stated that they The Legal Clinic is composed of specialists that can
take care of a client’s problem no matter how complicated it is even if it is as complicated as the Sharon
Cuneta-Gabby Concepcion situation. He said that he and his staff of lawyers, who, like doctors, are
“specialists” in various fields, can take care of it. The Legal Clinic, Inc. has specialists in taxation and
criminal law, medico-legal problems, labor, litigation and family law. These specialists are backed up by a
battery of paralegals, counselors and attorneys.
As for its advertisement, Nogales said it should be allowed in view of the jurisprudence in the US which
now allows it (John Bates vs The State Bar of Arizona). And that besides, the advertisement is merely
making known to the public the services that The Legal Clinic offers.
ISSUE: Whether or not The Legal Clinic is engaged in the practice of law; whether such is allowed;
whether or not its advertisement may be allowed.
HELD:
Facts:
Petitioners are optometrists. They brought, in their own behalf and in behalf of 80 other optometrists,
who are members of the Samahan ng Optometrists sa Pilipinas-Cebu Chapter, an injunctive suit in the
Regional Trial Court, Branch 9, Cebu City to enjoin respondent Acebedo Optical Co., Inc. and its agents,
representatives, and/or employees from practicing optometry in the province of Cebu. In their complaint,
they alleged that respondent opened several optical shops in Cebu and announced to the public, through
leaflets, newspapers, and other forms of advertisement, the availability of "ready-to-wear" eyeglasses
for sale at P60.00 each and free services by optometrists in such outlets. They claimed that, through the
licensed optometrists under its employ, respondent had been engaging in the practice of optometry by
examining the human eye, analyzing the ocular functions, prescribing ophthalmic lenses, prisms, and
contact lenses; and conducting ocular exercises, visual trainings, orthoptics, prosthetics, and other
preventive or corrective measures for the aid, correction, or relief of the human eye. They contended
that such acts of respondent were done in violation of the Optometry Law (R.A. No. 1998)3and the Code
of Ethics for Optometrists, promulgated by the Board of Examiners in Optometry on July 11, 1983. They
sought payment to them of attorney’s fees, litigation expenses, and the costs of the suit.4
Issue:
Whether or not respondent Acebedo was engaged in the Practice of Optometry.
Held:
Petitioners cite the Tennessee Supreme Court statement in Lens Crafter, Inc. v. Sunquist,11 stating that:
The logical result would be that corporations and business partnerships might practice law, medicine,
dentistry or any other profession by the simple expedient of employing licensed agents. And, if this were
permitted, professional standards would be practically destroyed and professions requiring special
training would be commercialized, to the public detriment….The ethics of any profession is based upon
personal or individual responsibility.
The contention has no merit. An "optometrist" is a person who has been certified by the Board of
Optometry and registered with the Professional Regulation Commission as qualified to practice
optometry in the Philippines.12Thus, only natural persons can engage in the practice of optometry and
not corporations. Respondent, which is not a natural person, cannot take the licensure examinations for
optometrist and, therefore, it cannot be registered as an optometrist under R.A. No. 1998. It is
noteworthy that, in Apacionado, the Court did not find Acebedo to be engaged in the practice of
optometry. The optometrists in that case were found guilty of unprofessional conduct and their licenses
were suspended for two (2) years for having participated, in their capacities as optometrists, in the
implementation of the promotional advertisement of Acebedo. In contrast, in the case at bar, respondent
is merely engaged in the business of selling optical products, not in the practice of optometry, whether
directly or indirectly, through its hired optometrists.
In Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter v. Acebedo International
Corporation,13petitioners opposed respondent Acebedo’s application for a municipal permit to operate
a branch in Candon, Ilocos Sur. They brought suit to enjoin respondent Acebedo from employing
optometrists as this allegedly constituted an indirect violation of R.A. No. 1998, which prohibits
corporations from exercising professions reserved only to natural persons. The committee created by the
Mayor of Candon to pass on Acebedo’s application denied the same and ordered the closure of Acebedo
optical shops. Acebedo appealed but its appeal was dismissed by the trial court on the ground that it was
practicing optometry. On appeal, the Court of Appeals held that Acebedo was not operating as an optical
clinic nor engaged in the practice of optometry, although it employed licensed optometrists. Acebedo
simply dispensed optical and ophthalmic instruments and supplies. It was pointed out that R.A. No. 1998
does not prohibit corporations from employing licensed optometrists. What it prohibits is the practice of
optometry by individuals who do not have a license to practice. The prohibition is addressed to natural
persons who are required to have "a valid certificate of registration as optometrist" and who must be of
"good moral character." This Court affirmed the ruling of the appeals court and explained that even under
R.A. No. 8050 (Revised Optometry Law) there is no prohibition against the hiring by corporations of
optometrists. The fact that Acebedo hired optometrists who practiced their profession in the course of
their employment in Acebedo’s optical shops did not mean that it was itself engaged in the practice of
optometry.
We see no reason to deviate from the ruling that a duly licensed optometrist is not prohibited from being
employed by respondent and that respondent cannot be said to be exercising the optometry profession
by reason of such employment.
Second. Petitioners argue that an optometrist, who is employed by a corporation, such as Acebedo, is
not acting on his own capacity but as an employee or agent of the corporation. They contend that, as a
mere employee or agent, such optometrist cannot be held personally liable for his acts done in the course
of his employment as an optometrist under the following provisions of the Civil Code. Thus,
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless
he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice
of his powers.
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within
the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except when
he ratifies it expressly or tacitly.
This contention likewise has no merit. While the optometrists are employees of respondent, their
practice of optometry is separate and distinct from the business of respondent of selling optical products.
They are personally liable for acts done in the course of their practice in the same way that if respondent
is sued in court in connection with its business of selling optical products, the optometrists need not be
impleaded as party defendants. In that regard, the Board of Optometry and the Professional Regulation
Commission regulate their practice and have exclusive original jurisdiction over them.
In the later case of Acebedo Optical Company, Inc. v. Court of Appeals,14 petitioner Acebedo was granted
by the City Mayor of Iligan a business permit subject to certain conditions, to wit:
1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a commercial store;
C4. Liability for Torts
PNB vs. CA (1978)
Lessons Applicable: Liability for Torts (Corporate Law)
FACTS:
- PNB executed its bond w/ Rita Gueco Tapnio as principal, in favor of the PNB to guarantee the payment
of Tapnio's account with PNB.
Indemnity Agreement w/ 12% int. and 15% atty. fees
Sept 18 1957: PNB sent a letter of demand for Tapnio to pay the reduced amount of 2,379.91
PNB demanded both oral and written but to no avail
Tapnio mortgaged to the bank her lease agreement w/ Jacobo Tuazon for her unused export sugar
quota at P2.80 per picular or a total of P2,800 which was more than the value of the bond
PNB insisted on raising it to P3.00 per picular so Tuazon rejected the offer
ISSUE: W/N PNB should be liable for tort
West Coast Insurance opposed the same as it alleged that it the filing is against prevailing
rules of criminal procedure.
HELD: Yes. There is no provision in the prevailing rules of criminal procedure to support
the said criminal case filed against West Coast Life Insurance. A corporation cannot be
proceeded against criminally in court primarily because a corporation cannot possibly
commit a crime absent the essential element of malicious intent. The rule is to proceed
against the officials of the corporation and not the corporation itself.
2. People vs. Tan Boon Kong
FACTS:
On and during the four quarters of the year 1924, in Municipality of Iloilo, Province of
Iloilo, the defendant, as manager of the Visayan General Supply Co., Inc., a corporation
organized under the laws of the Philippine Islands and engaged in the purchase and sale
of sugar, `bayon,’ coprax, and other native products and as such subject to the payment
of internal-revenue taxes upon its sales, declared in 1924 for purpose of taxation only the
sum of P2,352,761.94, when in truth and in fact, and the accused knew that the total gross
sales of said corporation during that year amounted to P2,543,303.44, thereby failing to
declare P190,541.50, and voluntarily not paying the percentage taxes the sum of
P2,960.12, corresponding to 1½ per cent of said undeclared sales.
ISSUE: WON the defendant, as manager of the corporation, is criminally liable for violation
of the tax law for the benefit of said corporation.
RULING:
A corporation can act only through its officers and agents, and where the business itself
involves a violation of the law, all who participate in it are liable
In case of State vs. Burnam (71 Wash., 199), the court hold that the manager of a dairy
corporation was criminally liable for the violation of a statute by the corporation though
he was not present when the offense was committed.
In the present case the information alleges that the defendant was the manager of a
corporation which was engaged in business as a merchant, and as such manager, he made
a false return, for purposes of taxation, of the total amount of sales made by said
corporation during the year 1924. As the filing of such false return constitutes a violation
of law, the defendant, as the author of the illegal act, must necessarily answer for its
consequences, provided that the allegations are proven.
The ruling of the court below sustaining the demurrer to the complaint is therefore
reversed, and the case will be returned to said court for further proceedings not
inconsistent with our view as hereinbefore stated.
3. Sia vs. CA
Contract of the use of a safety deposit box of a bank is not a deposit but a lease under Sec
72, A of General Banking Act. Accordingly, it should have lost no time in notifying the
petitioner in order that the box could have been opened to retrieve the stamps, thus
saving the same from further deterioration and loss. The bank’s negligence aggravated
the injury or damage to the stamp collection..
Facts: Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust Co.
(Security Bank) at its Binondo Branch wherein he placed his collection of stamps. The said
safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the
safety deposit boxes of the defendant bank. During the floods that took place in 1985 and
1986, floodwater entered into the defendant bank’s premises, seeped into the safety
deposit box leased by the plaintiff and caused, according damage to his stamps collection.
Security Bank rejected the plaintiff’s claim for compensation for his damaged stamps
collection.
Sia, thereafter, instituted an action for damages against the defendant bank. Security
Bank contended that its contract with the Sia over safety deposit box was one of lease
and not of deposit and, therefore, governed by the lease agreement which should be the
applicable law; the destruction of the plaintiff’s stamps collection was due to a calamity
beyond obligation on its part to notify the plaintiff about the floodwaters that inundated
its premises at Binondo branch which allegedly seeped into the safety deposit box leased
to the plaintiff. The trial court rendered in favor of plaintiff Sia and ordered Sia to pay
damages.
Held: Contract of the use of a safety deposit box of a bank is not a deposit but a lease.
Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides: In
addition to the operations specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations may perform the following services
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit
boxes for the safequarding of such effects.
As correctly held by the trial court, Security Bank was guilty of negligence. The bank’s
negligence aggravated the injury or damage to the stamp collection. SBTC was aware of
the floods of 1985 and 1986; it also knew that the floodwaters inundated the room where
the safe deposit box was located. In view thereof, it should have lost no time in notifying
the petitioner in order that the box could have been opened to retrieve the stamps, thus
saving the same from further deterioration and loss. In this respect, it failed to exercise
the reasonable care and prudence expected of a good father of a family, thereby
becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned
fourth characteristic of a fortuitous event is absent. Article 1170 of the Civil Code, which
reads “Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for
damages” is applicable. Hence, the petition was granted.
The provisions contended by Security Bank in the lease agreement which are meant to
exempt SBTC from any liability for damage, loss or destruction of the contents of the
safety deposit box which may arise from its own agents’ fraud, negligence or delay must
be stricken down for being contrary to law and public policy.
Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or
theft within their houses from guests lodging therein, or for the payment of the value
thereof, provided that such guests shall have notified in advance the innkeeper himself,
or the person representing him, of the deposit of such goods within the inn; and shall
furthermore have followed the directions which such innkeeper or his representative may
have given them with respect to the care and vigilance over such goods. No liability shall
attach in case of robbery with violence against or intimidation of persons unless
committed by the innkeeper's employees.
Article 103. Subsidiary civil liability of other persons. - The subsidiary liability established
in the next preceding article shall also apply to employers, teachers, persons, and
corporations engaged in any kind of industry for felonies committed by their servants,
pupils, workmen, apprentices, or employees in the discharge of their duties.
FACTS:
Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI),
applied with the Rizal Commercial Banking Corporation (RCBC) for the issuance of
commercial letters of credit to finance its importation of assorted goods
RCBC approved the application, and irrevocable letters of credit were issued in favor of
Ching.
The goods were purchased and delivered in trust to PBMI.
Ching signed 13 trust receipts as surety, acknowledging delivery of the goods
Under the receipts, Ching agreed to hold the goods in trust for RCBC, with authority to
sell but not by way of conditional sale, pledge or otherwise
In case such goods were sold, to turn over the proceeds thereof as soon as received, to
apply against the relative acceptances and payment of other indebtedness to respondent
bank.
In case the goods remained unsold within the specified period, the goods were to be
returned to RCBC without any need of demand.
goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification - RCBC’s property
When the trust receipts matured, Ching failed to return the goods to RCBC, or to return
their value amounting toP6,940,280.66 despite demands.
RCBC filed a criminal complaint for estafa against petitioner in the Office of the City
Prosecutor of Manila.
December 8, 1995: no probable cause to charge petitioner with violating P.D. No. 115, as
petitioner’s liability was only civil, not criminal, having signed the trust receipts as surety
RCBC appealed the resolution to the Department of Justice (DOJ) via petition for review
On July 13, 1999: reversed the assailed resolution of the City Prosecutor
execution of said receipts is enough to indict the Ching as the official responsible for
violation of P.D. No. 115
April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds
Ching filed a petition for certiorari, prohibition and mandamus with the CA
ISSUE: W/N Ching should be held criminally liable.
Facts:
In seeking the reversal of the decision, the plaintiff contended that its total indebtedness to the PNB has
been paid by the proceeds of the foreclosure sale of its real property and the additional amount remitted
by it to the Bank.
On the belief that the proceeds of the above-stated sale is insufficient to cover the Plaintiff’s debt, PNB
sent a letter to the Provincial Sheriff of Cam-Norte requesting him to take possession of the chattels
mortgaged to it by the plaintiff and sell them at public auction.
Plaintiff alleged that the auction sale of the chattels mortgaged is void for being violative of the
agreement provided in the mortgage contract:
“in cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the
Sheriff of Manila, as the case may be”
Herein appellant claims moral damages on account of the said violation.
Issue:
Whether Mambulao can validly claim for moral damages
Ruling:
No. An artificial person like herein appellant corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of
moral damages
A corporation may have a good reputation which, if besmirched, may also be 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.
2. NPC vs. Philipp Brothers Oceanic, Inc., 369 SCRA 629
Facts: On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the
supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power
Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to
participate as one of the bidders. After the public bidding was conducted, PHIBRO's bid was accepted.
NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on
July 15, 1987.The "Bidding Terms and Specifications"4 provide for the manner of shipment of coals, thus:
"SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall arrange and provide gearless bulk carrier for
the shipment of coal to arrive at discharging port on or before thirty (30) calendar days after receipt of
the Letter of Credit by the SELLER or its nominee as per Section XIV hereof to meet the vessel arrival
schedules at Calaca, Batangas, Philippines as follows:
60,000 +/ - 10 % July 20, 1987
60,000 +/ - 10% September 4, 1987"5
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia,
the shipment's point of origin, which could seriously hamper PHIBRO's ability to supply the needed coal.6
From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly
informing the latter that the ship owners therein are not willing to load cargo unless a "strike-free" clause
is incorporated in the charter party or the contract of carriage.7 In order to hasten the transfer of coal,
PHIBRO proposed to NAPOCOR that they equally share the burden of a "strike-free" clause. NAPOCOR
refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead
of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon
by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca
thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR
disapproved PHIBRO's application for pre-qualification to bid for not meeting the minimum
requirements.8 Upon further inquiry, PHIBRO found that the real reason for the disapproval was its
purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first
coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR
with the Regional Trial Court, Branch 57, Makati City.9 In its complaint, PHIBRO alleged that NAPOCOR's
act of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice
and bad faith. PHIBRO prayed for actual, moral and exemplary damages and attorney's fees.
In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay
in the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had already
ceased. And, even assuming that the strikes were still ongoing, PHIBRO should have shouldered the
burden of a "strike-free" clause because their contract was "C and F Calaca, Batangas, Philippines,"
meaning, the cost and freight from the point of origin until the point of destination would be for the
account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver the coal on
time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for actual
damages in the amount of P12,436,185.73, representing the increase in the price of coal, and a claim of
P500,000.00 as litigation expenses.
Issue: WON Respondent is entitled to Moral Damages.
Held:
In National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's claim for
unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's) claims for unrealized
commissions, and that these claims have been transmuted into judicial admissions, these admissions
cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which
necessarily and inherently include the reservation by the NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith.
Moreover, moral damages are not, as a general rule, granted to a corporation.47 While it is true that
besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation,
unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual
has, and besides, it is inherently impossible for a corporation to suffer mental anguish.48 In LBC Express,
Inc. v. Court of Appeals,49 we ruled:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, 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 respondent bank as an artificial person."
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is already a
perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that Del
Rosario agreed to the counterproposal and he (Lopez) even put the agreement in a napkin which was
signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from
airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages
as it claimed that its reputation was debased when they failed to air the shows that they promised to
their viewers. RBS relied on the ruling in People vs Manero and Mambulao Lumber vs PNB which states
that a corporation may recover moral damages if it “has a good reputation that is debased, resulting in
social humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial
court.
ISSUE:
1. Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives
of the two corporations.
2. Whether or not a corporation, like RBS, is entitled to an award of moral damages upon grounds of
debased reputation.
HELD:
1. No. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the
contract being written in a napkin is not corroborated because the napkin was never produced in court.
Further, there is no meeting of the minds because Del Rosario’s offer was of 104 films for P60 million
was not accepted. And that the alleged counter-offer made by Lopez on the same day was not also
accepted because there’s no proof of such. The counter offer can only be deemed to have been made
days after the April 2 meeting when Santos-Concio sent a letter to Del Rosario containing the counter-
offer. Regardless, there was no showing that Del Rosario accepted. But even if he did accept, such
acceptance will not bloom into a perfected contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board of
Directors. But this power may be delegated to a corporate committee, a corporate officer or corporate
manager. Such a delegation must be clear and specific. In the case at bar, there was no such delegation
to Del Rosario. The fact that he has to present the counteroffer to the Board of Directors of Viva is proof
that the contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted the
counter-offer, it did not result to a contract because it will not bind Viva sans authorization.
2. No. The award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced
only by one having a nervous system. No moral damages can be awarded to a juridical person. The
statement in the case of People vs Manero and Mambulao Lumber vs PNB is a mere obiter dictum hence
it is not binding as a jurisprudence.
Roman Catholic Apostolic Administrator of Davao, Inc. v. The Land Registration Commission and the
Register of Deeds of Davao City, G.R. No. L-8451, December 20,1957
Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed
of sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of
the Roman Catholic Apostolic Administrator of Davao Inc.,(RCADI) is corporation sole organized and
existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual
incumbent. Registry of Deeds Davao (RD) required RCADI to submit affidavit declaring that 60% of its
members were Filipino Citizens. As the RD entertained some doubts as to the registerability of the deed
of sale, the matter was referred to the Land Registration Commissioner (LRC) en consulta for resolution.
LRC hold that pursuant to provisions of sections 1 and 5 of Article XII of the Philippine Constitution, RCADI
is not qualified to acquire land in the Philippines in the absence of proof that at leat 60% of the capital,
properties or assets of the RCADI is actually owned or controlled by Filipino citizens. LRC also denied the
registration of the Deed of Sale in the absence of proof of compliance with such requisite. RCADI’s
Motion for Reconsideration was denied. Aggrieved, the latter filed a petition for mandamus.
Issue:
Whether or not the Universal Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire
private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.
Ruling:
RCADI is qualified.
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the
supreme head; that in the religious matters, in the exercise of their belief, the Catholic congregation of
the faithful throughout the world seeks the guidance and direction of their Spiritual Father in the Vatican,
yet it cannot be said that there is a merger of personalities resultant therein. Neither can it be said that
the political and civil rights of the faithful, inherent or acquired under the laws of their country, are
affected by that relationship with the Pope. The fact that the Roman Catholic Church in almost every
country springs from that society that saw its beginning in Europe and the fact that the clergy of this
faith derive their authorities and receive orders from the Holy See do not give or bestow the citizenship
of the Pope upon these branches. Citizenship is a political right which cannot be acquired by a sort of
“radiation”. We have to realize that although there is a fraternity among all the catholic countries and
the dioceses therein all over the globe, the universality that the word “catholic” implies, merely
characterize their faith, a uniformity in the practice and the interpretation of their dogma and in the
exercise of their belief, but certainly they are separate and independent from one another in jurisdiction,
governed by different laws under which they are incorporated, and entirely independent on the others
in the management and ownership of their temporalities. To allow theory that the Roman Catholic
Churches all over the world follow the citizenship of their Supreme Head, the Pontifical Father, would
lead to the absurdity of finding the citizens of a country who embrace the Catholic faith and become
members of that religious society, likewise citizens of the Vatican or of Italy. And this is more so if We
consider that the Pope himself may be an Italian or national of any other country of the world. The same
thing be said with regard to the nationality or citizenship of the corporation sole created under the laws
of the Philippines, which is not altered by the change of citizenship of the incumbent bishops or head of
said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church,
every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated
in accordance with the laws of the country where it is located, is considered an entity or person with all
the rights and privileges granted to such artificial being under the laws of that country, separate and
distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious
relations with the latter which are governed by the Canon Law or their rules and regulations.
It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are
formed by no less than 5 incorporators, is composed of only one persons, usually the head or bishop of
the diocese, a unit which is not subject to expansion for the purpose of determining any percentage
whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities
located in the territory comprised by said corporation sole; (3) such temporalities are administered for
and on behalf of the faithful residing in the diocese or territory of the corporation sole; and (4) the latter,
as such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with the
operation, management or administration of the corporation sole, nor effects the citizenship of the
faithful connected with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific
provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital
was never intended to apply to corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
FACTS:
The National Investment and Development Corporation (NIDC), a government corporation, entered into
a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation
and management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and
Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding
proportion of 60%-40% and that the parties have the right of first refusal in case of a sale.
Through a series of transfers, NIDC’s rights, title and interest in PHILSECO eventually went to the National
Government. In the interest of national economy, it was decided that PHILSECO should be privatized by
selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed
that Kawasaki’s right of first refusal under the JVA be “exchanged” for the right to top by five percent
the highest bid for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder,
would exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5%
percent the highest bid, it was able to top JG Summit’s bid. JG Summit protested, contending that
PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign
capitalization. By buying 87.67% of PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns
more than 40% of the stock.
ISSUE:
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On
the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a “shipyard” was not a “public
utility.” But the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and
when BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No.
666. Therefore, the law that states that a shipyard is a public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply
with the 60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki
manifests an intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should
the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first
refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock.
The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government
corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase
of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign
capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40%
of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization
of the joint venture on account of both constitutional and contractual proscriptions.
89 Phil 54
In October 1941, Christern, Huenefeld and Company, a German company, obtained an insurance policy
from Filipinas Compañia for the former’s merchandise contained in a building located in Binondo,
Manila. Filipinas Compañia is an American controlled company. During the Japanese occupation, the
building housing the insured merchandise was burned. Christern filed its claim amounting to P92,650.00
but Filipinas Compañia refused to pay alleging that Christern is a corporation whose majority
stockholders are Germans; that during the Japanese occupation, America declared war against Germany
hence the insurance policy ceased to be effective because the insured has become an enemy. Filipinas
Compañia was eventually ordered to pay Christern as ordered by the Japanese government.
ISSUE: Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from the insurance
claim.
HELD: No. There is no question that majority of the stockholders of Christern were German subjects. This
being so, Christern became an enemy corporation upon the outbreak of the war between the United
States and Germany. The Philippine Insurance Law (Act No. 2427, as amended,) in Section 8, provides
that “anyone except a public enemy may be insured.” It stands to reason that an insurance policy ceases
to be allowable as soon as an insured becomes a public enemy. Christern should return the amount it
was earlier paid.
Facts:
Redmont is a domestic corporation interested in the mining and exploration of some areas in Palawan.
Upon learning that those areas were covered by MPSA applications of other three (allegedly Filipino)
corporations – Narra, Tesoro, and MacArthur, it filed a petition before the Panel of Arbitrators of DENR
seeking to deny their permits on the ground that these corporations are in reality foreign-owned. MBMI,
a 100% Canadian corporation, owns 40% of the shares of PLMC (which owns 5,997 shares of Narra), 40%
of the shares of MMC (which owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which, in
turn, owns 5,997 shares of Tesoro).
Aside from the MPSA, the three corporations also applied for FTAA with the Office of the President. In
their answer, they countered that (1) the liberal Control Test must be used in determining the nationality
of a corporation as based on Sec 3 of the Foreign Investment Act – which as they claimed admits of
corporate layering schemes, and that (2) the nationality question is no longer material because of their
subsequent application for FTAA.
Hide
Issue 1: W/N the Grandfather Rule must be applied in this case
Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule in cases where
corporate layering is present.
First, as a rule in statutory construction, when there is conflict between the Constitution and a statute,
the Constitution will prevail. In this instance, specifically pertaining to the provisions under Art. XII of
the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no place of application.
Corporate layering is admittedly allowed by the FIA, but if it is used to circumvent the Constitution and
other pertinent laws, then it becomes illegal.
Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be applied when the 60-40
Filipino-foreign equity ownership is in doubt. Doubt is present in the Filipino equity ownership of Narra,
Tesoro, and MacArthur since their common investor, the 100% Canadian-owned corporation – MBMI,
funded them.
Under the Grandfather Rule, it is not enough that the corporation does have the required 60% Filipino
stockholdings at face value. To determine the percentage of the ultimate Filipino ownership, it must
first be traced to the level of the investing corporation and added to the shares directly owned in the
investee corporation. Applying this rule, it turns out that the Canadian corporation owns more than 60%
of the equity interests of Narra, Tesoro and MacArthur. Hence, the latter are disqualified to participate
in the exploration, development and utilization of the Philippine’s natural resources.