Facts: CASA Montessori International opened an account with BPI, with

CASAs President as one of its authorized signatories. It discovered that 9 of

its checks had been encashed by a certain Sonny D. Santos whose name
turned out to be fictitious, and was used by a certain Yabut, CASAs external
auditor. He voluntarily admitted that he forged the signature and encashed
the
checks.
RTC granted the Complaint for Collection with Damages against BPI ordering
to reinstate the amount in the account, with interest. CA took account of
CASAs contributory negligence and apportioned the loss between CASA and
BPI,
and
ordred
Yabut
to
reimburse
both.
BPI contends that the monthly statements it issues to its clients contain a
notice worded as follows: If no error is reported in 10 days, account will be
correct and as such, it should be considered a waiver.
Issue:Whether or not waiver or estoppel results from failure to report the
error
in
the
bank
statement
Held: Such notice cannot be considered a waiver, even if CASA failed to
report the error. Neither is it estopped from questioning the mistake after
the
lapse
of
the
ten-day
period.
This notice is a simple confirmation or "circularization" -- in accounting
parlance -- that requests client-depositors to affirm the accuracy of items
recorded by the banks. Its purpose is to obtain from the depositors a direct
corroboration of the correctness of their account balances with their
respective
banks.
Every right has subjects -- active and passive. While the active subject is

entitled to demand its enforcement, the passive one is duty-bound to suffer

such enforcement. On the one hand, BPI could not have been an active
subject, because it could not have demanded from CASA a response to its
notice. CASA, on the other hand, could not have been a passive subject,
either, because it had no obligation to respond. It could -- as it did -- choose
not
to
respond.
Estoppel precludes individuals from denying or asserting, by their own deed
or representation, anything contrary to that established as the truth, in legal
contemplation. Our rules on evidence even make a juris et de jure
presumption that whenever one has, by ones own act or omission,
intentionally and deliberately led another to believe a particular thing to be
true and to act upon that belief, one cannot -- in any litigation arising from
such act or omission -- be permitted to falsify that supposed truth.
In the instant case, CASA never made any deed or representation that
misled BPI. The formers omission, if any, may only be deemed an innocent
mistake oblivious to the procedures and consequences of periodic audits.
Since its conduct was due to such ignorance founded upon an innocent
mistake, estoppel will not arise. A person who has no knowledge of or
consent to a transaction may not be estopped by it. "Estoppel cannot be
sustained by mere argument or doubtful inference x x x." CASA is not barred
from questioning BPIs error even after the lapse of the period given in the
notice.

FIRST DIVISION
[G.R. No. 103576. August 22, 1996]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and
REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
DECISION
VITUG, J.:
Would it be valid and effective to have a clause in a chattel mortgage that
purports to likewise extend its coverage to obligations yet to be contracted
or incurred? This question is the core issue in the instant petition for review
on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner
"Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for
and in behalf of the company, a chattel mortgage in favor of private
respondent Producers Bank of the Philippines. The mortgage stood by way
of security for petitioner's corporate loan of three million pesos
(P3,000,000.00). A provision in the chattel mortgage agreement was to this
effect "(c) If the MORTGAGOR, his heirs, executors or administrators shall well and
truly perform the full obligation or obligations above-stated according to the
terms thereof, then this mortgage shall be null and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof, or as a new
loan, or is given any other kind of accommodations such as overdrafts,
letters of credit, acceptances and bills of exchange, releases of import
shipments on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note
or notes and/or accommodations were existing on the date thereof. This
mortgage shall also stand as security for said obligations and any and all
other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind

and nature, whether such obligations have been contracted before, during
or after the constitution of this mortgage."i[1]
In due time, the loan of P3,000,000.00 was paid by petitioner corporation.
Subsequently, in 1981, it obtained from respondent bank additional financial
accommodations totalling P2,700,000.00.ii[2] These borrowings were on
due date also fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner
corporation a loan of one million pesos (P1,000,000.00) covered by four
promissory notes for P250,000.00 each. Due to financial constraints, the
loan was not settled at maturity.iii[3] Respondent bank thereupon applied
for an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited,
with the Sheriff of Caloocan City, prompting petitioner corporation to
forthwith file an action for injunction, with damages and a prayer for a writ
of preliminary injunction, before the Regional Trial Court of Caloocan City
(Civil Case No. C-12081). Ultimately, the court dismissed the complaint and
ordered the foreclosure of the chattel mortgage. It held petitioner
corporation bound by the stipulations, aforequoted, of the chattel
mortgage.
Petitioner corporation appealed to the Court of Appealsiv[4] which, on 14
August 1991, affirmed, "in all respects," the decision of the court a quo. The
motion for reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially denied
on 04 March 1992 by this Court for having been insufficient in form and
substance. Private respondent filed a motion to dismiss the petition while
petitioner corporation filed a compliance and an opposition to private
respondent's motion to dismiss. The Court denied petitioner's first motion
for reconsideration but granted a second motion for reconsideration,
thereby reinstating the petition and requiring private respondent to
comment thereon.v[5]
Except in criminal cases where the penalty of reclusion perpetua or death is
imposedvi[6] which the Court so reviews as a matter of course, an appeal

from judgments of lower courts is not a matter of right but of sound judicial
discretion. The circulars of the Court prescribing technical and other
procedural requirements are meant to weed out unmeritorious petitions
that can unnecessarily clog the docket and needlessly consume the time of
the Court. These technical and procedural rules, however, are intended to
help secure, not suppress, substantial justice. A deviation from the rigid
enforcement of the rules may thus be allowed to attain the prime objective
for, after all, the dispensation of justice is the core reason for the existence
of courts. In this instance, once again, the Court is constrained to relax the
rules in order to give way to and uphold the paramount and overriding
interest of justice.
Contracts of security are either personal or real. In contracts of personal
security, such as a guaranty or a suretyship, the faithful performance of the
obligation by the principal debtor is secured by the personal commitment of
another (the guarantor or surety). In contracts of real security, such as a
pledge, a mortgage or an antichresis, that fulfillment is secured by an
encumbrance of property - in pledge, the placing of movable property in the
possession of the creditor; in chattel mortgage, by the execution of the
corresponding deed substantially in the form prescribed by law; in real
estate mortgage, by the execution of a public instrument encumbering the
real property covered thereby; and in antichresis, by a written instrument
granting to the creditor the right to receive the fruits of an immovable
property with the obligation to apply such fruits to the payment of interest,
if owing, and thereafter to the principal of his credit - upon the essential
condition that if the principal obligation becomes due and the debtor
defaults, then the property encumbered can be alienated for the payment
of the obligation,vii[7] but that should the obligation be duly paid, then the
contract is automatically extinguished proceeding from the accessory
characterviii[8] of the agreement. As the law so puts it, once the obligation
is complied with, then the contract of security becomes, ipso facto, null and
void.ix[9]
While a pledge, real estate mortgage, or antichresis may exceptionally
secure after-incurred obligations so long as these future debts are

accurately described,x[10] a chattel mortgage, however, can only cover

obligations existing at the time the mortgage is constituted. Although a
promise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a
chattel mortgage agreement covering the newly contracted debt is executed
either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage
Law.xi[11] Refusal on the part of the borrower to execute the agreement so
as to cover the after-incurred obligation can constitute an act of default on
the part of the borrower of the financing agreement whereon the promise is
written but, of course, the remedy of foreclosure can only cover the debts
extant at the time of constitution and during the life of the chattel mortgage
sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially
with the form prescribed by the Chattel Mortgage Law itself. One of the
requisites, under Section 5 thereof, is an affidavit of good faith. While it is
not doubted that if such an affidavit is not appended to the agreement, the
chattel mortgage would still be valid between the parties (not against third
persons acting in good faithxii[12]), the fact, however, that the statute has
provided that the parties to the contract must execute an oath that "x x x (the) mortgage is made for the purpose of securing the obligation
specified in the conditions thereof, and for no other purpose, and that the
same is a just and valid obligation, and one not entered into for the purpose
of fraud."xiii[13]
makes it obvious that the debt referred to in the law is a current, not an
obligation that is yet merely contemplated. In the chattel mortgage here
involved, the only obligation specified in the chattel mortgage contract was
the P3,000,000.00 loan which petitioner corporation later fully paid. By
virtue of Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage void or terminated.
In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.,xiv[14]
the Court said -

"x x x A mortgage that contains a stipulation in regard to future advances in

the credit will take effect only from the date the same are made and not
from the date of the mortgage."xv[15]
The significance of the ruling to the instant problem would be that since the
1978 chattel mortgage had ceased to exist coincidentally with the full
payment of the P3,000,000.00 loan,xvi[16] there no longer was any chattel
mortgage that could cover the new loans that were concluded thereafter.
We find no merit in petitioner corporation's other prayer that the case
should be remanded to the trial court for a specific finding on the amount of
damages it has sustained "as a result of the unlawful action taken by
respondent bank against it."xvii[17] This prayer is not reflected in its
complaint which has merely asked for the amount of P3,000,000.00 by way
of moral damages.xviii[18] In LBC Express, Inc. vs. Court of Appeals,xix[19]
we have said:
"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."xx[20]
While Chua Pac is included in the case, the complaint, however, clearly
states that he has merely been so named as a party in representation of
petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in
pursuing his client's cause. It instead turned out to be, however, a source of
disappointment for this Court to read in petitioner's reply to private
respondent's comment on the petition his so-called "One Final Word;" viz:

"In simply quoting in toto the patently erroneous decision of the trial court,
respondent Court of Appeals should be required to justify its decision which
completely disregarded the basic laws on obligations and contracts, as well
as the clear provisions of the Chattel Mortgage Law and well-settled
jurisprudence of this Honorable Court; that in the event that its explanation
is wholly unacceptable, this Honorable Court should impose appropriate
sanctions on the erring justices. This is one positive step in ridding our courts
of law of incompetent and dishonest magistrates especially members of a
superior court of appellate jurisdiction."xxi[21] (Italics supplied.)
The statement is not called for. The Court invites counsel's attention to the
admonition in Guerrero vs. Villamor;xxii[22] thus:
"(L)awyers x x x should bear in mind their basic duty `to observe and
maintain the respect due to the courts of justice and judicial officers and x x
x (to) insist on similar conduct by others.' This respectful attitude towards
the court is to be observed, `not for the sake of the temporary incumbent of
the judicial office, but for the maintenance of its supreme importance.' And
it is `through a scrupulous preference for respectful language that a lawyer
best demonstrates his observance of the respect due to the courts and
judicial officers x x x.'"xxiii[23]
The virtues of humility and of respect and concern for others must still live
on even in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower
court are set aside without prejudice to the appropriate legal recourse by
private respondent as may still be warranted as an unsecured creditor. No
costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be
circumspect in dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., took no part in view of lessor-lessee relationship with respondent

bank.
Bellosillo, J., on leave.

FIRST DIVISION
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL
AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26
January 2000 Resolution of the Court of Appeals in CA-G.R. CV No.
40151. The Court of Appeals affirmed with modification the 14 December
1992 Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in
Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting
Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima
liable for libel and ordered them to solidarily pay Ago Medical and
Educational Center-Bicol Christian College of Medicine moral damages,
attorneys fees and costs of suit.
The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima

(Rima) and Hermogenes Jun Alegre (Alegre).[5] Expos is aired every
morning over DZRC-AM which is owned by Filipinas Broadcasting Network,
Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities
and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed
various alleged complaints from students, teachers and parents against Ago
Medical and Educational Center-Bicol Christian College of Medicine
(AMEC) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of
Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre on
27 February 1990. Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical
course at AMEC-BCCM, advise them to pass all subjects because if they fail
in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had
approached me stating that they had consulted with the DECS which told
them that there is no such regulation. If [there] is no such regulation why is
AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that
the course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the
subject does not have an instructor - such greed for money on the part of
AMECs administration. Take the subject Anatomy: students would pay for
the subject upon enrolment because it is offered by the school. However
there would be no instructor for such subject. Students would be informed
that course would be moved to a later date because the school is still
searching for the appropriate instructor.

xxx
It is a public knowledge that the Ago Medical and Educational Center has
survived and has been surviving for the past few years since its inception
because of funds support from foreign foundations. If you will take a look at
the AMEC premises youll find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why not Jose Rizal or
Bonifacio Hall? That is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial, isnt it? With the
report which is the basis of the expose in DZRC today, it would be very easy
for detractors and enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the basis of the latters
purpose. But if the purpose of the institution (AMEC) is to deceive students
at cross purpose with its reason for being it is possible for these foreign
foundations to lift or suspend their donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High
School and the AMEC-Institute of Mass Communication in their effort to
minimize expenses in terms of salary are absorbing or continues to accept
rejects. For example how many teachers in AMEC are former teachers of
Aquinas University but were removed because of immorality? Does it mean
that the present administration of AMEC have the total definite moral
foundation from catholic administrator of Aquinas University. I will prove to
you my friends, that AMEC is a dumping ground, garbage, not merely of
moral and physical misfits. Probably they only qualify in terms of
intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family
name implies. She is too old to work, being an old woman. Is the AMEC
administration exploiting the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just patiently making use of
Dean Justita Lola were if she is very old. As in atmospheric situation zero
visibility the plane cannot land, meaning she is very old, low pay
follows. By the way, Dean Justita Lola is also the chairman of the committee
on scholarship in AMEC. She had retired from Bicol University a long time
ago but AMEC has patiently made use of her.

xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral
and physically misfit people. What does this mean? Immoral and physically
misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is
this, that your are no longer fit to teach. You are too old. As an aviation,
your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the
scholarship committee at that. The reason is practical cost saving in salaries,
because an old person is not fastidious, so long as she has money to buy the
ingredient of beetle juice. The elderly can get by thats why she (Lola) was
taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely
that the students would be influenced by evil. When they become
members of society outside of campus will be liabilities rather than
assets. What do you expect from a doctor who while studying at AMEC is so
much burdened with unreasonable imposition? What do you expect from a
student who aside from peculiar problems because not all students are
rich in their struggle to improve their social status are even more
burdened with false regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning
institution. With the supposed exposs, FBNI, Rima and Alegre transmitted
malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago)
reputation. AMEC and Ago included FBNI as defendant for allegedly failing
to exercise due diligence in the selection and supervision of its employees,
particularly Rima and Alegre.

On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer[10] alleging that the broadcasts against AMEC were fair and
true. FBNI, Rima and Alegre claimed that they were plainly impelled by a
sense of public duty to report the goings-on in AMEC, [which is] an
institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the
defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a
Motion to Dismiss[11] on FBNIs behalf. The trial court denied the motion to
dismiss. Consequently, FBNI filed a separate Answer claiming that it
exercised due diligence in the selection and supervision of Rima and
Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI
likewise claimed that it always reminds its broadcasters to observe truth,
fairness and objectivity in their broadcasts and to refrain from using libelous
and indecent language. Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and
to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision[12] finding FBNI
and Alegre liable for libel except Rima. The trial court held that the
broadcasts are libelous per se. The trial court rejected the broadcasters
claim that their utterances were the result of straight reporting because it
had no factual basis. The broadcasters did not even verify their reports
before airing them to show good faith. In holding FBNI liable for libel, the
trial court found that FBNI failed to exercise diligence in the selection and
supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only
participation was when he agreed with Alegres expos. The trial court
found Rimas statement within the bounds of freedom of speech,
expression, and of the press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the
plaintiff. Considering the degree of damages caused by the controversial

utterances, which are not found by this court to be really very serious and
damaging, and there being no showing that indeed the enrollment of
plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and
Filipinas Broadcasting Network (owner of the radio station DZRC), are
hereby jointly and severally ordered to pay plaintiff Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the
amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of
attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and
Ago, on the other, appealed the decision to the Court of Appeals. The Court
of Appeals affirmed the trial courts judgment with modification. The
appellate court made Rima solidarily liable with FBNI and Alegre. The
appellate court denied Agos claim for damages and attorneys fees because
the broadcasts were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to
the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable
with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of
Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned
broadcasts are libelous per se and that FBNI, Rima and Alegre failed to
overcome the legal presumption of malice. The Court of Appeals found Rima
and Alegres claim that they were actuated by their moral and social duty to

inform the public of the students gripes as insufficient to justify the

utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators,
the Court of Appeals ruled that the broadcasts were made with reckless
disregard as to whether they were true or false. The appellate court
pointed out that FBNI, Rima and Alegre failed to present in court any of the
students who allegedly complained against AMEC. Rima and Alegre merely
gave a single name when asked to identify the students. According to the
Court of Appeals, these circumstances cast doubt on the veracity of the
broadcasters claim that they were impelled by their moral and social duty
to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that
(1) AMEC-BCCM is a dumping ground for morally and physically misfit
teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize
expenses on its employees salaries; and (3) AMEC burdened the students
with unreasonable imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the
selection and supervision of its employees for allowing Rima and Alegre to
make the radio broadcasts without the proper KBP accreditation. The Court
of Appeals denied Agos claim for damages and attorneys fees because the
libelous remarks were directed against AMEC, and not against her. The
Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay
AMEC moral damages, attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I.

WHETHER THE BROADCASTS ARE LIBELOUS;

II.

WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III.

WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV.

WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE

FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS
OF SUIT.

The Courts Ruling

We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory
remarks of Rima and Alegre against AMEC.[17] While AMEC did not point
out clearly the legal basis for its complaint, a reading of the complaint
reveals that AMECs cause of action is based on Articles 30 and 33 of the
Civil Code. Article 30[18] authorizes a separate civil action to recover civil
liability arising from a criminal offense. On the other hand, Article 33[19]
particularly provides that the injured party may bring a separate civil action
for damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 19[20] of the Civil Code to justify its claim for
damages. AMEC cites Articles 2176[21] and 2180[22] of the Civil Code to
hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or
defect, real or imaginary, or any act or omission, condition, status, or
circumstance tending to cause the dishonor, discredit, or contempt of a
natural or juridical person, or to blacken the memory of one who is
dead.[24]
There is no question that the broadcasts were made public and imputed to
AMEC defects or circumstances tending to cause it dishonor, discredit and
contempt. Rima and Alegres remarks such as greed for money on the part
of AMECs administrators; AMEC is a dumping ground, garbage of xxx
moral and physical misfits; and AMEC students who graduate will be
liabilities rather than assets of the society are libelous per se. Taken as a

whole, the broadcasts suggest that AMEC is a money-making institution

where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims
that Rima and Alegre were plainly impelled by their civic duty to air the
students gripes. FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts. FBNI further points
out that Rima and Alegre exerted efforts to obtain AMECs side and gave
Ago the opportunity to defend AMEC and its administrators. FBNI concludes
that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre
failed to show adequately their good intention and justifiable motive in
airing the supposed gripes of the students. As hosts of a documentary or
public affairs program, Rima and Alegre should have presented the public
issues free from inaccurate and misleading information.[26] Hearing the
students alleged complaints a month before the expos,[27] they had
sufficient time to verify their sources and information. However, Rima and
Alegre hardly made a thorough investigation of the students alleged gripes.
Neither did they inquire about nor confirm the purported irregularities in
AMEC from the Department of Education, Culture and Sports. Alegre
testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied
on the words of the students because they were many and not because
there is proof that what they are saying is true.[28] This plainly shows Rima
and Alegres reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight
reporting. Significantly, some courts in the United States apply the privilege
of neutral reportage in libel cases involving matters of public interest or
public figures. Under this privilege, a republisher who accurately and
disinterestedly reports certain defamatory statements made against public
figures is shielded from liability, regardless of the republishers subjective
awareness of the truth or falsity of the accusation.[29] Rima and Alegre

cannot invoke the privilege of neutral reportage because unfounded

comments abound in the broadcasts. Moreover, there is no existing
controversy involving AMEC when the broadcasts were made. The privilege
of neutral reportage applies where the defamed person is a public figure
who is involved in an existing controversy, and a party to that controversy
makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this
case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the
broadcasts fall within the coverage of qualifiedly privileged
communications for being commentaries on matters of public
interest. Such being the case, AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the
doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine of
fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent
until his guilt is judicially proved, and every false imputation is deemed
malicious, nevertheless, when the discreditable imputation is directed
against a public person in his public capacity, it is not necessarily actionable.
In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based
on a false supposition. If the comment is an expression of opinion, based
on established facts, then it is immaterial that the opinion happens to be
mistaken, as long as it might reasonably be inferred from the facts.[32]
(Emphasis supplied)
True, AMEC is a private learning institution whose business of educating
students is genuinely imbued with public interest. The welfare of the
youth in general and AMECs students in particular is a matter which the
public has the right to know. Thus, similar to the newspaper articles in
Borjal, the subject broadcasts dealt with matters of public

interest. However, unlike in Borjal, the questioned broadcasts are not

based on established facts. The record supports the following findings of
the trial court:
xxx Although defendants claim that they were motivated by consistent
reports of students and parents against plaintiff, yet, defendants have not
presented in court, nor even gave name of a single student who made the
complaint to them, much less present written complaint or petition to that
effect. To accept this defense of defendants is too dangerous because it
could easily give license to the media to malign people and establishments
based on flimsy excuses that there were reports to them although they
could not satisfactorily establish it. Such laxity would encourage careless
and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters,
contrary to the mandates of their duties, did not verify and analyze the truth
of the reports before they aired it, in order to prove that they are in good
faith.
Alegre contended that plaintiff school had no permit and is not accredited to
offer Physical Therapy courses. Yet, plaintiff produced a certificate coming
from DECS that as of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical Therapy course had
already been given the plaintiff, which certificate is signed by no less than
the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh.
C-rebuttal). Defendants could have easily known this were they careful
enough to verify. And yet, defendants were very categorical and sounded
too positive when they made the erroneous report that plaintiff had no
permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign
foundations like Mcdonald Foundation prove not to be true also. The truth
is there is no Mcdonald Foundation existing. Although a big building of
plaintiff school was given the name Mcdonald building, that was only in
order to honor the first missionary in Bicol of plaintiffs religion, as explained
by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single

centavo appears to be received by plaintiff school from the aforementioned

McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by
Dra. Ago, that when medical students fail in one subject, they are made to
repeat all the other subject[s], even those they have already passed, nor
their claim that the school charges laboratory fees even if there are no
laboratories in the school. No evidence was presented to prove the bases
for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and
immoral teachers, defendant[s] singled out Dean Justita Lola who is said to
be so old, with zero visibility already. Dean Lola testified in court last Jan.
21, 1991, and was found to be 75 years old. xxx Even older people prove to
be effective teachers like Supreme Court Justices who are still very much in
demand as law professors in their late years. Counsel for defendants is past
75 but is found by this court to be still very sharp and effective. So is
plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor
mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than
assets of our society is a mere conclusion. Being from the place himself, this
court is aware that majority of the medical graduates of plaintiffs pass the
board examination easily and become prosperous and responsible
professionals.[33]
Had the comments been an expression of opinion based on established
facts, it is immaterial that the opinion happens to be mistaken, as long as it
might reasonably be inferred from the facts.[34] However, the comments of
Rima and Alegre were not backed up by facts. Therefore, the broadcasts are
not privileged and remain libelous per se.

The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga
Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code
provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1.
4.

xxx
Public affairs program shall present public issues free from
personal bias, prejudice and inaccurate and misleading
information. x x x Furthermore, the station shall strive to present
balanced discussion of issues. x x x.

xxx
7.

The station shall be responsible at all times in the supervision of

public affairs, public issues and commentary programs so that
they conform to the provisions and standards of this code.

8.

It shall be the responsibility of the newscaster, commentator,

host and announcer to protect public interest, general welfare
and good order in the presentation of public affairs and public
issues.[36] (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code,
which lays down the code of ethical conduct governing practitioners in the
radio broadcast industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own members. The Radio
Code is a public warranty by the radio broadcast industry that radio
broadcast practitioners are subject to a code by which their conduct are
measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast
practitioners live up to the code of conduct of their profession, just like
other professionals. A professional code of conduct provides the standards
for determining whether a person has acted justly, honestly and with good
faith in the exercise of his rights and performance of his duties as required

by Article 19[37] of the Civil Code. A professional code of conduct also

provides the standards for determining whether a person who willfully
causes loss or injury to another has acted in a manner contrary to morals or
good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a
corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike
a natural person, it cannot experience physical suffering or such sentiments
as wounded feelings, serious anxiety, mental anguish or moral shock.[40]
The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to
justify the award of moral damages. However, the Courts statement in
Mambulao that a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages is an
obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article
2219[43] of the Civil Code. This provision expressly authorizes the recovery
of moral damages in cases of libel, slander or any other form of defamation.
Article 2219(7) does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral
damages.[44]
Moreover, where the broadcast is libelous per se, the law implies
damages.[45] In such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in mitigation of
damages.[46] Neither in such a case is the plaintiff required to introduce
evidence of actual damages as a condition precedent to the recovery of
some damages.[47] In this case, the broadcasts are libelous per se. Thus,
AMEC is entitled to moral damages.

However, we find the award of P300,000 moral damages unreasonable. The

record shows that even though the broadcasts were libelous per se, AMEC
has not suffered any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages from P300,000 to
P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no
basis for the award of attorneys fees. FBNI adds that the instant case does
not fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify
satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to
warrant the award of attorneys fees. Moreover, both the trial and
appellate courts failed to explicitly state in their respective decisions the
rationale for the award of attorneys fees.[49] In Inter-Asia Investment
Industries, Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is
the exception rather than the rule, and counsels fees are not to be awarded
every time a party wins a suit. The power of the court to award attorneys
fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion without a
premise, its basis being improperly left to speculation and conjecture. In
all events, the court must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for the award of
attorneys fees.[51] (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies
within the discretion of the court and depends upon the circumstances of
each case, the Court of Appeals failed to point out any circumstance to
justify the award.
IV.

Whether FBNI is solidarily liable with Rima and Alegre

for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the
payment of damages and attorneys fees because it exercised due diligence
in the selection and supervision of its employees, particularly Rima and
Alegre. FBNI maintains that its broadcasters, including Rima and Alegre,
undergo a very regimented process before they are allowed to go on
air. Those who apply for broadcaster are subjected to interviews,
examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his
competence as a broadcaster. FBNI points out that the minor deficiencies
in the KBP accreditation of Rima and Alegre do not in any way prove that
FBNI did not exercise the diligence of a good father of a family in selecting
and supervising them. Rimas accreditation lapsed due to his non-payment
of the KBP annual fees while Alegres accreditation card was delayed
allegedly for reasons attributable to the KBP Manila Office. FBNI claims that
membership in the KBP is merely voluntary and not required by any law or
government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and
severally liable for the tort which they commit.[52] Joint tort feasors are all
the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit.[53] Thus, AMEC
correctly anchored its cause of action against FBNI on Articles 2176 and
2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily
liable to pay for damages arising from the libelous broadcasts. As stated by
the Court of Appeals, recovery for defamatory statements published by
radio or television may be had from the owner of the station, a licensee, the

operator of the station, or a person who procures, or participates in, the

making of the defamatory statements.[54] An employer and employee are
solidarily liable for a defamatory statement by the employee within the
course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were
clearly performing their official duties as hosts of FBNIs radio program
Expos when they aired the broadcasts. FBNI neither alleged nor proved
that Rima and Alegre went beyond the scope of their work at that time.
There was likewise no showing that FBNI did not authorize and ratify the
defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due
diligence in the selection and supervision of its employees, particularly Rima
and Alegre. FBNI merely showed that it exercised diligence in the selection
of its broadcasters without introducing any evidence to prove that it
observed the same diligence in the supervision of Rima and Alegre. FBNI did
not show how it exercised diligence in supervising its broadcasters. FBNIs
alleged constant reminder to its broadcasters to observe truth, fairness and
objectivity and to refrain from using libelous and indecent language is not
enough to prove due diligence in the supervision of its broadcasters.
Adequate training of the broadcasters on the industrys code of conduct,
sufficient information on libel laws, and continuous evaluation of the
broadcasters performance are but a few of the many ways of showing
diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and
Alegre as broadcasters, bearing in mind their qualifications. However, no
clear and convincing evidence shows that Rima and Alegre underwent
FBNIs regimented process of application. Furthermore, FBNI admits that
Rima and Alegre had deficiencies in their KBP accreditation,[56] which is one
of FBNIs requirements before it hires a broadcaster. Significantly,
membership in the KBP, while voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys rules and regulations.
Clearly, these circumstances show FBNIs lack of diligence in selecting and

supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages
together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4
January 1999 and Resolution of 26 January 2000 of the Court of Appeals in
CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral
damages is reduced from P300,000 to P150,000 and the award of attorneys
fees is deleted. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ.,
concur.

[1] Under Rule 45 of the 1997 Rules of Civil Procedure.

[2] Penned by Associate Justice Oswaldo D. Agcaoili, with Associate Justices
Corona Ibay-Somera and Mariano M. Umali concurring.
[3] Penned by Judge Antonio A. Arcangel.
[4] As AMEC and Ago alleged in their Memorandum in the trial court.
Records, p. 243.
[5] Alegre substituted Larry (Plaridel) Brocales who was absent then.
[6] Records, p. 2.
[7] Docketed as Civil Case No. 8236.
[8] Exhibit A-2, Exhibits Folder, pp. 21-22.
[9] Exhibit A-3, Exhibits Folder, pp. 23-25.

[10] Records, pp. 28-30.

[11] Ibid., pp. 147-155.
[12] Rollo, pp. 52-68.
[13] Ibid., pp. 67-68.
[14] Ibid., p. 48.
[15] Rima and Alegre did not join the instant petition.
[16] Rollo, p. 45.
[17] In Lopez, etc., et al. v. CA, et al., 145 Phil. 219 (1970), the Court stated
the following:
It was held in Lu Chu Sing v. Lu Tiong Gui, that the repeal of the old Libel
Law (Act No. 277) did not abolish the civil action for libel. A libel was
defined in that Act as a malicious defamation, expressed either in writing,
printing, or by signs or pictures, or the like, ***, tending to blacken the
memory of one who is dead or to impeach the honesty, virtue, or
reputation, or publish the alleged or natural defects of one who is alive, and
thereby expose him to public hatred, contempt, or ridicule. There was an
express provision in such legislation for a tort or quasi-delict action arising
from libel. There is reinforcement to such a view in the new Civil Code
providing for the recovery of moral damages for libel, slander or any other
form of defamation. (Emphasis supplied)
[18] Art. 30. When a separate civil action is brought to demand civil liability
arising from a criminal offense, and no criminal proceedings are instituted
during the pendency of the civil case, a preponderance of evidence shall
likewise be sufficient to prove the act complained of.
[19] Art. 33. In cases of defamation, fraud, and physical injuries, a civil
action for damages, entirely separate and distinct from the criminal action,
may be brought by the injured party. Such civil action shall proceed

independently of the criminal prosecution, and shall require only a

preponderance of evidence.
[20] Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
[21]Art. 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
[22] Art. 2180. The obligation imposed by article 2176 is demandable not
only for ones own acts or omissions, but also for those of persons for whom
one is responsible.
xxx
The owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the service of
the branches in which the latter are employed or on the occasion of their
functions.
Employers shall be liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.
xxx
[23] Should be difamacin as stated in Lu Chu Sing and Lu Tian Chiong v. Lu
Tiong Gui, 76 Phil. 669 (1946).
[24] Article 353 of the Revised Penal Code.
[25] Article 354 of the Revised Penal Code provides:

Art. 354. Requirement of publicity. Every defamatory imputation is

presumed to be malicious, even if it be true, if no good intention and
justifiable motive for making it is shown, except in the following cases:
1. A private communication made by any person to another in the
performance of any legal, moral or social duty; and
2. A fair and true report, made in good faith, without any comments or
remarks, of any judicial, legislative or other official proceedings which are
not of confidential nature, or of any statement, report or speech
delivered in said proceedings, or of any other act performed by public
officers in the exercise of their functions.
[26] Radio Code of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink.,
Exhibit 4.
[27] TSN, 22 April 1991, pp. 15, 18-19. Rima, however, testified that he and
Alegre made the exposs after three or four days from the time the students
approached them. (TSN, 26 September 1992, pp. 47-48).
[28] TSN, 22 April 1991, p. 18.
[29] 50 Am Jur. 2d, Libel and Slander 313.
[30] Ibid.
[31] 361 Phil. 1 (1999).
[32] Ibid.
[33] Rollo, pp. 65-67.
[34] Borjal v. Court of Appeals, supra note 31.
[35] 1989 Revised Edition, Exhibit 4.
[36] Ibid.

[37] Supra note 20.

[38] Article 21 of the Civil Code provides: Any person who wilfully causes
loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.
[39] Rollo, p. 28.
[40] People v. Manero, Jr., G.R. Nos. 86883-85, 29 January 1993, 218 SCRA
85.
[41] 130 Phil. 366 (1968). See also People v. Manero, Jr., G.R. Nos. 86883-85,
29 January 1993, 218 SCRA 85.
[42] ABS-CBN Broadcasting Corp. v. CA, 361 Phil. 499 (1999).
[43] Article 2219(7) of the Civil Code provides: Moral damages may be
recovered in the following and analogous cases: x x x (7) Libel, slander or any
other form of defamation; x x x.
[44] See Yap, et al. v. Carreon, 121 Phil. 883 (1965), where the appellants
included Philippine Harvardian College which was an educational institution.
[45] See Phee v. La Vanguardia, 45 Phil. 211 (1923). See also Jimenez v.
Reyes, 27 Phil. 52 (1914).
[46] Phee v. La Vanguardia, 45 Phil. 211 (1923).
[47] Ibid. Article 2216 of the Civil Code also provides that No proof of
pecuniary loss is necessary in order that moral, xxx damages may be
adjudicated. The assessment of such damages, except liquidated ones, is
left to the discretion of the court, according to the circumstances of each
case.
[48] Art. 2208. In the absence of stipulation, attorneys fees and expenses
of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;

(2) When the defendants act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmens compensation and
employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be
reasonable.
[49] Koa v. Court of Appeals, G.R. No. 84847, 5 March 1993, 219 SCRA 541
citing Central Azucarera de Bais v. Court of Appeals, G.R. No. 87597, 3
August 1990, 188 SCRA 328. See also Abrogar v. Intermediate Appellate
Court, No. L-67970, 15 January 1988, 157 SCRA 57.
[50] G.R. No. 125778, 10 June 2003, 403 SCRA 452.
[51] Ibid. See PNB v. CA, 326 Phil. 504 (1996). See also ABS-CBN
Broadcasting Corp. v. CA, 361 Phil. 499 (1999).

[52] Worcester v. Ocampo, 22 Phil. 42 (1912).

[53] Ibid.
[54] 50 Am. Jur. 2d, Libel and Slander 370.
[55] Ibid., 358.
[56] Rollo, p. 31.

Mauricia Castillo was the administratrix in charge over a parcel of land left
be Felipe Castillo. Said land was mortgaged to the Development Bank of the
Philippines and was about to be foreclosed but then Mauricias nephew,
Santiago Rivera, proposed that they convert the land into 4 subdivisions so
that they can raise the necessary money to avoid foreclosure. Mauricia
agreed. Rivera sought to develop said land through his company, Slobec
Realty Corporation (SRC), of which he was also the president. SRC then
contracted with Bormaheco, Inc. for the purchase of one tractor.
Bormaheco agreed to sell the tractor on an installment basis. At the same
time, SRC mortgaged said tractor to Bormaheco as security just in case SRC
will default. As additional security, Mauricia and other family members
executed a surety agreement whereby in case of default in paying said
tractor, the Insurance Corporation of the Philippines (ICP) shall pay the
balance. The surety bond agreement between Mauricia and ICP was secured
by Mauricias parcel of land (same land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it
wasnt enough hence ICP paid the deficiency. ICP then foreclosed the
property of Mauricia. ICP later sold said property to Philippine Machinery
Parts Manufacturing Corporation (PMPMC). PMPMC then demanded
Mauricia et al to vacate the premises of said property.

While all this was going on, Mauricia died. Her successor-administratrix,
Buenaflor Umali, questioned the foreclosure made by ICP. Umali alleged
that all the transactions are void and simulated hence they were defrauded;
that through Bormahecos machinations, Mauricia was fooled into entering
into a surety agreement with ICP; that Bormaheco even made the premium
payments to ICP for said surety bond; that the president of Bormaheco is a
director of PMPMC; that the counsel who assisted in all the transactions,
Atty. Martin De Guzman, was the legal counsel of ICP, Bormaheco, and
PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: No. There is no clear showing of fraud in this case. The mere fact that
Bormaheco paid said premium payments to ICP does not constitute fraud
per se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera,
agreed that part of the payment of the mortgage shall be paid for the
insurance. Naturally, when Rivera was paying some portions of the
mortgage to Bormaheco, Bormaheco is applying some parts thereof for the
payment of the premium and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy in
order that the foreclosure conducted by ICP be declared a nullity. The nullity
may be attacked directly without disregarding the separate identity of the
corporations involved. Further still, Umali et al are not enforcing a claim
against the individual members of the corporations. They are not claiming
said members to be liable. Umali et al are merely questioning the validity of
the foreclosure.
The veil of corporate fiction cant be pierced also by the simple reason that
the businesses of two or more corporations are interrelated, absent
sufficient showing that the corporate entity was purposely used as a shield
to defraud creditors and third persons of their rights. In this case, there is no
justification for disregarding their separate personalities.

i[1] Rollo,

p. 45.

ii[2] Ibid.,

p. 34.

iii[3] Ibid.
iv[4] Associate

Justice Consuelo Ynares Santiago, ponente, with Associate Justices Ricardo L.

Pronove, Jr. and Nicolas P. Lapea, Jr., concurring.
v[5] In

the Court's resolution, dated 27 May 1992, Rollo, p. 91.

vi[6] Sec.

5 (2) (d), Art. VIII, 1987 Constitution.

vii[7] See

Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.

viii[8] See

Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.

ix[9] See

Sec. 3, Act 1508.

x[10] See

Mojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49 Phil. 703.

xi[11] Act

No. 1508.

xii[12] See

Philippine Refining Co. vs. Jarque, 61 Phil. 229.

xiii[13] Civil

Code, Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C. Grio-Aquino, pp.

610-611.
xiv[14] 49

Phil. 647.

xv[15] At

p. 655. This ruling was reiterated in Jaca vs. Davao Lumber Company, 113 SCRA 107.

xvi[16] Being

merely accessory in nature, it cannot exist independently of the principal obligation.

xvii[17] Petitioner's
xviii[18] Complaint,
xix[19] 236
xx[20] At

Memorandum, p. 5; Rollo, p. 119.

p. 6; Record, p. 9.

SCRA 602.

p. 607.

xxi[21] Rollo,
xxii[22] 179

p. 113.

SCRA 355, 362.

xxiii[23] At

p. 362.