1|C O M M R E V

BERIN and MERLY ALORRO,

FELIXBERTO P. BARTE

complainants,

vs.

JUDGE

manager, advisor, or employee of any business except as director of a

family business of the judge.

Complainants Josie Berin and Merly Alorro are real estate agents. They
allege that respondent judge invited them to his office and asked them
to look for a vendor of a lot for sale in Antique because the Manila
Mission of the Church of Jesus Christ of Latter Day Saints, Inc. wanted
to buy a site for its church in Antique. Complainants claim that they found
a vendor, Eleanor M. Checa-Santos. They told respondent judge about
the lot. respondent judge informed them three days later that the Church
was willing to pay P2.3 million for the lot; that respondent judge agreed
that complainants would each receive a commission of P100,000.00 in
case the sale took place. Complainants said they wanted to have the
agreement in writing, but respondent judge refused. Complainants
alleged that the sale was consummated and respondent judge received
the purchase price, but, despite demands made by them for the payment
of their commission, respondent judge gave them only P10,000.00 each,
telling them to take it or leave it. Hence, this complaint.

As the OCA observed:

Respondent judge denied the charges against him. According to him, as

early as January 25, 2001, the Church had already purchased the same
land described in the complaint and the vendee had already paid 50%
of the sale price to the vendor, as evidenced by a Closing Certificate
showing that the payment took place at the Metrobank, San Jose,
Antique Branch on said date. Complainants said the Deed of Sale was
notarized on February 12, 2001.

AURBACH vs SANIWARES

Respondent judge likewise denied that he agreed to pay

complainants P100,000.00 each as commission for the sale. But he said
that, sometime in November 1999, complainant Merly Alorro, whom he
considered his friend, learned from complainant Josie Berin that the lot
in question was up for sale, and Alorro told him about it. Based on such
information, respondent judge said he was able to facilitate the sale of
the land after almost two (2) years of hard work. Since he was able to
realize some amount from the sale, he decided to give complainants a
share for the information they gave him, although they never contributed
to the success of the transaction. He gave complainant Berin P7,000.00
and Merly Alorro P12,000.00.

By allowing himself to act as agent in the sale of the subject property,

respondent judge has increased the possibility of his disqualification to
act as an impartial judge in the event that a dispute involving the said
contract of sale arises. Also, the possibility that the parties to the sale
might plead before his court is not remote and his business dealings with
them might [not only] create suspicion as to his fairness but also to [his
ability to] render it in a manner that is free from any suspicion as to its
fairness and impartiality, and also as to the judges integrity (Martinez vs.
Gironella, 65 SCRA 245).One who occupies an exalted position in the
administration of justice must pay a high price for the honor bestowed
upon him, for his private as well as his official conduct must at all times
be free from the appearance of impropriety (Jugueta vs. Boncaros, 60
SCRA 27).

Saniwares, a domestic corporation was incorporated for the primary

purpose of manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion plans.
ASI, a foreign corporation domiciled in Delaware, United States entered
into an Agreement with Saniwares and some Filipino investors whereby
ASI and the Filipino investors agreed to participate in the ownership of
an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous
china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated
enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in
these cases on the nomination and election of the directors of the
corporation:

ISSUE: whether respondent judge committed an impropriety in acting as

a broker in the sale of a real estate, for which he admits receiving a
commission.

3. Articles of Incorporation

HELD: Article 14 of the Code of Commerce prohibits members of the

judiciary and prosecutors from engaging in commerce within their
jurisdiction. It provides:

(a) The Articles of Incorporation of the Corporation shall be substantially

in the form annexed hereto as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for

Art. 14. The following cannot engage in commerce, either in person or

by proxy, nor can they hold any office or have any direct, administrative,
or financial intervention in commercial or industrial companies within the
limits of the districts, provinces, or towns in which they discharge their
duties:
1. Justices of the Supreme Court, judges and officials of the department
of public prosecution in active service. This provision shall not be
applicable to mayors, municipal judges, and municipal prosecuting
attorneys nor those who by chance are temporarily discharging the
functions of judge or prosecuting attorney.
5. Those who by virtue of laws or special provisions may not engage in
commerce in a determinate territory.
However, in Macaruta v. Asuncion,[3] it was held that Art. 14 is in
the nature of political law and since it was extended to this country by
Spain it was necessarily abrogated upon the change of sovereignty from
Spain to the United States. Nevertheless, the Court admonished a judge
who had been found to have engaged in business to be more discreet
in his private and business activities, because his conduct as a member
of the Judiciary must not only be characterized by propriety but must
always be above suspicion.[4]
After the decision in Macariola v. Asuncion, this Court adopted the
Code of Judicial Conduct, which took effect on October 20, 1989, the
pertinent provision of which states:
Rule 5.02. A judge shall refrain from financial and business dealings that
tend to reflect adversely on the courts impartiality, interfere with the
proper performance of judicial activities, or increase involvement with
lawyers or persons likely to come before the court. A judge should so
manage investments and other financial interests as to minimize the
number of cases giving grounds for disqualification.
This provision thus supplies the void left by the abrogation of Art. 14 of
the Spanish Code of Commerce. Indeed, it is not good for judges to
engage in business except only to the extent allowed by Rule 5.03 of the
Code of Judicial Conduct which provides:
Subject to the provisions of the preceding rule, a judge may hold and
manage investments but should not serve as an officer, director,

(1) Cumulative voting for directors:

xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as AmericanStandard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by AmericanStandard, and the other six shall be designated by the other
stockholders of the Corporation.
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of veto
powers over a number of corporate acts and the right to designate
certain officers, such as a member of the Executive Committee whose
vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital
stock of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the
American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a
basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had
other subsidiaries of joint joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held.
The stockholders then proceeded to the election of the members of the
board of directors. The ASI group nominated three persons. The
Philippine investors nominated six. The chairman, Baldwin Young ruled
the last two nominations out of order on the basis of section 5 (a) of the
Agreement, the consistent practice of the parties during the past annual
stockholders' meetings to nominate only nine persons as nominees for

2|C O M M R E V

the nine-member board of directors, and the legal advice of Saniwares'

legal counsel.
There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to
the body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of
order and no vote on the ruling was taken. The Chairman then instructed
the Corporate Secretary to cast all the votes present and represented
by proxy equally for the 6 nominees of the Philippine Investors and the
3 nominees of ASI, thus effectively excluding the 2 additional persons
nominated, Luciano E. Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of the Chairman and
announced that all votes accruing to ASI shares were being cumulatively
voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or represented by them were
being voted cumulatively in favor of Luciano E. Salazar. The Chairman,
Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees and the six originally
nominated here was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP
No. 05617). This motion to adjourn was accepted by the Chairman,
Baldwin Young, who announced that the motion was carried and
declared the meeting adjourned. Protests against the adjournment were
registered and having been ignored, Mr. Jaqua the ASI representative,
stated that the meeting was not adjourned but only recessed and that
the meeting would be reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to the decision
of the Chairman on the casting of votes bodily thrown out. The ASI
Group, Luciano E. Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares, decided to continue
the meeting at the elevator lobby of the American Standard Building.
The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative
votes cast earlier in the meeting, the ASI Group nominated its four
nominees; Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay. Luciano E. Salazar voted for himself, thus the said
five directors were certified as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there was a tie among the
other six (6) nominees for the four (4) remaining positions of directors
and that the body decided not to break the tie.
These incidents triggered off the filing of separate petitions by the parties
with the Securities and Exchange Commission (SEC). a hearing officer
who rendered a decision upholding the election of the Lagdameo Group
and dismissing the quo warranto petition of Salazar and Chamsay. The
ASI Group and Salazar appealed the decision to the SEC en banc which
affirmed the hearing officer's decision. the appellate court in its decision
ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of
Saniwares be ordered convoked as soon as possible, under the
supervision of the Commission.
Issue: who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983
Held: To answer this question the following factors should be
determined: (1) the nature of the business established by the parties
whether it was a joint venture or a corporation and (2) whether or not the
ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance
with the rules governing the interpretation and construction of contracts.
In the instant cases, our examination of important provisions of the
Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish
a joint venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine nationals.
He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were
included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate
acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the

amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and
(b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI [Sec.
13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how
to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7
out of 9 votes of the board of directors for certain actions, in effect gave
ASI (which designates 3 directors under the Agreement) an effective
veto power. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision that ASI shall
designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups
in Saniwares, namely ASI, which owns 40% of the capital stock and the
Philippine National stockholders who own the balance of 60%, and that
2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are
two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the parties, i.e.,
ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a six to
three ratio. Each group is assured of a fixed number of directors in the
board.
Moreover, ASI in its communications referred to the enterprise as joint
venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect
of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the
industrial and manufacturing capacities of a local firm are constrained to
seek the technology and marketing assistance of huge multinational
corporations of the developed world. Arrangements are formalized
where a foreign group becomes a minority owner of a firm in exchange
for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such arrangements.
The foreign group may, from the start, intend to establish its own sole or
monopolistic operations and merely uses the joint venture arrangement
to gain a foothold or test the Philippine waters, so to speak. Or the
covetousness may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group undermines the
local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint
ventures is not consistent with fair dealing to say the least. To the extent
that such subversive actions can be lawfully prevented, the courts
should extend protection especially in industries where constitutional
and legal requirements reserve controlling ownership to Filipino citizens.
In regard to the question as to whether or not the ASI group may vote
their additional equity during elections of Saniwares' board of directors,
the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in
the management of the corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine directors shall be
designated by ASI and the remaining six by the other stockholders, i.e.,
the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is
imperative that the parties should honor and adhere to their respective
rights and obligations thereunder. Appellants seem to contend that any
allocation of board seats, even in joint venture corporations, are null and
void to the extent that such may interfere with the stockholder's rights to
cumulative voting as provided in Section 24 of the Corporation Code.
This Court should not be prepared to hold that any agreement which
curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen
and do not prejudice those who are not parties thereto. It may well be
that it would be more cogent to hold, as the Securities and Exchange
Commission has held in the decision appealed from, that cumulative
voting rights may be voluntarily waived by stockholders who enter into
special relationships with each other to pursue and implement specific
purposes, as in joint venture relationships between foreign and local

3|C O M M R E V

stockholders, so long as such agreements do not adversely affect third

parties.

as to maintain the minority status of the foreign investors group as earlier

discussed. They should be maintained.

The ASI Group and petitioner Salazar, now reiterate their theory that the
ASI Group has the right to vote their additional equity pursuant to
Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors.
Petitioner Salazar adds that this right if granted to the ASI Group would
not necessarily mean a violation of the Anti-Dummy Act

ALFREDO CHING, Petitioner, vs. THE SECRETARY OF JUSTICE

The ASI Group's argument is correct within the context of Section 24 of

the Corporation Code. The point of query, however, is whether or not
that provision is applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint venture is of common law origin. It has no
precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and
a mutual right of control. he main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and is thus of a
temporary nature. This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular
or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that
under Philippine law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms,
and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others
Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote their
additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement
of the parties as regards the allocation of director seats under Section 5
(a) of the "Agreement," and the right of each group of stockholders to
cumulative voting in the process of determining who the group's
nominees would be under Section 3 (a) (1) of the "Agreement." As
pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as
regards the election of members of the board of directors.
Equally important as the consideration of the contractual intent of the
parties is the consideration as regards the possible domination by the
foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the
Anti-Dummy Act. In this regard, petitioner Salazar's position is that the
Anti-Dummy Act allows the ASI group to elect board directors in
proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members
of the board of directors in proportion to their allowance participation of
said entity. In the instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable participation of the ASI
Group. Hence, in future dealings, this limitation of six to three board
seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man
board of directors there are provisions already agreed upon and
embodied in the parties' Agreement to protect the interests arising from
the minority status of the foreign investors.
Section 5 (a) of the Agreement which uses the word designates in the
allocation of board directors should not be interpreted in isolation. This
should be construed in relation to section 3 (a) (1) of the Agreement. As
we stated earlier, section 3(a) (1) relates to the manner of voting for
these nominees which is cumulative voting while section 5(a) relates to
the manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise
under the cumulative voting procedure cannot, however, be ignored.
The validity of the cumulative voting procedure is dependent on the
directors thus elected being genuine members of the Filipino group, not
voters whose interest is to increase the ASI share in the management
of Saniwares. The joint venture character of the enterprise must always
be taken into account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to enable
ASI to achieve stealthily or indirectly what they cannot accomplish
openly. There are substantial safeguards in the Agreement which are
intended to preserve the majority status of the Filipino investors as well

Petitioner was the Senior Vice-President of Philippine Blooming Mills,

Inc. (PBMI). PBMI, through petitioner, applied with the Rizal Commercial
Banking Corporation (respondent bank) for the issuance of commercial
letters of credit to finance its importation of assorted goods. Respondent
bank approved the application, and irrevocable letters of credit were
issued in favor of petitioner. The goods were purchased and delivered
in trust to PBMI. Petitioner signed 13 trust receipts4 as surety,
acknowledging delivery of the following goods. Under the receipts,
petitioner agreed to hold the goods in trust for the said bank, with
authority to sell but not by way of conditional sale, pledge or otherwise;
and 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 respondent bank without any need of demand. Thus, said
"goods, manufactured products or proceeds thereof, whether in the form
of money or bills, receivables, or accounts separate and capable of
identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to
respondent bank, or to return their value amounting to P6,940,280.66
despite demands. Thus, the bank filed a criminal complaint for estafa.
After the requisite preliminary investigation, the City Prosecutor found
probable cause estafa, in relation to Presidential Decree (P.D.) No. 115,
otherwise known as the Trust Receipts Law. Thirteen (13) Informations
were filed against the petitioner before the Regional Trial Court (RTC)
of Manila. Petitioner appealed the resolution of the City Prosecutor to
the then Minister of Justice. Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the withdrawal
of the Informations. The RTC, for its part, granted the Motion to Quash
the Informations filed by petitioner on the ground that the material
allegations therein did not amount to estafa.
In the meantime, the Court rendered judgment in Allied Banking
Corporation v. Ordoez,11 holding that the penal provision of P.D. No.
115 encompasses any act violative of an obligation covered by the trust
receipt; it is not limited to transactions involving goods which are to be
sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold. The Court also ruled that "the non-payment of
the amount covered by a trust receipt is an act violative of the obligation
of the entrustee to pay."12
On February 27, 1995, respondent bank re-filed the criminal complaint
for estafa against petitioner before the Office of the City Prosecutor of
Manila.
the City Prosecutor ruled that there was no probable cause to charge
petitioner with violating P.D. No. 115, as petitioners liability was only
civil, not criminal, having signed the trust receipts as
surety.13 Respondent bank appealed the resolution to the Department of
Justice (DOJ) On July 13, 1999, the Secretary of Justice issued
Resolution No. 25015 granting the petition and reversing the assailed
resolution of the City Prosecutor. According to the Justice Secretary, the
petitioner, as Senior Vice-President of PBMI, executed the 13 trust
receipts and as such, was the one responsible for the offense. Thus, the
execution of said receipts is enough to indict the petitioner as the official
responsible for violation of P.D. No. 115. The Justice Secretary also
declared that petitioner could not contend that P.D. No. 115 covers only
goods ultimately destined for sale, as this issue had already been settled
in Allied Banking Corporation v. Ordoez. The Justice Secretary further
stated that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBMI but also as its surety;
hence, he could be proceeded against in two (2) ways: first, as surety
as determined by the Supreme Court in its decision in Rizal Commercial
Banking Corporation v. Court of Appeals;17 and second, as the corporate
official responsible for the offense under P.D. No. 115, via criminal
prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of
corporate officers "without prejudice to the civil liabilities arising from the
criminal offense." Thus, according to the Justice Secretary, following
Rizal Commercial Banking Corporation, the civil liability imposed is
clearly separate and distinct from the criminal liability of the accused
under P.D. No. 115.

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

4|C O M M R E V

Issue: WON Ching is liable

Held: YES.
The Court rules that although petitioner signed the trust receipts merely
as Senior Vice-President of PBMI and had no physical possession of the
goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code.1wphi1 If the
violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice
to the civil liabilities arising from the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified
as estafa under paragraph 1(b), Article 315 of the Revised Penal Code,
or estafa with abuse of confidence. It may be committed by a corporation
or other juridical entity or by natural persons. However, the penalty for
the crime is imprisonment for the periods provided in said Article 315,
which reads:
ARTICLE 315. Swindling (estafa). Any person who shall defraud
another by any of the means mentioned hereinbelow shall be punished
by:
1st. The penalty of prision correccional in its maximum period
to prision mayor in its minimum period, if the amount of the
fraud is over 12,000 pesos but does not exceed 22,000 pesos;
and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum
period, adding one year for each additional 10,000 pesos; but
the total penalty which may be imposed shall not exceed
twenty years. In such cases, and in connection with the
accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall
be termed prision mayor or reclusion temporal, as the case
may be;
2nd. The penalty of prision correccional in its minimum and
medium periods, if the amount of the fraud is over 6,000 pesos
but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to
prision correccional in its minimum period, if such amount is
over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such
amount does not exceed 200 pesos, provided that in the four cases
mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically
makes the officers, employees or other officers or persons responsible
for the offense, without prejudice to the civil liabilities of such corporation
and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or
employees are vested with the authority and responsibility to devise
means necessary to ensure compliance with the law and, if they fail to
do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the
directors, officers, employees or other officers thereof responsible for
the offense shall be charged and penalized for the crime, precisely
because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment.49 However, a
corporation may be charged and prosecuted for a crime if the imposable
penalty is fine. Even if the statute prescribes both fine and imprisonment
as penalty, a corporation may be prosecuted and, if found guilty, may be
fined.50
A crime is the doing of that which the penal code forbids to be done, or
omitting to do what it commands. A necessary part of the definition of
every crime is the designation of the author of the crime upon whom the
penalty is to be inflicted. When a criminal statute designates an act of a
corporation or a crime and prescribes punishment therefor, it creates a

criminal offense which, otherwise, would not exist and such can be
committed only by the corporation. But when a penal statute does not
expressly apply to corporations, it does not create an offense for which
a corporation may be punished. On the other hand, if the State, by
statute, defines a crime that may be committed by a corporation but
prescribes the penalty therefor to be suffered by the officers, directors,
or employees of such corporation or other persons responsible for the
offense, only such individuals will suffer such penalty. 51 Corporate
officers or employees, through whose act, default or omission the
corporation commits a crime, are themselves individually guilty of the
crime.52
The principle applies whether or not the crime requires the
consciousness of wrongdoing. It applies to those corporate agents who
themselves commit the crime and to those, who, by virtue of their
managerial positions or other similar relation to the corporation, could
be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the
act.53 Moreover, all parties active in promoting a crime, whether agents
or not, are principals.54 Whether such officers or employees are
benefited by their delictual acts is not a touchstone of their criminal
liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot,
thus, hide behind the cloak of the separate corporate personality of
PBMI. In the words of Chief Justice Earl Warren, a corporate officer
cannot protect himself behind a corporation where he is the actual,
present and efficient actor.
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO
MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F.
AGO, respondents.
Facts:
Expos is a radio documentary program hosted by Carmelo Mel Rima
(Rima) and Hermogenes Jun Alegre (Alegre). 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. 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 against FBNI, Rima and Alegre on 27 February
1990. 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 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 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 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. 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. FBNI, Rima and Alegre
filed a motion for reconsideration which the Court of Appeals denied in
its 26 January 2000 Resolution. Hence, FBNI filed the petition for review.
Issues:

5|C O M M R E V

1.
2.
3.

Whether or not the broadcasts are libelous.

Whether or not AMEC is entitled to moral damages.
Whether or not the award of attorneys fees is proper.

Ruling:

1. A libel 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.

Every defamatory imputation is presumed malicious. 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. Hearing the students alleged complaints a month before the
expos, 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. This plainly shows Rima and Alegres reckless
disregard of whether their report was true or not.

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. 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 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

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. The Court of Appeals cites Mambulao Lumber
Co. v. PNB, et al. 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.
Nevertheless, AMECs claim for moral damages falls under item 7
of Article 2219 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.
Moreover, where the broadcast is libelous per se, the law implies
damages. 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. In this case, the broadcasts are libelousper 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.
3.

The award of attorneys fees is not proper.

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.
In Inter-Asia Investment Industries, Inc. v. Court of Appeals, 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)

1. x x x
Petition denied.
4. 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]
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 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 of the Civil Code.
2. FBNI contends that AMEC is not entitled to moral damages
because it is a corporation.

BANK
OF
AMERICA
NT&SA,
BANK
OF
AMERICA
INTERNATIONAL, LTD., petitioners, vs. COURT OF APPEALS,
HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and
AURELIO K. LITONJUA, JR., respondents.
(Litonjuas, for brevity) filed a Complaint[2] before the Regional
Trial Court of Pasig against the Bank of America NT&SA and Bank of
America International, Ltd. (defendant banks for brevity) alleging that:
they were engaged in the shipping business; they owned two vessels:
Don Aurelio and El Champion, through their wholly-owned corporations;
they deposited their revenues from said business together with other
funds with the branches of said banks in the United Kingdom and
Hongkong up to 1979; with their business doing well, the defendant
banks induced them to increase the number of their ships in operation,
offering them easy loans to acquire said vessels;[3] thereafter, the
defendant banks acquired, through their (Litonjuas) corporations as the
borrowers: (a) El Carrier[4]; (b) El General[5]; (c) El Challenger[6]; and (d)
El Conqueror[7]; the vessels were registered in the names of their
corporations; the operation and the funds derived therefrom were placed
under the complete and exclusive control and disposition of the
petitioners;[8] and the possession the vessels was also placed by
defendant banks in the hands of persons selected and designated by
them (defendant banks).[9]
The Litonjuas claimed that defendant banks as trustees did not
fully render an account of all the income derived from the operation of
the vessels as well as of the proceeds of the subsequent foreclosure
sale;[10] because of the breach of their fiduciary duties and/or negligence
of the petitioners and/or the persons designated by them in the operation
of private respondents six vessels, the revenues derived from the
operation of all the vessels declined drastically; the loans acquired for
the purchase of the four additional vessels then matured and remained
unpaid, prompting defendant banks to have all the six vessels, including
the two vessels originally owned by the private respondents, foreclosed
and sold at public auction to answer for the obligations incurred for and
in behalf of the operation of the vessels; they (Litonjuas) lost sizeable
amounts of their own personal funds equivalent to ten percent (10%) of
the acquisition cost of the four vessels and were left with the unpaid
balance of their loans with defendant banks.[11] The Litonjuas prayed for
the accounting of the revenues derived in the operation of the six vessels
and of the proceeds of the sale thereof at the foreclosure proceedings

6|C O M M R E V

instituted by petitioners; damages for breach of trust; exemplary

damages and attorneys fees.

controversy, since the institution of another action upon a revised

complaint would not be foreclosed.[41]

Petitioners argue that the borrowers and the registered owners of the
vessels are the foreign corporations and not private
respondents Litonjuas who are mere stockholders; and that
the revenues derived from the operations of all the vessels
are deposited in the accounts of the corporations. Hence,
petitioners maintain that these foreign corporations are the
legal entities that have the personalities to sue and not herein
private respondents; that private respondents, being mere
shareholders, have no claim on the vessels as owners since
they merely have an inchoate right to whatever may remain
upon the dissolution of the said foreign corporations and after
all creditors have been fully paid and satisfied;[19] and that
while private respondents may have allegedly spent amounts
equal to 10% of the acquisition costs of the vessels in
question, their 10% however represents their investments as
stockholders in the foreign corporations.

Second Issue. Should the complaint be dismissed on the ground

of forum non-conveniens?

THE PETITIONERS ALSO ALLEGED THAT The Bank of America

Branches involved, as clearly mentioned in the Complaint, are based in
Hongkong and England. As such, the evidence and the witnesses are
not readily available in the Philippines;
ii) The loan transactions were obtained, perfected, performed,
consummated and partially paid outside the Philippines;
Bank of America International Ltd. is not licensed nor engaged in trade
or business in the Philippines.
First issue. Did the trial court commit grave abuse of discretion in
refusing to dismiss the complaint on the ground that plaintiffs have no
cause of action against defendants since plaintiffs are merely
stockholders of the corporations which are the registered owners of the
vessels and the borrowers of petitioners?
No. Petitioners argument that private respondents, being mere
stockholders of the foreign corporations, have no personalities to sue,
and therefore, the complaint should be dismissed, is untenable. A case
is dismissible for lack of personality to sue upon proof that the plaintiff is
not the real party-in-interest. Lack of personality to sue can be used as
a ground for a Motion to Dismiss based on the fact that the complaint,
on the face thereof, evidently states no cause of action.[35] In San
Lorenzo Village Association, Inc. vs. Court of Appeals, [36] this Court
clarified that a complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the
plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to a motion to
dismiss on the ground of failure to state a cause of action. [37] To
emphasize, it is not the lack or absence of cause of action that is a
ground for dismissal of the complaint but rather the fact that the
complaint states no cause of action.[38] Failure to state a cause of
action refers to the insufficiency of allegation in the pleading, unlike lack
of cause of action which refers to the insufficiency of factual basis for the
action. Failure to state a cause of action may be raised at the earliest
stages of an action through a motion to dismiss the complaint, while lack
of cause of action may be raised any time after the questions of fact
have been resolved on the basis of stipulations, admissions or evidence
presented.[39]
In the case at bar, the complaint contains the three elements of a
cause of action. It alleges that: (1) plaintiffs, herein private respondents,
have the right to demand for an accounting from defendants (herein
petitioners), as trustees by reason of the fiduciary relationship that was
created between the parties involving the vessels in question; (2)
petitioners have the obligation, as trustees, to render such an
accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private
respondents as they are mere stockholders of the corporation; that the
corporate entities have juridical personalities separate and distinct from
those of the private respondents. Private respondents maintain that the
corporations are wholly owned by them and prior to the incorporation of
such entities, they were clients of petitioners which induced them to
acquire loans from said petitioners to invest on the additional ships.
We agree with private respondents. As held in the San Lorenzo
case,[40]
xxx assuming that the allegation of facts constituting plaintiffs cause of
action is not as clear and categorical as would otherwise be desired, any
uncertainty thereby arising should be so resolved as to enable a full
inquiry into the merits of the action.
As this Court has explained in the San Lorenzo case, such a course,
would preclude multiplicity of suits which the law abhors, and conduce
to the definitive determination and termination of the dispute. To do
otherwise, that is, to abort the action on account of the alleged fatal flaws
of the complaint would obviously be indecisive and would not end the

No. The doctrine of forum non-conveniens, literally meaning the

forum is inconvenient, emerged in private international law to deter the
practice of global forum shopping,[42] that is to prevent non-resident
litigants from choosing the forum or place wherein to bring their suit for
malicious reasons, such as to secure proceduraladvantages,
to annoy and harass the defendant, to avoid overcrowded dockets, or to
select a more friendly venue.Under this doctrine, a court, in conflicts of
law cases, may refuse impositions on its jurisdiction where it is not the
most convenient or available forum and the parties are not precluded
from seeking remedies elsewhere.[43]
Whether a suit should be entertained or dismissed on the basis of
said doctrine depends largely upon the facts of the particular case and
is addressed to the sound discretion of the trial court. [44] In the case
of Communication Materials and Design, Inc. vs. Court of
Appeals,[45] this Court held that xxx [a] Philippine Court may assume
jurisdiction over the case if it chooses to do so; provided, that the
following requisites are met: (1) that the Philippine Court is one to which
the parties may conveniently resort to; (2) that the Philippine Court is in
a position to make an intelligent decision as to the law and the facts;
and, (3) that the Philippine Court has or is likely to have power to enforce
its decision.[46] Evidently, all these requisites are present in the instant
case.
Moreover, this Court enunciated in Philsec. Investment
Corporation vs. Court of Appeals,[47] that the doctrine of forum non
conveniens should not be used as a ground for a motion to dismiss
because Sec. 1, Rule 16 of the Rules of Court does not include said
doctrine as a ground. This Court further ruled that while it is within the
discretion of the trial court to abstain from assuming jurisdiction on this
ground, it should do so only after vital facts are established, to determine
whether special circumstances require the courts desistance; and that
the propriety of dismissing a case based on this principle of forum non
conveniens requires a factual determination, hence it is more properly
considered a matter of defense.[48]
Third issue. Are private respondents guilty of forum shopping
because of the pendency of foreign action?
No. Forum shopping exists where the elements of litis
pendentia are present and where a final judgment in one case will
amount to res judicata in the other.[49] Parenthetically, for litis
pendentia to be a ground for the dismissal of an action there must be:
(a) identity of the parties or at least such as to represent the same
interest in both actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same acts; and (c) the identity in the
two cases should be such that the judgment which may be rendered in
one would, regardless of which party is successful, amount to res
judicata in the other.[50]
In case at bar, not all the requirements for litis pendentia are
present. While there may be identity of parties, notwithstanding the
presence of other respondents,[51] as well as the reversal in positions of
plaintiffs and defendants[52], still the other requirements necessary
for litis pendentia were not shown by petitioner. It merely mentioned that
civil cases were filed in Hongkong and England without however
showing the identity of rights asserted and the reliefs sought for as well
as the presence of the elements of res judicata should one of the cases
be adjudged.
As the Court of Appeals aptly observed:
xxx [T]he petitioners, by simply enumerating the civil actions instituted
abroad involving the parties herein xxx, failed to provide this Court with
relevant and clear specifications that would show the presence of the
above-quoted elements or requisites for res judicata. While it is true that
the petitioners in their motion for reconsideration (CA Rollo, p. 72), after
enumerating the various civil actions instituted abroad, did aver that
Copies of the foreign judgments are hereto attached and made integral
parts hereof as Annexes B, C, D and E, they failed, wittingly or
inadvertently, to include a single foreign judgment in their pleadings
submitted to this Court as annexes to their petition. How then could We
have been expected to rule on this issue even if We were to hold that
foreign judgments could be the basis for the application of the
aforementioned principle of res judicata?[53]
Consequently, both courts correctly denied the dismissal of herein
subject complaint.
MR HOLDINGS, LTD. vs. BAJAR
FACTS:
Under a Principal Loan Agreement and Complementary
Loan Agreement, both dated November 4, 1992, Asian Development
Bank (ADB), a multilateral development finance institution, agreed to
extend to Marcopper Mining Corporation (Marcopper) a loan in the
aggregate amount of US$40,000,000.00 to finance the latters mining

7|C O M M R E V

project at Sta. Cruz, Marinduque.

The principal loan of US$
15,000,000.00 was sourced from ADBs ordinary capital resources,
while the complementary loan of US$ 25,000,000.00 was funded by the
Bank of Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a
foreign corporation which owns 40% of Marcopper, executed a Support
and Standby Credit Agreement whereby the latter agreed to provide
Marcopper with cash flow support for the payment of its obligations to
ADB.
To secure the loan, Marcopper executed in favor of ADB a Deed
of Real Estate and Chattel Mortgage dated November 11, 1992,
covering substantially all of its (Marcoppers) properties and assets in
Marinduque. It was registered with the Register of Deeds on November
12, 1992.
When Marcopper defaulted in the payment of its loan obligation,
Placer Dome, in fulfillment of its undertaking under the Support and
Standby Credit Agreement, and presumably to preserve its
international credit standing, agreed to have its subsidiary corporation,
petitioner MR Holding, Ltd., assumed Marcoppers obligation to ADB in
the amount of US$ 18,453,450.02. Consequently, in an Assignment
Agreement dated March 20, 1997, ADB assigned to petitioner all its
rights, interests and obligations under the principal and complementary
loan agreements, (Deed of Real Estate and Chattel Mortgage, and
Support and Standby Credit Agreement). On December 8, 1997,
Marcopper likewise executed a Deed of Assignment in favor of
petitioner. Under its provisions, Marcopper assigns, transfers, cedes
and conveys to petitioner, its assigns and/or successors-in-interest all of
its (Marcoppers) properties, mining equipment and facilities.
Upon Solidbanks motion, the RTC of Manila issued a writ of
execution pending appeal directing Carlos P. Bajar, respondent sheriff,
to require Marcopper to pay the sums of money to satisfy the Partial
Judgment. Thereafter, respondent Bajar issued two notices of levy on
Marcoppers personal and real properties, and over all its stocks of scrap
iron
and
unserviceable
mining
equipment.Together
with
sheriff Ferdinand M. Jandusay (also a respondent) of the RTC, Branch
94, Boac, Marinduque, respondent Bajar issued two notices setting the
public auction sale of the levied properties on August 27, 1998 at the
Marcopper mine site.
Having learned of the scheduled auction sale, petitioner served an
Affidavit of Third-Party Claim[ upon respondent sheriffs on August 26,
1998, asserting its ownership over all Marcoppers mining properties,
equipment and facilities by virtue of the Deed of Assignment.
In its petition, petitioner alleges that it is not doing business in
the Philippines and characterizes its participation in the assignment
contracts (whereby Marcoppers assets where transferred to it) as mere
isolated acts that cannot foreclose its right to sue in local courts.
Petitioner likewise maintains that the two assignment contracts,
although executed during the pendency of Civil Case No. 96-80083 in
the RTC of Manila, are not fraudulent conveyances as they were
supported by valuable considerations. Moreover, they were executed in
connection with prior transactions that took place as early as 1992 which
involved ADB, a reputable financial institution. Petitioner further claims
that when it paid Marcoppers obligation to ADB, it stepped into the
latters shoes and acquired its (ADBS) rights, titles, and interests under
the Deed of Real Estate and Chattel Mortgage. Lastly, petitioner
asserts its existence as a corporation, separate and distinct from Placer
Dome and Marcopper.
ISSUE:
Does petitioner have the legal capacity to sue being a foreign
corporation?
HELD:
YES. The Court of Appeals ruled that petitioner has no legal
capacity to sue in the Philippine courts because it is a foreign corporation
doing business here without license. A review of this ruling does not
pose much complexity as the principles governing a foreign
corporations right to sue in local courts have long been settled by our
Corporation Law. These principles may be condensed in three
statements, to wit: a) if a foreign corporation does business in the
Philippines without a license, it cannot sue before the Philippine
courts; b) if a foreign corporation is not doing business in the
Philippines, it needs no license to sue before Philippine courts on an
isolated transactionor on a cause of action entirely independent of any
business transaction; and c) if a foreign corporation does business in
the Philippines with the required license, it can sue before Philippine
courts on any transaction. Apparently, it is not the absence of the
prescribed license but the doing (of) business in the Philippines
without such license which debars the foreign corporation from access
to our courts.
Batas Pambansa Blg. 68, otherwise known as The Corporation
Code of the Philippines, is silent as to what constitutes doing
or transacting business in the Philippines. Fortunately, jurisprudence
has supplied the deficiency and has held that the term implies a
continuity of commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the exercise of some
of the functions normally incident to, and in progressive prosecution of,

the purpose and object for which the corporation was organized.
In Mentholatum Co. Inc., vs. Mangaliman, this Court laid down the test
to determine whether a foreign company is doing business, thus:
x x x The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction
Cos. vs. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984,987.) x x
x.
In the case at bar, the Court of Appeals categorized as doing
business petitioners participation under the Assignment Agreement
and the Deed of Assignment. This is simply untenable. The expression
doing business should not be given such a strict and literal construction
as to make it apply to any corporate dealing whatever. At this early
stage and with petitioners acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to
continue the business for which it was organized. It may not be amiss
to point out that the purpose or business for which petitioner
was organized is not discernible in the records. No effort was
exerted by the Court of Appeals to establish the nexus between
petitioners business and the acts supposed to constitute doing
business. Thus, whether the assignment contracts were
incidental to petitioners business or were continuation thereof is
beyond determination.
Indeed, the Court of Appeals holding that petitioner was
determined to be doing business in the Philippines is based mainly on
conjectures and speculation. In concluding that the unmistakable
intention of petitioner is to continue Marcoppers business, the Court of
Appeals hangs on the wobbly premise that there is no other way for
petitioner to recover its huge financial investments which it poured into
Marcoppers rehabilitation without it (petitioner) continuing Marcoppers
business in the country. This is a mere presumption. Absent overt acts
of petitioner from which we may directly infer its intention to continue
Marcoppers business, we cannot give our concurrence. Significantly, a
view subscribed upon by many authorities is that the mere ownership by
a foreign corporation of a property in a certain state, unaccompanied
by its active use in furtherance of the business for which it was
formed, is insufficient in itself to constitute doing business. In Chittim vs.
Belle Fourche Bentonite Products Co.,it was held that even if a foreign
corporation purchased and took conveyances of a mining
claim, did some assessment work thereon, and endeavored to sell
it, its acts will not constitute the doing of business so as to subject
the corporation to the statutory requirements for the transacting of
business. On the same vein, petitioner, a foreign corporation, which
becomes the assignee of mining properties, facilities and equipment
cannot be automatically considered as doing business, nor presumed to
have the intention of engaging in mining business.
In the final analysis, we are convinced that petitioner was engaged
only in isolated acts or transactions. Single or isolated acts, contracts,
or transactions of foreign corporations are not regarded as a doing or
carrying on of business. Typical examples of these are the making of a
single contract, sale, sale with the taking of a note and mortgage in the
state to secure payment therefor, purchase, or note, or the mere
commission of a tort. In these instances, there is no purpose to do any
other business within the country.
Francisco Motors Corporation vs. Court of Appeals [GR 100812, 25
June 1999] Second Division, Quisumbing (J): 4 concur
Facts: On 23 January 1985, Francisco Motors Corp. filed a complaint
against Spouses Gregorio and Librada Manuel to recover P3,412.06,
representing the balance of the jeep body purchased by the Manuels
from Francisco Motors; an additional sum of P20,454.80 representing
the unpaid balance on the cost of repair of the vehicle; and P6,000.00
for cost of suit and attorney's fees. To the original balance on the price
of jeep body were added the costs of repair. In their answer, the Manuel
spouses interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount of P50,000 which was not paid by the
incorporators, directors and officers of Francisco Motors. The trial court
decided the case on 26 June 1985, in favor of Francisco Motors in
regard to its claim for money, but also allowed the counter-claim of the
Manuel spouses. Both parties appealed. On 15 April 1991, the Court of
Appeals sustained the trial court's decision. Hence, the present petition
for review on certiorari.
Issue: Whether the Francisco Motors Corporation should be liable for
the legal services of Gregorio Manuel rendered in the intestate
proceedings over Benita Trinidads estate (of the Francisco family).
Held: Basic in corporation law is the principle that a corporation has a
separate personality distinct from its stockholders and from other
corporations to which it may be connected. However, under the doctrine
of piercing the veil of corporate entity, the corporation's separate juridical
personality may be disregarded, for example, when the corporate
identity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime. Also, where the corporation is a mere alter ego or
business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then

8|C O M M R E V

its distinct personality may be ignored. In these circumstances, the

courts will treat the corporation as a mere aggrupation of persons and
the liability will directly attach to them. The legal fiction of a separate
corporate personality in those cited instances, for reasons of public
policy and in the interest of justice, will be justifiably set aside. Herein,
however, given the facts and circumstances of this case, the doctrine of
piercing the corporate veil has no relevant application. The rationale
behind piercing a corporation's identity in a given case is to remove the
barrier between the corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. In
the present case, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been
reversed. It is the Francisco Motors Corporation (FMC) as a corporation
which is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, the
doctrine has been turned upside down because of its erroneous
invocation. In fact, the services of Gregorio Manuel were solicited as
counsel for members of the Francisco family to represent them in the
intestate proceedings over Benita Trinidad's estate. These estate
proceedings did not involve any business of FMC. Manuel's move to
recover unpaid legal fees through a counterclaim against FMC, to offset
the unpaid balance of the purchase and repair of a jeep body could only
result from an obvious misapprehension that FMC's corporate assets
could be used to answer for the liabilities of its individual directors,
officers, and incorporators. Such result if permitted could easily
prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to FMC. Furthermore,
considering the nature of the legal services involved, whatever
obligation said incorporators, directors and officers of the corporation
had incurred, it was incurred in their personal capacity. When directors
and officers of a corporation are unable to compensate a party for a
personal obligation, it is far-fetched to allege that the corporation is
perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil. While there are no hard and fast
rules on disregarding separate corporate identity, we must always be
mindful of its function and purpose. A court should be careful in
assessing the milieu where the doctrine of piercing the corporate veil
may be applied. Otherwise an injustice, although unintended, may result
from its erroneous application. The personality of the corporation and
those of its incorporators, directors and officers in their personal
capacities ought to be kept separate in this case. The claim for legal fees
against the concerned individual incorporators, officers and directors
could not be properly directed against the corporation without violating
basic principles governing corporations. Moreover, every action
including a counterclaim must be prosecuted or defended in the name
of the real party in interest. It is plainly an error to lay the claim for legal
fees of private respondent Gregorio Manuel at the door of FMC rather
than individual members of the Francisco family
Lipat vs. Pacific Banking Corporation [GR 142435, 30 April 2003]
Facts: The spouses Alfredo Lipat and Estelita Burgos Lipat, owned
"Bela's Export Trading" (BET), a single proprietorship with principal
office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was
engaged in the manufacture of garments for domestic and foreign
consumption. The Lipats also owned the "Mystical Fashions" in the
United States, which sells goods imported from the Philippines through
BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage
BET in the Philippines while she was managing "Mystical Fashions" in
the United States. In order to facilitate the convenient operation of BET,
Estelita Lipat executed on 14 December 1978, a special power of
attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans
and other credit accommodations from Pacific Banking Corporation
(Pacific Bank). She likewise authorized Teresita to execute mortgage
contracts on properties owned or co-owned by her as security for the
obligations to be extended by Pacific Bank including any extension or
renewal thereof. Sometime in April 1979, Teresita, by virtue of the
special power of attorney, was able to secure for and in behalf of her
mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to
P583,854.00 to buy fabrics to be manufactured by BET and exported to
"Mystical Fashions" in the United States. As security therefor, the Lipat
spouses, as represented by Teresita, executed a Real Estate Mortgage
over their property located at No. 814 Aurora Blvd., Cubao, Quezon City.
Said property was likewise made to secure other additional or new
loans, etc. On 5 September 1979, BET was incorporated into a family
corporation named Bela's Export Corporation (BEC) in order to facilitate
the management of the business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments of whatever kind
and description and utilized the same machineries and equipment
previously used by BET. Its incorporators and directors included the
Lipat spouses who owned a combined 300 shares out of the 420 shares
subscribed, Teresita Lipat who owned 20 shares, and other close
relatives and friends of the Lipats. Estelita Lipat was named president of
BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and
subsequent loans were obtained by BEC with the corresponding
promissory notes duly executed by Teresita on behalf of the corporation.
A letter of credit was also opened by Pacific Bank in favor of A. O.
Knitting Manufacturing Co., Inc., upon the request of BEC after BEC
executed the corresponding trust receipt therefor. Export bills were also
executed in favor of Pacific Bank for additional finances. These

transactions were all secured by the real estate mortgage over the
Lipats' property. The promissory notes, export bills, and trust receipt
eventually became due and demandable. Unfortunately, BEC defaulted
in its payments. After receipt of Pacific Bank's demand letters, Estelita
Lipat went to the office of the bank's liquidator and asked for additional
time to enable her to personally settle BEC's obligations. The bank
acceded to her request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after
compliance with the requirements of the law the mortgaged property was
sold at public auction. On 31 January 1989, a certificate of sale was
issued to respondent Eugenio D. Trinidad as the highest bidder. On 28
November 1989, the spouses Lipat filed before the Quezon City RTC a
complaint for annulment of the real estate mortgage, extrajudicial
foreclosure and the certificate of sale issued over the property against
Pacific Bank and Eugenio D. Trinidad. The complaint alleged, among
others, that the promissory notes, trust receipt, and export bills were all
ultra vires acts of Teresita as they were executed without the requisite
board resolution of the Board of Directors of BEC. The Lipats also
averred that assuming said acts were valid and binding on BEC, the
same were the corporation's sole obligation, it having a personality
distinct and separate from spouses Lipat. It was likewise pointed out that
Teresita's authority to secure a loan from Pacific Bank was specifically
limited to Mrs. Lipat's sole use and benefit and that the real estate
mortgage was executed to secure the Lipats' and BET's P583,854.00
loan only. In their respective answers, Pacific Bank and Trinidad alleged
in common that petitioners Lipat cannot evade payments of the value of
the promissory notes, trust receipt, and export bills with their property
because they and the BEC are one and the same, the latter being a
family corporation. Trinidad further claimed that he was a buyer in good
faith and for value and that the Lipat spouses are estopped from denying
BEC's existence after holding themselves out as a corporation. After trial
on the merits, the RTC dismissed the complaint. The Lipats timely
appealed the RTC decision to the Court of Appeals in CA-G.R. CV
41536. Said appeal, however, was dismissed by the appellate court for
lack of merit. The Lipats then moved for reconsideration, but this was
denied by the appellate court in its Resolution of 23 February 2000. The
Lipat spouses filed the petition for review on certiorari.
Issue: Whether BEC and BET are separate business entities, and thus
the Lipt spouses can isolate themselves behind the corporate
personality of BEC.
Held: When the corporation is the mere alter ego or business conduit of
a person, the separate personality of the corporation may be
disregarded. This is commonly referred to as the "instrumentality rule"
or the alter ego doctrine, which the courts have applied in disregarding
the separate juridical personality of corporations. As held in one case,
where one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the 'instrumentality' may be
disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies
and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its
principal. The evidence on record shows BET and BEC are not separate
business entities. (1) Estelita and Alfredo Lipat are the owners and
majority shareholders of BET and BEC, respectively; (2) both firms were
managed by their daughter, Teresita; 19 (3) both firms were engaged in
the garment business, supplying products to "Mystical Fashion," a U.S.
firm established by Estelita Lipat; (4) both firms held office in the same
building owned by the Lipats; (5) BEC is a family corporation with the
Lipats as its majority stockholders; (6) the business operations of the
BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by
Estelita Lipat and the corporation itself had no visible assets; (8) the
board of directors of BEC was composed of the Burgos and Lipat family
members; (9) Estelita had full control over the activities of and decided
business matters of the corporation; and that (10) Estelita Lipat had
benefited from the loans secured from Pacific Bank to finance her
business abroad and from the export bills secured by BEC for the
account of "Mystical Fashion." It could not have been coincidental that
BET and BEC are so intertwined with each other in terms of ownership,
business purpose, and management. Apparently, BET and BEC are one
and the same and the latter is a conduit of and merely succeeded the
former. The spouses' attempt to isolate themselves from and hide
behind the corporate personality of BEC so as to evade their liabilities
to Pacific Bank is precisely what the classical doctrine of piercing the veil
of corporate entity seeks to prevent and remedy. BEC is a mere
continuation and successor of BET, and the Lipat spouses cannot evade
their obligations in the mortgage contract secured under the name of
BEC on the pretext that it was signed for the benefit and under the name
of BET.
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, HSK sa
Bansang Pilipinas Inc. vs. Iglesia ng Dios kay Cristo Jesus, Haligi
at Suhay ng Katotohanan [GR 137592, 12 December 2001] First
Division, Ynares-Santiago (J): 3 concur, 1 on official leave
Facts: The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng
Katotohanan (IDCJ-HSK; Church of God in Christ Jesus, the Pillar and
Ground of Truth), is a non-stock religious society or corporation

9|C O M M R E V

registered in 1936. Sometime in 1976, one Eliseo Soriano and several

other members of said corporation disassociated themselves from the
latter and succeeded in registering on 30 March 1977 a new non-stock
religious society or corporation, named Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan (IDKJ-HSK). On 16 July 1979,
IDCJ-HSK filed with the SEC a petition to compel IDKJ-HSK to change
its corporate name (SEC Case 1774). On 4 May 1988, the SEC
rendered judgment in favor of IDCJ-HSK, ordering IDKJ-HSK to change
its corporate name to another name that is not similar or identical to any
name already used by a corporation, partnership or association
registered with the Commission. No appeal was taken from said
decision. During the pendency of SEC Case 1774, Soriano, et al.,
caused the registration on 25 April 1980 of Ang Mga Kaanib sa Iglesia
ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas (AK[IDKHHSK]BP). The acronym "H.S.K." stands for Haligi at Saligan ng
Katotohanan. On 2 March 1994, IDCJ-HSK filed before the SEC a
petition (SEC Case 03-94-4704), praying that AK[IDKH-HSK]BP be
compelled to change its corporate name and be barred from using the
same or similar name on the ground that the same causes confusion
among their members as well as the public. KIDKH-HSK-BP filed a
motion to dismiss on the ground of lack of cause of action. The motion
to dismiss was denied. Thereafter, for failure to file an answer, AK[IDKHHSK]BP was declared in default and IDCJ-HSK was allowed to present
its evidence ex parte. On 20 November 1995, the SEC rendered a
decision ordering AK[IDKH-HSK]BP to change its corporate name.
AK[IDKH-HSK]BP appealed to the SEC En Banc (SEC-AC 539). In a
decision dated 4 March 1996, the SEC En Banc affirmed the above
decision, upon a finding that AK[IDKH-HSK]BP's corporate name was
identical or confusingly or deceptively similar to that of IDCJ-HSK's
corporate name. AK[IDKH-HSK]BP filed a petition for review with the
Court of Appeals. On 7 October 1997, the Court of Appeals rendered
the decision affirming the decision of the SEC En Banc. AK[IDKHHSK]BP's motion for reconsideration was denied by the Court of
Appeals on 16 February 1992. AK[IDKH-HSK]BP filed the petition for
review.
Issue [1]: Whether the corporate names of AK[IDKH-HSK]BP and IDCHHSK are confusingly similar.
Held [1]: The SEC has the authority to de-register at all times and under
all circumstances corporate names which in its estimation are likely to
spawn confusion. It is the duty of the SEC to prevent confusion in the
use of corporate names not only for the protection of the corporations
involved but more so for the protection of the public. Section 18 of the
Corporation Code provides that "No corporate name may be allowed by
the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently
deceptive, confusing or is contrary to existing laws. When a change in
the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name."
Corollary thereto, the pertinent portion of the SEC Guidelines on
Corporate Names states that "(d) If the proposed name contains a word
similar to a word already used as part of the firm name or style of a
registered company, the proposed name must contain two other words
different from the name of the company already registered; Parties
organizing a corporation must choose a name at their peril; and the use
of a name similar to one adopted by another corporation, whether a
business or a nonprofit organization, if misleading or likely to injure in
the exercise of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit for injunction
against the new corporation to prevent the use of the name. Herein, the
additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in
AK[IDKH-HSK]BP's name are merely descriptive of and also referring to
the members, or kaanib, of IDCH-HSK who are likewise residing in the
Philippines. These words can hardly serve as an effective differentiating
medium necessary to avoid confusion or difficulty in distinguishing
AK[IDKH-HSK]BP from IDCH-HSK. This is especially so, since both
AK[IDKHHSK]BP and IDCH-HSK are using the same acronym
H.S.K.; not to mention the fact that both are espousing religious beliefs
and operating in the same place. Parenthetically, it is well to mention
that the acronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at
Saligan ng Katotohanan." Then, too, the records reveal that in holding
out their corporate name to the public, AK[IDKH-HSK]BP highlights the
dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT
SALIGAN NG KATOTOHANAN," which is strikingly similar to IDCHHSK's corporate name, thus making it even more evident that the
additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.",
are merely descriptive of and pertaining to the members of IDCH-HSK.
Significantly, the only difference between the corporate names of
AK[IDKH-HSK]BP and IDCH-HSK are the words SALIGAN and SUHAY.
These words are synonymous both mean ground, foundation or
support. Hence, this case is on all fours with Universal Mills Corporation
v. Universal Textile Mills, Inc., 22 where the Court ruled that the
corporate names Universal Mills Corporation and Universal Textile Mills,
Inc., are undisputably so similar that even under the test of "reasonable
care and observation" confusion may arise.
Issue [2]: Whether the generic word rule would apply to support
AK[IDKH-HSK]BPs cause.

Held [2]: The wholesale appropriation by AK[IDKH-HSK]BP of IDCHHSK's corporate name cannot find justification under the generic word
rule. A contrary ruling would encourage other corporations to adopt
verbatim and register an existing and protected corporate name, to the
detriment of the public. The fact that there are other non-stock religious
societies or corporations using the names Church of the Living God, Inc.,
Church of God Jesus Christ the Son of God the Head, Church of God in
Christ & By the Holy Spirit, and other similar names, is of no
consequence. It does not authorize the use by AK[IDKH-HSK]BP of the
essential and distinguishing feature of IDCH-HSK's registered and
protected corporate name.