Feliciano vs. COA (G.R. No.

147402, January 14, 2004

Facts: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner Feliciano, as General
Manager of LMWD, contended that the water district could not pay the said fees on the basis of Sections 6
and 20 of P.D. No. 198 as well as Section 18 of R.A. No. 6758. He primarily claimed that LMWD is a private
corporation not covered by COA's jurisdiction. Petitioner also asked for refund of all auditing fees LMWD
previously paid to COA. COA Chairman denied petitioner’s requests. Petitioner filed a motion for
reconsideration which COA denied. Hence, this petition.

Issue: Whether a Local Water District (“LWD”) created under PD 198, as amended, is a government-owned or
controlled corporation subject to the audit jurisdiction of COA or a private corporation which is outside of
COA’s audit jurisdiction.

Held: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws mandate COA to
audit all government agencies, including government-owned and controlled corporations with original
charters. An LWD is a GOCC with an original charter.
The Constitution recognizes two classes of corporations. The first refers to private corporations created under
a general law. The second refers to government-owned or controlled corporations created by special charters.
Under existing laws, that general law is the Corporation Code.
Obviously, LWD’s are not private corporations because they are not created under the Corporation Code.
LWD’s are not registered with the Securities and Exchange Commission. Section 14 of the Corporation Code
states that “all corporations organized under this code shall file with the SEC articles of incorporation x x x.”
LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in the case of all corporations registered
with the SEC. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of
office. The board directors of LWDs are not co-owners of the LWDs. The board directors and other personnel
of LWDs are government employees subject to civil service laws and anti-graft laws. Clearly, an LWD is a public
and not a private entity, hence, subject to COA’s audit jurisdiction.

VFP vs. Reyes

Facts: Petitioner Veterans Federation of the Philippines (VFP) is a corporate body organized under Republic
Act No. 2640. Sometime in August 2002, petitioner received a letter from Undersecretary of the Department
of National Defense (DND) to conduct Management Audit of VFP pursuant to RA 2640, where it stated that
VFP is under the supervision and control of the Secretary of National Defense. Petitioner complained about
the broadness of audit and requested suspension until issues are threshed out, which was subsequently
denied by DND. As a result, petitioner sought relief under Rule 65 assailing that it is a private non-government
corporation.

Issue: Whether or not veterans federation created by law is a public office, considering that it does not
possess a portion of the sovereign functions of the government and considering further that, it has no
budgetary appropriation from DBM and that its funds come from membership dues.

1
Ruling: Yes, petitioner is a public corporation. In Laurel v. Desierto, public office is defined as the right,
authority and duty, created and conferred by law, by which, for a given period, is invested with some portion
of the sovereign functions of the government, to be exercised for the benefit of the public.
In the instant case, the functions of VFP – the protection of the interests of war veterans which
promotes social justice and reward patriotism – certainly fall within the category of sovereign functions. The
fact that VFP has no budgetary appropriation is only a product of erroneous application of the law by public
officers in the DBM which will not bar subsequent correct application.
Hence, placing it under the control and supervision of DND is proper.

LIBAN v. GORDON
G.R. No. 173532|593 SCRA 68 July 15, 2009 J. Carpio Pagda
petitioner Dante Liban, Reynaldo Bernardo, Salvador Viari
respondents Richard Gordon
summary Petitioners filed a petition before the Supreme Court to declare Gordon to have forfeited
his Senate seat upon accepting his election as Chair of the Red Cross Board of Governors.

Court denied the petition. First of all, they did not have standing; this petition was a quo
warranto petition, and they did not fall under those individuals who may file such petition.
Second, the PNRC is considered a private organization and NOT a GOCC. The President
does not even appoint the Chairman of such organization. Thus, Article VI, Sec. 13 of the
Constitution, prohibiting members of Congress from holding any other office within the
Government without forfeiting his seat does not apply in Gordon’s case.

facts of the case

The Parties
Petitioners are officers of the board of Directors of the QC Chapter of the Philippine National Red Cross
(PNRC). Respondent Gordon is the Chairman of the PNRC Board of Governors.

The Source of the Dispute

During the Feb 23, 2006 meeting of the PNRC Board of Governors, Gordon was elected Chairman of the
PNRC. At the time of his election, he was also a SENATOR of the Philippines, having been elected into office
on May 2004.

The Petition
Petitioners filed with the SC this petition to declare Gordon as having forfeited his seat in the Senate.

The Arguments
Petitioners:
By accepting chairmanship of PNRC Board of Governors, Gordon has ceased to be a member of the Philippine
Senate as provided under Sec. 13, Art. VI, of the Constitution1.
- To bolster their argument, petitioners cited Camporedondo vs NLRC, where it was supposedly held that
the PNRC is a GOCC. Thus, pursuant to the ruling in Flores vs Drilon, which held that incumbent

1SEC. 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any
subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term
without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof increased
during the term for which he was elected.
2
 national legislators lose their elective posts upon appointment to another government office, Gordon
automatically forfeited his seat in the Senate upon his acceptance of the chairmanship.

Gordon:
- Respondents have no standing. This petition appears to be an action for quo warranto, and under such
petition, only a person claiming to be entitled to a public office usurped or unlawfully held by another
may bring an action for quo warranto in his own name.
- If it is a petition for quo warranto, the period for filing it has also prescribed. Under the law, the petition
should be filed within one year from after the cause of the public officer’s forfeiture of office. Gordon has
been working for the PNRC for 40 years already. He was already Chairman when he became Senator in
2004, having been elected as chair in 2003 and re-elected in 2005.
- If the petition is one for declaratory relief, the SC will have no jurisdiction. Original jurisdiction for
declaratory relief petitions are with the RTC.
- PNRC is not a GOCC. Thus, the prohibition under the Constitution does not apply since volunteer service
in the PNRC is neither an office nor employment.
-
issue
WON the PNRC is a government office or a GOCC for purposes of the prohibition in Sec. 13, Art. VI of the
Constitution. NO.

ratio
Petitioners have NO STANDING.
A reading of the petition shows that it is one for QUO WARRANTO. The pertinent rules for such petition are
found in Rule 66, Sec. 1 of the RoC.
- Petitioners allege in their petition that by accepting the Chairmanship, Gordon has automatically
forfeited his seat in the Senate. In short, they filed an action for usurpation of public office against
respondent, a public officer who allegedly committed an act which constitutes a ground for the forfeiture
of his public office.
Under the Rules, a petition for quo warranto is generally commenced by the Government as the proper party
plaintiff.
- However, under Section 5, Rule 66 of the Rules of Court, an individual may commence such action if he
claims to be entitled to the public office allegedly usurped by another, in which case he can bring the
action in his own name. The person instituting quo warranto proceedings in his own behalf must claim
and be able to show that he is entitled to the office in dispute otherwise the action may be dismissed at
any stage.
- As applied in this case – petitioners do not claim to be entitled to the Senate office of respondent. Thus,
they have no standing to file the present petition.

The PNRC is a private organization performing public functions.

 The PNRC is a member of the National Society of the International Red Cross and Red Crescent
Movement (The Movement). The Movement has a set of fundamental principles that members must
adhere to. One of these principles is that the PNRC must be AUTONOMOUS.
- Why autonomous? To be accepted by warring belligerents as neutral workers during international
or internal armed conflicts, PNRC volunteers must not be seen as belonging to any side of the
armed conflict. Here, where there is a communist insurgency and a Muslim separatist rebellion, the
PNRC cannot be seen as government-owned or controlled, and neither can the PNRC volunteers be
identified as government personnel or as instruments of government policy.
- Thus, to ensure autonomy, neutrality, and independence, the PNRC CANNOT BE CONTROLLED
or OWNED BY THE GOVERNMENT.
 Is this statement true? YES.

3
 -
The PNRC does not receive any appropriation from the PHL Government. Neither does it have any
government assets. It is financed primarily by contributions from private individuals and solicitation
campaigns organized by its Governors.
- The PNRC is NOT controlled by the PHL Government. Of the 30 governors, only 6 are appointed by
the President of the PHL. 18 are elected by the chapter delegates, and 6 are elected by the 24 members.
 The President does NOT appoint the Chair of the PNRC.
- The PNRC chair cannot be considered a member of the EXECUTIVE Branch because his appointment
does not fall under Sec. 16, Art. VII of the Constitution (officials which the President may appoint)
- (Consti 1 review) Rufino vs Endriga, cited in this case, explained the three types of officials a
President may appoint under said provision – (1) Heads of the Executive departments, ambassadors,
other public ministers and consuls, officers of the armed forces from the rank of colonel or naval
captain, and other officers whose appointments are vested in the President by the Constitution. (2)
Those whom the President may be authorized by law to appoint. (3) All other officers of the
Government whose appointments are not otherwise provided by law.
- Thus, not being a GOVERNMENT OFFICIAL or EMPLOYEE, the PNRC Chair does NOT hold a
government office or employment.
 PNRC is NOT a GOCC.
- It is privately owned, privately funded, and privately run.
- Camporedondo vs NLRC failed to consider the definition of a GOCC according to the Admin Code
of 19872.
- A government-owned or controlled corporation must be owned by the government, and in the case
of a stock corporation, at least a majority of its capital stock must be owned by the government. In
the case of a non-stock corporation, by analogy at least a majority of the members must be
government officials holding such membership by appointment or designation by the
government. Under this criterion, and as discussed earlier, the government does not own or control
PNRC.

The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private
Corporations by Special Law
 The 1935 Consti was in force when the PNRC was created by special charter on March 22, 1947. Sec. 7,
Art. XIV read –
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned or controlled by the Government
or any subdivision or instrumentality thereof.
 This provision meant that Congress cannot enact a law creating a private corporation with a special
charter. Such legislation would be unconstitutional. Private corporations may exist only under a general
law; If the corporation is private, it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations. Under existing laws, the
general law is the Corporation Code, except that the Cooperative Code governs the incorporation of
cooperatives.
As applied:
 Although the PNRC is created by a special charter, it cannot be considered a GOCC in the absence of the
essential elements of ownership and control by the government. In creating the PNRC as a corporate
entity, Congress was in fact creating a private corporation. However, the constitutional prohibition
against the creation of private corporations by special charters provides no exception even for non-
profit or charitable corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a
private corporation and grants it corporate powers is void for being unconstitutional.

2 SEC. 2. General Terms Defined. x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock:

4
SMITH, BELL & COMPANY (LTD.), v JOAQUIN NATIVIDAD 40 PHIL 136
Facts:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands.
A majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it
in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present
year for the purpose of transporting plaintiff's merchandise between ports in the Islands. Application (Certificate
of Philippine Regitry) was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate
of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the stockholders
of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine Islands under Act No.
2761 which provides:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and of more
than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic
ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall be optional
with the owner.
SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register shall be
approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined
to be engaged in legitimate trade and that it is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code.
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in
effect, prohibits the corporation from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of
its properly without due process of law because by the passage of the law company was automatically deprived
of every beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use.
Issue: Whether the legislature through Act no. 2761 can deny registry of vessel with foreign stockholders.
Ruling: Yes. We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien
stockholders, is entitled to the protection afforded by the due-process of law and equal protection of the laws
clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to
corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does
not belong to that vicious species of class legislation which must always be condemned, but does fall within
authorized exceptions, notably, within the purview of the police power, and so does not offend against the
constitutional provision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are
universal in their application to all person within the territorial jurisdiction, without regard to any differences
of race, color, or nationality. The word "person" includes aliens. Private corporations, likewise, are "persons"
within the scope of the guaranties in so far as their property is concerned. Classification with the end in view of
providing diversity of treatment may be made among corporations, but must be based upon some reasonable
ground and not be a mere arbitrary selection.
A literal application of general principles to the facts before us would, of course, cause the inevitable deduction
that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are
foreigners, of the equal protection of the laws.
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of
Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of
the United States or both, as not infringing Philippine Organic Law, it must be done under some one of the
exceptions.
One of the exceptions to the general rule, most persistent and far reaching in influence is, broad and
comprehensive as it is, nor any other amendment, "was designed to interfere with the power of the State,
sometimes termed its `police power,' to prescribe regulations to promote the health, peace, morals, education,
and good order of the people, and legislate so as to increase the industries of the State, develop its resources and
add to its wealth and prosperity. From the very necessities of society, legislation of a special character, having

5
these objects in view, must often be had in certain districts. This is the same police power which the United States
Supreme Court say "extends to so dealing with the conditions which exist in the state as to bring out of them the
greatest welfare in of its people." For quite similar reasons, none of the provision of the Philippine Organic Law
could could have had the effect of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable of powers, the sovereign police
power, in the promotion of the general welfare and the public interest.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien
shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building.

Stonehill v. Diokno
20 SCRA 283 (1967)
Concepcion, CJ

Facts:
1. Respondent (prosecution) made possible the issuance of 42 search warrants against the petitioner and the
corporation to search persons and premises of several personal properties due to an alleged violation of Central
Bank Laws, Tariff and Custom Laws, Internal Revenue Code and the Revised Penal Code of the Philippines. As
a results, search and seizures were conducted in the both the residence of the petitioner and in the corporation's
premises.

2. The petitioner contended that the search warrants are null and void as their issuance violated the Constitution
and the Rules of Court for being general warrants. Thus, he filed a petition with the Supreme Court for certiorari,
prohibition, mandamus and injunction to prevent the seized effects from being introduced as evidence in the
deportation cases against the petitioner. The court issued the writ only for those effects found in the petitioner's
residence.

Issue: Whether or not the petitioner can validly assail the legality of the search and seizure in both premises

RULING: No, he can only assail the search conducted in the residences but not those done in the corporation's
premises. The petitioner has no cause of action in the second situation since a corporation has a personality
separate and distinct from the personality of its officers or herein petitioner regardless of the amount of shares
of stock or interest of each in the said corporation, and whatever office they hold therein. Only the party whose
right has been impaired can validly object the legality of a seizure--a purely personal right which cannot be
exercised by a third party. The right to object belongs to the corporation (for the 1st group of documents, papers,
and things seized from the offices and the premises).

Constitutional Law II - Book 2005 - Bache & Co. (Phil.) Inc. vs. Ruiz [GR L-32409, 27 February 1971]
Bache & Co. (Phil.) Inc. vs. Ruiz [GR L-32409, 27 February 1971]
En Banc, Villamor (J): 7 concur, 1 filed a separate concurring opinion to which 1 concurs, 1 concurs in result
Facts: On 24 February 1970, Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to Judge
Vivencio M. Ruiz requesting the issuance of a search warrant against Bache & Co. (Phil.), Inc. and Frederick E.
Seggerman for violation of Section 46(a) of the National Internal Revenue Code (NIRC), in relation to all other
pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner
Rodolfo de Leon to make and file the application for search warrant which was attached to the letter. In the
afternoon of the following day, De Leon and his witness, Arturo Logronio, went to the Court of First Instance
(CFI) of Rizal. They brought with them the following papers: Vera’s letter-request; an application for search
warrant already filled up but still unsigned by De Leon; an affidavit of Logronio subscribed before De Leon; a
deposition in printed form of Logronio already accomplished and signed by him but not yet subscribed; and a

6
search warrant already accomplished but still unsigned by Judge. At that time the Judge was hearing a certain
case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of De Leon and
Logronio. After the session had adjourned, the Judge was informed that the depositions had already been taken.
The stenographer, upon request of the Judge, read to him her stenographic notes; and thereafter, the Judge asked
Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis,
he could be charged for perjury. The Judge signed de Leon’s application for search warrant and Logronio’s
deposition. Search Warrant 2-M-70 was then signed by Judge and accordingly issued. 3 days later (a Saturday),
the BIR agents served the search warrant to the corporation and Seggerman at the offices of the corporation on
Ayala Avenue, Makati, Rizal. The corporation’s lawyers protested the search on the ground that no formal
complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their
search which yielded 6 boxes of documents. On 3 March 1970, the corporation and Seggerman filed a petition
with the Court of First Instance (CFI) of Rizal praying that the search warrant be quashed, dissolved or recalled,
that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant be declared
null and void, and that Vera, Logronio, de Leon, et. al., be ordered to pay the corporation and Seggerman, jointly
and severally, damages and attorney’s fees. After hearing and on 29 July 1970, the court issued an order
dismissing the petition for dissolution of the search warrant. In the meantime, or on 16 April 1970, the Bureau
of Internal Revenue made tax assessments on the corporation in the total sum of P2,594,729.97, partly, if not
entirely, based on the documents thus seized. The corporation and Seggerman filed an action for certiorari,
prohibition, and mandamus.
Issue: Whether the corporation has the right to contest the legality of the seizure of documents from its office.
Held: The legality of a seizure can be contested only by the party whose rights have been impaired thereby, and
that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties.
In Stonehill, et al. vs. Diokno, et al. (GR L-19550, 19 June 1967; 20 SCRA 383) the Supreme Court impliedly
recognized the right of a corporation to object against unreasonable searches and seizures; holding that the
corporations have their respective personalities, separate and distinct from the personality of the corporate
officers, regardless of the amount of shares of stock or the interest of each of them in said corporations, whatever,
the offices they hold therein may be; and that the corporate officers therefore may not validly object to the use
in evidence against them of the documents, papers and things seized from the offices and premises of the
corporations, since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity. The distinction between the Stonehill case and the present case is that:
in the former case, only the officers of the various corporations in whose offices documents, papers and effects
were searched and seized were the petitioners; while in the latter, the corporation to whom the seized documents
belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, the corporation herein
stands on a different footing from the corporations in Stonehill. Moreover, herein, the search warrant was void
inasmuch as First, there was no personal examination conducted by the Judge of the complainant (De Leon) and
his witness (Logronio). The Judge did not ask either of the two any question the answer to which could possibly
be the basis for determining whether or not there was probable cause against Bache & Co. and Seggerman. The
participation of the Judge in the proceedings which led to the issuance of Search Warrant 2-M-70 was thus
limited to listening to the stenographer’s readings of her notes, to a few words of warning against the
commission of perjury, and to administering the oath to the complainant and his witness. This cannot be
consider a personal examination. Second, the search warrant was issued for more than one specific offense. The
search warrant was issued for at least 4 distinct offenses under the Tax Code. The first is the violation of Section
46(a), Section 72 and Section 73 (the filing of income tax returns), which are interrelated. The second is the
violation of Section 53 (withholding of income taxes at source). The third is the violation of Section 208 (unlawful
pursuit of business or occupation); and the fourth is the violation of Section 209 (failure to make a return of
receipts, sales, business or gross value of output actually removed or to pay the tax due thereon). Even in their
classification the 6 provisions are embraced in 2 different titles: Sections 46(a), 53, 72 and 73 are under Title II
(Income Tax); while Sections 208 and 209 are under Title V (Privilege Tax on Business and Occupation). Lastly,
the search warrant does not particularly describe the things to be seized. Search Warrant No. 2-M-70 tends to
defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used

7
therein is so all-embracing as to include all conceivable records of the corporation, which, if seized, could
possibly render its business inoperative. Thus, Search Warrant 2-M-70 is null and void.

Bataan Shipyard Engineering Co., Inc. vs. PCGG (G.R. No. 75885 May 27, 1987)
Facts: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the
Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration,
takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential
Commission on Good Government and/or its Commissioners and agents, affecting said corporation. The
sequestration order issued on April 14, 1986 was addressed to three of the agents of the Commission, ordering
them to sequester several companies among which is Bataan Shipyard and Engineering Co., Inc. On the strength
of the above sequestration order, several letters were sent to BASECO among which is that from Mr. Jose M.
Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of
petitioner firm, reiterating an earlier request for the production of certain documents. The letter closed with the
warning that if the documents were not submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2." BASECO contends that its right against self
incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986
which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if
it fails to do so." BASECO prays that the Court 1) declare unconstitutional and void Executive Orders Numbered
1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts
done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of
the BASECO executives.
Issue: Whether or not BASECO’s right against self-incrimination and unreasonable searches and seizures was
violated.
Ruling: No. The order to produce documents was issued upon the authority of Section 3 (e) of Executive Order
No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers,
contracts, records, statements of accounts and other documents as may be material to the investigation
conducted by the Commission. It is elementary that the right against self-incrimination has no application to
juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may
refuse to show its hand when charged with an abuse of such privileges. Corporations are not entitled to all of
the constitutional protections, which private individuals have. They are not at all within the privilege against
self-incrimination; although this court more than once has said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that they will either incriminate him or may incriminate it."
The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received
certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its
charter. It’s powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as
a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the
legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange
anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused,
and demand the production of the corporate books and papers for that purpose. The defense amounts to this,
that an officer of the corporation which is charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While
an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute,
it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand
when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the
Solicitor General's]) The constitutional safeguard against unreasonable searches and seizures finds no

8
application to the case at bar either. There has been no search undertaken by any agent or representative of the
PCGG, and of course no seizure on the occasion thereof.

Ulep vs. Legal Clinic, 223 SCRA 378 (1993)

FACTS: The petitioner contends that the advertisements reproduced by the respondents are champertous,
unethical, demeaning of the law profession, and destructive of the confidence of the community in the integrity
of the members of the bar and that, to which as a member of the legal profession, he is ashamed and offended
by the following advertisements:

Annex A an Attorney in Guam, is giving FREE BOOKS on

SECRET MARRIAGE? Guam Divorce through The Legal Clinic beginning
P560.00 for a valid marriage. Monday to Friday during office hours.
Info on DIVORCE. ABSENCE. Guam divorce. Annulment of Marriage. Immigration
ANNULMENT. VISA. Problems, Visa Ext. Quota/Non-quota Res. & Special
THE Please call:521-0767, Retiree's Visa. Declaration of Absence Remarriage to
LEGAL 5217232,5222041 Filipina Fiancees. Adoption. Investment in the Phil.
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7-Flr. Victoria Bldg., UN Ave., Mla. Marivic.

Annex B THE 7F Victoria Bldg. 429 UN Ave.,

GUAM DIVORCE LEGAL Ermita, Manila nr. US Embassy
DON PARKINSON CLINIC, INC. Tel. 521-7232; 521-7251;
522-2041; 521-0767

In its answer to the petition, respondent admits the fact of publication of said advertisements at its instance, but
claims that it is not engaged in the practice of law but in the rendering of "legal support services" through
paralegals with the use of modern computers and electronic machines. Respondent further argues that assuming
that the services advertised are legal services, the act of advertising these services should be allowed supposedly
in the light of the case of John R. Bates and Van O'Steen vs. State Bar of Arizona, reportedly decided by the
United States Supreme Court on June 7, 1977.

ISSUE: Whether or not, the advertised services offered by the Legal Clinic, Inc., constitutes practice of law and
whether the same are in violation of the Code of Professional responsibility

RULING: The advertisement of the respondent is covered in the term practice of law as defined in the case of
Cayetano vs. Monsod. There is a restricted concept and limited acceptance of paralegal services in the
Philippines. It is allowed that some persons not duly licensed to practice law are or have been permitted with a
limited representation in behalf of another or to render legal services, but such allowable services are limited in
scope and extent by the law, rules or regulations granting permission therefore. Canon 3 of the Code of
Professional Responsibility provides that a lawyer in making known his legal services shall use only true, honest,
fair, dignified and objective information or statement of facts. Canon 3.01 adds that he is not supposed to use or
permit the use of any false, fraudulent, misleading, deceptive, undignified, self-laudatory or unfair statement or
claim regarding his qualifications or legal services. Nor shall he pay or give something of value to representatives
of the mass media in anticipation of, or in return for, publicity to attract legal business (Canon 3.04). The Canons
of Professional Ethics, before the adoption of the CPR, had also warned that lawyers should not resort to indirect
advertisements for professional employment, such as furnishing or inspiring newspaper comments, or
procuring his photograph to be published in connection with causes in which the lawyer have been engaged of
concerning the manner of the conduct, the magnitude of the interest involved, the importance the lawyer's
position, and all other like self-laudation. There are existing exceptions under the law on the rule prohibiting the

9
advertisement of a lawyer’s services. However, taking into consideration the nature and contents of the
advertisements for which respondent is being taken to task, which even includes a quotation of the fees charged
by said respondent corporation for services rendered, the court found and held that the same definitely do not
and conclusively cannot fall under any of the exceptions. The respondent’s defense with the case of Bates vs.
State Bar applies only when there is an exception to the prohibition against advertisements by lawyers, to publish
a statement of legal fees for an initial consultation or the availability upon request of a written schedule of fees
or an estimate of the fee to be charged for the specific services. No such exception is provided for, expressly or
impliedly whether in our former Canons of Professional Ethics or the present Code of Professional
Responsibility. Besides, even the disciplinary rule in the Bates case contains a proviso that the exceptions stand
therein are "not applicable in any state unless and until it is implemented by such authority in that state.” The
Court Resolved to RESTRAIN and ENJOIN The Legal Clinic, Inc., from issuing or causing the publication or
dissemination of any advertisement in any form which is of the same or similar tenor and purpose as Annexes
"A" and "B" of this petition, and from conducting, directly or indirectly, any activity, operation or transaction
proscribed by law or the Code of Professional Ethics as indicated herein.

10
 017. Alf af ara v . Ac e b e do O p tic al Co m p any
DOCTORS ROSA ALFAFARA, VIVIAN DYHONGPO, MARIA TORRES, EMMA YBAÑEZ, ELSA CABARDO, REBECCA SANTIAGO, PRISCILLA NARVASA, SUSIE CHAN, CLARO
CINCO, FELIPE CINCO, CARMEN MODESTO, FELISA LIMKIMSO, ARLENE DORIO, ROSALINDA BONO, AND SUSAN YU, IN THEIR OWN BEHALF AND IN BEHALF OF ALL THE OTHER 80
OPTOMETRISTS-MEMBERS OF THE SAMAHAN NG OPTOMETRISTS SA PILIPINAS-CEBU CHAPTER (PETITIONERS) VS. ACEBEDO OPTICAL, CO., INC., (RESPONDENT)
APRIL 17, 2002
J. MENDOZA
c o rpo ratio n – nature and attrib ute s

SHORT VERSION: Optometrists sued Acebedo Optical Co., Inc., alleging it engaged in the practice of optometry through the optometrists it
employed, for Acebedo itself is not licensed to practice optometry. Court held that Acebedo is a juridical person (corporation), and only
natural persons can engage in the practice of optometry. A corporation engaged in the selling of eyeglasses that hires optometrists is not
engaged in the practice of optometry. Acebedo is merely in the business of selling optical products, not in the practice of optometry,
whether directly or indirectly, through its hired optometrists. While the optometrists are employees of Acebedo, their practice of
optometry is separate and distinct from the business of Acebedo of selling optical products. They are personally liable for acts done in
the course of their practice.

NATURE: Petition for review on certiorari

FACTS:

 Alfafara & other petitioners are optometrists and members of the Samahan ng Optometrists sa Pilipinas – Cebu Chapter. They
brought an injunctive suit in the RTC to enjoin Acebedo Optical Co., Inc. and its agents/representatives/employees from practicing
optometry in Cebu.
o They alleged that Acebedo opened several optical shops in Cebu and advertised the availability of “ready-to-wear” (RTW)
eyeglasses for sale and free services by optometrists in such outlets.
o They claimed that through the licensed optometrists under its employ, Acebedo Optical Co., Inc. had been engaging in the practice of
optometry by examining the human eye, analyzing the ocular functions, prescribing ophthalmic lenses, prisms, and contact
lenses; and conducting ocular exercises, visual trainings, orthoptics, prosthetics, and other preventive or corrective measures for
the aid, correction, or relief of the human eye. Such acts were done in violation of the Optometry Law (R.A. No. 1998) and the Code of
Ethics for Optometrists.
o Their evidence showed Acebedo’s advertisements of its RTW eyeglasses. A witness testified that he purchased a pair of
eyeglasses without any prior eye examination by an optometrist. A week later, he had vision difficulty and consulted an
optometrist who advised him to buy a pair of eyeglasses with the correct grade. The optometrists sought to prove that the selling
of RTW eyeglasses by Acebedo was detrimental to the public.
 Acebedo averred that the advertisements were part of the promotion of its new branches in Cebu; that incidental to its business of
selling optical products, it hired duly licensed optometrists who conducted eye examination, prescribed ophthalmic lenses, and rendered
other services; that it exercised neither control nor supervision over the optometrists under its employ; and that the hired optometrists exercised
neither control nor supervision in the sale of optical products and accessories by Acebedo. Acebedo maintained that before the customers
purchased the RTW eyeglasses on display, they either have a prior prescription from an optometrist or had to be examined first by
the branch optometrist. Customers thus had the option either to buy the RTW eyeglasses on display or to order a new pair of
eyeglasses.
o Other evidence: Optometrists’ organization had a free consultation program as part of Sight Saving Month. While the hired
optometrists received their salary from Acebedo, they were not precluded from seeking other sources of income
 RTC rendered judgment in favor of the optometrists. The hiring of licensed optometrists by Acebedo was unlawful because it resulted in the
practice of the optometry profession by Acebedo, a juridical person. As to whether Acebedo’s selling of RTW eyeglasses without prior eye
examination violated applicable laws and was detrimental to the public, RTC ruled that the doctors failed to substantiate such
claim.
o Acebedo appealed to the CA contending that the RTC erred in holding that it was illegally engaged in the practice of
optometry; that the optometrists employed should have been impleaded as defendants, being indispensable parties; and that the
RTC erred in not holding that the optometrists, by filing several harassment suits before various fora, were guilty of forum-
shopping.
 CA reversed and dismissed the complaint of the optometrists. Citing the case of Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra
Chapter v. Acebedo International Corporation, the CA ruled that Acebedo’s hiring of licensed optometrists did not constitute practice of
optometry nor violate any law. However, anent other minor issues, court ruled in favor of the optometrists. (It was not necessary to
implead the optometrists, who were not indispensable parties since the decision would only affect Acebedo; the issue was only
against its hiring of optometrists. Optometrists committed no forum shopping since the administrative case before the Professional
Regulation Commission was not decided on the merits while their letters sent to government officials did not constitute judicial
proceedings.)
 The optometrists filed a motion for reconsideration but their motion was denied.
 Hence, petition for certiorari alleging that the CA erred in holding that Acebedo was not engaged in the practice of optometry.

ISSUE: Was Acebedo Optical Co., Inc. engaged in the practice of optometry? NO.

11
G.R. No. L-27155 May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC., respondents.
ANTONIO, J.:
Facts: plaintiff, Philam gen as surety, issued a bond in favor of Tapnio, to secure the latter’s obligation to PNB
2371.79 plus 12% interest. Philamgen paid the said amount to PNB and seek indemnity from Tapnio. Tapnio
refused to pay alleging that he was not liable to the bank because due to the negligence of the latter the contract
of lease w/ Tuazon was rescind which amounts to 2800.

Tapnio mortgage his standing crops and sugar quota to PNB. Tapnio agreed to leased the sugar quota, in excess
of his need to Tuazon which was approved by the branch and vice president of the PNB in the amount of P2.80
per picul. However, the bank’s board of directors disapproved the lease, stating that the amount should be P3.00
per picul, its market value. Tuazon ask for reconsideration to the board which was not acted by the board, so
the lease was not consummated resulting to the loss of P2,800, which could have been earned by Tapnio. The
Trial court and CA ruled that the bank was liable to Tapnio. Thus this petition

Issue : WON PNB is liable to tapnio

Held:Yes pnb is liable to Tapnio. PNB argue that it has a right both under its own Charter and under the
Corporation Law, to approve or disapprove the said lease of sugar quota and in the exercise of that authority.

The SC said that time is of the essence in the approval of the lease of sugar quota allotments, since the same must
be utilized during the milling season. There was no proof that there was any other person at that time willing to
lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. Also, Considering
that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops,
assignment of leasehold rights and interests on her properties, and surety bonds and that she had apparently
"the means to pay her obligation to the Bank, there was NO REASONABLE BASIS for the Board of Directors of
petitioner to have rejected the lease agreement. While petitioner had the ultimate authority of approving or
disapproving the proposed lease since the quota was mortgaged to the Bank, the latter certainly cannot escape
its responsibility of observing, for the protection of the interest of private respondents. The law makes it
imperative that 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. Certainly, it knew that the agricultural year
was about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar
quota in question. Under Article 21 of the New Civil Code, "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." This grants adequate legal remedy for the untold number of moral wrongs which is impossible for
human foresight to specifically provide in the statutes.

12
G.R. No. 116123 March 13, 1997

SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
(THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents.

Nature: Special Civil Action for Certiorari under Rule 65 of the Rules of Court

Facts: Petitioner Clark Field Taxi, Inc. (CFTI), the president of whom was Sergio Naguiat, held a concessionaire's contract to operate a taxi service within Clark Air Base with Army Air Force
Exchange Services (AAFES). CFTI, like Sergio F. Naguiat Enterprises, was a family corporation. For this purpose, petitioners hired private respondents as taxi drivers, working for at least 3 or
4 times in a week.

Due to the phase-out of US military bases in the Philippines, AAFES was dissolved. As a result, private respondents' services were terminated. Private respondents' drivers' union and CFTI
agreed to award separation benefits to their drivers in the amount of 500 pesos for every year of service. Although majority of the members accepted their severance pay, private respondents
refused, subsequently disaffiliating from the drivers' union, joining the National Organization of Workingmen (NOWM) and filing a complaint against petitioners for payment of separation
pay due to termination/phase out.

Petitioner, by way of position paper, averred that the cessation of their business was due to great financial loss and lost business opportunities resulting from the phase-out. They further
reiterated that CFTI had agreed with the drivers' union to award 500 pesos for every year of service as severance pay.

The Labor Arbiter ruled in favor of private respondents, ordering petitioners to pay 1,200 pesos solidarily, to private respondents in lieu of separation pay for humanitarian conditions. On
appeal, the NLRC modified the decision of the Labor Arbiter and ordered petitioners to pay separation pay in the amount agreed upon.

Issue: Whether or not the resolution of the NLRC was contrary to law

Wheter or not officers of corporations are ipso facto liable jointly and severally with the companies they represent for the payment of separation pay.

Private respondents' contention: They are regular employees of Naguiat Enterprises, despite their individual applications of employment were approved by CFTI, for the former exercised
control, management and supervision over their employment. Further, Naguiat Enterprises, as indirect employer, is solidarily liable to pay them separation pay.

Petitioners' contention: Sergio F. Naguiat Enterprises is a separate juridical entity that cannot be held solidarily liable. Further, Sergio and Antolin Naguiat, as President and Vice-President of
the Corporation, are merely officers of the same and cannot be held personally liable.

Held: Naguiat Enterprises is not liable. Based on the factual findings of the parties, private respondents were regular employees of CFTI who received wages on a boundary or commission
basis. There is, therefore, no substantial basis to hold Naguiat Enterprises as an indirect employer. Sufficient evidence was shown that none of the private respondents were empolyees of
Naguiat Enterprises. By virtue of the concessionaire's contract, CFTI purchased the fleet of vehicles from AAFES and became the owner thereof.

Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled their employment. Further, in reading through the case, it seems as if
private respondents were merely confused as to the personalities of Sergio F. Naguiat as an individual and as a separate corporate juridical entity. Closer scrutiny and analysis of the records
evince the truth that Sergio F. Naguiat, in supervising the taxi drivers and determining their employment terms, was carrying out his responsibilities as president of CFTI. From the foregoing,
the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents, and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor.
It was not involved at all in the taxi business.

As to the liability of their officers, the Court ruled that in the the broader interest of justice, CFTI President Sergio Naguiat should be held liable. Following the ruling in A.C. Ransom Labor
Union v. NLRC, the rule is that in the absence of definite proof as to which officer/s should be held directly responsible for the payment of backwages, it should be presumed that the
responsible officer is the President of the corporation who can be deemed the chief operation officer thereof.

PROFESSIONAL SERVICES, INC. vs NATIVIDAD AND ENRIQUE AGANA

GR No. 126297, 31 January 2007
--------------
NATIVIDAD (substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA
ANDAYA, JESUS AGANA, and RAYMUND AGANA) AND ENRIQUE AGANA vs JUAN FUENTES
GR No. 126467, 31 January 2007
--------------
MIGUEL AMPIL vs NATIVIDAD AGANA AND ENRIQUE AGANA
GR No. 127590, 31 January 2007

FACTS: On 14 April 1984, Natividad Agana was rushed to The Medical City General Hospital due to bowel
movement difficulty and bloody anal discharge. She was diagnosed by Dr. Miguel Ampil to be suffering from
“cancer of the sigmoid.” Upon performing anterior resection surgery on Natividad, Dr. Ampil found that cancer
had spread on her left ovary. Dr. Ampil sought the consent of Enrique Agana (Natividad’s husband) to permit
Dr. Juan Fuentes to perform hysterectomy on her. After Dr. Fuentes completed hysterectomy, Dr. Ampil took
over to complete the operation and to close the incision. However, the operation appeared to be flawed. A couple
of days after her release, Natividad complained of excruciating pain in her anal region. Her doctors told her that
said pain was the consequence of her operation. Dr. Ampil recommended that she consult an oncologist to
13
examine the cancerous node they were not able to remove. Natividad then went to the US for further treatment
and was later found free from cancer. She then returned to the Philippines. Two weeks after Natividad’s arrival,
her daughter found a piece of gauze protruding from her vagina. Dr. Ampil removed said piece, and assured
her that the pains would vanish soon. Still suffering from pain, Natividad sought help from Polymedic General
Hospital where it was found that another piece of gauze badly infected her vaginal vault. She took another
surgery to remove the same. The spouses Agana then filed a complaint for damages against Professional
Services, Inc (owner of The Medical City), Dr. Ampil and Dr. Fuentes. Enrique likewise filed administrative cases
against Dr. Ampil (who was unfortunately abroad at that time, so case did not proceed) and Dr. Fuentes. Pending
said cases, Natividad died and was substituted by her children. RTC favored the spouses, but the administrative
complaint against Dr. Fuentes was dismissed. CA affirmed that Dr. Ampil was liable for damages but exonerated
Dr. Fuentes from liability. Hence, these three consolidated petitions for review on certiorari.

ISSUE (As to GR No. 126297): Whether PSI should be liable for the negligence of Dr. Ampil.

HOLDING: YES.
Courts came to realize that modern hospitals are increasingly taking active role in supplying and regulating
medical care to patients. No longer were a hospital’s functions limited to furnishing room, food, facilities for
treatment and operation, and attendants for its patients. Thus, in Bing v. Thunig, the New York Court of Appeals
deviated from the Schloendorff doctrine, noting that modern hospitals actually do far more than provide
facilities for treatment. Rather, they regularly employ, on a salaried basis, a large staff of physicians, interns,
nurses, administrative and manual workers. They charge patients for medical care and treatment, even collecting
for such services through legal action, if necessary. The court then concluded that there is no reason to exempt
hospitals from the universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential
in view of our categorical pronouncement in Ramos v. Court of Appealsthat for purposes of apportioning
responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals
and their attending and visiting physicians.
But the Ramos pronouncement is not our only basis in sustaining PSI’s liability. Its liability is also anchored
upon the agency principle ofapparent authority or agency by estoppel and the doctrine of corporate negligence
which have gained acceptance in the determination of a hospital’s liability for negligent acts of health
professionals. The present case serves as a perfect platform to test the applicability of these doctrines, thus,
enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the “holding out” theory, or doctrine of ostensible
agency or agency by estoppel, has its origin from the law of agency. It imposes liability, not as the result of the
reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists. The concept is essentially one
of estoppel and has been explained in this manner:
“The principal is bound by the acts of his agent with the apparent authority which he knowingly permits the
agent to assume, or which he holds the agent out to the public as possessing. The question in every case is
whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary
prudence, conversant with business usages and the nature of the particular business, is justified in presuming
that such agent has authority to perform the particular act in question.
The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v.
Doctor Hospital of Lake Worth, Inc. There, it was explicitly stated that “there does not appear to be any rational
basis for excluding the concept of apparent authority from the field of hospital liability.” Thus, in cases where
it can be shown that a hospital, by its actions, has held out a particular physician as its agent and/or employee
and that a patient has accepted treatment from that physician in the reasonable belief that it is being rendered
in behalf of the hospital, then the hospital will be liable for the physician’s negligence. Our jurisdiction recognizes
the concept of an agency by implication or estoppel. Article 1869 of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action,
or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

14
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and specializations of the
physicians associated or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the
Court of Appeals’ conclusion that it “is now estopped from passing all the blame to the physicians whose names
it proudly paraded in the public directory leading the public to believe that it vouched for their skill and
competence.” Indeed, PSI’s act is tantamount to holding out to the public that Medical City Hospital, through
its accredited physicians, offers quality health care services. By accrediting Dr. Ampil and Dr. Fuentes and
publicly advertising their qualifications, the hospital created the impression that they were its agents, authorized
to perform medical or surgical services for its patients. As expected, these patients, Natividad being one of them,
accepted the services on the reasonable belief that such were being rendered by the hospital or its employees,
agents, or servants. The trial court correctly pointed out:
x x x regardless of the education and status in life of the patient, he ought not be burdened with the defense of
absence of employer-employee relationship between the hospital and the independent physician whose name
and competence are certainly certified to the general public by the hospital’s act of listing him and his specialty
in its lobby directory, as in the case herein. The high costs of today’s medical and health care should at least exact
on the hospital greater, if not broader, legal responsibility for the conduct of treatment and surgery within its
facility by its accredited physician or surgeon, regardless of whether he is independent or employed.”[33]
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable of acting
only through other individuals, such as physicians. If these accredited physicians do their job well, the hospital
succeeds in its mission of offering quality medical services and thus profits financially. Logically, where
negligence mars the quality of its services, the hospital should not be allowed to escape liability for the acts of
its ostensible agents.

March 30, 1914

WEST COAST LIFE INSURANCE CO., plaintiff,

vs.
GEO. N. HURD, JUDGE OF COURT OF FIRST INSTANCE, defendant.

Moreland, J.:

SUMMARY: The West Coast Insurance Co., its general manager, and an agent, were charged with libel. The
information charged them of spreading malicious rumors about the financial stability of a competitor company.
Instead of ordering their arrest, the CFI summoned them to appear before the court. Counsel for the accused
moved to quash the information and the summons on the ground that the CFI cannot acquire criminal
jurisdiction over a corporation. SC upheld this contention, holding that under the prevailing law, there is no
provision allowing the arrest or arraignment of a corporation; nor can criminal charges be filed against
corporations; and since the Code of Criminal Procedure provides only for arrest, the process by which the
corporation and the other accused was summoned is invalid. The charge was quashed with respect to the
corporation.

DOCTRINE: The prevailing law on criminal procedure could not have contemplate corporations, since they
cannot be arrested or criminally charged in the same way that a natural person can. Corporations can only be
prosecuted for crimes when there is an express provision of law allowing and providing for it.

NATURE: Petition for prohibition arising from a criminal action for libel.

FACTS

15
• WEST COAST Life Insurance Co. is a foreign life insurance corporation duly organized under
Californian law and doing business in the Philippines. John NORTHCOTT is its general agent and manager
while Manuel C. GREY is one of its agents.
• Dec. 16, 1912 – An information for libel was filed before the CFI Manila against West Coast, Northcott,
and Grey (West Coast et.al.) by the assistant prosecutor of Manila.
o ALLEGATION: West Coast, Northcott, and Grey were accused of printing and distributing “a large
number” of malicious circulars, written in Spanish, questioning the financial stability and management of a
competitor, the Insular Life Insurance Company, exposing it to contempt and ridicule and damaging its business
and reputation, thus:
o " 'First. For some time past various rumors are current to the effect that the Insular Life Insurance
Company is not in as good a condition as it should be at the present time, and that really it is in bad shape.
Nevertheless, the investigations made by the representative of the "Bulletin" have failed fully to confirm these
rumors. It is known that the Insular Auditor has examined the books of the company and has found that its
capital has diminished, and that by direction of the said official the company has decided to double the amount
of its capital, and also to pay its reserve fund. All this is true.'
• Dec. 17, 1912 – Respondent CFI Judge Hurd issued a process summoning West Coast et.al. to appear
before the court and answer the charge.
• Dec. 20, 1912 - West Coast et.al. moved to quash the information on the ground that the Court had no
jurisdiction over West Coast because the process and the information are void.
• CFI denied the motion and ordered West Coast et.al. to appear before the court on Dec. 28, 1912. Hence,
this petition.

ISSUES (HELD)
1) W/N the CFI can summon a corporation to answer for a criminal complaint (NO)
2) W/N the process in question was valid (NO)

RATIO
1) THEN-PREVAILING CODE OF CRIMINAL PROCEDURE DID NOT CONTEMPLATE CORPORATIONS
• Gen. Orders No. 58, §5: An information is "an accusation in writing charging a person with a public
offense." §6 provides for the amendment of the information when the name of the accused is unknown. These
and the other provisions relating to arraignment, counsel, demurrers, and pleas, all indicate that the Code did
not intend to include corporations within the ambit of its provisions.
• The only process authorized in the Code is an arrest. The provisions on arrest contemplate the bodily
seizure and confinement of a person.
• The Code does not authorize the arrest or arraignment of a corporation. Since Philippine courts have no
common law jurisdiction, their jurisdiction is limited to that prescribed in the statutes, either under American or
Spanish criminal procedure. In the Spanish law, corporations (or their closest analogues) cannot be charged
criminally, as it could not commit a crime with a willful purpose or malicious intent. Criminal actions against
corporations would have to be proceeded with against the officers of the corporation and not against the
corporation itself.
• The cases cited by the prosecution all refer to instances where there was a statute providing for the
criminal liability of corporations and the procedure for prosecuting them, or instances of common law
jurisdiction. No case was cited which allowed a corporation to be prosecuted without express provision of
statute or common law jurisdiction.

2) PROCESS IN QUESTION IS NOT AUTHORIZED BY LAW

• As the Code of Criminal Procedure contemplates only arrests, the process issued by the CFI could not
have been valid, since, under the circumstances of their creation, the authority of Philippine courts with respect
to criminal matters is as expressly confined by statute or which is necessary to imply from such authority in
order to fully and adequately carry out the express authority conferred.

16
• The CFI has no authority to devise its own processes and procedure. This authority is vested in the
legislature.
• Even if there are penal laws which may provide for criminal liability of corporations, it cannot be said
that courts are authorized to promulgate special processes and procedures to implement these laws, when the
legislature itself has neglected to do so.
• Under the prevailing law, bringing criminal actions against corporations requires many additions to the
present criminal procedure. It is indeed the duty of courts to punish criminals, but it is also their duty follow
prescribed rules of procedure and not to proceed in an unauthorized manner.

DISPOSITION: Petition granted. CFI prohibited from proceeding against West Coast.

SIA vs. PEOPLE, G.R. No. L-30896 April 28, 1983

Facts:
Jose 0. Sia was General Manager of the Metal Manufacturing Company of the Philippines, Inc. engaged in the
manufacture of steel office equipment. Because his company was in need of raw materials to be imported from
abroad, he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan,
the application being directed to the Continental Bank, herein complainant, and his application having been
approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, and the goods arrived
sometime in July, 1963 according to accused himself. According to Complainant Bank, there was permitted
delivery of the steel sheets only upon execution of a trust receipt, while according to the accused, the goods were
delivered to him sometime before he executed that trust receipt in fact they had already been converted into
steel office equipment by the time he signed said trust receipt; but there is no question - and this is not debated
- that the bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due
neither accused nor his company having made payment thereon notwithstanding demands, and the accounts
having reached the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the
reason why upon complaint by Continental Bank, the Fiscal filed the information after preliminary investigation
as has been said on 22 October, 1964.
Issue:
Whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the
Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the Continental
Bank, (Bank for short) may be liable for the crime charged?
Held:
No. In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts imputed
to him would constitute the crime of estafa, which he also disputes, but seeks to avoid liability on his theory that
the Bank knew all along that petitioner was dealing with him only as an officer of the Metal Company which
was the true and actual applicant for the letter of credit and which, accordingly, assumed sole obligation under
the trust receipt. In disputing the theory of petitioner, the Solicitor General relies on the general principle that
when a corporation commits an act which would constitute a punishable offense under the law, it is the
responsible officers thereof, acting for the corporation, who would be punished for the crime, The Court of
Appeals has subscribed to this view when it quoted approvingly from the decision of the trial court the
following:
A corporation is an artificial person, an abstract being. If the defense theory is followed unscrupulously legions
would form corporations to commit swindle right and left where nobody could be convicted, for it would be
futile and ridiculous to convict an abstract being that can not be pinched and confined in jail like a natural, living
person, hence the result of the defense theory would be hopeless chose in business and finance. It is completely
untenable. (Rollo [CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a general principle that for
crimes committed by a corporation, the responsible officers thereof would personally bear the criminal liability.
(People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing
cases.)

17
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may however not be
squarely applicable to the instant case in that the corporation was directly required by law to do an act in a given
manner, and the same law makes the person who fails to perform the act in the prescribed manner expressly
liable criminally. The performance of the act is an obligation directly imposed by the law on the corporation.
Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation,
they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law
would be illusory, and the deterrent effect of the law, negated.
In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime
is not in the performance of an act directly ordained by law to be performed by the corporation. The act is
imposed by agreement of parties, as a practice observed in the usual pursuit of a business or a commercial
transaction. The offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to
the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor determinant
of whether a crime was committed or whether a civil obligation alone intended by the parties. With this
explanation, the distinction adverted to between the Tan Boon Kong case and the case at bar should come out
clear and meaningful. In the absence of an express provision of law making the petitioner liable for the criminal
offense committed by the corporation of which he is a president as in fact there is no such provisions in the
Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part
may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which
the accused is made answerable must be clear and certain. The maxim that all doubts must be resolved in favor
of the accused is always of compelling force in the prosecution of offenses. This Court has thus far not ruled on
the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same
nature as that involved herein. In the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not
clearly shown to be acting other than in his own behalf, not in behalf of a corporation.

TIME, INC. VS. REYES, G.R. No. L-28882 May 31, 1971 (Crim. Action against a corporation, its officers)
Facts:
Antonio J. Villegas and Juan Ponce Enrile seek to recover from the herein petitioner damages upon an alleged
libel arising from a publication of Time (Asia Edition) magazine, in its issue of 18 August 1967, of an essay,
entitled "Corruption in Asia".
Petitioner received the summons and a copy of the complaint at its offices in New York on 13 December 1967
and, on 27 December 1967, it filed a motion to dismiss the complaint for lack of jurisdiction and improper venue,
relying upon the provisions of Republic Act 4363. Private respondents opposed the motion.
In an order dated 26 February 1968, respondent court deferred the determination of the motion to dismiss until
after trial of the case on the merits, the court having considered that the grounds relied upon in the motion do
not appear to be indubitable.
Failing in its efforts to discontinue the taking of the depositions, previously adverted to, and to have action
taken, before trial, on its motion to dismiss, petitioner filed the instant petition for certiorari and prohibition.
The orders for the taking of the said depositions, for deferring determination of the motion to dismiss, and for
reaffirming the deferment, and the writ of attachment are sought to be annulled in the petition..
Issue:
1. Whether or not, under the provisions of Republic Act No. 4363 the respondent Court of First Instance of Rizal
has jurisdiction to take cognizance of the civil suit for damages arising from an allegedly libelous publication,
considering that the action was instituted by public officers whose offices were in the City of Manila at the time
of the publication; if it has no jurisdiction, whether or not its erroneous assumption of jurisdiction may be
challenged by a foreign corporation by writ of certiorari or prohibition; and
2. Whether or not Republic Act 4363 is applicable to action against a foreign corporation or non-resident
defendant?
Held:
ART. 360, RPC provides “Persons responsible. — Any person who shall publish, exhibit, or cause the publication
or exhibition of any defamation in writing or by similar means, shall be responsible for the same.”

18
The author or editor of a book or pamphlet, or the editor or business manager of a daily newspaper, magazine
or serial publication, shall be responsible for the defamations contained therein to the extent as if he were the
author thereof.
The assertion that a foreign corporation or a non-resident defendant is not inconvenienced by an out-of-town
suit is irrelevant and untenable, for venue and jurisdiction are not dependent upon convenience or
inconvenience to a party; and moreover, venue was fixed under Republic Act No. 4363, pursuant to the basic
policy of the law that is, as previously stated, to protect the interest of the public service when the offended party
is a public officer, by minimizing as much as possible any interference with the discharge of his duties.
That respondents-plaintiffs could not file a criminal case for libel against a non-resident defendant does not
make Republic Act No. 4363 incongruous of absurd, for such inability to file a criminal case against a non-
resident natural person equally exists in crimes other than libel. It is a fundamental rule of international
jurisdiction that no state can by its laws, and no court which is only a creature of the state, can by its judgments
or decrees, directly bind or affect property or persons beyond the limits of the state. Not only this, but if the
accused is a corporation, no criminal action can lie against it, whether such corporation or resident or non-
resident. At any rate, the case filed by respondents-plaintiffs is case for damages.
The dismissal of the present petition is asked on the ground that the petitioner foreign corporation failed to
allege its capacity to sue in the courts of the Philippines. Respondents rely on section 69 of the Corporation law,
which provides:
SEC. 69. No foreign corporation or corporations formed, organized, or existing under any laws other than those
of the Philippines shall be permitted to ... maintain by itself or assignee any suit for the recovery of any debt,
claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. ..."
...;
Petitioner's failure to aver its legal capacity to institute the present petition is not fatal, for ...
A foreign corporation may, by writ of prohibition, seek relief against the wrongful assumption of jurisdiction.
And a foreign corporation seeking a writ of prohibition against further maintenance of a suit, on the ground of
want of jurisdiction in which jurisdiction is not bound by the ruling of the court in which the suit was brought,
on a motion to quash service of summons, that it has jurisdiction.
It is also advanced that the present petition is premature, since respondent court has not definitely ruled on the
motion to dismiss, nor held that it has jurisdiction, but only argument is untenable. The motion to dismiss was
predicated on the respondent court's lack of jurisdiction to entertain the action; and the rulings of this Court are
that writs of certiorari or prohibition, or both, may issue in case of a denial or deferment of action on such a
motion to dismiss for lack of jurisdiction.
WHEREFORE, the writs applied for are granted: the respondent Court of First Instance of Rizal is declared
without jurisdiction to take cognizance of its Civil Case No. 10403; and its orders issued in connection therewith
are hereby annulled and set aside,. Respondent court is further commanded to desist from further proceedings
in Civil case No. 10403 aforesaid. Costs against private respondents, Antonio J. Villegas and Juan Ponce Enrile.
The writ of preliminary injunction heretofore issued by this Supreme Court is made permanent.

Reynaldo Cometa vs Court of Appeal

Reynaldo Cometa is the president of State Investment Trust, Inc. (SITI), a lending firm. Reynaldo Guevara is the
president of Honeycomb Builders, Inc. (HBI), a real estate developer. Guevara is also the chairman of the board
of Guevent Industrial Development Corp., (GIDC).

19
GIDC took out a loan from SITI and secured the loan by mortgaging some of its properties to SITI. GIDC
defaulted in paying and so SITI foreclosed the mortgaged assets. GIDC later sued SITI as it alleged that the
foreclosure was irregular. While the case was pending, the parties entered into a compromise agreement where
GIDC accepted HBI’s offer to purchase the mortgaged assets. But SITI did not approve of said proposal.

GIDC then filed a request for clarification with the trial court and the latter directed SITI to accept the proposal.
Meanwhile, HBI filed a request with the HLURB asking the latter to grant them the right to develop the
mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa. The affidavit purported that Cometa
and SITI is not opposing HBI’s petition with the HLURB.

Cometa assailed the affidavit as it was apparently forged as proven by an NBI investigation. Subsequently,
Cometa filed a criminal action for falsification of public document against Guevara. The prosecutor initially did
not file the information as he finds no cause of action but the then DOJ Secretary (Drilon) directed the fiscal to
file an information against Guevara.

The case was dismissed. In turn, Guevara filed a civil case for malicious prosecution against Cometa. Guevara,
in his complaint, included HBI as a co-plaintiff.

ISSUE: Whether or not HBI is appropriately added as a co-plaintiff.

HELD: Yes. It is true that a criminal case can only be filed against the officers of a corporation and not against
the corporation itself. But it does not follow that the corporation cannot be a real-party-in-interest for the purpose
of bringing a civil action for malicious prosecution. As pointed out by the trial judge, and as affirmed by the
Court of Appeals, the allegation by Cometa that Guevara has no cause of action with HBI not being a real party
in interest is a matter of defense which can only be decisively determined in a full blown trial.

PEOPLE vs. CONCEPCION, 44 Phil. 126FACTS:

Venancio Concepcion, President of the Philippine National Bank and a member of theBoard thereof, authorized
an extension of credit in favor of "Puno y Concepcion, S. en C.” to themanager of the Aparri branch of the
Philippine National Bank. "Puno y Concepcion, S. en C."was a co-partnership where Concepcion is a partner.
Subsequently, Concepcion was charged andfound guilty in the Court of First Instance of Cagayan with violation
of section 35 of Act No.2747. Section 35 of Act No. 2747 provides that the National Bank shall not, directly or
indirectly, grant loans to any of the members of the board of directors of the bank nor to agentsof the branch
banks. Counsel for the defense argue that the documents of record do not provethat authority to make a loan
was given, but only show the concession of a credit. They averredthat the granting of a credit to the co-
partnership "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the Philippine National Bank,
is not a "loan" within the meaning of section 35 of Act No. 2747.
ISSUE:
Whether or not the granting of a credit of P300,000 to the co-partnership "Puno yConcepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, a"loan" within the meaning of section 35 of
Act No. 2747.
HELD:
The Supreme Court ruled in the affirmative. The "credit" of an individual means hisability to borrow money by
virtue of the confidence or trust reposed by a lender that he will paywhat he may promise. A "loan" means the
delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express
or implied, to repay the sum loaned,with or without interest. The concession of a "credit" necessarily involves
the granting of "loans"up to the limit of the amount fixed in the "credit,"

20
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs. TAN BOON KONG, defendant-appellee.,
G.R. No. 32652, 1930 Mar 15

FACTS:
On and during the four quarters of the year 1924, in Municipality of Iloilo, Province of Iloilo, the defendant, as
manager of the Visayan General Supply Co., Inc., a corporation organized under the laws of the Philippine
Islands and engaged in the purchase and sale of sugar, `bayon,’ coprax, and other native products and as such
subject to the payment of internal-revenue taxes upon its sales, declared in 1924 for purpose of taxation only the
sum of P2,352,761.94, when in truth and in fact, and the accused knew that the total gross sales of said
corporation during that year amounted to P2,543,303.44, thereby failing to declare P190,541.50, and voluntarily
not paying the percentage taxes the sum of P2,960.12, corresponding to 1½ per cent of said undeclared sales.

ISSUE: WON the defendant, as manager of the corporation, is criminally liable for violation of the tax law for
the benefit of said corporation.

RULING:
A corporation can act only through its officers and agents, and where the business itself involves a violation of
the law, all who participate in it are liable. In case of State vs. Burnam (71 Wash., 199), the court hold that the
manager of a dairy corporation was criminally liable for the violation of a statute by the corporation though he
was not present when the offense was committed.In the present case the information alleges that the defendant
was the manager of a corporation which was engaged in business as a merchant, and as such manager, he made
a false return, for purposes of taxation, of the total amount of sales made by said corporation during the year
1924. As the filing of such false return constitutes a violation of law, the defendant, as the author of the illegal
act, must necessarily answer for its consequences, provided that the allegations are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will
be returned to said court for further proceedings not inconsistent with our view as hereinbefore stated.

ALFREDO CHING v. SECRETARY OF JUSTICE

G. R. No. 164317, February 6, 2006
FACTS: Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). In 1980, PBMI,
through petitioner, applied with the RCBC (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 receipts as surety, acknowledging delivery of the 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 bank’s 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 against
Petitioner.(First Attempt) The City Prosecutor found probable cause for estafa under Article 315, paragraph 1(b)
of the RPC, in relation to the Trust Receipts Law. Petitioner appealed the to the then Minister of Justice which
was first dismissed but after MR the Minister granted the motion, reversing the previous resolution finding
probable cause against petitioner. In the meantime, the Court rendered judgment in Allied Banking Corporation
v. Ordoñez, 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),

21
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."(Second attempt) The 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 petitioner’s liability was only civil, not criminal, having signed the trust
receipts as surety.Respondent bank appealed the resolution to the DOJ which granted the petition and reversed
the assailed resolution of the City Prosecutor. Petitioner then filed a petition for certiorari, prohibition and
mandamus with the CA. CA dismissing the petition for lack of merit. CA ruled that the assailed resolutions of
the Secretary of Justice were correctly issued for the following reasons: (a) petitioner, being the Senior Vice-
President of PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the
issue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved
and laid to rest in Allied Bank Corporation v. Ordoñez;and (c) petitioner was estopped from raising the City
Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ.
ISSUE: WON the Secretary of Justice committed grave abuse of discretion in finding probable cause against the
petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D.
No. 115.
HELD: No. Petition was denied. The Court ruled that the arguments advanced in support of the petition are not
persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its
discretion in coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-
President of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust receipts
sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts merely as a xxx
surety and not as the entrustee. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does
not exculpate him from any liability. Petitioner’s responsibility as the corporate official of PBM who received the
goods in trust is premised on Section 13 of P.D. No. 115, which provides:
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. 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.
Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM,
it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBM’s
violation of P.D. No. 115.Inthecase at bar, the transaction between petitioner and respondent bank falls under
the trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the
same to PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. It must be
stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure of
person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods, if not
sold, is a public nuisance to be abated by the imposition of penal sanctions.The Court likewise rules that the
issue of whether P.D. No. 115 encompasses transactions involving goods procured as a component of a product
ultimately sold has been resolved in the affirmative in Allied Banking Corporation v. Ordoñez. The law applies
to goods used by the entrustee in the operation of its machineries and equipment. The non-payment of the
amount covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or
otherwise not disposed of, violate the entrustee’s obligation to pay the amount or to return the goods to the
entruster.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
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. Though the entrustee is a corporation, nevertheless, the law specifically

22
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.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. 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.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. Corporate officers or employees,
through whose act, default or omission the corporation commits a crime, are themselves individually guilty of
the crime.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. Moreover, all parties active
in promoting a crime, whether agents or not, are principals.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.

CRUZVALE,INC. VS. EDUQUE, G.R. Nos. 172785-86 June 18, 2009

Facts:
Petitioner is a client of East Asia (AEA) Capital Corporation (East Asia) which is a duly licensed Philippine
investment house engaged in the buy and sell or trading of securities and commercial papers. As a practice, East
Asia purchases Long Term Commercial Papers (LTCPs) for petitioner from various corporations the latter has
chosen. These LTCPs are registered with the issuing corporations in the name of East Asia in trust for petitioner.
In turn, East Asia issues Outright Sales Invoices and Custodian Receipts to petitioner. Once the LTCPs mature,
petitioner instructs East Asia to re-invest or roll-over the principal amounts and accrued interests to other similar
LTCPs.1avvphi1
Petitioner learned of East Asia’s irregular transactions and precarious financial condition. Thus, it asked East
Asia for an accounting of all its LTCPs. Meanwhile, petitioner conducted its own investigation and discovered
that: (1) some of its outstanding LTCPs were sold or assigned to third parties; (2) the proceeds of such sale or
assignment were covered by petitioner’s alleged purchase of East Asia promissory notes; (3) the proceeds of its
matured LTCPs were not used to purchase other similar LTCPs but covered instead petitioner’s alleged purchase
of East Asia promissory notes; and (4) interest payments from its LTCPs were received by East Asia and covered
petitioner’s alleged purchase of East Asia promissory notes. All these were done without petitioner’s prior
knowledge and consent.

23
Petitioner’s representatives met with respondent Jose Armando L. Eduque, Chief Executive Officer and Director
of East Asia, to confirm and discuss the foregoing. Eduque proposed to: (1) secure the East Asia promissory
notes with collateral; and/or (2) dacion the LTCPs with East Asia real properties and shares of stock.
Eduque proposed the conversion of a part or all of petitioner’s LTCPs into East Asia equity. Petitioner declined
the proposal and made a final demand for the turn-over of the proceeds of its matured LTCPs and the delivery
of its outstanding LTCPs, with interest payments accruing thereto.
As the demand remained unheeded, petitioner filed a complaint-affidavit with the Office of the City Prosecutor
of Makati charging respondents, as officers and/or directors of East Asia, with violation of Article 315(1)(b) and
(2)(a) of the Revised Penal Code.
An Information for estafa under Article 315(1)(b) was filed against respondents. Joson filed a motion for
reconsideration while Eduque, Binamira and Delgado filed a petition for review with the Department of Justice.
The Secretary of Justice granted the petition and directed the City Prosecutor of Makati to withdraw the
information against respondents. On the other hand, the City Prosecutor of Makati granted Joson’s motion and
recommended the dismissal of the charge against her.
The City Prosecutor of Makati then filed a motion to withdraw information which was denied by Judge Guillen.
Joson filed a motion for reconsideration separate from the motion for reconsideration filed by Eduque, Binamira
and Delgado.
Judge Romeo F. Barza, who took over as presiding judge, granted Joson’s motion but denied that of Eduque,
Binamira and Delgado. Thereafter, they were arraigned over their objections. They filed another motion for
reconsideration. Petitioner also moved to reconsider the withdrawal of the information against Joson.
Due to Judge Barza’s voluntary inhibition, the case was re-raffled and re-assigned to Judge Rebecca R. Mariano
of the RTC of Makati City, Branch 134. Judge Mariano dismissed the criminal case against all respondents due
to the absence of probable cause.
Petitioner moved for partial reconsideration which Judge Mariano granted. She also denied respondents’ motion
for reconsideration and ordered the pre-trial to proceed.
Before the Court of Appeals, Joson filed a petition for review docketed as CA-G.R. SP No. 81518 while Eduque,
Binamira and Delgado filed a petition for review docketed as CA-G.R. SP No. 81526.
The appellate court granted the petitions. The Supreme Court ruled in Sesbreño v. Court of Appeals that a money
market transaction partakes of a nature of a loan and therefore, the non-payment thereof would not give rise to
criminal liability for estafa through misappropriation or conversion. East Asia did not receive money in trust, or
on commission or for administration, or under any other obligation to make delivery of or to return the same. It
did not become a trustee of petitioner, nor was any fiduciary relationship created. Thus, the appellate court
ordered the dismissal of the criminal charge for estafa under Article 315(1)(b) against respondents for lack of
probable cause:

Issue:
Whether or not respondents should be held liable for estafa?
Held:
We find no reason to depart from the recommendations of the City Prosecutor of Makati and the Secretary of
Justice, which were affirmed by the appellate court, to dismiss the criminal charge against respondents for lack
of probable cause.
To be held liable for estafa under Article 315(1)(b) of the Revised Penal Code, the following elements must
concur: (1) that money, goods, or other personal properties are received by the offender in trust, or on
commission, or for administration, or under any other obligation involving the duty to make delivery of, or to
return, the same; (2) that there is a misappropriation or conversion of such money or property by the offender
or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of
another; and (4) that there is a demand made by the offended party on the offender.28
While East Asia acted as custodian of the LTCPs and was obliged to turn-over the proceeds of the matured
LTCPs and to deliver the outstanding LTCPs to petitioner, with interest payments accruing thereto, there was
no showing that respondents misappropriated or converted the same. East Asia periodically remitted the
proceeds and interest payments to petitioner even before petitioner filed its complaint-affidavit. Moreover, apart

24
from its sweeping allegation that respondents misappropriated or converted its money placements, petitioner
failed to establish the particular role or actual participation of each respondent in the criminal act. Neither was
it shown that they assented to its commission. It is basic that only corporate officers shown to have participated
in the alleged anomalous acts may be held criminally liable.
WHEREFORE, the Decision dated March 1, 2006 of the Court of Appeals in CA-G.R. SP Nos. 81518 and 81526
and its Resolution dated May 22, 2006, denying reconsideration, are AFFIRMED.

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO
HERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees. G.R. No. L-22973, January 30,
1968
ANGELES, J.:
FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of P100,000
only) with the Naga Branch of defendant PNB. To secure payment, the plaintiff mortgaged a parcel of land,
together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban
(formerly Mambulao), province of Camarines Norte. The PNB released from the approved loan the sum of
P27,500, and another release of P15,500.
The plaintiff failed to pay the amortization on the amounts released to and received by it. It was found that the
plaintiff had already stopped operation about the end of 1957 or early part of 1958.
The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59, excluding attorney's
fees. A foreclosure sale of the parcel of land, together with the buildings and improvements thereon was, held
on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right
of the plaintiff to redeem the same within a period of one year.
The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged chattels be discontinued
on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at
a place other than the City of Manila.
The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52
with interest thereon at the rate of 6% per annum. The plaintiff on appeal advanced that its total indebtedness
to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo;
hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date,
added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation,
thereby rendering the subsequent foreclosure sale of its chattels unlawful;
That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous
opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by
detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees.
ISSUE: Whether or not PNB may be held liable to plaintiff Corporation for damages and attorney’s fees.
HELD: Herein appellant's claim for moral damages, seems to have no legal or factual basis. Obviously, an
artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A
corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral
damages. The same cannot be considered under the facts of this case, however, not only because it is admitted
that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have
upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at
Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage
contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with
the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in
gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum

25
of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein
appellant.

Case: ABS-CBN BROADCASTING CORP. v. CA, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS,
INC., and VICENTE DEL ROSARIO (301 SCRA 589)
Date: January 21, 1999
Ponente: C.J. Davide, Jr.

Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an
exclusive right to exhibit some VIVA films. According to the agreement, ABS-CBN shall have the right of first
refusal to the next 24 VIVA films for TV telecast under such terms as may be agreed upon by the parties,
however, such right shall be exercised by ABS-CBN from the actual offer in writing.

Sometime in December 1991, VIVA, through Vicente Del Rosario (Executive Producer), offered ABS-
CBN through VP Charo Santos-Concio, a list of 3 film packages from which ABS-CBN may exercise its right of
first refusal. ABS-CBN, however through Mrs. Concio, tick off only 10 titles they can purchase among which is
the film “Maging Sino Ka Man” which is one of the subjects of the present case, therefore, it did not accept the
said list as per the rejection letter authored by Mrs. Concio sent to Del Rosario.

Subsequently, Del Rosario approached Mrs. Concio with another list consisting of 52 original movie titles
and 104 re-runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in cash and P30M worth of
television spots). Del Rosario and ABS-CBN’s General Manager, Eugenio Lopez III, met at the Tamarind Grill
Restaurant in QC to discuss the package proposal but to no avail.

Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic Broadcasting
Corporation (RBS/Channel 7) discussed the terms and conditions of VIVA’s offer. A day after that, Mrs. Concio
sent the draft of the contract between ABS-CBN and VIVA which contained a counter-proposal covering 53 films
for P35M. VIVA’s Board of Directors rejected the counter-proposal as it would not sell anything less than the
package of 104 films for P60M. After said rejection, ABS-CBN closed a deal with RBS including the 14 films
previously ticked off by ABS-CBN.

Consequently, ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary
injunction and/or TRO against RBS, VIVA and Del Rosario. RTC then enjoined the latter from airing the subject
films. RBS posted a P30M counterbond to dissolve the injunction. Later on, the trial court as well as the CA
dismissed the complaint holding that there was no meeting of minds between ABS-CBN and VIVA, hence, there
was no basis for ABS-CBN’s demand, furthermore, the right of first refusal had previously been exercised.

Hence, the present petition, ABS-CBN argued that an agreement was made during the meeting of Mr.
Lopez and Del Rosario jotted down on a “napkin” (this was never produced in court). Moreover, it had yet to
fully exercise its right of first refusal since only 10 titles were chosen from the first list. As to actual, moral and
exemplary damages, there was no clear basis in awarding the same.

Issue: WON a contract was perfected between ABS-CBN and VIVA and WON moral damages may be awarded
to a corporation

Held: Both NO.

Ratio:

26
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and
must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of
any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-
offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what
is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer annuls the offer.

After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent
through Ms. Concio, counter-proposal in the form a draft contract. This counter-proposal could be nothing less
than the counter-offer of Mr. Lopez during his conference with Del Rosario. Clearly, there was no acceptance of
VIVA’s offer, for it was met by a counter-offer which substantially varied the terms of the offer.
In the case at bar, VIVA through its Board of Directors, rejected such counter-offer. Even if it be conceded
arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no
proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power to
enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The delegation, except for the executive
committee, must be for specific purposes. Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts would apply. For such officers to
be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize
them to do so. That Del Rosario did not have the authority to accept ABS-CBN’s counter-offer was best evidenced
by his submission of the draft contract to VIVA’s Board of Directors for the latter’s approval. In any event, there
was between Del Rosario and Lopez III no meeting of minds.
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed
to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement
Lopez and Del Rosario arrived at could not ripen into a valid contact binding upon Viva.
However, the Court find for ABS-CBN on the issue of damages. Moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and
having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore,
experience physical suffering and mental anguish, which can be experienced only by one having a nervous
system. The statement that a corporation may recover moral damages if it “has a good reputation that is debased,
resulting in social humiliation” is an obiter dictum. On this score alone the award for damages must be set aside,
since RBS is a corporation.

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.
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.

27
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 expose, 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 14 December 1992, the trial court rendered a Decision] finding FBNI and Alegre liable for libel except Rima.
In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and
supervision of its employees.
The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima
solidarily liable with FBNI and Alegre.
Issues:

1. Whether or not the broadcasts are libelous.

2. Whether or not AMEC is entitled to moral damages.
3. 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
1. x x x
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

28
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.
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 attorney’s fees is not proper.
AMEC failed to justify satisfactorily its claim for attorney’s fees. AMEC did not adduce evidence to warrant the
award of attorney’s fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective
decisions the rationale for the award of attorney’s 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 attorney’s fees.[51] (Emphasis supplied)
Petition denied.

G.R. No. L-68555 March 19, 1993

PRIME WHITE CEMENT CORPORATION, petitioner, 
vs.
HONORABLE INTERMEDIATE APPELLATE
COURT and ALEJANDRO TE, respondents.
CAMPOS, JR., J.:

FACTS:

On or about the 16th day of July, 1969, plaintiff Alejandro Te and defendant corporation Prime White Cement
Corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a
dealership agreement whereby said plaintiff was obligated to act as the exclusive dealer and/or distributor of

29
the said defendant corporation of its cement products in the entire Mindanao area for a term of five (5) years
and providing among others that:
a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with 20,000
bags (94 lbs/bag) of white cement per month;
b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement, FOB
Davao and Cagayan de Oro ports;
c. The plaintiff shall, every time the defendant corporation is ready to deliver the good, open with any bank or
banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of the corporation and
that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the
vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment
of the goods so shipped.

Plaintiff placed an advertisement in a national, circulating newspaper the fact of his being the exclusive dealer
of the defendant corporation's white cement products in Mindanao area, more particularly, in the Manila
Chronicle.
Plaintiff entered into a written agreement with several hardware stores dealing in buying and selling white
cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000
bags regular supply of the said commodity, by September, 1970. After the plaintiff was assured by his supposed
buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant
corporation in his letter dated August 18, 1970 that he is making the necessary preparation for the opening of
the requisite letter of credit to cover the price of the due initial delivery for the month of September, 1970 (Exhibit
B), looking forward to the defendant corporation's duty to comply with the dealership agreement. In reply to
the aforesaid letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that the board
of directors of the said defendant decided to impose the following conditions:
a. Delivery of white cement shall commence at the end of November, 1970;
b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered;
c. The price of white cement was priced at P13.30 per bag;
d. The price of white cement is subject to readjustment unilaterally on the part of the defendant;
e. The place of delivery of white cement shall be Austurias (sic);
f. The letter of credit may be opened only with the Prudential Bank, Makati Branch;
g. Payment of white cement shall be made in advance and which payment shall be used by the defendant as
guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials
in the manufacture of white cement. (Exhibit C).

Several demands to comply with the dealership agreement were made by the plaintiff to the defendant,
however, defendant refused to comply with the same, and plaintiff by force of circumstances was constrained
to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation
of, and pursuant to the said dealership agreement.
Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting,
the defendant corporation, in violation of, and with evident intention not to be bound by the terms and
conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing
of white cement in Mindanao hence, this suit.
After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as actual
damages, P100,000.00 as moral damages, and P10,000.00 as and for attorney's fees and costs. The appellate court
affirmed the said decision.
ISSUE:
Whether or not the "dealership agreement" referred by the President and Chairman of the Board of petitioner
corporation is a valid and enforceable contract.
HELD:
NO. Under the Corporation Law, which was then in force at the time this case arose, 5 as well as under the
present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise

30
provided by law. 6 Although it cannot completely abdicate its power and responsibility to act for the juridical
entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of
such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the
corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various
forms — like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance
and retention of benefits flowing therefrom. 7 Furthermore, even in the absence of express or implied authority
by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary
course of business, provided the same is reasonable under the circumstances. 8 These rules are basic, but are all
general and thus quite flexible. They apply where the President or other officer, purportedly acting for the
corporation, is dealing with a third person, i. e., a person outside the corporation.
The situation is quite different where a director or officer is dealing with his own corporation. In the instant case
respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the
corporation as well. He was what is often referred to as a "self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. 9
In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and
benefit. As corporate managers, directors are committed to seek the maximum amount of profits for the
corporation. This trust relationship "is not a matter of statutory or technical law. It springs from the fact that
directors have the control and guidance of corporate affairs and property and hence of the property interests of
the stockholders." 10
On the other hand, a director's contract with his corporation is not in all instances void or voidable. If the contract
is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure
of his adverse interest is made. Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the corporation. — A contract of the corporation with one
or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the
following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been previously authorized by the Board of
Directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with
a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or of two-thirds (2/3) of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such
meeting: Provided, however, That the contract is fair and reasonable under the circumstances.
Although the old Corporation Law which governs the instant case did not contain a similar provision, yet the
cited provision substantially incorporates well-settled principles in corporate law. 12
Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into
with a person other than a director or officer of the corporation, the fact that the other party to the contract was
a Director and Auditor of the petitioner corporation changes the whole situation. First of all, We believe that the
contract was neither fair nor reasonable. The "dealership agreement" entered into in July, 1969, was to sell and
supply to respondent Te 20,000 bags of white cement per month, for five years starting September, 1970, at the
fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known, or at least must be
presumed to know, that at that time, prices of commodities in general, and white cement in particular, were not
stable and were expected to rise. At the time of the contract, petitioner corporation had not even commenced the
manufacture of white cement, the reason why delivery was not to begin until 14 months later. He must have
known that within that period of six years, there would be a considerable rise in the price of white cement. In
fact, respondent Te's own Memorandum shows that in September, 1970, the price per bag was P14.50, and by
the middle of 1975, it was already P37.50 per bag. Despite this, no provision was made in the "dealership

31
agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was pegged at
P9.70 per bag for the whole five years of the contract. Fairness on his part as a director of the corporation from
whom he was to buy the cement, would require such a provision. In fact, this unfairness in the contract is also a
basis which renders a contract entered into by the President, without authority from the Board of Directors, void
or voidable, although it may have been in the ordinary course of business. We believe that the fixed price of
P9.70 per bag for a period of five years was not fair and reasonable.
Respondent Te, himself, when he subsequently entered into contracts to resell the cement to his "new dealers"
Henry Wee 13 and Gaudencio Galang 14 stipulated as follows:
The price of white cement shall be mutually determined by us but in no case shall the same be less than P14.00
per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and that with Gaudencio Galang, on October 13, 1967.
A similar contract with Prudencio Lim was made on December 29, 1969. 15 All of these contracts were entered
into soon after his "dealership agreement" with petitioner corporation, and in each one of them he protected
himself from any increase in the market price of white cement. Yet, except for the contract with Henry Wee, the
contracts were for only two years from October, 1970. Why did he not protect the corporation in the same manner
when he entered into the "dealership agreement"? For that matter, why did the President and the Chairman of
the Board not do so either? As director, specially since he was the other party in interest, respondent Te's
bounden duty was to act in such manner as not to unduly prejudice the corporation. In the light of the
circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the corporation; he was
attempting in effect, to enrich himself at the expense of the corporation. There is no showing that the
stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. The contract was
therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty.

LBC Express vs. CA

LBC Express, Inc. vs. Court of Appeals, G.R. No. 108670, 236 SCRA 602 , September 21, 1994

Private respondent Adolfo Carloto, incumbent President-Manager of private respondent Rural Bank of Labason,
alleged that on November 12, 1984, he was in Cebu City transacting business with the Central Bank Regional
Office. He was instructed to proceed to Manila on or before November 21, 1984 to follow-up the Rural Bank's
plan of payment of rediscounting obligations with Central Bank's main office in Manila. 2 He then purchased a
round trip plane ticket to Manila. He also phoned his sister Elsie Carloto-Concha to send him ONE THOUSAND
PESOS (P1,000.00) for his pocket money in going to Manila and some rediscounting papers thru petitioner's LBC
Office at Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC Dipolog Branch the
pertinent documents and the sum of ONE THOUSAND PESOS (P1,000.00) to respondent Carloto at No. 2
Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo, Inc., Cashpack
Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto made personal follow-
ups on that same day, and also on November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed to
deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on November 24, 1984 to claim
the money at LBC's office. His effort was once more in vain. On November 27, 1984, he went back to Cebu City
at LBC's office. He was, however, advised that the money has been returned to LBC's office in Dipolog City upon
shipper's request. Again, he demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-
NINE PESOS (P49.00) LBC revenue charges. He received the money only on December 15, 1984 less the revenue
charges.

32
Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he failed to submit the
rediscounting documents to Central Bank on time. As a consequence, his rural bank was made to pay the Central
Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as penalty interest. 4 He allegedly suffered
embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to LBC Cebu City branch
on November 22, 1984. 5 On the same day, it was delivered at respondent Carloto's residence at No. 2 Greyhound
Subdivision, Kinasangan, Pardo, Cebu City. However, he was not around to receive it. The delivery man served
instead a claim notice to insure he would personally receive the money. This was annotated on Cashpack
Delivery Receipt No. 342805. Notwithstanding the said notice, respondent Carloto did not claim the cashpack at
LBC Cebu. On November 23, 1984, it was returned to the shipper, Elsie Carloto-Concha at Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent Carloto instituted
an action for Damages Arising from Non-performance of Obligation docketed as Civil Case No. 3679 before the
Regional Trial Court of Dipolog City on January 4, 1985. On June 25, 1988, an amended complaint was filed
where respondent rural bank joined as one of the plaintiffs and prayed for the reimbursement of THIRTY-TWO
THOUSAND PESOS (P32,000.00).

1. Whether or not respondent Rural Bank of Labason Inc., being an artificial person should be awarded moral
damages.
2. Whether or not the award of THIRTY-TWO THOUSAND PESOS (P32,000.00) was made with grave abuse of
discretion.
3. Whether or not the respondent Court of Appeals gravely abused its discretion in affirming the trial court's
decision ordering petitioner LBC to pay moral and exemplary damages despite performance of its obligation.

The respondent court erred in awarding moral damages to the Rural Bank of Labason, Inc., an artificial person.
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. 7 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. 8 Mental suffering can be
experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life 9 — all
of which cannot be suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private respondents. The right to recover
moral damages is based on equity. Moral damages are recoverable only if the case falls under Article 2219 of the
Civil Code in relation to Article 21. 10 Part of conventional wisdom is that he who comes to court to demand
equity, must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that his rural bank's obligation
would mature on November 21, 1984 and his bank has set aside cash for these bills payable. 11 He was all set to
go to Manila to settle this obligation. He has received the documents necessary for the approval of their
rediscounting application with the Central Bank. He has also received the plane ticket to go to Manila.
Nevertheless, he did not immediately proceed to Manila but instead tarried for days allegedly claiming his ONE
THOUSAND PESOS (P1,000.00) pocket money. Due to his delayed trip, he failed to submit the rediscounting
papers to the Central Bank on time and his bank was penalized THIRTY-TWO THOUSAND PESOS (P32,000.00)
for failure to pay its obligation on its due date. The undue importance given by respondent Carloto to his ONE
THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not indispensable for him to follow up
his bank's rediscounting application with Central Bank. According to said respondent, he needed the money to
"invite people for a snack or dinner." 12 The attitude of said respondent speaks ill of his ways of business dealings
and cannot be countenanced by this Court. Verily, it will be revolting to our sense of ethics to use it as basis for
awarding damages in favor of private respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's late delivery of the cashpack was motivated
by personal malice or bad faith, whether intentional or thru gross negligence. In fact, it was proved during the
trial that the cashpack was consigned on November 16, 1984, a Friday. It was sent to Cebu on November 19,
1984, the next business day. Considering this circumstance, petitioner cannot be charged with gross neglect of

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duty. Bad faith under the law can not be presumed; it must be established by clearer and convincing evidence.
13 Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to
have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences
of the branch of the obligation which the parties had foreseen or could reasonable have foreseen. The damages,
however, will not include liability for moral damages. Rescinding from these premises, the award of exemplary
damages made by the respondent court would have no legal leg to support itself. Under Article 2232 of the Civil
Code, in a contractual or quasi-contractual relationship, exemplary damages may be awarded only if the
defendant had acted in "a wanton, fraudulent, reckless, oppressive, or malevolent manner." The established facts
of not so warrant the characterization of the action of petitioner LBC.

Acme Shoe, Rubber and Plastic Corporation v. CA

on 6:35 AM in Case Digests, Commercial Law 0
G.R. No. 103576, Aug. 22, 1996

Contracts of Security: Chattel Mortgage

The rule on after-incurred obligations
Is a corporation entitled to moral damages?

FACTS:

Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic Corporation, executed a chattel
mortgage in favor of Producers Bank of the Philippines, as a security for a corporate loan in the amount of P3M.
The chattel mortgage contained a clause that provided for the mortgage to stand as security for all other
obligations contracted before, during and after the constitution of the mortgage.

The P3M was paid. Subsequently, the corporation obtained additional financial accommodations totalling
P2.7M. This was also paid on the due date. Again, the bank extended another loan to the corporation in the
amount of P1M, covered by four promissory notes. However, the corporation was unable to pay this at maturity.
Thereupon, the bank applied for an extra-judicial foreclosure of mortgage.

For its part, the corporation filed an action for injunction with prayer for damages. The lower court ultimately
dismissed the case and ordered the extra-judicial foreclosure of mortgage. Hence, this appeal.

ISSUEs:
W/N extra-judicial foreclosure of the chattel mortgage is proper
If not proper, W/N the corporation is entitled to damages as a result of the extra-judicial foreclosure

HELD:

Contracts of Security

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or
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 and
substantially in teh 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

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payment of interest, if owing, and thereafter to the principal of his credit -- upon the essential condition that if
the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the
payment of the obligation, but that should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character 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.

After-incurred Obligations

While a pledge, real estate mortgage, or antichresis may exceptionaly secure after-incurred obligations so long
as these future debts are accurately described, 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 covered the newly
contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the Chattel Mortgage Law. Refusal on the part of borrower to execute the agreement so as to
cover the after-incurred obligation can constitute as an act of default on the part of the borrower of the financing
agreement wherein 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.

In the case at bar, the chattel mortgage was terminated when payment for the P3M loan was made so there was
no chattel mortgage to even foreclose at the time the bank instituted the extra-judicial foreclosure.

Damages

In its complaint, the corporation asked for moral damages sustained "as a result of the unlawful action taken by
the respondent bank against it." The court 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 and sorrows and griefs of life -- all
of which cannot be suffered by respondent bank as an artificial person.

"Although Chua Pac was included in the case, he was only so named as a party in representation of the
corporation."

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