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L-23145 November 29, 1968 Facts: Idonah Slade Perkins, died in New York in 1960, left among others, two stock certificates covering 33,002 shares of Benguet Consolidated, the certificates being in the possession of the County Trust Company of New York, the domiciliary administrator of the estate of the deceased. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. Anciallry administrator wanted possession of the shares so as to satisfy the legitimate claims of local creditors. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost." The order of the Lower Court is of the following tenor: (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court." Appeal to the order was made by Benguet Consolidated. Appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...." Issue/ Held: WON the appeal is meritorious.- NO. The order was called for by the realities of the situation. Ratio: The Court took into account the factual circumstances in uphoding the oder by the Lower Court that the shares of stock be considered lost t for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins. 1. Territorial scope of authority of administrator. It is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in another state or country." Since the actual situs of the shares of stock of a domestic corporation is in the Philippines, it should be administered by the ancillary admisnitrator. Element of fiction of loss is necessary given the factual circumstances. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Otherwise, to yield to the stubborn refusal of the domicillary administrator, the task incumbent under the law of the ancillary administrator could not be discharged and his responsibility fulfilled. Lawful order of the court overrides the by-laws of Benguet Consolidated. Benguet Consolidated stresses that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]." SC held that Benguet Consolidated's obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. A corporation is not immune from judicial action.




Definitions of Corporation: "...a corporation is an artificial being created by operation of law...." It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its

existence through creation by a sovereign power." (Berle, The Theory of Enterprise Entity, 47 Co. Law Rev. 343 (1907). "an artificial being, invisible, intangible, and existing only in contemplation of law." (Chief Justice Marshall, Dartmouth College v. Woodward ) "A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter." (Fletcher, Cyclopedia Corporations ) ...a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly. (Pound on Jurisprudence)

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and concession." A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so. As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it. To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval.

MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION vs ANTONIO B. MONFORT III G.R. No. 152542 : July 8, 2004 G.R. No. 155472 : July 8, 2004 Facts: Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City. It also owns one unit of motor vehicle and two units of tractors. The same allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio. In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort. In G.R. No. 155472: The Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a complaint for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction and damages. Motion to dismiss on the ground of Ma. Antonia M. Salvatierra's lack of capacity to sue on behalf of the Corporation was denied. In G.R. No. 152542: Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry, preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III. The group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and harvesting the produce therein on behalf of the corporation and not for themselves. They likewise raised the affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation. Complaint was eventually dismissed. Basis of claim of Salvatierra\s lack of capacity to sue: The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void because the purported Members of the Board who passed the same were not validly elected officers of the Corporation. Issue/ Held: WON Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the Corporation. -NO. Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her to represent the Corporation were the lawfully elected Members of the Board of the Corporation. As such, they cannot confer valid authority for her to sue on behalf of the corporation. Ratio: A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. Corporation failed to comply with Section 26 of the Corporation Code, requiring submission to the SEC within thirty (30) days after the election the names, nationalities and residences of the elected directors, trustees and officers of the Corporation.


In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet are already dead at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board. This is because it was not established that they were duly elected to replace the said deceased Board Members.

To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet was attributable to its oversight and not the fault of the Corporation. This belated attempt, however, did not erase the doubt as to whether an election was indeed held.


What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was the belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were elected. The issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in its September 29, 1999 Comment before the Court of Appeals. Moreover, the Corporation failed to prove that the same October 16, 1996 Minutes was submitted to the SEC.

PHILIPPINE STOCK EXCHANGE, INC., vs. THE HONORABLE COURT OF APPEALS G.R. No. 125469 October 27, 1997 Facts: The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached. On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application, recommended to the PSE's Board of Governors the approval of PALI's listing application. On February 14, 1996, before it could act upon PALI's application, the Board of Governors of the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALI's application to be deferred. PALI was requested to comment upon the said letter. PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Board of Governors of the PSE reached its decision to reject PALI's application, citing the existence of serious claims, issues and circumstances surrounding PALI's ownership over its assets that adversely affect the suitability of listing PALI's shares in the stock exchange. PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE. SEC rendered its Order, reversing the PSE's decision. SEC ordered to immediately cause the listing of the PALI shares in the Exchange. CA: SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, for the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public respondent's jurisdiction, regulation and control. PALI complied with all the requirements for public listing, affirming the SEC's ruling. Issue/Held: WON SEC has the authority to order the PSE to list the shares of PALI in the stock exchange. - YES, but he Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a corporation entity, whose business judgments are respected in the absence of bad faith. Ratio:


SEC with jurisdition. It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the markings of a corporate entity, it functions as the primary channel through which the vessels of capital trade ply. The PSE's relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an immense influence upon the country's economy.

Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges Sections 3, 6, and 38 of PD 902-A give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguard. Section 31 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SEC's challenged control authority over the petitioner PSE even as it provides that "the Commission shall have absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines. . ." The SEC's regulatory authority over private corporations

1This Act shall be administered by the (Securities and Exchange) Commission which shall continue to have the organization, powers, and functions provided by
Presidential Decree Numbered 902-A, 1653, 1758, and 1799 and Executive Order No. 708. The Commission shall, except as otherwise expressly provided, have the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the provisions hereof.

encompasses a wide margin of areas, touching nearly all of a corporation's concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange. It is, likewise, observed that the principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities for the promotion of economic development. This is not to say, however, that the PSE's management prerogatives are under the absolute control of the SEC. The PSE is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such a body. As to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's judgment is attended by bad faith. In Board of Liquidators vs. Kalaw, it was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill will, partaking of the nature of fraud.


There was no bad faith in the decision of PSE not to allow listing of PALI shares. In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which, in the general scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. During the time for receiving objections to the application, the PSE heard from the representative of the late President Ferdinand E. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan Court. How the properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. For the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the properties' ownership and alienability exists, and this puts to question the qualification of PALI's public offering.

TAN BOON BEE & CO., INC. vs. JARENCIO G.R. No. L-41337 June 30, 1988 Facts: Anchor Supply Co. sold on credit to Graphic Publishing, Inc paper products. Partial payments were made and the balance was covered by a promissory note. n the said promissory note, it was stipulated that the amount will be paid on monthly installments and that failure to pay any installment would make the amount immediately demandable with an interest of 12% per annum. For failure of GRAPHIC to pay any installment, petitioner filed with the CFI a collection case. The trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12% interest from March 30, 1973 until fully paid, plus the costs of suit. A writ of execution was issued. Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one (1) unit printing machine found in the premises of GRAPHIC. The printing machine was already scheduled for auction sale but Philippine American Drug Company (PADCO for short) had informed the sheriff that the printing machine is its property and not that of GRAPHIC, and accordingly, advised the sheriff to cease and desist from carrying out the scheduled auction sale. Notwithstanding the said letter, the sheriff proceeded with the scheduled auction sale, sold the property to the petitioner, it being the highest bidder, and issued a Certificate of Sale in favor of petitioner. More than five (5) hours after the auction sale and the issuance of the certificate of sale, PADCO filed an "Affidavit of Third Party Claim" with the Office of the City Sheriff; thereafter a Motion was filed to nullify the sale. Respondent judge ruled in favor of PADCO; hence the auction sale was nullified. The petitioner, however, contends that the controlling stockholders of the Philippine American Drug Co. are also the same controlling stockholders of the Graphic Publishing, Inc. and, therefore, the levy upon the said machinery which was found in the premises occupied by the Graphic Publishing, Inc. should be upheld. Issue/ Held: WON the respondent judge gravely abused his discretion when he refused to pierce the PADCO's (identity) and despite the abundance of evidence clearly showing that PADCO was conveniently shielding under the theory of corporate petition.- YES, Respondent judge should have pierced PADCO's veil of corporate Identity. espondent judge should have pierced PADCO's veil of corporate Identity. Ratio: It is true that a corporation, upon coming into being, is invested by law with a personality separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related. As a matter of fact, the doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. However, this separate and distinct personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity. Likewise, this is true when the corporation is merely an adjunct, business conduit or alter ego of another corporation. In such case, the fiction of separate and distinct corporation entities should be disregarded. Factual indicators that PADCO and GRAPHIC are one and the same entity: PADCO was never engaged in the printing business; The board of directors and the officers of GRAPHIC and PADCO were the same; PADCO holds 50% share of stock of GRAPHIC. The printing machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also unbelievable.


SMITH, BELL & COMPANY (LTD.) vs NATIVIDAD G.R. No. 15574 September 17, 1919 Facts: Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's merchandise between ports in the Islands. Application was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine Islands. The instant action is the result. On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended section 1172 of the Administrative Code to read as follows:
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. "Domestic ownership," as used in this section, means ownership vested in some one or more of the following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the United States residing in the Philippine Islands; (c) any corporation or company composed wholly of citizens of the Philippine Islands or of the United States or of both, created under the laws of the United States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides in the Philippine Islands Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a certificate of Philippine register under existing law, shall likewise be deemed a vessel of domestic ownership so long as there shall not be any change in the ownership thereof nor any transfer of stock of the companies or corporations owning such vessel to person not included under the last preceding paragraph.

The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due process of law, or deny to any person therein the equal protection of the laws." 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/Held: WON the Government of the Philippine Islands, through its Legislature, can deny the registry of vessel in its coastwise trade to corporations having alien stockholders.- YES, this is a valid exercise of police power. Common carriers which in the Philippines as in the United States and other countries are, as Lord Hale said, "affected with a public interest," can only be permitted to use these public waters as a privilege and under such conditions as to the representatives of the people may seem wise. 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. Ratio: 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. Examples of laws held unconstitutional because of unlawful discrimination against aliens could be cited. Generally, these decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living. One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth Amendment to the United States Constitution, 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 these objects in view, must often be had in certain districts." his 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. Another notable exception permits of the regulation or distribution of the public domain or the common property or resources of the people of the State, so that use may be limited to its citizens. Even as to classification, it is admitted that a State may classify with reference to the evil to be prevented; the question is a practical one, dependent upon experience.

Bache and Co. v. Ruiz GR No. L-32409 February 27, 1971 Facts: In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to: (1) declare null and void the Search Warrant issued; (2) order respondents to desist from enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners to have been made on the basis of the said documents, papers and effects; and (3) order the return of the latter to petitioners. At that time the request for the issuance of the Search Warrant was made by respondent De Leon, with his witness Logronio, respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed that the depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent 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. Respondent Judge signed respondent de Leon's application for search warrant and respondent Logronio's deposition, the Search Warrant was then sign by respondent Judge and accordingly issued. Three days later, the BIR agents served the search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners' lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes of documents. Documents were uses as basis in assessing the Corporation for tax deficiencies. Issue/Held: WON a corporation is entitled to protection against unreasonable search and seizures.- YES. Ratio: "Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.) "In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation, the ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way." (Silverthorne Lumber Company, et al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.) In Stonehill, et al. vs. Diokno, et al., supra, this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures, thus:
"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity . . ."

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. Issue/Held: WON the Search Warrant is null and void.- YES Ratio: a) Respondent Judge failed to personally examine the complainant and his witness; his participation was limited to listening to the stenographer's readings of her notes, to a few words of warning against the commission of perjury,

b) c)

and to administering the oath to the complainant and his witness. This cannot be considered a personal examination. The search warrant was issued for more than one specific offense. Search Warrant was issued for "[v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The search warrant does not particularly describe the things to be seized.

BARREDO, J., concurring: Search Warrant is null and void. The search warrant was issued for more than one specific offense.


STONEHILL vs. DIOKNO2 G.R. No. L-19550 June 19, 1967 Facts: A total of 42 search warrants against petitioners herein and/or the corporations of which they were officers, directed to the any peace officer, to search the persons above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the following personal property to wit: Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers). as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code." Petitioners allege that the search warrants are null and void because: (1) they do not describe with particularity the documents, books and things to be seized; (2) cash money, not mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against the aforementioned petitioners in deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the documents, papers and cash money seized were not delivered to the courts that issued the warrants, to be disposed of in accordance with law. In their answer, respondents-prosecutors alleged, (1) that the contested search warrants are valid and have been issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the alleged illegality of the aforementioned searches and seizures. The documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the residences of petitioners herein. Issues/Held: WON as to the first group, petitioners as officers of the Corporation have a cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof.- NO Ratio: Said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be. It is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. If these papers were unlawfully seized and thereby the constitutional rights of or any one were invaded, they were the rights of the corporation and not the rights of the other defendants. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity.

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners, vs. HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.


BATAAN SHIPYARD AND ENGINEERING vs. PCGG G.R. No. 75885 May 27, 1987 Facts: Challenged 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. BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. This agreement bore, at the top right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock. The Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. The Sequestration, Takeover, and Other Orders Complained of:


Basic sequestration order of various companies and The TAKEOVER Order- While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." Order of production of business documents and records- BASECO argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. BASECO contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs on the following matters:

b. c.



Orders Re Engineer Island1. 2. Termination of Contract for Security Services Change of Mode of Payment of Entry Charges

ii. iii. iv. v.

Aborted contract for improvement of wharf at Engineer Island Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan Order to Dispose of Scrap, etc. Termination of Services of BASECO Officers

Executive Order No. 1 Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad." Upon these premises, the Presidential Commission on Good Government was created, "charged with the task of assisting the President in regard to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship.

Executive Order No. 2 Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and 2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world."

Executive Order No. 14 PCGG is empowered, "with the assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its findings." All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." Issue/Held: WON the issuance of the sequestration and take-over orders was valid- Yes Ratio: In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president. The facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14. Issue/Held: WON the Executive Orders are Bills of Attainder.- NO, Executive Orders not a Bill of Attainder.





Nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. N o punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

Issue/Held: WON there is a violation of right against self-incrimination and unreasonable searches and seizure.- NO Ratio: 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 Relevant jurisprudence is also cited by the Solicitor General. * * 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." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * 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. Its 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]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof. TEEHANKEE, CJ., concurring: The Court is unanimous insofar as the judgment at bar upholds the imperative need of recovering the ill-gotten properties amassed by the previous regime, which "deserves the fullest support of the judiciary and all sectors of society." The Court is likewise unanimous in its judgment dismissing the petition to declare unconstitutional and void Executive Orders Nos. 1 and 2 to annul the sequestration order of April 14, 1986. For indeed, the 1987 Constitution overwhelmingly adopted by the people


at the February 2, 1987 plebiscite expressly recognized in Article XVIII, section 26 thereof the vital functions of respondent PCGG to achieve the mandate of the people to recover such ill-gotten wealth and properties as ordained by Proclamation No. 3 promulgated on March 25, 1986. The Court is likewise unanimous as to the general rule set forth in the main opinion that "the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over" and "(T)he PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. PADILLA, J., concurring: The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid distinction between acts of conservation and preservation of assets and acts of ownership. Sequestration, freeze and temporary take-over encompass the first type of acts. They do not include the second type of acts which are reserved only to the rightful owner of the assets or business sequestered or temporarily taken over. MELENCIO-HERRERA, J., concurring: Melencio- Herrera qualifies the concurrence in so far as the voting of sequestered stork is concerned. The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It goes beyond the purpose of a writ of sequestration, which is essentially to preserve the property in litigation (Article 2005, Civil Code). Sequestration is in the nature of a judicial deposit (ibid.). GUTIERREZ, JR., J., concurring and dissenting: We are all agreed in the Court that the PCGG is not a judge. It is an investigator and prosecutor. Sequestration is only a preliminary or ancillary remedy. There must be a principal and independent suit filed in court to establish the true ownership of sequestered properties. The factual premise that a sequestered property was ill-gotten by former President Marcos, his family, relatives, subordinates, and close associates cannot be assumed. The fact of ownership must be established in a proper suit before a court of justice. CRUZ, J., dissenting: Cruz is convinced and so submit that the PCGG cannot at this time take over the BASECO without any court order and exercise thereover acts of ownership without court supervision. Voting the shares is an act of ownership. Reorganizing the board of directors is an act of ownership. Such acts are clearly unauthorized. As the majority opinion itself stresses, the PCGG is merely an administrator whose authority is limited to preventing the sequestered properties from being dissipated or clandestinely transferred.


PNB vs CA3 G.R. No. L-27155 May 18, 1978


Defendant Rita Guenco Tapnio secured a crop loan from PNB. This crop loan was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. Philmagen executed its Bond, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of whatever amount the bonding company would pay to the Philippine National Bank, both defendants (Rita Gueco Tapnio and Cecilio Gueco) executed the indemnity agreement.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to Philmagen, whereupon Philmagen accordingly paid the full amount due and owing in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year. his lease agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money which may be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs.

Sometimes, a planter harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for 19561957.

Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted to the branch manager at San Fernando, Pampanga.

Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul, whose recommendation was concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00 per picul. Mr. Tuazon asked for a reconsideration of the price per picul but thaw same was not acted upon the PNBs BOD. The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for reconsideration. As such, Tuazon wrote a letter to the Bank informing the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness.



Issue/Held: WON the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul.- YES

Ratio: It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of Philamgen. There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the lease by the Board of Directors of petitioner. 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, because any allotment which is not filled during such milling season may be reallocated by the Sugar Quota Administration to other holders of allotments. 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. "The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does not necessarily mean that there are always ready takers of said price." The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Issue/Held: WON PNB is liable for the damage caused.- YES Ratio: 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, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. 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. This petitioner failed to do. 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. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose; petitioner is consequently liable for the damages caused on private respondents. 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." The afore-cited provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body."


CHING vs. SECRETARY OF JUSTICE G. R. No. 164317 February 6, 2006 Facts: Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of credit to finance its importation of assorted goods. RCBC 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 respective goods. Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification" were respondent banks property. When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value amounting to P6,940,280.66 despite demands. Thus, a criminal case for estafa was filed against the Senior VP. The RTC, however, granted the Motion to Quash the Informations filed by petitioner on the ground that the material allegations therein did not amount to estafa. In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez, holding that the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay." Thus, the criminal complaint for estafa was re-filed. Issue: WON the Honorable Secretary of Justice correctly ruled that petitioner Alfredo Ching is the officer responsible for the offense charged.- NO Ratio: Assertions of Petitioner that he had no direct participation in the transaction other than being the Senior VP of the PBMI is too dull that it cannot even just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz: xxx If the violation or offense is committed by a corporation, partnership, association or other judicial 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. "There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD 115. xxx "In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our penal law. "Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil liabilities arising from the criminal offense thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115."


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. 115.4 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 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.

4 The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. 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.


PRIME WHITE CEMENT CORP. vs. IAC G.R. No. L-68555 March 19, 1993 Facts: Plaintiff and defendant corporation (Prime White Cement Corp.) 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 the said defendant corporation of its cement products in the entire Mindanao area for a term of five (5) years. (Terms: 20,000 cement bags at Php9.70 each; a Letter of Credit shall be opened by Plaintiff) The Plaintiff Alejandro Te was not an ordinary stockholder of Prime White Cement; 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. Right after, the plaintiff entered into the aforesaid dealership agreement, he 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. Relying heavily on the dealership agreement, plaintiff sometime in the months of September, October, and December, 1969, 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. Plaintiff wrote defendant that it is already in the process of applying for a Letter of Credit. The BOD of the defendant, however, replied that: (1) Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered; (2) The price of white cement was priced at P13.30 per bag; (3) The price of white cement is subject to readjustment unilaterally on the part of the defendant; (4) The letter of credit may be opened only with the Prudential Bank, Makati Branch; among others. 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. Issue/Held: WON the "dealership agreement" referred by the President and Chairman of the Board of defendantpetitioner corporation is a valid and enforceable contract.-NO. Ratio: General Rule: Under the Corporation Law, which was then in force at the time this case arose, as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. 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. 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. 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. Exception: The situation is quite different where a director or officer is dealing with his own corporation. Exception to the exception: 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. A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. 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." In the present case, contract was neither fair nor reasonable.
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.

As a result of this action which has been proven to be without legal basis, petitioner corporation's reputation and goodwill have been prejudiced. However, there can be no award for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation.


FILIPINAS BROADCASTING NETWORK vs. AGO MEDICAL AND EDUCATIONAL CENTER G.R. No. 141994. January 17, 2005 Facts: In their radio documentary show, 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 AMEC's College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre on 27 February 1990. Excerpts of the alleged libelous statements, as follows:

if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMEC's administration. On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept 'rejects' AMEC is a dumping ground, garbage, not merely of moral and physical misfits. When they become members of society outside of campus will be liabilities rather than assets.

Issues/Held: 1. WON the statements are libelous.- YES 2. WON AMEC is entitled to moral damages.- YES 3. WON award of Attys fees is proper.- NO


WON FBNI is solidarily liable with Rima and Alegre for payment of moral damages, attorney's fees and costs of suit.- YES


Statements are libelous. 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. True, AMEC is a private learning institution whose business of educating students is 'genuinely imbued with public interest. The welfare of the youth in general and AMEC's students in particular is a matter which the public has the right to know. However, in contrast with the case of Borjal, the questioned broadcasts are not based on established facts. In Borjal , the Court elucidated on the 'doctrine of fair comment, thus: [F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.


Given the circumstances of the case, AMEC is entitled to moral damages of Php150,000. General Rule: 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.5 Exception: Item 7 of Article 2219 of the Civil Code: Moral damages may be recovered in the following and analogous cases: x x x (7) Libel, slander or any other form of defamation; x x x. 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

The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al . to justify the award of moral damages. However, the Court's 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.


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. 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 libelous per se. Thus, AMEC is entitled to moral damages.

3. 4.

Award of attys 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. FBNI is solidarily liable with Rima and Alegre. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit. Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code. a. An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation. b. There is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre.