CONCEPT BUILDERS, INC., petitioner, vs.

THE NATIONAL LABOR RELATIONS COMMISSION, (First Division);

and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar,
Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito
Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben Robalos,respondents.

DECISION

HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego
of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong
is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these
instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into
one.

Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the
corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing
of the corporate veil comes into play.

This special civil action ostensibly raises the question of whether the National Labor Relations Commission
committed grave abuse of discretion when it issued a break-open order to the sheriff to be enforced against personal
property found in the premises of petitioners sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela,
Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers,
carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of employment by
petitioner, effective onNovember 30, 1981. It was stated in the individual notices that their contracts of employment had
expired and the project in which they were hired had been completed.

Public respondent found it to be, the fact, however, that at the time of the termination of private respondents
employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the
services of sub-contractors whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their
legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents
and to pay them back wages equivalent to one year or three hundred working days.

On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration
filed by petitioner on the ground that the said decision had already become final and executory.2

On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents
backwages amounted to P199,800.00.3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision,
dated December 19, 1984.The writ was partially satisfied through garnishment of sums from petitioners debtor, the
Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the
cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from
herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private
respondents to their former positions.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner
through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the
premises.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of
execution.
 The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November
2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4

The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises
so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
President.

On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI
and petitioner corporation were owned by the same incorporator! stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents
were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order.

In support of their claim against HPPI, private respondents presented duly certified copies of the General
Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities and Exchange Commission (SEC) and
the General Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open order,
contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two
corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then
engaged in construction.

On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-open order.

Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor
Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to
proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit.
 Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3,
1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision
despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate
veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its
liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and
iron pipes, a business which is distinct and separate from petitioners construction business. Hence, it is of no
consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and
subscribers.7

We find petitioners contention to be unmeritorious.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. 8 But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice. 9 So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws, 10 this separate personality of the corporation may be disregarded or the veil of corporate
fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate
juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and
is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time
the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time
no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego
doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual
defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.15
 In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it
filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address
is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the
same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would
also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate
officers, and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant
shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon
by the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages
and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and
its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the occasion to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was
SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. it is very clear that the latter corporation was a
continuation and successor of the first entity x x x. Both predecessors and successor were owned and controlled by
petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This
avoiding-the-liability scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel
Corporation (the second corporation) was owned by respondent x x x Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation
to its employees.

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was
dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution
of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place
where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor
Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied
with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the
Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by
substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse
of a discretion.18

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.

SO ORDERED.

DIGEST

Concept Builders Inc. vs. NLRC (May 29, 1996)

Posted on January 27, 2015by Zoj D
FACTS:
1. Private Respondents were the employees of the Petitioner Corporation. They filed illegal dismissal, unfair labor
practice and claimed for their benefits with the NLRC. They alleged that their contract of employment had not yet expired
and the project in which they were hired were not yet completed, as stated in the written notices sent by the Company.

2. NLRC, ruled in favor of the Employees. At the time of the termination of private respondents employment, the project in
which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.

3. An alias Writ of Execution was issued by the Labor Arbiter to collect the balance of the judgment award and to reinstate
private respondents. However, the sheriff failed to enforce because the security guard on the premises refused him to
enter on the ground that, it is no longer occupied by the petitioner.

4. A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be
levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. He alleged
that HPPI is a manufacturing firm while petitioner was then engaged in construction.

5. Private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation
were owned by the same incorporator and stockholders. NLRC granted the Motion.

ISSUES:
1. WON the Sister Company (HPPI) has a personality separate and distinct from the petitioner corporation (CONCEPT
BUILDERS)?
2. WON HPPI is used as a shield to evade the corporations subsidiary liability for damages?
3. WON NLRC commited a grave abuse of discretion when it issued a break open order?

HELD:
PETITIONER DENIED.
1. The Sister Company has NO separate and distinct personality from the Concept Builders 2. HPPI is used to Evade
Corporations liability.
3. NLRC did not commit a grave abuse of discretion when it issued a break-open order against HHPI.
RATIONALE:
1. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders
and from other corporations to which it may be connected.8 But, this separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to promote justice.9 So, when the notion of separate juridical
personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws,10 this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation
2. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
3. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time
no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter
ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual
defendants relationship to that operation.
4. NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It
would also not be amiss to note that both corporations had the same president, the same board of directors,
the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant
shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon
by the sheriff were not of respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and
to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

5. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present
case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its
employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private
respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed
for lack of merit by the NLRC.

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December
3, 1992, are AFFIRMED.

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT OF APPEALS,
PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY,respondents.

DECISION

VITUG, J.:

Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari.

Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation,"
executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers
Bank of the Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million pesos
(P3,000,000.00). A provision in the chattel mortgage agreement was to this effect -

"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or
obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x.

"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an
extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as
security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a
new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any
and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations
have been contracted before, during or after the constitution of this mortgage." [1]

In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from
respondent bank additional financial accommodations totalling P2,700,000.00. [2] These borrowings were on due date also
fully paid.

On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos
(P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not
settled at maturity.[3] Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage,
hereinbefore cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for
injunction, with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City
(Civil Case No. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel
mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage.

Petitioner corporation appealed to the Court of Appeals [4] which, on 14 August 1991, affirmed, "in all respects," the
decision of the court a quo. The motion for reconsideration was denied on 24 January 1992.

The instant petition interposed by petitioner corporation was initially denied on 04 March 1992 by this Court for
having been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while petitioner
corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's
first motion for reconsideration but granted a second motion for reconsideration, thereby reinstating the petition and
requiring private respondent to comment thereon. [5]

Except in criminal cases where the penalty of reclusion perpetua or death is imposed[6] which the Court so reviews as
a matter of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. The
circulars of the Court prescribing technical and other procedural requirements are meant to weed out unmeritorious
petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. These technical and
procedural rules, however, are intended to help secure, not suppress, substantial justice. A deviation from the rigid
enforcement of the rules may thus be allowed to attain the prime objective for, after all, the dispensation of justice is the
core reason for the existence of courts. In this instance, once again, the Court is constrained to relax the rules in order to
give way to and uphold the paramount and overriding interest of justice.

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship,
the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the
guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is
secured by an encumbrance of property - in pledge, the placing of movable property in the possession of the creditor;
in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a
written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to
apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit - upon the essential
condition that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation, [7] but that should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character [8] of the agreement. As the law so puts it, once the obligation is
complied with, then the contract of security becomes, ipso facto, null and void.[9]

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as
these future debts are accurately described,[10] a chattel mortgage, however, can only cover obligations existing at the time
the mortgage is constituted. Although apromise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law.[11] Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation
can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but,
of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed.

A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel
Mortgage Law itself.One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that
if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not
against third persons acting in good faith[12]), the fact, however, that the statute has provided that the parties to the
contract must execute an oath that -

"x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no
other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud." [13]
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the
chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan
which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage void or terminated.In Belgian Catholic Missionaries, Inc., vs.
Magallanes Press, Inc., et al.,[14] the Court said -

"x x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the
same are made and not from the date of the mortgage." [15]

The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist
coincidentally with the full payment of the P3,000,000.00 loan, [16] there no longer was any chattel mortgage that could
cover the new loans that were concluded thereafter.

We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a
specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank
against it."[17] This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way
of moral damages.[18] In LBC Express, Inc. vs. Court of Appeals,[19]we have said:

"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person
and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it
flows from real ills, sorrows, and griefs of life - all of which cannot be suffered by respondent bank as an artificial
person."[20]

While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named as a
party in representation of petitioner corporation.

Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out
to be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on
the petition his so-called "One Final Word;" viz:

"In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of Appeals should be required
to justify its decision which completely disregarded the basic laws on obligations and contracts, as well as the clear
provisions of the Chattel Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event that its
explanation is wholly unacceptable, this Honorable Court should impose appropriate sanctions on the erring justices. This
is one positive step in ridding our courts of law of incompetent and dishonest magistrates especially members of a
superior court of appellate jurisdiction."[21](Italics supplied.)

The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. Villamor;[22] thus:

"(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due to the courts of justice and
judicial officers and x x x (to) insist on similar conduct by others.' This respectful attitude towards the court is to be
observed, `not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme
importance.' And it is `through a scrupulous preference for respectful language that a lawyer best demonstrates his
observance of the respect due to the courts and judicial officers x x x.'" [23]

The virtues of humility and of respect and concern for others must still live on even in an age of materialism.

WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to
the appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs.

Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts.

SO ORDERED

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE and LEONARDO T.
YABUT, respondents. [G.R. No. 149507. May 28, 2004]
CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
 DECISION
PANGANIBAN, J.:

By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the
right to expect high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing
the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed
to question those errors in the statements sent by the bank to them for verification.

The Case

Before us are two Petitions for Review [1] under Rule 45 of the Rules of Court, assailing the March 23,
2001 Decision[2] and the August 17, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal
portion of the assailed Decision reads as follows:

WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that defendant bank
[Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged checks in the amount
of P547,115.00 after deductions subject to REIMBURSEMENT from third party defendant Yabut who is
likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)]. [4]

The assailed Resolution denied all the parties Motions for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

On November 8, 1982, plaintiff CASA Montessori International [5] opened Current Account No. 0291-0081-01 with
defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized signatories.

In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been encashed by a certain
Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following dates and amounts:

Check No. Date Amount

1. 839700 April 24, 1990 P 43,400.00

2. 839459 Nov. 2, 1990 110,500.00

3. 839609 Oct. 17, 1990 47,723.00

4. 839549 April 7, 1990 90,700.00

5. 839569 Sept. 23, 1990 52,277.00

6. 729149 Mar. 22, 1990 148,000.00

7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00

9. 729034 Mar. 2, 1990 98,985.00

Total -- P 782,600.00[6]

It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by third party
defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant voluntarily admitted that he
forged the signature of Ms. Lebron and encashed the checks.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings
thereon compared to the standard signature of Ms. Lebron were not written by the latter.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank praying
that the latter be ordered to reinstate the amount of P782,500.00[7] in the current and savings accounts of the plaintiff with
interest at 6% per annum.
On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff. [8]
 Ruling of the Court of Appeals

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The
appellate court took into account CASAs contributory negligence that resulted in the undetected forgery. It then ordered
Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also disallowed attorneys
fees and moral and exemplary damages.
Hence, these Petitions.[9]

Issues

In GR No. 149454, Petitioner BPI submits the following issues for our consideration:

I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable decisions of this
Honorable Court to the effect that forgery cannot be presumed; that it must be proved by clear, positive and convincing
evidence; and that the burden of proof lies on the party alleging the forgery.

II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in particular the
Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence, from asserting its forgery
claim against BPI, specially taking into account the absence of any negligence on the part of BPI. [10]

In GR No. 149507, Petitioner CASA submits the following issues:

1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI], although negligent, acted in bad
faith x x x thus denying the prayer for the award of attorneys fees, moral damages and exemplary damages to
[CASA]. The Honorable Court also erred when it did not order [BPI] to pay interest on the amounts due to [CASA].

2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at bar, thus
warranting its conclusion that the loss in the amount of P547,115.00 be apportioned between [CASA] and [BPI] x x x. [11]

These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law
(NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a defense? Third,
should moral and exemplary damages, attorneys fees, and interest be awarded?

The Courts Ruling

The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious.

First Issue:
Forged Signature Wholly Inoperative

Section 23 of the NIL provides:

Section 23. Forged signature; effect of. -- When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right x x x to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.[12]

Under this provision, a forged signature is a real[13] or absolute defense,[14] and a person whose signature on a
negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the
contract that allegedly gave rise to it.[15]
The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery.[16]
In the present case, we hold that there was forgery of the drawers signature on the check.
First, both the CA[17] and the RTC[18] found that Respondent Yabut himself had voluntarily admitted, through an
Affidavit, that he had forged the drawers signature and encashed the checks. [19] He never refuted these findings. [20] That
he had been coerced into admission was not corroborated by any evidence on record. [21]
Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said
checks,[22] had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were not
hers.[23] This conclusion was the same as that in the Report [24] that the PNP Crime Laboratory had earlier issued to BPI --
the drawee bank -- upon the latters request.
Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA, since these are
supported by substantial evidence on record.[25]
Voluntary Admission Not
Violative of Constitutional Rights

The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against
self-incrimination.
In the first place, he was not under custodial investigation. [26] His Affidavit was executed in private and before private
individuals.[27] The mantle of protection under Section 12 of Article III of the 1987 Constitution [28] covers only the period
from the time a person is taken into custody for investigation of his possible participation in the commission of a crime or
from the time he is singled out as a suspect in the commission of a crime although not yet in custody.[29]
Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom,
with questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or any
information.[30] The said constitutional provision does not apply to spontaneous statements made in a voluntary
manner[31] whereby an individual orally admits to authorship of a crime. [32] What the Constitution proscribes is the
compulsory or coercive disclosure of incriminating facts.[33]
Moreover, the right against self-incrimination [34] under Section 17 of Article III[35] of the Constitution, which is ordinarily
available only in criminal prosecutions, extends to all other government proceedings -- including civil actions, legislative
investigations,[36] and administrative proceedings that possess a criminal or penal aspect [37] -- but not to private
investigations done by private individuals. Even in such government proceedings, this right may be waived, [38] provided the
waiver is certain; unequivocal; and intelligently, understandingly and willingly made. [39]
If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment
that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities or to
the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory for CASA
-- the plaintiff below -- to implead Yabut in the civil case before the lower court.
Under these two constitutional provisions, [t]he Bill of Rights [40] does not concern itself with the relation between a
private individual and another individual. It governs the relationship between the individual and the State. [41] Moreover, the
Bill of Rights is a charter of liberties for the individual and a limitation upon the power of the [S]tate. [42] These rights[43] are
guaranteed to preclude the slightest coercion by the State that may lead the accused to admit something false, not
prevent him from freely and voluntarily telling the truth. [44]
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights does not automatically entitle him
to the constitutional protection.[45] When he freely and voluntarily executed[46] his Affidavit, the State was not even
involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial
investigation and against self-incrimination.

Clear, Positive and Convincing

Examination and Evidence

The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing.
Forgery cannot be presumed.[47] It must be established by clear, positive and convincing evidence. [48] Under the best
evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence
may inceptively be introduced, as the original writing itself must be produced in court. [49] But when, without bad faith on the
part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence
may be produced.[50] Without bad faith on its part, CASA proved the loss or destruction of the original checks through the
Affidavit of the one person who knew of that fact [51] -- Yabut. He clearly admitted to discarding the paid checks to cover up
his misdeed.[52] In such a situation, secondary evidence like microfilm copies may be introduced in court.
The drawers signatures on the microfilm copies were compared with the standard signature. PNP Document
Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them. [53] Although no
conclusive report could be issued in the absence of the original checks, [54] she affirmed that her findings were 90 percent
conclusive.[55] According to her, even if the microfilm copies were the only basis of comparison, the differences were
evident.[56] Besides, the RTC explained that although the Report was inconclusive, no conclusive report could have been
given by the PNP, anyway, in the absence of the original checks. [57] This explanation is valid; otherwise, no such report can
ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document --
such as the drawers signature on a check -- is the subject of inquiry.[58] As to whether the document has been actually
executed, this rule does not apply; and testimonial as well as any other secondary evidence is admissible. [59] Carina
Lebron herself, the drawers authorized signatory, testified many times that she had never signed those checks. Her
testimonial evidence is admissible; the checks have not been actually executed. The genuineness of her handwriting is
proved, not only through the courts comparison of the questioned handwritings and admittedly genuine specimens
thereof,[60] but above all by her.
The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of
evidence[61] nor creates an unfavorable inference against it. [62] Such failure merely authorizes the introduction of secondary
evidence[63] in the form of microfilm copies. Of no consequence is the fact that CASA did not present the signature card
containing the signatures with which those on the checks were compared. [64] Specimens of standard signatures are not
limited to such a card. Considering that it was not produced in evidence, other documents that bear the drawers authentic
signature may be resorted to.[65] Besides, that card was in the possession of BPI -- the adverse party.
 We have held that without the original document containing the allegedly forged signature, one cannot make a
definitive comparison that would establish forgery; [66] and that a comparison based on a mere reproduction of the
document under controversy cannot produce reliable results. [67] We have also said, however, that a judge cannot merely
rely on a handwriting experts testimony,[68] but should also exercise independent judgment in evaluating the authenticity of
a signature under scrutiny.[69] In the present case, both the RTC and the CA conducted independent examinations of the
evidence presented and arrived at reasonable and similar conclusions. Not only did they admit secondary evidence; they
also appositely considered testimonial and other documentary evidence in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met.
[70]
The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be
inconclusive;[71] but it is a non sequitur to say that such result is not clear, positive and convincing. The preponderance of
evidence required in this case has been satisfied.[72]

Second Issue:
Negligence Attributable to BPI Alone

Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making payments by virtue
thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear
on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a
real defense.

Clear Negligence
in Allowing Payment
Under a Forged Signature

We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount
importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence [73] is
expected,[74] and high standards of integrity and performance are even required, of it. [75] By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors with meticulous care, [76] always having in mind the fiduciary
nature of their relationship.[77]
BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures
therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it still
failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence
required[78] of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is bound to know
the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. [79] In fact,
BPI was the same bank involved when we issued this ruling seventy years ago.

Neither Waiver nor Estoppel

Results from Failure to
Report Error in Bank Statement

The monthly statements issued by BPI to its clients contain a notice worded as follows: If no error is reported in ten
(10) days, account will be correct. [80] Such notice cannot be considered a waiver, even if CASA failed to report the
error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation [81] or circularization -- in accounting parlance -- that requests client-depositors to
affirm the accuracy of items recorded by the banks. [82] Its purpose is to obtain from the depositors a direct corroboration of
the correctness of their account balances with their respective banks. [83] Internal or external auditors of a bank use it as a
basic audit procedure[84] -- the results of which its client-depositors are neither interested in nor privy to -- to test the details
of transactions and balances in the banks records. [85] Evidential matter obtained from independent sources outside a bank
only serves to provide greater assurance of reliability[86] than that obtained solely within it for purposes of an audit of its
own financial statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be detected [87] for various reasons. One, materiality is
a consideration in audit planning;[88] and two, the information obtained from such a substantive test is merely presumptive
and cannot be the basis of a valid waiver.[89] BPI has no right to impose a condition unilaterally and thereafter consider
failure to meet such condition a waiver. Neither may CASA renounce a right[90] it has never possessed.[91]
Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the
passive one is duty-bound to suffer such enforcement.[92]
On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a
response to its notice.Besides, the notice was a measly request worded as follows: Please examine x x x and report x x x.
[93]
CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It
could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to
that established as the truth, in legal contemplation. [94] Our rules on evidence even make a juris et de
jure presumption[95] that whenever one has, by ones own act or omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or
omission -- be permitted to falsify that supposed truth. [96]
In the instant case, CASA never made any deed or representation that misled BPI. The formers omission, if any, may
only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct
was due to such ignorance founded upon an innocent mistake, estoppel will not arise. [97] A person who has no knowledge
of or consent to a transaction may not be estopped by it. [98]Estoppel cannot be sustained by mere argument or doubtful
inference x x x.[99] CASA is not barred from questioning BPIs error even after the lapse of the period given in the notice.

Loss Borne by
Proximate Source
of Negligence

For allowing payment[100] on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable
to its depositor-drawer.Since the encashing bank is one of its branches, [101] BPI can easily go after it and hold it liable for
reimbursement.[102] It may not debit the drawers account [103] and is not entitled to indemnification from the drawer. [104] In
both law and equity, when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to
perpetrate the wrong.[105]
Proximate cause is determined by the facts of the case. [106] It is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have
occurred.[107]
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being
encashed, BPI is expected to use reasonable business prudence. [108] In the performance of that obligation, it is bound by
its internal banking rules and regulations that form part of the contract it enters into with its depositors. [109]
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without
privity;[110] that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to
discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on
the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit [111] of the bank
even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI
accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be
held primarily liable[112] for the negligence of its officers or agents when acting within the course and scope of their
employment.[113] It must bear the loss.

CASA Not Negligent

in Its Financial Affairs

In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception [114] to the general rule
that a forged signature is wholly inoperative. [115] Contrary to BPIs claim, however, we do not find CASA negligent in
handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.

Role of Independent Auditor

The major purpose of an independent audit is to investigate and determine objectively if the financial statements
submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting
practices[116] of private entities. The relationship that arises therefrom is both legal and moral. [117] It begins with the
execution of the engagement letter[118] that embodies the terms and conditions of the audit and ends with the fulfilled
expectation of the auditors ethical[119] and competent performance in all aspects of the audit. [120]
The financial statements are representations of the client; but it is the auditor who has the responsibility for the
accuracy in the recording of data that underlies their preparation, their form of presentation, and the opinion [121] expressed
therein.[122] The auditor does not assume the role of employee or of management in the clients conduct of
operations[123] and is never under the control or supervision[124] of the client.
Yabut was an independent auditor [125] hired by CASA. He handled its monthly bank reconciliations and had access to
all relevant documents and checkbooks.[126] In him was reposed the clients[127] trust and confidence[128] that he would
perform precisely those functions and apply the appropriate procedures in accordance with generally accepted auditing
standards.[129] Yet he did not meet these expectations. Nothing could be more horrible to a client than to discover later on
that the person tasked to detect fraud was the same one who perpetrated it.

Cash Balances
Open to Manipulation
 It is a non sequitur to say that the person who receives the monthly bank statements, together with the cancelled
checks and other debit/credit memoranda, shall examine the contents and give notice of any discrepancies within a
reasonable time. Awareness is not equipollent with discernment.
Besides, in the internal accounting control system prudently installed by CASA, [130] it was Yabut who should examine
those documents in order to prepare the bank reconciliations. [131] He owned his working papers,[132] and his output
consisted of his opinion as well as the clients financial statements and accompanying notes thereto. CASA had every right
to rely solely upon his output -- based on the terms of the audit engagement -- and could thus be unwittingly duped into
believing that everything was in order. Besides, [g]ood faith is always presumed and it is the burden of the party claiming
otherwise to adduce clear and convincing evidence to the contrary.[133]
Moreover, there was a time gap between the period covered by the bank statement and the date of its actual
receipt. Lebron personally received the December 1990 bank statement only in January 1991 [134] -- when she was also
informed of the forgery for the first time, after which she immediately requested a stop payment order. She cannot be
faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal but
corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with molding the
minds of the youth cannot be burdened with the intricacies or complexities of corporate existence.
There is also a cutoff period such that checks issued during a given month, but not presented for payment within that
period, will not be reflected therein.[135] An experienced auditor with intent to defraud can easily conceal any devious
scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record --
especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its
unintelligent choice in the selection and appointment of an auditor -- a fault that is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it. [136] Its mere existence is not sufficient without proof
that it, and no other cause,[137] has given rise to damages.[138] In addition, this fault is common to, if not prevalent among,
small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), through the
Board of Accountancy (BOA), to require today not only accreditation for the practice of public accountancy, [139] but also the
registration of firms in the practice thereof. In fact, among the attachments now required upon registration are the code of
good governance[140] and a sworn statement on adequate and effective training. [141]
The missing checks were certainly reported by the bookkeeper [142] to the accountant[143] -- her immediate supervisor --
and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them, assured
the bookkeeper that there were no irregularities.
The bookkeeper[144] who had exclusive custody of the checkbooks [145] did not have to go directly to CASAs president
or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was
arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check stubs in
support of all check disbursements could be concealed or fabricated -- even in collusion -- and management would still
have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable
for breach of contract and negligence,[146] with all the more reason may they be charged with the perpetration of fraud
upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or
munificence or both. Money paid under a mistake may rightfully be recovered, [147] and under such terms as the injured
party may choose.

Third Issue:
Award of Monetary Claims

Moral Damages Denied

We deny CASAs claim for moral damages.

In the absence of a wrongful act or omission, [148] or of fraud or bad faith,[149] moral damages cannot be awarded.
[150]
The adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but
error alone is not a ground for granting such damages. [151] While no proof of pecuniary loss is necessary therefor -- with
the amount to be awarded left to the courts discretion [152] -- the claimant must nonetheless satisfactorily prove the
existence of its factual basis[153] and causal relation[154] to the claimants act or omission.[155]
Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code -- upon
which its claim for moral damages is predicated. [156] Neither bad faith nor negligence so gross that it amounts to
malice[157] can be imputed to BPI. Bad faith, under the law, does not simply connote bad judgment or negligence; [158] it
imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through
some motive or interest or ill will that partakes of the nature of fraud. [159]
As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having
existence only in legal contemplation -- is not entitled to moral damages, [160] because it cannot experience physical
suffering and mental anguish.[161] However, for breach of the fiduciary duty required of a bank, a corporate client may claim
such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom. [162] CASA
was unable to prove that BPI had debased the good reputation of, [163] and consequently caused incalculable
embarrassment to, the former. CASAs mere allegation or supposition thereof, without any sufficient evidence on record,
[164]
is not enough.
Exemplary Damages Also Denied

We also deny CASAs claim for exemplary damages.

Imposed by way of correction [165] for the public good,[166] exemplary damages cannot be recovered as a matter of
right.[167] As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged
signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.[168] The latter, having no right to moral damages, cannot demand exemplary damages. [169]

Attorneys Fees Granted

Although it is a sound policy not to set a premium on the right to litigate, [170] we find that CASA is entitled to
reasonable attorneys fees based on factual, legal, and equitable justification. [171]
When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latters interest,
[172]
or where the court deems it just and equitable, [173] attorneys fees may be recovered. In the present case, BPI
persistently denied the claim of CASA under the NIL to recredit the latters account for the value of the forged checks. This
denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate
interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it had committed
seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent
(10%)[174] of the total value adjudged to CASA as attorneys fees.

Interest Allowed

For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain
payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing [175] of the
Complaint.[176] Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six percent
(6%) per annum.[177] If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal interest, which is six
percent per annum.[178] The actual base for its computation shall be on the amount finally adjudged,
[179]
compounded[180] annually to make up for the cost of money[181] already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for
breach of contract.[182]Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to
the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be governed by the provisions of
existing legislation or, in default thereof, by the rules of the law merchant. [183] Damages are not provided for in the
NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of
commerce shall be governed by its provisions and, in their absence, by the usages of commerce generally observed in
each place; and in the absence of both rules, by those of the civil law. [184] This law being silent, we look at Article 18 of the
Civil Code, which states: In matters which are governed by the Code of Commerce and special laws, their deficiency shall
be supplied by its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our
civil law is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED.
The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the total
value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal
rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in full; and attorneys
fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire amount, excepting
attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the Professional Regulation
Commission for such action as it may deem appropriate against Respondent Yabut. No costs.
SO ORDERED.

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

DECISION
CARPIO, J.:

The Case
 This petition for review[1] assails the 4 January 1999 Decision [2] and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision [3] of
the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas
Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them
to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees
and costs of suit.

The Antecedents

Expos is a radio documentary [4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre).
[5]
Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is
heard over Legazpi City, the Albay municipalities and other Bicol areas. [6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College
of Medicine, filed a complaint for damages [7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of
the allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to
pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted with
the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS.
xxx

Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such
greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject
upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students
would be informed that course would be moved to a later date because the school is still searching for the appropriate
instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few
years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises
youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or
Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is
substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors
and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the
basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its
reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of
Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept
rejects. For example how many teachers in AMEC are former teachers of Aquinas University but were removed because
of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic
administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of
AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration
exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making
use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning
she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in
AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this
mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are
too old. As an aviation, your case is zero visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is
practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient
of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by
evil. When they become members of society outside of campus will be liabilities rather than assets. What do you
expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their
social status are even more burdened with false regulations. xxx [9] (Emphasis supplied)

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

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by
the controversial utterances, which are not found by this court to be really very serious and damaging, and there
being no showing that indeed the enrollment of plaintiff school dropped,defendants Hermogenes Jun Alegre, Jr. and
Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff
Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00
moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.

SO ORDERED. [13] (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision
to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court
made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees
because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals
decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima
is SOLIDARILY ADJUDGEDliable with FBN[I] and Hermo[g]enes Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution.
Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

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

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEYS FEES AND COSTS OF SUIT.

The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.
[17]
While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs
cause of action is based on Articles 30 and 33 of the Civil Code. Article 30 [18] authorizes a separate civil action to recover
civil liability arising from a criminal offense. On the other hand, Article 33 [19] particularly provides that the injured party may
bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article
19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles 2176 [21] and 2180[22]of the Civil Code to hold
FBNI solidarily liable with Rima and Alegre.

I.
Whether the broadcasts are libelous

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical
person, or to blacken the memory of one who is dead. [24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending
to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs
administrators; AMEC is a dumping ground, garbage of xxx moral and physical misfits; and AMEC students who graduate
will be liabilities rather than assets of the society are libelous perse. Taken as a whole, the broadcasts suggest that AMEC
is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated
Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs
side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice,
there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs
program, Rima and Alegre should have presented the public issues free from inaccurate and misleading information.
[26]
Hearing the students alleged complaints a month before the expos, [27] they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither
did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and
Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to
disclose any information. Alegre simply relied on the words of the students because they were many and not because
there is proof that what they are saying is true. [28] This plainly shows Rima and Alegres reckless disregard of whether their
report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the
United States apply the privilege of neutral reportage in libel cases involving matters of public interest or public figures.
Under this privilege, a republisher who accuratelyand disinterestedly reports certain defamatory statements made against
public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the
accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in
the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege
of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a
party to that controversy makes the defamatory statement. [30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,
[31]
FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged communications for being
commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice.
Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or
slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed
false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed
malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is
not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must
either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of
opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[32] (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public
interest. The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to
know. Thus, similar to the newspaper articles inBorjal, the subject broadcasts dealt with matters of public interest.
However, unlike in Borjal, the questioned broadcasts are not based onestablished facts. The record supports the
following findings of the trial court:

xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet,
defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much
less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it
could easily give license to the media to malign people and establishments based on flimsy excuses that there were
reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible
broadcasting which is inimical to public interests.

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not
verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff
produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial
broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed
by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants
could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded
too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they
were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to
be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the
name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by
Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff
school from the aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in
one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the
school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the
bases for these claims, at least in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean
Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was
found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still
very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to
be still very sharp and effective. So is plaintiffs counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being
from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination
easily and become prosperous and responsible professionals. [33]

Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably be inferred from the facts. [34] However, the comments of Rima and
Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code [35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code).
Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. 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] (Emphasis
supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct
governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the
radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that
radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct provides the standards for determining whether a
person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as required
by Article 19[37] of the Civil Code. A professional code of conduct also provides the standards for determining whether a
person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under
Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation. [39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. [40] The Court
of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages. However, the Courts
statement in Mambulao that a corporation may have a good reputation which, if besmirched, may also be a ground for
the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation and claim for moral damages. [44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. [46] Neither in such a
case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some
damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelousper se, AMEC has not suffered any substantial or material damage to its reputation. Therefore,
we reduce the award of moral damages fromP300,000 to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees.
FBNI adds that the instant case does not fall under the enumeration in Article 2208 [48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees.
AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed
to explicitly state in their respective decisions the rationale for the award of attorneys fees. [49] In Inter-Asia Investment
Industries, Inc. v. Court of Appeals,[50] we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is
a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the
award of attorneys fees.[51] (Emphasis supplied)

While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and
depends upon the circumstances of each case, the Court of Appeals failed to point out any circumstance to justify the
award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees
because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI
maintains that its broadcasters, including Rima and Alegre, undergo a very regimented process before they are allowed to
go on air. Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI
points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did
not exercise the diligence of a good father of a family in selecting and supervising them. Rimas accreditation lapsed due
to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable
to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or
government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. [53] Thus,
AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from
the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by radio or
television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures,
or participates in, the making of the defamatory statements. [54] An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation. [55] In this case, Rima and Alegre were clearly performing their official duties as hosts
of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre
went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the
defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its
broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and objectivity and to refrain
from using libelous and indecent language is not enough to prove due diligence in the supervision of its broadcasters.
Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the
supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind
their qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs regimented
process of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,
[56]
which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary,
indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these
circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable
to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26
January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral
damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner.
SO ORDERED.

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R. No. 176579, June
28, 2011
DECISION
I. THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation
(PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC),
to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-
based investment management and holding company and a shareholder of the Philippine Long Distance Telephone
Company PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or
about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First
Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws
of the Philippines, at least sixty per centum of whose capital is owned by such citizens ; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing officers of such corporation or association must
be citizens of the Philippines. (Emphasis supplied)

II. THE ISSUE

Does the term capital in Section 11, Article XII of the Constitution refer to the total common shares only, or to the
total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?

III. THE RULiNG

[The Court partly granted the petition and held that the term capital in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares
in PLDT.]

Considering that common shares have voting rights which translate to control, as opposed to preferred shares
which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall
include such preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote in the election of directors.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-
reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards
who owns the all-important voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs
Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any
meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any
action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders. On the other
hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of
Incorporation state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock
held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the
exclusive right to vote for the election of directors and for all other purposes.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS), which is a document required to be submitted
annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas
Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDTs
common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is
clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent
limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par
value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover,
99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares
but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x
corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such
citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of
PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends
that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and
control of a public utility is a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to
apply the foregoing definition of the term capital in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.]