CEASE VS CA

FACTS:

Forrest Cease and five (5) other American citizens formed Tiaong Milling and Plantation Company. Eventually, the shares of
the other original incorporators were bought out by Cease with his children. The company’s charter lapsed in June 1958. Forrest
Cease died in August 1959. There was no mention whether there were steps to liquidate the company. Some of his children
wanted an actual division while others wanted a reincorporation, who proceeded to incorporate themselves into the F.L. Cease
Plantation Company and registered it with the Securities and Exchange Commission on 9 December, 1959. Two of his children,
Benjamin and Florence, initiated Special Proceeding No. 3893 with CFI Tayabas asking that the Tiaong Milling and
Plantation Corporation be declared identical to F.L Cease Plantation Company and that its properties be divided among
his children as intestate heirs. Defendants opposed the same but the CFI ruled in favor of the plaintiffs. During the pendency
of Civil Case No. 6326 specifically on 21 May, 1961 apparently on the eve of the expiry of the three (3) year period provided by
the law for the liquidation of corporations, the board of liquidators of Tiaong Milling executed an assignment and conveyance of
properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co.

ARGUMENTS OF PETITIONER:

• the issue of ownership had been raised in the lower court when Tiaong Milling asserted title over the properties
registered in its corporate name adverse to Forrest L. Cease or his estate, and that the said issue was erroneously
disposed of by the trial court in the partition proceedings when it concluded that the assets or properties of the defunct
company is also the estate of the deceased proprietor.
• petitioners argue that the action for partition should not have prospered in view of the repudiation of the co-ownership
by Tiaong Milling and Plantation Company when, as early in the trial court, it already asserted ownership and corporate
title over the properties adverse to the right of ownership of Forrest L. Cease or his estate.
• petitioners argue that no evidence has been found to support the conclusion that the registered properties of Tiaong
Milling are also properties of the estate of Forrest L. Cease; that on the contrary, said properties are registered under
Act No. 496 in the name of Tiaong Milling as lawful owner and possessor for the last 50 years of its corporate existence.

ISSUE: Whether or not the properties of the Tiaong Milling and Plantation Company forms part of the estate of the deceased
Forrest L. Cease.

HELD: Yes. The theory of “merger of Forrest L. Cease and The Tiaong Milling as one personality”, or that “the company is only
the business conduit and alter ego of the deceased Forrest L. Cease and the registered properties of Tiaong Milling are actually
properties of Forrest L. Cease and should be divided equally, share and share alike among his six children, … “, the trial court
did aptly apply the familiar exception to the general rule by disregarding the legal fiction of distinct and separate corporate
personality and regarding the corporation and the individual member one and the same.

It must be remembered that when Tiaong Milling adduced its defense and raised the issue of ownership, its corporate existence
already terminated through the expiration of its charter. It is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the
expiration of the charter period, the corporation ceases to exist and is dissolved ipso facto except for purposes connected with
the winding up and liquidation. The provision allows a three year, period from expiration of the charter within which the entity
gradually settles and closes its affairs, disposes and convey its property and to divide its capital stock, but not for the purpose
of continuing the business for which it was established. At this terminal stage of its existence, Tiaong Milling may no longer
persist to maintain adverse title and ownership of the corporate assets as against the prospective distributees when at this time
it merely holds the property in trust, its assertion of ownership is not only a legal contradiction, but more so, to allow it to maintain
adverse interest would certainly thwart the very purpose of liquidation and the final distribute loll of the assets to the proper,
parties.

In shredding the fictitious corporate veil, the trial judge narrated the undisputed factual premise, thus:

While the records showed that originally its incorporators were aliens, friends or third-parties in relation to another, in the course
of its existence, it developed into a close family corporation. The Board of Directors and stockholders belong to one family the
head of which Forrest L. Cease always retained the majority stocks and hence the control and management of its affairs. It must
be noted that as his children increase or become of age, he continued distributing his shares among them adding Florence,
Teresa and Marion until at the time of his death only 190 were left to his name. Definitely, only the members of his family
benefited from the Corporation.
The corporation 'never' had any account with any banking institution or if any account was carried in a bank on its behalf, it was
in the name of Mr. Forrest L. Cease. There is truth in plaintiff's allegation that the corporation is only a business conduit of his
father and an extension of his personality, they are one and the same thing. Thus, the assets of the corporation are also the
estate of Forrest L. Cease, the father of the parties herein who are all legitimate children of full blood.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of corporate
fiction.

GENERAL RULE: a corporation is vested by law with a personality separate and distinct from the persons composing it as well
as any other legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made to
answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. This
separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice

EXCEPTIONS: Such rule may not be used or invoked for ends subversive of the policy and purpose behind its creation or which
could not have been intended by law to which it owes its being. This is particularly true where the fiction is used to defeat public
convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or
otherwise circumvent the law

This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of
the stockholders or of another corporate. In any of these cases, the notion of corporate entity will be pierced or disregarded, and
the corporation will be treated merely as an association of persons or, where there are two corporations, they will be merged as
one, the one being merely regarded as part or the instrumentality of the other.

An indubitable deduction from the findings of the trial court cannot but lead to the conclusion that the business of the corporation
is largely, if not wholly, the personal venture of Forrest L. Cease. There is not even a shadow of a showing that his children were
subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated solely from Forrest L.
Cease's gratuitous dole out of his own shares to the benefit of his children and ultimately his family.

If the Court sustained the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretion amounting
to lack of jurisdiction in deciding the civil case as a case for partition, Tiaong Milling and Plantation Company would have been
able to extend its corporate existence beyond the period of its charter which lapsed in June, 1958 under the guise and cover of
F. L, Cease Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to use
the assets and properties for the benefit of the petitioners, to the great prejudice and defraudation. of private respondents.
Hence, it becomes necessary and imperative to pierce that corporate veil.

The judgment appealed from is AFFIRMED.

VIRATA vs. NG WEE

FACTS:

Ng Wee entered into two ‘sans recourse’ agreements with WinCorp Investment Corporation. Under these sans recourse
contracts, WinCorp will look for corporate borrowers and the investors (one of which is Ng Kee) will provide the money. The
borrower that was matched with Ng Wee was Hottick Holdings Corporation (Hottick) which is owned by a Malaysian named
Saad. Petitioner Virata also executed a Surety Agreement in favor or Wincorp. The Asian Financial Crisis struck which rendered
Hottick unable to pay. Wincorp filed a collection suit against Hottick that was eventually abandoned because Virata guaranteed
the payment of the debt.

Ng Wee learned of Hottick’s financial difficulties but was convinced by Wincorp that the latter will shoulder any loss arising from
the Hottick transaction. Thus, Ng Wee was convinced to roll over his initial investment and even invested additional amounts in
the ‘sans recourse’ agreements. This time, he was matched with Power Merge Corporation (owned by Virata). Hence, Wincorp,
in favor of Power Merge opened a 2Billion Credit Line. Power Merge then executed a Promissory Note (PN) in favor of Wincorp
as evidence of its indebtedness. It appears however, that Power Merge did not really bind itself to pay the PN; it merely executed
the PN so that Wincorp will be able to hold a Power Merge PN. Wincorp, in exchange assigned the Hottick PN to Power Merge
(i.e., now Power Merge owes Wincorp and Hottick owes Power Merge). To embody this real agreement between Wincorp and
Power Merge, Side Agreements were executed whereby it is stipulated that Power Merge will not be liable to the holder of the
PN.

When Ng Wee tried to collect from Power Merge, the latter refused to pay invoking the Side Agreements. Hence, Ng Wee filed
a collection case against Wincorp, Wincorp’s BOD and corporate officers, Power Merge, Virata and UEM Mara (another
company owned by Virata).

INITIAL INVESTMENTS:

• Ng Wee’s initial investments were matched with Hottick Holdings Corporation (Hottick)The majority shares of Hottick
was owned by a Malaysian national by the name of Halim Saad.
• Halim Saad was also then the controlling shareowner of UEM-MARA, which has substantial interests in the Manila
Cavite Express Tollway Project (Cavitex).
• Hottick was extended a credit facility with a maximum drawdown of P 1.5B.
• Luis Juan Virata executed a Suretyship Agreement in favor of Wincorp.
• Hottick fully availed of the loan facility extended by Wincorp, but it defaulted in paying its outstanding obligations when
the Asian Financial Crisis struck.
• WinCorp filed a collection suit against Hottick & Saad. Virata was not impleaded as a party-defendant in the case.
• To induce the parties to settle, petitioner Virata offered to guarantee the full payment of the loan. The guarantee was
embodied in the Memorandum of Agreement (July 27, 1999) between Virata and WinCorp.
• A compromise agreement between Wincorp and Saad which was embodied in a Settlement Agreement (July 28, 1999)
wherein Saad agreed to pay USD 1M to Wincorp in satisfaction of all claims of Wincorp.
• Wincorp executed a Waiver and Quitclaim (December 1, 1999) in favor of Virata, releasing the latter from any obligation
arising from the Memorandum of Agreement except for his obligation to transfer 40% equity of UEM Development
Philippines, Inc. (UDPI) and 40% of UDPI’s interest in the tollway project to Wincorp.
• Apparently, the Memorandum of Agreement is a mere accommodation that is not meant to give rise to any legal
obligation in Wincorp’s favor as against Virata, other than the stipulated equity transfer.
• Alarmed by the news of Hottick’s default and financial distress, Ng Wee confronted Wincorp and inquired about the
status of his investments. Wincorp assured him that the losses from the Hottick account will be absorbed by WinCorp
and that his investments would be transferred instead to a new borrower account.

SUBSEQUENT INVESTMENTS:

• Ng Wee continued making money placements, rolling over his previous investments in Hottick and even increased
his stakes in the new borrower account — Power Merge Corporation.
• Petitioner Virata is the majority stockholder of Powermerge.
• In a special meeting of Wincorp’s BOD, the Board resolved to file a collection case against Halim Saad and Hottick,
and then approved Power Merge’s application for a credit line amounting to P 1.3B.
 • Present in this special meeting are the following: John Anthony B. Espiritu (Chairman of the Board), Antonio T.
Ong (President), Mariza Santos-Tan, Manuel N. Tankiansee, Manuel A. Estrella, Simeon Cua, Henry T.
Cualoping,Vicente Cualoping
• Wincorp’s President (Ong) and Vice-President for Operations (Anthony Reyes) executed a Credit Line Agreement
in favor of Power Merge with Virata’s conformity.
• The credit line was increased to P 2.5B.
• After receiving the required promissory notes from Power Merge, Wincorp, issued Confirmation Advices to Ng Wee
and his trustees, as well as to the other investors who were matched with Power Merge.
• Unknown to Ng Wee, however, was that additional contracts (Side Agreements) were likewise executed by
WinCorp and Power Merge absolving Power Merge of liability as regards the Promissory Notes it issued.

Note: Under these Side Agreements, it appears that Power Merge only entered with the Credit Line Agreements with WinCorp
so that WinCorp will be able to hold promissory notes signed by Power Merge and not those signed by Hottick. The promissory
notes issued by Hottick (see initial investments above) will then be assigned by WinCorp to Power Merge. In sum, Power Merge
will owe WinCorp and Hottick will owe Power Merge. Hence, a protection clause in favor of Power Merge (as a mere
accommodation party) is included as follows: Power Merge shall have no obligation to pay under its promissory notes executed
in favor of Wincorp but shall be obligated merely to return whatever it may have received from Wincorp pursuant to this
agreement.

ARGUMENT OF NG WEE:

• Ng Wee claimed that he fell prey to the intricate scheme of fraud and deceit that was hatched by Wincorp and Power
Merge.
• As he later discovered, Power Merge’s default was inevitable from the very start since it only had subscribed capital in
the amount of P37,500,000.00, of which only P9,375,000.00 is actually paid up.
• He then attributed gross negligence, if not fraud and bad faith, on the part of Wincorp and its directors for approving
Power Merge’s credit line application and its subsequent increase to the amount of P2,500,000,000.00 despite its
glaring inability to pay.
• Ng Wee also sought to pierce the separate juridical personality of Power Merge since Virata owns almost all of the
company’s stocks.
• It was further alleged that Virata acquired interest in UEM-MARA using the funds swindled from the Wincorp investors,
thus, Ng Wee also would like to hold UEM MARA liable.

RTC RULING:

• RTC found compelling need to pierce through the separate juridical personality of Power Merge since Virata exercised
complete control thereof, owning 374,996 out of 375,000 of its subscribed capital stock. Similarly, the separate juridical
personality of UEM-MARA was pierced to reach the illegal proceeds of the funds sourced from the defrauded investors.

CA RULING:

• affirmed lower court’s decision.

• Wincorp misrepresented Power Merge’s financial capacity when it accredited Power Merge as a corporate borrower
and granted it a P2,500,000,000.00 credit facility despite the telling signs that the latter would not be able to perform
its obligations, to wit:
• Power Merge had only been in existence for two years when it was granted the credit facility;
• Power Merge was thinly capitalized with only P37,500,000.00 subscribed capital;
• Power Merge was not an ongoing concern since it never secured the necessary permits and licenses to conduct
business, it never engaged in any lucrative business, and it did not file the necessary reports with the SEC; and
• No security was demanded by Wincorp or was furnished by Power Merge in relation to the latter’s drawdowns.
• The intent of Wincorp to deceive became even more manifest when it entered into the Side Agreements with Power
Merge. The Side Agreements rendered worthless Power Merge’s Promissory Notes that Wincorp offered to Ng Wee
and the other investors.

ISSUES:
 (1) Whether or not it is proper to pierce the veil of corporate veil of Power Merge in order to hold Virata liable to Ng Wee?
(YES)
(2) Whether or not it is proper to pierce the veil of corporate veil of UEM MARA in order to hold it liable for the obligation
of its owner, Virata? (NO)

HELD:

(1) YES. IT IS PROPER TO PIERCE THE VEIL OF POWER MERGE

Petitioner Virata reiterates his claim that piercing the corporate veil of Power Merge for the sole reason that he owns majority of
its shares is improper. He adds that the Credit Line Agreements and Side Agreements were valid arm’s length transactions, and
that their executions were in the performance of his official capacity, which he cannot be made personally liable for in the absence
of fraud, bad faith, or gross negligence on his part.

The Court rejects these arguments. Concept Builders, Inc. v. NLRC instructs that as a fundamental principle of corporation law,
a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected.
But this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice.

Thus, authorities discuss that when the notion of separate juridical personality is used (1) to defeat public convenience, justify
wrong, protect fraud or defend crime; (2) as a device to defeat the labor laws; or (3) when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced.

The circumstances of Power Merge clearly present an alter ego case that warrants the piercing of the corporate veil:

(a) Virata not only owned majority of the Power Merge shares; he exercised complete control thereof. He is not only the
company president; he also owns 374,996 out of 375,000 of its subscribed capital stock. Meanwhile, the remainder
was left for the nominal incorporators of the business.
(b) The reported address of petitioner Virata and the principal office of Power Merge are even the same.
(c) The clearest indication of all: Power Merge never operated to perform its business functions, but for the benefit of
Virata. Specifically, it was merely created to fulfill his obligations under the Waiver and Quitclaim, the same obligations
for his release from liability arising from Hottick’s default and nonpayment.
(d) Virata would later on use his control over the Power Merge corporation in order to fulfill his obligation under the Waiver
and Quitclaim.

Impelled by the desire to settle the outstanding obligations of Hottick under the terms of the settlement agreement, Virata
effectively allowed Power Merge to be used as Wincorp’s pawn in avoiding its legal duty to pay the investors under the failed
investment scheme. Pursuant to the alter ego doctrine, petitioner Virata should then be made liable for his and Power Merge’s
obligations.

(2) IT IS NOT PROPER TO PIERCE THE VEIL OF UEN MARA

UEM-MARA is not liable. The RTC and the CA held that the corporation ought to be held solidarily liable with the other petitioners
in order that justice can reach the illegal proceeds from the defrauded investments of Ng Wee under the Power Merge account.

According to the trial court, Virata laundered the proceeds of the Power Merge borrowings and stashed them in UEM-MARA to
prevent detection and discovery and hence, UEM-MARA should likewise be held solidarily liable.

UEM-MARA is an entity distinct and separate from Power Merge, and it was not established that it was guilty in perpetrating
fraud against the investors. It was a nonparty to the “sans recourse” transactions, the Credit Line Agreement, the Side
Agreements, the Promissory Notes, the Confirmation Advices, and to the other transactions that involved Wincorp, Power Merge,
and Ng Wee.

There is then no reason to involve UEM-MARA in the fray. Otherwise stated, respondent Ng Wee has no cause of action against
UEM-MARA. UEM-MARA should not have been impleaded in this case.
OTHER ISSUES:

• Whether or not the case was prosecuted in the name of the real party-in-interest (YES)
• Whether or not Wincorp is liable to Ng Wee (YES)
• Whether or not Power Merge is liable to Ng Wee (YES)
• WON the Board of Directors of Wincorp is liable to Ng Wee (Yes)

DOCTRINE:

Concept Builders, Inc. v. NLRC instructs that as a fundamental principle of corporation law, a corporation is an entity separate
and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. Thus, authorities discuss
that when the notion of separate juridical personality is used (1) to defeat public convenience, justify wrong, protect fraud or
defend crime; (2) as a device to defeat the labor laws; or (3) when the corporation is merely an adjunct, a business conduit or
an alter ego of another corporation, this separate personality of the corporation may be disregarded or the veil of corporate
fiction pierced.

Virata used his control over the Power Merge corporation in order to fulfill his obligation under the Waiver and Quitclaim. Impelled
by the desire to settle the outstanding obligations of Hottick under the terms of the settlement agreement, Virata effectively
allowed Power Merge to be used as Wincorp's pawn in avoiding its legal duty to pay the investors under the failed investment
scheme. Pursuant to the alter ego doctrine, petitioner Virata should then be made liable for his and Power Merge's obligations.
ABS CBN vs. CA

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

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

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

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

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

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

ARGUMENT OF ABS CBN:

• ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's
testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the
second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin.
• ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages.

ARGUMENT OF RBS:
• RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any
• meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-
CBN's claim of a right of first refusal was correctly rejected by the trial court.\

Issue:
1. Whether or not a contract was perfected between ABS-CBN and VIVA (NO)
2. Whether or not moral damages may be awarded to a corporation (NO)

Held: Both NO.

Ratio:
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The
offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of
the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance,
or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the offer.
 After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent through Ms.
Concio, counter-proposal in the form a draft contract. This counter-proposal could be nothing less than the counter-offer of Mr.
Lopez during his conference with Del Rosario. Clearly, there was no acceptance of VIVA’s offer, for it was met by a counter-
offer which substantially varied the terms of the offer.
In the case at bar, VIVA through its Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was
no proof whatsoever that Del Rosario had the specific authority to do so.

Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power
to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The delegation, except for the executive committee,
must be for specific purposes. Delegation to officers makes the latter agents of the corporation; accordingly, the general rules
of agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority
to accept ABS-CBN’s counter-offer was best evidenced by his submission of the draft contract to VIVA’s Board of
Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have
been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should
be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation
Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could
not ripen into a valid contact binding upon Viva.

However, the Court find for ABS-CBN on the issue of damages. Moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award of
moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by one having a nervous system. The statement that a
corporation may recover moral damages if it “has a good reputation that is debased, resulting in social humiliation” is an obiter
dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.
COASTAL PACIFIC TRADING, INC. V. SOUTHERN ROLLING MILLS, CO., INC.

FACTS:

Respondent Southern Rolling Mills, which was renamed into Visayan Integrated Steel Corporation (VISCO), organized in 1959,
was engaged in the steel-processing business. In 1961, it obtained a loan from the Development Bank of the Philippines (DBP),
secured by a duly recorded real estate mortgage over three parcels of land, including all the machineries and equipment found
there.

In 1963, VISCO also obtained a loan from respondent banks, secured by an unrecorded second mortgage over the same land,
machineries and equipment earlier mortgaged to DBP.

Further, in 1964-1965, VISCO entered into a processing agreement with Petitioner Coastal Pacific Trading, Inc. (“Coastal”). By
virtue of that agreement petitioner delivered 3,000 metric tons of steel coils to respondent for processing into block iron sheets.
The latter was able to process and deliver to Coastal only 1,600 metric tons of those sheets, leaving 1,400 metric tons
unaccounted for.

VISCO eventually defaulted on its obligation to respondent banks. After negotiations, the parties agreed to convert the unpaid
loan into equity in the steel corporation. As a result, the banks (which had grouped themselves into a consortium) gained control
and management of VISCO starting in 1966, acquiring more than 90 percent of its equity. Notwithstanding this equity conversion,
it remained indebted to the consortium in the amount of P16 million.

The account of VISCO with the Far East Bank and Trust Company (FEBTC), in the name of “Board of Trustees VISCO
Consortium of Banks,” was renamed “Board of Trustees Consortium of Banks” (without the word “VISCO”) upon the suggestion
of Vicente Garcia, vice-president of both corporations. The change in the account name was adopted as a “precautionary
measure to protect the interest of the Consortium of Banks.”

In 1974, fearing DBP’s foreclosure of its assets, VISCO – through its board of directors – decided to sell its generator sets. The
proceeds of the sale were deposited with FEBTC in a special account held in trust for the consortium. The proceeds were
intended to be used in paying the DBP loan and to secure the release of the mortgage.

A year later, Coastal sued VISCO (Civil Case No. 21272) for fraudulently misapplying or converting the steel sheets entrusted
to the latter.[10] After a writ of preliminary attachment was issued, the sheriff attempted to garnish the steel corporation’s FEBTC
account, which the bank denied holding. The bank admitted, however, the existence of a deposit account in the name of “Board
of Trustees Consortium of Banks,” which it agreed to hold subject to prior liens.

Meanwhile, the officers of VISCO requested a cash advance of P1.3 million from FEBTC for the full settlement of the steel
corporation’s debt to DBP. FEBTC issued a check for that amount, payable to “[DBP] for [the] account of VISCO.” In
consideration of the payment, DBP assigned its mortgage rights to the consortium. Thus did the latter obtain its recorded primary
lien over the real and chattel properties of VISCO.

In 1980, the consortium initiated proceedings for the extrajudicial foreclosure of mortgage. Southern Industrial Projects, Inc.
(SIP), another creditor of VISCO, entered into the picture and filed a Complaint (Civil Case No. 3383) to enjoin the foreclosure.
According to SIP, the mortgage had already been extinguished when DBP was paid by respondent, which used the proceeds
from the sale of the generator sets. The foreclosure was initially restrained, but the court eventually decided in favor of the
consortium.

Thus, in 1985, the foreclosure sale of VISCO’s mortgaged properties proceeded, with the consortium emerging as the highest
bidder. It then sold the foreclosed properties to the National Steel Corporation (NSC). At the same time, VISCO assigned its
right of redemption to the NSC.

Shortly after, Petitioner Coastal filed a Complaint (Civil Case No. 3929) against respondents for the rescission of sale, damages
and injunction. It alleged, inter alia, that the assignment of the DBP mortgage to the consortium was fraudulent, because the
bank had been paid with the proceeds from the sale of VISCO’s generator sets. The Consortium, on the other hand, insisted
that it had used its own funds to pay the DBP.

Meanwhile, in 1986, Civil Case No. 21272 was finally decided in favor of petitioner, to which was awarded P851,316.19 with
legal interest, attorney’s fees and costs. The judgment remains unsatisfied to date.
On the other hand, Civil Case No. 3929 was decided by the trial court in 1992 against Coastal.[21] On appeal, the Court of
Appeals affirmed the trial court’sDecision, ruling mainly that, under the principle of res judicata, the case was already barred by
the judgment on the case earlier filed by SIP (Civil Case No. 3383).

ISSUE/S:

1. Whether or not the present action was barred by res judicata (NO)
2. Whether or not respondent banks disposed of VISCO’s assets in fraud of the other creditors (YES)

HELD:

1. NO. The Court held that the CA had erred in applying Southern Industrial Projects v. United Coconut Planters Bank as
a bar by res judicata, with respect to the present case, because there was no identity of parties and causes of action
between the two cases.

Substantial identity of parties is present when there is privity between the two parties, such as when they are
successors-in-interest by title subsequent to the commencement of the action, litigating for the same thing, under the
same title, and in the same capacity.

In the instant case, Coastal Pacific was not acting in the same capacity as SIP. VISCO was sued by petitioner as a
creditor under a processing agreement between them; and by SIP, based on an alleged breach of their management
contract. Very clearly, because the rights of these two creditors were entirely distinct and separate from each other, in
no manner were they privies of each other.

We noted that confusion occurred in the resolution of the issue of identity of parties, because the two creditors were
assailing the same transactions of VISCO on the same grounds. Since both had presented similar legal issues, the
appellate court held that its ruling against one creditor applied with equal force against the other.

This was a common but palpable misconception of the doctrine of res judicata. Persons do not become privies by the
mere fact that they are interested in the same question or in proving the same set of facts, or that one person is
interested in the result of a litigation involving the other. Several creditors of one debtor cannot be considered as
identical parties for the purpose of assailing its acts. They have distinct credits, rights, and interests, such that the failure
of one to recover should not preclude the others from also pursuing their legal remedies.

In the present case, the right of SIP (arising from its management contract with VISCO) was totally distinct and separate
from the right of Coastal (arising from the latter’s processing contract with respondent). Both were asserting distinct
rights arising from different legal obligations of the debtor corporation. Thus, VISCO’s violation of those separate rights
gave rise to separate causes of action.

2. YES. the Court found that there was more than a preponderance of evidence showing the consortium’s deliberate plan
to defraud VISCO’s other creditors.

It will be recalled that 90 percent of the equity of VISCO had been acquired by respondent consortium, which then took
over the management and control of the former. Thus, 9 out of the 10 directors of the steel corporation were officials of
the consortium, which may be said to have effectively occupied and/or controlled the board.

Because they had control and guidance over the corporate affairs and property of VISCO, the officials of the consortium
were in a position of trust. As trustees, they should have managed its assets with strict regard for all the creditors’
interests. As directors, their duty should have become more stringent when the corporation became insolvent or without
sufficient assets to meet its outstanding obligations as they arose.

These directors, who were likewise representatives of the creditor-banks, should not have permitted themselves to
secure undue advantage over the other creditors. Regrettably, the consortium miserably failed to observe its duty of
fidelity towards the debtor corporation and the latter’s other creditors.

The Court further observed that as early as 1966, through its directors on the board of VISCO, the consortium had
already assumed management and control over the latter. Hence, respondent banks were at the helm of the steel
corporation when it recognized its outstanding liability to Coastal and offered to enter into a compromise agreement.
Despite their knowledge, however, they did not adopt any measure to protect petitioner’s credit.
Quite the opposite, they even took steps to hide the corporation’s unexpended funds. Vicente Garcia’s 1972 letter to
Arturo Samonte – representative of FEBTC and director of VISCO – revealed that the funds were kept in an account
named “Board of Trustees VISCO Consortium of Banks.” Respondent banks deemed it best, however, to drop the
name “VISCO” to avoid a takeover by the government, which was also a creditor of the corporation. The express intent
of VISCO was for the benefit of the consortium, which had management and control of the corporation. This fact
corroborated petitioner’s contention that the other creditors had thereby been defrauded.

Further, the assignment of the DBP mortgage in favor of the consortium bore the earmarks of fraud. The original plan
of respondents was to pay the bank with the proceeds from the sale of the two generator sets. This plan would have
extinguished the encumbrance in favor of DBP and freed up the properties of VISCO, to the satisfaction of the latter’s
other creditors. This procedure would have been fair to all, but it was not followed by the consortium.

Surprisingly, respondents laid down a different payment procedure. The proceeds from the sale of the generator sets
would first be paid to the consortium. It would then pay DBP and be subrogated to the latter’s rights as the first
mortgagee. The question was, if the intention was to pay the bank from sales proceeds of the generator sets, why did
the money have to pass through the consortium?

Apparently, the answer can be gleaned from the nature of respondent consortium’s mortgage. Notably, this mortgage
remained unrecorded and not legally binding on the other creditors. The consortium then adopted a payment procedure,
which entitled it to obtain DBP’s primary lien through an assignment, without incurring additional expenses. This primary
lien allowed it to foreclose the assets of VISCO, regardless of the former’s inferior claims. This clever ruse would have
worked, had it not been resorted to by creditors who -- as directors -- were duty bound not to take clever advantage
of other creditors.

The intention to defraud the other creditors was even more striking in the light of the consortium’s knowledge that the
assets of VISCO would not be enough to meet its obligations to several other creditors. Fraud is present when the
debtor knows that its actions would cause injury.

Thus, the assignment in favor of the consortium was considered a rescissible contract for having been undertaken in
fraud of the other creditors. When there isno more possibility for mutual restitution, which is required in all cases
involving rescission, an indemnity for damages operates as restitution.

In the instant case, the Court held that it was no longer possible to order the return of VISCO’s properties, which had
already been sold to NSC, a buyer in good faith. The Court determined that there was insufficient evidence that NSC
had participated in the design to defraud the other creditors. Sans competent proof of bad faith, purchasers are deemed
to be in good faith, and their interest in the subject property must not be disturbed.