CASES IN CORPORATION LAWS

SAINT LOUIS UNIVERSITY

SCHOOL OF LAW

SUBMITTED TO:

ATTY. H.V. BELMES

Professor

SUBMITTED BY:

Alberto, Ivi Dianne

Banganan, Kristen Gay

Geronimo, Harriet Anne

Ilao, Mikaelle Gabrielle

Ameda, Kenjie

Dinulong, Garrick

Gonzales, Ariel D.

MARCH 13, 2014TABLE OF CONTENTS

I. Historical Background

Harden v. Benguet Consolidated Mining Co.

GR. No. L-37331, March 18, 1933

II. Concepts

Philippine Stock Exchange, Inc. v. CA

GR. No. 125469, October 27, 1997

Reynoso IV v. Court of Appeals

GR. No. 116124-25, November 22, 2000

San Juan Structural v. Court of Appeals

GR. No. 129459, September 29, 1998

Pioneer Insurance v. Court of Appeals

GR. No. 84197, July 28, 1989

Kilosbayan, Inc. v. Guingona, Jr.

GR. No. 113375, May 5, 1994

Mead v. Cullough

GR. No. 6217, December 26, 1911

Benguet Consolidated Mining Co. v. Pineda

GR. No. L-7231, March 28, 1956

Philippine Products Co. v. Primateria Societe Anonyme

GR. No. L-17160, November 29, 1965

Bourns v. Carman

GR. No. L-2880, December 4, 1906

III. Nature and Attributes of a Corporation

Stonehill v. Diokno

GR. No. L-19550, June 19, 1967

PNB v. Court of Appeals

GR. No. L-27155, May 18, 1978

Sergio Naguiat v. NLRC

GR. No. 116123, March 13, 1997

PCIB v. Court of Appeals

GR. No. 121413, January 29, 2001

West Coat Life Insurance v. Hurd

GR. No. L-8527, March 30, 1914

Acme Shoe Rubber and Plastic Corp v. CA

GR. No. 103576, August 22, 1996

ABS-CBN Broadcasting Corp v. CA

GR. No. 128690, January 21, 1999

Cometa v. Court of Appeals

GR. No. 124062, January 21, 1999

Tatad v. Garcia, Jr.

GR. No. 114222, April 6, 1995

PLDT v. National Telecommunications Commission

GR. No. 88404, October 18, 1990

Palting v. San Jose Petroleum, Inc.

GR. No. L-14441, December 17, 1966

IV. Separate Juridical Personality and

Doctrine of Piercing the veil of Corporate Fiction

Rufina Luy Lim v. Court of Appeals

GR. No. 124715, January 24, 2000

Francisco v. Mejia

GR. No. 141617, August 14, 2001

ARB Construction v. Court of Appeals

GR. No. 126554, May 31, 2000

Traders Royal Bank v. Court of Appeals

GR. No. 93397, March 3, 1997

Umali v. Court of Appeals

GR. No. 89561, September 13, 1990

Francisco Motors Corp v. CA

GR. No. 100812, June 25, 1999

Luxuria Homes, Inc. v. Court of Appeals

GR. No. 125986, January 28, 1999

Cruz v. Dalisay

AM. No.R-181-P, July 31, 1987

NAMARCO v. Associated Finance Co.

GR. No. L-20886, April 27, 1967

Tan Boon Bee v. Jarencio

GR. No. L-41337, June 30, 1988

Ramoso v. Court of Appeals

GR. No. 117416, December 8, 2000

Emilio Cano Enterprises v. CIR

GR. No. L-20502, February 26, 1965

V. Classification of Corporations

Camporedondo v. NLRC

GR. No. 129049, August 6, 1999

Benguet Electric Cooperative, Inc. v. NLRC

GR. No. 89070, May 18, 1992

Republic v. Iglesia ni Cristo

GR. No. L-61145, February 20, 1984

Boy Scouts of the Phils. v. NLRC

GR. No. 80767, April 22, 1991

Cervantes v. Auditor General

GR. No. L-4043, May 26, 1952

PNOC-Energy Development Corp v. NLRC

GR. No. 79182, September 11, 1991

Manuel Torres v. Court of Appeals

GR. No. 120138, September 5, 1997

VI. Corporate Contract Law

Caram, Jr. v. Court of Appeals

GR. No. L-48627, June 30, 1987

Salvatierra v. Garlitos

GR. No. L-11442, May 23, 1958

Lozano v. delos Santos

GR. No. 125221, June 19, 1997

People v. Garcia

GR. No. 117010, April 18, 1997

Bayla v. Silang Traffic Co., Inc.

GR. No. L-48195-6, May 1, 1942

CIR v. CA and ANSCOR

GR. No. 108576, January 20, 1999

Boman Environmental Dev. Corp v. CA

GR. No. 77860, November 22, 1988

VII. Articles of Incorporation

Republic Planters Bank v. CA

GR. No. 93073, December 21, 1992

Universal Mills Corp v. Universal Textile Mills, Inc.

GR. No. L-28351, July 28, 1977

Laureano Investment & Development Corp v. CA

GR. No. 100468, May 6, 1997

Pison-Arceo Agricultural Development Corp v. NLRC

GR. No. 1177890, September 18, 1997

Alhambra Cigar v. SEC

GR. No. L-23606, July 29, 1968

Sy v. Tyson Enterprises, Inc.

GR. No. L-56763, December 15, 1982

VIII. By-Laws

Loyola Grand Villas Homeowners (South) v. CA

GR. No. 117188, August 7, 1997

Grace Christian High School v. CA

GR. No. 108905, October 23, 1997

Salafranca v. Philamlife (Plampona)

GR. No. 121791, December 23, 1998

PMI Colleges v. NLRC

GR. No. 121466, August 15, 1997

IX. CORPORATE POWERS, AUTHORITY AND

ACTIVITIES

Land Bank of the Philippines v. COA

GR. Nos. 89679-81, September 28, 1990

ABS-CBN Broadcasting Corp. v. CA

GR. No. 128690, January 21, 1999

Vicente v. Geraldez

GR. No. L-32473, July 31, 1973

Prime White Cement Corp. v. IAC

GR. No. L-68555, March 19, 1993

Yao Ka Sin Trading v. CA

GR. No. L-53820, June 15, 1992

First Philippine International Bank v. CA

GR. No. 115849, January 24, 1996

Safic Alcan & Cie v. Imperial Vegetable Co.

GR No. 126751, March 28, 2001

Tam Wing Tak v. Makasiar

GR. No. 122452, January 29, 2001

Madrigal & Co. v. Zamora

GR. No. L-48237, June 30, 1987

Islamic Directorate of the Philippines. v. CA

GR. No. 117897, May 14, 1997

Republic Planters Bank v. Agana

GR. No. 51765, March 3, 1997

Ricafort v. Moya

GR. No. 59114, March 18, 1991

San Juan Structural & Steel Fabricators, Inc. v. CA

GR. No. 129459, September 29, 1998

China Banking Corp. v. CA

GR. No. 117604, March 26, 1997

Lopez Realty v. Fontecha

GR. No. 76801, August 11, 1995

X. DIRECTORS, TRUSTEES AND OFFICERS

Acua v. Batac Producers Cooperative Marketing Assn.

GR. No. L-20333, June 30, 1967

Pea v. CA

GR. No. 91478, February 1991

Lopez v. Ericta

GR. No. L-32991, June 29, 1972

Western Istitute of Technology, Inc. v. Salas

GR. No. 113032, August 21, 1997

Gokongwei v. SEC

GR. No. L-45911, April 11, 1979

De Rossi v. NLRC

GR. No. 108710, September 14, 1999

Tabang v. NLRC

GR. No. 121143, January 21, 1997

Boyer-Roxas v. CA

GR. No. 100866, July 14, 1992

E.B. Villarosa & Partners Co. Ltd. V. Benito

GR. No. 136426, August 6, 1999

Vasquez v. Borja

GR. No. L-48930, February 23, 1944

MAM Realty v. NLRC

GR. No. 114787, June 2, 1995

R.F. Sugay v. Reyes

GR. No. L-20451, December 28, 1964

Paradise Sauna v. Ng

GR. No. L-66394, February 5, 1990

Villanueva v. Adre

GR. No. 80863, April 27, 1989 EPG Construction v. CA

GR. No. 103372, June 22, 1992

Arcilla v. CA

GR. No. 89804, October 23, 1992

Rustan Pulp v. IAC

GR. No. 70789, October 19, 1992

Reahs Corporation v. NLRC

GR. No. 117473, April 15, 1997

AHS/ Philippines v. CA

GR. No. 111807, June 14, 1996

NAPOCOR v. CA

GR. No. 113103, June 13, 1997

Uichico v. NLRC

GR. No. 121434, June 2, 1997

Brent Hospital v. NLRC

GR. No. 117593, July 10, 1998

Nicario v. NLRC

GR. No. 125340, September 17, 1998

Restaurante Las Conchas v. Llego

GR. No. 119085, September 9, 1999

Camelcraft Corporation v. NLRC

GR. No. 90634-35, June 6, 1990

Villa Rey Transit, Inc. v. Far East Motor Corp.

GR. No. L-31339, January 31, 1978

Esguerra v. Court of Appeals

GR. No. 119310, February 3, 1997

1. Re: Historical background of The Philippine Corporate Law

FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in their own behalf and in that all other stockholders of the Balatoc Mining Company, etc.

vs.

BENGUET CONSOLIDATED MINING COMPANY, BALATOC MINING COMPANY, H. E. RENZ, JOHN W. JAUSSERMANN, and A. W. BEAM.

G.R. No. L-37331 March 18, 1933

Street J.

Facts:

In 1927, Benguet Consolidated Mining Company, registered as a SociedadAnonima under the Spanish Law, agreed to invest and build capital equipments in favor of Balatoc Mining Company, a corporation registered under the then relatively new Corporation Law of 1925. In exchange, Balatoc Mining agreed to give Benguet Mining 600,000 shares. The venture proved to be profitable and Balatoc Mining earned and so did its stockholders, and of course, Benguet Mining was earning big too because it now owns 600,000 shares. This prompted Fred Harden a stockholder of Balatoc Mining who also owns thousands of shares to sue Benguet Mining on the ground that under the Corporation Law a corporation like Benguet Mining which is engaged in the mining industry is prohibited from being interested in other corporations which are also engaged in the mining industry like Balatoc Mining.

Issue:

Whether the Benguet Company which was organized as a sociedadanonima is a corporation within the language used by the US Congress and by the Philippine Legislature, prohibiting a mining corporation from becoming interested in another mining corporation

Ruling:

In as much as the Corporation Law contains in Section 190 (A) provision fully penalizing the violation of Subsection 5 of Section 13 of Act No. 1459 - which prohibits the acquisition by one mining corporation of any interest in another and in as much as these provisions have been enacted in the exercise of the general police powers of the government, it results that where one mining corporation acquires a prohibited interest in another such corporation, the shareholders of the latter cannot maintain an action to annul the contract by which such interest was acquired. The remedy must be sought in a criminal proceeding or Quo Warranto action, under Section 190 (A), instituted by the government. Until thus assailed in a direct proceeding, the contract by which the interest was acquired will be treated as valid between the parties.

The Corporation Law of 1925 subjects SociedadesAnonimas to its provisions so far as such provisions may be applicable. In 1929, the Corporation Law was amended and the prohibition cited by Harden was so modified as merely to prohibit any such corporation from holding more than fifteen per centum of the outstanding capital stock of another such corporation.

Further and more importantly, the Corporation Law of 1925 provides that if the person who allegedly violated the provisions of said law is a corporation, the proper action is a quo warranto which should be initiated by the Attorney-General or its deputized provincial fiscal and not a private action as the one filed by Harden.

2 Re: Theory of Enterprise Entity

PHILIPPINE STOCK EXCHANGE, INC.,

vs.

THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.

G.R. No. 125469. October 27, 1997

TORRES, JR., J.:

Facts:

`Securities and Exchange Commissions functions are: supervision of all corporations, partnerships and/or associations who are grantees of franchise, license or permit issued by the government to operate in the Philippines. Puerto Azul Land Inc. (PALI) sought to offer its shares to the public in order to raise funds to develop its properties and pay loans. PALI was issued Permit to Sell its shares by SEC. To facilitate trading of shares, PALI sought to course the trading of its shares through the PSE. Thus, it filed application to list its shares. Listing Committee recommended the approval. February 14, 1996, PSE received a letter from the heirs of Ferdinand Marcos claiming that Marcos is the owner of certain properties forming part of PALIs properties. Ternate Development Corporation (TDC) is a stockholder of PALI appears to be held in trust by Rebecca Panlilio for Marcos and now for his estate.

PALIs application was requested to be deferred. PALIs answer: the properties mentioned were not being claimed by PALI. TDC owns 1.20% of PALI. Marcoses answer: asserted legal and beneficial ownership of other properties titled under the name of PALI. Marcoses received TRO, enjoining them from further impeding, obstructing, delaying or interfering in any manner or means with the consideration, processing and approval by the PSE of the initial public hearing of PALI. Board of governors of PSE rejected PALIs application. PALI wrote to SEC, bringing to SECs attention the action taken by the PSE; requesting that the SEC in the exercise of supervisory and regulatory powers over stock exchanges under PD 902-A Section 6 (j) review PSEs action; institute measure as are just and proper. PSE filed its comments.

SEC rendered its order reversing PSEs decisions. Commissioners authority under Securities Act in conjunction with PD 902-A was invoked. PSE was ordered to cause the listing of PALI shares in the exchange. PSEs Motion for Reconsideration was denied. PSE filed a petition for Review with the CA. CA dismissed PSEs Petition for Review.

Issue:

Whether SEC has the power to order the listing and sale of shares and to review and substitute decisions of PSE on listing application.

Ruling:

The Supreme Court affirms that the SEC is the entity with the primary say as to whether or not securities, including shares of stock may be traded. Its function is vital to the national economy as the business is affected with public interest.

The role of SEC under PD 902-A: it has the responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in other government office. However, the PSEs management prerogatives are not under the absolute control of the SEC. The PSE is a corporation authorized by its corporate franchise to engage in its proposed approved business. PSEs main concern is the generation of profit. PSE has all the right pertaining to corporations: right to sue and be sued, to hold property in its own name, to enter or not into contracts, to perform all other legal acts.

In organizing itself as a collective body, a corporation waives no constitutional immunities and perquisites appropriate to a corporation. The state will generally not interfere with its corporate and management decisions. Questions of policy and management are left to the honest decisions of the officers and directors of a corporation, and the courts have no authority to substitute their judgment for the judgment of the board. The board is the business manager of the corporation and as long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in matters of application for listing in the market, the SEC may exercise such power ONLY if the PSEs judgment is attended by bad faith. Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill will in the nature of fraud. SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE, since this is a matter addressed to the sound discretion of the PSE.

As to what policy should be relied upon in approving the registration and sale of securities, the same is left to the sound discretion of the SEC. SEC has the power to promulgate rules and regulations in the interest of the public. SEC has supervision and control over all corporations. PSEs action is justified by the law. Decisions of SEC and CA are reversed.

3 Re: Strong Legal Personality

BIBIANO O. REYNOSO, IV,

vs.

HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION

G.R. Nos. 116124-25. November 22, 2000

YNARES-SANTIAGO, J.:

Facts:

Reynoso was the branch manager of Commercial Credit Corporation Quezon City (CCC-QC), a branch of Commercial Credit Corporation (CCC). It was alleged that Reynoso was opposed to certain questionable commercial practices being facilitated by CCC which caused its branches, like CCC-QC, to rack up debts. Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases for estafa and qualified theft against Reynoso. The criminal cases were dismissed and Reynoso was exonerated and at the same time CCC-QC was ordered to pay Reynosos counterclaims which amounted to millions. A writ of execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now claims that it has already closed and that its assets were taken over by the mother company, CCC. Meanwhile, CCC changed its name to General Credit Corporation (GCC).

Reynoso filed a petition for an alias writ of execution. GCC opposed the writ as it argued that it is a separate and distinct corporation from CCC and CCC-QC, in short, it raises the defense of corporate fiction.

Issue:

Whether General Credit Corporation (formerly CCC) may be held liable for the obligations of CCC-QC (applicability of the Doctrine of Piercing the Veil of Corporate Fiction)

Ruling:

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC Group of Companies engaged income and the same business i.e investment and finance. Aside from CCC-QC, other franchise companies were organized.

The organization of subsidiary corporations is usually resorted to for the aggrupation of capital, the ability to cover more territory and population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetuate fraud or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy injustice. The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of a corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.

The Discounting Agreements through which CCC controlled the finances of its subordinates became unlawful when the Central Bank adopted the DOSRI prohibition. Under this rule, directors, officers, stockholders and other persons with related interests are prohibited from borrowing money from their company.

4 Re: Limited Liability to Investors

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.

vs.

COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP.

G.R. No. 129459 September 29, 1998

PANGANIBAN, J.:

Facts:

In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a contract of sale with Motorich Sales Corporation (Motorich) through the latters treasurer, Nenita Gruenberg. The subject of the sale was a parcel of land owned by Motorich. San Juan advanced P100,000 to Nenita as earnest money. On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich, Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to comply with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is not bound by the acts of its treasurer, Nenita, since her act in contracting with San Juan was not authorized by the corporate board.

San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that Nenita and her husband owns 98% of the corporations capital stocks; that as such, it is a close corporation and that makes Nenita and the President as principal stockholders who do not need any authorization from the corporate board; that in this case, the corporate veil may be properly pierced.

Issues:

1. May a corporate treasurer sell a parcel of land owned by the corporation?

2. May the veil of corporate fiction be pierced on the ground that almost all of the shares of stocks are owned by the treasurer and her husband?

Ruling:

1. NO. True, Gruenberg and company signed the agreement but such contract cannot bind Motorich because it never authorized or ratified the sale. A corporation is a juridical person separate and distinct from its stockholders. The property of the corporation is not the property of the stockholders. A corporation may act only through its Board of Directors or through its officers/agents when authorized by its by-laws or board resolution.

Persons dealing with an agent whether general or special are bound at their peril to ascertain not only the fact of the agency but also the nature and extent of authority. The treasurer in this case is also not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority.

2. NO. the question of piercing the veil of corporate fiction is a matter of proof. Petitioner failed to establish that the corporation was formed or operated for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders or that the veil was used to conceal fraud, illegality or inequity at the expense of third persons. Motorich is not a close corporation. The Articles of Incorporation of Motorich does not contain any provision stating that:

a. the number of stockholders shall not exceed 20 or;

b. a pre-emption of shares is restricted in favor of any stockholder or of the corporation or;

c. listing its stocks in any stock exchange or making a public offering of the stocks is prohibited.

Motorich does not become a close corporation just because Reynaldo and Nenita owned 99.86% of the subscribed capital stock. The mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not sufficient ground to disregard the separate personalities.

The principle in Dulay Enterprises Inc. vs. CA which treated the family corporation as a close corporation even without looking into the provisions of the Articles of Incorporation does not apply because in Dulay, the sale of real properties was contracted by the President of a close corporation with the knowledge and acquiescence of its Board of Directors.

5 Re: Corporation compared with Partnerships and Other Associations

PIONEER INSURANCE & SURETY CORPORATION

vs.

THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM

G.R. No. 84197 July 28, 1989

JACOB S. LIM

vs.

COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA

G.R. No. 84157 July 28, 1989

GUTIERREZ, JR., J.:

Facts:

In1965, Lim was engaged in the airline business as owner-operator of Southern Airlines as single proprietorship. Lim purchased from Japan Domestic Airlines 2 aircrafts and 1 set of spare parts. Border Machinery Company, Francisco and Modesto Cervantes, and ConstancioMaglana contributed some funds. Pioneer Insurance and Surety Corp as surety executed and issued Surety Bond in favor of JDA in behalf of its principal Lim for the balance price of the sold items. There was an Indemnity Agreement between Pioneer Insurance and Lim et al. Chattel Mortgage was executed in favor of Pioneer as security for its suretyship. Lim defaulted on his installment payments. Pioneer paid. Pioneer filed for extra-judicial foreclosure of the chattel mortgage. After trial: Lim is liable to pay Pioneer but dismissed Pioneers complaint against all other defendants. Appellate Court modified trial courts decision.

Issue:

What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but failed to incorporate the entity in which they had chosen to invest.

Ruling:

No de facto partnership was created among the parties which could entitle Lim to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.

While it has been held that as between themselves, the rights of the stockholders in a defective corporation should be governed by the supposed charter and the laws of the state relating thereto not by the rules governing partners. It is ordinarily held that persons who attempt to form a corporation, but failed, and who carry on business under the corporate name occupy the position of partners inter se.

However, such a relation does not necessarily exist, for ordinarily, persons cannot be made to assume the relation of partners, as between themselves when their purpose is that no partnership shall exist. It should be implied only when necessary to do justice between the parties. Thus, one who took no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the pretended corporation, so as to be liable as such in an action for settlement.

6 Re: Corporation compared with Joint VentureKILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP. JOKER P. ARROYO,

vs.

TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; RENATO CORONA, in his capacity as Assistant Executive Secretary and Chairman of the Presidential review Committee on the Lotto, Office of the President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION

G.R. No. 113375 May 5, 1994

DAVIDE, JR., J.:

Facts:

Pursuant to Section1 of the Charter of the PCSO as amended by BP Blg. 42 which grants it the authority to hold and conduct charity sweepstakes races, lotteries and other similar activities, the PCSO decided to establish an on-line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds. After learning that the PCSO was interested in operating an on-line lottery system, the Berjaya Group Berjad, a multinational company in Malaysia became interested to offer its services and resources to PCSO. Berjaya group organized with some Filipino investors in March 1993 a Philippine corporation known as the Philippine Gaming Management Corporation which was intended to be the medium through which the technical and management services required for the project would be offered and delivered to PCSO.

PCSO formally issued a request for proposal for the lease Contract of an on-line lottery system for the PCSO. The bid submitted by PGMC was evaluated. The office of the President announced that respondent PGMC may finally operate the countrys on-line lottery system and that the corresponding contract would be for approval. KILOSBAYAN sent an open letter to the President strongly opposing the setting up of the on-line lottery system on the basis of serious moral and ethical considerations. Petitioners also submit that the PCSO cannot validly enter into the assailed Contract of Lease with PGMC because it is an arrangement wherein the PCSO would hold and conduct the on-line lottery system in collaboration or association with the PGMC in violation of Section 1(B) of RA 1169, as amended by BP Blg. 42 which prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries and other similar activities in collaboration, association or joint venture with any person, association, company or entity, foreign or domestic. Petitioner seeks to prohibit and restrain the implementation of the Contract of Lease executed by the PCSO and PGMC.

Issue:

Whether or not the opposition made by the petitioner is valid

Ruling:

YES. The preliminary issue on the locus standi of the petitioner which was raised by the respondents should be resolved in favor of the petitioners. The court finds the petition to be of transcendental importance to the public. The issues it raised are of paramount public interest.

The provision in Section 1 of RA 1169 as amended by BP Blg 42 is indisputably clear with respect to its franchise or privilege to hold and conduct charity sweepstakes, races lotteries and other similar activities. Meaning, the PCSO cannot exercise it in collaboration, association or joint venture with any other party. Thus, the challenged contract of Lease violates the exception provided for in paragraph B, Section 1 of RA 1169 as amended by BP Blg. 42 and is therefore invalid for being contrary to law.

7 Re: SociedadAnonima

CHARLES W. MEAD, plaintiff-appellant,

vs.

E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING AND CONSTRUCTION COMPANY,defendant-appellants.G.R. No. 6217 December 26, 1911

TRENT, J.:

Facts:

Charles Mead, Edwin McCullough and three others organized the corporation called The Philippine Engineering and Construction Company (PECC). The 4 organizers, except Mead, contributed to the majority of the capital stock of PECC, the remaining shares were offered to the public. Mead contributed some personal properties. Mead was assigned as a manager but he resigned as such when he accepted an engineering job in China. But even so, he remained as one of the five directors (the organizers). At that time, PECC was already incurring losses. McCullough, the president, proposed that he shall buy the assets of the corporation. The three other directors then voted in favor of this proposal hence the assets were transferred to McCullough. Mead learned of this and so he opposed it because the personal properties he contributed were also transferred to McCullough. Mead also argued that under the Articles of Incorporation of PECC, the board of directors only have ordinary powers; that the authorization made by the three directors to allow the sale of company assets to McCullough constitutes an act of agency which is invalid at that because no express commission was made, i.e., no power of attorney was made in favor of the directors. The requirement for a commission can be inferred from Article 1713 of the Civil Code which provides: An agency stated in general terms only includes acts of administration. In order to compromise, alienate, mortgage, or execute any other act of strict ownership an express commission is required. Mead also insists that under their charter, no resolution affecting the administration of the affairs of PECC should be binding upon the corporation unless the unanimous consent of the entire board was first obtained

Issue:

Whether or not the three directors had the authority to allow the sale/transfer of the company assets to McCullough.

Ruling:

Where the Articles of Incorporation prescribe that all meetings of the stockholder, a majority of votes of those present shall be necessary to determine any question discussed, the sale or transfer to one of its members of the corporate property is a matter which the majority of the stockholders can properly consider and generally speaking, the voice of the majority of the stockholders is the law of the corporation.

A majority of the stockholders or directors have the power to sell or transfer to one of its members the corporate property, where the stockholders or directors have general ordinary powers and where there is nothing in the Articles of Incorporation which expressly prohibits such a sale.

While a private corporation remains solvent, there is no reason why a director or officer by authority of the majority of its stockholders or board of managers may not deal with the corporation, loan it money or buy property from it in like manner as a stranger. This is likewise true of an insolvent corporation, but in all cases, such officer or director must act in good faith and pay an adequate consideration, their acts being subject to the most scrutiny at all times.

There is nothing in the provisions of the civil code, nor of the code of commerce dealing with the manner of dissolving a corporation which expressly or impliedly prohibits the sale of corporate property to one of its members. Where a director in a corporation accepts a position in which his duties are incompatible with those as such director, it is presumed that he has abandoned his office as director of the corporation.

8 Re: SociedadAnonima

BENGUET CONSOLIDATED MINING CO

vs.

MARIANO PINEDA, in his capacity as Securities and Exchange Commissioner, CONSOLIDATED MINES, INC.G.R. No. L-7231. March 28, 1956.

REYES, J. B. L., J.

Facts:

Benguet Consolidated Mining was organized on June 24, 1903 as a SociedadAnonima regulated by Article 151 of the Spanish Code of Commerce. The Articles Of Incorporation provided that it was organized for a term of 50 years. In 1906, Corporation Code was enacted to take effect on April 1, 1906. At the expiration of the 50-year period, the Board of Directors of Benguet Mining adopted in 1946 a resolution to extend its life for another 50 years and submitted it for registration to the SEC. Registration was denied.

After 60 years, the shareholders of Benguet Consolidated adopted a resolution empowering the Director to effectuate the extension of the companys business life for not less than 20 and not more than 50 years by (1) amendment to the AOI (2) by reforming and reorganizing the company as a Philippine Corporation (3) by both (4) by any other means. Benguet submitted to the SEC 2 documents for alternative registration, but the SEC denied it.

Issue:

Could Benguet Consolidated Mining still exercise the option of reforming and reorganizing as a corporation since the law is silent as to time when such option may be exercised or availed of

Ruling:

While no express period of time is fixed by the law within which SociedadAnonimas may elect under Sec. 75 of Act No. 1459, either to reform or to retain their status quo, there are powerful reasons to conclude that the legislature intended such choice to be made within a reasonable time from the effectivity of the Act.

To enable a SociedadAnonima to choose reformation when its stipulated period of existence is nearly ended would be to allow it to enjoy a term of existence for longer than that granted to corporations organized under the Corporation Code. In Benguets case, 50 years as SociedadAnonima and 50 years as corporation which is a result incompatible with the avowed purpose of Act 1459 to hasten the disappearance of SociedadAnonimas. It would permit sociedadanonimas to prolong their corporate existence indirectly by belated reformation into corporations.

The prohibition contained in Section 18 of Act 1459 against extending the period of corporate existence by amendment of the original articles was intended to apply and does apply to SociedadAnonimas already formed, organized and existing at the time of effectivity of the Corporation Law.9 Re: SociedadesAnonimas

PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,

vs.

PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA (PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees.G.R. No. L-17160 November 29, 1965

BENGZON, C.J.:

Facts:

Defendant PrimateriaSocieteAnonyme Pour Le Commerce Exterieur (hereinafter referred to as Primateria Zurich) is a foreign juridical entity and, at the time of the transactions involved herein, had its main office at Zurich, Switzerland. It was then engaged in "Transactions in international trade with agricultural products. On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin, entered into an agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy copra in the Philippines for the account of Primateria Zurich, during "a tentative experimental period of one month from date." The contract was renewed by mutual agreement of the parties to cover an extended period up to February 24, 1952, later extended to 1953. During such period, plaintiff caused the shipment of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria (Phil.) Inc. referred to hereafter as Primateria Philippines acting by defendant Alexander G. Baylin and Jose M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May 30, 1955, was P33,009.71. At the trial, it was proven that the amount due from defendant Primateria Zurich, on account of the various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the original claim of plaintiff. There is no dispute about accounting. And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and executive vice-president of Primateria Philippines, which also acted as agent of Primateria Zurich. It is likewise undisputed that Primateria Zurich had no license to transact business in the Philippines. For failure to file an answer within the reglementary period, defendant Primateria Zurich was declared in default. After trial, judgment was rendered by the lower court holding defendant Primateria Zurich liable to the plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the complaint, and P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M. Crame from any and all liability. Plaintiff appealed from that portion of the judgment dismissing its complaint as regards the three defendants. It is plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law, and since it has transacted business in the Philippines without the necessary license, as required by said provisions, its agents here are personally liable for contracts made in its behalf.Section 68 of the Corporation Law states: "No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines, until after it shall have obtained a license for that purpose from the Securities and Exchange Commission .. ." And under Section 69, "any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for etc. ... ."

Issue: Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law;

Ruling:The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation; nor that a societeanonyme ("sociedadanomima") is a corporation; and that failing such proof, the societe cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. We agree with the said court's conclusion. In fact, our corporation law recognized the difference between sociedadesanonimas and corporations. At any rate, we do not see how the plaintiff could recover from both the principal (Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three defendants.

10 Re: Cuentas En Participacion

FRANK S. BOURNS, Plaintiff-Appelle,

vs.

D.M. CARMAN ET AL., Defendants-Appellants.G.R. No. L-2880 December 4, 1906

MAPA, J.:

Facts: The plaintiff in this action seeks to recover the sum of $437.50, United States currency, balance due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. The contract relating to the said work was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and it appears that the said Lo-Chim-Lim and his codefendants at the time the contract was made, they were the joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim. plaintiff tries to show that the other defendants were the partners of Lo-Chim-Lim in the said lumber -yard business. The evidence of record show, according to the judgment of the court below, "That Lo-Chim-Lim had a certain lumber yard in CalleLemery of the city of Manila, and that he was the manager of the same, having ordered the plaintiff to do some work for him at his sawmill in the city of Manila; and that Vicente Palanca was his partner, and Manila; and that Vicente Palanca was his partner, and had an interest in the said business as well as in the profits and losses thereof . The court below accordingly found that "Lo-Chim-Lim, Vicente Palanca, and Go-Tauco had a lumber yard in CalleLemery of the city of Manila in the year 1904, participated in the profits and losses of the business and that Lo-Chim-Lim in the business in question.

Issue:Whether or not the partnership is Cuentas En Participacion.

Ruling:The court ruled in the affirmative. It seems that the alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal agreement only. At least there is no evidence tending to show that said agreement was reduced to writing, or that it was ever recorded in a public instrument. Moreover, that partnership had no corporate name. The plaintiff himself alleges in his complaint that the partnership was engaged in business under the name and style of Lo-Chim-Lim only, which according to the evidence was the name of one of the defendants. On the other hand, and this is very important, it does not appear that there was any mutual agreement between the parties, and if there were any, it has not been shown what that agreement was. As far as the evidence shows it seems that the business was conducted by Lo-Chim-Lim in his own name, although he gave to the appellants a share of the earnings of the business; but what that share was has not been shown with certainty. The contract made with the plaintiff was made by Lo-Chim-Lim individually in his own name, and there is no evidence that the partnership ever contracted in any other form. Under such circumstances we find nothing upon which to consider this partnership other than as a partnership of cuentas en participacion. But a simple business conducted by Lo-Chim-Lim exclusively, in his own name, and under his own personal management, he having effected every transaction connected therewith also in his own name, the names of the other persons interested in the profits and losses of the business nowhere appearing. A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same, there being no mutual agreements between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, in exactly the accidental partnership of cuentas en participacion defined in article 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other person interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them. (Art. 242 of the Code of Commerce.) It follows, therefore, that the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint, as Lo-Chim-Lim was the only one who contracted with him. 11 Re: Unreasonable Searches and Seizure

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,

vs.

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

G.R. No. L-19550 June 19, 1967

CONCEPCION, C.J.:

Facts:

Respondents Judges issued, on different dates, a total of 42 search warrants against petitioners to search the persons above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the personal property as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense, Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of Court because they do not describe with particularity the documents, books and things to be seized . On March 20, 1962, said petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending final disposition of the present case, a writ of preliminary injunction be issued restraining Respondents-Prosecutors, their agents and /or representatives from using the effects seized. In their answer, respondents-prosecutors alleged that the contested search warrants are valid and have been issued in accordance with law; On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from the offices of the corporations above mentioned are concerned; but, the injunction was maintained as regards the papers, documents and things found and seized in the residences of petitioners herein.

Issue:

Whether the searches and seizures were valid.Ruling:

The court ruled in the negative. As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity. Indeed, it has been held:. . . that the Government's action in gaining possession of papers belonging to the corporation did not relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any one was invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be raised only by one whose rights have been invaded. the warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the searches and seizures therein made are illegal; that the writ of preliminary injunction made permanent; that the writs prayed for are granted, insofar as the documents, papers and other effects so seized in the aforementioned residences are concerned; that the aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other effects seized in the twenty-nine (29) places, offices and other premises enumerated in the same Resolution, without special pronouncement as to costs.12 Re: Liability for TortsPHILIPPINE NATIONAL BANK, petitioner,

vs.

THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.

G.R. No. L-27155 May 18, 1978

ANTONIO, J.:

Facts:The defendant Rita GuecoTapnio was indebted to the bank in the sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. She claims, that she did not consider herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, which was already in excess of her obligation guaranteed by plaintiff's bond. It has been established during the trial that Mrs.Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr.Jacobo C. Tuazon to use said quota for the consideration of P2,500.00. This agreement was called a contract of lease of sugar allotment. At the time of the agreement, Mrs.Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. This arrangement was necessary in order that when Mrs.Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. This is the arrangement entered into between Mrs.Tapnio and Mr. Tuazon regarding the former's excess quota for 1956-1957. Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of P2.80 per picul or a total of P2, 800.00. Mr. Tuazon informed the manager that he was agreeable to raising the consideration to P2.80 per picul but the board of directors required that the amount be raised to 13.00 per picul. Tuazon, request for reconsideration to the board of directors with another recommendation for the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering that the current price prevailing at the time was P3.00 per picul. Tuazon informed the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita GuecoTapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness,

Issue:Whether or not petitioner is liable for the damage caused.

Ruling:The court ruled in the affirmative. We concur that failure of the negotiation for the lease of the sugar quota allocation of Rita GuecoTapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita GuecoTapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the rescission of the lease contract to the damage and prejudice of Rita GuecoTapnio in the aforesaid sum of P2,800.00. While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith, 4 This petitioner failed to do. A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body."

13 Re: Liability for Torts

SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents.G.R. No. 116123. March 13, 1997

PANGANIBAN, J.:

Facts:Respondents were previously employed by CFTI as taxicab drivers. The drivers worked at least three to four times a week, depending on the availability of taxicabs. They earned not less than US$15.00 daily. In excess of that amount, however, they were required to make cash deposits to the company, which they could later withdraw every fifteen days. Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of individual respondents were officially terminated on November 26, 1991.The AAFES Taxi Drivers and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the drivers accepted however respondents herein refused to accept theirs. Respondents, through the National Organization of Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a complaint against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President," for payment of separation pay due to termination/phase-out.

Issue:Whether or not the petitioners are liable.

Ruling:The court ruled in the affirmative. However private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They presumed that Sergio F. Naguiat, who was at the same time a stockholder and director[27] of Sergio F. Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in supervising the-taxi drivers and determining their employment terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business. Petitioner-corporations would likewise want to avoid the solidary liability of their officers. We, however, hold that Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. .Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family corporations"[34] owned by the Naguiat family. Section 100, paragraph 5, of the Corporation Code, states:5) To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance." Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there was corporate tort. Simply stated, tort is a breach of a legal duty. As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation. Only Sergio F. Naguiat, in his individual and personal capacity, principally bound himself to comply with the obligation there under, i.e., "to guarantee the payment to private respondents of any damages which they may incur by reason of the issuance of a temporary restraining order sought, if it should be finally adjudged that said principals were not entitled thereto.Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are ORDERED to pay, jointly and severally, the individual respondents their separation pay computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or satisfaction of the judgment; Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from liability in the payment of separation pay to individual respondents.

14 Re: Liability for TortPHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA)vs.

COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

G.R. No. 121413 January 29, 2001

QUISUMBING, J.:

Facts:Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage sales taxes for the third quarter of 1977.The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal Revenue. As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue. Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the modus operandi of the syndicate, as follows:A certain Mr.Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared the plaintiff's check marked Citibank Check for payment to the BIR. Instead, however, of delivering the same of the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account in the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant Manager. Hence, plaintiff filed on January 20, 1983 its original complaint before this Court.

Issue:Whether or not the petitioner is liable.

Ruling:The court ruled in the affirmative. , Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questionedcrossed check was deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in questions is deposited in Payee's account only. In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment.28 A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had particiapted. , Remberto Castro pro-manager of San Andres Branch of PCIBank, received Citibank Check Numbers SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBank'sMeralco Branch, who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBankPtro-manager, Castro, and his co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will t be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.15 Re: Criminal Liability of a CorporationWEST COAST LIFE INSURANCE CO., plaintiff,

vs.

GEO N. HURD, Judge of Court of First Instance, defendant.G.R. No. L-8527 March 30, 1914

MORELAND, J.:

Facts:

The petitioner is a foreign life-insurance corporation, was charged of criminal action joining John Northcott and Manuel C. Grey g with the crime of libel. The said defendants West Coast Life Insurance Company, John Northcott, and Manuel C. Grey, conspiring and confederating together, did then and there willfully, unlawfully, and maliciously, and to the damage of the Insular Life Insurance Company, a domestic corporation duly organized, registered, and doing business in the Philippine Islands, and with intent o cause such damage and to expose the said Insular Life Insurance Company to public hatred, contempt, and ridicule, compose and print, and cause to be printed a large number of circulars. The lower court ruled that it has no power or authority, under the laws of the Philippine Islands, to proceed against a corporation, as such, criminally, to bring it into court for the purpose of making it amenable to the criminal laws. It is contended that the court had no jurisdiction to issue the process in evidence against the plaintiff corporation; that the issuance and service thereof upon the plaintiff corporation were outside of the authority and jurisdiction of the court, were authorized by no law, conferred no jurisdiction over said corporation, and that they were absolutely void and without force or effect.

Issue:

Whether or not the plaintiff is liable.

Ruling:The court ruled in the negative. No case has been cited to us where a corporation has been proceeded against under a criminal statute where the court did not exercise its common law powers or where there was not in force a special procedure applicable to corporations further attacking said process, alleges that the process is a mixture of civil and criminal process, that it is not properly signed, that it does not direct or require an arrest; that it s an order to appear and answer on a date certain without restraint of the person, and that it is not in the form required by law.It is undoubted that, under the Spanish criminal law and procedure, a corporation could not have been proceeded against criminally, as such, if such an entity as a corporation in fact existed under the Spanish law, and as such it could not have committed a crime in which a willful purpose or a malicious intent was required. Criminal actions would have been restricted or limited, under that system, to the officials of such corporations and never would have been directed against the corporation itself. This was the rule with relation to associations or combinations of persons approaching, more or less, the corporation as it is now understood, and it would undoubtedly have been the rue with corporations. From this source, then, the courts derive no authority to bring corporations before them in criminal actions, nor to issue processes for that purpose.16 Re: Recovery of Moral Damages

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,

vs.

HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY,respondents.G.R. No. 103576 August 22, 1996

VITUG, J.:

Facts: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. 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 totaling P2, 700,000.00. 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. Respondent bank thereupon applied for an extra judicial foreclosure of the chattel mortgage, herein before cited, with the Sheriff of Caloocan City, prompting Petitioner Corporation to forthwith file an action for injunction, with moral 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, of the chattel mortgage. The Court of Appeals denied petitioner's first motion for reconsideration but granted a second motion for reconsideration. Except in criminal cases where the penalty of reclusion perpetua or death is imposed.

Issue: Whether or not the petitioner is entitled for moral damages.

Ruling:The court ruled in the negative. 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." 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. In LBC Express, Inc. vs. Court of Appeals, 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. 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 petitioners corporation.

17 RE: Recovery of moral damages and other damages.

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.G.R. No. 103576. August 22, 1996

VITUG, J.:

Facts:

In June 1978, Acme Shoe, Rubber & Plastic Corporation executed a chattel mortgage in favor of Producers Bank of the Philippines in consideration of a loan in the amount of P3 million. The loan was paid. Thereafter, Producers Bank extended another P2.7 million loan to Acme. The same was paid. In 1984, Producers Bank extended a P1 million loan to Acme. This time, Acme was unable to pay and eventually, Producers Bank foreclosed the property subject of the chattel mortgage executed in June 1978.

Acme opposed the foreclosure as it alleged that the 1984 loan was no longer covered by the chattel mortgage of 1978. Acme is also asking for moral damages (worth P3 million) for the groundless foreclosure done by Producers Bank.

Issue:

Whether or not Petitioner Corporation is entitled to recover moral damages from Private Respondent Bank for the groundless foreclosure done by the latter.

Ruling: No. 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." 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. In LBC Express, Inc. vs. Court of Appeals, 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."

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.18 RE: Recovery of moral damages and other damages.

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.

HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

G.R. No. 128690 January 21, 1999

DAVIDE, JR., CJ.:

Facts:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement whereby ABS-CBN was given the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing. Consequently, Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 titles) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement. ABS CBN rejected said list. On February 27, 1992, Del Rosario approached Ms.Concio, with a list consisting of 52 original movie titles, as well as 104 re-runs from which ABS-CBN may choose another 52 titles, or a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00. The package was rejected by ABS-CBN.

On April 06, 1992, Del Rosario and Mr.GracianoGozon of RBS discussed the terms and conditions of Vivas offer to sell the 104 films. On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms.Concio which reads: Heres the draft of the contract. I hope you find everything in order, to which was attached a draft exhibition agreement, a counter-proposal covering 53 films for a consideration of P35 million. The said counter-proposal was however rejected by Vivas Board of Directors.

On April 29, 1992, Viva granted RBS the exclusive right to air 104 Viva-produced and/or acquired films including the fourteen (14) films subject of the present case.

ABS-CBN then filed aa complaint for specific performance. RTC rendered a decision in favor of RBS and VIVA and against ABS-CBN, ruling that there was no meeting of minds on the price and terms of the offer. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms.Concios letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract. The Court of Appeals affirmed the decision of the RTC. Hence, this petition.

Issue:

Whether or not Private Respondent Corporation is entitled to actual, moral, and exemplary damages under the circumstances of the present case.

Ruling:

No. We find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, in case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been foreseen or could have reasonably been foreseen by the defendant. Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Needless to state the award of actual damages cannot be comprehended under the above law on actual damages.

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause.

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

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 is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court.

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 could be experienced only by one having a nervous system. The statement in People v. Manero andMambulao Lumber Co. v. PNB 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.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; in quasi-contracts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. But since ABS-CBN did not act with bad faith or malice, moral damages and exemplary damages based on Articles 19, 20 and 21 of the Civil Code cannot be granted likewise.19 RE: Real party in-interest.

REYNALDO T. COMETA and STATE INVESTMENT TRUST, INC., petitioners,

vs.

COURT OF APPEALS, HON. GEORGE MACLI-ING, in his capacity as Presiding Judge, Regional Trial Court, Quezon City, Branch 100, REYNALDO S. GUEVARA and HONEYCOMB BUILDERS, INC., respondents.G.R. No. 124062 January 21, 1999

MENDOZA, J.:

Facts:

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

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

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

Cometa assailed the affidavit as it was apparently forged as proven by an NBI investigation. Subsequently, Cometa filed a criminal action for falsification of public document against Guevara. The prosecutor initially did not file the information as he finds no cause of action but the then DOJ Secretary (Drilon) directed the fiscal to file an information against Guevara. The case was dismissed. In turn, Guevara filed a civil case for malicious prosecution against Cometa. Guevara, in his complaint, included HBI as a co-plaintiff.

Issue:Whether or not private respondent HBI should have been dropped as a party plaintiff upon petitioners motion therefor.Ruling:

No. The contention is without merit. We think the Court of Appeals correctly ruled: Section 11 of Rule 3 of the Rules of Court provides:

Misjoinder and non-joinder of parties. Misjoinder of parties is not a ground for dismissal of an action. Parties may be dropped or added by order of the court or on motion of any party or on its own initiative at any stage of the action and on such terms as are just.

Given (1) the foregoing rule, (2), the fact that Guevara, in his capacity as president of HBI, filed HBIs application to sell at the HLURB and it was in the same capacity and in connection with the application that he was criminally charged, and (3) the allegations in the complaint including that stating that by the filing of the criminal case against Guevara, the application of HBI with the HLURB for a regular license to sell the condominium units . . . had been delayed, resulting in the corresponding delay in the sale thereof on account of which plaintiffs incurred over runs in development, marketing and financial costs and charges, resulting in actual damages, the deferral by public respondent of petitioners motion to drop HBI as party plaintiff cannot be said to have been attended with grave abuse of discretion. It bears emphasis that the phraseology of Section 11 of Rule 3 is that parties may be dropped . . . at any stage of the action.

It is true that a criminal case can only be filed against the officers of a corporation and not against the corporation itself. It does not follow from this, however, that the corporation cannot be a real-party-in-interest for the purpose of bringing a civil action for malicious prosecution. As pointed out by the trial judge, and as affirmed by the Court of Appeals, the allegation by Cometathat Guevara has no cause of action with HBI not being a real party in interest is a matter of defense which can only be decisively determined in a full blown trial.20 RE: Public utilities.

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,

vs.

HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications, and EDSA LRT CORPORATION, LTD., respondents.G.R. No. 114222 April 6, 1995

QUIASON, J.:

Facts:

In 1989, the government planned to build a railway transit line along EDSA. No bidding was made but certain corporations were invited to prequalify. The only corporation to qualify was the EDSA LRT Consortium which was obviously formed for this particular undertaking. An agreement was then made between the government, through the Department of Transportation and Communication (DOTC), and EDSA LRT Consortium. The agreement was based on the Build-Operate-Transfer scheme provided for by law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT Consortium shall build the facilities, i.e., railways, and shall supply the train cabs. Every phase that is completed shall be turned over to the DOTC and the latter shall pay rent for the same for 25 years. By the end of 25 years, it was projected that the government shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell the facilities to the government for $1.00.

However, Senators Francisco Tatad, John Osmea, and Rodolfo Biazon opposed the implementation of said agreement as they averred that EDSA LRT Consortium is a foreign corporation as it was organized under Hongkong laws; that as such, it cannot own a public utility such as the EDSA railway transit because this falls under the nationalized areas of activities. The petition was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary.

Issue:

Whether or not the EDSA LRT Consortium may operate the railway transit line along EDSA despite the fact that it is a foreign corporation.

Ruling:

No. In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to serve the public.

The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof.

The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium, under the agreement, does not and will not become the owner of a public utility hence, the question of its nationality is misplaced. It is true that a foreign corporation cannot own a public utility but in this case what EDSA LRT Consortium will be owning are the facilities that it will be building for the EDSA railway project. There is no prohibition against a foreign corporation to own facilities used for a public utility. Further, i