Corpo Digest 1 Tayag V Benguet Consolidated - Ching Page 4

CORPORATION LAW CASE DIGEST
Atty. Ignacio
San Sebastian College of Law Recoletos
Prepared by: PAULINO, OYOS, BAGUAL, RADOVAN, BONCAY

1. Tayag v Benguet Consolidated 26 SCRA 242
Facts:
Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among
others, two stock certificates covering 33,002 shares of appellant, the certificates being in the
possession of the County Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.2 Then came this portion of the appellant's brief:
"On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the
Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator,
and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute
arose between the domiciary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock certificates in
question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary
administrator, County Trust Company, to "produce and deposit" them with the ancillary
administrator or with the Clerk of Court. The domiciliary administrator did not comply with the
order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an
order declaring the certificate or certificates of stocks covering the 33,002 shares issued in
the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered
as lost."
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the stock
certificates in question; appellant opposed the petition of the ancillary administrator
because the said stock certificates are in existence, they are today in the possession
of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."
It is its view, therefore, that under the circumstances, the stock certificates cannot be
declared or considered as lost. Moreover, it would allege that there was a failure to observe
certain requirements of its by-laws before new stock certificates could be issued. Hence, its
appeal.
Issue:
Whether or not the order of the lower court is proper and should be followed by the
BCI (appellant)
Ruling:
The view adopted by appellant Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of corporate theory,
"A corporation is not in fact and in reality a person, but the law treats it as
though it were a person by process of fiction or by regarding it as an artificial person
distinct and separate from its individual stockholders.... It owes its existence to law. It
is an artificial person created by law for certain specific purposes, the extent of whose
existence, powers and liberties is fixed by its charter."
A corporation as known to Philippine jurisprudence is a creature without any
existence until it has received the imprimatur of the state according to law. It is logically
inconceivable therefore that it will have rights and privileges of a higher priority than that of its
creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state
organs, certainly not excluding the judiciary, whenever called upon to do so.
To assert that it can choose which court order to follow and which to disregard is to
confer upon it not autonomy which may be conceded but license which cannot be tolerated. It
is to argue that it may, when so minded, overrule the state, the source of its very existence; it
is to contend that what any of its governmental organs may lawfully require could be ignored
at will. So extravagant a claim cannot possibly merit approval.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of
the Court of First Instance, dated May 18, 1964, is affirmed.

2. Stonehill v Diokno 20 SCRA 383
Facts:
Respondents-Judges issued, on different dates, 42 search warrants against
petitioners herein and/or the corporations of which they were officers, directed to the
any peace officer, to search the persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take possession of the following personal
property to wit:
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Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit
journals, typewriters, and other documents and/or papers showing all business transactions including disbursements
receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or
"used or intended to be used as the means of committing the offense," which is described in
the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs
Laws, Internal Revenue (Code) and the Revised Penal Code."
The 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 petitioners have cause of action to question the validity of search warrant.
Ruling:
The documents, papers, and things seized under the alleged authority of the
warrants in question may be split into two (2) major groups, namely: (a) those found and
seized in the offices of the aforementioned corporations, and (b) those found and seized
in the residences of petitioners herein.
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 were 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.
Certainly, such a seizure, if unlawful, could not affect the constitutional rights of defendants
whose property had not been seized or the privacy of whose homes had not been disturbed;
nor could they claim for themselves the benefits of the Fourth Amendment, when its violation,
if any, was with reference to the rights of another. Remus vs. United States (C.C.A.)291 F.
501, 511. It follows, therefore, that the question of the admissibility of the evidence based on
an alleged unlawful search and seizure does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co.
vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

3. Bache & Co., Inc. v Ruiz 37 SCRA 823
Facts:
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal
Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the
issuance of a search warrant against petitioners for violation of Section 46(a) of the National
Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one
of herein respondents, to make and file the application for search warrant which was attached
to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his
witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers: respondent Veras aforesaid letter-request; an
application for search warrant already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in
printed form of respondent Logronio already accomplished and signed by him but not yet
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subscribed; and a search warrant already accomplished but still unsigned by respondent
Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note,
he instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and
Logronio. After the session had adjourned, respondent Judge was informed that the
depositions had already been taken
Respondent Judge signed respondent de Leons application for search warrant and
respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent
Judge and accordingly issued.
It is contended by respondents that a corporation is not entitled to protection against
unreasonable search and seizures.
Issue: Whether or not Corporations are not entitled protection against unreasonable search
and seizure
Ruling:
We find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a
corporation which is charged with a violation of a statute of the state of its creation, or of an
act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce
the books and papers of such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment, against unreasonable
searches and seizures. A corporation is, after all, but an association of individuals
under an assumed name and with a distinct legal entity. In organizing itself as a
collective body it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be proceeded against by
due process of law, and is protected, under the 14th Amendment, against unlawful
discrimination . . ."
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right
of a corporation to object against unreasonable searches and seizures, thus:
"As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance thereof,
for the simple reason that said corporations have their respective personalities, separate and
distinct from the personality of herein petitioners, regardless of the amount of shares of stock
or the interest of each of them in said corporations, whatever, the offices they hold therein
may be. Indeed, it is well settled that the legality of a seizure can be contested only by the
party whose rights have been impaired thereby, and that the objection to an unlawful search
and seizure is purely personal and cannot be availed of by third parties. Consequently,
petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the corporations
adverted to above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may not be
invoked by the corporate officers in proceedings against them in their individual capacity...
In the Stonehill case only the officers of the various corporations in whose
offices documents, papers and effects were searched and seized were the petitioners.
In the case at bar, the corporation to whom the seized documents belong, and whose
rights have thereby been impaired, is itself a petitioner. On that score, petitioner
corporation here stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as
claimed by petitioners at least partly as in effect admitted by respondents based on
the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis for
the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted.
4. Bataan Shipyard & Engineering Co., Inc. v PCGG 150 SCRA 181
Facts:
Challenged in this special civil action of certiorari and prohibition by a private corporation
known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders
Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28,1986 and
March 12, 1986, respectively ( for the recovery of ill-gotten wealth acquired by the Marcoses),
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and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance
with said executive orders by the Presidential Commission on Good Government and/or its
Commissioners and agents, affecting said corporation. The sequestration order issued on
April 14, 1986 was addressed to three of the agents of the Commission, ordering them to
sequester several companies among which is Bataan Shipyard and Engineering Co., Inc. On
the strength of the above sequestration order, several letters were sent to BASECO among
which is that from Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18,
1986 to the President and other officers of petitioner firm, reiterating an earlier request for the
production of certain documents. The letter closed with the warning that if the documents
were not submitted within five days, the officers would be cited for "contempt in pursuance
with Presidential Executive Order Nos. 1 and 2." BASECO contends that its right against
self incrimination and unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986
under pain of contempt of the Commission if it fails to do so." BASECO prays that the Court
1)declare unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul the
sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts
done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination
of the services of the BASECO executives
Issue: Whether there is a violation of the right against self incrimination of BASECO
Ruling: No. There is no violation of Right against Self-Incrimination and Unreasonable
Searches and Seizures
It is elementary that the right against self-incrimination has no application to juridical
persons.
While an individual may lawfully refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a corporation, vested with special privileges
and franchises, may refuse to show its hand when charged with an abuse of such privileges
Relevant jurisprudence is also cited by the Solicitor General.
* * corporations are not entitled to all of the constitutional protections which private
individuals have. * * They are not at all within the privilege against self-incrimination,
although this court more than once has said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also settled that an officer of the company
cannot refuse to produce its records in its possession upon the plea that they will either
incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S.
186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the
benefit of the public. It received certain special privileges and franchises, and holds them
subject to the laws of the state and the limitations of its charter. Its powers are limited by
law. It can make no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in
the legislature to investigate its contracts and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having chartered a corporation to make
use of certain franchises, could not, in the exercise of sovereignty, inquire how these
franchises had been employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The defense amounts to
this, that an officer of the corporation which is charged with a criminal violation of the
statute may plead the criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780
[emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures
protection to individuals required to produce evidence before the PCGG against any possible
violation of his right against self-incrimination. It gives them immunity from prosecution on
the basis of testimony or information he is compelled to present. As amended, said Section
4 now provides that
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xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against
self-incrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be
used against the witness in any criminal case, except a prosecution for perjury, giving a false
statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the occasion thereof.
WHEREFORE, the petition is dismissed.

5. SMITH, BELL & COMPANY (LTD.), v JOAQUIN NATIVIDAD 40
PHIL 136
Facts:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a motor
vessel known as the Bato built for it in the Philippine Islands in 1916, of more than fifteen tons
gross The Bato was brought to Cebu in the present year for the purpose of transporting
plaintiff's merchandise between ports in the Islands. Application (Certificate of Philippine
Regitry) was made at Cebu, the home port of the vessel, to the Collector of Customs for a
certificate of Philippine registry. The Collector refused to issue the certificate, giving as his
reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the
United States or of the Philippine Islands under Act No. 2761 which provides:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate of Philippine register
shall be issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less,
the taking of the certificate of Philippine register shall be optional with the owner.
SEC. 1176. Investigation into character of vessel. No application for a certificate
of Philippine register shall be approved until the collector of customs is satisfied from
an inspection of the vessel that it is engaged or destined to be engaged in legitimate
trade and that it is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code.
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection
of the laws because it, in effect, prohibits the corporation from owning vessels, and because
classification of corporations based on the citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the corporation of its properly without due process
of law because by the passage of the law company was automatically deprived of every
beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not
use.
Issue: Whether the legislature through Act no. 2761 can deny registry of vessel with foreign
stockholders.
Ruling: Yes. We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation
having alien stockholders, is entitled to the protection afforded by the due-process of
law and equal protection of the laws clause of the Philippine Bill of Rights,
nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations
such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines
coastwise trade, does not belong to that vicious species of class legislation which
must always be condemned, but does fall within authorized exceptions, notably, within
the purview of the police power, and so does not offend against the constitutional
provision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the territorial
jurisdiction, without regard to any differences of race, color, or nationality. The word "person"
includes aliens. Private corporations, likewise, are "persons" within the scope of the
guaranties in so far as their property is concerned. Classification with the end in view of
providing diversity of treatment may be made among corporations, but must be based
upon some reasonable ground and not be a mere arbitrary selection.
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A literal application of general principles to the facts before us would, of course,
cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to
a corporation, some of whole members are foreigners, of the equal protection of the laws.
To justify that portion of Act no. 2761 which permits corporations or companies to
obtain a certificate of Philippine registry only on condition that they be composed wholly of
citizens of the Philippine Islands or of the United States or both, as not infringing Philippine
Organic Law, it must be done under some one of the exceptions.
One of the exceptions to the general rule, most persistent and far reaching in
influence is, broad and comprehensive as it is, nor any other amendment, "was designed to
interfere with the power of the State, sometimes termed its `police power,' to prescribe
regulations to promote the health, peace, morals, education, and good order of the people,
and legislate so as to increase the industries of the State, develop its resources and add to its
wealth and prosperity. From the very necessities of society, legislation of a special character,
having these objects in view, must often be had in certain districts. This is the same police
power which the United States Supreme Court say "extends to so dealing with the conditions
which exist in the state as to bring out of them the greatest welfare in of its people." For quite
similar reasons, none of the provision of the Philippine Organic Law could could have had the
effect of denying to the Government of the Philippine Islands, acting through its Legislature,
the right to exercise that most essential, insistent, and illimitable of powers, the sovereign
police power, in the promotion of the general welfare and the public interest.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to
be to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to encourage
Philippine ship-building.

6. Monfort Hermanos Agricultural Development Corporation v
Monfort III
Facts: Monfort Hermanos Agricultural Development Corporation, a domestic private
corporation, is the registered owner of a farm, fishpond and sugar cane plantation known as
Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City. It
also owns one unit of motor vehicle and two units of tractors.

The same allowed Ramon H.
Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal
capacity at Hacienda San Antonio.
In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took
possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as
well as the fighting cocks of Ramon H. Monfort.
The Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H.
Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a
complaint for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for
injunction and damages
The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma.
Antonia M. Salvatierra has no capacity to sue on behalf of the Corporation because
the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or
Ramon H. Monfort to represent the Corporation is void as the purported Members of
the Board who passed the same were not validly elected officers of the
Corporation.
Issue: Whether Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the
Corporation
Ruling: No. Salvatierra has no legal capacity to sue on behalf of the Corporation.
A corporation has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence. In turn, a
corporation exercises said powers through its board of directors and/or its duly
authorized officers and agents. Thus, it has been observed that the power of a
corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the corporation, like the
signing of documents, can be performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of the board of directors.
Corollary thereto, corporations are required under Section 26 of the Corporation Code to
submit to the SEC within thirty (30) days after the election a GENERAL INFORMATION
SHEET the names, nationalities and residences of the elected directors, trustees and officers
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of the Corporation. In order to keep stockholders and the public transacting business with
domestic corporations properly informed of their organizational operational status.
In the instant case, the names of the last four (4) signatories to the said Board
Resolution do not appear in the 1996 General Information Sheet submitted by the
Corporation with the SEC. There is thus a doubt as to whether Paul M. Monfort, Yvete M.
Benedicto, Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members of
the Board legally constituted to bring suit in behalf of the Corporation.
In the case at bar, the fact that four of the six Members of the Board listed in the 1996
General Information Sheet are already dead

at the time the March 31, 1997 Board Resolution
was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M.
Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose
name do not appear in the 1996 General Information Sheet) as among the incumbent
Members of the Board. This is because it was not established that they were duly elected to
replace the said deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained accountant of
the Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of
the lawfully elected directors in the 1996 General Information Sheet was attributable to its
oversight and not the fault of the Corporation.

This belated attempt, however, did not erase
the doubt as to whether an election was indeed held. As previously stated, a corporation is
mandated to inform the SEC of the names and the change in the composition of its officers
and board of directors within 30 days after election if one was held, or 15 days after the
death, resignation or cessation of office of any of its director, trustee or officer if any of them
died, resigned or in any manner, ceased to hold office. This, the Corporation failed to
do. The alleged election of the directors and officers who signed the March 31, 1997 Board
Resolution was held on October 16, 1996, but the SEC was informed thereof more than two
years later, or on November 11, 1998. The 4 Directors appearing in the 1996 General
Information Sheet died between the years 1984 1987,

but the records do not show if such
demise was reported to the SEC. DENIED

7. Megan Sugar Corp. V RTC 650 SCRA 100
Facts: On July 23, 1993, respondent New Frontier Sugar Corporation (NFSC) obtained a loan
from respondent Equitable PCI Bank (EPCIB). Said loan was secured by a real estate
mortgage over NFSCs land consisting of ninety-two (92) hectares located in PassiCity, Iloilo,
and a chattel mortgage over NFSCs sugar mill.
On November 17, 2000, because of liquidity problems and continued indebtedness to
EPCIB, NFSC entered into a Memorandum of Agreement
[4]
(MOA) with Central Iloilo Milling
Corporation (CIMICO), whereby the latter agreed to take-over the operation and
management of the NFSC raw sugar factory and facilities for the period covering crop years
2000 to 2003.
On April 19, 2002, NFSC filed a compliant for specific performance and
collection
]
against CIMICO for the latters failure to pay its obligations under the MOA.In
response, CIMICO filed with the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch 68, a
case against NFSC for sum of money and/or breach of contract. The case was docketed as
Civil Case No. 02-243.
On May 10, 2002, because of NFSCs failure to pay its debt, EPCIB instituted extra-
judicial foreclosure proceedings over NFSCs land and sugar mill. During public auction,
EPCIB was the sole bidder and was thus able to buy the entire property and consolidate the
titles in its name. EPCIB then employed the services of Philippine Industrial Security Agency
(PISA) to help it in its effort to secure the land and the sugar mill.
On October 3, 2002, CIMICO and petitioner Megan Sugar Corporation (MEGAN)
entered into a MOA whereby MEGAN assumed CIMICOs rights, interests and
obligations over the property. As a result of the foregoing undertaking, MEGAN
started operating the sugar mill on November 18, 2002.
On November 22, 2002, Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the
RTC a Motion for Intervention claiming to be the vendee of EPCIB. Passi Sugar claimed that
it had entered into a Contract to Sell
[9]
with EPCIB after the latter foreclosed NFSCs land and
sugar mill.
On November 29, 2002, during the hearing on the motion for intervention, Atty.
Reuben Mikhail Sabig (Atty. Sabig) appeared before the RTC and entered his appearance as
counsel for MEGAN. Several counsels objected to Atty. Sabigs appearance since MEGAN
was not a party to the proceedings; however, Atty. Sabig explained to the court that MEGAN
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had purchased the interest of CIMICO and manifested that his statements would bind
MEGAN.
Aggrieved by the orders issued by the RTC, MEGAN filed before the CA a petition
for certiorari,dated March 5, 2003. In said petition, MEGAN argued mainly on two points; first,
that the RTC erred when it determined that MEGAN was subrogated to the obligations of
CIMICO and; second, that the RTC had no jurisdiction over MEGAN.
In denying MEGANs petition, the CA ruled that since Atty. Sabig had actively
participated before the RTC, MEGAN was already estopped from assailing the RTCs
jurisdiction.
MEGAN points out that its board of directors did not issue a resolution authorizing
Atty. Sabig to represent the corporation before the RTC. It contends that Atty. Sabig was an
unauthorized agent and as such his actions should not bind the corporation. In addition,
MEGAN argues that the counsels of the different parties were aware of Atty. Sabigs lack of
authority because he declared in court that he was still in the process of taking over the case
and that his voluntary appearance was just for the hearing of the motion for intervention of
Passi Sugar.
Both EPCIB and NFSC, however, claim that MEGAN is already estopped from
assailing the authority of Atty. Sabig. They contend that Atty. Sabig had actively participated
in the proceedings before the RTC and had even filed a number of motions asking for
affirmative relief. They also point out that Jose Concha (Concha), who was a member of the
Board of Directors of MEGAN, accompanied Atty. Sabig during the hearing. Lastly, EPCIB
and NFSC contend that all the motions, pleadings and court orders were sent to the office of
MEGAN; yet, despite the same, MEGAN never repudiated the authority of Atty. Sabig.
Issue: Whether the MEGAN is bound by the representation of Atty. Sabig.
Ruling: Yes.
The Court agrees with the finding of the CA that MEGAN is already estopped from
assailing the jurisdiction of the RTC.
Based on the events and circumstances surrounding the issuance of the assailed
orders, this Court rules that MEGAN is estopped from assailing both the authority of Atty.
Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig
said in court that he was only appearing for the hearing of Passi Sugars motion for
intervention and not for the case itself, his subsequent acts, coupled with MEGANs inaction
and negligence to repudiate his authority, effectively bars MEGAN from assailing the validity
of the RTC proceedings under the principle of estoppel.
MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed
him with apparent authority to act in their behalf. It must be remembered that when Atty.
Sabig entered his appearance, he was accompanied by Concha, MEGANs director and
general manager. Concha himself attended several court hearings, and on December 17,
2002, even sent a letter to the RTC asking for the status of the case. A corporation may be
held in estoppel from denying as against innocent third persons the authority of its officers or
agents who have been clothed by it with ostensible or apparent authority. Atty. Sabig may not
have been armed with a board resolution, but the appearance of Concha made the parties
assume that MEGAN had knowledge of Atty. Sabigs actions and, thus, clothed Atty. Sabig
with apparent authority such that the parties were made to believe that the proper person and
entity to address was Atty. Sabig. Apparent authority, or what is sometimes referred
to as the "holding out" theory, or doctrine of ostensible agency, imposes
liability, not as the result of the reality of a contractual relationship, but rather
because of the actions of a principal or an employer in somehow misleading
the public into believing that the relationship or the authority exists.
One of the instances of estoppel is when the principal has clothed the agent with
indicia of authority as to lead a reasonably prudent person to believe that the agent actually
has such authority. With the case of MEGAN, it had all the opportunity to repudiate the
authority of Atty. Sabig since all motions, pleadings and court orders were sent to MEGANs
office. However, MEGAN never questioned the acts of Atty. Sabig and even took time and
effort to forward all the court documents to him.
The rule is that the active participation of the party against whom the action was
brought, coupled with his failure to object to the jurisdiction of the court or administrative body
where the action is pending, is tantamount to an invocation of that jurisdiction and a
willingness to abide by the resolution of the case and will bar said party from later on
impugning the court or bodys jurisdiction. Based on the preceding discussion, this Court
holds that MEGANs challenge to Atty. Sabigs authority and the RTCs jurisdiction was a
mere afterthought after having received an unfavorable decision from the RTC. Certainly, it
would be unjust and inequitable to the other parties if this Court were to grant such a belated
jurisdictional challenge.
Atty. Ignacio

WHEREFORE, premises considered, the petition is DENIED.

8. Banate v Philippine Countryside Rural Bank (Liloan Cebu)
625 SCRA 21
Facts: On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar
(spouses Maglasang) obtained a loan (subject loan) from PCRB for P1,070,000.00. The
subject loan was evidenced by a promissory note and was payable on January 18, 1998. To
secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB
a real estate mortgage over their property, Lot 12868-H-3-C,
6
including the house
constructed thereon (collectively referred to as subject properties), owned by petitioners Mary
Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasangs daughter and son-
in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other
loans from PCRB which were covered by separate promissory notes
7
and secured by
mortgages on their other properties.
Sometime in November 1997 (before the subject loan became due), the spouses
Maglasang and the spouses Cortel asked PCRBs permission to sell the subject properties.
They likewise requested that the subject properties be released from the mortgage since the
two other loans were adequately secured by the other mortgages. The spouses Maglasang
and the spouses Cortel claimed that the PCRB, acting through its Branch Manager,
Pancrasio Mondigo, verbally agreed to their request but required first the full payment
of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to
petitioner Violeta Banate the subject properties forP1,750,000.00. The spouses Magsalang
and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the
subject loan, PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to
Banate, who was able to secure a new title in her name. The title, however, carried the
mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of
Release of Mortgage. As PCRB refused to comply with the petitioners request, the
petitioners instituted an action for specific performance before the RTC to compel PCRB to
execute the release deed.
PCRB considered Banate as a buyer in bad faith as she was fully aware of the
existing mortgage in its favor when she purchased the subject properties from the spouses
Maglasang and the spouses Cortel. It explained that it allowed the release of the owners
duplicate certificate of title to Banate only to enable her to annotate the sale. PCRB
claimed that the release of the title should not indicate the corresponding release of the
subject properties from the mortgage constituted thereon.
After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as
"necessitous men," could not have bargained on equal footing with PCRB in executing the
mortgage, and concluded that it was a contract of adhesion. Therefore, any obscurity in the
mortgage contract should not benefit PCRB.
The RTC observed that the official receipt issued by PCRB stated that the amount
owed by the spouses Maglasang under the subject loan was only about P1.2 million; that
Mary Melgrid Cortel paid the subject loan using the check which Banate issued as payment
of the purchase price; and that PCRB authorized the release of the title further indicated that
the subject loan had already been settled. Since the subject loan had been fully paid, the
RTC considered the petitioners as rightfully entitled to a deed of release of mortgage,
pursuant to the verbal agreement that the petitioners made with PCRBs branch manager,
Mondigo. Thus, the RTC ordered PCRB to execute a deed of release of mortgage over the
subject properties, and to pay the petitioners moral damages and attorneys fees.
On appeal, the CA reversed the RTCs decision. The CA did not consider as valid
the petitioners new agreement with Mondigo, which would novate the original
mortgage contract containing the cross-collateral stipulation. It ruled that Mondigo
cannot orally amend the mortgage contract between PCRB, and the spouses
Maglasang and the spouses Cortel; therefore, the claimed commitment allowing the
release of the mortgage on the subject properties cannot bind PCRB. Since the cross-
collateral stipulation in the mortgage contract (requiring full settlement of all three loans
before the release of any of the mortgages) is clear, the parties must faithfully comply with its
terms.
Issue: Whether PCRB is bound by the Commitment of its Branch Manager Mondigo under
the doctrine of apparent authority.
Ruling: No.
Section 23 of the Corporation Code

expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. The power and the responsibility
to decide whether the corporation should enter into a contract that will bind the corporation
are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions
Atty. Ignacio

of law. In the absence of authority from the board of directors, no person, not even its
officers, can validly bind a corporation.
However, just as a natural person may authorize another to do certain acts for and on
his behalf, the board of directors may validly delegate some of its functions and powers to its
officers, committees or agents. The authority of these individuals to bind the corporation is
generally derived from law, corporate bylaws or authorization from the board, either expressly
or impliedly by habit, custom or acquiescence in the general course of business.
17

The authority of a corporate officer or agent in dealing with third persons may
be actual or apparent. Actual authority is either express or implied. The extent of an
agents express authority is to be measured by the power delegated to him by the
corporation, while the extent of his implied authority is measured by his prior acts
which have been ratified or approved, or their benefits accepted by his principal.The
doctrine of "apparent authority," on the other hand, with special reference to banks,
had long been recognized in this jurisdiction. The existence of apparent authority may
be ascertained through:
1) the general manner in which the corporation holds out an officer or agent as having
the power to act, or in other words, the apparent authority to act in general, with which
it clothes him; or
2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.
Accordingly, the authority to act for and to bind a corporation may be
presumed from acts of recognition in other instances when the power was
exercised without any objection from its board or shareholders.
Under the doctrine of apparent authority, acts and contracts of the agent, as are
within the apparent scope of the authority conferred on him, although no actual authority to
do such acts or to make such contracts has been conferred, bind the principal. The principals
liability, however, is limited only to third persons who have been led reasonably to believe by
the conduct of the principal that such actual authority exists, although none was given. In
other words, apparent authority is determined only by the acts of the principal and not by the
acts of the agent. There can be no apparent authority of an agent without acts or conduct on
the part of the principal; such acts or conduct must have been known and relied upon in good
faith as a result of the exercise of reasonable prudence by a third party as claimant, and such
acts or conduct must have produced a change of position to the third partys detriment.
In the present case, the decision of the trial court was utterly silent on the manner by
which PCRB, as supposed principal, has "clothed" or "held out" its branch manager as having
the power to enter into an agreement, as claimed by petitioners. No proof of the course of
business, usages and practices of the bank about, or knowledge that the board had or is
presumed to have of, its responsible officers acts regarding bank branch affairs, was ever
adduced to establish the branch managers apparent authority to verbally alter the terms of
mortgage contracts.
3
Neither was there any allegation, much less proof, that PCRB ratified
Mondigos act or is estopped to make a contrary claim.
Further, we would be unduly stretching the doctrine of apparent authority were we to
consider the power to undo or nullify solemn agreements validly entered into as within the
doctrines ambit. Although a branch manager, within his field and as to third persons, is the
general agent and is in general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him and the usual course and conduct
thereof, yet the power to modify or nullify corporate contracts remains generally in the board
of directors. Being a mere branch manager alone is insufficient to support the conclusion that
Mondigo has been clothed with "apparent authority" to verbally alter terms of written
contracts, especially when viewed against the telling circumstances of this case: the
unequivocal provision in the mortgage contract; PCRBs vigorous denial that any agreement
to release the mortgage was ever entered into by it; and, the fact that the purported
agreement was not even reduced into writing considering its legal effects on the parties
interests. To put it simply, the burden of proving the authority of Mondigo to alter or novate
the mortgage contract has not been established.
It is a settled rule that persons dealing with an agent are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of the agents authority, and in case either is controverted, the burden of proof is upon
them to establish it. As parties to the mortgage contract, the petitioners are expected to abide
by its terms. The subsequent purported agreement is of no moment, and cannot prejudice
PCRB, as it is beyond Mondigos actual or apparent authority, as above discussed.
WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of
merit

Atty. Ignacio

9. Prudential Bank vs Abosolo
Facts:
Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz,
Laguna (the properties), registered as Original Certificates of Title Nos. RO-527 and RO-528.
After she passed away, her heirs executed on June 14, 1993 a Special Power of Attorney
(SPA) in favor of Liwayway Abasolo (respondent) empowering her to sell the properties.
[2]

Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were
being sold for P2,448,960, but as she had no available cash, she broached the idea of first
mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the
proceeds of which would be paid directly to respondent. Respondent agreed to the proposal.
On Corazon and respondents consultation with PBTCs Head Office, its employee, Norberto
Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to
mortgage the properties, and for her (respondent) to act as one of the co-makers so that the
proceeds could be released to both of them.

To guarantee the payment of the property, Corazon executed on August 25, 1995 a
Promissory Note for P2,448,960 in favor of respondent.

By respondents claim, in October 1995, Mendiola advised her to transfer the properties first
to Corazon for the immediate processing of Corazons loan application with assurance that
the proceeds thereof would be paid directly to her (respondent), and the obligation would be
reflected in a bank guarantee.

Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale over the
properties in favor of Corazon following which or on December 4, 1995, Transfer Certificates
of Title Nos. 164159 and 164160 were issued in the name of Corazon.

Corazons application for a loan with PBTCs Tondo Branch was approved on
December 1995. She thereupon executed a real estate mortgage covering the properties to
secure the payment of the loan. In the absence of a written request for a bank guarantee, the
PBTC released the proceeds of the loan to Corazon.

Respondent later got wind of the approval of Corazons loan application and the
release of its proceeds to Corazon who, despite repeated demands, failed to pay the
purchase price of the properties.

Respondent eventually accepted from Corazon partial payment in kind consisting of
one owner type jeepney and four passenger jeepneys,
[3]
plus installment payments, which, by
the trial courts computation, totaled P665,000.

In view of Corazons failure to fully pay the purchase price, respondent filed a
complaint for collection of sum of money and annulment of sale and mortgage with damages,
against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court (RTC) of
Sta. Cruz, Laguna.
[4]

In her Answer,
[5]
Corazon denied that there was an agreement that the proceeds of the
loan would be paid directly to respondent. And she claimed that the vehicles represented full
payment of the properties, and had in fact overpaid P76,040.

By Decision of March 12, 2004,
[9]
Branch 91 of the Sta. Cruz,
Laguna RTC rendered judgment in favor of respondent and against Corazon
who was made directly liable to respondent, and against petitioner who was
made subsidiarily liable in the event that Corazon fails to pay.

Further, Liwayway would not have executed the deed of sale in favor
of Corazon had Norberto Mendiola did not promise and guarantee that the
proceeds of the loan would be directly paid to her. Based on ordinary human
experience, she would not have readily transferred the title over the subject
lots had there been no strong and reliable guarantee. In this case, what
caused her to transfer title is the promise and guarantee made by Norberto
Mendiola that the proceeds of the loan would be directly paid to her.
[11]

(emphasis underscoring supplied)

On appeal, the Court of Appeals by Decision of January 14, 2008
[12]
, affirmed the trial
courts decision with modification on the amount of the balance of the purchase price which
was reduced from P1,783,960 to P1,753,960.
Atty. Ignacio

Issue:

The only issue petitioner raises is whether it is subsidiarily liable.

Held:

The petition is meritorious.

In the absence of a lender-borrower relationship between petitioner and Liwayway,
there is no inherent obligation of petitioner to release the proceeds of the loan to her.

To a banking institution, well-defined lending policies and sound lending practices are
essential to perform its lending function effectively and minimize the risk inherent in any
extension of credit.

In order to identify and monitor loans that a bank has extended, a system of
documentation is necessary. Under this fold falls the issuance by a bank of a guarantee
which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It
would be contrary to established banking practice if Mendiola issued a bank guarantee, even
if no request to that effect was made.
The principle of relativity of contracts in Article 1311 of the Civil Code supports
petitioners cause:

Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by stipulation or by
provision of law. xxxxx
xxxxxx The contracting parties must have clearly and deliberately conferred a
favor upon a third person.

For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a
favor upon her must be present. A written request would have sufficed to prove this, given the
nature of a banking business, not to mention the amount involved.

Since it has not been established that petitioner had an obligation to Liwayway, there
is no breach to speak of. Liwayways claim should only be directed against Corazon.
Petitioner cannot thus be held subisidiarily liable.
The trial Courts reliance on the doctrine of apparent authority that the principal, in
this case petitioner, is liable for the obligations contracted by its agent, in this case Mendiola,
does not lie. Prudential Bank v. Court of Appeals
[15]
instructs:

[A] banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within
the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetuate fraud
upon his principal or some person, for his own ultimate benefit.
[16]

(underscoring supplied)

The onus probandi that attempt to commit fraud attended petitioners employee
Mendiolas acts and that he abused his authority lies on Liwayway. She, however, failed to
discharge the onus. It bears noting that Mendiola was not privy to the approval or
disallowance of Corazons application for a loan nor that he would benefit by the approval
thereof.

Aside from Liwayways bare allegations, evidence is wanting to show that there was
collusion between Corazon and Mendiola to defraud her. Even in Liwayways Complaint, the
allegation of fraud is specifically directed against Corazon.
[17]

WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it
holds petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands),
subsidiary liable in case its co-defendant Corazon Marasigan, who did not appeal the trial
courts decision, fails to pay the judgment debt, isREVERSED and SET ASIDE. The
complaint against petitioner is accordingly DISMISSED.

Atty. Ignacio

10. PREMIERE DEVELOPMENT BANK, petitioner,
vs.
COURT OF APPEALS, PANACOR MARKETING CORPORATION
and ARIZONA TRANSPORT CORPORATION,respondents.
Facts:
The undisputed facts show that on or about October 1994, Panacor Marketing Corporation
(Panacor for brevity), a newly formed corporation, acquired an exclusive distributorship of
products manufactured by Colgate Palmolive Philippines, Inc. (Colgate for short). To meet
the capital requirements of the exclusive distributorship, which required an initial inventory
level of P7.5 million, Panacor applied for a loan of P4.1 million with Premiere Development
Bank. After an extensive study of Panacors creditworthiness, Premiere Bank rejected the
loan application and suggested that its affiliate company, Arizona Transport Corporation
(Arizona for short),
3
should instead apply for the loan on condition that the proceeds thereof
shall be made available to Panacor. Eventually, Panacor was granted a P4.1 million credit
line as evidenced by a Credit Line Agreement.
4
As suggested, Arizona, which was an existing
loan client, applied for and was granted a loan of P6.1 million, P3.4 million of which would be
used to pay-off its existing loan accounts and the remaining P2.7 million as credit line of
Panacor. As security for the P6.1 million loan, Arizona, represented by its Chief Executive
Officer Pedro Panaligan and spouses Pedro and Marietta Panaligan in their personal
capacities, executed a Real Estate Mortgage against a parcel of land covered by TCT No. T-
3475 as per Entry No. 49507 dated October 2, 1995.
5

Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line
which was previously approved, Panacor negotiated for a take-out loan with Iba Finance
Corporation (hereinafter referred to as Iba-Finance) in the sum of P10 million, P7.5 million of
which will be released outright in order to take-out the loan from Premiere Bank and the
balance of P2.5 million (to complete the needed capital of P4.1 million with Colgate) to be
released after the cancellation by Premiere of the collateral mortgage on the property
covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-Finance was
authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an amount
not to exceed P6 million.
On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of
Premiere Banks San Juan Branch, informing her of the approved loan in favor of Panacor
and Arizona, and requesting for the release of TCT No. T-3475. Martillano, after reading the
letter, affixed her signature of conformity thereto and sent the original copy to Premiere
Banks legal office.
On October 12, 1995, Premiere Bank sent a letter-reply
7
to Iba-Finance, informing the latter
of its refusal to turn over the requested documents on the ground that Arizona had existing
unpaid loan obligations and that it was the banks policy to require full payment of all
outstanding loan obligations prior to the release of mortgage documents. Thereafter,
Premiere Bank issued to Iba-Finance a Final Statement of Account
8
showing Arizonas total
loan indebtedness. On October 19, 1995, Panacor and Arizona executed in favor of Iba-
Finance a promissory note in the amount of 7.5 million. Thereafter, Iba-Finance paid to
Premiere Bank the amount of P6,235,754.79 representing the full outstanding loan account of
Arizona. Despite such payment, Premiere Bank still refused to release the requested
mortgage documents specifically, the owners duplicate copy of TCT No. T-3475.
9

On November 2, 1995, Panacor requested Iba-Finance for the immediate approval and
release of the remaining P2.5 million loan to meet the required monthly purchases from
Colgate. Iba-Finance explained however, that the processing of the P2.5 million loan
application was conditioned, among others, on the submission of the owners duplicate copy
of TCT No. 3475 and the cancellation by Premiere Bank of Arizonas mortgage. Occasioned
by Premiere Banks adamant refusal to release the mortgage cancellation document,
Panacor failed to generate the required capital to meet its distribution and sales targets. On
December 7, 1995, Colgate informed Panacor of its decision to terminate their distribution
agreement.
On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and
damages against Premiere Bank before the Regional Trial Court of Pasig City. On June 11,
1996, Iba-Finance filed a complaint-in-intervention praying that judgment be rendered
ordering Premiere Bank to pay damages in its favor.
On May 26, 1998, the trial court rendered a decision in favor of Panacor and Iba-Finance
Premiere Bank appealed to the Court of Appeals contending that the trial court erred in
finding, inter alia, that it had maliciously downgraded the credit-line of Panacor from P4.1
million to P2.7 million.
Atty. Ignacio

In the meantime, a compromise agreement was entered into between Iba-Finance and
Premiere Bank whereby the latter agreed to return without interest the amount of
P6,235,754.79 which Iba-Finance earlier remitted to Premiere Bank to pay off the unpaid
loans of Arizona. On March 11, 1999, the compromise agreement was approved.
On June 18, 2003, a decision was rendered by the Court of Appeals which affirmed with
modification the decision of the trial court.
Issue: Whether the issues should have been resolved based on the compromise
agreement, and if it were, WON its resolution should be limited to resolving the issue
on the alleged bad faith
Held:
Firstly, Premiere Bank argues that considering the compromise agreement it entered with
Iba-Finance, the Court of Appeals should have ruled only on the issue of its alleged bad faith
in downgrading Panacors credit line. It further contends that the Court of Appeals should
have refrained from making any adverse pronouncement on the refusal of Premiere Bank to
recognize the take-out and its subsequent failure to release the cancellation of the mortgage
because they were rendered fait accompli by the compromise agreement.
We are not persuaded.
In a letter-agreement
12
dated October 5, 1995, Iba-Finance informed Premiere Bank of its
approval of Panacors loan application in the amount of P10 million to be secured by a real
estate mortgage over a parcel of land covered by TCT No. T-3475. It was agreed that
Premiere Bank shall entrust to Iba-Finance the owners duplicate copy of TCT No. T-3475 in
order to register its mortgage, after which Iba-Finance shall pay off Arizonas outstanding
indebtedness. Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank on the
understanding that said amount represented the full payment of Arizonas loan obligations.
Despite performance by Iba-Finance of its end of the bargain, Premiere Bank refused to
deliver the mortgage document. As a consequence, Iba-Finance failed to release the
remaining P2.5 million loan it earlier pledged to Panacor, which finally led to the revocation of
its distributorship agreement with Colgate.
Undeniably, the not-so-forthright conduct of Premiere Bank in its dealings with respondent
corporations caused damage to Panacor and Iba-Finance. It is error for Premiere Bank to
assume that the compromise agreement it entered with Iba-Finance extinguished all direct
and collateral incidents to the aborted take-out such that it also cancelled its obligations to
Panacor. The unjustified refusal by Premiere Bank to release the mortgage document
prompted Iba-Finance to withhold the release of the P2.5 million earmarked for Panacor
which eventually terminated the distributorship agreement. Both Iba-Finance and Panacor,
which are two separate and distinct juridical entities, suffered damages due to the fault of
Premiere Bank. Hence, it should be held liable to each of them.
Neither can Premiere Bank rely on the puerile excuse that it was the banks policy not to
release the mortgage cancellation prior to the settlement of outstanding loan obligations.
Needless to say, the Final Statement of Account dated October 17, 1995 showing in no
uncertain terms Arizonas outstanding indebtedness, which was subsequently paid by Iba-
Finance, was the full payment of Arizonas loan obligations. Equity demands that a party
cannot disown it previous declaration to the prejudice of the other party who relied reasonably
and justifiably on such declaration.
Premiere Bank avers that the appellate courts reliance on the credit line agreement as the
basis of bad faith on its part was inadmissible or self-serving for not being duly notarized,
being unsigned in all of its left margins, and undated. According to Premiere Bank, the
irregularities in the execution of the credit line agreement bolsters the theory that the same
was the product of manipulation orchestrated by respondent corporations through undue
influence and pressure exerted by its officers on Martillano.
Premiere Banks posture deserves scant consideration. As found by the lower court, there
are sufficient indicia that demonstrate that the alleged unjust pressure exerted on Martillano
was more imagined than real. In her testimony, Martillano claims that she was persuaded and
coaxed by Caday of Iba-Finance and Panaligan of Panacor to sign the letter. It was she who
provided Iba-Finance with the Final Statement of Account and accepted its payment without
objection or qualification. These acts show that she was vested by Premiere Bank with
sufficient authority to enter into the said transactions.
If a private corporation intentionally or negligently clothes its officers or agents with apparent
power to perform acts for it, the corporation will be estopped to deny that the apparent
authority is real as to innocent third persons dealing in good faith with such officers or
agents.
17
As testified to by Martillano, after she received a copy of the credit line agreement
and affixed her signature in conformity thereto, she forwarded the same to the legal
Atty. Ignacio

department of the Bank at its Head Office. Despite its knowledge, Premiere Bank failed to
disaffirm the contract. When the officers or agents of a corporation exceed their powers in
entering into contracts or doing other acts, the corporation, when it has knowledge thereof,
must promptly disaffirm the contract or act and allow the other party or third persons to act in
the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the
facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny
ratification.
18

WHEREFORE, the petition is DENIED. The Decision dated June 18, 2003 of the Court of
Appeals in CA-G.R. CV No. 60750, ordering Premiere Bank to pay Panacor Marketing
Corporation P500,000.00 as exemplary damages, P100,000.00 as attorneys fees, and costs,
is AFFIRMED, with the MODIFICATION that the award of P4,520,000.00 as actual damages
is DELETED for lack of factual basis. In lieu thereof, Premiere Bank is ordered to pay
Panacor P200,000.00 as temperate damages.
SO ORDERED.

11. PHILIPPINE NATIONAL BANK, Petitioner,
vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR
(deceased), represented by his heirs; RAMON A. BARCENILLA;
ROSARIO T. BARCENILLA; JOSE B. ENAD (deceased),
represented by his heirs; and RICARDO GABUYA (deceased),
represented by his heirs, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
Facts:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate
RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of
the three (3) parcels of land described as follows:
"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732)
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu covered by Transfer
Certificate of Title No. 8921 in the name of Rural Insurance & Surety Co., Inc.";
"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732),
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu covered by Transfer
Certificate of Title No. 8922 in the name of Rural Insurance & Surety Co., Inc." and
"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of
Lahug, City of Cebu, Island of Cebu covered by Transfer Certificate of Title No. 24576 in the
name of Rural Insurance & Surety Co., Inc."
After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned
properties as annotated in the titles of said lots. Such annotation was made pursuant to the
Minutes of the Special Meeting of the Board of Directors of RISCO (hereinafter referred to as
the "Minutes") on March 14, 1961, pertinent portion of which states:
x x x x
3. The President then explained that in a special meeting of the stockholders previously
called for the purpose of putting up certain amount of P212,720.00 for the rehabilitation of the
Company, the following stockholders contributed the amounts indicated opposite their
names:
CONTRIBUTED SURPLUS
MERELO B. AZNAR P50,000.00
MATIAS B. AZNAR 50,000.00
JOSE L. AZNAR 27,720.00
Atty. Ignacio

RAMON A. BARCENILLA 25,000.00
ROSARIO T. BARCENILLA 25,000.00
JOSE B. ENAD 17,500.00
RICARDO GABUYA
17,500.00

212,720.00
x x x x
And that the respective contributions above-mentioned shall constitute as their lien or interest
on the property described above, if and when said property are titled in the name of RURAL
INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in
pursuance of the Provisions of Land Registration Act, (Act No. 496, as amended) until such
time their respective contributions are refunded to them completely.
x x x x"
Thereafter, various subsequent annotations were made on the same titles, including the
Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of herein
defendant PNB.
As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the
lone and highest bidder of the three (3) parcels of land. Thereafter, a Final Deed of Sale
dated May 27, 1991 in favor of the Philippine National Bank was also issued and Transfer
Certificate of Title No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new
certificate of title, TCT 119848 was issued in the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of TCT and
reconveyance with temporary restraining order and preliminary injunction. Plaintiffs alleged
that the subsequent annotations on the titles are subject to the prior annotation of their liens
and encumbrances. Plaintiffs further contended that the subsequent writs and processes
annotated on the titles are all null and void for want of valid service upon RISCO and on
them, as stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null
and void as these were issued only after 28 years and that any right which PNB may have
over the properties had long become stale.
Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting
of title since the order of the court directing the issuance of titles to PNB had already become
final and executory and their validity cannot be attacked except in a direct proceeding for their
annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not
have any legal or equitable right over the properties of the corporation. PNB posited that even
if plaintiffs monetary lien had not expired, their only recourse was to require the
reimbursement or refund of their contribution.
5
1awphi1
The trial court rendered the November 18, 1998 Decision, which ruled against PNB on the
basis that there was an express trust created over the subject properties whereby RISCO
was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que
trust.
PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005
Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with
the trial court that a judgment on the pleadings was proper, the appellate court opined that
the monetary contributions made by Aznar, et al., to RISCO can only be characterized as a
loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB
to pay Aznar, et al., the amount of their contributions plus legal interest from the time of
acquisition of the property until finality of judgment.lawphil
Issues:
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF
RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT
PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL MEETING OF THE
BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE
CLAIM.
WON THERE WAS RES JUDICATA AND LACK OF CAUSE OF ACTION AS ALLEGED
Atty. Ignacio

On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following
issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS MADE
BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY THEIR
LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND, RATHER
THAN AN EXPRESS TRUST.
HELD:
A thorough and comprehensive scrutiny of the records would reveal that this case should be
dismissed because Aznar, et al., have no title to quiet over the subject properties and their
true cause of action is already barred by prescription.
At the outset, the Court agrees with the Court of Appeals that the agreement contained in the
Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961 was
a loan by the therein named stockholders to RISCO.Careful perusal of the Minutes relied
upon by plaintiffs-appellees in their claim, showed that their contributions shall constitute as
"lien or interest on the property" if and when said properties are titled in the name of RISCO,
subject to registration of their adverse claim under the Land Registration Act, until such time
their respective contributions are refunded to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the contract is explicit leaving no doubt as to
the intention of the drafters thereof, the courts may not read into it any other intention that
would contradict its plain import.
The term lien as used in the Minutes is defined as "a discharge on property usually for the
payment of some debt or obligation. A lien is a qualified right or a proprietary interest which
may be exercised over the property of another. It is a right which the law gives to have a debt
satisfied out of a particular thing. It signifies a legal claim or charge on property; whether real
or personal, as a collateral or security for the payment of some debt or obligation." Hence,
from the use of the word "lien" in the Minutes, We find that the money contributed by
plaintiffs-appellees was in the nature of a loan, secured by their liens and interests duly
annotated on the titles. The annotation of their lien serves only as collateral and does not in
any way vest ownership of property to plaintiffs.
20
(Emphases supplied.)
We are not persuaded by the contention of Aznar, et al., that the language of the subject
Minutes created an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied.
An express trust is created by the intention of the trustor or of the parties. An implied trust
comes into being by operation of law.
21

Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct
and positive acts of the settlor or the trustor - by some writing, deed, or will or oral
declaration. It is created not necessarily by some written words, but by the direct and positive
acts of the parties.
22
This is in consonance with Article 1444 of the Civil Code, which states
that "[n]o particular words are required for the creation of an express trust, it being sufficient
that a trust is clearly intended."
In other words, the creation of an express trust must be manifested with reasonable certainty
and cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations.
23

No such reasonable certitude in the creation of an express trust obtains in the case at bar. In
fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes
does not offer any indication that the parties thereto intended that Aznar, et al., become
beneficiaries under an express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties
at issue because they have no legal and/or equitable rights over the properties that are
derived from the previous registered owner which is RISCO, the pertinent provision of the law
is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that "[a]
corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its
existence."
As a consequence thereof, a corporation has a personality separate and distinct from those
of its stockholders and other corporations to which it may be connected.
24
Thus, we had
previously ruled in Magsaysay-Labrador v. Court of Appeals
25
that the interest of the
Atty. Ignacio

stockholders over the properties of the corporation is merely inchoate and therefore does not
entitle them to intervene in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or
in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
26

In the case at bar, there is no allegation, much less any proof, that the corporate existence of
RISCO has ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities and Exchange Commission
(SEC) Certification
27
dated June 18, 1997, the SEC merely suspended RISCOs Certificate of
Registration beginning on September 5, 1988 due to its non-submission of SEC required
reports and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely
evidence of a loan agreement between them and the company. There is no indication or even
a suggestion that the ownership of said properties were transferred to them which would
require no less that the said properties be registered under their names. For this reason, the
complaint should be dismissed since Aznar, et al., have no cause to seek a quieting of title
over the subject properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO.
Unfortunately, the right to seek repayment or reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit.
The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil
Case No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.
SO ORDERED.
12. NDC

13. BOY SCOUTS OF THE PHILIPPINES, Petitioner,
vs.
COMMISSION ON AUDIT, Respondent.
FACTS:
This case arose when the COA issued Resolution No. 99-011
5
on August 19, 1999 ("the COA
Resolution"), with the subject "Defining the Commissions policy with respect to the audit of
the Boy Scouts of the Philippines." In its whereas clauses, the COA Resolution stated that the
BSP was created as a public corporation under Commonwealth Act No. 111, as amended by
Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines
v. National Labor Relations Commission,
6
the Supreme Court ruled that the BSP, as
constituted under its charter, was a "government-controlled corporation within the meaning of
Article IX(B)(2)(1) of the Constitution"; and that "the BSP is appropriately regarded as a
government instrumentality under the 1987 Administrative Code."
7
The COA Resolution also
cited its constitutional mandate under Section 2(1), Article IX (D). It reads:

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts
of the Philippines shall be classified among the government corporations belonging to the
Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office I,
to be audited, similar to the subsidiary corporations, by employing the team audit approach.
8

(Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter
9
dated November 26, 1999
signed by the BSP National President Jejomar C. Binay, who is now the Vice President of the
Republic, partly stating:

Atty. Ignacio

It may be argued also that the BSP is not an "agency" of the Government. The 1987
Administrative Code, merely referred the BSP as an "attached agency" of the DECS as
distinguished from an actual line agency of departments that are included in the National
Budget. The BSP believes that an "attached agency" is different from an "agency." Agency,
as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of
the Government including a department, bureau, office, instrumentality, government-owned
or controlled corporation or local government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the Government; a department which
refers to an executive department as created by law (Section 2[7] of the Administrative
Code); nor a bureau which refers to any principal subdivision or unit of any department
(Section 2[8], Administrative Code).

In a letter
12
dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO)
I of the COA, furnished the BSP with a copy of the Memorandum
13
dated June 20, 2000 of
Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the COA
General Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling in
Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law
eliminated the substantial government participation in the selection of members of the
National Executive Board of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government participation is only one
(1) of the three (3) grounds relied upon by the Court in the resolution of the case. Other
considerations include the character of the BSPs purposes and functions which has a public
aspect and the statutory designation of the BSP as a "public corporation". These grounds
have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as
evidenced by the amendment made relative to BSPs purposes stated in Section 3 of R.A.
No. 7278.
On the argument that BSP is not appropriately regarded as "a government instrumentality"
and "agency" of the government, such has already been answered and clarified. The
Supreme Court has elucidated this matter in the BSP case when it declared that BSP is
regarded as, both a "government-controlled corporation with an original charter" and as an
"instrumentality" of the Government. Likewise, it is not disputed that the Administrative Code
of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached
agency, however, it does not change its nature as a government-controlled corporation with
original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1),
Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to
examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies or instrumentalities, including government-
owned or controlled corporations with original charters.
14

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011,
we have to comply with the provisions of the latter, among which is to conduct an annual
financial audit of the Boy Scouts of the Philippines.
15

Issue:
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the
COAs audit jurisdiction.
Held:
To summarize its other arguments, the BSP contends that it is not a government-owned or
controlled corporation; neither is it an instrumentality, agency, or subdivision of the
government.
In its Comment,
26
the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October
31, 1936, and whose functions relate to the fostering of public virtues of citizenship and
patriotism and the general improvement of the moral spirit and fiber of the youth. The manner
of creation and the purpose for which the BSP was created indubitably prove that it is a
government agency.
2. Being a government agency, the funds and property owned or held in trust by the BSP are
subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1),
Article IX-D of the 1987 Constitution.
Atty. Ignacio

3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or
controlled corporation and government instrumentality.
27

The COA maintains that the functions of the BSP that include, among others, the teaching to
the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign
functions enshrined under the Constitution and discussed by the Court in Boy Scouts of the
Philippines v. National Labor Relations Commission. The COA contends that any attempt to
classify the BSP as a private corporation would be incomprehensible since no less than the
law which created it had designated it as a public corporation and its statutory mandate
embraces performance of sovereign functions.
28

The Ruling of the Court
After looking at the legislative history of its amended charter and carefully studying the
applicable laws and the arguments of both parties, we find that the BSP is a public
corporation and its funds are subject to the COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An
Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to
Define its Powers and Purposes" created the BSP as a "public corporation" to serve the
following public interest or purpose.
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth
Act No. 111 "by strengthening the volunteer and democratic character" of the BSP and
reducing government representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby
amended to read as follows:
"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be
sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and
personal estate, land grants, rights and choses in action as shall be necessary for corporate
purposes, and to accept and receive funds, real and personal property by gift, devise,
bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the
same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan
Manila and in the regions, provinces, cities, municipalities, and barangays of the Philippines,
to make and adopt by-laws, rules and regulations not inconsistent with this Act and the laws
of the Philippines, and generally to do all such acts and things, including the establishment of
regulations for the election of associates and successors, as may be necessary to carry into
effect the provisions of this Act and promote the purposes of said corporation: Provided, That
said corporation shall have no power to issue certificates of stock or to declare or pay
dividends, its objectives and purposes being solely of benevolent character and not for
pecuniary profit of its members.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP,
as presently constituted under Republic Act No. 7278, falls under the second classification.
Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose created
by law; their personality begins as soon as they have been constituted according to
law;
(3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner
or member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law
creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are
governed by the laws creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Atty. Ignacio

Partnerships and associations for private interest or purpose are governed by the provisions
of this Code concerning partnerships. (Emphasis and underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in order
to implement a State policy declared in Article II, Section 13 of the Constitution, which reads:

The BSPs Classification Under the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that, along with
the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under
Executive Order No. 292, or the Administrative Code of 1987, which states:
TITLE VI EDUCATION, CULTURE AND SPORTS
Chapter 8 Attached Agencies
SEC. 20. Attached Agencies. The following agencies are hereby attached to the
Department:
x x x x
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
As an attached agency, the BSP enjoys operational autonomy, as long as policy and program
coordination is achieved by having at least one representative of government in its governing
board, which in the case of the BSP is the DECS Secretary. In this sense, the BSP is not
under government control or "supervision and control." Still this characteristic does not make
the attached chartered agency a private corporation covered by the constitutional proscription
in question.
Art. XII, Sec. 16 of the Constitution refers to "private corporations" created by
government for proprietary or economic/business purposes

The BSP is a Public Corporation Not Subject to the Test of Government Ownership or
Control and Economic Viability
The BSP is a public corporation or a government agency or instrumentality with juridical
personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not
government owned or controlled, are ipso facto to be considered private corporations as
there exists another distinct class of corporations or chartered institutions which are
otherwise known as "public corporations." These corporations are treated by law as agencies
or instrumentalities of the government which are not subject to the tests of ownership or
control and economic viability but to different criteria relating to their public purposes/interests
or constitutional policies and objectives and their administrative relationship to the
government or any of its Departments or Offices.

Since the BSP, under its amended charter, continues to be a public corporation or a
government instrumentality, we come to the inevitable conclusion that it is subject to the
exercise by the COA of its audit jurisdiction in the manner consistent with the provisions of
the BSP Charter.
WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.
SO ORDERED.

Atty. Ignacio

14. ANTONIO P. SALENGA and NATIONAL LABOR RELATIONS
COMMISSION, Petitioners,
vs.
COURT OF APPEALS and CLARK DEVELOPMENT
CORPORATION, Respondents.
Facts:
On 22 September 1998, President/Chief Executive Officer (CEO) Rufo Colayco issued an
Order informing petitioner that, pursuant to the decision of the board of directors of
respondent CDC, the position of head executive assistant the position held by petitioner
was declared redundant. Petitioner received a copy of the Order on the same day and
immediately went to see Colayco. The latter informed him that the Order had been issued as
part of the reorganization scheme approved by the board of directors. Thus, petitioners
employment was to be terminated thirty (30) days from notice of the Order.
On 17 September 1999, petitioner filed a Complaint for illegal dismissal with a claim for
reinstatement and payment of back wages, benefits, and moral and exemplary damages
against respondent CDC and Colayco. The Complaint was filed with the National Labor
Relations Commission-Regional Arbitration Branch (NLRC-RAB) III in San Fernando,
Pampanga. In defense, respondents, represented by the Office of the Government Corporate
Counsel (OGCC), alleged that the NLRC had no jurisdiction to entertain the case on the
ground that petitioner was a corporate officer and, thus, his dismissal was an intra-corporate
matter falling properly within the jurisdiction of the Securities and Exchange Commission
(SEC).
On 29 February 2000, labor arbiter (LA) Florentino R. Darlucio issued a Decision
3
in favor of
petitioner Salenga. First, the LA held that the NLRC had jurisdiction over the Complaint,
considering that petitioner was not a corporate officer but a managerial employee. He held
the position of head executive assistant, categorized as a Job Level 12 position, not subject
to election or appointment by the board of directors.
Second, the LA pointed out that respondent CDC and Colayco failed to establish a valid
cause for the termination of petitioners employment. The evidence presented by respondent
CDC failed to show that the position of petitioner was superfluous as to be classified
"redundant." The LA further pointed out that respondent corporation had not disputed the
argument of petitioner Salenga that his position was that of a regular employee. Moreover,
the LA found that petitioner had not been accorded the right to due process. Instead, the
latter was dismissed without the benefit of an explanation of the grounds for his termination,
or an opportunity to be heard and to defend himself.
Finally, considering petitioners reputation and contribution as a government employee for 40
years, the LA awarded moral damages amounting to P2,000,000 and exemplary damages of
P500,000. The dispositive portion of the LAs Decision reads:

Despite these instructions, two separate appeals were filed before LA Darlucio on 20 March
2000. One appeal
6
was from the OGCC on behalf of respondent CDC and Rufo Colayco. The
OGCC reiterated its allegation that petitioner was a corporate officer, and that the termination
of his employment was an intra-corporate matter.

In the meantime, while the appeal was pending, on 19 October 2000, respondents board
chairperson and concurrent President/CEO Rogelio L. Singson ordered the reinstatement of
petitioner to the latters former position as head executive assistant, effective 24 October
2000.
8

On 28 May 2001, respondent CDCs new President/CEO Emmanuel Y. Angeles issued a
Memorandum, which offered all managers of respondent corporation an early
separation/redundancy program. Those who wished to avail themselves of the program were
to be given the equivalent of their 1.25-month basic salary for every year of service and leave
credits computed on the basis of the same 1.25-month equivalent of their basic salary.
9

In August 2001, respondent CDC offered another retirement plan granting higher benefits to
the managerial employees. Thus, on 12 September 2001, petitioner filed an application for
the early retirement program, which Angeles approved on 3 December 2001.
Meanwhile, in the proceedings of the NLRC, petitioner received on 12 September 2001 its 30
July 2001 Decision
10
on the appeal filed by Timbol-Roman and Colayco. It is worthy to note
that the said Decision referred to the reports of reviewer arbiters Cristeta D. Tamayo and
Atty. Ignacio

Thelma M. Concepcion, who in turn found that petitioner Salenga was a corporate officer of
CDC. Nevertheless, the First Division of the NLRC upheld LA Darlucios ruling that petitioner
Salenga was indeed a regular employee. It also found that redundancy, as an authorized
cause for dismissal, has not been sufficiently proven, rendering the dismissal illegal.
However, the NLRC held that the award of exemplary and moral damages were
unsubstantiated. Moreover, it also dropped Colayco as a respondent to the case, since LA
Darlucio had failed to provide any ground on which to anchor the formers solidary liability.

Petitioner Salenga thereafter moved for a partial reconsideration of the above-mentioned
Decision. He sought the reinstatement of the award of exemplary and moral damages.

On 5 December 2002, the NLRC denied petitioner Salengas Motion for Partial
Reconsideration and dismissed the Complaint.

Meanwhile, pending the Motions for Reconsideration of the NLRCs 30 July 2001 Decision,
another issue arose with regard to the computation of the retirement benefits of petitioner.
Respondent CDC did not immediately give his requested retirement benefits, pending
clarification of the computation of these benefits. He claimed that the computation of his
retirement benefits should also include the forty (40) years he had been in government
service in accordance with Republic Act No. (R.A.) 8291, or the GSIS Act, and should not be
limited to the length of his employment with respondent corporation only, as the latter
insisted.
In a letter dated 14 March 2003, petitioner Salengas counsel wrote to the board of directors
of respondent to follow up the payment of the retirement benefits allegedly due to petitioner.
14

Pursuant to the NLRCs dismissal of the Complaint of petitioner Salenga, Angeles
subsequently denied the formers request for his retirement benefits

At the 14 February 2005 hearing, the parties failed to reach an amicable settlement and were
thus required to submit their relevant pleadings and documents in support of their respective
cases.
On 16 February 2005, the CA issued a Resolution
32
admitting the Supplemental Petition filed
by respondent, but denying the prayer for the issuance of an injunctive writ.

Thereafter, on 8 March 2005, LA Bactin issued an Order
33
resolving the Omnibus Motion filed
by petitioner Salenga for the recomputation of the monetary claims due him. In the Order, LA
Bactin denied petitioners Motion for the recomputation of the award of back wages, benefits,
allowances and privileges based on the 29 February 2000 Decision of LA Darlucio. LA Bactin
held that since the Decision had become final and executory, he no longer had jurisdiction to
amend or to alter the judgment.

Anent the second issue of the computation of retirement benefits, LA Bactin also denied the
claim of petitioner Salenga, considering that the latters retirement benefits had already been
paid. The LA, however, did not rule on whether petitioner was entitled to retirement benefits,
either under the Government Service Insurance System (GSIS) or under the Social Security
System (SSS), and held that this issue was beyond the expertise and jurisdiction of a LA.
Petitioner Salenga thereafter appealed to the NLRC, which granted the appeal in a
Resolution
34
dated 22 July 2005. First, it was asked to resolve the issue of the propriety of
having the Laguesma Law Office represent respondent CDC in the proceedings before the
LA. The said law firm entered its appearance as counsel for respondent during the pre-
execution conference/hearing on 1 October 2004. On this issue, the NLRC held that
respondent corporations legal department, which had previously been representing the
corporation, was not validly substituted by the Laguesma Law Office. In addition, the NLRC
held that respondent had failed to comply with Memorandum Circular No. 9, Series of 1998,
which strictly prohibits the hiring of lawyers of private law firms by GOCCs without the prior
written conformity and acquiescence of the Office of Solicitor General, as the case may be,
and the prior written concurrence of the Commission on Audit (COA). Thus, the NLRC held
Atty. Ignacio

that all actions and submissions undertaken by the Laguesma Law Office on behalf of
respondent were null and void.

Salenga then manifested before us that he would instead file a Petition for Certiorari under
Rule 65, which was eventually docketed as G.R. No. 174941. On 7 July 2008, this Court,
through a Resolution, considered the Petition for Review in G.R. No. 174159 closed and
terminated.

Issue:

Whether the NLRC and the CA committed grave abuse of discretion amounting to lack
or excess of jurisdiction, when they entertained respondents so-called appeal of the
29 February 2000 Decision rendered by LA Darlucio.

WON there was a valid cause in terminating the services of complainant

Held:

The Petition has merit.

The NLRC had no jurisdictionto entertain the appeal filed by
Timbol-Roman and formerCDC CEO Colayco.
To recall, on 29 February 2000, LA Darlucio rendered a Decision in favor of petitioner, stating
as follows:

xxxComplainant cannot be considered as a corporate officer because at the time of his
termination, he was holding the position of Head Executive Assistant which is categorized as
a Job Level 12 position that is not subject to the election or appointment by the Board of
Directors. The approval of Board Resolution Nos. 200 and 214 by the Board of Directors in its
meeting held on February 11, 1998 and March 25, 1998 clearly refers to the New CDC Salary
Structure where the pay adjustment was based and not to complainants relief as Vice-
President, Joint Ventures and Special Projects. While it is true that his previous positions are
classified as Job Level 13 which are subject to board confirmation, the status of his
appointment was permanent in nature. In fact, he had undergone a six-month probationary
period before having acquired the permanency of his appointment. However, due to the
refusal of the board under then Chairman Victorino Basco to confirm his appointment, he was
demoted to the position of Head Executive Assistant. Thus, complainant correctly postulated
that he was not elected to his position and his tenure is not dependent upon the whim of the
boardxxx
x x x x x x x x x
Anent the second issue, this Office finds and so holds that respondents have miserably failed
to show or establish the valid cause in terminating the services of complainant.
x x x x x x x x x
The OGCC, representing respondent CDC and former CEO Colayco separately appealed
from the above Decision. Both alleged that they had filed the proper bond to cover the award
granted by LA Darlucio.
It is clear from the NLRC Rules of Procedure that appeals must be verified and certified
against forum-shopping by the parties-in-interest themselves. In the case at bar, the parties-
in-interest are petitioner Salenga, as the employee, and respondent Clark Development
Corporation as the employer.

A corporation can only exercise its powers and transact its business through its board of
directors and through its officers and agents when authorized by a board resolution or its
Atty. Ignacio

bylaws. The power of a corporation to sue and be sued is exercised by the board of directors.
The physical acts of the corporation, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate bylaws or by a specific act of
the board. The purpose of verification is to secure an assurance that the allegations in the
pleading are true and correct and have been filed in good faith.
41

Thus, we agree with petitioner that, absent the requisite board resolution, neither Timbol-
Roman nor Atty. Mallari, who signed the Memorandum of Appeal and Joint Affidavit of
Declaration allegedly on behalf of respondent corporation, may be considered as the
"appellant" and "employer" referred to by Rule VI, Sections 4 to 6 of the NLRC Rules of
Procedure, which state:
SECTION 4. REQUISITES FOR PERFECTION OF APPEAL. - (a) The Appeal shall be filed
within the reglementary period as provided in Section 1 of this Rule; shall be verified by
appellant himself in accordance with Section 4, Rule 7 of the Rules of Court, with proof of
payment of the required appeal fee and the posting of a cash or surety bond as provided in
Section 6 of this Rule; shall be accompanied by memorandum of appeal in three (3) legibly
typewritten copies which shall state the grounds relied upon and the arguments in support
thereof; the relief prayed for; and a statement of the date when the appellant received the
appealed decision, resolution or order and a certificate of non-forum shopping with proof of
service on the other party of such appeal. A mere notice of appeal without complying with the
other requisites aforestated shall not stop the running of the period for perfecting an appeal.
(b) The appellee may file with the Regional Arbitration Branch or Regional Office where the
appeal was filed, his answer or reply to appellant's memorandum of appeal, not later than ten
(10) calendar days from receipt thereof. Failure on the part of the appellee who was properly
furnished with a copy of the appeal to file his answer or reply within the said period may be
construed as a waiver on his part to file the same.
(c) Subject to the provisions of Article 218, once the appeal is perfected in accordance with
these Rules, the Commission shall limit itself to reviewing and deciding specific issues that
were elevated on appeal.

CDC is not under the civil service laws on retirement.
While the case was still persistently being pursued by the OGCC, a new issue arose when
petitioner Salenga reached retirement age: whether his retirement benefits should be
computed according to civil service laws.
To recall, the issue of how to compute the retirement benefits of petitioner was raised in his
Omnibus Motion dated 7 May 2004 filed before the NLRC after it had reinstated LA Darlucios
original Decision. The issue was not covered by petitioners Complaint for illegal dismissal,
but was a different issue altogether and should have been properly addressed in a separate
Complaint. We cannot fault petitioner, though, for raising the issue while the case was still
pending with the NLRC. If it were not for the "appeal" undertaken by Timbol-Roman and the
OGCC through Atty. Mallari, the issue would have taken its proper course and would have
been raised in a more appropriate time and manner. Thus, we deem it proper to resolve the
matter at hand to put it to rest after a decade of litigation.
Petitioner Salenga contends that respondent CDC is covered by the GSIS Law. Thus, he
says, the computation of his retirement benefits should include all the years of actual
government service, starting from the original appointment forty (40) years ago up to his
retirement.
Respondent CDC owes its existence to Executive Order No. 80 issued by then President
Fidel V. Ramos. It was meant to be the implementing and operating arm of the Bases
Conversion and Development Authority (BCDA) tasked to manage the Clark Special
Economic Zone (CSEZ). Expressly, respondent was formed in accordance with Philippine
corporation laws and existing rules and regulations promulgated by the SEC pursuant to
Section 16 of Republic Act (R.A.) 7227.
44
CDC, a government-owned or -controlled
corporation without an original charter, was incorporated under the Corporation Code.
Pursuant to Article IX-B, Sec. 2(1), the civil service embraces only those government-owned
or -controlled corporations with original charter. As such, respondent CDC and its employees
are covered by the Labor Code and not by the Civil Service Law, consistent with our ruling in
NASECO v. NLRC,
45
in which we established this distinction. Thus, in Gamogamo v. PNOC
Shipping and Transport Corp.,
46
we held:
Retirement results from a voluntary agreement between the employer and the employee
whereby the latter after reaching a certain age agrees to sever his employment with the
former.
Atty. Ignacio

Since the retirement pay solely comes from Respondent's funds, it is but natural that
Respondent shall disregard petitioner's length of service in another company for the
computation of his retirement benefits.
Petitioner was absorbed by Respondent from LUSTEVECO on 1 August 1979. Ordinarily, his
creditable service shall be reckoned from such date. However, since Respondent took over
the shipping business of LUSTEVECO and agreed to assume without interruption all the
service credits of petitioner with LUSTEVECO, petitioner's creditable service must start from
9 November 1977 when he started working with LUSTEVECO until his day of retirement on 1
April 1995. Thus, petitioner's creditable service is 17.3333 years.
We cannot uphold petitioner's contention that his fourteen years of service with the DOH
should be considered because his last two employers were government-owned and
controlled corporations, and fall under the Civil Service Law. Article IX(B), Section 2
paragraph 1 of the 1987 Constitution states
Sec. 2. (1)The civil service embraces all branches, subdivisions, instrumentalities, and
agencies of the Government, including government-owned or controlled corporations with
original charters.
It is not at all disputed that while Respondent and LUSTEVECO are government-owned and
controlled corporations, they have no original charters; hence they are not under the Civil
Service Law. In Philippine National Oil Company-Energy Development Corporation v.
National Labor Relations Commission, we ruled:
xxx "Thus under the present state of the law, the test in determining whether a government-
owned or controlled corporation is subject to the Civil Service Law are [sic] the manner of its
creation, such that government corporations created by special charter(s) are subject to its
provisions while those incorporated under the General Corporation Law are not within its
coverage." (Emphasis supplied)
Hence, petitioner Salenga is entitled to receive only his retirement benefits based only on the
number of years he was employed with the corporation under the conditions provided under
its retirement plan, as well as other benefits given to him by existing laws.1wphi1
WHEREFORE, in view of the foregoing, the Petition in G.R. No. 174941 is partially
GRANTED. The Decision of LA Darlucio is REINSTATED insofar as respondent corporations
liability is concerned. Considering that petitioner did not maintain the action against Rufo
Colayco, the latter is not solidarily liable with respondent Clark Development Corporation.
The case is REMANDED to the labor arbiter for the computation of petitioners retirement
benefits in accordance with the Social Security Act of 1997 otherwise known as Republic Act
No. 8282, deducting therefrom the sums already paid by respondent CDC.
SO ORDERED.

15. YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH
DIVISION) AND GEORGE CHIONG ROXAS,respondents.

Facts:
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO)
represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their
shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas.
The purchase price was P8,000,000.00 payable as follows: a downpayment of P4,000,000.00
and the balance of P4,000,000.00 in four post dated checks of P1,000,000.00 each.
Immediately after the execution of the agreement, Roxas took full control of the four markets
of CMDC. However, the vendors held on to the stock certificates of CMDC as security
pending full payment of the balance of the purchase price.
The first check of P4,000,000.00, representing the down-payment, was honored by the
drawee bank but the four other checks representing the balance of P4,000,000.00 were
dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the
proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00
(Rollo, p. 176).
Atty. Ignacio

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the
proceeds of the sale of the CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court,
Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of
P3,400,00.00 or that full control of the three markets be turned over to YASCO and Garcia.
The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the
payment of attorney's fees and costs (Rollo, p. 290).

Issues:

Petitioners now come before us, alleging that the Court of Appeals
erred in:
1. holding the venue should be in Pasay City, and not in Cebu City (where both
petitioners/plaintiffs are residents;
2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p. 19).

Held:

The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the
address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No.
1708 Dominga Street, Pasay City." This was the same address written in YASCO's letters
and several commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p.
48).
In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in
three letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The
appellate court held that Roxas was led by petitioners to believe that their residence is in
Pasay City and that he had relied upon those representations (Decision, p. 12, Rollo, p. 47).
The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or
city where the defendant or any of the defendants resides or may be found, or where the
plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4,
Revised Rules of Court].
There are two plaintiffs in the case at bench: a natural person and a domestic corporation.
Both plaintiffs aver in their complaint that they are residents of Cebu City, thus:
1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly
organized and existing under Philippine laws with principal place of business at M. J. Cuenco
Avenue, Cebu City. It also has a branch office at 1708 Dominga Street, Pasay City, Metro
Manila.
Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at
Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p.
81).
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
THIRD That the place where the principal office of the corporation is to be established or
located is at Cebu City, Philippines (as amended on December 20, 1980 and further
amended on December 20, 1984) (Rollo, p. 273).
A corporation has no residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the articles of incorporation (Cohen v.
Benguet Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19
SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its
articles of incorporation the "place where the principal office of the corporation is to be
located which must be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is
to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory.
Atty. Ignacio

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why
actions cannot be filed against a corporation in any place where the corporation maintains its
branch offices. The Court ruled that to allow an action to be instituted in any place where the
corporation has branch offices, would create confusion and work untold inconvenience to
said entity. By the same token, a corporation cannot be allowed to file personal actions in a
place other than its principal place of business unless such a place is also the residence of a
co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the
ground that its principal place of business was in Cebu City, Roxas could argue that YASCO
was in estoppel because it misled Roxas to believe that Pasay City was its principal place of
business. But this is not the case before us.
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its
principal place of business is located, it becomes unnecessary to decide whether Garcia is
also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice
of Cebu City as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed
from is SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is
REINSTATED.
SO ORDERED.

16. CLAVECILLIA RADIO SYSTEM, petitioner-appellant,
vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court
of Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-appellees.
Facts
It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the
Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message,
addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its
branch office at Cagayan de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL
SHIP LATER REPLY POHANG
The Cagayan de Oro branch office having received the said message omitted, in delivering
the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and
"AVAILABLE," thus changing entirely the contents and purport of the same and causing the
said addressee to suffer damages. After service of summons, the Clavecilla Radio System
filed a motion to dismiss the complaint on the grounds that it states no cause of action and
that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to
which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on
September 18, 1963, denied the motion to dismiss for lack of merit and set the case for
hearing.1wph1.t
Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction
with the Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be
enjoined from further proceeding with the case on the ground of improper venue. The
respondents filed a motion to dismiss the petition but this was opposed by the petitioner.
Later, the motion was submitted for resolution on the pleadings.
In dismissing the case, the lower court held that the Clavecilla Radio System may be sued
either in Manila where it has its principal office or in Cagayan de Oro City where it may be
served, as in fact it was served, with summons through the Manager of its branch office in
said city. In other words, the court upheld the authority of the city court to take cognizance of
the case.1wph1.t
In appealing, the Clavecilla Radio System contends that the suit against it should be filed in
Manila where it holds its principal office.

Held:

Atty. Ignacio

It is clear that the case for damages filed with the city court is based upon tort and not upon a
written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in
inferior courts, provides in its paragraph (b) (3) that when "the action is not upon a written
contract, then in the municipality where the defendant or any of the defendants resides or
may be served with summons." (Emphasis supplied)
Settled is the principle in corporation law that the residence of a corporation is the place
where its principal office is established. Since it is not disputed that the Clavecilla Radio
System has its principal office in Manila, it follows that the suit against it may properly be filed
in the City of Manila.
The appellee maintain, however, that with the filing of the action in Cagayan de Oro City,
venue was properly laid on the principle that the appellant may also be served with summons
in that city where it maintains a branch office. This Court has already held in the case of
Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with
summons" does not apply when the defendant resides in the Philippines for, in such case, he
may be sued only in the municipality of his residence, regardless of the place where he may
be found and served with summons. As any other corporation, the Clavecilla Radio System
maintains a residence which is Manila in this case, and a person can have only one
residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil. 459; Evangelists vs.
Santos, 86 Phil. 387). The fact that it maintains branch offices in some parts of the country
does not mean that it can be sued in any of these places. To allow an action to be instituted
in any place where a corporate entity has its branch offices would create confusion and work
untold inconvenience to the corporation.
It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al.,
supra, that the laying of the venue of an action is not left to plaintiff's caprice because the
matter is regulated by the Rules of Court. Applying the provision of the Rules of Court, the
venue in this case was improperly laid.
The order appealed from is therefore reversed, but without prejudice to the filing of the action
in Which the venue shall be laid properly. With costs against the respondents-appellees.

17. SY VS. TYSON, G.R. No. L-56763 December 15, 1982 (Residence
of a domestic corporation)
Facts:
Tyson Enterprises, Inc. filed against John Sy and Universal Parts Supply Corporation in the
Court of First Instance of Rizal, Pasig a complaint for the collection of P288,534.58 plus
interest, attorney's fees and litigation expenses.
It is alleged in the complaint that John Sy, doing business under the trade name, Universal
Parts Supply, is a resident of Fuentebella Subdivision, Bacolod City and that his co-
defendant, Universal Parts Supply Corporation, allegedly controlled by Sy, is doing business
in Bacolod City.
No allegation in the complaint as to the office or place of business of plaintiff Tyson
Enterprises, Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay
Street, Binondo, Manila.
What is alleged is the postal address or residence of Dominador Ti, the president and general
manager of plaintiff firm, which is at 26 Xavier Street, Greenhills Subdivision, San Juan,
Rizal. The evident purpose of alleging that address and not mentioning the place of business
of plaintiff firm was to justify the filing of the suit in Pasig, Rizal instead of in Manila.
Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time
to file their answer and later a motion for a bill of particulars. The latter motion was denied.
Then, they filed a motion to dismiss on the ground of improper venue invoking the provision
of section 2(b), Rule 4 of the Rules of Court that personal actions "may be commenced and
tried where the defendant or any of the defendants resides or may be found, or where the
plaintiffs or any of the plaintiffs resides, at the election of the plaintiff."
To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties
expressly submit to the jurisdiction of the Courts of the City of Manila for any legal action
arising out of the transaction.
The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the
objection based on improper venue because they had previously filed a motion for a bill of
particulars which was not granted. The trial court denied the motion to dismiss on the ground
Atty. Ignacio

that by filing a motion for a bill of particulars the defendants waived their objection to the
venue.
CA issued a restraining order, enjoining respondent judge from acting on the case. He
disregarded the restraining order.
CA dismissed the petition. It ruled that the parties did not intend Manila as the exclusive
venue of the actions arising under their transactions and that since the action was filed in
Pasig, which is near Manila, no useful purpose would be served by dismissing the same and
ordering that it be filed in Manila
Issue:
Whether or not the collection suit was correctly filed in CFI Pasig?
Whether or not petitioners waived their objection to the improper venue as held by RTC and
CA?
Held:
There is no question that the venue was improperly laid in this case. The place of business of
plaintiff Tyson Enterprises, Inc., which for purposes of venue is considered as its residence,
because a corporation has a personality separate and distinct from that of its officers and
stockholders.
Consequently, the collection suit should have been filed in Manila, the residence of plaintiff
corporation and the place designated in its sales invoice, or it could have been filed also in
Bacolod City, the residence of defendant Sy.
RTC and CA erred in ruling that petitioners waived their objection to the improper venue. As
the trial court proceeded in defiance of the Rules of Court in not dismissing the case,
prohibition lies to restrain it from acting in the case
Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected
to in a motion to dismiss it is deemed waived" and it can no longer be pleaded as an
affirmative defense in the answer (Sec. 5, Rule 16).
In this case, the petitioners, before filing their answer, filed a motion to dismiss based on
improper venue. That motion was seasonably filed The fact that they filed a motion for a bill
of particulars before they filed their motion to dismiss did not constitute a waiver of their
objection to the venue.
The rules on venue, like the other procedural rules, are designed to insure a just and orderly
administration of justice or the impartial and evenhanded determination of every action and
proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted
freedom to choose the court where he may file his complaint or petition.
The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled
by some ulterior motivation in choosing to file a case in a particular court even if not allowed
by the rules on venue.
As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict
the court's jurisdiction over the subject matter but to give it effective facility "in righteous
action", "to facilitate and promote the administration of justice" or to insure "just judgments"
by means of a fair hearing. If that objective is not achieved, then "the administration of justice
becomes incomplete and unsatisfactory and lays itself open to grave criticism." (Manila
Railroad Co. vs. Attorney General, 20 Phil. 523, 530.)
WHEREFORE, the decision of the Court of Appeals and the order of respondent judge
denying the motion to dismiss are reversed and set aside. The writ of prohibition is granted.
Civil Case No. 34302 should be considered dismissed without prejudice to refiling - it in the
Court of First Instance of Manila or Bacolod City at the election of plaintiff which should be
allowed to withdraw the documentary evidence submitted in that case. All the proceedings in
said case, including the decision, are also set aside. Costs against Tyson Enterprises, Inc.

Atty. Ignacio

18. TIME, INC. VS. REYES, G.R. No. L-28882 May 31, 1971 (Crim.
Action against a corporation, its officers)
Facts:
Antonio J. Villegas and Juan Ponce Enrile seek to recover from the herein petitioner
damages upon an alleged libel arising from a publication of Time (Asia Edition) magazine, in
its issue of 18 August 1967, of an essay, entitled "Corruption in Asia".
Petitioner received the summons and a copy of the complaint at its offices in New York on 13
December 1967 and, on 27 December 1967, it filed a motion to dismiss the complaint for lack
of jurisdiction and improper venue, relying upon the provisions of Republic Act 4363. Private
respondents opposed the motion.
In an order dated 26 February 1968, respondent court deferred the determination of the
motion to dismiss until after trial of the case on the merits, the court having considered that
the grounds relied upon in the motion do not appear to be indubitable.
Failing in its efforts to discontinue the taking of the depositions, previously adverted to, and to
have action taken, before trial, on its motion to dismiss, petitioner filed the instant petition for
certiorari and prohibition.
The orders for the taking of the said depositions, for deferring determination of the motion to
dismiss, and for reaffirming the deferment, and the writ of attachment are sought to be
annulled in the petition..
Issue:
1. Whether or not, under the provisions of Republic Act No. 4363 the respondent Court of
First Instance of Rizal has jurisdiction to take cognizance of the civil suit for damages arising
from an allegedly libelous publication, considering that the action was instituted by public
officers whose offices were in the City of Manila at the time of the publication; if it has no
jurisdiction, whether or not its erroneous assumption of jurisdiction may be challenged by a
foreign corporation by writ of certiorari or prohibition; and
2. Whether or not Republic Act 4363 is applicable to action against a foreign corporation or
non-resident defendant?
Held:
ART. 360, RPC provides Persons responsible. Any person who shall publish, exhibit, or
cause the publication or exhibition of any defamation in writing or by similar means, shall be
responsible for the same.
The author or editor of a book or pamphlet, or the editor or business manager of a daily
newspaper, magazine or serial publication, shall be responsible for the defamations
contained therein to the extent as if he were the author thereof.
The assertion that a foreign corporation or a non-resident defendant is not inconvenienced
byan out-of-town suit is irrelevant and untenable, for venue and jurisdiction are not dependent
upon convenience or inconvenience to a party; and moreover, venue was fixed under
Republic Act No. 4363, pursuant to the basic policy of the law that is, as previously stated, to
protect the interest of the public service when the offended party is a public officer, by
minimizing as much as possible any interference with the discharge of his duties.
That respondents-plaintiffs could not file a criminal case for libel against a non-resident
defendant does not make Republic Act No. 4363 incongruous of absurd, for such inability to
file a criminal case against a non-resident natural person equally exists in crimes other than
libel. It is a fundamental rule of international jurisdiction that no state can by its laws, and no
court which is only a creature of the state, can by its judgments or decrees, directly bind or
affect property or persons beyond the limits of the state.

Not only this, but if the accused is a
corporation, no criminal action can lie against it,

whether such corporation or resident or non-
resident. At any rate, the case filed by respondents-plaintiffs is case for damages.
The dismissal of the present petition is asked on the ground that the petitioner foreign
corporation failed to allege its capacity to sue in the courts of the Philippines. Respondents
rely on section 69 of the Corporation law, which provides:
SEC. 69. No foreign corporation or corporations formed, organized, or existing under any
laws other than those of the Philippines shall be permitted to ... maintain by itself or assignee
any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the
license prescribed in the section immediately preceding. ..." ...;
Petitioner's failure to aver its legal capacity to institute the present petition is not fatal, for ...
Atty. Ignacio

A foreign corporation may, by writ of prohibition, seek relief against the wrongful assumption
of jurisdiction. And a foreign corporation seeking a writ of prohibition against further
maintenance of a suit, on the ground of want of jurisdiction in which jurisdiction is not bound
by the ruling of the court in which the suit was brought, on a motion to quash service of
summons, that it has jurisdiction.
It is also advanced that the present petition is premature, since respondent court has not
definitely ruled on the motion to dismiss, nor held that it has jurisdiction, but only argument is
untenable. The motion to dismiss was predicated on the respondent court's lack of jurisdiction
to entertain the action; and the rulings of this Court are that writs of certiorari or prohibition, or
both, may issue in case of a denial or deferment of action on such a motion to dismiss for
lack of jurisdiction.
WHEREFORE, the writs applied for are granted: the respondent Court of First Instance of
Rizal is declared without jurisdiction to take cognizance of its Civil Case No. 10403; and its
orders issued in connection therewith are hereby annulled and set aside,. Respondent court
is further commanded to desist from further proceedings in Civil case No. 10403 aforesaid.
Costs against private respondents, Antonio J. Villegas and Juan Ponce Enrile.
The writ of preliminary injunction heretofore issued by this Supreme Court is made
permanent.

19. WEST COAST LIFE, INS. VS. HURD, G.R. No. L-8527
March 30, 1914
Facts:
The petitioner is a foreign life-insurance corporation, duly organized under and by virtue of
the laws of the State of California, doing business regularly and legally in the Philippine
Islands pursuant to its laws.
Assistant prosecuting attorney of the city of Manila filed an information in a criminal action in
the Court of First Instance of that city against West Coast Life, Ins., and also against John
Northcott (general agent and manager) and Manuel C. Grey (treasurer), charging said
corporation and said individuals with the crime of libel for printing, publishing, and distributing
a large number of circulars to policy holders and prospective policy holders of Insular Life
Insurance Company stating that the rumor about it is true regarding it being in a bad shape
and its capital has diminished.
Judge Hurd signed and issued a process directed to the plaintiff and the other accused.

Plaintiff filed with the clerk of the court a motion to quash said summons and the service
thereof, on the ground that the court had no jurisdiction over the said company, there being
no authority in the court for the issuance of the process. The court denied the motion and
directed plaintiff to appear.
The basis of the action is that the Court of First Instance 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:
The question remains as to whether or not the court may, of itself and on its own motion,
create not only a process but a procedure by which the process may be made effective?
Atty. Ignacio

Whether or not West Coast Life Insurance should also be criminally charged?
Held:
We do not believe that the authority of the courts of the Philippine Islands extends so far.
While having the inherent powers which usually go with courts of general jurisdiction, we are
of the opinion that, under the circumstances of their creation, they have only such authority in
criminal matters as is expressly conferred upon them by statute or which it is necessary to
imply from such authority in order to carry out fully and adequately the express authority
conferred. We do not feel that Courts of First Instance have authority to create new
procedure and new processes in criminal law. The exercise of such power verges too closely
on legislation.
To bring a corporation into court criminally requires many additions to the present criminal
procedure. While it may be said to be the duty of courts to see to it that criminals are
punished, it is no less their duty to follow prescribed forms of procedure and to go out upon
unauthorized ways or act in an unauthorized manner.
The courts of the Philippine Islands are creatures of statute and, as we have said, have only
those powers conferred upon them by statute and those which are required to exercise that
authority fully and adequately. The courts here have no common law jurisdiction or powers. If
they have any powers not conferred by statute, expressly or impliedly, they would naturally
come from Spanish and not from common law sources. 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.
CFI of Manila is hereby enjoined and prohibited from proceeding further in the criminal cause
which is before us in this proceeding, entitled United States vs. West Coast Life Insurance
Company, a corporation, John Northcott and Manuel C. Grey, so far as said proceedings
relate to the said West Coast Life Insurance Company, a corporation, the plaintiff in the case.

20. CRUZVALE,INC. VS. EDUQUE, G.R. Nos. 172785-86 June
18, 2009
Facts:
Petitioner is a client of East Asia (AEA) Capital Corporation (East Asia) which is a duly
licensed Philippine investment house engaged in the buy and sell or trading of securities and
commercial papers. As a practice, East Asia purchases Long Term Commercial Papers
(LTCPs) for petitioner from various corporations the latter has chosen. These LTCPs are
registered with the issuing corporations in the name of East Asia in trust for petitioner. In turn,
East Asia issues Outright Sales Invoices and Custodian Receipts to petitioner. Once the
LTCPs mature, petitioner instructs East Asia to re-invest or roll-over the principal amounts
and accrued interests to other similar LTCPs.1avvphi1
Petitioner learned of East Asias irregular transactions and precarious financial condition.
Thus, it asked East Asia for an accounting of all its LTCPs. Meanwhile, petitioner conducted
its own investigation and discovered that: (1) some of its outstanding LTCPs were sold or
assigned to third parties; (2) the proceeds of such sale or assignment were covered by
petitioners alleged purchase of East Asia promissory notes; (3) the proceeds of its matured
LTCPs were not used to purchase other similar LTCPs but covered instead petitioners
alleged purchase of East Asia promissory notes; and (4) interest payments from its LTCPs
were received by East Asia and covered petitioners alleged purchase of East Asia
promissory notes. All these were done without petitioners prior knowledge and consent.
Petitioners representatives met with respondent Jose Armando L. Eduque, Chief Executive
Officer and Director of East Asia, to confirm and discuss the foregoing. Eduque proposed to:
(1) secure the East Asia promissory notes with collateral; and/or (2) dacion the LTCPs with
East Asia real properties and shares of stock.
Eduque proposed the conversion of a part or all of petitioners LTCPs into East Asia equity.
Petitioner declined the proposal and made a final demand for the turn-over of the proceeds of
its matured LTCPs and the delivery of its outstanding LTCPs, with interest payments accruing
thereto.
Atty. Ignacio

As the demand remained unheeded, petitioner filed a complaint-affidavit with the Office of the
City Prosecutor of Makati charging respondents, as officers and/or directors of East Asia, with
violation of Article 315(1)(b) and (2)(a) of the Revised Penal Code.
An Information for estafa under Article 315(1)(b) was filed against respondents. Joson filed a
motion for reconsideration while Eduque, Binamira and Delgado filed a petition for review
with the Department of Justice.
The Secretary of Justice granted the petition and directed the City Prosecutor of Makati to
withdraw the information against respondents. On the other hand, the City Prosecutor of
Makati granted Josons motion and recommended the dismissal of the charge against her.
The City Prosecutor of Makati then filed a motion to withdraw information which was denied
by Judge Guillen.

Joson filed a motion for reconsideration separate from the motion for
reconsideration filed by Eduque, Binamira and Delgado.
Judge Romeo F. Barza, who took over as presiding judge, granted Josons motion but denied

that of Eduque, Binamira and Delgado. Thereafter, they were arraigned over their objections.
They filed another motion for reconsideration. Petitioner also moved to reconsider the
withdrawal of the information against Joson.
Due to Judge Barzas voluntary inhibition, the case was re-raffled and re-assigned to Judge
Rebecca R. Mariano of the RTC of Makati City, Branch 134. Judge Mariano dismissed the
criminal case against all respondents due to the absence of probable cause.
Petitioner moved for partial reconsideration which Judge Mariano granted. She also denied
respondents motion for reconsideration and ordered the pre-trial to proceed.
Before the Court of Appeals, Joson filed a petition for review docketed as CA-G.R. SP No.
81518 while Eduque, Binamira and Delgado filed a petition for review docketed as CA-G.R.
SP No. 81526.
The appellate court granted the petitions. The Supreme Court ruled in Sesbreo v. Court of
Appeals that a money market transaction partakes of a nature of a loan and therefore, the
non-payment thereof would not give rise to criminal liability for estafa through
misappropriation or conversion. East Asia did not receive money in trust, or on commission or
for administration, or under any other obligation to make delivery of or to return the same. It
did not become a trustee of petitioner, nor was any fiduciary relationship created. Thus, the
appellate court ordered the dismissal of the criminal charge for estafa under Article 315(1)(b)
against respondents for lack of probable cause:

Issue:
Whether or not respondents should be held liable for estafa?
Held:
We find no reason to depart from the recommendations of the City Prosecutor of Makati and
the Secretary of Justice, which were affirmed by the appellate court, to dismiss the criminal
charge against respondents for lack of probable cause.
To be held liable for estafa under Article 315(1)(b) of the Revised Penal Code, the following
elements must concur: (1) that money, goods, or other personal properties are received by
the offender in trust, or on commission, or for administration, or under any other obligation
involving the duty to make delivery of, or to return, the same; (2) that there is a
misappropriation or conversion of such money or property by the offender or denial on his
part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice
of another; and (4) that there is a demand made by the offended party on the offender.
28

While East Asia acted as custodian of the LTCPs and was obliged to turn-over the proceeds
of the matured LTCPs and to deliver the outstanding LTCPs to petitioner, with interest
payments accruing thereto, there was no showing that respondents misappropriated or
converted the same. East Asia periodically remitted the proceeds and interest payments to
petitioner even before petitioner filed its complaint-affidavit. Moreover, apart from its
sweeping allegation that respondents misappropriated or converted its money placements,
petitioner failed to establish the particular role or actual participation of each respondent in
the criminal act. Neither was it shown that they assented to its commission. It is basic that
only corporate officers shown to have participated in the alleged anomalous acts may
be held criminally liable.
Atty. Ignacio

WHEREFORE, the Decision dated March 1, 2006 of the Court of Appeals in CA-G.R. SP
Nos. 81518 and 81526 and its Resolution dated May 22, 2006, denying reconsideration, are
AFFIRMED.

21. SIA vs. PEOPLE, G.R. No. L-30896 April 28, 1983
Facts:
Jose 0. Sia was General Manager of the Metal Manufacturing Company of the Philippines,
Inc. engaged in the manufacture of steel office equipment. Because his company was in
need of raw materials to be imported from abroad, he applied for a letter of credit to import
steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed
to the Continental Bank, herein complainant, and his application having been approved, the
letter of credit was opened on 5 June, 1963 in the amount of $18,300, and the goods arrived
sometime in July, 1963 according to accused himself. According to Complainant Bank, there
was permitted delivery of the steel sheets only upon execution of a trust receipt, while
according to the accused, the goods were delivered to him sometime before he executed that
trust receipt in fact they had already been converted into steel office equipment by the time
he signed said trust receipt; but there is no question - and this is not debated - that the bill of
exchange issued for the purpose of collecting the unpaid account thereon having fallen due
neither accused nor his company having made payment thereon notwithstanding demands,
and the accounts having reached the sum in pesos of P46,818.68 after deducting his deposit
valued at P28,736.47; that was the reason why upon complaint by Continental Bank, the
Fiscal filed the information after preliminary investigation as has been said on 22 October,
1964.
Issue:
Whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal
Manufacturing Company of the Philippines (Metal Company, for short) as President thereof in
dealing with the complainant, the Continental Bank, (Bank for short) may be liable for the
crime charged?
Held:
No. In discussing this question, petitioner proceeds, in the meantime, on the assumption that
the acts imputed to him would constitute the crime of estafa, which he also disputes, but
seeks to avoid liability on his theory that the Bank knew all along that petitioner was dealing
with him only as an officer of the Metal Company which was the true and actual applicant for
the letter of credit and which, accordingly, assumed sole obligation under the trust receipt. In
disputing the theory of petitioner, the Solicitor General relies on the general principle that
when a corporation commits an act which would constitute a punishable offense under the
law, it is the responsible officers thereof, acting for the corporation, who would be punished
for the crime, The Court of Appeals has subscribed to this view when it quoted approvingly
from the decision of the trial court the following:
A corporation is an artificial person, an abstract being. If the defense theory is followed
unscrupulously legions would form corporations to commit swindle right and left where
nobody could be convicted, for it would be futile and ridiculous to convict an abstract being
that can not be pinched and confined in jail like a natural, living person, hence the result of
the defense theory would be hopeless chose in business and finance. It is completely
untenable. (Rollo [CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a general
principle that for crimes committed by a corporation, the responsible officers thereof would
personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also
Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-
may however not be squarely applicable to the instant case in that the corporation was
directly required by law to do an act in a given manner, and the same law makes the person
who fails to perform the act in the prescribed manner expressly liable criminally. The
performance of the act is an obligation directly imposed by the law on the corporation.
Since it is a responsible officer or officers of the corporation who actually perform the act for
the corporation, they must of necessity be the ones to assume the criminal liability; otherwise
this liability as created by the law would be illusory, and the deterrent effect of the law,
negated.
In the present case, a distinction is to be found with the Tan Boon Kong case in that the act
alleged to be a crime is not in the performance of an act directly ordained by law to be
performed by the corporation. The act is imposed by agreement of parties, as a practice
Atty. Ignacio

observed in the usual pursuit of a business or a commercial transaction. The offense may
arise, if at all, from the peculiar terms and condition agreed upon by the parties to the
transaction, not by direct provision of the law. The intention of the parties, therefore, is a
factor determinant of whether a crime was committed or whether a civil obligation alone
intended by the parties. With this explanation, the distinction adverted to between the Tan
Boon Kong case and the case at bar should come out clear and meaningful. In the absence
of an express provision of law making the petitioner liable for the criminal offense committed
by the corporation of which he is a president as in fact there is no such provisions in the
Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal
liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the
existence of criminal liability for which the accused is made answerable must be clear and
certain. The maxim that all doubts must be resolved in favor of the accused is always of
compelling force in the prosecution of offenses. This Court has thus far not ruled on the
criminal liability of an officer of a corporation signing in behalf of said corporation a trust
receipt of the same nature as that involved herein. In the case of Samo vs. People, L-17603-
04, May 31, 1962, the accused was not clearly shown to be acting other than in his own
behalf, not in behalf of a corporation.

22. Sy Tiong Shiou vs. Sy Chim, G.R. No. 174168, March 30, 2009
(Criminal liability under the Corporation Code)
Facts:
The officers of the corporation (Sy Tiong Shiou, et al.) denied the Spouses Sy access to
corporate records because of pending civil and intra-corporate cases. This prompted the
Spouses Sy to file several cases against Tiong Shiou, et al.
Two of the complaints were for alleged violation of Section 74 in relation to Section 144 of the
Corporation Code. In these complaints, the Spouses Sy averred that they are stockholders
and directors of Sy Siy Ho & Sons, Inc. (the corporation) who asked Sy Tiong Shiou, et al.,
officers of the corporation, to allow them to inspect the books and records of the business on
three occasions to no avail. In a letter dated 21 May 2003, Sy Tiong Shiou, et al. denied the
request, citing civil and intra-corporate cases pending in court.
In the two other complaints Sy Tiong Shiou was charged with falsification under Article 172,
in relation to Article 171 of the Revised Penal Code (RPC), and perjury under Article 183 of
the RPC. According to the Spouses Sy, Sy Tiong Shiou executed under oath the 2003
General Information Sheet (GIS) wherein he falsely stated that the shareholdings of the
Spouses Sy had decreased despite the fact that they had not executed any conveyance of
their shares.
Sy Tiong Shiou, et al. argued before the prosecutor that the issues involved in the civil case
for accounting and damages pending before the RTC of Manila were intimately related to the
two criminal complaints filed by the Spouses Sy against them, and thus constituted a
prejudicial question that should require the suspension of the criminal complaints. They also
argued that the Spouses Sys request for inspection was premature as the latters concern
may be properly addressed once an answer is filed in the civil case. Sy Tiong Shiou, on the
other hand, denied the accusations against him, alleging that before the 2003 GIS was
submitted to the Securities and Exchange Commission (SEC), the same was shown to
respondents, who at that time were the President/Chairman of the Board and Assistant
Treasurer of the corporation, and that they did not object to the entries in the GIS. Sy Tiong
Shiou also argued that the issues raised in the pending civil case for accounting presented a
prejudicial question that necessitated the suspension of criminal proceedings.
The investigating prosecutor issued a resolution recommending the suspension of the
criminal complaints for violation of the Corporation Code and the dismissal of the criminal
complaints for falsification and perjury against Sy Tiong Shiou. The reviewing prosecutor
approved the resolution. The Spouses Sy moved for the reconsideration of the resolution, but
their motion was denied on 14 June 2004. The Spouses Sy thereupon filed a petition for
review with the Department of Justice (DOJ), which the latter denied in a resolution issued on
02 September 2004. Their subsequent motion for reconsideration was likewise denied in the
resolution of 20 July 2005.
The Spouses Sy elevated the DOJs resolutions to the Court of Appeals through a petition for
certiorari, imputing grave abuse of discretion on the part of the DOJ. The appellate court
granted the petition and directed the City Prosecutors Office to file the appropriate
Atty. Ignacio

informations against Sy Tiong Shiou, et al. for violation of Section 74, in relation to Section
144 of the Corporation Code and of Articles 172 and 183 of the RPC.
The appellate court ruled that the civil case for accounting and damages cannot be deemed
prejudicial to the maintenance or prosecution of a criminal action for violation of Section 74 in
relation to Section 144 of the Corporation Code since a finding in the civil case that
respondents mishandled or misappropriated the funds would not be determinative of their
guilt or innocence in the criminal complaint. In the same manner, the criminal complaints for
falsification and/or perjury should not have been dismissed on the ground of prejudicial
question because the accounting case is unrelated and not necessarily determinative of the
success or failure of the falsification or perjury charges. Furthermore, the Court of Appeals
held that there was probable cause that Sy Tiong Shiou had committed falsification and that
the City of Manila where the 2003 GIS was executed is the proper venue for the institution of
the perjury charges. Sy Tiong Shiou, et al. sought reconsideration of the Court of Appeals
decision but their motion was denied.
Issue:
Whether or not DOJ abused its discretion when it suspended the hearing of the charges of
violation of the Corporation Code on the ground of prejudicial question?
Whether or not there is a probable cause to warrant the institution with the criminal charge?
Held:
Yes. The Supreme Court ruled that the DOJ gravely abused its discretion when it suspended
the hearing of the charges for violation of the Corporation Code on the ground of prejudicial
question and when it dismissed the criminal complaints. According to the Supreme Court:
Indeed, a preliminary proceeding is not a quasi-judicial function and that the DOJ is not a
quasi-judicial agency exercising a quasi-judicial function when it reviews the findings of a
public prosecutor regarding the presence of probable cause. Moreover, it is settled that the
preliminary investigation proper, i.e., the determination of whether there is reasonable ground
to believe that the accused is guilty of the offense charged and should be subjected to the
expense, rigors and embarrassment of trial, is the function of the prosecution. This Court has
adopted a policy of non-interference in the conduct of preliminary investigations and leaves to
the investigating prosecutor sufficient latitude of discretion in the determination of what
constitutes sufficient evidence as will establish probable cause for the filing of information
against the supposed offender.
As in every rule, however, there are settled exceptions. Hence, the principle of non-
interference does not apply when there is grave abuse of discretion which would authorize
the aggrieved person to file a petition for certiorari and prohibition under Rule 65, 1997 Rules
of Civil Procedure.
As correctly found by the Court of Appeals, the DOJ gravely abused its discretion when it
suspended the hearing of the charges for violation of the Corporation Code on the ground of
prejudicial question and when it dismissed the criminal complaints.
On the issue of probable cause, the Supreme Court ruled:
Anent the issue of probable cause, the Court also finds that there is enough probable cause
to warrant the institution of the criminal cases.
In order that probable cause to file a criminal case may be arrived at, or in order to engender
the well-founded belief that a crime has been committed, the elements of the crime charged
should be present. This is based on the principle that every crime is defined by its elements,
without which there should beat the mostno criminal offense.

Section 74 of the Corporation Code reads in part:
The records of all business transactions of the corporation and the minutes of any meeting
shall be open to inspection by any director, trustee, stockholder or member of the corporation
at reasonable hours on business days and he may demand, in writing, for a copy of excerpts
from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustee,
stockholder or member of the corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall be liable to such director,
trustee, stockholder or member for damages, and in addition, shall be guilty of an offense
which shall be punishable under Section 144 of this Code: Provided, That if such refusal is
Atty. Ignacio

made pursuant to a resolution or order of the Board of Directors or Trustees, the liability
under this section for such action shall be imposed upon the directors or trustees who voted
for such refusal: and Provided, further, That it shall be a defense to any action under this
section that the person demanding to examine and copy excerpts from the corporation's
records and minutes has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any other corporation, or was
not acting in good faith or for a legitimate purpose in making his demand.
Meanwhile, Section 144 of the same Code provides:
Sec. 144. Violations of the Code.Violations of any of the provisions of this Code or its
amendments not otherwise specifically penalized therein shall be punished by a fine of not
less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00)
pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years, or
both, in the discretion of the court. If the violation is committed by a corporation, the same
may, after notice and hearing, be dissolved in appropriate proceedings before the Securities
and Exchange Commission: Provided, That such dissolution shall not preclude the institution
of appropriate action against the director, trustee or officer of the corporation responsible for
said violation: Provided, further, That nothing in this section shall be construed to repeal the
other causes for dissolution of a corporation provided in this Code.

In the recent case of Ang-Abaya, et al. v. Ang, et al.,
[27]
the Court had the occasion to
enumerate the requisites before the penal provision under Section 144 of the Corporation
Code may be applied in a case of violation of a stockholder or members right to inspect the
corporate books/records as provided for under Section 74 of the Corporation Code. The
elements of the offense, as laid down in the case, are:

First. A director, trustee, stockholder or member has made a prior demand in writing for a
copy of excerpts from the corporations records or minutes;

Second. Any officer or agent of the concerned corporation shall refuse to allow the said
director, trustee, stockholder or member of the corporation to examine and copy said
excerpts;

Third. If such refusal is made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be imposed upon the directors or
trustees who voted for such refusal; and,

Fourth. Where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporations records and minutes has
improperly used any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand, the contrary must be shown or proved.
[28]

Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense
of improper use or motive is in the nature of a justifying circumstance that would exonerate
those who raise and are able to prove the same. Accordingly, where the corporation denies
inspection on the ground of improper motive or purpose, the burden of proof is taken from the
shareholder and placed on the corporation.
[29]
However, where no such improper motive or
purpose is alleged, and even though so alleged, it is not proved by the corporation, then there
is no valid reason to deny the requested inspection.

In the instant case, however, the Court finds that the denial of inspection was predicated on
the pending civil case against the Spouses Sy.

Atty. Ignacio

23. Republic Gas Corp. vs. Petron Corp, June 1, 2013 (Separate
Personality not a shield to commit a crime)
Facts:
Petitioners Petron and Shell are two of the largest bulk suppliers and producers of LPG in the
Philippines. Petron is the registered owner in the Philippines of the trademarks GASUL and
GASUL cylinders used for its LGP products. It is the sole entity in the Philippines authorized
to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers,
products and its trademarks. Pilipinas Shell, on the other hand, is the authorized user in the
Philippines of the tradename, trademarks, symbols or designs of its principal, Shell
International Petroleum Company Limited, including the marks SHELLANE and SHELL
device in connection with the production, sale and distribution of SHELLANE LPGs. It is the
only corporation in the Philippines authorized to allow refillers and distributors to refill, use,
sell and distribute SHELLANE LGP containers and products. Private respondents, on the
other hand, are the directors and officers of Republic Gas Corporation (REGASCO for
brevity), an entity duly licensed to engage in, conduct and carry on, the business of refilling,
buying, selling, distributing and marketing at wholesale and retail of Liquefied Petroleum Gas
(LPG).

LPG Dealers Associations, such as the Shellane Dealers Association, Inc., Petron Gasul
Dealers Association, Inc. and Totalgaz Dealers Association, received reports that certain
entities were engaged in the unauthorized refilling, sale and distribution of LPG cylinders
bearing the registered tradenames and trademarks of the petitioners. As a consequence,
Genesis Adarlo, on behalf of the aforementioned dealers associations, filed a letter-complaint
in the National Bureau of Investigation (NBI) regarding the alleged illegal trading of
petroleum products and/or underdelivery or underfilling in the sale of LPG products.

An investigation was thereafter conducted by the NBI, particularly within the areas of
Caloocan, Malabon, Novaliches and Valenzuela, which showed that several persons and/or
establishments, including REGASCO, were suspected of having violated provisions of Batas
Pambansa Blg. 33 (B.P. 33). The surveillance revealed that REGASCO LPG Refilling Plant in
Malabon was engaged in the refilling and sale of LPG cylinders bearing the registered marks
of the petitioners without authority from the latter. Based on its General Information Sheet
filed in the Securities and Exchange Commission, REGASCOs members of its Board of
Directors are: (1) Arnel U. Ty President, (2) Marie Antoinette Ty Treasurer, (3) Orlando
Reyes Corporate Secretary, (4) Ferrer Suazo and (5) Alvin Ty (hereinafter referred to
collectively as private respondents).

NBI operatives, then conducted a test-buy operation on February 19, 2004 with the former
and a confidential asset going undercover. They brought with them four (4) empty LPG
cylinders bearing the trademarks of SHELLANE and GASUL and included the same with the
purchase of J&S, a REGASCOs regular customer. Inside REGASCOs refilling plant, they
witnessed that REGASCOs employees carried the empty LPG cylinders to a refilling station
and refilled the LPG empty cylinders. Money was then given as payment for the refilling of the
J&Ss empty cylinders which included the four LPG cylinders brought in by De Jemil and his
companion. Cash Invoice No. 191391 dated February 19, 2004 was issued as evidence for
the consideration paid.

After leaving the premises of REGASCO LPG Refilling Plant in Malabon, De Jemil and the
other NBI operatives proceeded to the NBI headquarters for the proper marking of the LPG
cylinders. The LPG cylinders refilled by REGASCO were likewise found later to be
underrefilled.

De Jemil applied for the issuance of search warrants in the Regional Trial Court, Branch 24,
in the City of Manila against the private respondents and/or occupants of REGASCO LPG
Refilling Plant located at Asucena Street, Longos, Malabon, Metro Manila for alleged violation
of Section 2 (c), in relation to Section 4, of B.P. 33, as amended by PD 1865.
Upon the issuance of the said search warrants, Special Investigator Edgardo C. Kawada and
other NBI operatives immediately proceeded to the REGASCO LPG Refilling Station in
Malabon and served the search warrants on the private respondents. After searching the
premises of REGASCO, they were able to seize several empty and filled Shellane and Gasul
cylinders as well as other allied paraphernalia.
NBI lodged a complaint in the Department of Justice against the private respondents for
alleged violations of Sections 155 and 168 of Republic Act (RA) No. 8293, otherwise known
as the Intellectual Property Code of the Philippines.
Atty. Ignacio

The prosecutor found that there was no proof introduced by the petitioners that would show
that private respondent REGASCO was engaged in selling petitioners products or that it
imitated and reproduced the registered trademarks of the petitioners. He further held that he
saw no deception on the part of REGASCO in the conduct of its business of refilling and
marketing LPG.
Secretary of the Department of Justice affirmed the prosecutors dismissal of the complaint
reasoning that...
At any rate, it is settled doctrine that a corporation has a personality separate and distinct
from its stockholders as in the case of herein respondents. To sustain the present allegations,
the acts complained of must be shown to have been committed by respondents in their
individual capacity by clear and convincing evidence. There being none, the complaint must
necessarily fail. As it were, some of the respondents are even gainfully employed in other
business pursuits. x x x.
3

CA reversed. Petitioners filed a MR which was denied by the CA

Issue:
Whether probable cause exists to hold petitioners liable for the crimes of trademark
infringement and unfair competition as defined and penalized under Sections 155 and 168, in
relation to Section 170 of Republic Act (R.A.) No. 8293?
Held:
Mere unauthorized use of a container bearing a registered trademark in connection with the
sale, distribution or advertising of goods or services which is likely to cause confusion,
mistake or deception among the buyers or consumers can be considered as trademark
infringement.

Here, petitioners have actually committed trademark infringement when they refilled, without
the respondents consent, the LPG containers bearing the registered marks of the
respondents. As noted by respondents, petitioners acts will inevitably confuse the consuming
public, since they have no way of knowing that the gas contained in the LPG tanks bearing
respondents marks is in reality not the latters LPG product after the same had been illegally
refilled. The public will then be led to believe that petitioners are authorized refillers and
distributors of respondents LPG products, considering that they are accepting empty
containers of respondents and refilling them for resale.
In the present case, respondents pertinently observed that by refilling and selling LPG
cylinders bearing their registered marks, petitioners are selling goods by giving them the
general appearance of goods of another manufacturer.

What's more, the CA correctly pointed out that there is a showing that the consumers may be
misled into believing that the LPGs contained in the cylinders bearing the marks GASUL
and SHELLANE are those goods or products of the petitioners when, in fact, they are not.
Obviously, the mere use of those LPG cylinders bearing the trademarks GASUL and
SHELLANE will give the LPGs sold by REGASCO the general appearance of the products
of the petitioners.

In sum, this Court finds that there is sufficient evidence to warrant the prosecution of
petitioners for trademark infringement and unfair competition, considering that petitioner
Republic Gas Corporation, being a corporation, possesses a personality separate and distinct
from the person of its officers, directors and stockholders.
12
Petitioners, being corporate
officers and/or directors, through whose act, default or omission the corporation commits a
crime, may themselves be individually held answerable for the crime.
13
Veritably, the CA
appropriately pointed out that petitioners, being in direct control and supervision in the
management and conduct of the affairs of the corporation, must have known or are aware
that the corporation is engaged in the act of refilling LPG cylinders bearing the marks of the
respondents without authority or consent from the latter which, under the circumstances,
could probably constitute the crimes of trademark infringement and unfair competition. The
existence of the corporate entity does not shield from prosecution the corporate agent who
knowingly and intentionally caused the corporation to commit a crime. Thus, petitioners
cannot hide behind the cloak of the separate corporate personality of the corporation to
escape criminal liability. A corporate officer cannot protect himself behind a corporation
where he is the actual, present and efficient actor.
14

Atty. Ignacio

WHEREFORE, premises considered, the petition is hereby DENIED and the Decision dated
July 2, 2010 and Resolution dated October 11, 2010 of the Court of Appeals in CA-G.R. SP
No. 106385 are AFFIRMED.

24. Ching vs. Secretary of Justice, G. R. No. 164317 February
6, 2006 (Criminal liability of a corporation)

Facts:
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime
in September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial
Banking Corporation (respondent bank) for the issuance of commercial letters of credit to
finance its importation of assorted goods.
RCBC approved the application, and irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13
trust receipts

as surety, acknowledging delivery of respective goods.
Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with
authority to sell but not by way of conditional sale, pledge or otherwise; and in case such
goods were sold, to turn over the proceeds thereof as soon as received, to apply against the
relative acceptances and payment of other indebtedness to respondent bank. In case the
goods remained unsold within the specified period, the goods were to be returned to
respondent bank without any need of demand. Thus, said "goods, manufactured products or
proceeds thereof, whether in the form of money or bills, receivables, or accounts separate
and capable of identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or
to return their value amounting to P6,940,280.66 despite demands. Thus, a criminal case for
estafa was filed

against the Senior VP.
The RTC, however, granted the Motion to Quash the Informations filed by petitioner on the
ground that the material allegations therein did not amount to estafa.
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez,

holding that the penal provision of P.D. No. 115 encompasses any act violative of an
obligation covered by the trust receipt; it is not limited to transactions involving goods which
are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust
receipt is an act violative of the obligation of the entrustee to pay."
Thus, the criminal complaint for estafa was re-filed.
Issue:
WON the Honorable Secretary of Justice correctly ruled that petitioner Alfredo Ching is the
officer responsible for the offense charged?
Held:
NO. Assertions of Petitioner that he had no direct participation in the transaction other than
being the Senior VP of the PBMI is too dull that it cannot even just dent the findings of the
respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
xxx If the violation or offense is committed by a corporation, partnership, association or other
judicial entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.
"There is no dispute that it was the respondent, who as senior vice-president of PBM,
executed the thirteen (13) trust receipts. As such, the law points to him as the official
responsible for the offense. Since a corporation cannot be proceeded against criminally
because it cannot commit crime in which personal violence or malicious intent is required,
criminal action is limited to the corporate agents guilty of an act amounting to a crime and
never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times,
[I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough
to indict him as the official responsible for violation of PD 115.
Atty. Ignacio

xxx
"In regard to the other assigned errors, we note that the respondent bound himself under the
terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is
evident that these are two (2) capacities which do not exclude the other. Logically, he can be
proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its
decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate
official responsible for the offense under PD 115, the present case is an appropriate remedy
under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to
the civil liabilities arising from the criminal offense thus, the civil liability imposed on
respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his
criminal liability under PD 115."
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-
President of PBMI and had no physical possession of the goods, he cannot avoid prosecution
for violation of P.D. No. 115.1
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It
may be committed by a corporation or other juridical entity or by natural persons.
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the
civil liabilities of such corporation and/or board of directors, officers, or other officials or
employees responsible for the offense. The rationale is that such officers or employees are
vested with the authority and responsibility to devise means necessary to ensure compliance
with the law and, if they fail to do so, are held criminally accountable; thus, they have a
responsible share in the violations of the law.
If the crime is committed by a corporation or other juridical entity, the directors,
officers, employees or other officers thereof responsible for the offense shall be

charged and penalized for the crime, precisely because of the nature of the crime and
the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot
be penalized for a crime punishable by imprisonment.

However, a corporation may be
charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute
prescribes both fine and imprisonment as penalty, a corporation may be prosecuted
and, if found guilty, may be fined.

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