Escolar Documentos
Profissional Documentos
Cultura Documentos
Diokno
20 SCRA 383 (GR No. L-19550)
June 19, 1967
CJ Concepcion
Constitutional Law; Search warrants; Corporations; Only party affected may
contest legality of seizure effected by search warrants.Officers of certain
corporations, from which documents, papers and things were seized by
means of search warrants, have no cause of action to assail the legality of
the seizures because said corporations have personalities distinct and
separate from those of said officers. The legality of a seizure can be
contested only by the party whose rights have been impaired thereby. The
objection to an unlawful search is purely personal and cannot be availed of
by third parties.
Same; Evidence: When illegally seized evidence is admissible.Officers of
certain corporations cannot validly object to the use in evidence against
them of the documents, papers and things seized from the offices and
premises of the corporations since the right to object to their admission in
evidence belongs exclusively to the corporations, to which the seized effects
belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity.
Same; Requisites for issuing search warrants.The Constitution provides
that no warrant shall issue but upon probable cause, to be determined by the
judge, and that the warrant shall particularly describe the things to be
seized.
Same; General search warrants.Search warrants, issued upon applications
stating that the natural and juridical persons therein named had committed a
violation of Central Bank laws, tariff and customs laws, Tax Code and Revised
Penal Code do not satisfy the constitutional requirements because no specific
offense had been alleged in said applications. It was impossible for the
judges, who issued the warrants, to have found the existence of probable
cause, which presupposes the introduction of competent proof that the party
against whom it is sought has performed particular acts or committed
specific omissions in violation of a specific penal provision.
Same; Why general warrants are outlawed.General search warrants are
outlawed because they place the sanctity of the domicile and the privacy of
communication and correspondence at the mercy of the whims, caprice or
passion of peace officers.
Facts:
Upon application of the prosecutors (respondent) several judges
(respondent) issued on different dates a total of 42 search warrants against
petitioners (Stonehill et. al.) and/or corporations of which they were officers
to search the persons of the petitioner and/or premises of their officers
warehouses and/or residences and to seize and take possession of the
personal property which is the subject of the offense, stolen, or embezzled
and proceeds of fruits of the offense, or used or intended to be used or the
means of committing the offense, which is described in the application as
violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
Code and the Revised Penal Code.
Petitioners filed with the Supreme Court this original action for certiorari,
prohibition and mandamus and injunction and prayed that, pending final
disposition of the case, a writ of preliminary injunction be issued against the
prosecutors, their agents and representatives from using the effect seized or
any copies thereof, in the deportation case and that thereafter, a decision be
rendered quashing the contested search warrants and declaring the same
null and void. For being violative of the constitution and the Rules of court
by: (1) not describing with particularity the documents, books and things to
be seized; (2) money not mentioned in the warrants were seized; (3) the
warrants were issued to fish evidence for deportation cases filed against the
petitioner; (4) the searches and seizures were made in an illegal manner;
and (5) the documents paper and cash money were not delivered to the
issuing courts for disposal in accordance with law.
In their answer, the prosecutors (respondent) alleged; (1) search warrants
are valid and issued in accordance with law; (2) defects of said warrants,
were cured by petitioners consent; and (3) in any event the effects are
admissible regardless of the irregularity.
The Court granted the petition and issued the writ of preliminary injunction.
However by a resolution, the writ was partially lifted dissolving insofar as
paper and things seized from the offices of the corporations.
Issues:
1.) Whether or not the petitioners have the legal standing to assail the
legality of search warrants issued against the corporation of which they were
officers.
2.) Whether or not the search warrants issued partakes the nature of a
general search warrants.
3.) Whether or not the seized articles were admissible as evidence regardless
of the illegality of its seizure.
Held:
I
Officers of certain corporations, from which the documents, papers, things
were seized by means of search warrants, 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.
Officers of certain corporations can 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.
II
The Constitution provides:
The right of the people to be secure in their persons, houses, papers, and
effects against unreasonable searches and seizures shall not be violated, and
no warrants shall issue but upon probable cause, to be determined by the
judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized.
Two points must be stressed in connection with this constitutional mandate,
namely: (1) that no warrant shall issue but upon probable cause, to be
determined by the judge in the manner set forth in said provision; and (2)
that the warrant shall particularly describe the things to be seized.
Search warrants issued upon applications stating that the natural and
juridical person therein named had committed a "violation of Central Ban
Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal
Code." In other words, no specific offense had been alleged in said
applications. The averments thereof with respect to the offense committed
were abstract. As a consequence, it was impossible for the judges who
issued the warrants to have found the existence of probable cause, for the
same presupposes the introduction of competent proof that the party against
whom it is sought has performed particular acts, or committed specific
omissions, violating a given provision of our criminal laws.
General search warrants are outlawed because the sanctity of the domicile
and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers.
To prevent the issuance of general warrants this Court deemed it fit to
amend Section 3 of Rule 122 of the former Rules of Court by providing in its
counterpart, under the Revised Rules of Court that "a search warrant shall
not issue but upon probable cause in connection with one specific offense."
Not satisfied with this qualification, the Court added thereto a paragraph,
directing that "no search warrant shall issue for more than one specific
offense."
Seizure of books and records showing all business transaction of petitioners
persons, regardless of whether the transactions were legal or illegal
contravened the explicit command of our Bill of Rights - that the things to be
seized be particularly described - as well as tending to defeat its major
objective the elimination of general warrants.
III
Most common law jurisdiction have already given up the Moncado ruling and
eventually adopted the exclusionary rule, realizing that this is the only
practical means of enforcing the constitutional injunction against
unreasonable searches and seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as
such, which has been unlawfully acquired, is that exclusion is the only
practical way of enforcing the constitutional privilege. In earlier times the
action of trespass against the offending official may have been protection
enough; but that is true no longer. Only in case the prosecution which itself
controls the seizing officials, knows that it cannot profit by their wrong will
that wrong be repressed.
The non-exclusionary rule is contrary, not only to the letter, but also, to the
spirit of the constitutional injunction against unreasonable searches and
seizures. To be sure, if the applicant for a search warrant has competent
evidence to establish probable cause of the commission of a given crime by
the party against whom the warrant is intended, then there is no reason why
the applicant should not comply with the requirements of the fundamental
law. Upon the other hand, if he has no such competent evidence, then it is
not possible for the Judge to find that there is probable cause, and, hence, no
justification for the issuance of the warrant. The only possible explanation
(not justification) for its issuance is the necessity of fishing evidence of the
commission of a crime. But, then, this fishing expedition is indicative of the
absence of evidence to establish a probable cause.
The Court held that the doctrine adopted in the Moncado case must be, as it
is hereby, abandoned; that the warrants for the search of three (3)
residences of herein petitioners, as specified in the Resolution of June 29,
1962, are null and void; that the searches and seizures therein made are
illegal; that the writ of preliminary injunction heretofore issued, in connection
with the documents, papers and other effects thus seized in said residences
of herein petitioners is hereby made permanent; that the writs prayed for are
granted, insofar as the documents, papers and other effects so seized in the
aforementioned residences are concerned; that the aforementioned motion
for Reconsideration and Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs prayed for denied, as
regards the documents, papers and other effects seized in the twenty-nine
(29) places, offices and other premises enumerated in the same Resolution,
without special pronouncement as to costs.
'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.
PCGG; Its creation and powers.Executive Order No. 1 stresses the "urgent
need to recover all ill-gotten wealth," and postulates that "vast resources of
the government have been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close associates both here and
abroad." Upon these premises, the Presidential Commission on Good
Government was created, "charged with the task of assisting the President in
regard to * * (certain specified) matters," among which was precisely"* *
The recovery of all ill-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, whether located in the Philippines or abroad, including the
takeover or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through nominees,
by taking undue advantage of their public office and/or using their powers,
authority, influence, connections or relationship." In relation to the takeover
or sequestration that it was authorized to undertake in the fulfillment of its
mission, the PCGG was granted "power and authority" to do the following
particular acts, to wit: 1. 'To sequester or place or cause to be placed under
its control or possession any building or office wherein any ill-gotten wealth
or properties may be found, and any records pertaining thereto, in order to
prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the Commission
from accomplishing its task." 2. "To provisionally take over in the public
interest or to prevent the disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos, until the transactions
leading to such acquisition by the latter can be disposed of by the
appropriate authorities." 3. 'To enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this order." So that it might ascertain
the facts germane to its objectives, it was granted power to conduct
investigations; require submission of evidence by subpoenae ad
testificandum and duces tecum; administer oaths; punish for contempt. It
was given power also to promulgate such rules and regulations as may be
necessary to carry out the purposes of * * (its creation)." Executive Order No.
2 gives additional and more specific data and directions respecting "the
Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her
sugar crops about to be harvested including her export quota allocation
worth 1,000 piculs. The said export quota was later dealt by Tapnio to a
certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the
subject of the deal is mortgaged with PNB, the latter has to approve it. The
branch manager of PNB recommended that the price should be at P2.80 per
picul which was the prevailing minimum amount allowable. Tapnio and
Tuazon agreed to the said amount. And so the bank manager recommended
the agreement to the vice president of PNB. The vice president in turn
recommended it to the board of directors of PNB.
However, the Board of Directors wanted to raise the price to P3.00 per picul.
This Tuazon does not want hence he backed out from the agreement. This
resulted to Tapnio not being able to realize profit and at the same time
rendered her unable to pay her P2,000.00 crop loan which would have been
covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a third
party complaint against PNB where she alleged that her failure to pay her
debts was because of PNBs negligence and unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the essence considering that
Tapnios sugar quota for said year needs to be utilized ASAP otherwise her
allotment may be assigned to someone else, and if she cant use it, she
wont be able to export her crops. It is unreasonable for PNBs board of
directors to disallow the agreement between Tapnio and Tuazon because of
the mere difference of 0.20 in the agreed price rate. What makes it more
unreasonable is the fact that the P2.80 was recommended both by the bank
manager and PNBs VP yet it was disapproved by the board. Further, the
P2.80 per picul rate is the minimum allowable rate pursuant to prevailing
market trends that time. This unreasonable stand reflects PNBs lack of the
reasonable degree of care and vigilance in attending to the matter. PNB is
therefore negligent.
A corporation is civilly liable in the same manner as natural persons for torts,
because generally speaking, the rules governing the liability of a principal or
master for a tort committed by an agent or servant are the same whether
the principal or master be a natural person or a corporation, and whether the
servant or agent be a natural or artificial person. All of the authorities agree
that a principal or master is liable for every tort which it expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, a
corporation is liable, therefore, whenever a tortious act is committed by an
officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing
body.
EN BANC
G.R. No. L-35262
SEC. 2723. Failure to make true return of receipts and sales. Any person
who, being required by law to make a return of the amount of his receipts,
sales, or business, shall fail or neglect to make such return within the time
required, shall be punished by a fine not exceeding two thousand pesos or by
imprisonment for a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return shall be
punished by a fine not exceeding ten thousand pesos or by imprisonment for
a term not exceeding two years, or both. (Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that
the offense charged must be regarded as committed by the corporation and
not by its officials or agents. This view is in direct conflict with the great
weight of authority. a corporation can act only through its officers and agent
s, and where the business itself involves a violation of the law, the correct
rule is that all who participate in it are liable (Grall and Ostrand's Case, 103
Va., 855, and authorities there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold
that the manager of a diary corporation was criminally liable for the violation
of a statute by the corporation through he was not present when the offense
was committed.
In the present case the information or complaint alleges that he defendant
was the manager of a corporation which was engaged in business as a
merchant, and as such manager, he made a false return, for purposes of
taxation, of the total amount of sale made by said false return constitutes a
violation of law, the defendant, as the author of the illegal act, must
necessarily answer for its consequences, provided that the allegation are
proven.
The ruling of the court below sustaining the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for further
proceedings not inconsistent with our view as hereinafter stated. Without
costs. So ordered.
Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.
3. That the subsequent foreclosure sale of its chattels is null and void, not
only because it had already settled its indebtedness to the PNB at the time
the sale was effected, but also for the reason that the said sale was not
conducted in accordance with the provisions of the Chattel Mortgage Law
and the venue agreed upon by the parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for
its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in
utter disregard of plaintiff's vigorous opposition thereto, and in taking
possession thereof after the sale thru force, intimidation, coercion, and by
detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff
for damages and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with
the Naga Branch of defendant PNB and the former offered real estate,
machinery, logging and transportation equipments as collaterals. The
application, however, was approved for a loan of P100,000 only. To secure
the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel
of land, together with the buildings and improvements existing thereon,
situated in the poblacion of Jose Panganiban (formerly Mambulao), province
of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of
the land records of said province, as well as various sawmill equipment,
rolling unit and other fixed assets of the plaintiff, all situated in its compound
in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of
P27,500, for which the plaintiff signed a promissory note wherein it promised
to pay to the PNB the said sum in five equal yearly installments at the rate of
P6,528.40 beginning July 31, 1957, and every year thereafter, the last of
which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of
the approved loan granted to the plaintiff and so on the said date, the latter
executed another promissory note wherein it agreed to pay to the former the
said sum in five equal yearly installments at the rate of P3,679.64 beginning
July 31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to and
received by it. Repeated demands were made upon the plaintiff to pay its
plaintiff was advised that the foreclosure sale scheduled on the 21st of said
month would be stopped if a remittance of P9,161.76, plus interest thereon
and guarding fees, would be made.
On December 21, 1961, the foreclosure sale of the mortgaged chattels was
held at 10:00 a.m. and they were awarded to the PNB for the sum of P4,200
and the corresponding bill of sale was issued in its favor by Deputy Provincial
Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the
PNB advised the plaintiff giving it priority to repurchase the chattels acquired
by the former at public auction. This offer was reiterated in a letter dated
January 3, 1962, of the Attorney of the Naga Branch of the PNB to the
plaintiff, with the suggestion that it exercise its right of redemption and that
it apply for the condonation of the attorney's fees. The plaintiff did not follow
the advice but on the contrary it made known of its intention to file
appropriate action or actions for the protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the compound of
the plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis
Salgado, Chief Security Guard of the premises, that the properties therein
had been auctioned and bought by the PNB, which in turn sold them to
Mariano Bundok. Upon being advised that the purchaser would take delivery
of the things he bought, Salgado was at first reluctant to allow any piece of
property to be taken out of the compound of the plaintiff. The employees of
the PNB explained that should Salgado refuse, he would be exposing himself
to a litigation wherein he could be held liable to pay big sum of money by
way of damages. Apprehensive of the risk that he would take, Salgado
immediately sent a wire to the President of the plaintiff in Manila, asking
advice as to what he should do. In the meantime, Mariano Bundok was able
to take out from the plaintiff's compound two truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from
plaintiff's President directing him not to deliver the "chattels" without court
order, with the information that the company was then filing an action for
damages against the PNB. On the following day, May 25, 1962, two trucks
and men of Mariano Bundok arrived but Salgado did not permit them to take
out any equipment from inside the compound of the plaintiff. Thru the
intervention, however, of the local police and PC soldiers, the trucks of
Mariano Bundok were able finally to haul the properties originally mortgaged
by the plaintiff to the PNB, which were bought by it at the foreclosure sale
and subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from
which, as stated in the first paragraph of this opinion, sentenced the
Mambulao Lumber Company to pay to the defendant PNB the sum of
P3,582.52 with interest thereon at the rate of 6% per annum from December
22, 1961 (day following the date of the questioned foreclosure of plaintiff's
chattels) until fully paid, and the costs. Mambulao Lumber Company
interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
Same; Same; Courts; Jurisdiction; As a rule, neither waiver nor estoppel shall
apply to confer jurisdiction upon a court barring highly meritorious and
exceptional circumstances.The rule is that Where the court itself clearly
has no jurisdiction over the subject matter or the nature of the action, the
invocation of this defense may be done at any time. It is neither for the
courts nor for the parties to violate or disregard that rule, let alone to confer
that jurisdiction, this matter being legislative in character. As a rule then,
neither waiver nor estoppel shall apply to confer jurisdiction upon a court
barring highly meritorious and exceptional circumstances. One such
exception was enunciated in Tijam vs. Sibonghanoy, where it was held that
after voluntarily submitting a cause and encountering an adverse decision
on the merits, it is too late for the loser to question the jurisdiction or power
of the court.
Same; Same; Same; Same; A partys prayer for the setting aside of the
arbitral award is not inconsistent with its disavowal of the courts jurisdiction
where, from the outset, it has consistently held that the court has no
jurisdiction to confirm the arbitral award.Petitioners situation is different
because from the outset, it has consistently held the position that the RTC,
Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it
cannot be said that it was estopped from questioning the RTCs jurisdiction.
Petitioners prayer for the setting aside of the arbitral award was not
inconsistent with its disavowal of the courts jurisdiction.
Same; Same; Same; Same; Certiorari; A party aggrieved by an arbitral award
is not precluded from resorting to the extraordinary remedy of certiorari
under Rule 65 where the court to which the award was submitted for
confirmation has acted without jurisdiction, or with grave abuse of discretion.
The aforequoted provision, however, does not preclude a party aggrieved
by the arbitral award from resorting to the extraordinary remedy of certiorari
under Rule 65 of the Rules of Court where, as in this case, the Regional Trial
Court to which the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.
Same; Same; Same; Judicial review of an arbitration is more limited than
judicial review of a trial.As a rule, the award of an arbitrator cannot be set
aside for mere errors of judgment either as to the law or as to the facts.
Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators.
They will not review the findings of law and fact contained in an award, and
will not undertake to substitute their judgment for that of the arbitrators,
since any other rule would make an award the commencement, not the end,
of litigation. Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. Judicial review of an arbitration is, thus,
more limited than judicial review of a trial.
Same; Same; Same; The arbitrators cannot resolve issues beyond the scope
of the submission agreement.Nonetheless, the arbitrators award is not
absolute and without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. The parties to such an
agreement are bound by the arbitra-tors award only to the extent and in the
manner prescribed by the contract and only if the award is rendered in
conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law provide
grounds for vacating, rescinding or modifying an arbitration award. Where
the conditions described in Articles 2038, 2039, and 2040 of the Civil Code
applicable to compromises and arbitration are attendant, the arbitration
award may also be annulled.
Same; Same; Same; While a court is precluded from overturning an award for
errors in the determination of factual issues, nevertheless, if an examination
of the record reveals no support whatever for the arbitrators determination,
their award must be vacated.It should be stressed that while a court is
precluded from overturning an award for errors in the determination of
factual issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award must be
vacated. In the same manner, an award must be vacated if it was made in
manifest disregard of the law.
Mortgages; Damages; Where the foreclosure is not a wrongful act of the
mortgagee, it could not be the basis of any award of damages.The point
need not be belabored that PNB and DBP had the legitimate right to
foreclose the mortgages of MMIC whose obligations were past due. The
foreclosure was not a wrongful act of the banks and, therefore, could not be
the basis of any award of damages. There was no financial restructuring
agreement to speak of that could have constituted an impediment to the
exercise of the banks right to foreclose.
Same; Presumptions; It is a disputable presumption that official duty has
been regularly performed and ordinary course of business has been followed.
Private respondents thesis that the foreclo-sure proceedings were null and
void because of lack of publication in the newspaper is nothing more than a
mere unsubstantiated allegation not borne out by the evidence. In any case,
a disputable presumption exists in favor of petitioner that official duty has
been regularly performed and ordinary course of business has been followed.
Corporation Law; Agency; A corporation exercises its powers, including the
power to enter into contracts, through its board of directors, and while it may
appoint agents to enter into a contract in its behalf, the agent should not
exceed their authority.As a rule, a corporation exercises its powers,
including the power to enter into contracts, through its board of directors.
While a corporation may appoint agents to enter into a contract in its behalf,
the agent should not exceed his authority. In the case at bar, there was no
showing that the representatives of PNB and DBP in MMIC even had the
requisite authority to enter into a debt-for-equity swap. And if they had such
authority, there was no showing that the banks, through their board of
directors, had ratified the FRP.
Damages; A corporation whose credit reputation is not exactly something to
be considered sound and wholesome cannot be entitled to a big amount of
moral damages; Moral damages include besmirched reputation which a
corporation may possibly suffer.Further, how could the MMIC be entitled to
a big amount of moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under Article 2217 of the
Civil Code, moral damages include besmirched reputation which a
corporation may possibly suffer. A corporation whose overdue and unpaid
debts to the Government alone reached a tremendous amount of P22 Billion
Pesos cannot certainly have a solid business reputation to brag about.
Actions; Arbitration; An award of damages to one who is not a party before
the Arbitration Committee is a complete nullity.Civil Case No. 9900 filed
before the RTC being a derivative suit, MMIC should have been impleaded as
a party. It was not joined as a party plaintiff or party defendant at any stage
of the proceedings. As it is, the award of damages to MMIC, which was not a
party before the Arbitration Committee, is a complete nullity.
Same; Corporation Law; Derivative Suits; Parties; In a derivative suit, the
corporation is the real party in interest while the stockholder filing suit for
the corporations behalf is only a nominal partythe corporation should be
included as a party in the suit.Settled is the doctrine that in a derivative
suit, the corporation is the real party in interest while the stockholder filing
suit for the corporations behalf is only a nominal party. The corporation
should be included as a party in the suit. An individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein
he holds stock in order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in
interest. x x x.
Same; Same; If an award is due a corporation from a party who has equity in
such corporation, the same should be given sans deduction in view of the
doctrine that a corporation has a personality separate and distinct from its
individual stockholders or members.If at all an award was due MMIC, which
it was not, the same should have been given sans deduction, regardless of
whether or not the party liable had equity in the corporation, in view of the
doctrine that a corporation has a personality separate and distinct from its
individual stockholders or members. DBPs alleged equity, even if it were
indeed 87%, did not give it ownership over any corporate property, including
the monetary award, its right over said corporate property being a mere
expectancy or inchoate right. Notably, the stipulation even had the effect of
prejudicing the other creditors of MMIC.
Same; Same; Derivative Suits; Damages; It is perplexing how the Arbitration
Committee can in one breath rule that the case before it is a derivative suit
and at the same time award moral damages to an individual stockholder.It
is perplexing how the Arbitration Committee can in one breath rule that the
case before it is a derivative suit, in which the aggrieved party or the real
party in interest is supposedly the MMIC, and at the same time award moral
damages to an individual stockholder.
Same; Judgments; Res Judicata; Damages; Where a partys cause of action
for the seizure of the assets belonging to a corporation, of which he is the
majority stockholder, was ventilated in a complaint he previously filed, from
which he obtained actual damages, he is barred by res judicata from filing a
similar case in another court to ask for moral damages which he failed to get
from the earlier case.Cabarrus cause of action for the seizure of the assets
belonging to IEI, of which he is the majority stockholder, having been
ventilated in a complaint he previously filed with the RTC, from which he
obtained actual damages, he was barred by res judicata from filing a similar
case in another court, this time asking for moral damages which he failed to
get from the earlier case. Worse, private respondents violated the rule
against non-forum shopping.
ROMERO, J., Dissenting Opinion:
Actions; Arbitration; If the tested mechanism of arbitration can simply be
ignored by an aggrieved partyone who voluntarily and actively participated
in the arbitration proceedings from the very beginningit will destroy the
very essence of mutuality inherent in consensual contracts.Petitioner
violated several covenants by asking the court a quo to vacate the
arbitration award. First, in paragraph 10 of the Compromise and Arbitration
Agreement, it agreed to abide by the arbitration committees decision which
shall be final and executory upon its issuance upon the parties to the
arbitration and their assigns and successors-in-interest. Next, the decision
that the arbitrators did render on November 24, 1993 specifically declared
the same to be final and executory. Finally, in the courts confirmation
order of November 28, 1994, the finality of the award was reiterated by the
motion as a special proceedings with notice to the parties filed in the proper
court with the clerk of court (and upon payment of the prescribed fees).
Facts
The antecedent facts of the case
The development, exploration and utilization of the mineral deposits in the
Surigao Mineral Reservation have been authorized by Republic Act No. 1828,
as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby the
Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore, develop and exploit nickel,
cobalt and other minerals in the Surigao mineral reservation.[1] MMIC is a
domestic corporation engaged in mining with respondents Jesus S. Cabarrus,
Sr. as President and among its original stockholders.
The Philippine Government undertook to support the financing of MMIC by
purchase of MMIC debenture and extension of guarantees. Further, the
Philippine Government obtained a firm, commitment from the DBP and/or
other government financing institutions to subscribed in MMIC and issue
guarantee/s for foreign loans or deferred payment arrangements secured
from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not
exceeding US$100 Million.[2]
DBP approved guarantees in favor of MMIC and subsequent requests for
guarantees were based on the unutilized portion of the Government
commitment. Thereafter, the Government extended ACCOMMODATIONS to
MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust
Agreement[3] whereby MMIC, as mortgagor, agreed to constitute a mortgage
in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real
estate and chattel mortgage executed by the mortgagor, and additional
assets described and identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in substitution of, in
replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default,
which expressly includes the event that the MORTGAGOR shall fail to pay any
amount secured by this Mortgage Trust Agreement when due.[4]
to MMIC, and require the banks to account for their use and operation in the
interim; (2) direct the banks to honor and perform their commitments under
the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees,
litigation expenses and costs.
In the course of the trial, private respondents and petitioner APT, as
successor of the DBP and PNBs interest in MMIC, mutually agreed to submit
the case to arbitration by entering into a Compromise and Arbitration
Agreement, stipulating, inter alia:
NOW, THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants contain herein, the parties agreed as follows:
1. Withdrawal and Compromise. The parties have agreed to withdraw their
respective claims from the Trial Court and to resolve their dispute through
arbitration by praying to the Trial Court to issue a Compromise Judgment
based on this Compromise and Arbitration Agreement.
In withdrawing their dispute form the court and in choosing to resolve it
through arbitration, the parties have agreed that:
(a) their respective money claims shall be reduced to purely money claims;
and
(b) as successor and assignee of the PNB and DBP interest in MMIC and the
MMIC accounts, APT shall likewise succeed to the rights and obligations of
PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to
be transferred to arbitration and any arbitral award/order against either PNB
and/or DBP shall be the responsibility of, be discharged by and be
enforceable against APT, the partied having agreed to drop PNB and DBP
from the arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil Case
No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the
reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial
Court of this Compromise and Arbitration Agreement, be transferred and
reduced to pure pecuniary/money claims with the parties waiving and
foregoing all other forms of reliefs which they prayed for or should have
payed for in Civil Case No. 9900.[13]
The Compromise and Arbitration Agreement limited the issues to the
following:
5. Issues. The issues to be submitted for the Committees resolution shall be:
(a) Whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors; (b) Whether or not the
actions leading to, and including, the PNB-DBP foreclosure of the MMIC
assets were proper, valid and in good faith.[14]
This agreement was presented for approval to the trial court. On October 14,
1992, the Makati RTC, Branch 62, issued an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset Privatization Trust as party
defendant.
2. Approving the Compromise and Arbitration Agreement dated October 6,
1992, attached as Annex C of the Omnibus Motion.
3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in
this case into pure money claims; and
4. The Complaint is hereby DISMISSED.[15]
The Arbitration Committee was composed of retired Supreme Court Justice
Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of
Appeals Justice Magdangal Elma as Members. On November 24, 1993, after
conducting several hearings, the Arbitration Committee rendered a majority
decision in favor of MMIC, the pertinent portions of which read as follows:
Since, as this Committee finds, there is no foreclosure at all was not legally
and validly done, the Committee holds and so declares that the loans of PNB
and DBP to MMIC, for the payment and recovery of which the void
foreclosure sales were undertaken, continue to remain outstanding and
unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the
said loans is therefore entitled and retains the right, to collect the same from
MMIC pursuant to and based on the loan documents signed by MMIC, subject
to the legal and valid defenses that the latter may duly and seasonably
interpose. Such loans shall, however, be reduced by the amount which APT
may have realized from the sale of the seized assets of MMIC which by
agreement should no longer be returned even if the foreclosure were found
to be null and void.
The documentary evidence submitted and adopted by both parties (Exhibits
3, 3-B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that
the total outstanding obligation due to DBP and PNB as of the date of
foreclosure is P22,668,537,770.05, more or less.
Therefore, defendant APT can, and is still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more
or less, with interest thereon as stipulated in the loan documents from the
date of foreclosure up to the time they are fully paid less the proportionate
liability of DBP as owner of 87% of the total capitalization of MMIC under the
FRP. Simply put, DBP shall share in the award of damages to, and in
obligations of MMIC in proportion to its 87% equity in the total capital stock
of MMIC.
x x x.
As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised
to 87%. So pursuant to the above provision of the Compromise and
Arbitration Agreement, the 87% equity of DBP is hereby deducted from the
actual damages of P19,486,118,654.00 resulting in the net actual damages
of P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P2,531,635,425.02 with interest
thereon at the legal rate of six per cent (6%) per annum reckoned from
August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment
of these actual damages shall be offset by APT from the outstanding and
unpaid loans of the MMIC with DBP and PNB, which have not been converted
into equity. Should there be any balance due to the MMIC after the offsetting,
the same shall be satisfied from the funds representing the purchase price of
the sale of the shares of Island Cement Corporation in the amount of
P503,000,000.00 held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P13,000,000.00 as and for moral
and exemplary damages. Payment of these moral and exemplary damages
shall be offset by APT from the outstanding and unpaid loans of MMIC with
DBP and PNB, which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of
Island Cement Corporation in the of P503,000,000.00 held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede it, pursuant to
paragraph (9) of the Compromise and Arbitration Agreement, as and for
moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED.[16]
Motions for reconsiderations were filed by both parties, but the same were
denied.
On October 17, 1994, private respondents filed in the same Civil Case No.
9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner
countered with an Opposition and Motion to Vacate Judgment raising the
following grounds:
1. The plaintiffs Application/Motion is improperly filed with this branch of the
Court, considering that the said motion is neither a part nor the continuation
of the proceedings in Civil Case No. 9900 which was dismissed upon motion
of the parties. In fact, the defendants in the said Civil Case No. 9900 were
the Development Bank of the Philippines and the Philippine National Bank
(PNB);
2. Under Section 22 of Rep. Act 876, an arbitration under a contract or
submission shall be deemed a special proceedings and a party to the
controversy which was arbitrated may apply to the court having jurisdiction,
(not necessarily with this Honorable Court) for an order confirming the
award;
3. The issues submitted for arbitration have been limited to two: (1) propriety
of the plaintiffs filing the derivative suit and (2) the regularity of the
The Court of Appeals in dismissing APTs petition for certiorari upheld the trial
courts denial of APTs motion for reconsideration of the trial courts order
confirming the arbitral award, on the ground that said motion was filed
beyond the 15-day reglementary period; consequently, the petition for
certiorari could not be resorted to as substitute to the lost right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,[28] provides that:
x x x An appeal may be taken from an order made in a proceeding under this
Act, or from a judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to question of law. x x x.
The aforequoted provision, however, does not preclude a party aggrieved by
the arbitral award from RESORTING to the extraordinary remedy of certiorari
under Rule 65 of the Rules of Court where, as in this case, the Regional Trial
Court to which the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising
judicial functions, has acted without or in excess of its or his jurisdiction, or
with grave abuse of discretion and there is no appeal, nor any plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court alleging the facts with
certainty and praying that judgment be rendered annulling or modifying the
proceedings, as the law requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing the special civil
action for certiorari, it being from the pleadings and the evidence that the
trial court lacked jurisdiction and/or committed grave abuse of discretion in
taking cognizance of private respondent motion to confirm the arbitral award
and, worse, in confirming said award which is grossly and patently not in
accord with the arbitration agreement, as will be hereinafter demonstrated.
IV
The nature and limits of the Arbitrators powers.
As a rule, the award of an arbitrator cannot be set aside for mere errors of
judgment either as to the law or as to the facts.[29] Courts are without
power to amend or overrule merely because of disagreement with matters of
law or facts determined by the arbitrators.[30] They will not review the
findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators, since any other rule
would make an award the commencement, not the end, of litigation.[31]
Errors of law and fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an award fairly and
honestly made.[32] Judicial review of an arbitration is, thus, more limited
than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and without exceptions.
The arbitrators cannot resolve issues beyond the scope of the submission
agreement.[34] The parties to such an agreement are bound by the
arbitrators award only to the extent and in the manner prescribed by the
contract and only if the award is rendered in conformity thereto.[35] Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the conditions described
in Articles 2038,[36] 2039[37] and 2040[38] of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration award may also
be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:
x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality
of the arbitrators awards is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039, and 2040 applicable to both
compromises and arbitration are obtaining, the arbitrators' award may be
annulled or rescinded. Additionally, under Sections 24 and 25, of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrators award. Thus, if and when the factual circumstances referred to in
the above-cited provisions are present, judicial review of the award is
properly warranted.
Accordingly, Section 20 of R.A. 876 provides:
SEC. 20. Form and contents of award. The award must be made in writing
and signed and acknowledged by a majority of the arbitrators, if more than
one; and by the sole arbitrator, if there is only one. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant
any remedy or relief which they deem just and equitable and within the
scope of the agreement of the parties, which shall include, but not be limited
to, the specific performance of a contract.
xxx
The arbitrators shall have the power to decide only those matters which have
been submitted to them. The terms of the award shall be confined to such
disputes. (Underscoring ours).
xxx.
Section 24 of the same law enumerating the grounds for vacating an award
states:
SEC. 24. Grounds for vacating award. In any one of the following cases, the
court must make an order vacating the award upon the petition of any party
to the controversy when such party proves affirmatively that in the
arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in arbitrators or any of
them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the arbitrators
was disqualified to act as such under section nine hereof, and willfully
refrained from disclosing such disqualifications or any other misbehavior by
which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter
submitted to them was not made. (Underscoring ours).
xxx.
Section 25 which enumerates the grounds for modifying the award provides:
SEC. 25. Grounds for modifying or correcting award In anyone of the
following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident
mistake in the description of any person, thing or property referred to in the
award; or
(b) Where the arbitrators have awarded upon a matter not submitted to
them, not affecting the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits
of the controversy, and if it had been a commissioners report, the defect
could have been amended or disregarded by the court.
x x x.
Finally, it should be stressed that while a court is precluded from overturning
an award for errors in determination of factual issues, nevertheless, if an
examination of the record reveals no support whatever for the arbitrators
determinations, their award must be vacated.[40] In the same manner, an
award must be vacated if it was made in manifest disregard of the law.[41]
Against the backdrop of the foregoing provisions and principles, we find that
the arbitrators came out with an award in excess of their powers and
palpably devoid of factual and legal basis.
V
There was no financial structuring program; foreclosure of mortgage was
fully justified.
The point need not be belabored that PNB and DBP had the legitimate right
to foreclose of the mortgages of MMIC whose obligations were past due. The
foreclosure was not a wrongful act of the banks and, therefore, could not be
the basis of any award of damages. There was no financial restructuring
agreement to speak of that could have constituted an impediment to the
exercise of the banks right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration
Committee who wrote a separate opinion:
1. The various loans and advances made by DBP and PNB to MMIC have
become overdue and remain unpaid. The fact that a FRP was drawn up is
enough to establish that MMIC has not been complying with the terms of the
loan agreement. Restructuring simply connotes that the obligations are past
due that is why it is restructurable;
2. When MMIC thru its board and the stockholders agreed and adopted the
FRP, it only means that MMIC had been informed or notified that its
obligations were past due and that foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either
approving the FRP or proceeding with the foreclosure. Cabarrus, who filed
this case supposedly in behalf of MMIC should have insisted on the FRP. Yet
Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without bad
faith but with honest and sincere belief that foreclosure was the only
alternative; a decision further explained by Dr. Placido Mapa who testified
that foreclosure was, in the judgment of PNB, the best move to save MMIC
itself.
Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we
adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa
what you meant by that the decision to foreclose was neither precipitate nor
arbitrary?
A : Well, it is not a whimsical decision but rather decision arrived at after
weighty considerations of the information that we have received, and
listening to the prospects which reported to us that we had assumed would
be the premises of the financial rehabilitation plan was not materialized nor
expected to materialized.
Q : And this statement that it was premised upon the known fact that means,
it was referring to the decision to foreclose, was premised upon the known
fact that the rehabilitation plan earlier approved by the stockholders was no
longer feasible, just what is meant by no longer feasible?
A : Because the revenue that they were counting on to make the
rehabilitation plan possible, was not anymore expected to be forthcoming
because it will result in a short fall compared to the prices that were actually
taking place in the market.
Q : And I supposed that was you were referring to when you stated that the
production targets and assumed prices of MMICs products, among other
projections, used in the financial reorganization program that will make it
viable were not met nor expected to be met?
A : Yes.
xxx
Which brings me to my last point in this separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that
MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the
best proof of this. When MMIC adopted a restructuring program for its loan, it
only meant that these loans were already due and unpaid. If these loans
were restructurable because they were already due and unpaid, they are
likewise forecloseable. The option is with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost
the option to foreclose. Neither does it mean that the FRP is legally binding
and implementable. It must be pointed that said FRP will, in effect,
supersede the existing and past due loans of MMIC with PNB-DBP. It will
become the new loan agreement between the lenders and the borrowers. As
in all other contracts, there must therefore be a meeting of minds of the
parties; the PNB and DBP must have to validly adopt and ratify such FRP
before they can be bound by it; before it can be implemented. In this case,
not an iota of proof has been presented by the PLAINTIFFS showing that PNB
and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal
doctrine of promissory estoppel to support its allegation in this regard.[42]
Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated
by P.D. No. 385, which took effect on January 31, 1974. The decree requires
government financial institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding obligations. The pertinent
provisions of said decree read as follows:
SEC. 1. It shall be mandatory for government financial institutions, after the
lapse of sixty (60) days from the issuance of this Decree to foreclose the
collaterals and/or securities for any loan, credit, accommodations, and/or
guarantees granted by them whenever the arrearages on such account,
including accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including interest and
3. Condemning the defendants DBP and PNB, jointly and severally to pay the
plaintiffs actual damages consisting of the loss of value of their investment
amounting to not less than P80,000,000.00, the damnum emerges and
lucrum cessans in such amount as may be establish during the trial, moral
damages in such amount as this Honorable Court may deem just and
equitable in the premises, exemplary damages in such amount as this
Honorable Court may consider appropriate for the purpose of setting an
example for the public good, attorneys fees and litigation expenses in such
amounts as may be proven during the trial, and the costs legally taxable in
this litigation.
Further, Plaintiffs pray for such other reliefs as may be just and equitable in
the premises.[44]
Upon submission for arbitration, the Compromise and Arbitration Agreement
of the parties clearly and explicitly defined and limited the issues to the
following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors;
(b) whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith.[45]
Item No. 8 of the Agreement provides for the period by which the Committee
was to render its decision, as well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later
than six (6) months from the date of its constitution.
In the event the committee finds that PLAINTIFFS have the personality to file
this suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall
make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as
may be established or warranted by the evidence which shall be payable in
Philippine Pesos at the time of the award. Such award shall be paid by the
APT or its successor-in-interest within sixty (60) days from the date of the
award in accordance with the provisions of par. 9 hereunder. x x x. The
PLAINTIFFS remedies under this Section shall be in addition to other
remedies that may be available to the PLAINTIFFS, all such remedies being
cumulative and not exclusive of each other.
On the other hand, in case the arbitration committee finds that PLAINTIFFS
have no capacity to sue and/or that the extra-judicial foreclosure is valid and
legal, it shall also make an award in favor of APT based on the counterclaims
of DBP and PNB in an amount as may be established or warranted by the
evidence. This decision of the arbitration committee in favor of APT shall
likewise finally settle all issues regarding the foreclosure of the MMIC assets
so that the funds held in escrow mentioned in par. 9 hereunder will thus be
released in full in favor of APT.[46]
The clear and explicit terms of the submission notwithstanding, the
Arbitration Committee clearly exceeded its powers or so imperfectly
executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding
damages to MMIC which was not a party to the derivative suit; and (c) in
awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed
Financial Restructuring Program.
The Arbitration Committee went beyond its mandate and thus acted in
excess of its powers when it ruled on the validity of, and gave effect to, the
proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit
the issue to the validity of the foreclosure and to transform the reliefs prayed
for therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or
impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a
contract, requires the consent of the parties thereto.[47] The contract must
bind both contracting parties.[48] Private respondents even by their own
admission recognized that the FRP had yet not been carried out and that the
loans of MMIC had not yet been converted into equity.[49]
However, the arbitration Committee not only declared the FRP valid and
effective, but also converted the loans of MMIC into equity raising the equity
of DBP to 87%.[50]
The Arbitration Committee ruled that there was a commitment to carry out
the FRP[51] on the ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the present case
considering as we observed, the fact that the government (that is Alfredo
Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains that the DBP
itself which made representations that the FRP constituted a way out for
MMIC. The Committee believes that although the DBP did not formally agree
(assuming that the board and stockholders approvals were not formal
enough), it is bound nonetheless if only for its conspicuous representations.
Although the DBP sat in the board in a dual capacity-as holder of 36% of
MMICs equity (at that time) and as MMICs creditor-the DBP can not validly
renege on its commitments simply because at the same time, it held interest
against the MMIC.
The fact, of course, is that as APT itself asserted, the FRP was being carried
out although apparently, it would supposedly fall short of its targets.
Assuming that the FRP would fail to meet its targets, the DBP-and so this
Committee holds-can not, in any event, brook any denial that it was bound to
begin with, and the fact is that adequate or not (the FRP), the government is
still bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success, although it
raised DBPs equity in MMIC to 87%. It is not excuse, however, for the
government to deny its commitments.[52]
Atty. Sison, however, did not agree and correctly observed that:
But the doctrine of promissory estoppel can hardly find application here. The
nearest that there can be said of any estoppel being present in this case is
the fact that the board of MMIC was, at the time the FRP was adopted,
mostly composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB or DBP. They
are individuals with personalities separate and distinct from the banks they
represent. PNB and DBP have different boards with different members who
may have different decisions. It is unfair to impose upon them the decision of
the board of another company and thus pin them down on the equitable
principle of estoppel. Estoppel is a principle based on equity and it is
certainly not equitable to apply it in this particular situation. Otherwise the
rights of entirely separate, distinct and autonomous legal entities like PNB
and DBP with thousands of stockholders will be suppressed and rendered
nugatory.[53]
As a rule, a corporation exercises its powers, including the power to enter
into contracts, through its board of directors. While a corporation may
appoint agents to enter into a contract in its behalf, the agent, should not
exceed his authority.[54] In the case at bar, there was no showing that the
representatives of PNB and DBP in MMIC even had the requisite authority to
enter into a debt-for-equity swap. And if they had such authority, there was
no showing that the banks, through their board of directors, had ratified the
FRP.
Further, how could the MMIC be entitled to a big amount of moral damages
when its credit reputation was not exactly something to be considered sound
and wholesome. Under Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer. A corporation
whose overdue and unpaid debts to the Government alone reached a
tremendous amount of P22 Billion Pesos cannot certainly have a solid
business reputation to brag about. As Atty. Sison in his separate opinion
persuasively put it:
Besides, it is not yet a well settled jurisprudence that corporations are
entitled to moral damages. While the Supreme Court may have awarded
moral damages to a corporation for besmirched reputation in Mambulao vs.
PNB 22 SCRA 359, such ruling cannot find application in this case. It must be
pointed out that when the supposed wrongful act of foreclosure was done,
MMICs credit reputation was no longer a desirable one. The company then
was already suffering from serious financial crisis which definitely projects an
image not compatible with good and wholesome reputation. So it could not
be said that there was a reputation besmirches by the act of foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is
not impleaded as a party to the derivative suit.
Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should
have been impleaded as a party. It was not joined as a party plaintiff or party
defendant at any stage of the proceedings. As it is, the award of damages to
MMIC, which was not a party before the Arbitration Committee, is a complete
nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real
party in interest while the stockholder filing suit for the corporations behalf is
only nominal party. The corporation should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf
of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. x x x.[56]
Court of Appeals, raised and extensively discussed the issues on the merits.
Such being the case, there is sufficient basis for us to resolve the controversy
between the parties anchored on the records and the pleadings before us.
[65]
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as
well as the Orders of the Regional Trial Court of Makati, Branch 62, dated
November 28, 1994 and January 19, 1995, is hereby REVERSED and SET
ASIDE, and the decision of the Arbitration Committee is hereby VACATED.
SO ORDERED
ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA
572(1999)
Civil Law; Contracts; A contract is a meeting of minds between two persons
whereby one binds himself to give something or to render some service to
another for a consideration.The first issue should be resolved against ABSCBN. A contract is a meeting of minds between two persons whereby one
binds himself to give something or to render some service to another for a
consideration. There is no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) object certain which is the subject of
the contract; and (3) cause of the obligation, which is established. A contract
undergoes three stages: (a) preparation, conception, or generation, which is
the period of negotiation and bargaining, ending at the moment of
agreement of the parties; (b) perfection or birth of the contract, which is the
moment when the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the
terms agreed upon in the contract.
Same; Same; Contracts that are consensual in nature are perfected upon
mere meeting of the minds. Once there is concurrence between the offer and
the acceptance upon the subject matter, consideration, and terms of
payment a contract is produced.Contracts that are consensual in nature
are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment a contract is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate
consent because any modification or variation from the terms of the offer
annuls the offer.
Same; Same; Acceptance of an Offer; Words and Phrases; The acceptance of
an offer must be unqualified and absolute, i.e., it must be identical in all
respects with that of the offer so as to produce consent or meeting of the
minds.ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals and Villonco Realty Company v. Bormaheco, Inc., is misplaced. In
these cases, it was held that an acceptance may contain a request for
certain changes in the terms of the offer and yet be a binding acceptance as
long as it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not.
This ruling was, however, reversed in the resolution of 29 March 1996, which
ruled that the acceptance of an offer must be unqualified and absolute, i.e.,
it must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
Commercial Law; Corporation Code; Board of Directors; Under the
Corporation Code, unless otherwise provided by said Code, corporate
powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either
an executive committee or officials or contracted managers. Under the
Corporation Code, unless otherwise provided by said Code, corporate
powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either
an executive committee or officials or contracted managers. The delegation,
except for the executive committee, must be for specific purposes.
Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts
would apply. For such officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must specially authorize them to
do so. That Del Rosario did not have the authority to accept ABS-CBNs
counter-offer was best evidenced by his submission of the draft contract to
VIVAs Board of Directors for the latters approval. In any event, there was
between Del Rosario and Lopez III no meeting of minds.
Civil Law; Contracts; Damages; Except as provided by law or by stipulation,
one is entitled to compensation for actual damages [ABS-CBN Broadcasting
Corporation vs. Court of Appeals, 301 SCRA 572(1999)]
only for such pecuniary loss suffered by him as he has duly proved. We find
for ABS-CBN on the issue of damages. We shall first take up actual damages.
Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is
entitled to compensation for actual damages only for such pecuniary loss
suffered by him as he has duly proved. The indemnification shall
comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain. In contracts and quasi-contracts the
expenses to protect his rights, still attorneys fees may not be awarded
where no sufficient showing of bad faith could be reflected in a partys
persistence in a case other than an erroneous conviction of the
righteousness of his cause.
Same; Same; Same; Moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer.Moral damages are in the category of
an award designed to compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer. The award is not meant to enrich
the complainant at the expense of the defendant, but to enable the injured
party to obtain means, diversion, or amusements that will serve to obviate
the moral suffering he has undergone. It is aimed at the restoration, within
the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. Trial courts must then guard against
the award of exorbitant damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption on the part of the trial court.
Same; Same; Same; The award of moral damages cannot be granted in favor
of a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering and mental anguish, which
can be experienced only by one
[ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA
572(1999)]
having a nervous system.The award of moral damages cannot be granted
in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental
anguish, which can be experienced only by one having a nervous system.
The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a
corporation may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, since RBS is a corporation.
Same; Same; Same; The basic law on exemplary damages is Section 5,
Chapter 3, Title XVIII, Book IV of the Civil Code.The basic law on exemplary
damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These
are imposed by way of example or correction for the public good, in addition
to moral, temperate, liquidated, or compensatory damages. They are
recoverable in criminal cases as part of the civil liability when the crime was
committed with one or more aggravating circumstances; in quasi-delicts, if
the defendant acted with gross negligence; and in contracts and
quasicontracts, if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
Same; Same; Same; Bad Faith; Malice or bad faith is at the core of Articles
19, 20, and 21. Malice or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral obliquity. Such must be
substantiated by evidence.It may be reiterated that the claim of RBS
against ABS-CBN is not based on contract, quasi-contract, delict, or quasidelict. Hence, the claims for moral and exemplary damages can only be
based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of
right under Article 19 are the following: (1) the existence of a legal right or
duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all
other provisions of law which do not especially provide for their own
sanction; while Article 21 deals with acts contra bonus mores, and has the
following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it
is done with intent to injure. Verily then, malice or bad faith is at the core of
Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do [ABS-CBN Broadcasting Corporation vs. Court of
Appeals, 301 SCRA 572(1999)]
a wrongful act for a dishonest purpose or moral obliquity. Such must be
substantiated by evidence.
Same; Same; Same; The adverse result of an action does not per se make
the action wrongful and subject the actor to damages, for the law could not
have meant to impose a penalty on the right to litigate. If damages result
from a persons exercise of a right, it is damnum absque injuria.There is no
adequate proof that ABS-CBN was inspired by malice or bad faith. It was
honestly convinced of the merits of its cause after it had undergone serious
negotiations culminating in its formal submission of a draft contract. Settled
is the rule that the adverse result of an action does not per se make the
action wrongful and subject the actor to damages, for the law could not have
meant to impose a penalty on the right to litigate. If damages result from a
persons exercise of a right, it is damnum absque injuria. [ABS-CBN
Broadcasting Corporation vs. Court of Appeals, 301 SCRA 572(1999)]
Viva, through Del Rosario, offered ABS-CBN through its vice-president Charo
Santos-Concio, a list of 3 film packages or 36 titles from which ABS-CBN may
exercise its right of first refusal
Mrs. Concio informed Vic through a letter that they can only purchase 10
titles to be schedules on non-primetime slots because they were very adult
themes which the ruling of the MTRCB advises to be aired at 9:00 p.m
February 27, 1992: Del Rosario approached ABS-CBN's Ms. Concio with a list
consisting of 52 original movie titles as well as 104 re-runs proposing to sell
to ABS-CBN airing rights for P60M (P30M cash and P30M worth of television
spots)
April 2, 1992: Del Rosario and ABS-CBN general manager, Eugenio Lopez III
met wherein Del Rosario allegedly agreed to grant rights for 14 films for
P30M
April 06, 1992: Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of Viva's offer to
sell the 104 films, after the rejection of the same package by ABS-CBN
April 07, 1992: Ms. Concio sent the proposal draft of 53 films for P35M which
Viva's Board rejected since they will not accept anything less than P60M
April 29, 1992: Viva granted RBS exclusive grants for P60M
RTC: Issued TRO against RBS in showing 14 films as filed by ABS-CBN.
RBS also set up a cross-claim against VIVA
RTC: ordered ABS-CBN to pay RBS P107,727 premium paid by RBS to the
surety which issued their bond to lift the injunction, P191,843.00 for the
amount of print advertisement for "Maging Sino Ka Man" in various
newspapers, P1M attorney's fees, P5M moral damages, P5M exemplary
damages and costs. Cross-claim to VIVA was dismissed.
ABS-CBN appealed. VIVA and Del Rosario also appealed seeking moral and
exemplary damages and additional attorney's fees.
CA: reduced the awards of moral damages to P2M, exemplary damages to
P2M and attorney's fees to P500,000. Denied VIVA and Del Rosario's appeal
because it was RBS and not VIVA which was actually prejudiced when the
complaint was filed by ABS-CBN
ISSUE:
1. W/N RBS is entitled to damages. -YES
2. W/N VIVA is entitled to damages. - NO
HELD: REVERSED except as to unappealed award of attorney's fees in favor
of VIVA Productions, Inc.
1. YES.
One is entitled to compensation for actual damages only for such pecuniary
loss suffered by him as he has duly proved. The indemnification shall
comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain. In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor
acted with good faith or otherwise, It case of good faith, the damages
recoverable are those which are the natural and probable consequences of
the breach of the obligation and which the parties have foreseen or could
have reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall
be responsible for all damages which may be reasonably attributed to the
non-performance of the obligation. In crimes and quasi-delicts, the defendant
shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of, whether or not such
damages has been foreseen or could have reasonably been foreseen by the
defendant.
Actual damages may likewise be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal
injury, or for injury to the plaintiff's business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract, quasicontract, delict, or quasi-delict. It arose from the fact of filing of the
complaint despite ABS-CBN's alleged knowledge of lack of cause of action.
Needless to state the award of actual damages cannot be comprehended
under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code.
In this case, ABS-CBN had not yet filed the required bond; as a matter of fact,
it asked for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter, Clearly then, it was not necessary for RBS
to file a counterbond. Hence, ABS-CBN cannot be held responsible for the
premium RBS paid for the counterbond
Neither could ABS-CBN be liable for the print advertisements for "Maging
Sino Ka Man" for lack of sufficient legal basis.
Article 2217 thereof defines what are included in moral damages, while
Article 2219 enumerates the cases where they may be recovered, Article
2220 provides that moral damages may be recovered in breaches of contract
where the defendant acted fraudulently or in bad faith. RBS's claim for moral
damages could possibly fall only under item (10) of Article 2219
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34,
and 35.
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be
experienced only by one having a nervous system. A corporation may
recover moral damages if it "has a good reputation that is debased, resulting
in social humiliation" is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
exemplary damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated or compensatory
damages. They are recoverable in criminal cases as part of the civil liability
when the crime was committed with one or more aggravating circumstances
in quasi-contracts, if the defendant acted with gross negligence and in
contracts and quasi-contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner
It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral
and exemplary damages can only be based on Articles 19, 20, and 21 of the
Civil Code.
There is no adequate proof that ABS-CBN was inspired by malice or bad faith.
If damages result from a person's exercise of a right, it is damnum absque
injuria.