CASES:

Stonehill vs Diokno (20 SCRA 383)

Posted by taxcasesdigest on Tuesday, July 14, 2009
Labels: constitutional law, corporation, general warrant, search and seizure
Facts: Respondents issued, on different dates, 42 search warrants against
petitioners personally, and/or corporations for which they are officers directing
peace officers to search the persons of petitioners and premises of their offices,
warehouses and/or residences to search for personal properties books of accounts,
financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios,
credit journals, typewriters, and other documents showing all business transactions
including disbursement receipts, balance sheets and profit and loss statements and
Bobbins(cigarettes) as the subject of the offense for violations of Central Bank Act,
Tariff and Customs Laws, Internal Revenue Code, and Revised Penal Code.
Upon effecting the search in the offices of the aforementioned corporations and on
the respective residences of the petitioners, there seized documents, papers,
money and other records. Petitioners then were subjected to deportation
proceedings and were constrained to question the legality of the searches and
seizures as well as the admissibility of those seized as evidence against them.
On March 20, 1962, the SC issued a writ of preliminary injunction and partially lifted
the same on June 29, 1962 with respect to some documents and papers.
Held:
Search warrants issued were violative of the Constitution and the Rules, thus, illegal
or being general warrants. There is no probable cause and warrant did not
particularly specify the things to be seized. The purpose of the requirement is to
avoid placing the sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims, caprice or passion of peace officers.
Document seized from an illegal search warrant is not admissible in court as a fruit
of a poisonous tee. However, they could not be returned, except if warranted by the
circumstances.
Petitioners were not the proper party to question the validity and return of those
taken from the corporations for which they acted as officers as they are treated as
personality different from that of the corporation.
Bataan Shipyard & Engineering Co., Inc. vs Presidential Commission on
Good Government
150 SCRA 181 Business Organization Corporation Law A Corporation
Cannot Invoke the Right Against Self-Incrimination
When President Corazon Aquino took power, the Presidential Commission on Good
Government (PCGG) was formed in order to recover ill gotten wealth allegedly
acquired by former President Marcos and his cronies. Aquino then issued two

executive orders in 1986 and pursuant thereto, a sequestration and a takeover

order were issued against Bataan Shipyard & engineering Co., Inc. (BASECO).
BASECO was alleged to be in actuality owned and controlled by the Marcoses
through the Romualdez family, and in turn, through dummy stockholders.

The sequestration order issued in 1986 required, among others, that BASECO
produce corporate records from 1973 to 1986 under pain of contempt of the PCGG if
it fails to do so. BASECO assails this order as it avers, among others, that it is
against BASECOs right against self incrimination and unreasonable searches and
seizures.
ISSUE: Whether or not BASECO is correct.
HELD: No. First of all, PCGG has the right to require the production of such
documents pursuant to the power granted to it. Second, and more importantly, right
against self-incrimination has no application to juridical persons. There is a reserve
right in the legislature to investigate the contracts of a corporation and find out
whether it has exceeded its powers. It would be a strange anomaly to hold that a
state, having chartered a corporation like BASECO 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.
Neither is the right against unreasonable searches and seizures applicable here.
There were no searches made and no seizure pursuant to any search was ever
made. BASECO was merely ordered to produce the corporate records.

Philippine National Bank vs Court of Appeals et al

83 SCRA 237 Business Organization Corporation Law Corporations
Liability for Negligence
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.

MAMBULAO LUMBER CO. VS. PNB

22 SCRA 359
An artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or
social humiliation which are basis or moral damages.
A Corporation may have a good reputation if besmirched, may also be a ground for
the award of moral damages.
NB: Regarded only as an obiter dicta *

Asset Privatization Trust vs Court of Appeals

300 SCRA 579 Business Organization Corporation Law Corporation
Generally Not Entitled To Moral Damages Power To Enter Into Contracts

In 1968, the government undertook to support the financing of Marinduque Mining

and Industrial Corporation (MMIC). The government then issued debenture bonds in
favor of MMIC which enable the latter to take out loans from the Development Bank
of the Philippines (DBP) and the Philippine National Bank (PNB). The loans were
mortgaged by MMICs assets. In 1984 however, MMICs indebtedness reached P13.7
billion and P8.7 billion to DPB and PNB respectively. MMIC had trouble paying and
this exposed the government, because of the debenture bonds, to a P22 billion
obligation.
In order to mitigate MMICs loan liability, a financial restructuring plan (FRP) was
drafted in the presence of MMICs representatives as well as representatives from
DBP and PNB. The two banks however never formally approved the said FRP.
Eventually, the staggering loans became overdue and PNB and DBP chose to
foreclose MMICs assets, FRP no longer feasible at that point. So the assets were
foreclosed and were eventually assigned to the Asset Privatization Trust (APT).
Later, Jesus Cabarrus, Sr., a stockholder of MMIC initiated a derivative suit against
PNB and DBP with APT being impleaded as the successor in interest of the two
banks. The suit basically questioned the foreclosure as Cabarrus asserted that the
foreclosure was invalid because he insisted that the FRP was adopted by PNB and
DBP as a consequence of the presence of the banks representatives when the said
FRP was drafted. Cabarrus asserts that APT should restore the assets to MMIC and
that PNB and DBP should honor the FRP. The suit was filed in the RTC of Makati but
while the case was pending, the parties agreed to submit the case for arbitration.
Hence, Makati RTC dismissed the case upon motion of the parties.
The Arbitration Committee (AC) which heard the case ruled in favor of Cabarrus. The
AC granted Cabarrus prayer and at the same time awarded him P10 million in moral
damages. Not only that, the AC also awarded P2.5 billion in moral damages in favor
of MMIC to be paid by the government. APTs MFR was denied. Cabarrus then filed
before the Makati RTC a motion to confirm the arbitration award. APT opposed the
same as it alleged that the motion is improper. Makati RTC denied APTs opposition
and confirmed the arbitration award. The Court of Appeals affirmed the ruling of the
RTC.
ISSUE: Whether or not the ruling of the Arbitration Committee as affirmed by the
Regional Trial Court of Makati (Branch 62) and the Court of Appeals is correct.
HELD: No.
The award of damages in favor of MMIC is improper. First, it was not made a party to
the case. The derivative suit filed by Cabarrus failed to implead MMIC. So how can
an award for damages be awarded to a non-party? Second, even if MMIC, which is
actually a real party in interest, was impleaded, it is not entitled to moral damages.
It is not yet a well settled jurisprudence that corporations are entitled to moral
damages. While the Supreme Court in some cases did award certain corporations
moral damages for besmirched reputations, such is not applicable in this case
because when the alleged wrongful foreclosure was done, MMIC was already in bad
standing hence it has no good wholesome reputation to protect. So it could not be
said that there was a reputation besmirched by the act of foreclosure. Likewise,

the award of moral damages in favor of Cabarrus is invalid. He cannot have possibly
suffered any moral damages because the alleged wrongful act was committed
against MMIC. It is a basic postulate that a corporation has a personality separate
and distinct from its stockholders. The properties foreclosed belonged to MMIC, not
to its stockholders. Hence, if wrong was committed in the foreclosure, it was done
against the corporation.
The FRP is not valid hence the foreclosure is valid. The mere presence of DBPs and
PNBs representatives during the drafting of FRP is not constitutive of the banks
formal approval of the FRP. The representatives are personalities distinct from PNB
and DBP. PNB and DBP have their own boards and officers who may have different
decisions. The representatives were not shown to have been authorized by the
respective boards of the two banks to enter into any agreement with MMIC.
Further, the proceeding is procedurally infirm. RTC Makati had already dismissed the
civil case when the parties opted for arbitration. Hence, it should have never took
cognizance of the Cabarrus motion to confirm the AC award. The same should
have been brought through a separate action not through a motion because RTC
Makati already lost jurisdiction over the case when it dismissed it to give way for the
arbitration. The arbitration was a not a continuation of the civil case filed in Makati
RTC.
ABS-CBN Broadcasting Corporation vs Court of Appeals
301 SCRA 572 Business Organization Corporation Law Delegation of
Corporate Powers Moral Damages
In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo
Santos-Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14
films produced by Viva. Pursuant to this request, a meeting was held between Vivas
representative (Vicente Del Rosario) and ABS-CBNs Eugenio Lopez (General
Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del
Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for
P60 million. Later, Santos-Concio, in a letter to Del Rosario, proposed a
counterproposal of 53 films (including the 14 films initially requested) for P35
million. Del Rosario presented the counter offer to Vivas Board of Directors but the
Board rejected the counter offer. Several negotiations were subsequently made but
on April 29, 1992, Viva made an agreement with Republic Broadcasting Corporation
(referred to as RBS or GMA 7) which gave exclusive rights to RBS to air 104 Viva
films including the 14 films initially requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged
that there is already a perfected contract between Viva and ABS-CBN in the April 2,
1992 meeting. Lopez testified that Del Rosario agreed to the counterproposal and
he (Lopez) even put the agreement in a napkin which was signed and given to Del
Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from airing
the films. The injunction was granted. RBS now filed a countersuit with a prayer for
moral damages as it claimed that its reputation was debased when they failed to air
the shows that they promised to their viewers. RBS relied on the ruling in People vs
Manero and Mambulao Lumber vs PNB which states that a corporation may recover

moral damages if it has a good reputation that is debased, resulting in social

humiliation. The trial court ruled in favor of Viva and RBS. The Court of Appeals
affirmed the trial court.
ISSUE:
1.
Whether or not a contract was perfected in the April 2, 1992 meeting
between the representatives of the two corporations.
2.
Whether or not a corporation, like RBS, is entitled to an award of moral
damages upon grounds of debased reputation.
HELD:
1. No. There is no proof that a contract was perfected in the said meeting. Lopez
testimony about the contract being written in a napkin is not corroborated because
the napkin was never produced in court. Further, there is no meeting of the minds
because Del Rosarios offer was of 104 films for P60 million was not accepted. And
that the alleged counter-offer made by Lopez on the same day was not also
accepted because theres no proof of such. The counter offer can only be deemed to
have been made days after the April 2 meeting when Santos-Concio sent a letter to
Del Rosario containing the counter-offer. Regardless, there was no showing that Del
Rosario accepted. But even if he did accept, such acceptance will not bloom into a
perfected contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are
exercised by the Board of Directors. But this power may be delegated to a corporate
committee, a corporate officer or corporate manager. Such a delegation must be
clear and specific. In the case at bar, there was no such delegation to Del Rosario.
The fact that he has to present the counteroffer to the Board of Directors of Viva is
proof that the contract must be accepted first by the Vivas Board. Hence, even if
Del Rosario accepted the counter-offer, it did not result to a contract because it will
not bind Viva sans authorization.
2. No. 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. No moral damages can be awarded to a juridical
person. The statement in the case of People vs Manero and Mambulao Lumber vs
PNB is a mere obiter dictum hence it is not binding as a jurisprudence.

Jardine Davis Inc. vs. CA

Facts: Petitioner PURE FOODS CORPORATION decided to install two generators in its
food processing plant in San Roque, Marikina City to recover from losses due to the
series of power failures. Consequently, bidding for the supply and installation of the
generators was held. Several suppliers and dealers were invited to attend a prebidding conference to discuss the conditions, propose scheme and specifications

that would best suit the needs of PUREFOODS. Out of the eight (8) prospective
bidders who attended the pre-bidding conference, only three (3) bidders, namely,
respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO. FEMSCO
started the PUREFOODS project and bought the necessary materials. However,
PUREFOODS unilaterally canceled the award because significant factors were
uncovered which dictates the cancellation and warrant a total review and re-bid of
the said project. Consequently, FEMSCO protested the cancellation of the award and
sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter
could be resolved, PUREFOODS already awarded the project and entered into a
contract with JARDINE NELL, a division of Jardine Davies, Inc. which incidentally was
not one of the bidders. FEMSCO sued PUREFOODS for reneging on its contract and
JARDINE for its unwarranted interference and inducement.
Issues: Whether or not there existed a perfected contract between PUREFOODS and
FEMSCO.
And granting there existed a perfected contract, whether there is any showing that
JARDINE induced or connived with PUREFOODS to violate the latter's contract with
FEMSCO.
Held: The Supreme Court held that there was no issue as regards the subject
matter of the contract and the cause of the obligation. The controversy lies in the
consent whether there was an acceptance of the offer, and if so, if it was
communicated, thereby perfecting the contract. Since petitioner PUREFOODS
started the process of entering into the contract by conducting bidding, Art. 1326 of
the Civil Code, which provides that advertisements for bidders are simply invitations
to make proposals applies. The Supreme Court also re-stated the distinguishment
between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with
the first condition results in the failure of a contract, failure to comply with the
second merely gives the other party options and/or remedies to protect his
interests.
MERALCO VS TEAM ELECTRONICS
The law in force at the time material to this controversy was PD 401. It penalized
unauthorized installation of water, electrical, telephone connections and such acts
as the use of tampered electrical meters. PD 401 granted the electrical companies
the right to conduct inspections of electric meters and the criminal prosecution or
erring customers who were found to have tampered with their electrical meters. It
did not provide for more expedient remedies as the charging of differential billing
and immediate disconnection against erring customers. Thus, electric companies
found a creative way of availing themselves of such remedies by inserting into the
service contracts a provision for differential billing with the option of disconnection
upon non-payment by the erring customers. The Court has recognized the validity of
such stipulations. However, recourse to differential billing with disconnection was
subject to the prior requirement of a 48-hour written notice of disconnection.
MERALCO, in the instant case, resorted to the remedy of disconnection without prior
notice. While it is true that MERALCO sent a demand letter to TEC for the payment

of differential billing, it did not include any notice that the electric supply would be
disconnected. In fine, it abused the remedies granted to it under PD 401 by outright
depriving TEC of electric services without first notifying it of the impending
disconnection.
SC deems it proper to delete the award of moral damages. TEC's claim was
premised allegedly on the damage to its goodwill and reputation. As a rule, A
CORPORATION IS NOT ENTITLED TO MORAL DAMAGES BECAUSE, NOT BEING A
NATURAL PERSON, IT CANNOT EXPERIENCE PHYSICAL SUFFERING OR SENTIMENTS
like wounded feelings, serious anxiety, mental anguish, and moral shock. The only
EXCEPTION to this rule is when the corporation has a reputation that is debased,
resulting in its humiliation in the business realm. but in such a case, it is imperative
for the claimant to present proof to justify the award. It is essential to prove the
existence of the factual basis of the damage and its causal relation to petitioner's
acts. In the present case, the records are bereft of any evidence that the name or
reputation of TEC/TPC has been debased as a result of petitioner's act. Besides, the
trial court simply awarded moral damages in the dispositive portion of its decision
without stating the basis thereof.

Corporate Law Case Digest: People V. Quasha (1953)

Lessons Applicable: Public Utilities (Corporate Law)
FACTS:
William H. Quasha, A member of the Philippine bar, committed a crime of
falsification of a public and commercial document for causing it to appear that
Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 %
of the subscribed capital stock of Pacific Airways Corp. (Pacific) when in reality the
money paid belongs to an American citizen whose name did not appear in the
article of incorporation, to circumvent the constitutional mandate that no corp. shall
be authorize to operate as a public utility in the Philippines unless 60% of its capital
stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine
Quasha appealed to this Court
Primary purpose: to carry on the business of a common carrier by air, land or water
Baylon did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister.
The penalty of prision mayor and a fine not to exceed 5,000 pesos shall be
imposed upon any public officer, employee, or notary who, taking advantage of his
official position, shall falsify a document by committing any of the following acts:
4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The
penalty of prision correccional in its medium and maximum period and a fine of not
more than 5,000 pesos shall be imposed upon:
1. Any private individual who shall commit any of the falsifications
enumerated in the next preceding article in any public or official document or letter
of exchange or any other kind of commercial document.
ISSUE: W/N Quasha should be criminally liable
HELD: NO. Acquitted.
Falsification consists in not disclosing in the articles of incorporation that Baylon was
a mere trustee ( or dummy as the prosecution chooses to call him) of his American
co-incorporators, thus giving the impression that Baylon was the owner of the
shares subscribed to by him
For the mere formation of the corporation such revelation was not essential, and the
Corporation Law does not require it
The moment for determining whether a corporation is entitled to operate as a public
utility is when it applies for a franchise, certificate, or any other form of
authorization for that purpose.
That can be done after the corporation has already come into being and not while it
is still being formed
So far as American citizens are concerned, the said act has ceased to be an offense
within the meaning of the law, so that defendant can no longer be held criminally
liable therefor.

FILIPINAS DE COMPANIA DE SEGUROS vs. CHRISTERN, HUENFELD & CO

FACTS:
Christern, Huenefeld and Company, a German company, obtained a fire insurance
policy from Filipinas Compaia for the merchandise contained in a building located
in Binondo, Manila in the sum of P100,000. Filipinas Compaia is an American
controlled company. The building and the insured merchandise were burned during
the Japanese occupation. Christern filed its claim amounting to P92,650.00 but
Filipinas Compaia refused to pay alleging that Christern is a corporation whose
majority stockholders are Germans and that during the Japanese occupation,
America declared war against Germany hence the insurance policy ceased to be
effective because the insured has become an enemy. Filipinas Compaia was
eventually ordered to pay Christern as ordered by the Japanese government.
ISSUE:
Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from
the insurance claim.

HELD:
NO. There is no question that majority of the stockholders of Christern were German
subjects. This being so, Christern became an enemy corporation upon the outbreak
of the war between the United States and Germany. The Philippine Insurance Law
(Act No. 2427, as amended,) in Section 8, provides that anyone except a public
enemy may be insured. It stands to reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.
The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner had ceased
to be valid and enforceable, and since the insured goods were burned after
December 10, 1941, and during the war, the respondent was not entitled to any
indemnity under said policy from the petitioner. However, elementary rules of
justice (in the absence of specific provision in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from December
11, 1941, should be returned by the petitioner