G.R. No.

L-23145

November 29, 1968

Lessons Applicable: Theory of Concession (Corporate Law)

corporation is an artificial being created by operation of law...."It

owes its life to the state, its birth being purely dependent on its will.
Cannot ignore the source of its very existence

FACTS:

March 27, 1960: Idonah Slade Perkins died in New York City

August 12, 1960: Prospero Sanidad instituted ancillary

administration proceedings appointing ancillary administrator Lazaro
A. Marquez later on substituted by Renato D. Tayag

On January 27, 1964: CFI ordered domiciliary administrator County

Trust Company of New York to surrender to the ancillary
administrator in the Philippines 33,002 shares of stock certificates
owned by her in a Philippine corporation, Benguet Consolidated, Inc.,
to satisfy the legitimate claims of local creditors

When County Trust Company of New York refused the court

ordered Benguet Consolidated, Inc. to declare the stocks lost and
required it to issue new certificates in lieu thereof

Appeal was taken by Benguet Consolidated, Inc. alleging the failure

to comply with its by-laws setting forth the procedure to be followed
in case of a lost, stolen or destroyed so it cannot issue new stock
certs.

ISSUE: W/N Benguet Consolidated, Inc. can ignore a court order because of
its by-laws

HELD: NO. CFI Affirmed

Fear of contigent liability - obedience to a lawful order = valid

defense

Benguet Consolidated, Inc. is a Philippine corporation owing full

allegiance and subject to the unrestricted jurisdiction of local courts

Assuming that a contrariety exists between the above by-law and

the command of a court decree, the latter is to be followed.

International Express Travel & Tour Services, Inc. vs. Court of

Appeals
[GR 119002, 19 October 2000]
Facts: On 30 June 1989, the International Express Travel and Tour Services,
Inc. (IETTSI), through its managing director, wrote a letter to the Philippine
Football Federation (Federation), through its president, Henri Kahn, wherein
the former offered its services as a travel agency to the latter. The offer was
accepted. IETTSI secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala Lumpur as
well as various other trips to the People's Republic of China and Brisbane.
The total cost of the tickets amounted to P449,654.83. For the tickets
received, the Federation made two partial payments, both in September of
1989, in the total amount of P176,467.50. On 4 October 1989, IETTSI wrote
the Federation, through Kahn a demand letter requesting for the amount of
P265,894.33. On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00. On 27 December 1989, Henri
Kahn issued a personal check in the amount of P50,000 as partial payment
for the outstanding balance of the Federation.
Thereafter, no further payments were made despite repeated demands. This
prompted IETTSI to file a civil case before the Regional Trial Court of Manila.
IETTSI sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. IETTSI
sought to hold Henri Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri Kahn allegedly
guaranteed the said obligation. Kahn filed his answer with counterclaim,
while the Federation failed to file its answer and was declared in default by
the trial court. In due course, the trial court rendered judgment and ruled in
favor of IETTSI and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. The complaint of IETTSI against the Philippine
Football Federation and the counterclaims of Henri Kahn were dismissed,
with costs against Kahn. Only Henri Kahn elevated the decision to the Court
of Appeals. On 21 December 1994, the appellate court rendered a decision
reversing the trial court. IETTSI filed a motion for reconsideration and as an
alternative prayer pleaded that the Federation be held liable for the unpaid
obligation. The same was denied by the appellate court in its resolution of 8
February 1995. IETTSI filed the petition with the Supreme Court.
Issue

Whether the Philippine Football Federation has a corporate existence

of its own.

Whether Kahn should be made personally liable for the unpaid

obligations of the Philippine Football Federation.

Whether the appellate court properly applied the doctrine of

corporation by estoppel.

Held
1. Both RA 3135 (the Revised Charter of the Philippine Amateur Athletic
Federation) and PD 604 recognized the juridical existence of national sports
associations. This may be gleaned from the powers and functions granted to
these associations (See Section 14 of RA 3135 and Section 8 of PD 604). The
powers and functions granted to national sports associations indicate that
these entities may acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may only be done by
persons, whether natural or artificial, with juridical capacity. However, while
national sports associations may be accorded corporate status, such does
not automatically take place by the mere passage of these laws. It is a basic
postulate that before a corporation may acquire juridical personality, the
State must give its consent either in the form of a special law or a general
enabling act. The Philippine Football Federation did not come into existence
upon the passage of these laws. Nowhere can it be found in RA 3135 or PD
604 any provision creating the Philippine Football Federation. These laws
merely recognized the existence of national sports associations and provided
the manner by which these entities may acquire juridical personality. Section
11 of RA 3135 and Section 8 of PD 604 require that before an entity may be
considered as a national sports association, such entity must be recognized
by the accrediting organization, the Philippine, Amateur Athletic Federation
under RA 3135, and the Department of Youth and Sports Development under
PD 604. This fact of recognition, however, Henri Kahn failed to substantiate.
A copy of the constitution and by-laws of the Philippine Football Federation
does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the
Department of Youth and Sports Development. Accordingly, the Philippine
Football Federation is not a national sports association within the purview of
the aforementioned laws and does not have corporate existence of its own.
2. Henry Kahn should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled principal in
corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and
becomes personally liable for contract entered into or for other acts
performed as such agent. As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or non-existence of
the Federation.

3. The Court cannot subscribe to the position taken by the appellate court
that even assuming that the Federation was defectively incorporated, IETTSI
cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize
and in effect admit its existence. The doctrine of corporation by estoppel is
mistakenly applied by the appellate court to IETTSI. The application of the
doctrine applies to a third party only when he tries to escape liabilities on a
contract from which he has benefited on the irrelevant ground of defective
incorporation. Herein, IETTSI is not trying to escape liability from the contract
but rather is the one claiming from the contract.
ROXAS VS. CA
G.R. No. 118436
March 21, 1997
FACTS: This is a petition for review of the CA decision dated December 8,
1994 alleging reversible error committed by respondent appellate court
when it affirmed the decision of the RTC of Cavite.
On July 1990, herein private respondent Maguesun Management and
Development Corporation (Maguesun Corporation) filed an Application for
Registration of two parcels of unregistered land located in Tagaytay City. In
support of its application for registration, Maguesun Corporation presented a
Deed of Absolute Sale dated June 10, 1990, executed by Zenaida Melliza as
vendor and indicating the purchase price to be P170,000.00. Zenaida Melliza
in turn, bought the property from the original petitioner herein (because she
was substituted by her heirs in the proceedings upon her death), Trinidad de
Leon vda. de Roxas for P200,000.00 two and a half months earlier, as
evidenced by a Deed of Sale and an Affidavit of Self-Adjudication.
Notices of the initial hearing were sent by the Land Registration Authority
(LRA) on the basis of Maguesun Corporations application for registration
enumerating adjoining owners, occupants or adverse claimants; Since
Trinidad de Leon vda. de Roxas was not named therein, she was not sent a
notice of the proceedings. After an Order of general default was issued, the
trial court proceeded to hear the land registration case. Eventually, on
February 1991 the RTC granted Maguesun Corporations application for
registration.
It was only when the caretaker of the property was being asked to vacate
the land that petitioner Trinidad de Leon Vda. de Roxas learned of its sale
and the registration of the lots in Maguesun Corporations name.
Hence, on April 1991, petitioner filed a petition for review before the RTC to
set aside the decree of registration on the ground that Maguesun
Corporation committed actual fraud. She alleged that the lots were among
the properties she inherited from her husband, former President Manuel A.
Roxas and that her family had been in open, continuous, adverse and
uninterrupted possession of the subject property in the concept of owner for
more than thirty years before they applied for its registration under the

Torrens System of land titling (in which no decision has been rendered
thereon). Petitioner further denied that she sold the lots to Zenaida Melliza
whom she had never met before and that her signature was forged in both
the Deed of Sale and the Affidavit of Self-Adjudication. She also claimed that
Maguesun Corporation intentionally omitted her name as an adverse
claimant, occupant or adjoining owner in the application for registration
submitted to the LRA such that the latter could not send her a Notice of
Initial Hearing.
A document examiner from the PNP concluded that there was no
forgery.Upon petitioners motion, the signatures were re-examined by
another expert from NBI. The latter testified that the signatures on the
questioned and sample documents were, however, not written by the same
person.
Despite the foregoing testimonies and pronouncements, the trial
court dismissed the petition for review of decree of registration. Placing
greater weight on the findings and testimony of the PNP document
examiner, it concluded that the questioned documents were not forged and
if they were, it was Zenaida Melliza, and not Maguesun Corporation, who was
responsible. Accordingly, Maguesun Corporation did not commit actual fraud.
In a decision dated December 8, 1994, respondent court denied the petition
for review and affirmed the findings of the trial court. The CA held that
petitioner failed to and demonstrate that there was actual or extrinsic fraud,
not merely constructive or intrinsic fraud, a prerequisite for purposes of
annuling a judgment or reviewing a decree of registration.
Hence, the instant petition for review where it is alleged that the CA erred in
ruling that Maguesun Corporation did not commit actual fraud warranting
the setting aside of the registration decree and in resolving the appeal on
the basis of Maguesun Corporations good faith. Petitioners pray that the
registration of the subject lots in the name of Maguesun Corporation be
cancelled, that said property be adjudicated in favor of petitioners and that
respondent corporation pay for damages.
ISSUE: WON private respondent Maguesun Corporation committed actual
fraud (signature forgery) in obtaining a decree of registration over the two
parcels of land, actual fraud being the only ground to reopen or review a
decree of registration.
HELD: WHEREFORE, the instant petition is hereby GRANTED. The Decision of
the CA is hereby REVERSED AND SET AS
1. The Court here finds that respondent Maguesun Corporation committed
actual fraud in obtaining the decree of registration sought to be reviewed by
petitioner. A close scrutiny of the evidence on record leads the Court to the
irresistible conclusion that forgery was indeed attendant in the case at bar.
Although there is no proof of respondent Maguesun Corporations direct
participation in the execution and preparation of the forged instruments,
there are sufficient indicia which proves that Maguesun Corporation is not
the innocent purchaser for value who merits the protection of the law.
Even to a laymans eye, the documents, as well as the enlarged
photographic exhibit of the signatures, reveal forgery. Additionally, Zenaida
Mellizas non-appearance raises doubt as to her existence
Petitioner and her family also own several other pieces of property, some of

which are leased out as restaurants. This is an indication that petitioner is

not unaware of the value of her properties. Hence, it is unlikely that
indication that she would sell over 13,000 sqm of prime property in Tagaytay
City to a stranger for a measly P200,000.00. Would an ordinary person sell
more than 13,000 sqm of prime property for P170,000.00 when it was earlier
purchased for P200,000.00?
3. Petitioner Vda. de Roxas contended that Maguesun Corporation
intentionally omitted their name, or that of the Roxas family, as having a
claim to or as an occupant of the subject property.
The names in full and addresses, as far as known to the undersigned, of the
owners of all adjoining properties; of the persons mentioned in paragraphs 3
and 5 (mortgagors, encumbrancers, and occupants) and of the
person shown on the plan (original application submitted in LRC No) as
claimants are as follows:
Hilario Luna, Jose Gil, Leon Luna, Provincial Road
all at Tagaytay City (no house No.) 30
The highlighted words are typed in with a different typewriter, with the first
five letters of the word provincial typed over correction fluid. Maguesun
Corporation, however, annexed a differently-worded application for
the petition to review case. In the copy submitted to the trial court, the
answer to the same number is as follows:
Hilario Luna, Jose Gil, Leon Luna, Roxas.
The discrepancy which is unexplained appears intentional. If the word
Roxas were indeed erased and replaced with Provincial Road all at
Tagaytay City (no house No.) in the original application submitted in LRC No.
TG-373 BUT the copy with the word Roxas was submitted to the trial court,
it is reasonable to assume that the reason is to mislead the court into
thinking that Roxas was placed in the original application as an adjoining
owner, encumbrancer, occupant or claimant, the same application which
formed the basis for the LRA Authority in sending out notices of initial
hearing. (Section 15 of PD No. 1529 actually requires the applicant for
registration to state the full names and addresses of all occupants of the
land and those of adjoining owners, if known and if not known, the extent of
the search made to find them. Respondent corporation likewise failed to
comply with this requirement of law.)
Respondent corporations intentional concealment and representation of
petitioners interest in the subject lots as possessor, occupant and
claimant constitutes actual fraud justifying the reopening and review of the
decree of registration. Through such misfeasance, the Roxas family was kept
ignorant of the registration proceedings involving their property, thus
effectively depriving them of their day in court
The truth is that the Roxas family had been in possession of the property
uninterruptedly through their caretaker, Jose Ramirez. Respondent
Maguesun Corporation also declared in number 5 of the same application
that the subject land was unoccupied when in truth and in fact, the Roxas
family caretaker resided in the subject property.
To conclude, it is quite clear that respondent corporation cannot tack its
possession to that of petitioner as predecessor-in-interest. Zenaida Melliza

conveyed not title over the subject parcels of land to Maguesun Corporation
as she was not the owner thereof. Maguesun Corporation is thus not entitled
to the registration decree which the trial court granted in its decision.
Petitioner has not been interrupted in her more than thirty years of open,
uninterrupted, exclusive and notorious possession in the concept of an
owner over the subject lots by the irregular transaction to Zenaida
Melliza. She therefore retains title proper and sufficient for original
registration over the two parcels of land in question pursuant to Section 14
of PD No. 1529.
NOTES:
1. Registration of untitled land under the Torrens System is done pursuant to
PD No. 1529, the Property Registration Decree which amended and codified
laws relative to registration of property. 15Adjudication of land in a
registration (or cadastral) case does not become final and incontrovertible
until the expiration of one year after the entry of the final decree. Before
such time, the decision remains under the control and sound discretion of
the court rendering the decree, which court after hearing, may set aside the
decision or decree and adjudicate the land to another party. 16 Absence,
minority or other disability of any person affected, or any proceeding in court
for reversing judgments, are not considered grounds to reopen or revise said
decree. s. 17 It is further required that a petition for reopening and review of
the decree of registration be filed within one year from the date of entry of
said decree, that the petitioner has a real and dominical right and the
property has not yet been transferred to an innocent purchaser.
2. Fraud is of two kinds: actual or constructive. Actual or positive fraud
proceeds from an intentional deception practiced by means of the
misrepresentation or concealment of a material fact. 19 Constructive fraud is
construed as a fraud because of its detrimental effect upon public
interests and public or private confidence, even though the act is not done
or committed with an actual design to commit positive fraud or injury upon
other persons.
Fraud may also be either extrinsic or intrinsic. Fraud is regarded as intrinsic
where the fraudulent acts pertain to an issue involved in the original action,
or where the acts constituting the fraud were or could have been litigated
therein, and is regarded as extrinsic where it prevents a party from having a
trial or from presenting his entire case to the court, or where it operates
upon matters pertaining not to the judgment itself but to the manner in
which it is procured, so that there is not a fair submission of the
controversy. 21 Extrinsic fraud is also actual fraud, but collateral to the
transaction sued upon. 22
The distinctions are significant because only actual fraud or extrinsic fraud
has been accepted as grounds for a judgment to be annulled or, as in this
case, a decree of registration reopened and reviewed.
Disclosure of petitioners adverse interest, occupation and possession should
be made at the appropriate time, i.e., at the time of the application for
registration, otherwise, the persons concerned will not be sent notices of the
initial hearing and will, therefore, miss the opportunity to present their
opposition or claims.

Also, Publication of the Notice of Initial Hearing was made in the Official
Gazette and in the Record Newsweekly, admittedly not a newspaper of
general circulation. While publication of the notice in the Official Gazette is
sufficient to confer jurisdiction upon the court, publication in a newspaper of
general circulation remains an indispensable procedural requirement.
Couched in mandatory terms, it is a component of procedural due process
and aimed at giving as wide publicity as possible so that all persons
having an adverse interest in the land subject of the registration proceedings
may be notified thereof. Although jurisdiction of the court is not affected, the
fact that publication was not made in a newspaper of general circulation is
material and relevant in assessing the applicants right or title to the land.
PSE VS CA (281 SCRA 232)
Philippine Stock Exchange Inc. vs Court of Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]
Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation,
had sought to offer its shares to the public in order to raise funds allegedly
to develop its properties and pay its loans with several banking institutions.
In January, 1995, PALI was issued a permit to sell its shares to the public by
the Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSEi), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached pending the approval of the PALIs listing application, a
letter was received by PSE from the heirs of Ferdinand Marcos to which the
latter claims to be the legal and beneficial owner of some of the properties
forming part of PALIs assets. As a result, PSE denied PALIs application which
caused the latter to file a complaint before the SEC. The SEC issued an order
to PSE to grant listing application of PALI on the ground that PALI have
certificate of title over its assets and properties and that PALI have complied
with all the requirements to enlist with PSE.
Issue: Whether or not the denial of PALIs application is proper.
Held: Yes. This is in accord with the Business Judgement Rule whereby the
SEC and the courts are barred from intruding into business judgements of
corporations, when the same are made in good faith. The same rule
precludes the reversal of the decision of the PSE, to which PALI had
previously agreed to comply, the PSE retains the discretion to accept of
reject applications for listing. Thus, even if an issuer has complied with the
PSE listing rules and requirements, PSE retains the discretion to accept or
reject the issuers listing application if the PSE determines that the listing
shall not serve the interests of the investing public.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that
although it is clothed with the markings of a corporate entity, it functions as
the primary channel through which the vessels of capital trade ply. The
PSEis relevance to the continued operation and filtration of the securities
transaction in the country gives it a distinct color of importance such that
government intervention in its affairs becomes justified, if not necessarily.
Indeed, as the only operational stock exchange in the country today, the PSE

enjoys monopoly of securities transactions, and as such it yields a monopoly

of securities transactions, and as such, it yields an immerse influence upon
the countrys economy.
The SECs power to look into the subject ruling of the PSE, therefore, may be
implied from or be considered as necessary or incidental to the carrying out
of the SECs express power to insure fair dealing in securities traded upon a
stock exchange or to ensure the fair administration of such exchange. It is
likewise, observed that the principal function of the SEC is the supervision
and control over corporations, partnerships and associations with the end in
view that investment in these entities may be encouraged and protected
and their activities for the promotion of economic development.
A corporation is but an association of individuals, allowed to transact under
an assumed corporate name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no constitutional immunities
and requisites appropriate to such a body as to its corporate and
management decisions, therefore, the state will generally not interfere with
the same. Questions of policy and management are left to the honest
decision of the officers and directors of a corporation, and the courts are
without authority to substitute their judgements for the judgement of the
board of directors. The board is the business manager of the corporation and
so long as it acts in good faith, its orders are not reviewable by the courts.
In matters of application for listing in the market the SEC may exercise such
power only if the PSEs judgement is attended by bad faith.
The petitioner was in the right when it refused application of PALI, for a
contrary ruling was not to the best interest of the general public.
287 SCRA 232 Business Organization Corporation Law Extent of Power
of the Securities and Exchange Commission
Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate
business. PALI was granted permission by the Securities and Exchange
Commission (SEC) to sell its shares to the public in order for PALI to develop
its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALIs
stocks/shares to facilitate exchange. The PSE Board of Governors denied
PALIs application on the ground that there were multiple claims on the
assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the
Marcoses), and some other corporations were claiming assets if not
ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSEs decision.
The SEC reversed PSEs decisions and ordered the latter to cause the listing
of PALI shares in the Exchange.
ISSUE: Whether or not it is within the power of the SEC to reverse actions
done by the PSE.
HELD: Yes. The SEC has both jurisdiction and authority to look into the
decision of PSE pursuant to the Revised Securities Act and for the purpose of
ensuring fair administration of the exchange. PSE, as a corporation itself and
as a stock exchange is subject to SECs jurisdiction, regulation, and control.
In order to insure fair dealing of securities and a fair administration of

exchanges in the PSE, the SEC has the authority to look into the rulings
issued by the PSE. The SEC is the entity with the primary say as to whether
or not securities, including shares of stock of a corporation, may be traded or
not in the stock exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC
may only reverse decisions issued by the PSE if such are tainted with bad
faith. In this case, there was no showing that PSE acted with bad faith when
it denied the application of PALI. Based on the multiple adverse claims
against the assets of PALI, PSE deemed that granting PALIs application will
only be contrary to the best interest of the general public. It was reasonable
for the PSE to exercise its judgment in the manner it deems appropriate for
its business identity, as long as no rights are trampled upon, and public
welfare is safeguarded.

269 SCRA 564 Business Organization Corporation Law Close Corporation

Liability for Tort
Sergio Naguiat was the president of Clark Field Taxi, Inc. (CFTI) which
supplied taxi services to Clark Air Base. At the same time, Naguiat was a
director of the Sergio F. Naguiat Enterprises, Inc. (SFNEI), their family owned
corporation along with CFTI.
In 1991, CFTI had to close due to great financial losses and lost business
opportunity resulting from the phase-out of Clark Air Base brought about by
the Mt. Pinatubo eruption and the expiration of the RP-US military bases
agreement.
CFTI then came up with an agreement with the drivers that the latter be
entitled to a separation pay in the amount of P500.00 per every year of
service. Most of the drivers accepted this but some drivers did not. The
drivers who refused to accept the separation pay offered by CFTI instead
sued the latter before the labor arbiter.
The labor arbiter ruled in favor of the taxi drivers. The National Labor
Relations Commission affirmed the labor arbiter. It was established that
when CFTI closed, it was in profitable standing and was not incurring losses.
It ruled that the drivers are entitled to $120.00 per every year of service
subject to exchange rates prevailing that time.
The NLRC likewise ruled that SFNEI as well as CFTIs president and vice
president Sergio Naguiat and Antolin Naguiat should be held jointly and
severally liable to pay the drivers. The NLRC ruled that SFNEI actively
managed CFTI and its business affairs hence it acted as the employer of the
drivers.
ISSUE: Whether or not the ruling of the NLRC is correct.
HELD: It is only partially correct.
It is correct when it ruled that the Sergio Naguiat is jointly and severally
liable to pay the drivers the award of separation pay in the amount so
determined. As president of CFTI, Sergio Naguiat is considered an
employer of the dismissed employees who is therefore liable for the
obligations of the corporation to its dismissed employees. Moreover, CFTI,
being a close family corporation, is liable for corporate torts and

stockholders thereof shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance (par. 5,
Section 100, Close Corporations, Corporation Code). Antolin Naguiat is
absolved because there was insufficient evidence as against him.
SFNEI is not liable jointly or severally with CFTI. SFNEI has nothing to do with
CFTI. There is no sufficient evidence to prove that it actively managed CFTI
especially so when even the drivers testified that their employer is CFTI and
that their payroll comes from CFTI. Further, SFNEI was into trading business
while CFTI was into taxi services.

account in the name of a fictitious person Reynaldo Reyes. Castro

deposited a worthless Bank of America check with the same amount as that
issued by Ford. While being routed to the Central Bank for clearing, the
worthless check was replaced by the genuine one from Ford.

PCIB v. CA

(1) Whether there is contributory negligence on the part of Ford

Facts:

(2) Has petitioner Ford the right to recover from the collecting bank
(PCIBank) and the drawee bank (Citibank) the value of the checks intended
as payment to the Commissioner of Internal Revenue?

This case is composed of three consolidated petitions involving several

checks, payable to the Bureau of Internal Revenue, but was embezzled
allegedly by an organized syndicate.
I. G. R. Nos. 121413 and 121479
On October 19, 1977, plaintiff Ford issued a Citibank check amounting to
P4,746,114.41 in favor of the Commissioner of Internal Revenue for the
payment of manufacturers taxes. The check was deposited with defendant
IBAA (now PCIB), subsequently cleared the the Central Bank, and paid by
Citibank to IBAA. The proceeds never reached BIR, so plaintiff was compelled
to make a second payment. Defendant refused to reimburse plaintiff, and so
the latter filed a complaint. An investigation revealed that the check was
recalled by Godofredo Rivera, the general ledger accountant of Ford, and
was replaced by a managers check. Alleged members of a syndicate
deposited the two managers checks with Pacific Banking Corporation. Ford
filed a third party complaint against Rivera and PBC. The case against PBC
was dismissed. The case against Rivera was likewise dismissed because
summons could not be served. The trial court held Citibank and PCIB jointly
and severally liable to Ford, but the Court of Appeals only held PCIB liable.
II. G. R. No. 128604
Ford drew two checks in favor of the Commissioner of Internal Revenue,
amounting to P5,851,706.37 and P6,311,591.73. Both are crossed checks
payable to payees account only. The checks never reached BIR, so plaintiff
was compelled to make second payments. Plaintiff instituted an action for
recovery against PCIB and Citibank.

The trial court absolved PCIB and held Citibank liable, which decision was
affirmed in toto by the Court of Appeals.
Issues:

Held:
(2) The general rule is that if the master is injured by the negligence of a
third person and by the concuring contributory negligence of his own servant
or agent, the latter's negligence is imputed to his superior and will defeat
the superior's action against the third person, asuming, of course that the
contributory negligence was theproximate cause of the injury of which
complaint is made. As defined, proximate cause is that which, in the natural
and continuous sequence, unbroken by any efficient, intervening cause
produces the injury and without the result would not have occurred. It
appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not
the proximate cause of encashing the checks payable to the CIR. The degree
of Ford's negligence, if any, could not be characterized as the proximate
cause of the injury to the parties. The mere fact that the forgery was
committed by a drawer-payor's confidential employee or agent, who by
virtue of his position had unusual facilities for perpertrating the fraud and
imposing the forged paper upon the bank, does notentitle the bank toshift
the loss to the drawer-payor, in the absence of some circumstance raising
estoppel against the drawer. This rule likewise applies to the checks
fraudulently negotiated or diverted by the confidential employees who hold
them in their possession.
(2) We have to scrutinize, separately, PCIBank's share of negligence when
the syndicate achieved its ultimate agenda of stealing the proceeds of these
checks.
a. G. R. Nos. 121413 and 121479

On investigation of NBI, the modus operandi was discovered. Gorofredo

Rivera made the checks but instead of delivering them to BIR, passed it to
Castro, who was the manager of PCIB San Andres. Castro opened a checking

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate

the checks. The neglect of PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank Check No. SN-04867 was duly
authorized, showed lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the
payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the unwarranted instructions
given by the payor or its agent. It is a well-settled rule that the relationship
between the payee or holder of commercial paper and the bank to which it is
sent for collection is, in the absence of an argreement to the contrary, that
of principal and agent. A bank which receives such paper for collection is the
agent of the payee or holder.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is
a warning that the check should be deposited only in the account of the CIR.
Thus, it is the duty of the collecting bank PCIBank to ascertain that the check
be deposited in payee's account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scrutinize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
Lastly, banking business requires that the one who first cashes and
negotiates the check must take some precautions to learn whether or not it
is genuine. And if the one cashing the check through indifference or other
circumstance assists the forger in committing the fraud, he should not be
permitted to retain the proceeds of the check from the drawee whose sole
fault was that it did not discover the forgery or the defect in the title of the
person negotiating the instrument before paying the check. For this reason,
a bank which cashes a check drawn upon another bank, without requiring
proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the
proceeds of the checks were afterwards diverted to the hands of a third
party. In such cases the drawee bank has a right to believe that the cashing
bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who
encashed a check which had been forged or diverted and in turn received
payment thereon from the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on the drawee bank. The
latter may recover from the holder the money paid on the check.
b. G. R. No. 128604
In this case, there was no evidence presented confirming the conscious
participation of PCIBank in the embezzlement. As a general rule, however, a
banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment. A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may

be liable for the tortuous acts of its officers even as regards that species of
tort of which malice is an essential element. In this case, we find a situation
where the PCIBank appears also to be the victim of the scheme hatched by a
syndicate in which its own management employees had participated. But in
this case, responsibility for negligence does not lie on PCIBank's shoulders
alone.
Citibank failed to notice and verify the absence of the clearing stamps. For
this reason, Citibank had indeed failed to perform what was incumbent upon
it, which is to ensure that the amount of the checks should be paid only to its
designated payee. The point is that as a business affected with public
interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. Thus,
invoking the doctrine of comparative negligence, we are of the view that
both PCIBank and Citibank failed in their respective obligations and both
were negligent in the selection and supervision of their employees resulting
in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we
are constrained to hold them equally liable for the loss of the proceeds of
said checks issued by Ford in favor of the CIR.
G. R. No. 164317 February 6, 2006
Lessons Applicable: Corp. Officers or employees, through whose act, default
or omission the corp. commits a crime, are themselves individually guilty of
the crime (Corporate Law)
FACTS:

Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine

Blooming Mills, Inc. (PBMI), applied with the Rizal Commercial
Banking Corporation (RCBC) for the issuance of commercial letters of
credit to finance its importation of assorted goods

RCBC approved the application, and irrevocable letters of credit were

issued in favor of Ching.

The goods were purchased and delivered in trust to PBMI.

Ching signed 13 trust receipts as surety, acknowledging

delivery of the goods

Under the receipts, Ching agreed to hold the goods in trust

for RCBC, with authority to sell but not by way of conditional
sale, pledge or otherwise

In case the goods remained unsold within the

specified period, the goods were to be returned to
RCBC without any need of demand.

There is no dispute that it was the Ching executed the 13 trust

receipts.

law points to him as the official responsible for the offense

Since a corporation CANNOT be proceeded against criminally

because it CANNOT commit crime in which personal violence
or malicious intent is required, criminal action is limited to
the corporate agents guilty of an act amounting to a crime
and never against the corporation itself

execution by Ching of receipts is enough to indict him as the

official responsible for violation of PD 115

RCBC is estopped to still contend that PD 115 covers only

goods which are ultimately destined for sale and not goods,
like those imported by PBM, for use in manufacture.

Moreover, PD 115 explicitly allows the prosecution of

corporate officers without prejudice to the civil liabilities
arising from the criminal offense thus, the civil liability
imposed on respondent in RCBC vs. Court of Appeals case is
clearly separate and distinct from his criminal liability under
PD 115

goods, manufactured products or proceeds thereof,

whether in the form of money or bills, receivables, or
accounts separate and capable of identification RCBCs property

December 8, 1995: no probable cause to charge

petitioner with violating P.D. No. 115, as petitioners
liability was only civil, not criminal, having signed the
trust receipts as surety

RCBC appealed the resolution to the Department of Justice (DOJ) via

petition for review

RCBC filed a criminal complaint for estafa against petitioner

in the Office of the City Prosecutor of Manila.

HELD: YES. DENIED for lack of merit

When the trust receipts matured, Ching failed to return the goods to
RCBC, or to return their value amounting toP6,940,280.66 despite
demands.

In case such goods were sold, to turn over the

proceeds thereof as soon as received, to apply
against the relative acceptances and payment of
other indebtedness to respondent bank.

On July 13, 1999: reversed the assailed resolution of the City

Prosecutor

Chings being a Senior Vice-President of the Philippine Blooming Mills

does not exculpate him from any liability

The crime defined in P.D. No. 115 is malum prohibitum but is

classified as estafa under paragraph 1(b), Article 315 of the Revised
Penal Code, or estafa with abuse of confidence. It may be
committed by a corporation or other juridical entity or by natural
persons. However, the penalty for the crime is imprisonment for the
periods provided in said Article 315.

law specifically makes the officers, employees or other officers or

persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or
other officials or employees responsible for the offense

execution of said receipts is enough to indict the Ching as

the official responsible for violation of P.D. No. 115

April 22, 2004: CA dismissed the petition for lack of merit and on
procedural grounds
Ching filed a petition for certiorari, prohibition and mandamus with
the CA

ISSUE: W/N Ching should be held criminally liable.

rationale: officers or employees are vested with the authority

and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held

criminally accountable; thus, they have a responsible share

in the violations of the law

If the crime is committed by a corporation or other juridical entity,

the directors, officers, employees or other officers thereof
responsible for the offense shall be charged and penalized for the
crime, precisely because of the nature of the crime and the penalty
therefor. A corporation cannot be arrested and imprisoned; hence,
cannot be penalized for a crime punishable by imprisonment.
However, a corporation may be charged and prosecuted for a crime
if the imposable penalty is fine. Even if the statute prescribes both
fine and imprisonment as penalty, a corporation may be prosecuted
and, if found guilty, may be fined
When a criminal statute designates an act of a corporation or a
crime and prescribes punishment therefor, it creates a criminal
offense which, otherwise, would not exist and such can
be committed only by the corporation. But when a penal statute
does not expressly apply to corporations, it does not create an
offense for which a corporation may be punished. On the other
hand, if the State, by statute, defines a crime that may be
committed by a corporation but prescribes the penalty therefor to be
suffered by the officers, directors, or employees of such corporation
or other persons responsible for the offense, only such individuals
will suffer such penalty. Corporate officers or employees, through
whose act, default or omission the corporation commits a crime, are
themselves individually guilty of the crime. The principle applies
whether or not the crime requires the consciousness of wrongdoing.
It applies to those corporate agents who themselves commit the
crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their relationship to the
corporation, they had the power to prevent the act. Benefit is not an
operative fact.

EDWARD C. ONG, petitioner, vs. THE COURT OF APPEALS AND THE

PEOPLE OF THE PHILIPPINES, respondents.
Facts:
Assistant City Prosecutor Dina P. Teves of the City of Manila charged
petitioner and Benito Ong with two counts of estafa under separate
Informations dated 11 October 1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito
Ong of the crime of estafa committed as follows:

That on or about July 23, 1990, in the City of Manila, Philippines, the said
accused, representing ARMAGRI International Corporation, conspiring and
confederating together did then and there willfully, unlawfully and
feloniously defraud the SOLIDBANK Corporation represented by its
Accountant, DEMETRIO LAZARO, a corporation duly organized and existing
under the laws of the Philippines located at Juan Luna Street, Binondo, this
City, in the following manner, to wit: the said accused received in trust from
said SOLIDBANK Corporation the following, to wit: 10,000 bags of urea
valued at P2,050,000.00 specified in a Trust Receipt Agreement and
covered by a Letter of Credit No. DOM GD 90-009 in favor of the
Fertiphil Corporation.
In Criminal Case No. 92-101990, the Information likewise charges petitioner
of the crime of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said
accused, representing ARMAGRI International Corporation, defraud the
SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO.
The said accused received in trust from said SOLIDBANK Corporation the
following goods, to wit: 125 pcs. Rear diff. assy RNZO 49 50 pcs. Front &
Rear diff assy. Isuzu Elof, 85 units 1-Beam assy. Isuzu Spz all valued at
P2,532,500.00 specified in a Trust Receipt Agreement and covered by a
Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole
Industrial Sales with address at P.O. Box AC 219, Quezon City.
Issue: WON PETITIONER WAS NECESSARILY THE ONE RESPONSIBLE FOR THE
OFFENSE, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT
AND SIGNED FOR THE ENTRUSTEE CORPORATION.
Held: Section 13 of the Trust Receipts Law which provides: x x x. If the
violation is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed
upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising
from the offense. We hold that petitioner is a person responsible for
violation of the Trust Receipts Law.
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn
over the proceeds of the sale of the goods, or (2) return the goods covered
by the trust receipts if the goods are not sold.[18] The mere failure to
account or return gives rise to the crime which is malum prohibitum.[19]
There is no requirement to prove intent to defraud.[20]
The Trust Receipts Law recognizes the impossibility of imposing the penalty
of imprisonment on a corporation. Hence, if the entrustee is a corporation,
the law makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other juridical entities cannot be

put to jail. Hence, the criminal liability falls on the human agent responsible
for the violation of the Trust Receipts Law.
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 counteroffer, 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.

Filipinas Broadcasting vs. Ago Medical Center

FACTS:
Rima & Alegre were host of FBNI radio program Expose. Respondent Ago
was the owner of the Medical & Educational center, subject of the radio
program Expose. AMEC claimed that the broadcasts were defamatory and
owner Ago and school AMEC claimed for damages. The complaint further
alleged that AMEC is a reputable learning institution. With the supposed
expose, FBNI, Rima and Alegre transmitted malicious imputations and as
such, destroyed plaintiffs reputation. FBNI was included as defendant for
allegedly failing to exercise due diligence in the selection and supervision of
its employees. The trial court found Rimas statements to be within the
bounds of freedom of speech and ruled that the broadcast was libelous. It
ordered the defendants Alegre and FBNI to pay AMEC 300k for moral
damages.
ISSUE:
Whether or not AMEC is entitled to moral damages.
RULING:
A juridical person is generally not entitled to moral damages because, unlike
a natural person, it cannot experience physical suffering or such sentiments
as wounded feelings, serious anxiety, mental anguish or moral shock.

Nevertheless, AMECs claim, or moral damages fall under item 7 of Art

2219 of the NCC.

granted to it under PD 401 by outright depriving TEC of electric services

without first notifying it of the impending disconnection.

This provision expressly authorizes the recovery of moral damages in cases

of libel, slander or any other form of defamation. Art 2219 (7) does not
qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages. Moreover, where the
broadcast is libelous per se, the law implied damages. In such a case,
evidence of an honest mistake or the want of character or reputation of the
party libeled goes only in mitigation of damages. In this case, the broadcasts
are libelous per se. thus, AMEC is entitled to moral damages. However, we
find the award P500,000 moral damages unreasonable. The record shows
that even though the broadcasts were libelous, per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we
reduce the award of moral damages to P150k.

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

v JOIN TORT FEASORS are all the persons who command, instigate,
promote, encourage, advice countenance, cooperate in, aid or abet
the commission of a tort, as who approve of it after it is done, for its
benefit.

MERALCO V. TEAM ELECTRONIC CORP (PD 401/RA 7832, CORP'S CLAIM OF

MORAL DAMAGES)

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

UNCHUAN vs. LOZADA

(G.R. No. 172671,April 16, 2009)
FACTS:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the
registered co-owners of 2 lots in Cebu City.
The sisters, who were based in the United States, sold the lots to their
nephew Antonio J.P. Lozada under a Deed of Sale. Armed with a Special
Power of Attorney from Anita, Peregrina went to the house of their brother,
Dr. Antonio Lozada (Dr. Lozada), Dr. Lozada agreed to advance the purchase
price of US$367,000 or P10,000,000 for Antonio, his nephew. The Deed of
Sale was later notarized and authenticated at the Philippine Consuls Office
and new TCTs were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the
annotation of an adverse claim on the lots. Marissa claimed that Anita
donated an undivided share in the lots to her under an unregistered Deed of
Donation. Antonio and Anita brought a case against Marissa for quieting of
title with application for preliminary injunction and restraining order. Marissa
filed an action to declare the Deed of Sale void and to cancel the new TCTs.
At the trial, respondents presented a notarized and duly authenticated sworn
statement, and a videotape where Anita denied having donated land in favor
of Marissa. In a Decision dated June 9, 1997, RTC disposed of the
consolidated cases, ruling among others that:
1. Plaintiff Antonio J.P. Lozada is declared the absolute owner of the
properties in question;
2. Defendant Marissa R. Unchuan is ordered to pay Antonio J.P. Lozada and
Anita Lozada damages.
On motion for reconsideration by petitioner, the RTC issued an Order dated
April 5, 1999. Said order declared the Deed of Sale void, ordered the
cancellation of the new TCTs in Antonios name, and directed Antonio to pay

Marissa damages, P100,000 attorneys fees and P50,000 for expenses of

litigation.
Respondents moved for reconsideration. On July 6, 2000, Presiding Judge,
the RTC reinstated the Decision dated June 9, 1997, but with the modification
that the award of damages, and attorneys were disallowed.
Petitioner appealed to the Court of Appeals. On February 23, 2006 the
appellate court affirmed with modification the July 6, 2000 Order of the RTC.
ISSUES:
1.
Whether or not the deed of donation executed in favor of the
petitioner is void.
2.
Whether or not videotaped statement is hearsay.
RULING:
1.
NO. When the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain way,
that requirement is absolute and indispensable. Pertinent to this, the Rules
require a party producing a document as genuine which has been altered
and appears to have been altered after its execution, in a part material to
the question in dispute, to account for the alteration. He may show that the
alteration was made by another, without his concurrence, or was made with
the consent of the parties affected by it, or was otherwise properly or
innocently made, or that the alteration did not change the meaning or
language of the instrument. If he fails to do that, the document shall, as in
this case, not be admissible in evidence.
2.
NO. Evidence is hearsay when its probative force depends, in whole or in
part, on the competency and credibility of some persons other than the
witness by whom it is sought to be produced. There are three reasons for
excluding hearsay evidence: (1) absence of cross-examination; (2) absence
of demeanor evidence; and (3) absence of oath. It is a hornbook doctrine
that an affidavit is merely hearsay evidence where its maker did not take the
witness stand. Verily, the sworn statement of Anita was of this kind because
she did not appear in court to affirm her averments therein. Yet, a more
circumspect examination of our rules of exclusion will show that they do not
cover admissions of a party; the videotaped statement of Anita appears to
belong to this class. Section 26 of Rule 130 provides that "the act,
declaration or omission of a party as to a relevant fact may be given in
evidence against him. It has long been settled that these admissions are
admissible even if they are hearsay. Indeed, there is a vital distinction
between admissions against interest and declaration against interest.
Admissions against interest are those made by a party to a litigation or by
one in privity with or identified in legal interest with such party, and are
admissible whether or not the declarant is available as a witness.
Declaration against interest are those made by a person who is neither a
party nor in privity with a party to the suit, are secondary evidence and
constitute an exception to the hearsay rule. They are admissible only when
the declarant is unavailable as a witness. Thus, a mans acts, conduct, and
declaration, wherever made, if voluntary, are admissible against him, for the

reason that it is fair to presume that they correspond with the truth, and it is
his fault if they do not. However, as a further qualification, object evidence,
such as the videotape in this case, must be authenticated by a special
testimony showing that it was a faithful reproduction. Lacking this, we are
constrained to exclude as evidence the videotaped statement of Anita. Even
so, this does not detract from our conclusion concerning petitioners failure
to prove, by preponderant evidence, any right to the lands subject of this
case.
G.R. No. 124293, November 20, 2000
FACTS:
The National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. for the construction, operation and
management of the Subic National Shipyard, Inc., later became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA,
NIDC and Kawasaki would maintain a shareholding proportion of 60%-40%
and that the parties have the right of first refusal in case of a sale.
Through a series of transfers, NIDCs rights, title and interest in PHILSECO
eventually went to the National Government. In the interest of national
economy, it was decided that PHILSECO should be privatized by selling
87.67% of its total outstanding capital stock to private entities. After
negotiations, it was agreed that Kawasakis right of first refusal under the JVA
be exchanged for the right to top by five percent the highest bid for said
shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a
stockholder, would exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so,
because of the right to top by 5% percent the highest bid, it was able to top
JG Summits bid. JG Summit protested, contending that PHILSECO, as a
shipyard is a public utility and, hence, must observe the 60%-40% Filipinoforeign capitalization. By buying 87.67% of PHILSECOs capital stock at
bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.
ISSUE:
Whether or not PHILSECO is a public utility
Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs
stocks
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit
relied on sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that
PD No. 666 explicitly stated that a shipyard was not a public utility. But
the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20,

BP Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the
latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states
that a shipyard is a public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is
therefore required to comply with the 60%-40% capitalization under the
Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an
intention of the parties to abide by this constitutional mandate. Thus, under
the JVA, should the NIDC opt to sell its shares of stock to a third party,
Kawasaki could only exercise its right of first refusal to the extent that its
total shares of stock would not exceed 40% of the entire shares of stock. The

NIDC, on the other hand, may purchase even beyond 60% of the total
shares. As a government corporation and necessarily a 100% Filipino-owned
corporation, there is nothing to prevent its purchase of stocks even beyond
60% of the capitalization as the Constitution clearly limits only foreign
capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its
right of first refusal to 40% of the total capitalization of PHILSECO. Thus,
Kawasaki cannot purchase beyond 40% of the capitalization of the joint
venture on account of both constitutional and contractual proscriptions.